NEE 2012 10-K

Nextera Energy Inc (NEE) SEC Annual Report (10-K) for 2013

NEE 2014 10-K
NEE 2012 10-K NEE 2014 10-K

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended

December 31, 2013


Commission

File

Number

Exact name of registrants as specified in their

charters, address of principal executive offices and

registrants' telephone number

IRS Employer

Identification

Number

1-8841

NEXTERA ENERGY, INC.

59-2449419

2-27612


FLORIDA POWER & LIGHT COMPANY

700 Universe Boulevard

Juno Beach, Florida 33408

(561) 694-4000

59-0247775


State or other jurisdiction of incorporation or organization:     Florida

Name of exchange on which registered

Securities registered pursuant to Section 12(b) of the Act:

NextEra Energy, Inc.:

Common Stock, $0.01 Par Value

New York Stock Exchange

5.889% Corporate Units

New York Stock Exchange

5.799% Corporate Units

New York Stock Exchange

Florida Power & Light Company:    None

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act of 1933.

NextEra Energy, Inc.    Yes  ☑     No  o     Florida Power & Light Company    Yes  ☑     No  o

Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.

NextEra Energy, Inc.    Yes  o     No  ☑     Florida Power & Light Company    Yes  o     No  ☑

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.

NextEra Energy, Inc.    Yes  ☑     No  o     Florida Power & Light Company    Yes  ☑     No  o

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

NextEra Energy, Inc.    Yes  ☑     No  o     Florida Power & Light Company    Yes  ☑     No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☑

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

NextEra Energy, Inc.

Large Accelerated Filer  ☑

Accelerated Filer  o

Non-Accelerated Filer  o

Smaller Reporting Company  o

Florida Power & Light Company

Large Accelerated Filer  o

Accelerated Filer  o

Non-Accelerated Filer  ☑

Smaller Reporting Company  o

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes  ¨     No  ☑

Aggregate market value of the voting and non-voting common equity of NextEra Energy, Inc. held by non-affiliates as of June 28, 2013 (based on the closing market price on the Composite Tape on June 28, 2013 ) was $34,470,185,539 .

There was no voting or non-voting common equity of Florida Power & Light Company held by non-affiliates as of June 28, 2013 .

The number of shares outstanding of NextEra Energy, Inc. common stock, as of the latest practicable date: Common Stock, $ 0.01 par value, outstanding as of January 31, 2014 : 435,382,649 shares.

As of January 31, 2014 , there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by NextEra Energy, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of NextEra Energy, Inc.'s Proxy Statement for the 2014 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

________________________

This combined Form 10-K represents separate filings by NextEra Energy, Inc. and Florida Power & Light Company.  Information contained herein relating to an individual registrant is filed by that registrant on its own behalf.  Florida Power & Light Company makes no representations as to the information relating to NextEra Energy, Inc.'s other operations.

Florida Power & Light Company meets the conditions set forth in General Instruction I.(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.


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DEFINITIONS


Acronyms and defined terms used in the text include the following:


Term

Meaning

AFUDC

allowance for funds used during construction

AFUDC - debt

debt component of allowance for funds used during construction

AFUDC - equity

equity component of allowance for funds used during construction

AOCI

accumulated other comprehensive income

capacity clause

capacity cost recovery clause, as established by the FPSC

CFTC

U.S. Commodity Futures Trading Commission

CO 2

carbon dioxide

DOE

U.S. Department of Energy

Duane Arnold

Duane Arnold Energy Center

EPA

U.S. Environmental Protection Agency

ERCOT

Electric Reliability Council of Texas

FDEP

Florida Department of Environmental Protection

FERC

U.S. Federal Energy Regulatory Commission

Florida Southeast Connection

Florida Southeast Connection, LLC, a wholly-owned NEECH subsidiary

FPL

Florida Power & Light Company

FPL FiberNet

fiber-optic telecommunications business

FPSC

Florida Public Service Commission

fuel clause

fuel and purchased power cost recovery clause, as established by the FPSC

GAAP

generally accepted accounting principles in the U.S.

GHG

greenhouse gas(es)

ISO

independent system operator

ITC

investment tax credit

kW

kilowatt

kWh

kilowatt-hour(s)

Lone Star

Lone Star Transmission, LLC

Management's Discussion

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

MMBtu

One million British thermal units

mortgage

mortgage and deed of trust dated as of January 1, 1944, from FPL to Deutsche Bank Trust Company Americas, as supplemented and amended

MW

megawatt(s)

MWh

megawatt-hour(s)

NEE

NextEra Energy, Inc.

NEECH

NextEra Energy Capital Holdings, Inc.

NEER

NextEra Energy Resources, LLC

NEET

NextEra Energy Transmission, LLC

NERC

North American Electric Reliability Corporation

NHT

New Hampshire Transmission, LLC

Note __

Note __ to consolidated financial statements

NOx

nitrogen oxide

NRC

U.S. Nuclear Regulatory Commission

O&M expenses

other operations and maintenance expenses in the consolidated statements of income

OCI

other comprehensive income

OTC

over-the-counter

OTTI

other than temporary impairment

PJM

PJM Interconnection, L.L.C.

PMI

NextEra Energy Power Marketing, LLC

Point Beach

Point Beach Nuclear Power Plant

PTC

production tax credit

PUCT

Public Utility Commission of Texas

PURPA

Public Utility Regulatory Policies Act of 1978, as amended

PV

photovoltaic

regulatory ROE

return on common equity as determined for regulatory purposes

RFP

request for proposal

ROE

return on common equity

RPS

renewable portfolio standards

RTO

regional transmission organization

Sabal Trail

Sabal Trail Transmission, LLC, an entity in which a NEECH subsidiary has a 33% ownership interest

Seabrook

Seabrook Station

SEC

U.S. Securities and Exchange Commission

SO 2

sulfur dioxide

U.S.

United States of America

WCEC

FPL's West County Energy Center in western Palm Beach County, Florida


NEE, FPL, NEECH and NEER each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, FPL Group Capital, FPL Energy, FPLE and similar references.  For convenience and simplicity, in this report the terms NEE, FPL, NEECH and NEER are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates.  The precise meaning depends on the context.


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TABLE OF CONTENTS

Page No.

Definitions

2

Forward-Looking Statements

3

PART I

Item 1.

Business

4

Item 1A.

Risk Factors

25

Item 1B.

Unresolved Staff Comments

36

Item 2.

Properties

37

Item 3.

Legal Proceedings

41

Item 4.

Mine Safety Disclosures

41

PART II

Item 5.

Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

41

Item 6.

Selected Financial Data

42

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations

43

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

68

Item 8.

Financial Statements and Supplementary Data

69

Item 9.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

125

Item 9A.

Controls and Procedures

125

Item 9B.

Other Information

125

PART III

Item 10.

Directors, Executive Officers and Corporate Governance

126

Item 11.

Executive Compensation

126

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

126

Item 13.

Certain Relationships and Related Transactions, and Director Independence

126

Item 14.

Principal Accounting Fees and Services

127

PART IV

Item 15.

Exhibits, Financial Statement Schedules

128

Signatures

137


FORWARD-LOOKING STATEMENTS


This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, is anticipated, aim, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking.  Forward-looking statements involve estimates, assumptions and uncertainties.  Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, important factors included in Part I, Item 1A. Risk Factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on NEE's and/or FPL's operations and financial results, and could cause NEE's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEE and/or FPL in this combined Form 10-K, in presentations, on their respective websites, in response to questions or otherwise.


Any forward-looking statement speaks only as of the date on which such statement is made, and NEE and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law.  New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.


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PART I


Item 1.  Business


OVERVIEW


NextEra Energy, Inc. (hereafter, NEE) is one of the largest electric power companies in North America, with approximately 42,500 MW of generating capacity in 26 states in the U.S. and 4 provinces in Canada, and employing approximately 13,900 people as of December 31, 2013.  NEE provides retail and wholesale electric services to nearly 5 million customers and owns generation, transmission and distribution facilities to support its services.  It also purchases electric power for resale to its customers and provides risk management services related to power and gas consumption for a limited number of wholesale customers in selected markets.  NEE is the largest generator in North America of renewable energy from the wind and sun. NEE owns and operates approximately 17% of the installed base of U.S. wind power production capacity and owns and/or operates approximately 14% of the installed base of U.S. utility-scale solar power production capacity as of December 31, 2013.  NEE also owns and operates one of the largest fleets of nuclear power stations in the U.S., with eight reactors at five sites located in four states, representing approximately 6% of U.S. nuclear power electric generating capacity as of December 31, 2013.  NEE's business strategy has emphasized the development, acquisition and operation of renewable, nuclear and natural gas-fired generation facilities in response to long-term federal policy trends supportive of zero and low air emissions sources of power.  NEE's generation fleet has significantly lower rates of emissions of CO 2 , SO 2 and NOx than the average rates of the U.S. electric power industry with approximately 96% of its 2013 generation, measured by MWh produced, coming from renewable, nuclear and natural gas-fired facilities.  Certain environmental attributes of the wholesale business' electric generating facilities, such as renewable energy credits (RECs), emissions reductions, offsets, allowances and the avoided emission of GHG pollutants, have been or likely will be sold or transferred to third parties, who are solely entitled to the reporting rights and ownership of the environmental attributes.


NEE was incorporated in 1984 under the laws of Florida and conducts its operations principally through two wholly-owned subsidiaries, Florida Power & Light Company (hereafter, FPL) and NextEra Energy Resources, LLC (hereafter, NEER).  NextEra Energy Capital Holdings, Inc. (hereafter, NEECH), another wholly-owned subsidiary of NEE, owns and provides funding for NEER's and NEE's other operating subsidiaries, other than FPL and its subsidiaries.  NEE's two principal businesses also constitute NEE's reportable segments for financial reporting purposes.

FPL is a rate-regulated electric utility engaged primarily in the generation, transmission, distribution and sale of electric energy in Florida.  FPL is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. based on retail MWh sales.  FPL is vertically integrated, with approximately 24,300 MW of generating capacity as of December 31, 2013.  FPL's investments in its infrastructure since 2001, such as modernizing less-efficient fossil generating plants to produce more energy with less fuel and fewer air emissions, increasing generating capacity at its existing nuclear units and upgrading its transmission and distribution systems to deliver service reliability that is the best of the Florida investor-owned utilities, have provided significant benefits to FPL's customers, all while providing residential and commercial bills that were among the lowest in Florida and below the national average based on a rate per kWh as of July 2013 (the latest date for which this data is available).  With approximately 94% of its power generation coming from natural gas, nuclear and solar, FPL is also one of the cleanest electric utilities in the nation.  Based on 2013 information, FPL's emissions rates for CO 2 , SO 2 and NOx were 35%, 97% and 71% lower, respectively, than the average rates of the U.S. electric power industry.


NEER, with approximately 18,300 MW of generating capacity at December 31, 2013, is one of the largest wholesale generators of electric power in the U.S., with nearly 17,800 MW of generating capacity across 24 states, and with approximately 400 MW in 4 Canadian provinces.  NEER produces the majority of its electricity from clean and renewable sources, including wind and solar.  NEER also provides full energy and capacity requirements services, engages in power and gas marketing and trading activities, participates in natural gas, natural gas liquids and oil production and pipeline infrastructure development and owns a retail electricity provider.



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NEECH's other business activities are primarily conducted through NEET and FPL FiberNet.  NEET conducts its operations principally through two wholly-owned subsidiaries, Lone Star, a rate-regulated transmission service provider in Texas, and NHT, a rate-regulated transmission owner in New Hampshire.  FPL FiberNet delivers wholesale and enterprise telecommunications services in Florida, Texas and certain areas of the South Central U.S.


NEE seeks to create value in its two principal businesses by meeting its customers' needs more economically and more reliably than its competitors, as described in more detail in the following sections.  NEE's strategy has resulted in profitable growth over sustained periods at both FPL and NEER.  Management seeks to grow each business in a manner consistent with the varying opportunities open to it; however, management believes that the diversification and balance represented by FPL and NEER is a valuable characteristic of the enterprise and recognizes that each business contributes to NEE's credit profile in different ways.  FPL and NEER, as well as other NEE subsidiaries, share common support functions with the objective of lowering costs and creating efficiencies for their businesses.  During 2013, NEE and its subsidiaries commenced an enterprise-wide initiative focused mainly on improving productivity and reducing O&M expenses (cost savings initiative), and management expects to continue those efforts over the near term.


NEE'S OPERATING SUBSIDIARIES


I.  FPL


FPL was incorporated under the laws of Florida in 1925 and is a wholly-owned subsidiary of NEE.  FPL is a rate-regulated electric utility and is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. based on retail MWh sales.  FPL, with 24,273 MW of generating capacity at December 31, 2013, supplies electric service throughout most of the east and lower west coasts of Florida, serving more than 9 million people through approximately 4.7 million customer accounts.  At December 31, 2013, FPL's service territory and plant locations are as follows (see Item 2 - Generating Facilities):


FRANCHISE AGREEMENTS AND COMPETITION


FPL's service to its retail customers is provided primarily under franchise agreements negotiated with municipalities or counties.  Alternatively, municipalities and counties may form their own utility companies to provide service to their residents.  In a very few cases, an FPL franchise agreement provides the respective municipality the right to buy the electrical assets serving local residents at the end of the agreement.  However, during the term of a franchise agreement, which is typically 30 years, the municipality or county agrees not to form its own utility, and FPL has the right to offer electric service to residents.  FPL currently holds 177 franchise agreements with various municipalities and counties in Florida with varying expiration dates through 2043.  Six of these franchise agreements expire in 2014, four expire in 2015 and 167 expire during the period 2016 through 2043.  These franchise agreements cover approximately 85% of FPL's retail customer base in Florida.  Negotiations are ongoing to renew the franchise agreements that expire in 2014 and 2015.  FPL considers its franchises to be adequate for the conduct of its business.  FPL also provides service to 12 other municipalities and to 22 unincorporated areas within its service area without franchise agreements pursuant to the general obligation to serve as a public utility.  FPL relies upon Florida law for access to public rights of way.



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Because any customer may elect to provide his/her own electric services, FPL effectively must compete for an individual customer's business.  As a practical matter, few customers provide their own service at the present time since FPL's cost of service is substantially lower than the cost of self-generation for the vast majority of customers.  Changing technology, economic conditions and other factors could alter the favorable relative cost position that FPL currently enjoys; however, FPL seeks as a matter of strategy to ensure that it delivers superior value, in the form of high reliability, low bills and excellent customer service.


In addition to self-generation by residential, commercial and industrial customers, FPL also faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources.  In each of 2013, 2012 and 2011, operating revenues from wholesale and industrial customers combined represented approximately 3% of FPL's total operating revenues.  FPL expects revenues from wholesale sales to increase in 2014 primarily due to an increase in contracted load served under existing wholesale contracts.


The FPSC promotes cost competitiveness in the building of new steam and solar generating capacity by requiring investor-owned electric utilities, including FPL, to issue an RFP except when the FPSC determines that an exception from the RFP process is in the public interest.  The RFP process allows independent power producers and others to bid to supply the new generating capacity.  If a bidder has the most cost-effective alternative, meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and/or operating generating capacity of the type proposed, the investor-owned electric utility would seek to negotiate a purchased power agreement with the selected bidder and request that the FPSC approve the terms of the purchased power agreement and, if appropriate, provide the required authorization for the construction of the bidder's generating capacity.


New nuclear power plants and combustion turbines are exempt from the RFP requirement.  See FPL Sources of Generation - Fossil Operations and Nuclear Operations below.


CUSTOMERS AND REVENUE


FPL's primary source of operating revenues is from its retail customer base; it also serves a limited number of wholesale customers within Florida.  Beginning in 2013, operating revenues include gains associated with an incentive mechanism allowed under the 2012 rate agreement (see FPL Regulation - FPL Rate Regulation - Base Rates - Rates Effective January 2013 - December 2016); such gains are included in other in the chart below. The percentage of FPL's operating revenues and customer accounts by customer class were as follows:



For both retail and wholesale customers, the prices (or rates) that FPL may charge are approved by regulatory bodies, by the FPSC in the case of retail customers, and by the FERC in the case of wholesale customers.  In general, under U.S. and Florida law, regulated rates are intended to cover the cost of providing service, including an appropriate rate of return on capital employed.  Since the regulatory bodies have authority to determine the relevant cost of providing service and the appropriate rate of return on capital employed, there can be no guarantee that FPL will be able to earn any particular rate of return or recover all of its costs through regulated rates.  See FPL Regulation below.



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FPL seeks to maintain attractive rates for its customers.  Since rates are largely cost-based, maintaining low rates requires a strategy focused on developing and maintaining a low cost position.  The ideas generated from the cost savings initiative are expected to keep FPL's O&M expenses recovered through base rates flat through 2016 as compared to 2012.  A common benchmark used in the electric power industry for comparing rates across companies is the price of 1,000 kWh of consumption per month for a residential customer.  FPL's 2013 average bill for 1,000 kWh of monthly residential usage was the lowest among reporting electric utilities within Florida as indicated below:

POWER DELIVERY


FPL provides service to its customers through an integrated transmission and distribution system that links its generation facilities to its customers.  FPL also maintains interconnection facilities with neighboring utilities and non-utility generators inside its territory, enabling it to buy and sell wholesale electricity and to enhance the reliability of its own network and support the reliability of neighboring networks.  FPL's transmission system carries high voltage electricity from its generating facilities to substations where the electricity is stepped down to lower voltage levels and is sent through the distribution system to its customers.


A key element of FPL's strategy is to provide highly reliable service to its customers.  The transmission and distribution system is susceptible to interruptions or outages from a wide variety of sources including weather, animal and vegetation interference, traffic accidents, equipment failure and many others, and FPL seeks to reduce or eliminate outages where economically practical and to restore service rapidly when outages occur.  A common industry benchmark for transmission and distribution system reliability is the system average interruption duration index (SAIDI), which represents the number of minutes the average customer is without power during a time period.  For the five years 2008 - 2012, FPL's average annual SAIDI was the best of the investor-owned utilities in Florida.  FPL is accelerating its existing storm hardening and reliability program through 2016, to continue strengthening its infrastructure against tropical storms and hurricanes. Also, during 2013, FPL completed the final installation of approximately 4.5 million smart meters and other equipment, as part of its commitment to building a smarter, more reliable and efficient electric infrastructure.


FPL SYSTEM CAPABILITY AND LOAD


At December 31, 2013, FPL's resources for serving load consisted of 26,236 MW, of which 24,273 MW were from FPL-owned facilities (see Item 2 - Generating Facilities) and 1,963 MW were available through purchased power agreements (see FPL Sources of Generation - Purchased Power below).  FPL customer usage and operating revenues are typically higher during the summer months, largely due to the prevalent use of air conditioning in FPL's service territory.  Occasionally, unusually cold temperatures during the winter months result in significant increases in electricity usage for short periods of time.  The highest peak load FPL has served to date was 24,346 MW, which occurred on January 11, 2010.  FPL had adequate resources available at the time of this peak to meet customer demand.


FPL's projected reserve margin for the summer of 2014 is approximately 28%.  This reserve margin is expected to be achieved through the combination of available output from FPL's active generating units, purchased power agreements and the capability to reduce peak demand through the implementation of demand side management programs, including load management which was estimated at December 31, 2013 to be capable of reducing demand by 1,870 MW, and energy efficiency and conservation programs.  See FPL Sources of Generation - Fossil Operations and Nuclear Operations below regarding generation projects currently under construction.



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FPL SOURCES OF GENERATION


FPL relies upon a mix of fuel sources for its generating facilities, along with purchased power, in order to maintain the flexibility to achieve a more economical fuel mix by responding to market and industry developments.  See descriptions of fossil, nuclear and solar operations below and a listing of FPL's generating facilities in Item 2 - Generating Facilities.


FPL's 2013 fuel mix based on MWh produced, including purchased power, was as follows:



Fossil Operations (Natural Gas, Coal and Oil)


At December 31, 2013, FPL owned and operated 71 units that used fossil fuels, primarily natural gas, and had a joint ownership interest in 3 coal units.  Combined, the fossil fleet provided 20,785 MW of generating capacity for FPL.  These fossil units are out of service from time to time for routine maintenance or on standby during periods of reduced electricity demand.  A common industry benchmark for fossil unit reliability is the equivalent forced outage rate (EFOR), which represents a generating unit's inability to provide electricity when required to operate.  For the five years 2008 - 2012, FPL's average annual EFOR was in the top decile among its electric utility fossil fleet peers in the U.S.


FPL's natural gas plants require natural gas transportation, supply and storage.  FPL has firm transportation contracts in place for existing pipeline capacity with five different transportation suppliers. These agreements provide for an aggregate maximum delivery quantity of 1,969,000 MMBtu/day with expiration dates ranging from 2015 to 2036 that together are expected to satisfy substantially all of the currently anticipated needs for natural gas transportation through 2016.  To the extent desirable, FPL also purchases interruptible natural gas transportation service from these natural gas transportation suppliers based on pipeline availability.  FPL has several short- and medium-term natural gas supply contracts to provide a portion of FPL's anticipated needs for natural gas.  The remainder of FPL's natural gas requirements is purchased in the spot market.  FPL has an agreement for the storage of natural gas that expires in 2017.  See Note 13 - Contracts.


In October 2013, the FPSC approved FPL's 25-year natural gas transportation agreements with each of Sabal Trail and Florida Southeast Connection for a quantity of 400,000 MMBtu/day beginning on May 1, 2017 and increasing to 600,000 MMBtu/day on May 1, 2020.  FPL's firm commitments under the agreements are contingent upon the occurrence of certain events, including FERC approval and completion of construction of the pipeline to be built by each of Sabal Trail and Florida Southeast Connection.  A FERC decision is expected in 2015.  See Other NEE Operating Subsidiaries - Natural Gas Pipeline System below and Note 13 - Contracts. These new agreements are expected to enable FPL to satisfy substantially all of its natural gas transportation needs through at least 2020.


St. Johns River Power Park (SJRPP) Units Nos. 1 and 2, coal-fired units in which FPL has a joint ownership interest, have firm coal supply contracts and a firm transportation contract for a portion of their fuel and transportation needs through 2016.  Scherer Unit No. 4, the other coal-fired unit in which FPL has a joint ownership interest, has firm coal supply and transportation contracts for a portion of its fuel needs and all of its transportation needs through 2015.  Any of the remaining fuel and transportation requirements for these coal-fired units will be obtained in the spot market. See Note 13 - Contracts.  With respect to its oil plants, FPL obtains its fuel requirements in the spot market.


Modernization Projects.   In April 2013, FPL placed in service, ahead of schedule and below budgeted construction cost, an approximately 1,210 MW natural gas-fired combined-cycle modernized unit at its Cape Canaveral power plant.  FPL is in the process


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of modernizing its Riviera Beach and Port Everglades power plants to high-efficiency natural gas-fired units that are expected to provide approximately 1,200 MW and 1,240 MW of capacity, respectively, and be placed in service in the second quarter of 2014 and by mid-2016, respectively.


Potential Gas Turbine Replacement Project. By the second quarter of 2014, FPL expects to begin monitoring emissions from the peaking gas turbines at its Lauderdale power plant for the purpose of confirming air-quality modeling that indicates exceedances of air quality standards for nitrogen dioxide (NO 2 ) at its Lauderdale and Port Everglades power plants.  If the monitoring confirms the modeled exceedances, FPL will be required to reduce NO 2 emissions from these two power plants.  Currently, FPL expects that the most cost-effective alternative to achieve the required emission reductions will be to retire these gas turbines, totaling 1,260 MW of capacity, and replace them with modern, low-emission combustion turbines, totaling approximately 1,005 MW of capacity.  FPL plans to evaluate the results of the monitoring at the Lauderdale power plant, among other factors, to determine what action, if any, is indicated for the peaking gas turbines at its Fort Myers power plant.


Nuclear Operations


At December 31, 2013, FPL owned, or had undivided interests in, and operated the following four nuclear units with a total net generating capacity of 3,453 MW.  This includes approximately 520 MW of generating capacity added from the generation power uprate project completed in 2013.


Facility

MW

Operating License

Expiration Dates

St. Lucie Unit No. 1

981

2036

St. Lucie Unit No. 2

840

2043

Turkey Point Unit No. 3

811

2032

Turkey Point Unit No. 4

821

2033


FPL has several contracts for the supply of uranium and the conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from March 2014 through 2023.  See Note 13 - Commitments.  NRC regulations require FPL to submit a plan for decontamination and decommissioning five years before the projected end of plant operation.  FPL's current plans, under the applicable operating licenses, provide for prompt dismantlement of Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2032 and 2033, respectively.  Current plans provide for St. Lucie Unit No. 1 to be mothballed beginning in 2036 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 commencing in 2043.


Projects to Add Additional Capacity.   FPL's need petition for two additional nuclear units at its Turkey Point site was approved by the FPSC in 2008 and FPL is moving forward with activities necessary to obtain all permits, licenses and approvals necessary for construction and operation of the units.  The two units are expected to add a total of approximately 2,200 MW of capacity and are projected to be placed in-service in 2022 and 2023.  Such in-service dates could be impacted by various regulatory approvals from the FPSC and other regulatory agencies which will be required throughout the licensing and development processes, as well as other regulatory actions.


Nuclear Unit Scheduled Refueling Outages.   FPL's nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, including inspections, repairs and certain other modifications.  Scheduled nuclear refueling outages typically require the unit to be removed from service for variable lengths of time.  The following table summarizes each unit's next scheduled refueling outage:


Facility

Next Scheduled

Refueling Outage

St. Lucie Unit No. 1

March 2015

St. Lucie Unit No. 2

March 2014

Turkey Point Unit No. 3

March 2014

Turkey Point Unit No. 4

September 2014


Spent Nuclear Fuel.   FPL's nuclear facilities use both on-site storage pools and dry storage casks to store spent nuclear fuel generated by these facilities, which are expected to provide sufficient storage of spent nuclear fuel at these facilities through license expiration.


In 2010, the NRC amended its Waste Confidence Rule to support the determination that licensees can safely store spent nuclear fuel at nuclear power plants for up to 60 years beyond the original and renewed licensed operating life of the plants.  Several parties petitioned the U.S. Court of Appeals for the District of Columbia (D.C. Circuit) to challenge the revised rule and in 2012, the D.C.


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Circuit vacated the rule and remanded it back to the NRC.  The NRC determined that no final licenses would be issued until the required revisions to the Waste Confidence Rule are made, which revisions are not expected to be finalized before late 2014.


Nuclear Waste Policy Act of 1982, as amended (Nuclear Waste Policy Act) - Under the Nuclear Waste Policy Act, the DOE is responsible for the development of a repository for the disposal of spent nuclear fuel and high-level radioactive waste.  As required by the Nuclear Waste Policy Act, FPL is a party to contracts with the DOE to provide for disposal of spent nuclear fuel from its nuclear units.


The DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants.  The DOE did not meet its statutory obligation for disposal of spent nuclear fuel under the Nuclear Waste Policy Act.  In 2009, FPL and certain of FPL's nuclear plant joint owners entered into a settlement agreement (spent fuel settlement agreement) with the U.S. government agreeing to dismiss with prejudice lawsuits filed against the U.S. government seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from FPL's nuclear plants.  The spent fuel settlement agreement permits FPL to make annual filings to recover certain spent fuel storage costs incurred by FPL which are reimbursable by the U.S. government on an annual basis.


In a separate lawsuit filed in 2011, FPL joined the Nuclear Energy Institute and several other nuclear plant owners and operators (Petitioners) in petitioning the D.C. Circuit to challenge the DOE's decision to continue to collect the nuclear waste fee.  In June 2012, the D.C. Circuit ruled, which ruling was confirmed in November 2013, that the DOE's fee adequacy determination was legally defective.  In November 2013, the D.C. Circuit directed the DOE to submit a proposal to the U.S. Congress to change the fee to zero until the DOE complies with the Nuclear Waste Policy Act or until Congress enacts an alternative waste management plan.  In January 2014, the DOE sent the court-mandated proposal to adjust the fee, subject to any further judicial decision in the proceeding, to the heads of both the U.S. Senate and the U.S. House of Representatives and, at the same time, filed a petition with the D.C. Circuit to rehear the matter.  If a rehearing is granted, the D.C. Circuit's earlier directive that the DOE submit a proposal to Congress for changing the fee to zero would be stayed, which decision on rehearing is expected in the first quarter of 2014. FPL will continue to pay fees to the U.S. government's nuclear waste fund pending Congressional approval of and implementation of a zero-fee proposal.


Yucca Mountain - In March 2010, the DOE filed a motion with the NRC to withdraw its license application for a nuclear waste repository at Yucca Mountain, which request was denied.  In September 2011, the NRC issued an order suspending the Yucca Mountain licensing proceeding, which order was challenged, and in August 2013, the D.C. Circuit issued an order requiring the NRC to proceed with the legally mandated licensing process for a nuclear waste repository at Yucca Mountain.  As a result, the NRC is taking steps toward completing the technical review of the application and has requested the DOE to complete its supplemental environmental impact statement.


In light of its March 2010 motion not to proceed with the Yucca Mountain repository project, the DOE established a Blue Ribbon Commission on America's Nuclear Future (BRC) to conduct a comprehensive review of policies for managing the back end of the nuclear fuel cycle and to provide recommendations for developing a safe, long-term solution to managing spent nuclear fuel and high-level radioactive waste.  In 2012, the BRC issued its report and recommendations which includes a consent-based approach to site future nuclear waste management facilities; creation of a new organization, independent of the DOE, dedicated solely to assuring the safe storage and ultimate disposal of spent nuclear fuel and high-level radioactive waste; providing access to the U.S. government's nuclear waste fund for the purpose of nuclear waste storage and disposal; and initiating prompt efforts to develop geologic disposal facilities, consolidated interim storage facilities and transportation to those facilities.  In January 2013, the DOE issued a strategy document for implementing the BRC recommendations.  The strategy document outlines, among other things, long-term plans for a new management organization to handle spent fuel storage and disposal activities, development of new interim storage facilities and several possible funding reforms, including accessing the nuclear waste fund for funding these activities.  Each of these steps will require new federal legislation.


Nuclear Regulatory Developments. Based on the NRC's comprehensive review of processes and regulations relating to nuclear facilities in the U.S. following the 2011 earthquake and tsunami in Japan, the NRC established, among other things, actions to be completed at each nuclear site and issued various orders and requests for information with a prescribed timeline for implementation and completion by the end of 2016.  The NRC continues to revise orders for, among other things, enhanced venting capabilities for boiling water reactors for which implementation is expected to go beyond 2016 (FPL's nuclear units do not use boiling water reactors; see NEER - Generation and Other Operations - Nuclear Facilities - Nuclear Regulatory Developments).  FPL is currently working with the NRC on the approval and implementation of actions required to meet new NRC requirements. A portion of the costs for these actions is being recovered through base rates based on estimated costs for 2013, with any incremental costs being recovered through the capacity clause, all of which are included in estimated capital expenditures.  In January 2014, the State of Florida Office of Public Counsel (OPC) filed a notice of appeal to the Florida Supreme Court of the FPSC's final order regarding the recovery of the incremental costs through the capacity clause. In February 2014, the Florida Supreme Court granted the OPC's request to stay that appeal until it has ruled on the OPC's appeal of the FPSC's final order regarding the 2012 rate agreement. See FPL Regulation - FPL Rate Regulation - Cost Recovery Clauses below and Note 13 - Commitments.


The lessons learned from the events in Japan and the results of the NRC's actions have and will continue to, among other things, result in new licensing and safety-related requirements for U.S. nuclear facilities.  Any new requirements could, among other things, impact future licensing and operations of U.S. nuclear facilities, including FPL's existing nuclear facilities and NRC approval of two


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additional nuclear units at FPL's Turkey Point site, and could, among other things, result in increased cost and capital expenditures associated with the operation and maintenance of FPL's nuclear units.


Solar Operations


Solar generation can be provided primarily through two conventions: utility-owned and customer-owned or leased.  In utility-owned solar generation, the energy generated goes directly to the transmission grid, whereas customer-owned or leased solar generation generally goes directly to the location it is serving with any excess over local need being fed back to the transmission grid.  There are two principal solar technologies used for utility-scale projects: PV and thermal.  At December 31, 2013, FPL owned and operated two PV solar generating facilities, which provided a total of 35 MW of generation capacity, and a 75 MW solar thermal hybrid facility.  FPL supports the advancement of solar generation primarily for its fuel diversity and emissions reduction benefits, and plans to continue to support, study and pursue solar generation that is beneficial for FPL's customers.


Purchased Power


In addition to owning generation facilities, FPL also purchases electricity from non-utility generators and other utilities to meet customer demand through long- and short-term purchased power agreements.  As of December 31, 2013, FPL's long-term purchased power agreements provided for the purchase of approximately 1,963 MW of power with expiration dates ranging from 2015 through 2032.  See Note 13 - Contracts.  FPL also procures short-term capacity for both economic and reliability purposes.


FPL ENERGY MARKETING AND TRADING


FPL's Energy Marketing & Trading division (EMT) buys and sells wholesale energy commodities, such as natural gas, oil and electricity.  EMT procures natural gas and oil for FPL's use in power generation and sells excess natural gas, oil and electricity.  EMT also uses derivative instruments (primarily swaps, options and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity.  Substantially all of the results of EMT's activities are passed through to customers in the fuel or capacity clauses.  See FPL Regulation - FPL Rate Regulation below, Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity and Note 3.


FPL REGULATION


FPL's operations are subject to regulation by a number of federal, state and other organizations, including, but not limited to, the following:


the FPSC, which has jurisdiction over retail rates, service territory, issuances of securities, planning, siting and construction of facilities, among other things;

the FERC, which oversees the acquisition and disposition of generation, transmission and other facilities, transmission of electricity and natural gas in interstate commerce, proposals to build interstate natural gas pipelines and storage facilities, and wholesale purchases and sales of electric energy, among other things;

the NERC, which, through its regional entities, establishes and enforces mandatory reliability standards, subject to approval by the FERC, to ensure the reliability of the U.S. electric transmission and generation system and to prevent major system blackouts;

the NRC, which has jurisdiction over the operation of nuclear power plants through the issuance of operating licenses, rules, regulations and orders; and

the EPA, which has the responsibility to maintain and enforce national standards under a variety of environmental laws.  The EPA also works with industries and all levels of government, including federal and state governments, in a wide variety of voluntary pollution prevention programs and energy conservation efforts.


FPL Rate Regulation


The FPSC sets rates at a level that is intended to allow FPL the opportunity to collect from retail customers total revenues (revenue requirements) equal to FPL's cost of providing service, including a reasonable rate of return on invested capital.  To accomplish this, the FPSC uses various ratemaking mechanisms, including, among other things, base rates and cost recovery clauses.


Base Rates .   In general, the basic costs of providing electric service, other than fuel and certain other costs, are recovered through base rates, which are designed to recover the costs of constructing, operating and maintaining the utility system.  These basic costs include O&M expenses, depreciation and taxes, as well as a return on FPL's investment in assets used and useful in providing electric service (rate base).  At the time base rates are determined, the allowed rate of return on rate base approximates the FPSC's determination of FPL's estimated weighted-average cost of capital, which includes its costs for outstanding debt and an allowed ROE.  The FPSC monitors FPL's actual regulatory ROE through a surveillance report that is filed monthly by FPL with the FPSC.  The FPSC does not provide assurance that any regulatory ROE will be achieved.  Base rates are determined in rate proceedings or through negotiated settlements of those proceedings.  Proceedings can occur at the initiative of FPL or upon action by the FPSC.  Base rates remain in effect until new base rates are approved by the FPSC.


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Rates Effective January 2013 - December 2016 - In January 2013, the FPSC issued a final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2012 rate agreement).  Key elements of the 2012 rate agreement, which is effective from January 2013 through December 2016, include, among other things, the following:


New retail base rates and charges were established in January 2013 resulting in an increase in retail base revenues of $350 million on an annualized basis.

FPL's allowed regulatory ROE is 10.50%, with a range of plus or minus 100 basis points.  If FPL's earned regulatory ROE falls below 9.50%, FPL may seek retail base rate relief.  If the earned regulatory ROE rises above 11.50%, any party to the 2012 rate agreement other than FPL may seek a review of FPL's retail base rates.

Retail base rates will be increased by the annualized base revenue requirements for FPL's three modernization projects (Cape Canaveral, Riviera Beach and Port Everglades) as each of the modernized power plants becomes operational.  (Cape Canaveral became operational in April 2013 and Riviera Beach and Port Everglades are expected to be operational in the second quarter of 2014 and by mid-2016, respectively.)

Cost recovery of WCEC Unit No. 3, which was placed in service in May 2011, will continue to occur through the capacity clause; however, such recovery will not be limited to the projected annual fuel cost savings as was the case in the previous rate agreement discussed below.

Subject to certain conditions, FPL may amortize, over the term of the 2012 rate agreement, a depreciation reserve surplus remaining at the end of 2012 under the 2010 rate agreement discussed below (approximately $224 million) and may amortize a portion of FPL's fossil dismantlement reserve up to a maximum of $176 million (collectively, the reserve), provided that in any year of the 2012 rate agreement, FPL must amortize at least enough reserve to maintain a 9.50% earned regulatory ROE but may not amortize any reserve that would result in an earned regulatory ROE in excess of 11.50%.

Future storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that could produce 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 to recover the amount above $800 million.

An incentive mechanism whereby customers will receive 100% of certain gains, including, but not limited to, gains from the purchase and sale of electricity and natural gas (including transportation and storage), up to a specified threshold; gains exceeding that specified threshold will be shared by FPL and its customers.


In September 2013, the Florida Supreme Court heard oral argument on the OPC's appeal of the FPSC's final order regarding the 2012 rate agreement.  A ruling by the Florida Supreme Court is pending.


Rates Effective March 2010 - December 2012 - Effective March 1, 2010, pursuant to an FPSC final order (2010 FPSC rate order), new retail base rates for FPL were established, resulting in an increase in retail base revenues of approximately $75 million on an annualized basis.  The 2010 FPSC rate order, among other things, also established a regulatory ROE of 10.0% with a range of plus or minus 100 basis points.  In February 2011, the FPSC issued a final order approving a stipulation and settlement agreement between FPL and principal parties in FPL's 2009 rate case (2010 rate agreement).  The 2010 rate agreement, which was effective through December 31, 2012, provided for, among other things, a reduction in depreciation expense (surplus depreciation credit) in any calendar year up to a cap in 2010 of $267 million, a cap in subsequent years of $267 million plus the amount of any unused portion from prior years, and a total cap of $776 million over the course of the 2010 rate agreement, provided that in any year of the 2010 rate agreement FPL was required to use enough surplus depreciation credit to maintain an earned regulatory ROE within the range of 9.0% - 11.0%.  The 2010 rate agreement also permitted incremental cost recovery through FPL's capacity clause for WCEC Unit No. 3 up to the amount of the projected annual fuel savings for customers.  See Cost Recovery Clauses below for additional information regarding the capacity clause.


Cost Recovery Clauses .   Cost recovery clauses, which are designed to permit full recovery of certain costs and provide a return on certain assets allowed to be recovered through the various clauses, include substantially all fuel, purchased power and interchange costs, certain construction-related costs and conservation and certain environmental-related costs.  Cost recovery clause costs are recovered through levelized monthly charges per kWh or kW, depending on the customer's rate class.  These cost recovery clause charges are calculated at least annually based on estimated costs and estimated customer usage for the following year, plus or minus true-up adjustments to reflect the estimated over or under recovery of costs for the current and prior periods.  An adjustment to the levelized charges may be approved during the course of a year to reflect revised estimates.


Fuel costs are recovered from customers through the fuel clause, the most significant of the cost recovery clauses in terms of operating revenues.  FPL uses a risk management fuel procurement program which has been approved by the FPSC.  The FPSC reviews the program activities and results for prudence annually as part of its review of fuel costs.  The program is intended to manage fuel price volatility by locking in fuel prices for a portion of FPL's fuel requirements.  See FPL Energy Marketing and Trading above, Note 1 - Regulation and Note 3.


Capacity payments to other utilities and non-utility generators for purchased power are recovered from customers through the capacity clause.  In accordance with the FPSC's nuclear cost recovery rule, FPL also recovers pre-construction costs and carrying charges (equal to a pretax AFUDC rate) on construction costs for new nuclear capacity through the capacity clause.  As property related to the new nuclear capacity goes into service, construction costs and a return on investment are recovered through base


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rate increases effective beginning the following January.  See FPL Sources of Generation - Nuclear Operations above.  In January 2014, FPL began recovering, through the capacity clause, the incremental costs incurred to comply with new NRC requirements established following the 2011 earthquake and tsunami in Japan. See FPL Sources of Generation - Nuclear Operations - Nuclear Regulatory Developments above.  In accordance with the 2012 and 2010 rate agreements, cost recovery for WCEC Unit No. 3 is permitted during the term of the agreements through FPL's capacity clause and is reported as retail base revenues.


Costs associated with implementing energy conservation programs are recovered from customers through the energy conservation cost recovery clause.  Certain costs of complying with federal, state and local environmental regulations enacted after April 1993 and costs associated with FPL's three solar facilities are recovered through the environmental cost recovery clause (environmental clause).


The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred.  These costs may include, among others, fuel and O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable, storm restoration costs and costs associated with the construction or acquisition of new facilities.


FERC


The Federal Power Act gives the FERC exclusive ratemaking jurisdiction over wholesale sales of electricity and the transmission of electricity and natural gas in interstate commerce.  Pursuant to the Federal Power Act, electric utilities must maintain tariffs and rate schedules on file with the FERC which govern the rates, terms and conditions for the provision of FERC-jurisdictional wholesale power and transmission services.  The Federal Power Act also gives the FERC authority to certify and oversee a national electric reliability organization with authority to develop mandatory reliability standards applicable to all users, owners and operators of the bulk-power system.  The FERC also approves and enforces reliability standards.  See NERC below.  Electric utilities are subject to accounting, record-keeping and reporting requirements administered by the FERC.  The FERC also places certain limitations on transactions between electric utilities and their affiliates.


NERC


The NERC has been certified by the FERC as the national electric reliability organization.  The NERC's mandate is to ensure the reliability and security of the North American bulk-power system through establishment and enforcement of reliability standards.  The NERC's regional entities establish requirements, approved by the FERC, for reliable operation and maintenance of power generation facilities and transmission systems.  FPL is subject to these reliability requirements and incurs costs to ensure compliance with continually heightened requirements, and can incur significant penalties for failing to comply with them.

FPL Environmental Regulation


FPL is subject to environmental laws and regulations and is affected by some of the emerging issues described in the NEE Environmental Matters section below.  FPL expects to seek recovery through the environmental clause for compliance costs associated with any new environmental laws and regulations.


As part of the conditions of certification by the FDEP for the generation uprate project at the Turkey Point nuclear units, which was completed in 2013, FPL was required to implement a monitoring plan in and around the Turkey Point cooling canals due to concerns over potential saltwater intrusion beyond FPL's property.  Monitoring under the plan includes collection of data prior to and after the additional capacity is placed in service.  Data for the first three years has been collected and provided to the FDEP and other agencies.  The ultimate outcome of the monitoring plan is uncertain, and the financial and operational impacts on FPL, if any, cannot be determined at this time.


FPL EMPLOYEES


FPL had approximately 8,900 employees at December 31, 2013.  Approximately 33% of the employees are represented by the International Brotherhood of Electrical Workers (IBEW) under a collective bargaining agreement with FPL that expires October 31, 2014.


II.  NEER


NEER was formed in 1998 to aggregate NEE's competitive energy businesses.  It is a limited liability company organized under the laws of Delaware and is a wholly-owned subsidiary of NEECH.  Through its subsidiaries, NEER currently owns, develops, constructs, manages and operates electric generating facilities in wholesale energy markets primarily in the U.S., as well as in Canada and Spain.  See Note 14.  NEER is one of the largest wholesale generators of electric power in the U.S., with approximately 18,303 MW of generating capacity across 24 states, 4 Canadian provinces and 1 Spanish province as of December 31, 2013.  NEER produces the majority of its electricity from clean and renewable sources as described more fully below.  NEER is the largest owner of wind and utility-scale solar energy projects in North America.  Since 2002, NEER has more than doubled its generating capacity, primarily through the development of new wind projects and the acquisition of nuclear projects.



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NEER engages in power and gas marketing and trading activities, including entering into financial and physical contracts, to hedge the production from its generating assets that is not sold under long-term power supply agreements.  These activities include providing full energy and capacity requirements services primarily to distribution utilities in certain markets and offering customized power and gas and related risk management services to wholesale customers.  NEER also participates in natural gas, natural gas liquids and oil production through non-operating ownership interests and pipeline infrastructure development, hereafter referred to as the gas infrastructure business, and owns a retail electricity provider.


MARKETS AND COMPETITION


Electricity markets in the U.S. are regional and diverse in character.  All are extensively regulated, and competition in these markets is shaped and constrained by regulation.  The nature of the products offered varies based on the specifics of regulation in each region.  Generally, in addition to the natural constraints on pricing freedom presented by competition, NEER may also face specific constraints in the form of price caps, or maximum allowed prices, for certain products.  NEER's ability to sell the output of its generation facilities is also constrained by available transmission capacity, which can vary from time to time and can have a significant impact on pricing.


The degree and nature of competition that NEER faces is different in wholesale markets and in retail markets.  Approximately 90% of NEER's revenue is derived from wholesale markets.


Wholesale power generation is a capital-intensive, commodity-driven business with numerous industry participants.  NEER primarily competes on the basis of price, but believes the green attributes of NEER's generating assets, its creditworthiness and its ability to offer and manage customized risk solutions to wholesale customers are competitive advantages.  Wholesale power generation is a regional business that is highly fragmented relative to many other commodity industries and diverse in terms of industry structure.  As such, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies NEER competes with depending on the market.  In wholesale markets, customers' needs are met through a variety of means, including long-term bilateral contracts, standardized bilateral products such as full requirements service and customized supply and risk management services.


In general, U.S. electricity markets encompass three classes of product: energy, capacity and ancillary services.  Energy services relate to the physical delivery of power; capacity services relate to the availability of MW capacity of a power generation asset; and ancillary services are other services related to power generation assets, such as load regulation and spinning and non-spinning reserves.  The exact nature of these classes of product is defined in part by regional tariffs.  Not all regions have a capacity product class, and the specific definitions of ancillary services vary from region to region.


RTOs and ISOs exist in a number of regions within which NEER operates to coordinate generation and transmission across wide geographic areas and to run markets.  NEER also has operations that fall within the Western Electricity Coordinating Council reliability region that are not under the jurisdiction of an established RTO or ISO.  Although each RTO and ISO may have differing objectives and structures, some benefits of these entities include regional planning, managing transmission congestion, developing larger wholesale markets for energy and capacity, maintaining reliability and facilitating competition among wholesale electricity providers.  NEER has operations that fall within the following RTOs and ISOs:


Alberta Electric System Operator

California Independent System Operator

ERCOT

Independent Electricity System Operator (in Ontario)

ISO New England (ISO-NE)

Midcontinent Independent System Operator, Inc. (MISO)

New York Independent System Operator (NYISO)

PJM

Southwest Power Pool


NEER competes in different regions to different degrees, but in general it seeks to enter into long-term bilateral contracts for the full output of its generating facilities, and, as of December 31, 2013, approximately 62% of NEER's generating capacity is fully committed under long-term contracts.  Where long-term contracts are not in effect, NEER sells the output of its facilities into daily spot markets.  In such cases, NEER will frequently enter into shorter term bilateral contracts, typically but not always of one to three years duration, to hedge the price risk associated with selling into a daily spot market.  Such bilateral contracts, which may be hedges either for physical delivery or for financial (pricing) offset, may only protect a portion of the revenue that NEER expects to derive from the associated generation facility and may not qualify for hedge accounting under GAAP.  Contracts that serve the economic purpose of hedging some portion of the expected revenue of a generation facility but are not recorded as hedges under GAAP are referred to as "non-qualifying hedges" for adjusted earnings purposes.  See Management's Discussion - Overview - Adjusted Earnings.


Certain facilities within the NEER wind and solar generation portfolio produce RECs and other environmental attributes which are typically sold along with the energy from the plants under long-term contracts.  For the wind and solar generation not sold under


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long-term contracts, the RECs and other environmental attributes may be sold separately.


While the majority of NEER's revenue is derived from the output of its generating facilities, NEER is also an active competitor in several regions in the wholesale full requirements business and in providing structured and customized power and fuel products and services to a variety of customers.  In the full requirements service, typically, the supplier agrees to meet the customer's needs for a full range of products for every hour of the day, at a fixed price, for a predetermined period of time, thereby assuming the risk of fluctuations in the customer's volume requirements.


The deregulated retail energy business is typically a highly competitive business.  In general, competition in the retail energy business is on the basis of price, service, brand image, product offerings and market perceptions of creditworthiness.  Electricity is sold pursuant to a variety of product types, including fixed, indexed and renewable products, and customers elect terms of service typically ranging from one month to five years.  Retail energy rates are market-based, and not subject to traditional cost-of-service regulation by public service commissions.  Transmission and distribution service companies provide, on a non-discriminatory basis, the wires and metering services necessary to deliver service to customers.  Subsidiaries of NEER compete in certain states for retail customers, which can be divided into two principal segments: residential and commercial and industrial (C&I).  Residential customers largely require only energy services, which may be purchased on a month-to-month basis or under a multi-year contract.  Large C&I customers share many of the same characteristics as wholesale utility customers and may require similarly customized and structured products.


In general, competitive retail electric providers are exposed to both volume and price risk: customers' volumes will vary, and competitive retail providers are committed to supplying the customer's full needs at all times and are therefore responsible for purchases in wholesale markets to meet those needs; and wholesale prices will fluctuate in ways that do not necessarily match the retail prices committed to the customer.


Expanded competition in a frequently changing regulatory environment presents both opportunities and risks for NEER.  Opportunities exist for the selective acquisition of generation assets and for the construction and operation of efficient facilities that can sell power in competitive markets.  NEER seeks to reduce its market risk by having a diversified portfolio by fuel type and location, as well as by contracting for the future sale of a significant amount of the electricity output of its facilities.


GENERATION AND OTHER OPERATIONS


The vast majority of NEER's revenue is derived from selling the products (energy, capacity, RECs and ancillary services) produced by its own generating facilities.  However, NEER may combine purchases of relevant products in wholesale markets with products produced by its own generating facilities in order to meet particular customers' needs.



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At December 31, 2013, the locations of NEER's generation facilities in North America are as follows:


At December 31, 2013, NEER managed or participated in the management of essentially all of its generation projects in which it has an ownership interest.


NEER categorizes its portfolio in a number of different ways for different business purposes.  See a listing of NEER's generating facilities in Item 2 - Generating Facilities.  The following presentation details NEER operations, fuel/technology mix and generation by geographic region which NEE commonly uses in communicating its business:


Contracted, Merchant and Other Operations


NEER's portfolio of operations based on the presence/absence of long-term contracts and other operations is described below.


Contracted Assets.  Contracted assets are projects with long-term power sales agreements for substantially all of their output and certain wind assets where long-term power contracts are expected to be executed.  At December 31, 2013, NEER had 11,562 MW of contracted assets, substantially all of which have long-term power contracts.  Essentially all of the output of these contracted assets were under power sales agreements, with a weighted-average remaining contract life of approximately 15 years, and some have firm fuel and transportation agreements with expiration dates ranging from March 2014 through 2022.  See Note 13 - Contracts.  Approximately 8,366 MW of this capacity is wind generation and 1,621 MW of this capacity is nuclear generation.  The remaining 1,575 MW use a variety of fuels and technologies such as natural gas, oil and solar.


Merchant Assets.   Merchant assets are projects that do not have long-term power sales agreements to sell their output, or, in the case of certain wind assets, are not expected to have long-term power contracts, and therefore require active marketing and hedging.  At December 31, 2013, NEER's portfolio of merchant assets consists of 6,741 MW of owned wind, nuclear, natural gas, oil and solar generating facilities, including 846 MW of peak generating facilities.  Approximately 60% (based on net MW capacity) of the natural gas-fueled merchant assets have natural gas transportation agreements to provide for fluctuating natural gas requirements.  See Note 13 - Contracts.  Derivative instruments (primarily swaps, options, futures and forwards) are generally used to lock in pricing and manage the commodity price risk inherent in power sales and fuel purchases.  Managing market risk through these instruments introduces other types of risk, primarily counterparty, credit and operational risks.


Other Operations.   NEER's operations also include the gas infrastructure business and the customer supply and proprietary power and gas trading businesses.  At December 31, 2013, the gas infrastructure business had non-operating investments located in oil and gas shale formations primarily in Texas, Oklahoma, Wyoming, North Dakota and Louisiana.  Also, see NEER Customer Supply and Proprietary Power and Gas Trading below.



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NEER Fuel/Technology Mix


NEER's generating output is produced using a variety of fuel sources as further described below.



NEER's power generation in terms of MWh produced for the year ended December 31, 2013 by fuel type is as follows:



Wind Facilities


At December 31, 2013, NEER had ownership interests in wind generating facilities with a total generating capacity of 10,210 MW.  NEER operates all of these wind facilities, which are located in 19 states and 4 provinces in Canada.  During 2013, NEER added approximately 250 MW of new U.S. wind generation and 124 MW of new Canadian wind generation and sold wind facilities with generation capacity totaling 223 MW located in Wyoming and California.  NEER is currently committed to add new wind generation in 2014 and 2015 totaling approximately 465 MW in Canada and 1,175 MW in the U.S.  See Policy Incentives for Renewable Energy Projects below for additional discussion of NEER's expectations regarding wind development and construction.


Natural Gas Facilities


At December 31, 2013, NEER had ownership interests in natural gas facilities with net generating capacity (NEER's net ownership interest in facility capacity) of 3,991 MW.  NEER operates all of these facilities and approximately 1,003 MW of net generating capacity is from contracted natural gas assets located throughout the Northeastern U.S.



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Nuclear Facilities


At December 31, 2013, NEER owned, or had undivided interests in, and operated the following four nuclear units with a total net generating capacity of 2,721 MW.


Facility

Location

MW

Portfolio

Category

Operating License

Expiration Dates

Seabrook

New Hampshire

1,100


Merchant

2030

(a)

Duane Arnold

Iowa

431


Contracted (b)

2034

Point Beach Unit No. 1

Wisconsin

595


Contracted (c)

2030

Point Beach Unit No. 2

Wisconsin

595


Contracted (c)

2033

______________________

(a)

In 2010, NEER filed an application with the NRC to renew Seabrook's operating license for an additional 20 years, which license renewal is dependent on various NRC regulatory approvals and actions.

(b)

NEER sells all of its share of the output of Duane Arnold under a long-term contract expiring in February 2025.

(c)

NEER sells all of the output of Point Beach Units Nos. 1 and 2 under long-term contracts through their current operating license expiration dates.


NEER's nuclear facilities have several contracts for the supply of uranium and conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from March 2014 through 2022.  See Note 13 - Contracts.  NEER is responsible for all nuclear unit operations and the ultimate decommissioning of the nuclear units, the cost of which is shared on a pro-rata basis by the joint owners for the jointly-owned units.  NRC regulations require plant owners to submit a plan for decontamination and decommissioning five years before the projected end of plant operation.


Nuclear Unit Scheduled Refueling Outages.   NEER's nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, including inspections, repairs and certain other modifications.  Scheduled nuclear refueling outages typically require the unit to be removed from service for variable lengths of time.  The following table summarizes each unit's next scheduled refueling outage:


Facility

Next Scheduled

Refueling Outage

Seabrook

April 2014

Duane Arnold

October 2014

Point Beach Unit No. 1

October 2014

Point Beach Unit No. 2

March 2014


Spent Nuclear Fuel.  NEER's nuclear facilities use both on-site storage pools and dry storage casks to store spent nuclear fuel generated by these facilities, which are expected to provide sufficient storage of spent nuclear fuel at these facilities through license expiration.


As owners and operators of nuclear facilities, certain subsidiaries of NEER are subject to the Nuclear Waste Policy Act and are parties to the spent fuel settlement agreement and legal actions described in FPL - FPL Sources of Generation - Nuclear Operations.  Similar to FPL, these subsidiaries will continue to pay fees to the U.S. government's nuclear waste fund pending Congressional approval of and implementation of a zero-fee proposal.


Nuclear Regulatory Developments.   For discussion of developments regarding the impact of the 2011 earthquake and tsunami in Japan as it relates to U.S. nuclear facilities, see FPL - FPL Sources of Generation - Nuclear Operations.  NEER's nuclear facilities are subject to the same NRC actions as described for FPL.  Duane Arnold is NEER's only boiling water reactor unit.  NEER is currently working with the NRC on the approval and implementation of actions required to meet new NRC requirements, the costs of which are included in estimated capital expenditures.  See Note 13 - Commitments.


Solar Facilities


At December 31, 2013, NEER had ownership interests in solar facilities with a total net generating capacity of 477 MW in the U.S. and Canada.  During 2013, NEER added 125 MW of capacity from a 250 MW solar thermal project in California (Genesis solar project) and 155 MW of net capacity from a 550 MW solar PV project in California (Desert Sunlight solar project), in which NEER has a 50% equity investment.  The remaining capacity for the Genesis solar project (125 MW) and the Desert Sunlight solar project (120 MW) are expected to be added during 2014.  In addition, NEER and its affiliates completed construction of solar thermal facilities with generating capacity of 99.8 MW in Spain (Spain solar projects) during 2013 (see Note 13 - Spain Solar Projects for additional developments that impact the Spain solar projects).



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Other Assets


At December 31, 2013, NEER had 804 MW of other generation assets, primarily oil facilities located in Maine.  During 2013, NEER initiated a plan and received internal approval to pursue the sale of its ownership interests in the oil-fired generating plants located in Maine with a total capacity of 796 MW.  In the first quarter of 2013, a subsidiary of NEER completed the sale of its ownership interest in a portfolio of hydropower generation plants and related assets with a total generating capacity of 351 MW located in Maine and New Hampshire.


Policy Incentives for Renewable Energy Projects


In its development and operation of U.S. wind generation facilities, NEER depends heavily on the federal PTC, which currently provides an income tax credit for the production of electricity from utility-scale wind turbines for the first ten years of commercial operation.  This incentive was created under the Energy Policy Act of 1992 and, under the American Taxpayer Relief Act of 2012 (Taxpayer Relief Act), was extended for wind projects whose construction began before January 1, 2014.  The Internal Revenue Service (IRS) has issued guidance related to which projects will qualify for the PTC including, among other things, criteria for the beginning of construction of a project and the continuous program of construction or the continuous efforts to advance the project to completion.  Pursuant to the IRS guidance, NEER expects its projects currently in development or under construction in the U.S. will qualify for the PTC.  Alternatively, wind project developers can choose to receive a 30% ITC, in lieu of the PTC, with the same requirement that construction of the wind project began before January 1, 2014. NEER's expectations for wind development and construction will depend, in part, on whether legislation is passed to further extend the PTC.


Solar project developers are also eligible to receive a 30% ITC for new solar projects that achieve commercial operation before 2017.  Solar project developers can elect to receive an equivalent cash payment from the U.S. Department of Treasury for the value of the 30% ITC for qualifying solar projects where construction began before the end of 2011 and the projects are placed in service before 2017.


Other countries, including Canada and Spain, provide for incentives like feed-in-tariffs for renewable energy projects.  The feed-in-tariffs promote renewable energy investments by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology.  See Note 13 - Spain Solar Projects for developments in Spain.


NEER Generation by Geographic Region in North America


NEER's generating capacity spans various geographic regions in North America, thereby reducing overall volatility related to varying market conditions and seasonality on a portfolio basis.  NEER's generating facilities at December 31, 2013 are categorized by geographic region (see Item 2 - Generating Facilities) in terms of MW of capacity as follows:




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NEER CUSTOMER SUPPLY AND PROPRIETARY POWER AND GAS TRADING


PMI, a subsidiary of NEER, buys and sells wholesale energy commodities, such as electricity, natural gas and oil.  PMI sells the output from NEER's plants that is not sold under long-term contracts and procures the fossil fuel for use by NEER's generation fleet.  Its primary role is to manage the commodity risk of NEER's portfolio.  PMI uses derivative instruments such as swaps, options, futures and forwards to manage the risk associated with fluctuating commodity prices and to optimize the value of NEER's power generation and gas infrastructure assets.


PMI also provides a wide range of electricity and gas commodity products to customers and markets and trades energy commodity products.  PMI's customer supply business includes providing full energy and capacity requirements and mid-market services that include sales and purchases of wholesale commodities-related products and the operations of a retail electricity provider.


The results of PMI's activities are included in NEER's operating results.  See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity, Note 1 - Energy Trading and Note 3.


NEER REGULATION


The energy markets in which NEER operates are subject to domestic and foreign regulation, as the case may be, including local, state and federal regulation, and other specific rules.


At December 31, 2013, NEER had ownership interests in operating independent power projects located in the U.S. that have received exempt wholesale generator status as defined under the Public Utility Holding Company Act of 2005, which represent approximately 98% of NEER's net generating capacity.  Exempt wholesale generators own or operate a facility exclusively to sell electricity to wholesale customers.  They are barred from selling electricity directly to retail customers.  NEER's exempt wholesale generators produce electricity from wind, fossil fuels, solar and nuclear facilities.  Essentially all of the remaining 2% of NEER's net generating capacity has qualifying facility status under the PURPA.  NEER's qualifying facilities generate electricity primarily from wind, solar and fossil fuels.  Qualifying facility status exempts the projects from, among other things, many of the provisions of the Federal Power Act, as well as state laws and regulations relating to rates and financial or organizational regulation of electric utilities.  While projects with qualifying facility and/or exempt wholesale generator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including, but not limited to, those regarding siting, construction, operation, licensing, pollution abatement and other environmental laws.


Additionally, most of the NEER facilities located in the U.S. are subject to FERC regulations and market rules, the NERC's mandatory reliability standards and the EPA's environmental laws, and its nuclear facilities are also subject to the jurisdiction of the NRC.  See FPL - FPL Regulation for additional discussion of FERC, NERC, NRC and EPA regulations.  With the exception of facilities located in ERCOT, the FERC has jurisdiction over various aspects of NEER's business in the U.S., including the oversight and investigation of competitive wholesale energy markets, regulation of the transmission and sale of natural gas, and oversight of environmental matters related to natural gas projects and major electricity policy initiatives.  The PUCT has jurisdiction, including the regulation of rates and services, oversight of competitive markets, and enforcement of statutes and rules, over NEER facilities located in ERCOT.  NEER and its affiliates are also subject to national and provincial or regional regulations in Canada and Spain related to energy operations, energy markets and environmental standards.


NEER is subject to environmental laws and regulations, and is affected by some of the emerging issues related to renewable energy resources as described in the NEE Environmental Matters section below.  In order to better anticipate potential regulatory changes, NEER continues to actively evaluate and participate in regional market redesigns of existing operating rules for the integration of renewable energy resources and for the purchase and sale of energy commodities.


NEER EMPLOYEES


NEER and its subsidiaries had approximately 4,500 employees at December 31, 2013.  Certain subsidiaries of NEER have collective bargaining agreements with the IBEW, the Utility Workers Union of America, the Security Police and Fire Professionals of America and the International Union of Operating Engineers, which collectively represent approximately 22% of NEER's employees.  The collective bargaining agreements have one- to five-year terms and expire between February 2015 and 2016.




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III. OTHER NEE OPERATING SUBSIDIARIES


Corporate and Other represents other business activities, primarily NEET and FPL FiberNet, that are not separately reportable.  See Note 14.  In addition, certain subsidiaries of NEECH are pursuing approvals to build, own and operate an approximately 600-mile natural gas pipeline system to provide new natural gas transportation infrastructure in Florida.


NEET


NEET, a wholly-owned subsidiary of NEECH, is a limited liability company organized under the laws of Delaware.  NEET conducts its business primarily through two subsidiaries, Lone Star and NHT, and is pursuing opportunities to develop, build and operate new transmission facilities throughout North America.  In August 2013, an entity in which an affiliate of NEET has a joint venture investment was selected to complete development work for a 250-mile transmission line in Northwestern Ontario, Canada.  Once development is complete, subject to Ontario Energy Board approval, the NEET affiliate, through its joint venture, is expected to construct, own and operate the new transmission line that is projected to begin service in 2018.


Lone Star


Lone Star, a rate-regulated transmission service provider in Texas, is a limited liability company organized under the laws of Delaware.  Lone Star owns and operates approximately 330 miles of 345 kilovolt (kV) transmission lines and other associated facilities that were placed in service in 2012 and 2013.  Lone Star is subject to regulation by a number of federal, state and other agencies, including, but not limited to, the PUCT, the ERCOT, the NERC and the EPA, as well as certain limited regulations of the FERC.  See FPL - FPL Regulation for further discussion of FERC, NERC and EPA regulations and NEE Environmental Matters.  The PUCT has jurisdiction over a wide range of Lone Star's business activities, including, among others, rates charged to customers and certain aspects of the operation of transmission systems.  The PUCT sets rates at a level that allows Lone Star the opportunity to collect from customers total revenues (revenue requirements) equal to Lone Star's cost of providing service, including a reasonable rate of return on invested capital.


During late 2012 through mid-2013, the PUCT approved Lone Star's initial rate case proceeding as well as its interim rate adjustment filings for wholesale transmission service which ultimately provides for an annual revenue requirement of approximately $103 million for, among other things, $723 million of rate base, a regulatory equity ratio of 45%, an allowed regulatory ROE of 9.6% and other operating expenses.  Lone Star's subsequent capital investment will be recovered through either interim rate adjustment filings or a base rate filing.  Capital investment included in rates through the interim rate adjustment mechanism is subject to prudence review in Lone Star's next general rate case which is expected to be filed in mid-2014.


NHT


NHT, a rate-regulated transmission owner in ISO-NE, is a limited liability company organized under the laws of Delaware.  NHT owns transmission facilities which connect NEER's Seabrook nuclear facility to the New England transmission grid and interconnect three 345 kV transmission lines in New England.  NHT is subject to regulation by a number of federal, state and other agencies, including, but not limited to, the New Hampshire Public Utility Commission, ISO-NE, the FERC, the NERC and the EPA.  See FPL - FPL Regulation and NEE Environmental Matters for further discussion of FERC, NERC and EPA regulations.  NHT wholesale transmission revenues are provided through an ISO-NE tariff.


FPL FIBERNET


FPL FiberNet conducts its business through two separate wholly-owned subsidiaries of NEECH.  One subsidiary was formed in 2000 to enhance the value of NEE's fiber-optic network assets that were originally built to support FPL operations and the other was formed in 2011 to hold fiber-optic network assets which were acquired.  Both subsidiaries are limited liability companies organized under the laws of Delaware.  FPL FiberNet leases fiber-optic network capacity and dark fiber to FPL and other customers, primarily telephone, wireless, internet and other telecommunications companies.  FPL FiberNet's networks cover most of the metropolitan areas in Florida and several in Texas.  FPL FiberNet also has a long-haul network providing bandwidth at wholesale rates.  The long-haul network connects major cities in Florida and Texas with additional connectivity to Atlanta, Georgia and the South Central U.S., including Arkansas, Louisiana and Oklahoma.  At December 31, 2013, FPL FiberNet's network consisted of approximately 8,760 route miles.  FPL FiberNet is subject to regulation by the Federal Communications Commission which has jurisdiction over wire and wireless communication networks and by the public utility commissions in the states in which it provides intrastate telecommunication services.


NATURAL GAS PIPELINE SYSTEM


In July 2013, FPL announced the winning proposals from its 2012 RFP for an approximately 600-mile natural gas pipeline system for new natural gas transportation infrastructure in Florida.  The proposed pipeline system will be composed of two pipelines, each of which is expected to be operational beginning in mid-2017.  Sabal Trail, which is 33% owned by a NEECH subsidiary and will be a FERC-regulated entity, was selected to build, own and operate the northern pipeline that would originate in southwestern Alabama and end at a new hub to be built in Central Florida (Central Florida Hub).  Florida Southeast Connection, which is a wholly-owned NEECH subsidiary and will be a FERC-regulated entity, was selected to build, own and operate the southern pipeline that


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would originate at the Central Florida Hub and end in Martin County, Florida at FPL's Martin power plant.


Total estimated capital expenditures for the 33% portion of the northern pipeline plus the entire southern pipeline are estimated to be approximately $1.5 billion.  At December 31, 2013, NEE's investment in the proposed pipeline system totaled approximately $33 million.  The obligations of Sabal Trail and Florida Southeast Connection to build and operate the northern pipeline and southern pipeline, respectively, are subject to certain conditions, including FERC approval.  A FERC decision is expected in 2015.


See FPL - FPL Sources of Generation - Fossil Operations and Note 13 - Commitments and Contracts.


NEE ENVIRONMENTAL MATTERS


NEE and FPL are subject to domestic and foreign environmental laws and regulations, including extensive federal, state and local environmental statutes, rules and regulations.  The U.S. Congress and certain states and regions continue to consider several legislative and regulatory proposals with respect to GHG emissions.  The Government of Canada and its provinces are also taking certain actions, such as setting targets or goals, regarding the reduction of GHG emissions.  The economic and operational impact of climate change legislation on NEE and FPL depends on a variety of factors, including, but not limited to, the allowed emissions, whether emission allowances will be allocated or auctioned, the cost to reduce emissions or buy allowances in the marketplace and the availability of offsets and mitigating factors to moderate the costs of compliance.  Based on the most recent reference data available from government sources, NEE is among the lowest emitters, among electric generators, of GHG in the U.S. measured by its rate of emissions expressed as pounds of CO 2 per MWh of generation.  However, the legislative and regulatory proposals have differing methods of implementation and the impact on FPL's and NEER's generating units and/or the financial impact (either positive or negative) to NEE and FPL could be material, depending on the eventual structure of any specific implementation rules adopted.


I. Environmental Regulations


The following is a discussion of certain existing and emerging federal and state initiatives and rules, some of which could potentially have a material effect (either positive or negative) on NEE and its subsidiaries.  FPL expects to seek recovery through the environmental clause for compliance costs associated with any new environmental laws and regulations.


Clean Air Interstate Rule (CAIR)/Cross-State Air Pollution Rule (CSAPR).   The EPA's CAIR requires SO 2 and NOx emissions reductions from electric generating units in specified Eastern states and the District of Columbia, where the emissions from electric generating units are deemed to be transported to downwind states.  NEER and FPL began complying with the CAIR on January 1, 2009.  In 2011, the EPA issued the CSAPR, a final rule which was to replace the CAIR beginning in January 2012.  The CSAPR would limit emissions of SO 2 and NOx from power plants in 28 eastern states and provides an allocation methodology for emission allowances and reduction limits for SO 2 , NOx and seasonal ozone requirements.  In August 2012, the D.C. Circuit vacated the CSAPR and remanded it back to the EPA for further rulemaking, which decision was appealed to the U.S. Supreme Court by several parties, including the EPA.  The D.C. Circuit ordered that the CAIR remain in place until such time that the EPA promulgates a valid replacement, which the EPA is expected to propose in late 2014. In June 2013, the U.S. Supreme Court issued an order granting the petitions for review of the D.C. Circuit's decision to vacate the CSAPR and oral arguments were heard in December 2013.


Clean Water Act Section 316(b).   In March 2011, the EPA issued a proposed rule under Section 316(b) of the Clean Water Act to address the location, design, construction and capacity of intake structures at existing power plants with once-through cooling water systems.  The proposed rule is intended to require the Best Technology Available to reduce the impact on aquatic organisms from once-through cooling water intake systems.  Under the proposed rule, potentially thirteen of FPL's facilities and five of NEER's facilities may be required to add additional controls and/or make operational changes to comply, the economic and operational impact of which cannot be determined at this time, but could be material. The issuance of a final rule is expected in April 2014.


Regulation of GHG Emissions.   In September 2013, the EPA re-proposed standards for new fossil fuel-fired power units pursuant to a Presidential Memorandum related to the regulation of GHG emissions.  The Presidential Memorandum also directed the EPA to issue a final rule for new fossil fuel-fired power units after considering all public comments and to propose a rule for existing fossil fuel-fired power units by June 2014 with a final rule by June 2015 and to prepare guidelines requiring each state to revise their state implementation plans, which will set forth the program requirements within that state, by the end of June 2016.  In October 2013, the U.S. Supreme Court granted a request by several petitioners for review of the D.C. Circuit's June 2012 decision which upheld the EPA's GHG regulations.  The U.S. Supreme Court granted review on the limited question of whether the EPA permissibly determined that its regulation of GHG emissions from new motor vehicles triggered permitting requirements under the Clean Air Act for stationary sources that emit GHG.  The U.S. Supreme Court is scheduled to hear oral arguments on February 24, 2014.


Avian/Bat Regulations and Wind Turbine Siting Guidelines.   FPL, NEER and NEET are subject to numerous environmental regulations and guidelines related to threatened and endangered species and their habitats, as well as avian and bat species, for the siting, construction and ongoing operations of their facilities.  The facilities most significantly affected are wind and solar facilities and transmission and distribution lines.  The environmental laws in the U.S., including, among others, the Endangered


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Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act and similar environmental laws in Canada provide for the protection of migratory birds, eagles and endangered species of birds and bats and their habitats.  Regulations have been adopted under some of these laws that contain provisions that allow the owner/operator of a facility to apply for a permit to undertake specific activities including those associated with certain siting decisions, construction activities and operations.  In addition to regulations, voluntary wind turbine siting guidelines established by the U.S. Fish and Wildlife Service set forth siting, monitoring and coordination protocols that are designed to support wind development in the U.S. while also protecting both birds and bats and their habitats.  These guidelines include provisions for specific monitoring and study conditions which need to be met in order for projects to be in adherence with these voluntary guidelines.  Complying with these environmental regulations and adhering to the provisions set forth in the voluntary wind turbine siting guidelines could result in additional costs or reduced revenues at existing and new wind and solar facilities and transmission and distribution facilities at FPL, NEER and NEET.


II. Other GHG Emissions Reduction Initiatives


NEER's plants operate in certain states and regions that continue to consider and implement regulatory proposals to reduce GHG emissions.  RPS, currently in place in approximately 30 states and the District of Columbia, require electricity providers in the state or district to meet a certain percentage of their retail sales with energy from renewable sources.  These standards vary, but the majority include requirements to meet 10% to 25% of the electricity providers' retail sales with energy from renewable sources by 2025.  Approximately 7 other states have set renewable energy goals as well.  NEER's plants operate in 20 states that have a RPS or renewable energy goals and NEER believes that these standards and goals will create incremental demand for renewable energy in the future.


Other GHG reduction initiatives including, among others, the Regional Greenhouse Gas Initiative and the California Greenhouse Gas Regulation aim to reduce emissions through a variety of programs and under varying timelines.  Based on its clean generating portfolio, NEER expects to continue experiencing a positive impact on earnings as a result of these GHG reduction initiatives.  Additionally, these initiatives provide NEER opportunities with regards to wind and solar development as well as favorable energy pricing.


WEBSITE ACCESS TO SEC FILINGS


NEE and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEE's internet website, www.nexteraenergy.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC.  The information and materials available on NEE's website (or any of its subsidiaries' websites) are not incorporated by reference into this combined Form 10-K.  The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC at www.sec.gov.


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EXECUTIVE OFFICERS OF NEE (a)


Name

Age

Position

Effective Date

Miguel Arechabala

53

Executive Vice President, Power Generation Division of NEE
Executive Vice President, Power Generation Division of FPL


January 1, 2014

Deborah H. Caplan

51

Executive Vice President, Human Resources and Corporate Services of NEE
Executive Vice President, Human Resources and Corporate Services of FPL


April 15, 2013

Paul I. Cutler

54

Treasurer of NEE

Treasurer of FPL

Assistant Secretary of NEE


February 19, 2003

February 18, 2003

December 10, 1997

Moray P. Dewhurst

58

Vice Chairman and Chief Financial Officer, and Executive Vice President - Finance of NEE

Executive Vice President, Finance and Chief Financial Officer of FPL


October 5, 2011

Chris N. Froggatt

56

Vice President of NEE

Controller and Chief Accounting Officer of NEE


October 19, 2009

February 27, 2010

Joseph T. Kelliher

53

Executive Vice President, Federal Regulatory Affairs of NEE


May 18, 2009

Manoochehr K. Nazar

59

Executive Vice President, Nuclear Division and Chief Nuclear Officer of NEE

Executive Vice President, Nuclear Division and Chief Nuclear Officer of FPL


January 1, 2010

January 15, 2010

Armando Pimentel, Jr.

51

President and Chief Executive Officer of NEER


October 5, 2011

James L. Robo

51

Chairman of NEE

President and Chief Executive Officer of NEE

Chairman and Chief Executive Officer of FPL


December 13, 2013

July 1, 2012

May 2, 2012

Charles E. Sieving

41

Executive Vice President & General Counsel of NEE

Executive Vice President of FPL


December 1, 2008

January 1, 2009

Eric E. Silagy

48

President of FPL


December 16, 2011

William L. Yeager

55

Executive Vice President, Engineering, Construction & Integrated Supply Chain of NEE

Executive Vice President, Engineering, Construction & Integrated Supply Chain of FPL


January 1, 2013

______________________

(a)

Information is as of February 21, 2014 .  Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors.  Except as noted below, each officer has held his/her present position for five years or more and his/her employment history is continuous. Mr. Arechabala was president of NextEra Energy España, S.L. from February 2010 to December 2013.  From March 2007 to February 2010, Mr. Arechabala was vice president, thermal hydro plant operations & management of NEER. Ms. Caplan was vice president and chief operating officer of FPL from May 2011 to April 2013. From July 2005 to May 2011, Ms. Caplan was vice president, integrated supply chain of NEE and FPL. Mr. Dewhurst has been vice chairman of NEE since August 2009 and was chief of staff of NEE from August 2009 to October 2011.  Mr. Froggatt was the vice president and treasurer of Pinnacle West Capital Corporation, a public utility holding company, and its major subsidiary, Arizona Public Service Company, a regulated electric utility, from December 2008 to October 2009.  Mr. Nazar was the chief nuclear officer of NEE from January 2009 to December 2009.  From January 2009 to January 2010, Mr. Nazar was the senior vice president and chief nuclear officer of FPL. Mr. Pimentel was chief financial officer of NEE and FPL from May 2008 to October 2011 and executive vice president, finance of NEE and FPL from February 2008 to October 2011.  Mr. Robo was president and chief operating officer of NEE from December 2006 to June 2012.  Mr. Sieving was also assistant secretary of NEE from May 2010 to May 2011 and general counsel of FPL from January 2009 to May 2010. Mr. Silagy was senior vice president, regulatory and state governmental affairs of FPL from May 2010 to December 2011. Mr. Silagy was vice president and chief development officer of FPL from July 2008 to May 2010. Mr. Yeager was vice president, engineering, construction and integrated supply chain services of NEE and FPL from October 2012 to December 2012.  Mr. Yeager was vice president, integrated supply chain of NEE and FPL from May 2011 to October 2012. From January 2005 to May 2011, Mr. Yeager was vice president, engineering and construction of FPL.



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Item 1A.  Risk Factors


Risks Relating to NEE's and FPL's Business


The business, financial condition, results of operations and prospects of NEE and FPL are subject to a variety of risks, many of which are beyond the control of NEE and FPL.  The following is a description of important risks that may adversely affect the business, financial condition, results of operations and prospects of NEE and FPL and may cause actual results of NEE and FPL to differ substantially from those that NEE or FPL currently expects or seeks.  In that event, the market price for the securities of NEE or FPL could decline.  Accordingly, the risks described below should be carefully considered together with the other information set forth in this report and in future reports that NEE and FPL file with the SEC.  The risks described below are not the only risks facing NEE and FPL.  Additional risks and uncertainties may also materially adversely affect NEE's or FPL's business, financial condition, results of operations and prospects.  Each of NEE and FPL has disclosed the material risks known to it to affect its business at this time.  However, there may be further risks and uncertainties that are not presently known or that are not currently believed to be material that may in the future materially adversely affect the performance or financial condition of NEE and FPL.


Regulatory, Legislative and Legal Risks


NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected by the extensive regulation of their business.


The operations of NEE and FPL are subject to complex and comprehensive federal, state and other regulation.  This extensive regulatory framework, portions of which are more specifically identified in the following risk factors, regulates, among other things and to varying degrees, NEE's and FPL's industries, businesses, rates and cost structures, operation of nuclear power facilities, construction and operation of generation, transmission and distribution facilities and natural gas and oil production, transmission and fuel transportation and storage facilities, acquisition, disposal, depreciation and amortization of facilities and other assets, decommissioning costs and funding, service reliability, wholesale and retail competition, and commodities trading and derivatives transactions.  In their business planning and in the management of their operations, NEE and FPL must address the effects of regulation on their business and any inability or failure to do so adequately could have a material adverse effect on their business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if they are unable to recover in a timely manner any significant amount of costs, a return on certain assets or an appropriate return on capital through base rates, cost recovery clauses, other regulatory mechanisms or otherwise.


FPL is a regulated entity subject to the jurisdiction of the FPSC over a wide range of business activities, including, among other items, the retail rates charged to its customers through base rates and cost recovery clauses, the terms and conditions of its services, procurement of electricity for its customers, issuance of securities, and aspects of the siting, construction and operation of its generating plants and transmission and distribution systems for the sale of electric energy.  The FPSC has the authority to disallow recovery by FPL of costs that it considers excessive or imprudently incurred and to determine the level of return that FPL is permitted to earn on invested capital.  The regulatory process, which may be adversely affected by the political, regulatory and economic environment in Florida and elsewhere, limits FPL's ability to increase earnings and does not provide any assurance as to achievement of authorized or other earnings levels.  NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if any material amount of costs, a return on certain assets or an appropriate return on capital cannot be recovered through base rates, cost recovery clauses, other regulatory mechanisms or otherwise.  Certain subsidiaries of NEET, which are indirect wholly-owned subsidiaries of NEE, are regulated electric transmission utilities subject to the jurisdiction of their regulators and subject to similar risks.


Regulatory decisions that are important to NEE and FPL may be materially adversely affected by political, regulatory and economic factors.


The local and national political, regulatory and economic environment has had, and may in the future have, an adverse effect on FPSC decisions with negative consequences for FPL.  These decisions may require, for example, FPL to cancel or delay planned development activities, to reduce or delay other planned capital expenditures or to pay for investments or otherwise incur costs that it may not be able to recover through rates, each of which could have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL.  Certain subsidiaries of NEET are subject to similar risks.


FPL's use of derivative instruments could be subject to prudence challenges and, if found imprudent, could result in disallowances of cost recovery for such use by the FPSC.


The FPSC engages in an annual prudence review of FPL's use of derivative instruments in its risk management fuel procurement program and should it find any such use to be imprudent, the FPSC could deny cost recovery for such use by FPL.  Such an outcome could have a material adverse effect on FPL's business, financial condition, results of operations and prospects.


Any reductions to, or the elimination of, governmental incentives that support renewable energy, including, but not limited to, tax incentives, RPS or feed-in tariffs, or the imposition of additional taxes or other assessments on renewable energy,


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could result in, among other items, the lack of a satisfactory market for the development of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in renewable energy projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


NEER depends heavily on government policies that support renewable energy and enhance the economic feasibility of developing and operating wind and solar energy projects in regions in which NEER operates or plans to develop and operate renewable energy facilities.  The federal government, a majority of the 50 U.S. states and portions of Canada and Spain provide incentives, such as tax incentives, RPS or feed-in tariffs, that support the sale of energy from renewable energy facilities, such as wind and solar energy facilities. As a result of budgetary constraints, political factors or otherwise, governments from time to time may review their policies that support renewable energy and consider actions to make the policies less conducive to the development and operation of renewable energy facilities.  Any reductions to, or the elimination of, governmental incentives that support renewable energy, such as those reductions that have been enacted in Spain and are applicable to NEER's solar projects in that country, or the imposition of additional taxes or other assessments on renewable energy, could result in, among other items, the lack of a satisfactory market for the development of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in the projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected as a result of new or revised laws, regulations or interpretations or other regulatory initiatives.


NEE's and FPL's business is influenced by various legislative and regulatory initiatives, including, but not limited to, new or revised laws, regulations or interpretations or other regulatory initiatives regarding deregulation or restructuring of the energy industry, regulation of the commodities trading and derivatives markets, and environmental regulation, such as regulation of air emissions, regulation of water consumption and water discharges, and regulation of gas and oil infrastructure operations, as well as associated environmental permitting.  Changes in the nature of the regulation of NEE's and FPL's business could have a material adverse effect on NEE's and FPL's results of operations.  NEE and FPL are unable to predict future legislative or regulatory changes, initiatives or interpretations, although any such changes, initiatives or interpretations may increase costs and competitive pressures on NEE and FPL, which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


FPL has limited competition in the Florida market for retail electricity customers.  Any changes in Florida law or regulation which introduce competition in the Florida retail electricity market could have a material adverse effect on FPL's business, financial condition, results of operations and prospects.  There can be no assurance that FPL will be able to respond adequately to such regulatory changes, which could have a material adverse effect on FPL's business, financial condition, results of operations and prospects.


NEER is subject to FERC rules related to transmission that are designed to facilitate competition in the wholesale market on practically a nationwide basis by providing greater certainty, flexibility and more choices to wholesale power customers.  NEE cannot predict the impact of changing FERC rules or the effect of changes in levels of wholesale supply and demand, which are typically driven by factors beyond NEE's control.  There can be no assurance that NEER will be able to respond adequately or sufficiently quickly to such rules and developments, or to any other changes that reverse or restrict the competitive restructuring of the energy industry in those jurisdictions in which such restructuring has occurred.  Any of these events could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if the rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) broaden the scope of its provisions regarding the regulation of OTC financial derivatives and make certain provisions applicable to NEE and FPL.


The Dodd-Frank Act, enacted into law in July 2010, among other things, provides for substantially increased regulation of the OTC derivatives market.  While the legislation is broad and detailed, there are still portions of the legislation that either require implementing rules to be adopted by federal governmental agencies or otherwise require further interpretive guidance.


NEE and FPL continue to monitor the development of rules related to the Dodd-Frank Act and are taking steps to comply with those rules that affect their businesses.  While a number of rules have been finalized and are effective, the rules related to collateral requirements have yet to be finalized.  If those rules, when finalized, require NEE and FPL to post significant amounts of cash collateral with respect to swap transactions, NEE's and FPL's liquidity could be materially adversely affected.


NEE and FPL cannot predict the impact these new rules will have on their ability to hedge their commodity and interest rate risks or on OTC derivatives markets as a whole, but they could potentially have a material adverse effect on NEE's and FPL's risk exposure, as well as reduce market liquidity and further increase the cost of hedging activities.



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NEE and FPL are subject to numerous environmental laws, regulations and other standards that may result in capital expenditures, increased operating costs and various liabilities, and may require NEE and FPL to limit or eliminate certain operations.


NEE and FPL are subject to domestic and foreign environmental laws and regulations, including, but not limited to, extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality and usage, climate change, emissions of greenhouse gases, including, but not limited to, CO 2 , waste management, hazardous wastes, marine, avian and other wildlife mortality and habitat protection, historical artifact preservation, natural resources, health (including, but not limited to, electric and magnetic fields from power lines and substations), safety and RPS, that could, among other things, prevent or delay the development of power generation, power or natural gas transmission, or other infrastructure projects, restrict the output of some existing facilities, limit the availability and use of some fuels required for the production of electricity, require additional pollution control equipment, and otherwise increase costs, increase capital expenditures and limit or eliminate certain operations.


There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future as a result of new legislation, the current trend toward more stringent standards, and stricter and more expansive application of existing environmental regulations.  For example, among other potential or pending changes, the use of hydraulic fracturing or similar technologies to drill for natural gas and related compounds used by NEE's gas infrastructure business is currently being discussed for regulation at state and federal levels.


Violations of current or future laws, rules, regulations or other standards could expose NEE and FPL to regulatory and legal proceedings, disputes with, and legal challenges by, third parties, and potentially significant civil fines, criminal penalties and other sanctions. Proceedings could include, for example, litigation regarding property damage, personal injury, common law nuisance and enforcement by citizens or governmental authorities of environmental requirements such as air, water and soil quality standards.


NEE's and FPL's business could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions.


Federal or state laws or regulations may be adopted that would impose new or additional limits on the emissions of greenhouse gases, including, but not limited to, CO2 and methane, from electric generating units using fossil fuels like coal and natural gas.  The potential effects of such greenhouse gas emission limits on NEE's and FPL's electric generating units are subject to significant uncertainties based on, among other things, the timing of the implementation of any new requirements, the required levels of emission reductions, the nature of any market-based or tax-based mechanisms adopted to facilitate reductions, the relative availability of greenhouse gas emission reduction offsets, the development of cost-effective, commercial-scale carbon capture and storage technology and supporting regulations and liability mitigation measures, and the range of available compliance alternatives.


While NEE's and FPL's electric generating units emit greenhouse gases at a lower rate of emissions than most of the U.S. electric generation sector, the results of operations of NEE and FPL could be adversely affected to the extent that new federal or state legislation or regulators impose any new greenhouse gas emission limits.  Any future limits on greenhouse gas emissions could:


create substantial additional costs in the form of taxes or emission allowances;

make some of NEE's and FPL's electric generating units uneconomical to operate in the long term;

require significant capital investment in carbon capture and storage technology, fuel switching, or the replacement of high-emitting generation facilities with lower-emitting generation facilities; or

affect the availability or cost of fossil fuels.


There can be no assurance that NEE or FPL would be able to completely recover any such costs or investments, which could have a material adverse effect on their business, financial condition, results of operations and prospects.


Extensive federal regulation of the operations of NEE and FPL exposes NEE and FPL to significant and increasing compliance costs and may also expose them to substantial monetary penalties and other sanctions for compliance failures.


NEE and FPL are subject to extensive federal regulation, which generally imposes significant and increasing compliance costs on NEE's and FPL's operations.  Additionally, any actual or alleged compliance failures could result in significant costs and other potentially adverse effects of regulatory investigations, proceedings, settlements, decisions and claims, including, among other items, potentially significant monetary penalties.  As an example, under the Energy Policy Act of 2005, NEE and FPL, as owners and operators of bulk-power transmission systems and/or electric generation facilities, are subject to mandatory reliability standards.  Compliance with these mandatory reliability standards may subject NEE and FPL to higher operating costs and may result in increased capital expenditures.  If FPL or NEE is found not to be in compliance with these standards, it may incur substantial monetary penalties and other sanctions.  Both the costs of regulatory compliance and the costs that may be imposed as a result of any actual or alleged compliance failures could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


Changes in tax laws, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.



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NEE's and FPL's provision for income taxes and reporting of tax-related assets and liabilities require significant judgments and the use of estimates.  Amounts of tax-related assets and liabilities involve judgments and estimates of the timing and probability of recognition of income, deductions and tax credits, including, but not limited to, estimates for potential adverse outcomes regarding tax positions that have been taken and the ability to utilize tax benefit carryforwards, such as net operating loss and tax credit carryforwards.  Actual income taxes could vary significantly from estimated amounts due to the future impacts of, among other things, changes in tax laws, regulations and interpretations, the financial condition and results of operations of NEE and FPL, and the resolution of audit issues raised by taxing authorities.  Ultimate resolution of income tax matters may result in material adjustments to tax-related assets and liabilities, which could negatively affect NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected due to adverse results of litigation.


NEE's and FPL's business, financial condition, results of operations and prospects may be materially affected by adverse results of litigation. Unfavorable resolution of legal proceedings in which NEE is involved or other future legal proceedings, including, but not limited to, class action lawsuits, may have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL.


Operational Risks


NEE's and FPL's business, financial condition, results of operations and prospects could suffer if NEE and FPL do not proceed with projects under development or are unable to complete the construction of, or capital improvements to, electric generation, transmission and distribution facilities, gas infrastructure facilities or other facilities on schedule or within budget.


NEE's and FPL's ability to complete construction of, and capital improvement projects for, their electric generation, transmission and distribution facilities, gas infrastructure facilities and other facilities on schedule and within budget may be adversely affected by escalating costs for materials and labor and regulatory compliance, inability to obtain or renew necessary licenses, rights-of-way, permits or other approvals on acceptable terms or on schedule, disputes involving contractors, labor organizations, land owners, governmental entities, environmental groups, Native American and aboriginal groups, and other third parties, negative publicity, transmission interconnection issues and other factors.  If any development project or construction or capital improvement project is not completed, is delayed or is subject to cost overruns, certain associated costs may not be approved for recovery or recoverable through regulatory mechanisms that may otherwise be available, and NEE and FPL could become obligated to make delay or termination payments or become obligated for other damages under contracts, could experience the loss of tax credits or tax incentives, or delayed or diminished returns, and could be required to write-off all or a portion of their investment in the project.  Any of these events could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE and FPL may face risks related to project siting, financing, construction, permitting, governmental approvals and the negotiation of project development agreements that may impede their development and operating activities.


NEE and FPL own, develop, construct, manage and operate electric-generating and transmission facilities.  A key component of NEE's and FPL's growth is their ability to construct and operate generation and transmission facilities to meet customer needs.  As part of these operations, NEE and FPL must periodically apply for licenses and permits from various local, state, federal and other regulatory authorities and abide by their respective conditions.  Should NEE or FPL be unsuccessful in obtaining necessary licenses or permits on acceptable terms, should there be a delay in obtaining or renewing necessary licenses or permits or should regulatory authorities initiate any associated investigations or enforcement actions or impose related penalties or disallowances on NEE or FPL, NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected.  Any failure to negotiate successful project development agreements for new facilities with third parties could have similar results.


The operation and maintenance of NEE's and FPL's electric generation, transmission and distribution facilities, gas infrastructure facilities and other facilities are subject to many operational risks, the consequences of which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's electric generation, transmission and distribution facilities, gas infrastructure facilities and other facilities are subject to many operational risks.  Operational risks could result in, among other things, lost revenues due to prolonged outages, increased expenses due to monetary penalties or fines for compliance failures, liability to third parties for property and personal injury damage, a failure to perform under applicable power sales agreements and associated loss of revenues from terminated agreements or liability for liquidated damages under continuing agreements, and replacement equipment costs or an obligation to purchase or generate replacement power at higher prices.


Uncertainties and risks inherent in operating and maintaining NEE's and FPL's facilities include, but are not limited to:


risks associated with facility start-up operations, such as whether the facility will achieve projected operating performance on schedule and otherwise as planned;


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failures in the availability, acquisition or transportation of fuel or other necessary supplies;

the impact of unusual or adverse weather conditions and natural disasters, including, but not limited to, hurricanes, floods, earthquakes and droughts;

performance below expected or contracted levels of output or efficiency;

breakdown or failure, including, but not limited to, explosions, fires or other major events, of equipment, transmission and distribution lines or pipelines;

availability of replacement equipment;

risks of property damage or human injury from energized equipment, hazardous substances or explosions, fires or other events;

availability of adequate water resources and ability to satisfy water intake and discharge requirements;

inability to manage properly or mitigate known equipment defects in NEE's and FPL's facilities;

use of new or unproven technology;

risks associated with dependence on a specific type of fuel or fuel source, such as commodity price risk, availability of adequate fuel supply and transportation, and lack of available alternative fuel sources;

increased competition due to, among other factors, new facilities, excess supply and shifting demand; and

insufficient insurance, warranties or performance guarantees to cover any or all lost revenues or increased expenses from the foregoing.


NEE's and FPL's business, financial condition, results of operations and prospects may be negatively affected by a lack of growth or slower growth in the number of customers or in customer usage.


Growth in customer accounts and growth of customer usage each directly influence the demand for electricity and the need for additional power generation and power delivery facilities.  Customer growth and customer usage are affected by a number of factors outside the control of NEE and FPL, such as mandated energy efficiency measures, demand side management requirements, and economic and demographic conditions, such as population changes, job and income growth, housing starts, new business formation and the overall level of economic activity.  A lack of growth, or a decline, in the number of customers or in customer demand for electricity may cause NEE and FPL to fail to fully realize the anticipated benefits from significant investments and expenditures and could have a material adverse effect on NEE's and FPL's growth, business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather.


Weather conditions directly influence the demand for electricity and natural gas and other fuels and affect the price of energy and energy-related commodities.  In addition, severe weather and natural disasters, such as hurricanes, floods and earthquakes, can be destructive and cause power outages and property damage, reduce revenue, affect the availability of fuel and water, and require NEE and FPL to incur additional costs, for example, to restore service and repair damaged facilities, to obtain replacement power and to access available financing sources.  Furthermore, NEE's and FPL's physical plant could be placed at greater risk of damage should changes in the global climate produce unusual variations in temperature and weather patterns, resulting in more intense, frequent and extreme weather events, abnormal levels of precipitation and, particularly relevant to FPL, a change in sea level.  FPL operates in the east and lower west coasts of Florida, an area that historically has been prone to severe weather events, such as hurricanes.  A disruption or failure of electric generation, transmission or distribution systems or natural gas production, transmission, storage or distribution systems in the event of a hurricane, tornado or other severe weather event, or otherwise, could prevent NEE and FPL from operating their business in the normal course and could result in any of the adverse consequences described above.  Any of the foregoing could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


At FPL and other businesses of NEE where cost recovery is available, recovery of costs to restore service and repair damaged facilities is or may be subject to regulatory approval, and any determination by the regulator not to permit timely and full recovery of the costs incurred could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


Changes in weather can also affect the production of electricity at power generating facilities, including, but not limited to, NEER's wind and solar facilities.  For example, the level of wind resource affects the revenue produced by wind generating facilities.  Because the levels of wind and solar resources are variable and difficult to predict, NEER's results of operations for individual wind and solar facilities specifically, and NEE's results of operations generally, may vary significantly from period to period, depending on the level of available resources.  To the extent that resources are not available at planned levels, the financial results from these facilities may be less than expected.


Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt NEE's and FPL's business, or the businesses of third parties, may materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.


NEE and FPL are subject to the potentially adverse operating and financial effects of terrorist acts and threats, as well as cyber attacks and other disruptive activities of individuals or groups.  NEE's and FPL's generation, transmission and distribution facilities, fuel storage facilities, information technology systems and other infrastructure facilities and systems could be direct targets of, or be indirectly affected by, such activities.


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Terrorist acts, cyber attacks or other similar events affecting NEE's and FPL's systems and facilities, or those of third parties on which NEE and FPL rely, could harm NEE's and FPL's business, for example, by limiting their ability to generate, purchase or transmit power, by limiting their ability to bill customers and collect and process payments, and by delaying their development and construction of new generating facilities or capital improvements to existing facilities.  These events, and governmental actions in response, could result in a material decrease in revenues, significant additional costs (for example, to repair assets, implement additional security requirements or maintain or acquire insurance), and reputational damage, could materially adversely affect NEE's and FPL's operations (for example, by contributing to disruption of supplies and markets for natural gas, oil and other fuels), and could impair NEE's and FPL's ability to raise capital (for example, by contributing to financial instability and lower economic activity).


The ability of NEE and FPL to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers.  NEE's and FPL's insurance coverage does not provide protection against all significant losses.


Insurance coverage may not continue to be available or may not be available at rates or on terms similar to those presently available to NEE and FPL.  The ability of NEE and FPL to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers.  If insurance coverage is not available or obtainable on acceptable terms, NEE or FPL may be required to pay costs associated with adverse future events.  NEE and FPL generally are not fully insured against all significant losses.  For example, FPL is not fully insured against hurricane-related losses, but would instead seek recovery of such uninsured losses from customers subject to approval by the FPSC, to the extent losses exceed restricted funds set aside to cover the cost of storm damage.  A loss for which NEE or FPL is not fully insured could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


If supply costs necessary to provide NEER's full energy and capacity requirement services are not favorable, operating costs could increase and materially adversely affect NEE's business, financial condition, results of operations and prospects.


NEER provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, to satisfy all or a portion of such utilities' power supply obligations to their customers.  The supply costs for these transactions may be affected by a number of factors, including, but not limited to, events that may occur after such utilities have committed to supply power, such as weather conditions, fluctuating prices for energy and ancillary services, and the ability of the distribution utilities' customers to elect to receive service from competing suppliers.  NEER may not be able to recover all of its increased supply costs, which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


Due to the potential for significant volatility in market prices for fuel, electricity and renewable and other energy commodities, NEER's inability or failure to manage properly or hedge effectively the commodity risks within its portfolios could materially adversely affect NEE's business, financial condition, results of operations and prospects.


There can be significant volatility in market prices for fuel, electricity and renewable and other energy commodities.  NEE's inability or failure to manage properly or hedge effectively its assets or positions against changes in commodity prices, volumes, interest rates, counterparty credit risk or other risk measures, based on factors both from within or wholly or partially outside of NEE's control, may materially adversely affect NEE's business, financial condition, results of operations and prospects.


Sales of power on the spot market or on a short-term contractual basis may cause NEE's results of operations to be volatile.


A portion of NEER's power generation facilities operate wholly or partially without long-term power purchase agreements.  Power from these facilities is sold on the spot market or on a short-term contractual basis.  Spot market sales are subject to market volatility, and the revenue generated from these sales is subject to fluctuation that may cause NEE's results of operations to be volatile.  NEER and NEE may not be able to manage volatility adequately, which could then have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


Reductions in the liquidity of energy markets may restrict the ability of NEE to manage its operational risks, which, in turn, could negatively affect NEE's results of operations.


NEE is an active participant in energy markets.  The liquidity of regional energy markets is an important factor in NEE's ability to manage risks in these operations.  Over the past several years, other market participants have ceased or significantly reduced their activities in energy markets as a result of several factors, including, but not limited to, government investigations, changes in market design and deteriorating credit quality.  Liquidity in the energy markets can be adversely affected by price volatility, restrictions on the availability of credit and other factors, and any reduction in the liquidity of energy markets could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.



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NEE's and FPL's hedging and trading procedures and associated risk management tools may not protect against significant losses.


NEE and FPL have hedging and trading procedures and associated risk management tools, such as separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms.  NEE and FPL are unable to assure that such procedures and tools will be effective against all potential risks, including, without limitation, employee misconduct.  If such procedures and tools are not effective, this could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.


If price movements significantly or persistently deviate from historical behavior, NEE's and FPL's risk management tools associated with their hedging and trading procedures may not protect against significant losses.


NEE's and FPL's risk management tools and metrics associated with their hedging and trading procedures, such as daily value at risk, earnings at risk, stop loss limits and liquidity guidelines, are based on historical price movements.  Due to the inherent uncertainty involved in price movements and potential deviation from historical pricing behavior, NEE and FPL are unable to assure that their risk management tools and metrics will be effective to protect against adverse effects on their business, financial condition, results of operations and prospects.  Such adverse effects could be material.


If power transmission or natural gas, nuclear fuel or other commodity transportation facilities are unavailable or disrupted, FPL's and NEER's ability to sell and deliver power or natural gas may be limited.


FPL and NEER depend upon power transmission and natural gas, nuclear fuel and other commodity transportation facilities, many of which they do not own.  Occurrences affecting the operation of these facilities that may or may not be beyond FPL's and NEER's control (such as severe weather or a generator or transmission facility outage, pipeline rupture, or sudden and significant increase or decrease in wind generation) may limit or halt the ability of FPL and NEER to sell and deliver power and natural gas, or to purchase necessary fuels and other commodities, which could materially adversely impact NEE's and FPL's business, financial condition, results of operations and prospects.


NEE and FPL are subject to credit and performance risk from customers, hedging counterparties and vendors.


NEE and FPL are exposed to risks associated with the creditworthiness and performance of their customers, hedging counterparties and vendors under contracts for the supply of equipment, materials, fuel and other goods and services required for their business operations and for the construction and operation of, and for capital improvements to, their facilities.  Adverse conditions in the energy industry or the general economy, as well as circumstances of individual customers, hedging counterparties and vendors, may affect the ability of some customers, hedging counterparties and vendors to perform as required under their contracts with NEE and FPL.


If any hedging, vending or other counterparty fails to fulfill its contractual obligations, NEE and FPL may need to make arrangements with other counterparties or vendors, which could result in financial losses, higher costs, untimely completion of power generation facilities and other projects, and/or a disruption of their operations.  If a defaulting counterparty is in poor financial condition, NEE and FPL may not be able to recover damages for any contract breach.


NEE and FPL could recognize financial losses or a reduction in operating cash flows if a counterparty fails to perform or make payments in accordance with the terms of derivative contracts or if NEE or FPL is required to post margin cash collateral under derivative contracts.


NEE and FPL use derivative instruments, such as swaps, options, futures and forwards, some of which are traded in the OTC markets or on exchanges, to manage their commodity and financial market risks, and for NEE to engage in trading and marketing activities.  Any failures by their counterparties to perform or make payments in accordance with the terms of those transactions could have a material adverse effect on NEE's or FPL's business, financial condition, results of operations and prospects.  Similarly, any requirement for FPL or NEE to post margin cash collateral under its derivative contracts could have a material adverse effect on its business, financial condition, results of operations and prospects.


NEE and FPL are highly dependent on sensitive and complex information technology systems, and any failure or breach of those systems could have a material adverse effect on their business, financial condition, results of operations and prospects.


NEE and FPL operate in a highly regulated industry that requires the continuous functioning of sophisticated information technology systems and network infrastructure.  Despite NEE's and FPL's implementation of security measures, all of their technology systems are vulnerable to disability, failures or unauthorized access due to such activities.  If NEE's or FPL's information technology systems were to fail or be breached, sensitive confidential and other data could be compromised and NEE and FPL could be unable to fulfill critical business functions.


NEE's and FPL's business is highly dependent on their ability to process and monitor, on a daily basis, a very large number of transactions, many of which are highly complex and cross numerous and diverse markets.  Due to the size, scope and geographical


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reach of NEE's and FPL's business, and due to the complexity of the process of power generation, transmission and distribution, the development and maintenance of information technology systems to keep track of and process information is critical and challenging.  NEE's and FPL's operating systems and facilities may fail to operate properly or become disabled as a result of events that are either within, or wholly or partially outside of, their control, such as operator error, severe weather or terrorist activities.  Any such failure or disabling event could materially adversely affect NEE's and FPL's ability to process transactions and provide services, and their business, financial condition, results of operations and prospects.


NEE and FPL add, modify and replace information systems on a regular basis.  Modifying existing information systems or implementing new or replacement information systems is costly and involves risks, including, but not limited to, integrating the modified, new or replacement system with existing systems and processes, implementing associated changes in accounting procedures and controls, and ensuring that data conversion is accurate and consistent.  Any disruptions or deficiencies in existing information systems, or disruptions, delays or deficiencies in the modification or implementation of new information systems, could result in increased costs, the inability to track or collect revenues and the diversion of management's and employees' attention and resources, and could negatively impact the effectiveness of the companies' control environment, and/or the companies' ability to timely file required regulatory reports.


NEE and FPL also face the risks of operational failure or capacity constraints of third parties, including, but not limited to, those who provide power transmission and natural gas transportation services.


NEE's and FPL's retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in a material adverse impact to their reputation and/or the results of operations of the retail business.


NEE's and FPL's retail businesses require access to sensitive customer data in the ordinary course of business.  NEE's and FPL's retail businesses may also need to provide sensitive customer data to vendors and service providers who require access to this information in order to provide services, such as call center services, to the retail businesses.  If a significant breach occurred, the reputation of NEE and FPL could be materially adversely affected, customer confidence could be diminished, or customer information could be subject to identity theft.  NEE and FPL would be subject to costs associated with the breach and/or NEE and FPL could be subject to fines and legal claims, any of which may have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL.


NEE and FPL could recognize financial losses as a result of volatility in the market values of derivative instruments and limited liquidity in OTC markets.


NEE and FPL execute transactions in derivative instruments on either recognized exchanges or via the OTC markets, depending on management's assessment of the most favorable credit and market execution factors.  Transactions executed in OTC markets have the potential for greater volatility and less liquidity than transactions on recognized exchanges.  As a result, NEE and FPL may not be able to execute desired OTC transactions due to such heightened volatility and limited liquidity.


In the absence of actively quoted market prices and pricing information from external sources, the valuation of derivative instruments involves management's judgment or use of estimates.  As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these derivative instruments and have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE and FPL may be materially adversely affected by negative publicity.


From time to time, political and public sentiment may result in a significant amount of adverse press coverage and other adverse public statements affecting NEE and FPL.  Adverse press coverage and other adverse statements, whether or not driven by political or public sentiment, may also result in investigations by regulators, legislators and law enforcement officials or in legal claims.  Responding to these investigations and lawsuits, regardless of the ultimate outcome of the proceeding, can divert the time and effort of senior management from NEE's and FPL's business.


Addressing any adverse publicity, governmental scrutiny or enforcement or other legal proceedings is time consuming and expensive and, regardless of the factual basis for the assertions being made, can have a negative impact on the reputation of NEE and FPL, on the morale and performance of their employees and on their relationships with their respective regulators.  It may also have a negative impact on their ability to take timely advantage of various business and market opportunities.  The direct and indirect effects of negative publicity, and the demands of responding to and addressing it, may have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected if FPL is unable to maintain, negotiate or renegotiate franchise agreements on acceptable terms with municipalities and counties in Florida.


FPL must negotiate franchise agreements with municipalities and counties in Florida to provide electric services within such municipalities and counties, and electricity sales generated pursuant to these agreements represent a very substantial portion of FPL's revenues.  If FPL is unable to maintain, negotiate or renegotiate such franchise agreements on acceptable terms, it could


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contribute to lower earnings and FPL may not fully realize the anticipated benefits from significant investments and expenditures, which could materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.


Increasing costs associated with health care plans may materially adversely affect NEE's and FPL's results of operations.


The costs of providing health care benefits to employees and retirees have increased substantially in recent years.  NEE and FPL anticipate that their employee benefit costs, including, but not limited to, costs related to health care plans for employees and former employees, will continue to rise.  The increasing costs and funding requirements associated with NEE's and FPL's health care plans may materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects could be negatively affected by the lack of a qualified workforce or the loss or retirement of key employees.


NEE and FPL may not be able to service customers, grow their business or generally meet their other business plan goals effectively and profitably if they do not attract and retain a qualified workforce.  Additionally, the loss or retirement of key executives and other employees may materially adversely affect service and productivity and contribute to higher training and safety costs.


Over the next several years, a significant portion of NEE's and FPL's workforce, including, but not limited to, many workers with specialized skills maintaining and servicing the nuclear generation facilities and electrical infrastructure, will be eligible to retire.  Such highly skilled individuals may not be able to be replaced quickly due to the technically complex work they perform.  If a significant amount of such workers retire and are not replaced, the subsequent loss in productivity and increased recruiting and training costs could result in a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected by work strikes or stoppages and increasing personnel costs.


Employee strikes or work stoppages could disrupt operations and lead to a loss of revenue and customers.  Personnel costs may also increase due to inflationary or competitive pressures on payroll and benefits costs and revised terms of collective bargaining agreements with union employees.  These consequences could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry.


NEE is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power industry in general.  In addition, NEE may be unable to identify attractive acquisition opportunities at favorable prices and to complete and integrate them successfully and in a timely manner.


Nuclear Generation Risks


The construction, operation and maintenance of NEE's and FPL's nuclear generation facilities involve environmental, health and financial risks that could result in fines or the closure of the facilities and in increased costs and capital expenditures.


NEE's and FPL's nuclear generation facilities are subject to environmental, health and financial risks, including, but not limited to, those relating to site storage of spent nuclear fuel, the disposition of spent nuclear fuel, leakage and emissions of tritium and other radioactive elements in the event of a nuclear accident or otherwise, the threat of a terrorist attack and other potential liabilities arising out of the ownership or operation of the facilities.  NEE and FPL maintain decommissioning funds and external insurance coverage which are intended to reduce the financial exposure to some of these risks; however, the cost of decommissioning nuclear generation facilities could exceed the amount available in NEE's and FPL's decommissioning funds, and the exposure to liability and property damages could exceed the amount of insurance coverage.  If NEE or FPL is unable to recover the additional costs incurred through insurance or, in the case of FPL, through regulatory mechanisms, their business, financial condition, results of operations and prospects could be materially adversely affected.


In the event of an incident at any nuclear generation facility in the U.S. or at certain nuclear generation facilities in Europe, NEE and FPL could be assessed significant retrospective assessments and/or retrospective insurance premiums as a result of their participation in a secondary financial protection system and nuclear insurance mutual companies.


Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan.  In accordance with this Act, NEE maintains $375 million of private liability insurance per site, which is the maximum obtainable, and participates in a secondary financial protection system, which provides up to $13.2 billion of liability insurance coverage per incident at any nuclear reactor in the U.S.  Under the secondary financial protection system, NEE is subject to retrospective assessments and/or retrospective insurance premiums of up to $1 billion ($509 million for FPL), plus any applicable taxes, per incident at any nuclear reactor in the U.S. or at certain nuclear generation facilities in Europe, regardless of fault or proximity to the incident, payable at a


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rate not to exceed $152 million ($76 million for FPL) per incident per year.  Such assessments, if levied, could materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.


NRC orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require NEE and FPL to incur substantial operating and capital expenditures at their nuclear generation facilities.


The NRC has broad authority to impose licensing and safety-related requirements for the operation and maintenance of nuclear generation facilities, the addition of capacity at existing nuclear generation facilities and the construction of nuclear generation facilities, and these requirements are subject to change.  In the event of non-compliance, the NRC has the authority to impose fines or shut down a nuclear generation facility, or to take both of these actions, depending upon its assessment of the severity of the situation, until compliance is achieved.  Any of the foregoing events could require NEE and FPL to incur increased costs and capital expenditures, and could reduce revenues.


Any serious nuclear incident occurring at a NEE or FPL plant could result in substantial remediation costs and other expenses.  A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear generation facility.  An incident at a nuclear facility anywhere in the world also could cause the NRC to impose additional conditions or other requirements on the industry, or on certain types of nuclear generation units, which could increase costs, reduce revenues and result in additional capital expenditures.


The inability to operate any of NEER's or FPL's nuclear generation units through the end of their respective operating licenses could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


The operating licenses for NEE's and FPL's nuclear generation facilities extend through at least 2030.  If the facilities cannot be operated for any reason through the life of those operating licenses, NEE or FPL may be required to increase depreciation rates, incur impairment charges and accelerate future decommissioning expenditures, any of which could materially adversely affect their business, financial condition, results of operations and prospects.


Various hazards posed to nuclear generation facilities, along with increased public attention to and awareness of such hazards, could result in increased nuclear licensing or compliance costs which are difficult or impossible to predict and could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


The threat of terrorist activity, as well as recent international events implicating the safety of nuclear facilities, could result in more stringent or complex measures to keep facilities safe from a variety of hazards, including, but not limited to, natural disasters such as earthquakes and tsunamis, as well as terrorist or other criminal threats.  This increased focus on safety could result in higher compliance costs which, at present, cannot be assessed with any measure of certainty and which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


NEE's and FPL's nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, and for other purposes.  If planned outages last longer than anticipated or if there are unplanned outages, NEE's and FPL's results of operations and financial condition could be materially adversely affected.


NEE's and FPL's nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, including, but not limited to, inspections, repairs and certain other modifications.  In addition, outages may be scheduled, often in connection with a refueling outage, to replace equipment, to increase the generation capacity at a particular nuclear unit, or for other purposes, and those planned activities increase the time the unit is not in operation.  In the event that a scheduled outage lasts longer than anticipated or in the event of an unplanned outage due to, for example, equipment failure, such outages could materially adversely affect NEE's or FPL's business, financial condition, results of operations and prospects.


Liquidity, Capital Requirements and Common Stock Risks


Disruptions, uncertainty or volatility in the credit and capital markets may negatively affect NEE's and FPL's ability to fund their liquidity and capital needs and to meet their growth objectives, and can also adversely affect the results of operations and financial condition of NEE and FPL.


NEE and FPL rely on access to capital and credit markets as significant sources of liquidity for capital requirements and other operations requirements that are not satisfied by operating cash flows.  Disruptions, uncertainty or volatility in those capital and credit markets, including, but not limited to, the conditions of the most recent financial crises in the U.S. and abroad, could increase NEE's and FPL's cost of capital.  If NEE or FPL is unable to access regularly the capital and credit markets on terms that are reasonable, it may have to delay raising capital, issue shorter-term securities and incur an unfavorable cost of capital, which, in turn, could adversely affect its ability to grow its business, could contribute to lower earnings and reduced financial flexibility, and could have a material adverse effect on its business, financial condition, results of operations and prospects.


Although NEE's competitive energy subsidiaries have used non-recourse or limited-recourse, project-specific financing in the past, market conditions and other factors could adversely affect the future availability of such financing.  The inability of NEE's subsidiaries


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to access the capital and credit markets to provide project-specific financing for electric-generating and other energy facilities on favorable terms, whether because of disruptions or volatility in those markets or otherwise, could necessitate additional capital raising or borrowings by NEE and/or NEECH in the future.


The inability of subsidiaries that have existing project-specific financing arrangements to meet the requirements of various agreements relating to those financings could give rise to a project-specific financing default which, if not cured or waived, might result in the specific project, and potentially in some limited instances its parent companies, being required to repay the associated debt or other borrowings earlier than otherwise anticipated, and if such repayment were not made, the lenders or security holders would generally have rights to foreclose against the project assets and related collateral.  Such an occurrence also could result in NEE expending additional funds or incurring additional obligations over the shorter term to ensure continuing compliance with project-specific financing arrangements based upon the expectation of improvement in the project's performance or financial returns over the longer term.  Any of these actions could materially adversely affect NEE's business, financial condition, results of operations and prospects, as well as the availability or terms of future financings for NEE or its subsidiaries.


NEE's, NEECH's and FPL's inability to maintain their current credit ratings may adversely affect NEE's and FPL's liquidity and results of operations, limit the ability of NEE and FPL to grow their business, and increase interest costs.


The inability of NEE, NEECH and FPL to maintain their current credit ratings could adversely affect their ability to raise capital or obtain credit on favorable terms, which, in turn, could impact NEE's and FPL's ability to grow their business and service indebtedness and repay borrowings, and would likely increase their interest costs.  Some of the factors that can affect credit ratings are cash flows, liquidity, the amount of debt as a component of total capitalization, and political, legislative and regulatory actions.  There can be no assurance that one or more of the ratings of NEE, NEECH and FPL will not be lowered or withdrawn entirely by a rating agency.


NEE's and FPL's liquidity may be impaired if their creditors are unable to fund their credit commitments to the companies or to maintain their current credit ratings.


The inability of NEE's, NEECH's and FPL's credit providers to fund their credit commitments or to maintain their current credit ratings could require NEE, NEECH or FPL, among other things, to renegotiate requirements in agreements, find an alternative credit provider with acceptable credit ratings to meet funding requirements, or post cash collateral and could have a material adverse effect on NEE's and FPL's liquidity.


Poor market performance and other economic factors could affect NEE's defined benefit pension plan's funded status, which may materially adversely affect NEE's and FPL's business, financial condition, liquidity and results of operations and prospects.


NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries.  A decline in the market value of the assets held in the defined benefit pension plan due to poor investment performance or other factors may increase the funding requirements for this obligation.


NEE's defined benefit pension plan is sensitive to changes in interest rates, since, as interest rates decrease the funding liabilities increase, potentially increasing benefits costs and funding requirements.  Any increase in benefits costs or funding requirements may have a material adverse effect on NEE's and FPL's business, financial condition, liquidity, results of operations and prospects.


Poor market performance and other economic factors could adversely affect the asset values of NEE's and FPL's nuclear decommissioning funds, which may materially adversely affect NEE's and FPL's liquidity and results of operations.


NEE and FPL are required to maintain decommissioning funds to satisfy their future obligations to decommission their nuclear power plants.  A decline in the market value of the assets held in the decommissioning funds due to poor investment performance or other factors may increase the funding requirements for these obligations.  Any increase in funding requirements may have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.


Certain of NEE's investments are subject to changes in market value and other risks, which may materially adversely affect NEE's liquidity, financial results and results of operations.


NEE holds other investments where changes in the fair value affect NEE's financial results.  In some cases there may be no observable market values for these investments, requiring fair value estimates to be based on other valuation techniques.  This type of analysis requires significant judgment and the actual values realized in a sale of these investments could differ materially from those estimated.  A sale of an investment below previously estimated value, or other decline in the fair value of an investment, could result in losses or the write-off of such investment, and may have a material adverse effect on NEE's liquidity, financial condition and results of operations.


NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to NEE.



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NEE is a holding company and, as such, has no material operations of its own.  Substantially all of NEE's consolidated assets are held by its subsidiaries.  NEE's ability to meet its financial obligations, including, but not limited to, its guarantees, and to pay dividends on its common stock is primarily dependent on its subsidiaries' net income and cash flows, which are subject to the risks of their respective businesses, and their ability to pay upstream dividends or to repay funds to NEE.


NEE's subsidiaries are separate legal entities and have no independent obligation to provide NEE with funds for its payment obligations.  The subsidiaries have financial obligations, including, but not limited to, payment of debt service, which they must satisfy before they can provide NEE with funds.  In addition, in the event of a subsidiary's liquidation or reorganization, NEE's right to participate in a distribution of assets is subject to the prior claims of the subsidiary's creditors.


The dividend-paying ability of some of the subsidiaries is limited by contractual restrictions which are contained in outstanding financing agreements and which may be included in future financing agreements.  The future enactment of laws or regulations also may prohibit or restrict the ability of NEE's subsidiaries to pay upstream dividends or to repay funds.


NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if NEE is required to perform under guarantees of obligations of its subsidiaries.


NEE guarantees many of the obligations of its consolidated subsidiaries, other than FPL, through guarantee agreements with NEECH.  These guarantees may require NEE to provide substantial funds to its subsidiaries or their creditors or counterparties at a time when NEE is in need of liquidity to meet its own financial obligations.  Funding such guarantees may materially adversely affect NEE's ability to meet its financial obligations or to pay dividends.


Disruptions, uncertainty or volatility in the credit and capital markets may exert downward pressure on the market price of NEE's common stock.


The market price and trading volume of NEE's common stock are subject to fluctuations as a result of, among other factors, general credit and capital market conditions and changes in market sentiment regarding the operations, business and financing strategies of NEE and its subsidiaries.  As a result, disruptions, uncertainty or volatility in the credit and capital markets may, for example, have a material adverse effect on the market price of NEE's common stock.



Item 1B.  Unresolved Staff Comments


None



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Item 2.  Properties


NEE and its subsidiaries maintain properties which are adequate for their operations; the principal properties are described below.


Generating Facilities


FPL


At December 31, 2013, the electric generating, transmission, distribution and general facilities of FPL represented approximately 51%, 11%, 33% and 5%, respectively, of FPL's gross investment in electric utility plant in service and other property.  At December 31, 2013, FPL had the following generating facilities:


FPL Facilities

Location

No.

of Units

Fuel

Net

Capability

(MW) (a)

Fossil

Combined-cycle

Cape Canaveral

Cocoa, FL

1

Gas/Oil

1,210


Fort Myers

Fort Myers, FL

1

Gas

1,432


Lauderdale

Dania, FL

2

Gas/Oil

884


Manatee

Parrish, FL

1

Gas

1,111


Martin

Indiantown, FL

1

Gas/Oil/Solar Thermal

1,141


(b)

Martin

Indiantown, FL

2

Gas

938


Putnam

Palatka, FL

2

Gas/Oil

498


Sanford

Lake Monroe, FL

2

Gas

1,980


Turkey Point

Florida City, FL

1

Gas/Oil

1,148


West County

West Palm Beach, FL

3

Gas/Oil

3,657


Steam turbines

Manatee

Parrish, FL

2

Gas/Oil

1,618


Martin

Indiantown, FL

2

Gas/Oil

1,652


St. Johns River Power Park

Jacksonville, FL

2

Coal/Petroleum Coke

254


(c)

Scherer

Monroe County, GA

1

Coal

643


(d)

Turkey Point

Florida City, FL

1

Gas/Oil

396


Simple-cycle combustion turbines

Fort Myers

Fort Myers, FL

2

Gas/Oil

315


Gas turbines

Fort Myers

Fort Myers, FL

12

Oil

648


Lauderdale

Dania, FL

24

Gas/Oil

840


Port Everglades

Port Everglades, FL

12

Gas/Oil

420


Nuclear

St. Lucie

Hutchinson Island, FL

2

Nuclear

1,821


(e)

Turkey Point

Florida City, FL

2

Nuclear

1,632


Solar PV

DeSoto

Arcadia, FL

1

Solar PV

25


Space Coast

Cocoa, FL

1

Solar PV

10


TOTAL

24,273


(f)

______________________

(a)

Represents FPL's net ownership interest in warm weather peaking capability.

(b)

The megawatts generated by the 75 MW solar thermal hybrid facility replace steam produced by this unit and therefore are not incremental.

(c)

Represents FPL's 20% ownership interest in each of SJRPP Units Nos. 1 and 2, which are jointly owned with JEA.

(d)

Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with JEA.

(e)

Excludes Orlando Utilities Commission's and the Florida Municipal Power Agency's combined share of approximately 15% of St. Lucie Unit No. 2.

(f)

Substantially all of FPL's properties are subject to the lien of FPL's mortgage.



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NEER


At December 31, 2013, NEER had the following generating facilities:


NEER Facilities

Location

Geographic

Region

No.

of Units

Fuel

Net

Capability

(MW) (a)

Wind

Ashtabula Wind (b)(c)

Barnes County, ND

Midwest

99


Wind

148

Ashtabula Wind II (c)(d)

Griggs & Steele Counties, ND

Midwest

80


Wind

120

Ashtabula Wind III

Barnes County, ND

Midwest

39


Wind

62

Baldwin Wind (b)

Burleigh County, ND

Midwest

64


Wind

102

Blackwell Wind (c)(d)

Kay County, OK

Other South

26


Wind

60

Blue Summit (c)

Wilbarger County, TX

Texas

85


Wind

135

Buffalo Ridge

Lincoln County, MN

Midwest

73


Wind

26

Butler Ridge Wind (b)(c)

Dodge County, WI

Midwest

36


Wind

54

Cabazon (b)

Riverside County, CA

West

52


Wind

39

Callahan Divide (b)

Taylor County, TX

Texas

76


Wind

114

Capricorn Ridge (c)

Sterling & Coke Counties, TX

Texas

208


Wind

364

Capricorn Ridge Expansion (c)

Sterling & Coke Counties, TX

Texas

199


Wind

298

Cerro Gordo (b)

Cerro Gordo County, IA

Midwest

55


Wind

41

Cimarron (b)

Gray County, KS

Other South

72


Wind

166

Conestogo Wind (b)

Wellington County, Ontario, Canada

Canada

10


Wind

23

Crystal Lake I (b)(c)

Hancock County, IA

Midwest

100


Wind

150

Crystal Lake II

Winnebago County, IA

Midwest

80


Wind

200

Crystal Lake III

Winnebago County, IA

Midwest

44


Wind

66

Day County Wind (b)

Day County, SD

Midwest

66


Wind

99

Delaware Mountain

Culberson County, TX

Texas

38


Wind

28

Diablo Wind (b)

Alameda County, CA

West

31


Wind

21

Elk City Wind (b)

Roger Mills & Beckham Counties, OK

Other South

43


Wind

99

Elk City Wind II

Roger Mills & Beckham Counties, OK

Other South

66


Wind

101

Endeavor Wind

Osceola County, IA

Midwest

40


Wind

100

Endeavor Wind II

Osceola County, IA

Midwest

20


Wind

50

Ensign Wind

Gray County, KS

Other South

43


Wind

99

Ghost Pine Wind

Kneehill County, Alberta, Canada

Canada

51


Wind

82

Gray County

Gray County, KS

Other South

170


Wind

112

Green Mountain (b)

Somerset County, PA

Northeast

8


Wind

10

Green Power

Riverside County, CA

West

22


Wind

17

Green Ridge Power

Alameda & Contra Costa Counties, CA

West

803


Wind

87

Hancock County (b)

Hancock County, IA

Midwest

148


Wind

98

High Winds (b)

Solano County, CA

West

90


Wind

162

Horse Hollow Wind (b)

Taylor County, TX

Texas

142


Wind

213

Horse Hollow Wind II (b)

Taylor & Nolan Counties, TX

Texas

130


Wind

299

Horse Hollow Wind III (b)

Nolan County, TX

Texas

149


Wind

224

Indian Mesa

Pecos County, TX

Texas

125


Wind

83

King Mountain (b)

Upton County, TX

Texas

214


Wind

278

Lake Benton II (b)

Pipestone County, MN

Midwest

137


Wind

103

Langdon Wind (b)(c)

Cavalier County, ND

Midwest

79


Wind

118

Langdon Wind II (b)(c)

Cavalier County, ND

Midwest

27


Wind

41

Lee / DeKalb Wind

Lee & DeKalb Counties, IL

Midwest

145


Wind

217

Limon I (c)(d)

Lincoln, Elbert & Arapahoe Counties, CO

West

125


Wind

200

Limon II (c)(d)

Lincoln, Elbert & Arapahoe Counties, CO

West

125


Wind

200

Logan Wind (c)

Logan County, CO

West

134


Wind

201

Majestic Wind (b)(c)

Carson County, TX

Texas

53


Wind

80

Majestic Wind II (c)

Carson & Potter Counties, TX

Texas

51


Wind

79

Meyersdale (b)

Somerset County, PA

Northeast

20


Wind

30

Mill Run (b)

Fayette County, PA

Northeast

10


Wind

15

Minco Wind (b)

Grady County, OK

Other South

62


Wind

99

Minco Wind II (b)

Grady & Caddo Counties, OK

Other South

63


Wind

101

Minco Wind III (c)(d)

Grady, Caddo & Canadian Counties, OK

Other South

63


Wind

101

Mojave 3/4/5

Kern County, CA

West

246


Wind

41

Montezuma Wind (b)

Solano County, CA

West

16


Wind

37

Montezuma Wind II (c)(d)

Solano County, CA

West

34


Wind

78

Mount Copper (b)

Gaspésie, Quebec, Canada

Canada

30


Wind

54


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NEER Facilities

Location

Geographic

Region

No.

of Units

Fuel

Net

Capability

(MW) (a)

Mount Miller (b)

Gaspésie, Quebec, Canada

Canada

30


Wind

54

Mountaineer Wind (b)

Preston & Tucker Counties, WV

Northeast

44


Wind

66

Mower County Wind (c)

Mower County, MN

Midwest

43


Wind

99

New Mexico Wind (b)

Quay & Debaca Counties, NM

West

136


Wind

204

North Dakota Wind (b)

LaMoure County, ND

Midwest

41


Wind

62

North Sky River (b)

Kern County, CA

West

100


Wind

162

Northern Colorado (b)

Logan County, CO

West

81


Wind

174

Oklahoma / Sooner Wind (b)

Harper & Woodward Counties, OK

Other South

68


Wind

102

Oliver County Wind I (c)

Oliver County, ND

Midwest

22


Wind

51

Oliver County Wind II (c)

Oliver County, ND

Midwest

32


Wind

48

Peetz Table Wind (c)

Logan County, CO

West

133


Wind

199

Perrin Ranch Wind (b)

Coconino County, AZ

West

62


Wind

99

Pheasant Run I

Huron County, MI

Midwest

44


Wind

75

Pubnico Point (b)

Yarmouth County, Nova Scotia, Canada

Canada

17


Wind

31

Red Canyon Wind (b)

Borden, Garza & Scurry Counties, TX

Texas

56


Wind

84

Red Mesa Wind

Cibola County, NM

West

64


Wind

102

Sky River (b)

Kern County, CA

West

322


Wind

73

Somerset Wind Power (b)

Somerset County, PA

Northeast

6


Wind

9

South Dakota Wind (b)

Hyde County, SD

Midwest

27


Wind

41

Southwest Mesa (b)

Upton & Crockett Counties, TX

Texas

106


Wind

74

Stateline (b)

Umatilla County, OR and Walla Walla County, WA

West

454


Wind

300

Steele Flats (c)(d)

Jefferson & Gage Counties, NE

Other South

44


Wind

75

Story County Wind (b)(c)

Story County, IA

Midwest

100


Wind

150

Story County Wind II (b)

Story & Hardin Counties, IA

Midwest

100


Wind

150

Summerhaven (b)

Haldimand County, Ontario, Canada

Canada

56


Wind

124

Tuscola Bay (b)

Tuscola, Bay & Saginaw Counties, MI

Midwest

75


Wind

120

Tuscola II

Tuscola & Bay Counties, MI

Midwest

59


Wind

100

Vansycle (b)

Umatilla County, OR

West

38


Wind

25

Vansycle II

Umatilla County, OR

West

43


Wind

99

Vasco Winds (c)(d)

Contra Costa County, CA

West

33


Wind

78

Waymart (b)

Wayne County, PA

Northeast

43


Wind

65

Weatherford Wind (b)

Custer & Washita Counties, OK

Other South

98


Wind

147

Wessington Springs Wind (b)(c)

Jerauld County, SD

Midwest

34


Wind

51

White Oak (c)(d)

McLean County, IL

Midwest

100


Wind

150

Wilton Wind (b)

Burleigh County, ND

Midwest

33


Wind

49

Wilton Wind II (c)(d)

Burleigh County, ND

Midwest

33


Wind

50

Windpower Partners 1990

Alameda & Contra Costa Counties, CA

West

141


Wind

14

Windpower Partners 1991

Alameda & Contra Costa Counties, CA

West

162


Wind

16

Windpower Partners 1991-92

Alameda & Contra Costa Counties, CA

West

223


Wind

22

Windpower Partners 1992

Alameda & Contra Costa Counties, CA

West

300


Wind

30

Windpower Partners 1993 (c)(d)

Riverside County, CA

West

33


Wind

50

Windpower Partners 1994

Culberson County, TX

Texas

107


Wind

39

Wolf Ridge Wind (c)

Cooke County, TX

Texas

75


Wind

112

Woodward Mountain

Upton & Pecos Counties, TX

Texas

242


Wind

160

Total Wind

10,210

Contracted

Bayswater (b)

Far Rockaway, NY

Northeast

2


Gas

56

Duane Arnold

Palo, IA

Midwest

1


Nuclear

431

(e)

Genesis (b)

Riverside County, CA

West

1


Solar Thermal

125

Hatch Solar

Hatch, NM

West

1


Solar CPV

5

Jamaica Bay (b)

Far Rockaway, NY

Northeast

2


Gas/Oil

54

Marcus Hook 750 (b)

Marcus Hook, PA

Northeast

4


Gas

744

Moore Solar (b)

Lambton County, Ontario, Canada

Canada

1


Solar PV

20

Planta Termosolar I & II (b)

Madrigalejo, Spain

Other

2


Solar Thermal

100

Point Beach

Two Rivers, WI

Midwest

2


Nuclear

1,190

Sombra Solar (b)

Lambton County, Ontario, Canada

Canada

1


Solar PV

20

Investments in joint ventures:

Desert Sunlight (b)

Riverside County, CA

West

1


Solar PV

155

SEGS III-IX (b)

Kramer Junction & Harper Lake, CA

West

7


Solar Thermal

147

Bellingham

Bellingham, MA

Northeast

3


Gas

149

Total Contracted

3,196


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NEER Facilities

Location

Geographic

Region

No.

of Units

Fuel

Net

Capability

(MW) (a)

Merchant

Forney (b)

Forney, TX

Texas

8


Gas

1,792

Lamar Power Partners (b)

Paris, TX

Texas

6


Gas

1,000

Maine - Cape, Wyman

Various - ME

Northeast

6


Oil

796

(f)

Marcus Hook 50

Marcus Hook, PA

Northeast

1


Gas

50

Paradise Solar

West Deptford, NJ

Northeast

1


Solar PV

5

Seabrook

Seabrook, NH

Northeast

1


Nuclear

1,100

(g)

Investment in joint venture

Various

Northeast

4


(h)

154

Total Merchant

4,897

TOTAL

18,303

______________________

(a)

Represents NEER's net ownership interest in plant capacity.

(b)

These generating facilities are encumbered by liens against their assets securing various financings.

(c)

NEER owns these wind facilities together with third-party investors with differential membership interests.  See Note 1 - Sale of Differential Membership Interests.

(d)

Various financings are secured by the pledge of NEER's membership interests in the entities owning these wind facilities.

(e)

Excludes Central Iowa Power Cooperative and Corn Belt Power Cooperative's combined share of 30%.

(f)

Excludes six other energy-related partners' combined share of 16%. Also, see Note 6.

(g)

Excludes Massachusetts Municipal Wholesale Electric Company's, Taunton Municipal Lighting Plant's and Hudson Light & Power Department's combined share of 11.77%.

(h)

Represents plants with no more than 50% ownership using fuels such as natural gas and waste coal.


Transmission and Distribution


At December 31, 2013, FPL owned and operated 589 substations and the following electric transmission and distribution lines:


Nominal

Voltage

Overhead Lines

Circuit/Pole Miles

Trench and

Submarine

Cables Miles

500

kV

1,106


(a)

-


230

kV

3,127


25


138

kV

1,580


52


115

kV

757


-


69

kV

164


14


Total circuit miles

6,734


91


Less than 69 kV (pole miles)

42,327


25,322


______________________

(a)  Includes approximately 75 miles owned jointly with JEA.


At December 31, 2013, NEER owned and operated 154 substations and approximately 839 circuit miles of transmission lines ranging from 115 kV to 345 kV and NEET owned and operated 6 substations and approximately 624 circuit miles of 345 kV transmission lines.


Character of Ownership


Substantially all of FPL's properties are subject to the lien of FPL's mortgage, which secures most debt securities issued by FPL.  The majority of FPL's real property is held in fee and is free from other encumbrances, subject to minor exceptions which are not of a nature as to substantially impair the usefulness to FPL of such properties.  Some of FPL's electric lines are located on parcels of land which are not owned in fee by FPL but are covered by necessary consents of governmental authorities or rights obtained from owners of private property.  The majority of NEER's generating facilities and transmission assets are owned by NEER subsidiaries and a number of those facilities are encumbered by liens securing various financings.  Additionally, some of NEER's generating facilities and transmission lines are located on land leased from owners of private property.  NEET's transmission assets are encumbered by liens securing financings and some of its transmission lines are located on land leased from owners of private property.  See Generating Facilities and Note 1 - Electric Plant, Depreciation and Amortization.



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Item 3.  Legal Proceedings


NEE and FPL are parties to various legal and regulatory proceedings in the ordinary course of their respective businesses.  For information regarding legal proceedings that could have a material adverse effect on NEE or FPL, see Note 13 - Spain Solar Projects and - Legal Proceedings. Such descriptions are incorporated herein by reference.


Item 4.  Mine Safety Disclosures


Not applicable

PART II


Item 5.  Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


Common Stock Data.   All of FPL's common stock is owned by NEE.  NEE's common stock is traded on the New York Stock Exchange under the symbol "NEE."  The high and low sales prices for the common stock of NEE as reported in the consolidated transaction reporting system of the New York Stock Exchange and the cash dividends per share declared for each quarter during the past two years are as follows:


2013

2012

Quarter

High

Low

Cash

Dividends

High

Low

Cash

Dividends

First

$

77.79


$

69.81


$

0.66


$

61.21


$

58.57


$

0.60


Second

$

82.65


$

74.78


$

0.66


$

68.96


$

61.20


$

0.60


Third

$

88.39


$

78.81


$

0.66


$

72.22


$

65.95


$

0.60


Fourth

$

89.75


$

78.97


$

0.66


$

72.21


$

66.05


$

0.60



The amount and timing of dividends payable on NEE's common stock are within the sole discretion of NEE's Board of Directors.  The Board of Directors reviews the dividend rate at least annually (generally in February) to determine its appropriateness in light of NEE's financial position and results of operations, legislative and regulatory developments affecting the electric utility industry in general and FPL in particular, competitive conditions, change in business mix and any other factors the Board of Directors deems relevant.  The ability of NEE to pay dividends on its common stock is dependent upon, among other things, dividends paid to it by its subsidiaries.  There are no restrictions in effect that currently limit FPL's ability to pay dividends to NEE.  In February 2014, NEE announced that it would increase its quarterly dividend on its common stock from $0.66 per share to $0.725 per share.  See Management's Discussion - Liquidity and Capital Resources - Covenants with respect to dividend restrictions and Note 10 - Common Stock Dividend Restrictions regarding dividends paid by FPL to NEE.


As of the close of business on January 31, 2014, there were 23,262 holders of record of NEE's common stock.


Issuer Purchases of Equity Securities. Information regarding purchases made by NEE of its common stock during the three months ended December 31, 2013 is as follows:


Period

Total

Number

of Shares

Purchased (a)

Average

Price Paid

Per Share

Total Number of Shares

Purchased as Part of a

Publicly Announced Program

Maximum Number of

Shares that May Yet be

Purchased Under the

Program (b)

10/1/2013 - 10/31/13

-


$

-


-

13,274,748

11/1/2013 - 11/30/13

885


$

88.57


-

13,274,748

12/1/2013 - 12/31/13

1,037


$

84.15


-

13,274,748

Total

1,922


$

86.19


-

______________________

(a)

Includes: (1) in November and December 2013, shares of common stock withheld from employees to pay certain withholding taxes upon the vesting of stock awards granted to such employees under the NextEra Energy, Inc. Amended and Restated 2011 Long Term Incentive Plan (2011 LTIP) and the NextEra Energy, Inc. Amended and Restated Long-Term Incentive Plan (former LTIP); and (2) in December 2013, shares of common stock purchased as a reinvestment of dividends by the trustee of a grantor trust in connection with NEE's obligation under a February 2006 grant under the former LTIP to an executive officer of deferred retirement share awards.

(b)

In February 2005, NEE's Board of Directors authorized common stock repurchases of up to 20 million shares of common stock over an unspecified period, which authorization was most recently reaffirmed and ratified by the Board of Directors in July 2011.



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Item 6.  Selected Financial Data


Years Ended December 31,

2013

2012

2011

2010

2009

SELECTED DATA OF NEE (millions, except per share amounts):

Operating revenues

$

15,136


$

14,256


$

15,341


$

15,317


$

15,643


Income from continuing operations (a)

$

1,720


$

1,911


$

1,923


$

1,957


$

1,615


Net income (a)(b)

$

1,908


$

1,911


$

1,923


$

1,957


$

1,615


Earnings per share of common stock - basic:

    Continuing operations (a)

$

4.06


$

4.59


$

4.62


$

4.77


$

3.99


    Net income (a)(b)

$

4.50


$

4.59


$

4.62


$

4.77


$

3.99


Earnings per share of common stock - assuming dilution:

    Continuing operations (a)

$

4.03


$

4.56


$

4.59


$

4.74


$

3.97


    Net income (a)(b)

$

4.47


$

4.56


$

4.59


$

4.74


$

3.97


Dividends paid per share of common stock

$

2.64


$

2.40


$

2.20


$

2.00


$

1.89


Total assets (c)

$

69,306


$

64,439


$

57,188


$

52,994


$

48,458


Long-term debt, excluding current maturities

$

23,969


$

23,177


$

20,810


$

18,013


$

16,300


SELECTED DATA OF FPL (millions):

Operating revenues

$

10,445


$

10,114


$

10,613


$

10,485


$

11,491


Net income

$

1,349


$

1,240


$

1,068


$

945


$

831


Total assets

$

36,488


$

34,853


$

31,816


$

28,698


$

26,812


Long-term debt, excluding current maturities

$

8,473


$

8,329


$

7,483


$

6,682


$

5,794


Energy sales (kWh)

107,643


105,109


106,662


107,978


105,414


Energy sales:

Residential

50.1

%

50.8

%

51.2

%

52.2

%

51.2

%

Commercial

42.1


43.0


42.2


41.3


42.7


Industrial

2.7


2.9


2.9


2.9


3.1


Interchange power sales

2.3


0.7


0.9


0.8


1.4


Other (d)

2.8


2.6


2.8


2.8


1.6


Total

100.0

%

100.0

%

100.0

%

100.0

%

100.0

%

Approximate 60-minute peak load (MW): (e)

Summer season

21,576


21,440


21,619


22,256


22,351


Winter season

17,500


16,025


17,934


21,153


24,346


Average number of customer accounts (thousands):

Residential

4,097


4,052


4,027


4,004


3,984


Commercial

517


512


508


504


501


Industrial

10


9


9


9


10


Other

3


3


3


3


4


Total

4,627


4,576


4,547


4,520


4,499


Average price billed to customers (cents per kWh)

9.47


9.51


9.83


9.34


11.19


______________________

(a)

Includes net unrealized mark-to-market after-tax gains (losses) associated with non-qualifying hedges of approximately $(53) million, $(34) million, $190 million, $175 million and $(20) million and OTTI after-tax income (losses), net of OTTI reversals of $1 million, $31 million, $(6) million, $4 million and $(13) million for the years ended December 31, 2013, 2012, 2011, 2010 and 2009, respectively.  Additionally, 2013 includes, on an after-tax basis, impairment and other related charges related to the Spain Solar projects of approximately $342 million (see Note 4 - Nonrecurring Fair Value Measurements) and an operating loss of the Spain solar projects of $4 million.  Also, 2011 includes an after-tax loss on the sale of natural gas-fired generating assets of approximately $98 million.  See Note 4 - Nonrecurring Fair Value Measurements.

(b)

2013 includes an after-tax net gain from discontinued operations of $188 million. See Note 6.

(c)

2012 includes assets held for sale of approximately $335 million.  See Note 6.

(d)

Includes the net change in unbilled sales.

(e)

Winter season includes November and December of the current year and January to March of the following year (for 2013, through February 21, 2014 ).




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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations


OVERVIEW


NEE's operating performance is driven primarily by the operations of its two principal subsidiaries, FPL, which serves approximately 4.7 million customer accounts in Florida and is one of the largest rate-regulated electric utilities in the U.S., and NEER, which together with affiliated entities is the largest generator in North America of renewable energy from the wind and sun.  The table below presents NEE's net income (loss) and earnings (loss) per share by reportable segment - FPL, NEER and Corporate and Other, which is primarily comprised of the operating results of NEET, FPL FiberNet and other business activities, as well as other income and expense items, including interest expense, income taxes and eliminating entries ( see Note  14 for additional segment information, including reported results from continuing operations). The following discussions should be read in conjunction with the Notes to the Consolidated Financial Statements contained herein and all comparisons are with the corresponding items in the prior year.


Net Income (Loss)

Earnings (Loss) Per Share,

assuming dilution

Years Ended December 31,

Years Ended December 31,

2013

2012

2011

2013

2012

2011

(millions)

FPL

$

1,349


$

1,240


$

1,068


$

3.16


$

2.96


$

2.55


NEER (a)

556


687


774


1.30


1.64


1.85


Corporate and Other

3


(16

)

81


0.01


(0.04

)

0.19


NEE

$

1,908


$

1,911


$

1,923


$

4.47


$

4.56


$

4.59


______________________

(a)

NEER's results reflect an allocation of interest expense from NEECH based on a deemed capital structure of 70% debt and allocated shared service costs.


For the five years ended December 31, 2013, NEE delivered a total shareholder return of approximately 105%, below the S&P 500's 128% return, but well above the S&P 500 Utilities' 62% return and the Dow Jones U.S. Electricity's 53% return.  The historical stock performance of NEE's common stock shown in the performance graph below is not necessarily indicative of future stock price performance.


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Adjusted Earnings


NEE prepares its financial statements under GAAP.  However, management uses earnings excluding certain items (adjusted earnings), a non-GAAP financial measure, internally for financial planning, for analysis of performance, for 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 investors.   NEE 's management believes adjusted earnings provides a more meaningful representation of the company's fundamental earnings power.  Although the excluded amounts are properly included in the determination of net income under GAAP, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing.  Adjusted earnings do not represent a substitute for net income, as prepared under GAAP.


Adjusted earnings exclude the unrealized mark-to-market effect of non-qualifying hedges (as described below) and OTTI losses on securities held in NEER's nuclear decommissioning funds, net of the reversal of previously recognized OTTI losses on securities sold and losses on securities where price recovery was deemed unlikely (collectively, OTTI reversals).  However, other adjustments may be made from time to time with the intent to provide more meaningful and comparable results of ongoing operations.


NEE and NEER segregate into two categories unrealized mark-to-market gains and losses on derivative transactions. The first category, referred to as non-qualifying hedges, represents certain energy derivative transactions, and, beginning in 2013, certain interest rate derivative 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 consolidated statements of income, resulting in earnings volatility because the economic offset to the positions are not marked to market. As a consequence, NEE's net income reflects only the movement in one part of economically-linked transactions.  For example, a gain (loss) in the non-qualifying hedge category for certain energy derivatives is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under GAAP.  For this reason, NEE's management views results expressed excluding the unrealized mark-to-market 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 3.


In 2011, subsidiaries of NEER completed the sales of their ownership interests in five natural gas-fired generating plants with a total generating capacity of approximately 2,700 MW located in California, Virginia, Alabama, South Carolina and Rhode Island.  In connection with these sales, a loss of approximately $151 million ($98 million total after-tax with $92 million of this loss recorded by NEER) was recorded in NEE's consolidated statements of income, which was excluded from adjusted earnings.  See Note 4 - Nonrecurring Fair Value Measurements.


In 2013, an after-tax net gain from discontinued operations of $188 million ($175 million recorded at NEER and $13 million recorded at Corporate and Other) was recorded in NEE's consolidated statements of income.  The after-tax net gain from discontinued operations consisted of $231 million related to the 2013 sale of the ownership interest in a portfolio of hydropower generation plants and related assets located in Maine and New Hampshire, partly offset by a $43 million write down associated with the plan to sell ownership interests in oil-fired generating plants located in Maine.  The operations of these projects were not material to NEE's consolidated statements of income for 2013, 2012 and 2011.  See Note 6.  Also in 2013, NEER recorded an impairment of $300 million and other related charges ($342 million after-tax) related to the Spain solar projects in NEE's consolidated statements of income.  See Note 4 - Nonrecurring Fair Value Measurements and Note 13 - Spain Solar Projects.  In order to make period to period comparisons more meaningful, in 2013 adjusted earnings also exc lude the after-tax net gain from discontinued operations, the after-tax charges associated with the impairment of the Spain solar projects and, beginning in the third quarter of 2013, the after-tax operating results associated with the Spain solar projects.



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The following table provides details of the adjustments to net income considered in computing NEE's adjusted earnings discussed above.


Years Ended December 31,

2013

2012

2011

(millions)

Net unrealized mark-to-market after-tax gains (losses) from non-qualifying hedge activity (a)

$

(53

)

$

(34

)

$

190

Income (loss) from OTTI after-tax losses on securities held in NEER's nuclear decommissioning funds, net of OTTI reversals

$

1


$

31

$

(6

)

After-tax loss on sale of natural gas-fired generating assets (b)

$

-


$

-

$

(98

)

After-tax net gain from discontinued operations (c)

$

188


$

-

$

-

After-tax charges recorded by NEER associated with the impairment of the Spain solar projects

$

(342

)

$

-

$

-

After-tax operating loss of NEER's Spain solar projects

$

(4

)

$

-

$

-

______________________

(a)

For 2013, 2012 and 2011, $54 million of losses, $37 million of losses and $193 million of gains, respectively, are included in NEER's net income; the balance is included in Corporate and Other.

(b)

$92 million of the loss is included in NEER's net income; the balance is included in Corporate and Other.

(c)

$175 million of the gain is included in NEER's net income; the balance is included in Corporate and Other.


The change in unrealized mark-to-market activity from non-qualifying hedges is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized.


2013 Summary


NEE's net income for 2013 was lower than 2012 by $3 million, or 9 cents per share, primarily due to lower results at NEER, partly offset by higher results at FPL . The decline in earnings per share, assuming dilution, also reflects additional shares outstanding.


During 2013, NEE and its subsidiaries commenced an enterprise-wide initiative focused mainly on improving productivity and reducing O&M expenses (cost savings initiative), and management expects to continue those efforts over the near term.   The transition costs associated with the cost savings initiative recorded by NEE in 2013 amounted to approximately $72 million ($44 million after-tax), of which $32 million of such after-tax costs were recorded by FPL and $12 million by NEER.


FPL's increase in net income in 2013 was primarily driven by continued investments in plant in service while earning a 10.96% regulatory ROE on its retail rate base .  In 2013, FPL began operating under the 2012 rate agreement which increased revenues and cash flows without a material change in the earned regulatory ROE.   FPL completed the final stage of its generation uprate project at Turkey Point Unit No. 4, completed the installation of approximately 4.5 million smart meters and placed in service the approximately 1,210 MW natural gas-fired combined-cycle Cape Canaveral power plant. The FPSC approved 25-year natural gas transportation agreements, pending completion of pipeline construction by Sabal Trail and Florida Southeast Connection (see below).  In 2013, FPL maintained a typical residential 1,000 kWh bill that was the lowest among reporting electric utilities within Florida and 28% below the national average based on a rate per kWh as of July 2013.


NEER's results decreased in 2013 prima rily due to the $342 million of after-tax charges associated with the impairment of the Spain solar projects, partly offset by the $175 million net after-tax gain from discontinued operations and higher results from new investments.  In 2013, NEER added approximately 374 MW of wind capacity in the U.S. and Canada and 280 MW of solar capacity in the U.S., and increased its backlog of contracted renewable development projects.


Corporate and Other's results in 2013 improved primarily due to higher results from NEET and higher investment gains, partly offset by higher interest expense.  I n 2013, Lone Star achieved full commercial operation of approximately 330 miles of new transmission lines and associated transmission facilities in Texas.  Sabal Trail and Florida Southeast Connection were selected to build, own and operate pipelines that would supply natural gas to FPL. The natural gas pipeline system is subject to certain conditions, including FERC approval.  A FERC decision is expected in 2015.


NEE and its subsidiaries, including FPL, require funds to support and grow their businesses. These funds are primarily provided by cash flow from operations, short- and long-term borrowings and proceeds from the sale of differential membership interests and, from time to time, issuance of equity securities. As of December 31, 2013 , NEE's total net available liquidity was approximately $6.7 billion , of which FPL's portion was approximately $3.0 billion .


Outlook


FPL's 2012 rate agreement continues to provide, among other things, a high degree of base rate predictability through December 2016, including allowances for rate increases when the modernized Cape Canaveral, Riviera Beach and Port Everglades power plants are placed in service, and permits FPL to record reserve amortization up to $400 million over the 2013 to 2016 period (see Item 1. Business - FPL - FPL Regulation - FPL Rate Regulation - Base Rates - Rates Effective January 1, 2013 - December 31,


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2016).  FPL's allowed regulatory ROE over this period is 10.50%, with a range of plus or minus 100 basis points.  In 2013, FPL amortized $155 million of the reserve and the Cape Canaveral power plant was placed in service in April 2013. FPL expects that the use of reserve amortization in 2013 will be more than in any of the remaining years of the 2012 rate agreement.


NEE's strategy at both of its principal businesses seeks to meet customer needs more economically and reliably than competitors.  Meeting customer needs frequently requires the commitment of large capital expenditures to projects that have long lives and such commitments are difficult to reverse once made.  Subsidiaries of NEE have made commitments to a variety of major capital projects that are expected to be completed over the next several years.  While NEE management believes that these projects individually and collectively are attractive investments with the potential to create value for shareholders, there can be no guarantee that all or any of these projects will be successful.  Because of their importance, management focuses particular attention on these large projects.


In 2014, NEE expects to focus efforts in particular on the following initiatives:


At FPL:


Sustaining FPL's customer value proposition:  The combination of low bills, good reliability and excellent customer service that FPL currently provides its customers is both an objective of FPL's strategy and an important contributor to its long-term business success.  FPL seeks to, at a minimum, maintain and ideally improve its overall customer value proposition.

Major capital projects:  FPL is currently engaged in a large capital expansion program and its objective is to bring these projects in on schedule and within budget.  This program includes modernizing its Riviera Beach and Port Everglades power plants to high-efficiency natural gas-fired units (approximately 1,200 MW at Riviera Beach and 1,240 MW at Port Everglades) to be placed in service in the second quarter of 2014 and mid-2016, respectively.

Storm hardening and reliability: FPL plans to continue to invest in storm hardening and reliability efforts.


At NEER:


Maintaining excellence in day-to-day operations:  NEER has developed a track record of generally running its facilities reliably and cost-effectively.  The company seeks to, at a minimum, maintain and ideally improve its operating performance.

Solar:  Add approximately 805 MW of new solar generation during 2014 through 2016, including a 20 MW solar PV project completed in January 2014, the 125 MW to complete the Genesis solar project in California, the 120 MW to complete NEER's portion of the Desert Sunlight solar PV project in California, the 250 MW McCoy solar PV project in California and the pending acquisition of development rights for a 250 MW solar PV project in Nevada which is expected to close in March 2014 and complete construction in 2016.

Wind:  Add approximately 600 MW of new Canadian wind generation and 2,000 to 2,500 MW of new U.S. wind generation during 2013 through 2015, of which 125 MW and 250 MW was placed in service in 2013 in Canada and the U.S., respectively.  

Nuclear: Complete the four planned nuclear refueling outages in 2014.


At Sabal Trail and Florida Southeast Connection: Continue to pursue FERC approval to build, own and operate the northern and southern portions of the natural gas pipeline system.


In addition, NEE and FPL devote effort to numerous other initiatives designed to support their long-term growth and development.  There can be no guarantees that NEE or FPL will be successful in attaining their goals with respect to any of these initiatives.


For additional information on certain of the above matters, see Item 1. Business.


RESULTS OF OPERATIONS


NEE's net income for 2013 was $1.91 billion , compared to $1.91 billion in 2012 and $1.92 billion in 2011. In 2013, net income was unfavorably affected by lower results at NEER offset by higher results at FPL and Corporate and Other. The decrease in NEE's 2012 net income was primarily due to the absence of certain income tax benefits at Corporate and Other recorded in 2011 and lower results at NEER, partly offset by improved results at FPL.


NEE's effective income tax rate for all periods presented reflects PTCs for wind projects at NEER and deferred income tax benefits associated with convertible ITCs under the American Recovery and Reinvestment Act of 2009, as amended (Recovery Act).  PTCs and deferred income tax benefits associated with convertible ITCs can significantly affect NEE's effective income tax rate depending on the amount of pretax income.  The amount of PTCs recognized can be significantly affected by wind generation and by the roll off of PTCs on certain wind projects after ten years of production (PTC roll off).  In addition, NEE's effective income tax rate for 2013 was unfavorably affected by the establishment of a full valuation allowance on the deferred tax assets associated with the Spain solar projects.  See Note 1 - Income Taxes, Note 1 - Sale of Differential Membership Interests, Note 4 - Nonrecurring Fair Value Measurements and Note 5.  Also see Item 1. Business - NEER - Generation and Other Operations - NEER Fuel/Technology Mix - Policy Incentives for Renewable Energy Projects, for a discussion of the Taxpayer Relief Act.



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FPL:  Results of Operations


FPL obtains its operating revenues primarily from the sale of electricity to retail customers at rates established by the FPSC through base rates and cost recovery clause mechanisms. FPL's net income for 2013, 2012 and 2011 was $1,349 million , $1,240 million and $1,068 million , respectively, representing an increase in 2013 of $109 million and an increase in 2012 of $172 million .  


The use of reserve amortization in 2013 is permitted by the 2012 rate agreement and, for 2012 and 2011, the 2010 rate agreement, subject to limitations provided in the rate agreements.  See Item 1. Business - FPL - FPL Regulation - FPL Rate Regulation - Base Rates for additional information on the 2012 and 2010 rate agreements. In order to earn a targeted regulatory ROE in each reporting period under the 2012 and 2010 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 is adjusted, in part, by reserve amortization to earn a targeted regulatory ROE.  In certain periods, reserve amortization must be reversed so as not to exceed the targeted regulatory ROE.  The drivers of FPL ' s net income not reflected in the reserve amortization calculation include wholesale and transmission service revenues and expenses, cost recovery clause revenues and expenses, AFUDC - equity and costs not allowed to be recovered by the FPSC.  During 2013, 2012 and 2011, FPL recorded reserve amortization of $155 million, $480 million and $187 million, respectively.


FPL's regulatory ROE for 2013 was 10.96%, compared to 11.0% in 2012 and 2011.  The 2013 regulatory ROE of 10.96% reflects approximately $32 million of after-tax charges associated with the cost savings initiative (see 2013 Summary above).  These charges were not offset by additional reserve amortization.  Excluding the impact of these charges, FPL's regulatory ROE for 2013 would have been approximately 11.25%.  In 2013 and 2012, the growth in earnings for FPL was primarily driven by:


higher earnings on investment in plant in service of approximately $175 million and $99 million, respectively.  Average investment in plant in service grew FPL's retail rate base in 2013 and 2012 by approximately $3.4 billion and $2.1 billion, respectively, reflecting, among other things, the generation power uprates at FPL's nuclear units, ongoing transmission and distribution additions and, for 2013, the modernized Cape Canaveral power plant,

higher AFUDC - equity of $3 million and $17 million, respectively, and

in 2012, higher cost recovery clause results of $52 million,

partly offset, in 2013, by,

lower cost recovery clause results of $45 million primarily due to the transfer of new nuclear capacity to retail rate base as discussed below under Retail Base, Cost Recovery Clauses and Interest Expense, and

the $32 million of after-tax charges associated with the cost savings initiative.


FPL's operating revenues consisted of the following:


Years Ended December 31,

2013

2012

2011

(millions)

Retail base

$

4,951


$

4,246


$

4,217


Fuel cost recovery

3,334


3,815


4,416


Net deferral of retail fuel revenues

-


(44

)

-


Net recognition of previously deferred retail fuel revenues

44


-


-


Other cost recovery clauses and pass-through costs, net of any deferrals

1,837


1,858


1,751


Other, primarily wholesale and transmission sales, customer-related fees and pole attachment rentals

279


239


229


Total

$

10,445


$

10,114


$

10,613



Retail Base


FPSC Rate Orders

In 2013, FPL's retail base revenues benefited from the 2012 rate agreement as retail base rates and charges were designed to increase approximately $350 million on an annualized basis, as well as a $164 million annualized retail base rate increase associated with the Cape Canaveral power plant, which was placed in service in April 2013.  The 2012 rate agreement:


remains in effect until December 2016,

establishes FPL's allowed regulatory ROE at 10.50%, with a range of plus or minus 100 basis points, and

allows for additional retail base rate increases as the modernized Riviera Beach and Port Everglades projects become operational (which is expected in the second quarter of 2014 and mid-2016, respectively).


In 2012 and 2011, FPL's retail base revenues were impacted by the 2010 rate agreement.  See Item 1. Business - FPL - FPL Regulation - FPL Rate Regulation - Base Rates for additional information on the 2012 and 2010 rate agreements.


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Included in retail base revenues for 2013 and 2012 were approximately $302 million and $11 million, respectively, of additional revenues associated with new retail base rates under the 2012 rate agreement and, for 2013, $129 million of additional retail base revenues related to the Cape Canaveral power plant which was placed in service in April 2013.   FPL collected in 2012 approximately $52 million of additional retail base revenues related to the placement in service of WCEC Unit No. 3 in May 2011, as permitted by the 2010 rate agreement.   Additional retail base revenues of approximately $233 million and $29 million were recorded in 2013 and 2012, respectively, primarily related to new nuclear capacity which was placed in service in 2012 and 2011, respectively, as permitted by the FPSC's nuclear cost recovery rule.  In 2014, FPL expects to collect approximately $113 million of additional base revenues, of which $4 million was recorded in 2013 as unbilled revenues, related to new nuclear capacity of approximately 125 MW which was placed in service in 2013.  See Cost Recovery Clauses below for discussion of the nuclear cost recovery rule.


In September 2013, the Florida Supreme Court heard oral argument on the OPC's appeal of the FPSC's final order regarding the 2012 rate agreement.  A ruling by the Florida Supreme Court is pending.


Retail Customer Usage and Growth


A portion of the increase in the average number of customer accounts of 1.1% in 2013 can be attributed to the remote disconnection of inactive meters (meters at premises where electric service is available but no customer is requesting service) through the use of smart meters and the subsequent establishment of valid customer accounts (reactivated customers).  Generally these reactivated customers were lower than average usage customers and, accordingly, did not increase revenues proportionally. The 1.1% increase in the average number of customer accounts increased retail base revenues by approximately $27 million.  

In 2013, although FPL experienced a 0.2% decrease in average usage per retail customer, the effect was to increase retail base revenues, after adjusting for the reactivated customers, by approximately $10 million, reflecting an improved economy and weather conditions, partly offset by increased efficiency measures and one less day of sales in 2013, as 2012 was a leap year.  In 2012, FPL experienced a 2.0% decrease in average usage per retail customer and the average number of customer accounts increased 0.6%, which collectively decreased retail base revenues by approximately $63 million. The decrease in average usage per retail customer was primarily due to weather conditions and the absence of three extra days of sales that occurred in 2011 for a change from a fiscal month to a calendar month, partly offset by higher non-weather related usage per retail customer. Non-weather related usage per retail customer increased in 2013 and 2012 mirroring the continued gradual improvements in the Florida economy. 

FPL has now experienced four consecutive years of moderately positive growth in the average number of customer accounts and expects a continuation of this trend in 2014, assuming no significant decline in the overall state of Florida's economy and excluding any impact from reactivated customers.


Cost Recovery Clauses


Revenues from fuel and other cost recovery clauses and pass-through costs, such as franchise fees, revenue taxes and storm-related surcharges, are largely a pass-through of costs.  Such revenues also include a return on investment allowed to be recovered through the cost recovery clauses on certain assets, primarily related to nuclear capacity, solar and environmental projects.   In 2013, 2012 and 2011, cost recovery clauses contributed $115 million, $160 million and $108 million, respectively, to FPL's net income.  The decrease in 2013 in cost recovery clause results is primarily due to the collection in 2013 of retail base revenues related to new nuclear capacity which was placed in service in 2012 (see Retail Base above), while the increase in 2012 reflects the return on additional nuclear capacity investments prior to recovery through retail base rates (see nuclear cost recovery rule discussion below). In 2014, there will be minimal contributions to net income from the nuclear cost recovery rule as all nuclear uprate costs have been placed in service and are now collected through base rates. Fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel, purchased power and interchange expense in the consolidated statements of income, as well as by changes in energy sales.  Fluctuations in revenues from other cost recovery clauses and pass-through costs are primarily driven by changes in storm-related surcharges, capacity charges, franchise fee costs, the impact of changes in O&M and depreciation expenses on the underlying cost recovery clause, investment in solar and environmental projects, investment in nuclear capacity until such capacity goes into service and is recovered in base rates, pre-construction costs associated with the development of two additional nuclear units at the Turkey Point site and changes in energy sales.  Capacity charges are included in fuel, purchased power and interchange and franchise fee costs are included in taxes other than income taxes and other in the consolidated statements of income.   Underrecovery or overrecovery of cost recovery clause and other pass-through costs can significantly affect NEE's and FPL's operating cash flows.  The change from December 31, 2012 to December 31, 2013 in deferred clause and franchise expenses and in deferred clause and franchise revenues was approximately $166 million and negatively affected NEE's and FPL's cash flows from operating activities in 2013.


The decrease in fuel cost recovery revenues in 2013 is primarily due to a lower average fuel factor, partly offset by gas sales associated with an incentive mechanism allowed under the 2012 rate agreement (incentive gas sales) and higher interchange power sales (collectively, approximately $200 million).  The decrease in fuel cost recovery revenues in 2012 is primarily due to a lower average fuel factor of approximately $558 million and lower energy sales of $43 million.


The change in revenues from other cost recovery clauses and pass-through costs in 2013 and 2012 reflects higher revenues in 2012 associated with the FPSC's nuclear cost recovery rule reflective of higher earnings on additional nuclear capacity investments


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and the shift, in 2013, to the collection of nuclear capacity recovery through retail base revenues (see Retail Base above). The nuclear cost recovery rule provides for the recovery of prudently incurred pre-construction costs and carrying charges (equal to the pretax AFUDC rate) on construction costs and a return on investment for new nuclear capacity through levelized charges under the capacity clause.  The same rule provides for the recovery of construction costs, once property related to the new nuclear capacity goes into service, through a retail base rate increase effective beginning the following January.


Other


The increase in other revenues is primarily due to an increase in customer-related fees associated with the 2012 rate agreement. FPL expects revenues from wholesale sales to increase approximately $100 million in 2014 primarily due an increase in contracted load served under existing wholesale contracts.


Other Items Impacting FPL's Consolidated Statements of Income


Fuel, Purchased Power and Interchange

The major components of FPL's fuel, purchased power and interchange expense are as follows:


Years Ended December 31,

2013

2012

2011

(millions)

Fuel and energy charges during the period

$

3,519

$

3,657

$

4,237

Net deferral of retail fuel costs

(148

)

-

-

Net recognition of previously deferred retail fuel costs

-

103

159

Other, primarily capacity charges, net of any capacity deferral

554

505

581

Total

$

3,925

$

4,265

$

4,977


The decrease in fuel and energy charges in 2013 was primarily due to lower fuel and energy prices of approximately $306 million, reflecting additional nuclear generation in 2013, which has a lower fuel cost, partly offset by gas purchased for incentive gas sales of $88 million and higher energy sales of $80 million.  The additional nuclear generation in 2013 was primarily due to increased capacity of the nuclear units as a result of the nuclear uprate project and higher nuclear production reflecting lower outage duration in 2013.  The decrease in fuel and energy charges in 2012 reflects lower fuel and energy prices of $526 million and lower energy sales of $54 million.


O&M Expenses

FPL's O&M expenses decreased $74 million in 2013, reflecting lower cost recovery clause costs, which are essentially pass-through costs, of approximately $54 million, the absence of nuclear outage costs incurred during an outage in the prior year and company-wide reductions in O&M expenses, partly offset by $52 million of transition costs associated with the cost savings initiative.  The ideas generated from the cost savings initiative are expected to keep FPL's O&M expenses recovered through base rates flat through 2016 as compared to 2012.  FPL's O&M expenses increased $74 million in 2012 primarily due to higher employee-related and insurance costs, higher fossil plant outage costs primarily due to outage timing and higher cost recovery clause costs of approximately $21 million.


Depreciation and Amortization Expense

The major components of FPL's depreciation and amortization expense are as follows:


Years Ended December 31,

2013

2012

2011

(millions)

Reserve amortization recorded under the 2012 and 2010 rate agreements

$

(155

)

$

(480

)

$

(187

)

Other depreciation and amortization recovered under base rates

1,105


1,013


944


Depreciation and amortization recovered under cost recovery clauses and securitized storm-recovery cost amortization

209


126


41


Total

$

1,159


$

659


$

798



The reserve amortization recorded in 2013 was lower than amortization recorded in the prior year primarily due to additional base revenues collected in 2013 associated with new retail base rates under the 2012 rate agreement. At December 31, 2013 approximately $245 million of the reserve remains available for future amortization over the term of the 2012 rate agreement.  Beginning in 2013, reserve amortization is recorded as a reduction of regulatory liabilities - accrued asset removal costs on the consolidated balance sheets. Reserve amortization in 2013 did not offset the charges associated with the cost savings initiative.  The increase in other depreciation and amortization expense recovered under base rates for 2013 and 2012 is primarily due to higher plant in service balances. The increase in depreciation and amortization recovered under cost recovery clauses and securitized storm-recovery cost amortization in 2013 and 2012 is primarily due to recoveries of prior year investment under the


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FPSC's nuclear cost recovery rule and higher plant in service balances associated with environmental projects under the environmental clause .


Taxes Other Than Income Taxes and Other

Taxes other than income taxes and other increased $63 million in 2013 primarily due to higher property taxes, reflecting growth in plant in service balances, and higher payroll taxes.   The decrease of $3 million in 2012 was primarily due to lower franchise fees and revenue taxes (collectively, approximately $31 million), both of which are pass-through costs and reflect the decrease in fuel cost recovery clause revenues, partly offset by higher property taxes of $28 million reflecting growth in plant in service balances.


Interest Expense

The decrease in interest expense in 2013 is primarily due to lower average interest rates and higher AFUDC - debt, partly offset by higher average debt balances. The increase in interest expense in 2012 is primarily due to higher average debt balances, partly offset by lower average interest rates, lower interest expense on customer deposits reflecting lower rates and lower average customer deposit balances and higher AFUDC - debt.  The change in AFUDC - debt is due to the same factors as described below in AFUDC - Equity. Interest expense on storm-recovery bonds, as well as certain other interest expense on clause-recoverable investments (collectively, clause interest), are essentially pass-through amounts and do not significantly affect net income, as the clause interest is recovered either under cost recovery clause mechanisms or through a storm-recovery bond surcharge.  Clause interest for 2013, 2012 and 2011 amounted to approximately $58 million, $81 million and $65 million, respectively. The change in revenues from other cost recovery clauses and pass-through costs in 2013 and 2012 reflects higher interest in 2012 associated with additional nuclear capacity investments and the shift in 2013 of nuclear capacity recovery through retail base revenues (see Retail Base and Cost Recovery Clauses above).


AFUDC - Equity

The increase in AFUDC - equity in 2013 is primarily due to additional AFUDC - equity recorded on construction expenditures associated with the Riviera Beach and Port Everglades modernization projects, partly offset by lower AFUDC - equity associated with the Cape Canaveral power plant which was placed in service in April 2013.  The increase in AFUDC - equity in 2012 is primarily due to additional AFUDC - equity on the Cape Canaveral and Riviera Beach modernization projects, partly offset by the absence of AFUDC - equity on WCEC Unit No. 3, which was placed in service in May 2011.



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NEER: Results of Operations


NEER owns, develops, constructs, manages and operates electric generating facilities in wholesale energy markets primarily in the U.S. and Canada. NEER's net income for 2013, 2012 and 2011 was $556 million , $687 million and $774 million , respectively, resulting in a decrease in 2013 of $131 million and a decrease in 2012 of $87 million .  The primary drivers, on an after-tax basis, of these decreases are in the following table.  The 99.8 MW associated with the Spain solar projects a nd the related operating results are not included in the new investments data below.


Increase (Decrease)

From Prior Period

Years Ended

December 31,

2013

2012

(millions)

New investments (a)

$

132

$

91

Existing assets (a)

(13

)

(178

)

Gas infrastructure (b)

17

24

Customer supply and proprietary power and gas trading (b)

(4

)

44

Asset sales and restructuring activities

(12

)

20

2011 impairment charges associated with certain wind and oil-fired generation assets (c)

-

31

Interest expense, differential membership costs and other

(33

)

(18

)

Change in unrealized mark-to-market non-qualifying hedge activity (d)(e)

(17

)

(230

)

Change in OTTI losses on securities held in nuclear decommissioning funds, net of OTTI reversals (e)

(30

)

37

Loss on sale of natural gas-fired generating assets (f)

-

92

Net gain on discontinued operations (g)

175

-

Charges associated with the impairment of the Spain solar projects (f)

(342

)

-

Operating loss of the Spain solar projects (f)

(4

)

-

Net income decrease

$

(131

)

$

(87

)

______________________

(a)

Includes PTCs and state ITCs on wind projects and, for new investments, deferred income tax and other benefits associated with convertible ITCs (see Note 1 -Electric Plant, Depreciation and Amortization, Note 1 - Income Taxes, Note 1 - Sale of Differential Membership Interests and Note 5) but excludes allocation of interest expense or corporate general and administrative expenses.  Results from new projects are included in new investments during the first twelve months of operation.  A project's results are included in existing assets beginning with the thirteenth month of operation.

(b)

Excludes allocation of interest expense and corporate general and administrative expenses.

(c)

See Note 4 - Nonrecurring Fair Value Measurements.

(d)

See Note 3 and Overview - Adjusted Earnings related to derivative instruments.

(e)

See table in Overview - Adjusted Earnings for additional detail.

(f)

See Note 4 - Nonrecurring Fair Value Measurements and Overview - Adjusted Earnings for additional information.

(g)

See Note 6 and Overview - Adjusted Earnings for additional information.


New Investments


In 2013, results from new investments increased primarily due to:


the addition of approximately 1,897 MW of wind generation during or after 2012, and

higher deferred income tax and other benefits associated with convertible ITCs of $18 million,

partly offset by,

lower state ITCs of $8 million.


In 2012, results from new investments increased primarily due to:


the addition of approximately 1,899 MW of wind and 45 MW of solar generation during or after 2011,

higher deferred income tax and other benefits associated with convertible ITCs of $16 million, and

higher state ITCs of $10 million.


Existing Assets


In 2013, results from NEER's existing asset portfolio decreased primarily due to:


lower wind generation of approximately $26 million,

PTC roll off of $26 million, and

lower results of $25 million due to the absence of the hydro assets which were sold in the first quarter of 2013,

partly offset by,

increased generation at Seabrook, primarily due to the absence of a 2012 reduction in capacity, as well as lower operating


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costs at that facility,

improved results of $16 million at Duane Arnold, primarily due to the absence of a 2012 refueling outage and favorable pricing, and

improved results of $11 million in the ERCOT region, primarily due to the absence of outages that occurred in 2012 at the natural gas facilities, and favorable market conditions.


In 2012, results from NEER's existing asset portfolio decreased due to:


Lower wind results of approximately $86 million primarily due to:

PTC roll off of $37 million,

the absence of $33 million of income tax benefits related to a valuation allowance reversal for certain state ITCs recorded in 2011, and

the balance primarily attributable to a lower wind resource, partly offset by certain state tax benefits.


Lower merchant results of approximately $59 million primarily due to:

lower results at Seabrook of $23 million primarily due to lower priced hedges,

lower results of $22 million in the ERCOT region, primarily due to market conditions as the prior year benefited from high market prices in August 2011, and higher O&M expenses and

lower hydro results of $13 million primarily due to lower priced hedges and a lower water resource.


Lower contracted results of approximately $33 million primarily due to:

the absence of earnings of $39 million from the natural gas-fired generating plants which were sold in the fourth quarter of 2011, and

lower results of $19 million related to the expiration of power sales agreements at certain joint venture projects, which is reflected in equity in earnings of equity method investees in NEE's consolidated statements of income,

partly offset by,

higher results of $25 million at Point Beach primarily due to the absence of a planned outage which occurred in the prior year and the addition of 167 MW of capacity, approximately one-half of which was completed in June 2011 and the other half of which was completed in December 2011, partly offset by higher O&M and depreciation expenses.


Gas Infrastructure


The increase in gas infrastructure results in 2013 is primarily due to income from additional production in 2013, partly offset by the absence of gains recorded in 2012 from exiting the hedged positions on a number of future gas production opportunities.  The increase in gas infrastructure results in 2012 is primarily due to income from additional production, partly offset by lower gains from exiting the hedged positions on a number of future gas production opportunities.


Customer Supply and Proprietary Power and Gas Trading


Results from customer supply and proprietary power and gas trading decreased in 2013 primarily due to lower results in the customer supply business reflecting lower margins and mild weather conditions, partly offset by higher power and gas trading results.  In 2012, results from customer supply and proprietary power and gas trading increased primarily due to improved market conditions, favorable weather and the absence of certain losses incurred in the prior year .


Asset Sales and Restructuring Activities


Asset sales and restructuring activities in 2013 primarily include an after-tax gain of approximately $8 million on the sale of a portfolio of wind projects with net generating capacity totaling 223 MW.  Asset sales and restructuring activities in 2012 primarily include an after-tax gain of approximately $8 million on the sale of a 30 MW wind project, an after-tax gain of $6 million on the sale of solar development rights and a $5 million after-tax gain related to an investment previously accounted for under the equity method in which NEER obtained a controlling interest (controlling interest gain).


2011 Impairment Charges Associated with Certain Wind and Oil-Fired Generation Assets


In 2011, NEER recorded impairment charges primarily to write down the value of certain wind and oil-fired generation assets deemed to be unrecoverable.  As a result of a fair value analysis, long-lived assets held and used with a carrying amount of approximately $79 million were written down to their fair value of $28 million, resulting in an impairment charge of $51 million or $31 million after-tax.  See Note 4 - Nonrecurring Fair Value Measurements.


Interest Expense, Differential Membership Costs and Other


In 2013, interest expense, differential membership costs and other reflects higher borrowing and other costs to support the growth of the business and transition costs associated with the cost savings initiative (approximately $12 million after-tax), partly offset by lower average interest rates and favorable income tax benefits. In 2012, interest expense, differential membership costs and other reflects higher employee-related costs and higher borrowing costs to support the growth of the business substantially offset by


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lower average interest rates and the absence of interest expense on debt associated with the natural gas-fired generating plants sold in the fourth quarter of 2011.


Other Factors


Supplemental to the primary drivers of the changes in net income discussed above, the discussion below describes changes in certain line items set forth in NEE's consolidated statements of income as they relate to NEER.


Operating Revenues

Operating revenues for 2013 increased $438 million primarily due to:


higher revenues in the New England Power Pool (NEPOOL) region primarily due to higher generation at Seabrook due to the absence of a 2012 reduction in capacity, higher gas infrastructure revenues and higher revenues in the ERCOT region primarily due to the absence of outages that occurred in 2012 at the natural gas facilities, offset in part by lower customer supply and proprietary power and gas trading revenues (collectively, $419 million), and

higher revenues from new investments of approximately $262 million, including $56 million associated with the Spain solar projects,

partly offset by,

higher unrealized mark-to-market losses from non-qualifying hedges ($116 million in 2013 compared to $115 million of gains on such hedges in 2012).


Operating revenues for 2012 decreased $607 million primarily due to:


the absence of revenues of approximately $469 million associated with five natural gas-fired generating plants sold in the fourth quarter of 2011,

lower unrealized mark-to-market gains from non-qualifying hedges ($115 million in 2012 compared to $414 million in 2011), and

unfavorable market conditions in the ERCOT and NEPOOL regions and lower revenues at PMI (collectively, $215 million),

partly offset by,

higher revenues from new investments and gas infrastructure (collectively, $228 million), and

higher revenues of $120 million at NEER's contracted nuclear facilities primarily due to the absence of a 2011 planned outage, the addition of capacity at Point Beach and favorable contract pricing.


Operating Expenses

Operating expenses for 2013 increased $706 million primarily due to:


an impairment charge of $300 million related to the Spain solar projects,

higher fuel expenses primarily in the NEPOOL and ERCOT regions and higher gas infrastructure operating expenses, offset in part by lower customer supply and proprietary power and gas trading fuel expense (collectively, $369 million),

higher operating expenses associated with new investments of approximately $149 million, including $42 million associated with the Spain solar projects, and

higher corporate operating expenses of approximately $68 million,

partly offset by,

higher unrealized mark-to-market gains from non-qualifying hedges ($1 million in 2013 compared to $184 million of losses on such hedges in 2012).


Operating expenses for 2012 decreased $327 million primarily due to:


the absence of operating expenses of approximately $365 million associated with five natural gas-fired generating plants sold in the fourth quarter of 2011, and

the absence of the $51 million impairment charge recorded in 2011,

partly offset by,

higher unrealized mark-to-market losses from non-qualifying hedges ($184 million in 2012 compared to $95 million in 2011).


Interest Expense

NEER's interest expense for 2013 increased $54 million primarily due to higher average debt balances, partly offset by lower average interest rates.  NEER's interest expense in 2013 also includes approximately $23 million of additional interest expense associated with the Spain solar projects, primarily due to the absence of capitalized interest during half of the year as the project was placed in service in June 2013.  NEER's interest expense for 2012 decreased $56 million primarily due to lower average interest rates and the absence of interest expense on debt associated with the natural gas-fired generating plants sold in the fourth quarter of 2011 .


Benefits Associated with Differential Membership Interests - net

Benefits associated with differential membership interests - net in NEE's consolidated statements of income for all periods presented reflect benefits recognized by NEER as third-party investors received their portion of the economic attributes, including income tax


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attributes, of the underlying wind project, net of associated costs.  See Note 1 - Sale of Differential Membership Interests.  For 2012 and 2011, benefits associated with differential membership interests - net also includes $13 million and $52 million, respectively, of benefits where the investors elected to receive the convertible ITCs related to the underlying wind project.


Gains on Disposal of Assets - net

Gains on disposal of assets - net in NEE's consolidated statements of income for 2013, 2012 and 2011 primarily reflect gains on sales of securities held in NEER's nuclear decommissioning funds and, for these respective periods, include approximately $14 million, $69 million and $25 million of OTTI reversals.  Gains on disposal of assets - net also reflect, in 2013, a pretax gain of approximately $14 million on the sale of a portfolio of wind assets with generation capacity totaling 223 MW, and in 2012, a pretax gain of $13 million on the sale o f the 30 MW wind project and a pretax gain of $7 million related to the controlling interest gain .


Tax Credits, Benefits and Expenses

PTCs from NEER's wind projects are reflected 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, and were approximately $209 million, $203 million and $271 million in 2013, 2012 and 2011, respectively.  In addition, NEE's effective income tax rate for 2013, 2012 and 2011 was affected by deferred income tax benefits associated with convertible ITCs of $71 million, $44 million and $2 million, respectively.   NEE's effective income tax rate for 2013 was unfavorably affected by the establishment of a full valuation allowance on the deferred tax assets associated with the Spain solar projects.   See Note 5 and Overview - Adjusted Earnings for additional information.


Corporate and Other: Results of Operations


Corporate and Other is primarily comprised of the operating results of NEET, FPL FiberNet and other business activities, as well as corporate interest income and expenses.  Corporate and Other allocates non-utility interest expense and shared service costs to NEER.  Interest expense is allocated based on a deemed capital structure of 70% debt and, for purposes of allocating non-utility interest expense, the liability associated with differential membership interests sold by NEER's subsidiaries is included with debt.  Each subsidiary's income taxes are calculated based on the "separate return method," except that tax benefits that could not be used on a separate return basis, but are used on the consolidated tax return, are recorded by the subsidiary that generated the tax benefits.  Any remaining consolidated income tax benefits or expenses are recorded at Corporate and Other.  The major components of Corporate and Other's results, on an after-tax basis, are as follows:


Years Ended December 31,

2013

2012

2011

(millions)

Interest expense, net of allocations to NEER

$

(109

)

$

(90

)

$

(72

)

Interest income

32


36


32


Federal and state income tax benefits

15


20


91


Other

65


18


30


Net income (loss)

$

3


$

(16

)

$

81



The increase in interest expense, net of allocations to NEER, in 2013 and 2012 reflects higher average debt balances and, in 2012, a lower allocation of interest costs to NEER, as NEER obtained additional project-specific financing, partly offset by lower average interest rates.  The federal and state income tax benefits reflect consolidating income tax adjustments and include the following items:


in 2013, a $13 million income tax benefit recorded as a net gain from discontinued operations, net of federal income taxes (see Overview - Adjusted Earnings),

in 2011, a state deferred income tax benefit of approximately $64 million, net of federal income taxes, related to state tax law changes,

in 2011, an income tax benefit of $41 million related to the dissolution of a subsidiary, and

in 2011, a $6 million expense associated with the loss on sale of natural gas-fired generating assets.


Other includes all other corporate income and expenses, as well as other business activities.  The increase in other in 2013 reflects higher results from NEET and higher after-tax investment gains of approximately $20 million.  Substantially all of the change in such investment gains, on a pretax basis, is reflected in other - net in NEE's consolidated statements of income. The decline in other in 2012 is primarily due to approximately $18 million of after-tax investment losses, including a $13 million after-tax impairment charge on an early stage technology investment, a $6 million after-tax loss on the redemption in 2012 of NEECH junior subordinated debentures, as well as other corporate costs, partly offset by higher results from other business activities.  The pretax amount of the impairment charge on the early stage technology investment and the loss on the redemption of NEECH junior subordinated debentures collectively amounted to approximately $30 million and is reflected in other - net in NEE's consolidated statements of income.



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LIQUIDITY AND CAPITAL RESOURCES


NEE and its subsidiaries, including FPL, require funds to support and grow their businesses. These funds are used for, among other things, working capital, capital expenditures, investments in or acquisitions of assets and businesses, payment of maturing debt obligations 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, from time to time, of short- and long-term debt and equity securities and proceeds from the sale of differential membership interests, 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. In 2013, NEE entered into a confirmation of forward sale transaction to issue 6.6 million shares to a forward counterparty, on a settlement date or dates to be specified at NEE's direction, which settlement will occur no later than December 31, 2014. See Note 10 - Issuance of Common Stock and Forward Sale Agreement. NEE, FPL and NEECH rely on access to credit and capital markets as significant sources of liquidity for capital requirements and other operations that are not satisfied by operating cash flows.  The inability of NEE, FPL and NEECH to maintain their current credit ratings could affect their ability to raise short- and long-term capital, their cost of capital and the execution of their respective financing strategies, and could require the posting of additional collateral under certain agreements.


Cash Flows


NEE's and FPL's increase in cash flows from operating activities for 2013 reflect an increase in retail base rates and charges associated with FPL's 2012 rate agreement and, for NEE, also reflects operating cash generated from approximately 1,500 MW of NEER wind projects placed in service in 2012, primarily in the fourth quarter.


Sources and uses of NEE's and FPL's cash for 2013 , 2012 and 2011 were as follows:


NEE

FPL

Years Ended December 31,

Years Ended December 31,

2013

2012

2011

2013

2012

2011

(millions)

Sources of cash:

Cash flows from operating activities

$

5,102


$

3,992


$

4,074


$

3,558


$

2,823


$

2,245


Long-term borrowings and change in loan proceeds restricted for construction

4,599


6,944


3,375


497


1,296


840


Proceeds from sale of differential membership interests, net of payments

385


669


366


-


-


-


Sale of independent power investments

165


-


1,204


-


-


-


Capital contribution from NEE

-


-


-


275


440


410


Cash grants under the Recovery Act

165


196


624


-


-


218


Issuances of common stock - net

842


405


48


-


-


-


Net increase in short-term debt

-


61


460


99


-


229


Other sources - net

66


141


205


30


68


89


Total sources of cash

11,324


12,408


10,356


4,459


4,627


4,031


Uses of cash:

Capital expenditures and independent power and other investments and nuclear fuel purchases

(6,682

)

(9,461

)

(6,628

)

(2,903

)

(4,285

)

(3,502

)

Retirements of long-term debt

(2,396

)

(1,612

)

(2,121

)

(453

)

(50

)

(45

)

Net decrease in short-term debt

(720

)

-


-


-


(225

)

-


Dividends

(1,122

)

(1,004

)

(920

)

(1,070

)

-


(400

)

Repurchases of common stock

-


(19

)

(375

)

-


-


-


Other uses - net

(295

)

(360

)

(237

)

(54

)

(63

)

(68

)

Total uses of cash

(11,215

)

(12,456

)

(10,281

)

(4,480

)

(4,623

)

(4,015

)

Net increase (decrease) in cash and cash equivalents

$

109


$

(48

)

$

75


$

(21

)

$

4


$

16




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NEE's primary capital requirements are for expanding and enhancing FPL's electric system and generating facilities to continue to provide reliable service to meet customer electricity demands and for funding NEER's investments in independent power and other projects.  The following table provides a summary of the major capital investments for 2013 , 2012 and 2011 .


Years Ended December 31,

2013

2012

2011

(millions)

FPL:

Generation:

New

$

931


$

2,488


$

1,424


Existing

655


520


907


Transmission and distribution

873


966


880


Nuclear fuel

212


215


365


General and other

162


95


213


Other, primarily the exclusion of AFUDC - equity and change in accrued property additions

70


1


(287

)

Total

2,903


4,285


3,502


NEER:

Wind

1,725


2,365


1,037


Solar

914


1,235


519


Nuclear, including nuclear fuel

269


286


686


Other

705


795


532


Total

3,613


4,681


2,774


Corporate and Other

166


495


352


Total capital expenditures, independent power and other investments and nuclear fuel purchases

$

6,682


$

9,461


$

6,628



In January 2014, NEECH announced that it will redeem, on March 1, 2014, all of its $375 million aggregate principal amount Series F Junior Subordinated Debentures due 2069 bearing interest at an annual rate of 8.75%.


Liquidity


At December 31, 2013, NEE's total net available liquidity was approximately $6.7 billion , of which FPL's portion was approximately $3.0 billion .  The table below provides the components of FPL's and NEECH's net available liquidity at December 31, 2013:


Maturity Date

FPL

NEECH

Total

FPL

NEECH

(millions)

Bank revolving line of credit facilities (a)

$

3,000


$

4,850


$

7,850


(b)

(b)

Less letters of credit

(3

)

(1,128

)

(1,131

)

2,997


3,722


6,719


Revolving credit facility

235


-


235


May 2014

Less borrowings

-


-


-


235


-


235


Letter of credit facilities (c)

-


250


250


2015

Less letters of credit

-


(221

)

(221

)

-


29


29


Subtotal

3,232


3,751


6,983


Cash and cash equivalents

19


418


437


Less commercial paper

(204

)

(487

)

(691

)

Net available liquidity

$

3,047


$

3,682


$

6,729


______________________

(a)

Provide for the funding of loans up to $7,850 million ($3,000 million for FPL) and the issuance of letters of credit up to $6,600 million ($2,500 million for FPL).  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 bank revolving line of credit facilities are also available to support the purchase of $633 million of pollution control, solid waste disposal and industrial development revenue bonds (tax exempt bonds) in the event they are tendered by individual bond holders and not remarketed prior to maturity.

(b)

$500 million of FPL's and $750 million of NEECH's bank revolving line of credit facilities expire in 2016, essentially all of the remaining facilities at each of FPL and NEECH expire in 2019.

(c)

Only available for the issuance of letters of credit.



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As of February 21, 2014 , 68 b anks participate in FPL's and NEECH's revolving credit facilities, with no one bank providing more than 6% of the combined revolving credit facilities.  European banks provide approximately 32 % of the combined revolving credit facilities.  Pursuant to a 1998 guarantee agreement, NEE guarantees the payment of NEECH's debt obligations under the revolving credit facilities.   In order for FPL or NEECH to borrow or to have letters of credit issued under the terms of their respective revolving credit facilities, FPL, in the case of FPL, and NEE, in the case of NEECH, are required, among other things, to maintain a ratio of funded debt to total capitalization that does not exceed a stated ratio. The FPL and NEECH revolving credit facilities also contain default and related acceleration provisions relating to, among other things, failure of FPL and NEE, as the case may be, to maintain the respective ratio of funded debt to total capitalization at or below the specified ratio.  At December 31, 2013, each of NEE and FPL was in compliance with its required ratio.


Additionally, a NEER subsidiary has five variable rate Canadian revolving credit agreements with original capacity totaling C$750 million and expiration dates ranging from October 2014 to 2016.  These facilities are available for general corporate purposes; however, the current intent is to use these facilities for the purchase, development, construction and/or operation of Canadian renewable generating assets.  In order to borrow or issue letters of credit under the terms of these agreements, among other things, NEE is required to maintain a ratio of funded debt to total capitalization that does not exceed a stated ratio.  These agreements also contain certain covenants and default and related acceleration provisions relating to, among other things, failure of NEE to maintain a ratio of funded debt to total capitalization at or below the specified ratio.  The payment obligations under these agreements are ultimately guaranteed by NEE.  As of December 31, 2013, approximately $230 million of capacity remained available.


Storm Restoration Costs


As of December 31, 2013, FPL had the capacity to absorb up to approximately $121 million in future prudently incurred storm restoration costs without seeking recovery through a rate adjustment from the FPSC or filing a petition with the FPSC.  See Note 1 – Revenue and Rates.


Dodd-Frank Act


The Dodd-Frank Act, enacted into law in July 2010, among other things, provides for substantially increased regulation of the OTC derivatives market.  The Dodd-Frank Act includes provisions that will require certain OTC derivatives, or swaps, to be centrally cleared and executed through an exchange or other approved trading platform.  While the legislation is broad and detailed, there are still portions of the legislation that either require implementing rules to be adopted by federal governmental agencies including, but not limited to, the SEC and the CFTC or otherwise require further interpretive guidance from federal government agencies.  NEE and FPL continue to monitor the development of rules related to the Dodd-Frank Act and are taking steps to comply with those rules that affect their businesses.  A number of rules have been finalized and are effective, including the swap reporting and recordkeeping obligations applicable to derivative end users such as NEE and FPL.  The implementation of these rules has not had a material effect on NEE and FPL; however, the rules have added, and are expected to add more, cost and compliance risk related to hedging activities.  The rules related to collateral requirements have not been finalized.  If those rules, when finalized, require NEE and FPL to post significant amounts of cash collateral with respect to swap transactions, NEE's and FPL's liquidity could be materially adversely affected.


NEE and FPL cannot predict the impact these new rules will have on their ability to hedge their commodity and interest rate risks or on OTC derivatives markets as a whole, but management believes that they could potentially have a material adverse effect on NEE's and FPL's risk exposure, as well as reduce market liquidity and further increase the cost of hedging activities.


Capital Support


Letters of Credit, Surety Bonds and Guarantees

Certain subsidiaries of NEE, including FPL, obtain letters of credit and surety bonds and issue guarantees to facilitate commercial transactions with third parties and financings.  Letters of credit, surety bonds and guarantees support, among other things, the buying and selling of wholesale energy commodities, debt and related reserves, capital expenditures for NEER's wind and solar development, nuclear activities and other contractual agreements.   Substantially all of NEE's and FPL's guarantee arrangements are on behalf of their consolidated subsidiaries for their related payment obligations.


In addition, as part of contract negotiations in the normal course of business, NEE and and certain of its subsidiaries, including FPL, may agree to make payments to compensate or indemnify other parties for possible future unfavorable financial consequences resulting from specified events.  The specified events may include, but are not limited to, an adverse judgment in a lawsuit, the imposition of additional taxes due to a change in tax law or interpretations of the tax law or the non-receipt of renewable tax credits or proceeds from cash grants under the Recovery Act.  NEE and FPL are unable to develop an estimate of the maximum potential amount of future payments under some of these contracts because events that would obligate them have not yet occurred or, if any such event has occurred, they have not been notified of its occurrence.


In addition, NEE has guaranteed certain payment obligations of NEECH, including most of its debt and all of its debentures and commercial paper issuances, as well as most of its payment guarantees and indemnifications, and NEECH has guaranteed certain debt and other obligations of NEER and its subsidiaries.



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At December 31, 2013, NEE had approximately $1.4 billion of standby letters of credit ($3 million for FPL), approximately $151 million of surety bonds ($22 million for FPL) and approximately $11.2 billion notional amount of guarantees and indemnifications ($18 million for FPL), of which approximately $7.3 billion of letters of credit, guarantees and indemnifications ($8 million for FPL) have expiration dates within the next five years.


Each of NEE and FPL believe it is unlikely that it would incur any liabilities associated with these letters of credit, surety bonds, guarantees and indemnifications.  Accordingly, at December 31, 2013, NEE and FPL did not have any liabilities recorded for these letters of credit, surety bonds, guarantees and indemnifications.


Shelf Registration

In August 2012, NE E, NEECH and FPL filed a shelf registration statement with the SEC for an unspecified amount of securities which became effective upon filing.  The amount of securities issuable by the companies is established from time to time by their respective boards of directors.  As of February 21, 2014 , securities that may be issued under the registration statement include, depending on the registrant, senior debt securities, subordinated debt securities, junior subordinated debentures, first mortgage bonds, common stock, preferred stock, stock purchase contracts, stock purchase units, warrants and guarantees related to certain of those securities.  As of February 21, 2014 , the board-authorized capacity available to issue securities was approximately $3.0 billion for NEE and NEECH (issuable by either or both of them up to such aggregate amount) and $1.6 billion for FPL.


Contractual Obligations and Estimated Capital Expenditures


NEE's and FPL's commitments at December 31, 2013 were as follows:


2014

2015

2016

2017

2018

Thereafter

Total

(millions)

Long-term debt, including interest: (a)

FPL

$

763


$

463


$

464


$

764


$

448


$

14,865


(b)

$

17,767


NEER

2,266


740


1,059


664


894


4,257


9,880


Corporate and Other

1,962


2,382


1,319


1,617


928


15,316


23,524


Purchase obligations:

FPL (c)

5,359


3,628


3,043


2,972


2,997


16,424


34,423


NEER (d)

1,220


145


170


100


91


452


2,178


Corporate and Other (e)

90


220


460


180


20


55


1,025


Elimination of FPL's purchase obligations to NEECH (f)

-


-


-


(59

)

(87

)

(1,410

)

(1,556

)

Asset retirement activities: (g)

FPL (h)

7


-


-


-


-


6,989


6,996


NEER (i)

-


-


-


-


-


12,937


12,937


Other commitments:

NEER (j)

73


95


105


124


172


483


1,052


Total

$

11,740


$

7,673


$

6,620


$

6,362


$

5,463


$

70,368


$

108,226


______________________

(a)

Includes principal, interest and interest rate swaps.  Variable rate interest was computed using December 31, 2013 rates. See Note 11.

(b)

Includes $633 million of tax exempt bonds that permit individual bond holders to tender the bonds for purchase at any time prior to maturity.  In the event bonds are tendered for purchase, they would be remarketed by a designated remarketing agent in accordance with the related indenture.  If the remarketing is unsuccessful, FPL would be required to purchase the tax exempt bonds.  As of December 31, 2013, all tax exempt bonds tendered for purchase have been successfully remarketed.  FPL's bank revolving line of credit facilities are available to support the purchase of tax exempt bonds.

(c)

Represents required capacity and minimum charges under long-term purchased power and fuel contracts (see Note 13 - Contracts), and projected capital expenditures through 2018 (see Note 13 - Commitments).

(d)

Represents firm commitments primarily in connection with construction and development activities and fuel-related contracts.  See Note 13 - Commitments and Contracts.

(e)

Represents firm commitments primarily related to equity contributions by a NEECH subsidiary to Sabal Trail. See Note 13 - Contracts.

(f)

See Note 13 - Contracts.

(g)

Represents expected cash payments adjusted for inflation for estimated costs to perform asset retirement activities.

(h)

At December 31, 2013, FPL had approximately $3,199 million in restricted funds for the payment of future expenditures to decommission FPL's nuclear units, which are included in NEE's and FPL's special use funds.  See Note 12.

(i)

At December 31, 2013, NEER's 88.23% portion of Seabrook's and 70% portion of Duane Arnold's and its Point Beach's restricted funds for the payment of future expenditures to decommission its nuclear units totaled approximately $1,507 million and are included in NEE's special use funds.  See Note 12.

(j)

Represents estimated cash distributions related to differential membership interests and payments related to the acquisition of certain development rights.  For further discussion of differential membership interests, see Note 1 - Sale of Differential Membership Interests.



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Credit Ratings


NEE's and FPL's liquidity, ability to access credit and capital markets, cost of borrowings and collateral posting requirements under certain agreements are dependent on their credit ratings.  At February 21, 2014 , Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services (S&P) and Fitch Ratings (Fitch) had assigned the following credit ratings to NEE, FPL and NEECH:


Moody's (a)

S&P (a)

Fitch (a)

NEE: (b)

Corporate credit rating

Baa1

A-

A-

FPL: (b)

Corporate credit rating

A1

A-

A

First mortgage bonds

Aa2

A

AA-

Pollution control, solid waste disposal and industrial development revenue bonds

VMIG-1

A

A+

Commercial paper

P-1

A-2

F1

NEECH: (b)

Corporate credit rating

Baa1

A-

A-

Debentures

Baa1

BBB+

A-

Junior subordinated debentures

Baa2

BBB

BBB

Commercial paper

P-2

A-2

F1

______________________

(a)

A security rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating.  The rating is subject to revision or withdrawal at any time by the assigning rating organization.

(b)

The outlook indicated by each of Moody's, S&P and Fitch is stable.


NEE and its subsidiaries, including FPL, have no credit rating downgrade triggers that would accelerate the maturity dates of outstanding debt.  A change in ratings is not an event of default under applicable debt instruments, and while there are conditions to drawing on the credit facilities noted above, the maintenance of a specific minimum credit rating is not a condition to drawing on these credit facilities.


Commitment fees and interest rates on loans under these credit facilities' agreements are tied to credit ratings.  A ratings downgrade also could reduce the accessibility and increase the cost of commercial paper and other short-term debt issuances and additional or replacement credit facilities.  In addition, a ratings downgrade could result in the requirement that NEE subsidiaries, including FPL, post collateral under certain agreements, including those related to fuel procurement, power sales and purchases, nuclear decommissioning funding, debt-related reserves and trading activities.  FPL's and NEECH's credit facilities are available to support these potential requirements.


Covenants


NEE's charter does not limit the dividends that may be paid on its common stock. As a practical matter, the ability of NEE to pay dividends on its common stock is dependent upon, among other things, dividends paid to it by its subsidiaries.  For example, FPL pays dividends to NEE in a manner consistent with FPL's long-term targeted capital structure.  However, the mortgage securing FPL's first mortgage bonds contains provisions which, under certain conditions, restrict the payment of dividends to NEE and the issuance of additional first mortgage bonds.  Additionally, in some circumstances, the mortgage restricts the amount of retained earnings that FPL can use to pay cash dividends on its common stock.  The restricted amount may change based on factors set out in the mortgage.  Other than this restriction on the payment of common stock dividends, the mortgage does not restrict FPL's use of retained earnings.  As of December 31, 2013, no retained earnings were restricted by these provisions of the mortgage and, in light of FPL's current financial condition and level of earnings, management does not expect that planned financing activities or dividends would be affected by these limitations.


FPL may issue first mortgage bonds under its mortgage subject to its meeting an adjusted net earnings test set forth in the mortgage, wh ich generally requires adjusted net earnings to be at least twice the annual interest requirements on, or at least 10% of the aggregate principal amount of, FPL's first mortgage bonds including those to be issued and any other non-junior FPL indebtedness.  As of December 31, 2013, coverage for the 12 months ended December 31, 2013 would have been approximately 6.8 times the annual interest requirements and approximately 3.6 times the aggregate principal requirements.  New first mortgage bonds are also limited to an amount equal to the sum of 60% of unfunded property additions after adjustments to offset property retirements, the amount of retired first mortgage bonds or qualified lien bonds and the amount of cash on deposit with the mortgage trustee.  As of December 31, 2013, FPL could have issued in excess of $10.5 billion of additional first mortgage bonds based on the unfunded property additions and in excess of $5.8 billion based on retired first mortgage bonds.  As of December 31, 2013, no cash was deposited with the mortgage trustee for these purposes.


In September 2006, NEE and NEECH executed a Replacement Capital Covenant (September 2006 RCC) in connection with NEECH's offering of $350 million principal amount of Series B Enhanced Junior Subordinated Debentures due 2066 (Series B junior


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subordinated debentures).  The September 2006 RCC is for the benefit of persons that buy, hold or sell a specified series of long‑term indebtedness (covered debt) of NEECH (other than the Series B junior subordinated debentures) or, in certain cases, of NEE.  FPL Group Capital Trust I's 5 7/8% Preferred Trust Securities have been initially designated as the covered debt under the September 2006 RCC.  The September 2006 RCC provides that NEECH may redeem, and NEE or NEECH may purchase, any Series B junior subordinated debentures on or before October 1, 2036, only to the extent that the redemption or purchase price does not exceed a specified amount of proceeds from the sale of qualifying securities, subject to certain limitations described in the September 2006 RCC.  Qualifying securities are securities that have equity-like characteristics that are the same as, or more equity-like than, the Series B junior subordinated debentures at the time of redemption or purchase, which are sold within 180 days prior to the date of the redemption or repurchase of the Series B junior subordinated debentures.


In June 2007, NEE and NEECH executed a Replacement Capital Covenant (June 2007 RCC) in connection with NEECH's offering of $400 million principal amount of its Series C Junior Subordinated Debentures due 2067 (Series C junior subordinated debentures).  The June 2007 RCC is for the benefit of persons that buy, hold or sell a specified series of covered debt of NEECH (other than the Series C junior subordinated debentures) or, in certain cases, of NEE.  FPL Group Capital Trust I's 5 7/8% Preferred Trust Securities have been initially designated as the covered debt under the June 2007 RCC.  The June 2007 RCC provides that NEECH may redeem or purchase, or satisfy, discharge or defease (collectively, defease), and NEE and any majority-owned subsidiary of NEE or NEECH may purchase, any Series C junior subordinated debentures on or before June 15, 2037, only to the extent that the principal amount defeased or the applicable redemption or purchase price does not exceed a specified amount raised from the issuance, during the 180 days prior to the date of that redemption, purchase or defeasance, of qualifying securities that have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the Series C junior subordinated debentures at the time of redemption, purchase or defeasance, subject to certain limitations described in the June 2007 RCC.


In September 2007, NEE and NEECH executed a Replacement Capital Covenant (September 2007 RCC) in connection with NEECH's offering of $250 million principal amount of its Series D Junior Subordinated Debentures due 2067 (Series D junior subordinated debentures).  The September 2007 RCC is for the benefit of persons that buy, hold or sell a specified series of covered debt of NEECH (other than the Series D junior subordinated debentures) or, in certain cases, of NEE.  FPL Group Capital Trust I's 5 7/8% Preferred Trust Securities have been initially designated as the covered debt under the September 2007 RCC.  The September 2007 RCC provides that NEECH may redeem, purchase, or defease, and NEE and any majority-owned subsidiary of NEE or NEECH may purchase, any Series D junior subordinated debentures on or before September 1, 2037, only to the extent that the principal amount defeased or the applicable redemption or purchase price does not exceed a specified amount raised from the issuance, during the 180 days prior to the date of that redemption, purchase or defeasance, of qualifying securities that have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the Series D junior subordinated debentures at the time of redemption, purchase or defeasance, subject to certain limitations described in the September 2007 RCC.


In March 2009, NEE and NEECH executed a Replacement Capital Covenant (March 2009 RCC) in connection with NEECH's offering of $375 million principal amount of its Series F Junior Subordinated Debentures due 2069 (Series F junior subordinated debentures).  The March 2009 RCC is for the benefit of persons that buy, hold or sell a specified series of covered debt of NEECH (other than the Series F junior subordinated debentures) or, in certain cases, of NEE.  FPL Group Capital Trust I's 5 7/8% Preferred Trust Securities have been initially designated as the covered debt under the March 2009 RCC.  The March 2009 RCC provides that NEECH may redeem, purchase, or defease, and NEE and any majority-owned subsidiary of NEE or NEECH may purchase, any Series F junior subordinated debentures on or before March 1, 2039, only to the extent that the principal amount defeased or the applicable redemption or purchase price does not exceed a specified amount raised from the issuance, during the 180 days prior to the date of that redemption, purchase or defeasance, of qualifying securities that have equity-like characteristics that are the same as, or more equity-like than, the applicable characteristics of the Series F junior subordinated debentures at the time of redemption, purchase or defeasance, subject to certain limitations described in the March 2009 RCC.



CRITICAL ACCOUNTING POLICIES AND ESTIMATES


NEE's and FPL's significant accounting policies are described in Note 1 to the consolidated financial statements, which were prepared under GAAP.  Critical accounting policies are those that NEE and FPL believe are both most important to the portrayal of their financial condition and results of operations, and require complex, subjective judgments, often as a result of the need to make estimates and assumptions about the effect of matters that are inherently uncertain.  Judgments and uncertainties affecting the application of those policies may result in materially different amounts being reported under different conditions or using different assumptions.


NEE and FPL consider the following policies to be the most critical in understanding the judgments that are involved in preparing their consolidated financial statements:


Accounting for Derivatives and Hedging Activities


NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated


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with outstanding and forecasted debt issuances.  In addition, NEE, through NEER, uses derivatives to optimize the value of power generation and gas infrastructure assets and engages in power and gas marketing and trading activities to take advantage of expected future favorable price movements.


Nature of Accounting Estimates


Accounting pronouncements require the use of fair value accounting if certain conditions are met, which requires significant judgment to measure the fair value of assets and liabilities.  This applies not only to traditional financial derivative instruments, but to any contract having the accounting characteristics of a derivative.  Much of the existing accounting guidance related to derivatives focuses on when certain contracts for the purchase and sale of power and certain fuel supply contracts can be excluded from derivative accounting rules, however the guidance does not address all contract issues.  As a result, significant judgment must be used in applying derivatives accounting guidance to contracts.  In the event changes in interpretation occur, it is possible that contracts that currently are excluded from derivatives accounting rules would have to be recorded on the balance sheet at fair value, with changes in the fair value recorded in the statement of income.


Assumptions and Accounting Approach


NEE's and FPL's derivative instruments, when required to be marked to market, are recorded on the balance sheet at fair value.  Fair values for some of the longer-term contracts where liquid markets are not available are derived through internally developed models which estimate the fair value of a contract by calculating the present value of the difference between the contract price and the forward prices.  Forward prices represent the price at which a buyer or seller could contract today to purchase or sell a commodity at a future date.   The near-term forward market for electricity is generally liquid and therefore the prices in the early years of the forward curves reflect observable market quotes.  However, in the later years, the market is much less liquid and forward price curves must be developed using factors including the forward prices for the commodities used as fuel to generate electricity, the expected system heat rate (which measures the efficiency of power plants in converting fuel to electricity) in the region where the purchase or sale takes place, and a fundamental forecast of expected spot prices based on modeled supply and demand in the region.  NEE estimates the fair value of interest rate and foreign currency derivatives using a discounted cash flows valuation technique based on the net amount of estimated future cash inflows and outflows related to the derivative agreements.  The assumptions in these models are critical since any changes therein could have a significant impact on the fair value of the derivative.


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 3.


In 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; fuel purchases used in the production of electricity are recognized in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's consolidated statements of income.


For those transactions accounted for as cash flow hedges, much of the effects of changes in fair value are reflected in OCI, a component of common shareholders' equity, rather than being recognized in current earnings.  For those transactions accounted for as fair value hedges, the effects of changes in fair value are reflected in current earnings offset by changes in the fair value of the item being hedged.


Certain hedging transactions at NEER are entered into as economic hedges but the transactions do not meet the requirements for hedge accounting, hedge accounting treatment is not elected or hedge accounting has been discontinued.   Changes in the fair value of those transactions are marked to market and reported in the consolidated statements of income, resulting in earnings volatility.  These changes in fair value are captured in the non-qualifying hedge category in computing adjusted earnings.  This could be significant to NEER's results because the economic offset to the positions are not marked to market.  As a consequence, NEE's net income reflects only the movement in one part of economically-linked transactions.  For example, a gain (loss) in the non-qualifying hedge category for certain energy derivatives is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under GAAP. For this reason, NEE's management views results expressed excluding the unrealized mark-to-market impact of the non-qualifying hedges as a meaningful measure of current period performance.  For additional information regarding derivative instruments, see Note 3, Overview and Energy Marketing and Trading and Market Risk Sensitivity.


Accounting for Pensions and Other Postretirement Benefits


NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries.  NEE also has a supplemental executive retirement plan (SERP) which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees.  The impact of the SERP component is included within the pension plan as discussed below.  Management believes that, based on actuarial assumptions and the well-funded status of the pension plan, NEE will not be required to make any cash contributions to the qualified pension plan in the near future.



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In addition to pension benefits, NEE sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits plan) for retirees of NEE and its subsidiaries meeting certain eligibility requirements.  The qualified pension plan has a fully funded trust dedicated to providing the benefits under the plan.  The other benefits plan has a partially funded trust dedicated to providing benefits related to life insurance.  NEE allocates net periodic benefit income or cost associated with the pension and other benefits plans to its subsidiaries annually using specific criteria.


Nature of Accounting Estimates


For the pension plan, the benefit obligation is the actuarial present value as of the December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date.  The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees/survivors and average years of service rendered.  The projected benefit obligation is measured based on assumptions concerning future interest rates and future employee compensation levels.  For the other benefits plan, the benefit obligation is the actuarial present value as of the December 31 measurement date of all future benefits attributed under the terms of the other benefits plan to employee service rendered to that date.  NEE derives pension income and the cost of the other benefits plan from actuarial calculations based on each plan's provisions and management's assumptions regarding discount rate, rate of increase in compensation levels and expected long-term rate of return on plan assets and, in the case of the other benefits plan, health care cost trend rates.


Assumptions and Accounting Approach


Accounting guidance requires recognition of the funded status of benefit plans in the balance sheet, with changes in the funded status recognized in other comprehensive income within shareholders' equity in the year in which the changes occur.  Since NEE is the plan sponsor, and its subsidiaries do not have separate rights to the plan assets or direct obligations to their employees, this accounting guidance is reflected at NEE and not allocated to the subsidiaries.  The portion of previously unrecognized actuarial gains and losses, prior service costs or credits and transition obligations that are estimated to be allocable to FPL as net periodic benefit (income) cost in future periods and that otherwise would be recorded in AOCI are classified as regulatory assets and liabilities at NEE in accordance with regulatory treatment.


Pension income and the cost of the other benefits plan are included in O&M expenses, and are calculated using a number of actuarial assumptions.  Those assumptions for the years ended December 31, 2013, 2012 and 2011 include:


an expected long-term rate of return on qualified plan assets of 7.75% for the pension plan and 7.75% , 8.00% and 8.00% for the other benefits plan, respectively,

assumed increases in salary of 4.00% , and

weighted-average discount rates of 4.00% , 4.65% and 5.00% for the pension plan and 3.75% , 4.53% and 5.25% for the other benefits plan, respectively.


In developing these assumptions, NEE evaluated input, including other qualitative and quantitative factors, from its actuaries and consultants, as well as information available in the marketplace.  In addition, for the expected long-term rate of return on fund assets, NEE considered different models, capital market return assumptions and historical returns for a portfolio with an equity/bond asset mix similar to its funds, as well as its funds' historical compounded returns.  NEE believes that 7.75% is a reasonable long-term rate of return on its pension plan and other benefits plan assets.  NEE will continue to evaluate all of its actuarial assumptions, including its expected rate of return, at least annually, and will adjust them as necessary.


NEE utilizes in its determination of pension and other benefits plan expense or income a market-related valuation of plan assets.  This market-related valuation reduces year-to-year volatility and recognizes investment gains or losses over a five-year period following the year in which they occur.  Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of plan assets and the actual return realized on those plan assets.  Since the market-related value of plan assets recognizes gains or losses over a five-year period, the future value of plan assets will be affected as previously deferred gains or losses are recognized.  Such gains and losses together with other differences between actual results and the estimates used in the actuarial valuations are deferred and recognized in determining pension income and other benefits plan expense only to the extent they exceed 10% of the greater of projected benefit obligations or the market-related value of plan assets.



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The following table illustrates the effect on net periodic benefit income of changing the critical actuarial assumptions discussed above, while holding all other assumptions constant:


Decrease in 2013

Net Periodic Benefit Income

Change in

Assumption

NEE

FPL

(millions)

Expected long-term rate of return

(0.5)%

$

(16

)

$

(11

)

Discount rate

(0.5)%

$

(10

)

$

(6

)

Salary increase

0.5%

$

(3

)

$

(2

)


See Note 2.


Carrying Value of Long-Lived Assets


NEE evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.


Nature of Accounting Estimates


The amount of future net cash flows, the timing of the cash flows and the determination of an appropriate interest rate all involve estimates and judgments about future events.  In particular, the aggregate amount of cash flows determines whether an impairment exists, and the timing of the cash flows is critical in determining fair value.  Because each assessment is based on the facts and circumstances associated with each long-lived asset, the effects of changes in assumptions cannot be generalized.


Assumptions and Accounting Approach


An impairment loss is required to be recognized if the carrying value of the asset exceeds the undiscounted future net cash flows associated with that asset.  The impairment loss to be recognized is the amount by which the carrying value of the long-lived asset exceeds the asset's fair value.  In most instances, the fair value is determined by discounting estimated future cash flows using an appropriate interest rate.  See Note 4 - Nonrecurring Fair Value Measurements and Note 6.


Decommissioning and Dismantlement


The components of NEE's and FPL's decommissioning of nuclear plants, dismantlement of plants and other accrued asset removal costs are as follows:


FPL

Nuclear

Decommissioning

Fossil/Solar

Dismantlement

Interim Removal

Costs and Other

NEER

NEE

December 31,

December 31,

December 31,

December 31,

December 31,

2013


2012


2013


2012


2013


2012


2013


2012


2013


2012


(millions)

AROs

$

1,237


$

1,173


$

44


$

29


$

4


$

4


$

565


$

509


$

1,850


$

1,715


Less capitalized ARO asset net of accumulated depreciation

-


-


(19

)

(11

)

-


-


-


-


(19

)

(11

)

Accrued asset removal costs (a)

260


234


323


338


1,256


1,378


-


-


1,839


1,950


Asset retirement obligation regulatory expense difference (a)

2,062


1,787


22


27


(2

)

(1

)

-


-


2,082


1,813


Accrued decommissioning, dismantlement and other accrued asset removal costs

$

3,559


(b)

$

3,194


(b)

$

370


(b)

$

383


(b)

$

1,258


(b)

$

1,381


(b)

$

565


$

509


$

5,752


$

5,467


______________________

(a)

Regulatory liability on NEE's and FPL's consolidated balance sheets.

(b)

Represents total amount accrued for ratemaking purposes.



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Nature of Accounting Estimates


The calculation of the future cost of retiring long-lived assets, including nuclear decommissioning and plant dismantlement costs, involves estimating the amount and timing of future expenditures and making judgments concerning whether or not such costs are considered a legal obligation.  Estimating the amount and timing of future expenditures includes, among other things, making projections of when assets will be retired and ultimately decommissioned and how costs will escalate with inflation.  In addition, NEE and FPL also make interest rate and rate of return projections on their investments in determining recommended funding requirements for nuclear decommissioning costs.  Periodically, NEE and FPL are required to update these estimates and projections which can affect the annual expense amounts recognized, the liabilities recorded and the annual funding requirements for nuclear decommissioning costs.  For example, an increase of 0.25% in the assumed escalation rates would increase NEE's and FPL's asset retirement obligations and conditional asset retirement obligations (collectively, AROs) as of December 31, 2013 by $130 million and $97 million, respectively.


Assumptions and Accounting Approach


NEE and FPL each account for AROs under accounting guidance that requires a liability for the fair value of an ARO to be recognized in the period in which it is incurred if it can be reasonably estimated, with the offsetting associated asset retirement costs capitalized as part of the carrying amount of the long-lived assets.


FPL - For ratemaking purposes, FPL accrues and funds for nuclear plant decommissioning costs over the expected service life of each unit based on studies that are filed with the FPSC.  The studies reflect, among other things, the expiration dates of the operating licenses for FPL's nuclear units.  The most recent studies, filed in 2010, indicate that FPL's portion of the future cost of decommissioning its four nuclear units, including spent fuel storage above what is expected to be refunded by the DOE under the spent fuel settlement agreement, is approximately $6.2 billion, or $2.5 billion expressed in 2013 dollars.


FPL accrues the cost of dismantling its fossil and solar plants over the expected service life of each unit based on studies filed with the FPSC.  Unlike nuclear decommissioning, dismantlement costs are not funded.  The most recent studies became effective January 1, 2010.  At December 31, 2013, FPL's portion of the ultimate cost to dismantle its fossil and solar units is approximately $751 million, or $394 million expressed in 2013 dollars.  The majority of the dismantlement costs are not considered AROs.  FPL accrues for interim removal costs over the life of the related assets based on depreciation studies approved by the FPSC.  Any differences between the ARO amount recorded and the amount recorded for ratemaking purposes are reported as a regulatory liability in accordance with regulatory accounting.


NEER - NEER records a liability for the present value of its expected decommissioning costs which is determined using various internal and external data and applying a probability percentage to a variety of scenarios regarding the life of the plant and timing of decommissioning.  The liability is being accreted using the interest method through the date decommissioning activities are expected to be complete.  At December 31, 2013, the ARO for nuclear decommissioning of NEER's nuclear plants totaled approximately $434 million.  NEER's portion of the ultimate cost of decommissioning its nuclear plants, including costs associated with spent fuel storage above what is expected to be refunded by the DOE under the spent fuel settlement agreement, is estimated to be approximately $11.9 billion, or $2.0 billion expressed in 2013 dollars.


See Note 1 - Asset Retirement Obligations, Note 1 - Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs and Note 12.



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Regulatory Accounting


NEE's and FPL's regulatory assets and liabilities are as follows:


NEE

FPL

December 31,

December 31,

2013

2012

2013

2012

(millions)

Regulatory assets:

Current:

Deferred clause and franchise expenses

$

192


$

75


$

192


$

75


Other

$

116


$

113


$

105


$

106


Noncurrent:





Securitized storm-recovery costs

$

372


$

461


$

372


$

461


Other

$

426


$

582


$

396


$

351


Regulatory liabilities:





Current, included in other current liabilities

$

65


$

65


$

63


$

65


Noncurrent:





Accrued asset removal costs

$

1,839


$

1,950


$

1,839


$

1,950


Asset retirement obligation regulatory expense difference

$

2,082


$

1,813


$

2,082


$

1,813


Other

$

462


$

309


$

386


$

309



Nature of Accounting Estimates


Regulatory assets and liabilities represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process.  Regulatory assets and liabilities are included in rate base or otherwise earn (pay) a return on investment during the recovery period.


Assumptions and Accounting Approach


Accounting guidance allows regulators to create assets and impose liabilities that would not be recorded by non-rate regulated entities.  If NEE's rate-regulated entities, primarily FPL, were no longer subject to cost-based rate regulation, the existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund.  In addition, the regulators, including the FPSC for FPL, have the authority to disallow recovery of costs that it considers excessive or imprudently incurred.  Such costs may include, among others, fuel and O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable, storm restoration costs and costs associated with the construction or acquisition of new facilities.  The continued applicability of regulatory accounting is assessed at each reporting period.


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 commodity price risk inherent in the purchase and sale of fuel and electricity.  In addition, NEE, through NEER, uses derivatives to optimize the value of power generation and gas infrastructure assets and engages in power and gas marketing and trading activities to take advantage of expected future favorable price movements.  See Critical Accounting Policies and Estimates - Accounting for Derivatives and Hedging Activities and Note 3.



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During 2012 and 2013 , the changes in the fair value of NEE's consolidated subsidiaries' energy contract derivative instruments were as follows:


Hedges on Owned Assets

Trading

Non-

Qualifying

OCI

FPL Cost

Recovery

Clauses

NEE Total

(millions)

Fair value of contracts outstanding at December 31, 2011

$

15


$

720


$

8


$

(501

)

$

242


Reclassification to realized at settlement of contracts

83


(122

)

(8

)

663


616


Inception value of new contracts and contracts sold

6


22


-


-


28


Net option premium purchases (issuances)

(2

)

3


-


-


1


Changes in fair value excluding reclassification to realized

159


51


-


(177

)

33


Fair value of contracts outstanding at December 31, 2012

261


674


-


(15

)

920


Reclassification to realized at settlement of contracts

(35

)

(42

)

-


(20

)

(97

)

Inception value of new contracts and contracts sold

3


-


-


-


3


Net option premium purchases (issuances)

(61

)

(12

)

-


-


(73

)

Changes in fair value excluding reclassification to realized

133


(57

)

-


81


157


Fair value of contracts outstanding at December 31, 2013

301


563


-


46


910


Net margin cash collateral paid (received)

(279

)

Total mark-to-market energy contract net assets at December 31, 2013

$

301


$

563


$

-


$

46


$

631



NEE's total energy contract net assets (liabilities) at December 31, 2013 shown above are included on the consolidated balance sheets as follows:


December 31,

2013

(millions)

Current derivative assets

$

471


Noncurrent derivative assets

1,100


Current derivative liabilities

(556

)

Noncurrent derivative liabilities

(384

)

NEE's total mark-to-market energy contract net assets

$

631



The sources of fair value estimates and maturity of energy contract derivative instruments at December 31, 2013 were as follows:


Maturity

2014

2015

2016

2017

2018

Thereafter

Total

(millions)

Trading:

Quoted prices in active markets for identical assets

$

76


$

22


$

(6

)

$

-


$

-


$

-


$

92


Significant other observable inputs

67


(5

)

21


17


(3

)

(1

)

96


Significant unobservable inputs

(57

)

65


38


36


3


28


113


Total

86


82


53


53


-


27


301


Owned Assets - Non-Qualifying:

Quoted prices in active markets for identical assets

(11

)

2


-


-


-


-


(9

)

Significant other observable inputs

(66

)

(18

)

30


17


3


4


(30

)

Significant unobservable inputs

43


40


59


66


69


325


602


Total

(34

)

24


89


83


72


329


563


Owned Assets - FPL Cost Recovery Clauses:

Quoted prices in active markets for identical assets

-


-


-


-


-


-


-


Significant other observable inputs

46


-


-


-


-


-


46


Significant unobservable inputs

-


-


-


-


-


-


-


Total

46


-


-


-


-


-


46


Total sources of fair value

$

98


$

106


$

142


$

136


$

72


$

356


$

910




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With respect to commodities, NEE's Exposure Management Committee (EMC), which is comprised of certain members of senior management, and NEE's chief executive officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels.  The EMC and NEE's chief executive officer receive periodic updates on market positions and related exposures, credit exposures and overall risk management activities.


NEE uses a value-at-risk (VaR) model to measure commodity price market risk in its trading and mark-to-market portfolios.  The VaR is the estimated nominal loss of market value based on a one-day holding period at a 95% confidence level using historical simulation methodology.  As of December 31, 2013 and 2012, the VaR figures are as follows:


Trading

Non-Qualifying Hedges

and FPL Cost Recovery Clauses (a)

Total

FPL

NEER

NEE

FPL

NEER

NEE

FPL

NEER

NEE

(millions)

December 31, 2012

$

-


$

2


$

2


$

34


$

88


$

76


$

34


$

87


$

76


December 31, 2013

$

-


$

2


$

2


$

36


$

54


$

43


$

36


$

55


$

42


Average for the period ended December 31, 2013

$

-


$

1


$

1


$

34


$

42


$

34


$

34


$

42


$

34


______________________

(a)

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 FPL cost recovery clauses category do not represent the economic exposure to commodity price movements.


Interest Rate Risk


NEE and FPL are exposed to risk resulting from changes in interest rates as a result of their respective 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:


December 31, 2013

December 31, 2012

Carrying

Amount

Estimated

Fair Value

Carrying

Amount

Estimated

Fair Value

(millions)

NEE:

Fixed income securities:

Special use funds

$

2,195


$

2,195


(a)

$

1,979


$

1,979


(a)

Other investments:




Debt securities

$

113


$

113


(a)

$

111


$

111


(a)

Primarily notes receivable

$

531


$

627


(b)

$

590


$

774


(b)

Long-term debt, including current maturities

$

27,728


$

28,612


(c)

$

26,647


(d)

$

28,874


(c)

Interest rate contracts - net unrealized losses

$

(130

)

$

(130

)

(e)

$

(311

)

$

(311

)

(e)

FPL:

Fixed income securities - special use funds

$

1,735


$

1,735


(a)

$

1,526


$

1,526


(a)

Long-term debt, including current maturities

$

8,829


$

9,451


(c)

$

8,782


$

10,421


(c)

______________________

(a)

Primarily estimated using quoted market prices for these or similar issues.

(b)

Primarily estimated using a discounted cash flow valuation technique based on certain observable yield curves and indices considering the credit profile of the borrower.

(c)

Estimated using either quoted market prices for the same or similar issues or discounted cash flow valuation technique, considering the current credit spread of the debtor.

(d)

Also includes long-term debt reflected in liabilities associated with assets held for sale on the consolidated balance sheets, for which carrying amount approximates fair value.

(e)

Modeled internally using discounted cash flow valuation technique and applying a credit valuation adjustment.


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 OTTI losses, result in a corresponding adjustment to the related liability accounts based on current regulatory treatment.  The changes in fair value of NEE's non-rate regulated operations result in a corresponding adjustment to OCI, except for impairments deemed to be other than temporary, including any credit losses, 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, as decommissioning activities are not scheduled to begin until at least 2030 (2032 at FPL).


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As of December 31, 2013, NEE had interest rate contracts with a notional amount of approximately $6.5 billion related to long-term debt issuances, of which $1.8 billion are fair value hedges at NEECH that effectively convert fixed-rate debt to a variable-rate instrument.  The remaining $4.7 billion of notional amount of interest rate contracts relate to cash flow hedges to manage exposure to the variability of cash flows associated with variable-rate debt instruments, all of which relate to NEER debt issuances.  At December 31, 2013, the estimated fair value of NEE's fair value hedges and cash flow hedges was approximately $10 million and $(140) million, respectively.  See Note 3.


Based upon a hypothetical 10% decrease in interest rates, which is a reasonable near-term market change, the net fair value of NEE's net liabilities would increase by approximately $985 million ($488 million for FPL) at December 31, 2013.


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 primarily carried at their market value of approximately $2,585 million and $2,211 million ($1,538 million and $1,392 million for FPL) at December 31, 2013 and 2012, respectively.   At December 31, 2013, a hypothetical 10% decrease in the prices quoted by stock exchanges, which is a reasonable near-term market change, would result in a $241 million ($141 million for FPL) reduction in fair value.  For FPL, a corresponding adjustment would be made to the related liability accounts based on current regulatory treatment, and for NEE's non-rate regulated operations, a corresponding adjustment would be made to OCI to the extent the market value of the securities exceeded amortized cost and to OTTI loss to the extent the market value is below amortized cost.


Credit Risk


NEE and its subsidiaries are also exposed to credit risk through their energy marketing and trading operations.  Credit risk is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfill its financial obligation.  NEE manages counterparty credit risk for its subsidiaries with energy marketing and trading operations through established policies, including counterparty credit limits, and in some cases credit enhancements, such as cash prepayments, letters of credit, cash and other collateral and guarantees.


Credit risk is also managed through the use of master netting agreements.  NEE's credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis.  For all derivative and contractual transactions, NEE's energy marketing and trading operations, which includes FPL's energy marketing and trading division, are exposed to losses in the event of nonperformance by counterparties to these transactions.  Some relevant considerations when assessing NEE's energy marketing and trading operations' credit risk exposure include the following:


Operations are primarily concentrated in the energy industry.

Trade receivables and other financial instruments are predominately with energy, utility and financial services related companies, as well as municipalities, cooperatives and other trading companies in the U.S.

Overall credit risk is managed through established credit policies and is overseen by the EMC.

Prospective and existing customers are reviewed for creditworthiness based upon established standards, with customers not meeting minimum standards providing various credit enhancements or secured payment terms, such as letters of credit or the posting of margin cash collateral.

Master netting agreements are used to offset cash and non-cash 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.  As of December 31, 2013, approximately 97% of NEE's and 100% of FPL's energy marketing and trading counterparty credit risk exposure is associated with companies that have investment grade credit ratings.


Item 7A.  Quantitative and Qualitative Disclosures About Market Risk


See Management's Discussion – Energy Marketing and Trading and Market Risk Sensitivity.




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Item 8.  Financial Statements and Supplementary Data




MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING


NextEra Energy, Inc.'s (NEE) and Florida Power & Light Company's (FPL) management are responsible for establishing and maintaining adequate internal control over financial reporting as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f).  The consolidated financial statements, which in part are based on informed judgments and estimates made by management, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis.


To aid in carrying out this responsibility, we, along with all other members of management, maintain a system of internal accounting control which is established after weighing the cost of such controls against the benefits derived.  In the opinion of management, the overall system of internal accounting control provides reasonable assurance that the assets of NEE and FPL and their subsidiaries are safeguarded and that transactions are executed in accordance with management's authorization and are properly recorded for the preparation of financial statements.  In addition, management believes the overall system of internal accounting control provides reasonable assurance that material errors or irregularities would be prevented or detected on a timely basis by employees in the normal course of their duties.  Any system of internal accounting control, no matter how well designed, has inherent limitations, including the possibility that controls can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected.  Also, because of changes in conditions, internal control effectiveness may vary over time.  Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation and reporting.


The system of internal accounting control is supported by written policies and guidelines, the selection and training of qualified employees, an organizational structure that provides an appropriate division of responsibility and a program of internal auditing.  NEE's written policies include a Code of Business Conduct & Ethics that states management's policy on conflicts of interest and ethical conduct.  Compliance with the Code of Business Conduct & Ethics is confirmed annually by key personnel.


The Board of Directors pursues its oversight responsibility for financial reporting and accounting through its Audit Committee.  This Committee, which is comprised entirely of independent directors, meets regularly with management, the internal auditors and the independent auditors to make inquiries as to the manner in which the responsibilities of each are being discharged.  The independent auditors and the internal audit staff have free access to the Committee without management's presence to discuss auditing, internal accounting control and financial reporting matters.


Management assessed the effectiveness of NEE's and FPL's internal control over financial reporting as of December 31, 2013 , using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the Internal Control - Integrated Framework (1992) .  Based on this assessment, management believes that NEE's and FPL's internal control over financial reporting was effective as of December 31, 2013 .


NEE's and FPL's independent registered public accounting firm, Deloitte & Touche LLP, is engaged to express an opinion on NEE's and FPL's consolidated financial statements and an opinion on NEE's and FPL's internal control over financial reporting.  Their reports are based on procedures believed by them to provide a reasonable basis to support such opinions.  These reports appear on the following pages.


JAMES L. ROBO

MORAY P. DEWHURST

James L. Robo

Chairman, President and Chief Executive Officer of NEE and Chairman and Chief Executive Officer of FPL

Moray P. Dewhurst

Vice Chairman and Chief Financial Officer,

and Executive Vice President - Finance of NEE and

Executive Vice President, Finance and

Chief Financial Officer of FPL


CHRIS N. FROGGATT

KIMBERLY OUSDAHL

Chris N. Froggatt
Vice President, Controller and Chief Accounting Officer
of NEE

Kimberly Ousdahl
Vice President, Controller and Chief Accounting Officer of FPL




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders

NextEra Energy, Inc. and Florida Power & Light Company:


We have audited the internal control over financial reporting of NextEra Energy, Inc. and subsidiaries (NextEra Energy) and Florida Power & Light Company and subsidiaries (FPL) as of December 31, 2013 , based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. NextEra Energy's and FPL's management are responsible for maintaining effective internal control over financial reporting and for their assessments of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.  Our responsibility is to express an opinion on NextEra Energy's and FPL's internal control over financial reporting based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audits included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.


A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.


Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


In our opinion, NextEra Energy and FPL maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013 , based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2013 of NextEra Energy and FPL and our report dated February 21, 2014 expressed an unqualified opinion on those financial statements.




DELOITTE & TOUCHE LLP

Certified Public Accountants


Miami, Florida

February 21, 2014




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders

NextEra Energy, Inc. and Florida Power & Light Company:


We have audited the accompanying consolidated balance sheets of NextEra Energy, Inc. and subsidiaries (NextEra Energy) and the separate consolidated balance sheets of Florida Power & Light Company and subsidiaries (FPL) as of December 31, 2013 and 2012 , and NextEra Energy's and FPL's related consolidated statements of income, NextEra Energy's consolidated statements of comprehensive income, NextEra Energy's and FPL's consolidated statements of cash flows, NextEra Energy's consolidated statements of common shareholders' equity, and FPL's consolidated statements of common shareholder's equity for each of the three years in the period ended December 31, 2013 .  These financial statements are the responsibility of NextEra Energy's and FPL's management.  Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.


In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NextEra Energy, Inc. and subsidiaries and the financial position of Florida Power & Light Company and subsidiaries at December 31, 2013 and 2012 , and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 , in conformity with accounting principles generally accepted in the United States of America.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), NextEra Energy's and FPL's internal control over financial reporting as of December 31, 2013 , based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2014 expressed an unqualified opinion on NextEra Energy's and FPL's internal control over financial reporting.



DELOITTE & TOUCHE LLP

Certified Public Accountants


Miami, Florida

February 21, 2014





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NEXTERA ENERGY, INC.

CONSOLIDATED STATEMENTS OF INCOME

(millions, except per share amounts)


Years Ended December 31,

2013

2012

2011

OPERATING REVENUES

$

15,136


$

14,256


$

15,341


OPERATING EXPENSES




Fuel, purchased power and interchange

4,958


5,121


6,256


Other operations and maintenance

3,194


3,155


3,002


Impairment charges

300


-


51


Depreciation and amortization

2,163


1,518


1,567


Taxes other than income taxes and other

1,280


1,186


1,204


Total operating expenses

11,895


10,980


12,080


OPERATING INCOME

3,241


3,276


3,261


OTHER INCOME (DEDUCTIONS)




Interest expense

(1,121

)

(1,038

)

(1,035

)

Benefits associated with differential membership interests - net

165


81


118


Loss on sale of natural gas-fired generating assets

-


-


(151

)

Equity in earnings of equity method investees

25


13


55


Allowance for equity funds used during construction

63


67


39


Interest income

78


86


79


Gains on disposal of assets - net

54


157


85


Other than temporary impairment losses on securities held in nuclear decommissioning funds

(11

)

(16

)

(36

)

Other - net

27


(23

)

37


Total other deductions - net

(720

)

(673

)

(809

)

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

2,521


2,603


2,452


INCOME TAXES

801


692


529


INCOME FROM CONTINUING OPERATIONS

1,720


1,911


1,923


NET GAIN FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES

188


-


-


NET INCOME

$

1,908


$

1,911


$

1,923


Basic earnings per share of common stock:




Continuing operations

$

4.06


$

4.59


$

4.62


Discontinued operations

0.44


-


-


Net income

$

4.50


$

4.59


$

4.62


Earnings per share of common stock - assuming dilution:

Continuing operations

$

4.03


$

4.56


$

4.59


Discontinued operations

0.44


-


-


Net income

$

4.47


$

4.56


$

4.59


Weighted-average number of common shares outstanding:




Basic

424.2


416.7


416.6


Assuming dilution

427.0


419.2


419.0





The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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NEXTERA ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(millions)


Years Ended December 31,

2013

2012

2011

NET INCOME

$

1,908


$

1,911


$

1,923


OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

Net unrealized gains (losses) on cash flow hedges:


Effective portion of net unrealized gains (losses) (net of $45 tax expense, $55 tax benefit and $135 tax benefit, respectively)

84


(106

)

(265

)

Reclassification from accumulated other comprehensive income to net income (net of $38, $25 and $18 tax expense, respectively)

67


44


37


Net unrealized gains (losses) on available for sale securities:

Net unrealized gains on securities still held (net of $84, $48 and $13 tax expense, respectively)

118


70


19


Reclassification from accumulated other comprehensive income to net income (net of $10, $52 and $34 tax benefit, respectively)

(17

)

(77

)

(49

)

Defined benefit pension and other benefits plans (net of $61 tax expense, $19 tax benefit and $32 tax benefit, respectively)

97


(28

)

(45

)

Net unrealized gains (losses) on foreign currency translation (net of $22 tax benefit, $3 tax expense and $3 tax benefit, respectively)

(45

)

7


(5

)

Other comprehensive income (loss) related to equity method investee (net of $5 tax expense, $7 tax benefit and $8 tax benefit, respectively)

7


(11

)

(12

)

Total other comprehensive income (loss), net of tax

311


(101

)

(320

)

COMPREHENSIVE INCOME

$

2,219


$

1,810


$

1,603




























The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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NEXTERA ENERGY, INC.

CONSOLIDATED BALANCE SHEETS

(millions, except par value)

December 31,

2013

2012

PROPERTY, PLANT AND EQUIPMENT

Electric plant in service and other property

$

62,699


$

57,054


Nuclear fuel

2,059


1,895


Construction work in progress

4,690


5,968


Less accumulated depreciation and amortization

(16,728

)

(15,504

)

Total property, plant and equipment - net ($5,127 and $4,487 related to VIEs, respectively)

52,720


49,413


CURRENT ASSETS



Cash and cash equivalents

438


329


Customer receivables, net of allowances of $14 and $10, respectively

1,777


1,487


Other receivables

512


569


Materials, supplies and fossil fuel inventory

1,153


1,073


Regulatory assets:



Deferred clause and franchise expenses

192


75


Other

116


113


Derivatives

498


517


Deferred income taxes

753


397


Assets held for sale

-


335


Other

403


342


Total current assets

5,842


5,237


OTHER ASSETS



Special use funds

4,780


4,190


Other investments

1,121


976


Prepaid benefit costs

1,456


1,031


Regulatory assets:



Securitized storm-recovery costs ($228 and $274 related to a VIE, respectively)

372


461


Other

426


582


Derivatives

1,163


920


Other

1,426


1,629


Total other assets

10,744


9,789


TOTAL ASSETS

$

69,306


$

64,439


CAPITALIZATION



Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 435 and 424, respectively)

$

4


$

4


Additional paid-in capital

6,411


5,536


Retained earnings

11,569


10,783


Accumulated other comprehensive income (loss)

56


(255

)

Total common shareholders' equity

18,040


16,068


Long-term debt ($1,207 and $1,369 related to VIEs, respectively)

23,969


23,177


Total capitalization

42,009


39,245


CURRENT LIABILITIES



Commercial paper

691


1,211


Short-term debt

-


200


Current maturities of long-term debt

3,766


2,771


Accounts payable

1,200


1,281


Customer deposits

452


508


Accrued interest and taxes

473


414


Derivatives

838


430


Accrued construction-related expenditures

839


427


Liabilities associated with assets held for sale

-


733


Other

930


904


Total current liabilities

9,189


8,879


OTHER LIABILITIES AND DEFERRED CREDITS



Asset retirement obligations

1,850


1,715


Deferred income taxes

8,144


6,703


Regulatory liabilities:



Accrued asset removal costs

1,839


1,950


Asset retirement obligation regulatory expense difference

2,082


1,813


Other

462


309


Derivatives

473


587


Deferral related to differential membership interests - VIEs

2,001


1,784


Other

1,257


1,454


Total other liabilities and deferred credits

18,108


16,315


COMMITMENTS AND CONTINGENCIES





TOTAL CAPITALIZATION AND LIABILITIES

$

69,306


$

64,439



The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


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NEXTERA ENERGY, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)


Years Ended December 31,

2013

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

1,908


$

1,911


$

1,923


Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

2,163


1,518


1,567


Nuclear fuel and other amortization

358


259


282


Loss on sale of natural gas-fired generating assets

-


-


151


Impairment charges

300


-


51


Unrealized gains on marked to market energy contracts

(10

)

(85

)

(271

)

Deferred income taxes

877


682


553


Cost recovery clauses and franchise fees

(166

)

129


181


Benefits associated with differential membership interests - net

(165

)

(81

)

(118

)

Equity in earnings of equity method investees

(25

)

(13

)

(55

)

Distributions of earnings from equity method investees

33


32


95


Allowance for equity funds used during construction

(63

)

(67

)

(39

)

Gains on disposal of assets - net

(54

)

(157

)

(85

)

Other than temporary impairment losses on securities held in nuclear decommissioning funds

11


16


36


Net gain from discontinued operations, net of income taxes

(188

)

-


-


Other - net

175


38


305


Changes in operating assets and liabilities:



Customer and other receivables

(268

)

(286

)

149


Materials, supplies and fossil fuel inventory

(81

)

1


(308

)

Other current assets

8


(46

)

(22

)

Other assets

8


3


(103

)

Accounts payable and customer deposits

122


(56

)

(184

)

Margin cash collateral

156


104


81


Income taxes

(56

)

(20

)

62


Interest and other taxes

3


15


12


Other current liabilities

140


139


3


Other liabilities

(84

)

(44

)

(192

)

Net cash provided by operating activities

5,102


3,992


4,074


CASH FLOWS FROM INVESTING ACTIVITIES




Capital expenditures of FPL

(2,691

)

(4,070

)

(3,137

)

Independent power and other investments of NEER

(3,454

)

(4,591

)

(2,601

)

Cash grants under the American Recovery and Reinvestment Act of 2009

165


196


624


Nuclear fuel purchases

(371

)

(305

)

(538

)

Other capital expenditures and other investments

(166

)

(495

)

(352

)

Sale of independent power investments

165


-


1,204


Change in loan proceeds restricted for construction

228


314


(565

)

Proceeds from sale or maturity of securities in special use funds and other investments

4,405


5,301


4,836


Purchases of securities in special use funds and other investments

(4,470

)

(5,419

)

(4,955

)

Other - net

66


141


205


Net cash used in investing activities

(6,123

)

(8,928

)

(5,279

)

CASH FLOWS FROM FINANCING ACTIVITIES




Issuances of long-term debt

4,371


6,630


3,940


Retirements of long-term debt

(2,396

)

(1,612

)

(2,121

)

Proceeds from sale of differential membership interests

448


808


466


Payments to differential membership investors

(63

)

(139

)

(100

)

Net change in short-term debt

(720

)

61


460


Issuances of common stock - net

842


405


48


Repurchases of common stock

-


(19

)

(375

)

Dividends on common stock

(1,122

)

(1,004

)

(920

)

Other - net

(230

)

(242

)

(118

)

Net cash provided by financing activities

1,130


4,888


1,280


Net increase (decrease) in cash and cash equivalents

109


(48

)

75


Cash and cash equivalents at beginning of year

329


377


302


Cash and cash equivalents at end of year

$

438


$

329


$

377


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION




Cash paid for interest (net of amount capitalized)

$

1,070


$

1,001


$

978


Cash paid (received) for income taxes - net

$

(20

)

$

25


$

(95

)

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES




Accrued property additions

$

1,098


$

970


$

909


Sale of generating assets through assumption of debt by buyer

$

700


$

-


$

158





The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


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NEXTERA ENERGY, INC.

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

(millions)


Common Stock

Additional

Paid-In

Capital

Unearned

ESOP

Compensation

Accumulated

Other

Comprehensive

Income

(Loss)

Retained

Earnings

Common

Shareholders'

Equity

Shares

Aggregate

Par Value

Balances, December 31, 2010

421


$

4


$

5,487


$

(69

)

$

166


$

8,873


$

14,461


Net income

-


-


-


-


-


1,923


Issuances of common stock, net of issuance cost of less than $1

1


-


59


5


-


-


Repurchases of common stock

(7

)

-


(375

)

-


-


-


Exercise of stock options and other incentive plan activity

1


-


68


-


-


-


Dividends on common stock (b)

-


-


-


-


-


(920

)

Earned compensation under ESOP

-


-


31


11


-


-


Other comprehensive loss

-


-


-


-


(320

)

-


Balances, December 31, 2011

416


(a)

4


5,270


(53

)

(154

)

9,876


$

14,943


Net income

-


-


-


-


-


1,911


Issuances of common stock, net of issuance cost of less than $1

6


-


367


4


-


-


Repurchases of common stock

-


-


(19

)

-


-


-


Exercise of stock options and other incentive plan activity

2


-


98


-


-


-


Dividends on common stock (b)

-


-


-


-


-


(1,004

)

Earned compensation under ESOP

-


-


34


10


-


-


Other comprehensive loss

-


-


-


-


(101

)

-


Premium on equity units

-


-


(151

)

-


-


-


Issuance costs on equity units

-


-


(24

)

-


-


-


Balances, December 31, 2012

424


(a)

4


5,575


(39

)

(255

)

10,783


$

16,068


Net income

-


-


-


-


-


1,908


Issuances of common stock, net of issuance cost of less than $1

10


-


823


4


-


-


Exercise of stock options and other incentive plan activity

1


-


74


-


-


-


Dividends on common stock (b)

-


-


-


-


-


(1,122

)

Earned compensation under ESOP

-


-


37


9


-


-


Other comprehensive income

-


-


-


-


311


-


Premium on equity units

-


-


(62

)

-


-


-


Issuance costs on equity units

-


-


(10

)

-


-


-


Balances, December 31, 2013

435


(a)

$

4


$

6,437


$

(26

)

$

56


$

11,569


$

18,040


______________________

(a)

Outstanding and unallocated shares held by the Employee Stock Ownership Plan (ESOP) Trust totaled approximately 2 million, 3 million and 4 million at December 31, 2013, 2012 and 2011, respectively; the original number of shares purchased and held by the ESOP Trust was approximately 25 million shares.

(b)

Dividends per share were $2.64 , $2.40 and $2.20 for the years ended December 31, 2013, 2012 and 2011, respectively.


















The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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FLORIDA POWER & LIGHT COMPANY

CONSOLIDATED STATEMENTS OF INCOME

(millions)


Years Ended December 31,

2013

2012

2011

OPERATING REVENUES

$

10,445


$

10,114


$

10,613


OPERATING EXPENSES




Fuel, purchased power and interchange

3,925


4,265


4,977


Other operations and maintenance

1,699


1,773


1,699


Depreciation and amortization

1,159


659


798


Taxes other than income taxes and other

1,123


1,060


1,063


Total operating expenses

7,906


7,757


8,537


OPERATING INCOME

2,539


2,357


2,076


OTHER INCOME (DEDUCTIONS)




Interest expense

(415

)

(417

)

(387

)

Allowance for equity funds used during construction

55


52


35


Other - net

5


-


(2

)

Total other deductions - net

(355

)

(365

)

(354

)

INCOME BEFORE INCOME TAXES

2,184


1,992


1,722


INCOME TAXES

835


752


654


NET INCOME (a)

$

1,349


$

1,240


$

1,068


______________________

(a)

FPL's comprehensive income is the same as reported net income.

































The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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FLORIDA POWER & LIGHT COMPANY

CONSOLIDATED BALANCE SHEETS

(millions, except share amount)


December 31,

2013

2012

ELECTRIC UTILITY PLANT

Plant in service and other property

$

36,838


$

34,474


Nuclear fuel

1,240


1,190


Construction work in progress

1,818


2,585


Less accumulated depreciation and amortization

(10,944

)

(10,698

)

Total electric utility plant - net

28,952


27,551


CURRENT ASSETS



Cash and cash equivalents

19


40


Customer receivables, net of allowances of $5 and $7, respectively

757


760


Other receivables

137


447


Materials, supplies and fossil fuel inventory

742


727


Regulatory assets:



Deferred clause and franchise expenses

192


75


Other

105


106


Other

261


131


Total current assets

2,213


2,286


OTHER ASSETS



Special use funds

3,273


2,918


Prepaid benefit costs

1,142


1,135


Regulatory assets:



Securitized storm-recovery costs ($228 and $274 related to a VIE, respectively)

372


461


Other

396


351


Other

140


151


Total other assets

5,323


5,016


TOTAL ASSETS

$

36,488


$

34,853


CAPITALIZATION



Common stock (no par value, 1,000 shares authorized, issued and outstanding)

$

1,373


$

1,373


Additional paid-in capital

6,179


5,903


Retained earnings

5,532


5,254


Total common shareholder's equity

13,084


12,530


Long-term debt ($331 and $386 related to a VIE, respectively)

8,473


8,329


Total capitalization

21,557


20,859


CURRENT LIABILITIES



Commercial paper

204


105


Current maturities of long-term debt

356


453


Accounts payable

611


612


Customer deposits

447


503


Accrued interest and taxes

272


223


Accrued construction-related expenditures

202


235


Other

438


495


Total current liabilities

2,530


2,626


OTHER LIABILITIES AND DEFERRED CREDITS



Asset retirement obligations

1,285


1,206


Deferred income taxes

6,355


5,584


Regulatory liabilities:



Accrued asset removal costs

1,839


1,950


Asset retirement obligation regulatory expense difference

2,082


1,813


Other

386


309


Other

454


506


Total other liabilities and deferred credits

12,401


11,368


COMMITMENTS AND CONTINGENCIES





TOTAL CAPITALIZATION AND LIABILITIES

$

36,488


$

34,853




The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


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FLORIDA POWER & LIGHT COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)


Years Ended December 31,

2013

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

1,349


$

1,240


$

1,068


Adjustments to reconcile net income to net cash provided by (used in) operating activities:




Depreciation and amortization

1,159


659


798


Nuclear fuel and other amortization

184


122


160


Deferred income taxes

617


988


675


Cost recovery clauses and franchise fees

(166

)

129


181


Allowance for equity funds used during construction

(55

)

(52

)

(35

)

Other - net

101


(42

)

60


Changes in operating assets and liabilities:




Customer and other receivables

(5

)

(96

)

65


Materials, supplies and fossil fuel inventory

(16

)

33


(254

)

Other current assets

15


(20

)

(20

)

Other assets

(12

)

(41

)

(52

)

Accounts payable and customer deposits

(1

)

(33

)

(137

)

Income taxes

384


(111

)

(215

)

Interest and other taxes

8


1


(21

)

Other current liabilities

3


67


32


Other liabilities

(7

)

(21

)

(60

)

Net cash provided by operating activities

3,558


2,823


2,245


CASH FLOWS FROM INVESTING ACTIVITIES




Capital expenditures

(2,691

)

(4,070

)

(3,137

)

Cash grants under the American Recovery and Reinvestment Act of 2009

-


-


218


Nuclear fuel purchases

(212

)

(215

)

(365

)

Proceeds from sale or maturity of securities in special use funds

3,342


3,790


2,988


Purchases of securities in special use funds

(3,389

)

(3,838

)

(3,052

)

Other - net

30


68


89


Net cash used in investing activities

(2,920

)

(4,265

)

(3,259

)

CASH FLOWS FROM FINANCING ACTIVITIES




Issuances of long-term debt

497


1,296


840


Retirements of long-term debt

(453

)

(50

)

(45

)

Net change in short-term debt

99


(225

)

229


Capital contributions from NEE

275


440


410


Dividends to NEE

(1,070

)

-


(400

)

Other - net

(7

)

(15

)

(4

)

Net cash provided by (used in) financing activities

(659

)

1,446


1,030


Net increase (decrease) in cash and cash equivalents

(21

)

4


16


Cash and cash equivalents at beginning of year

40


36


20


Cash and cash equivalents at end of year

$

19


$

40


$

36


SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION




Cash paid for interest (net of amount capitalized)

$

410


$

400


$

389


Cash paid (received) for income taxes - net

$

(166

)

$

(124

)

$

194


SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES




Accrued property additions

$

386


$

472


$

526











The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.


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FLORIDA POWER & LIGHT COMPANY

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY

(millions)


Common

Stock

Additional

Paid-In Capital

Retained

Earnings

Common

Shareholder's

Equity

Balances, December 31, 2010

$

1,373


$

5,054


$

3,364


$

9,791


Net income

-


-


1,068


Capital contributions from NEE

-


410


-


Dividends to NEE

-


-


(419

)

Balances, December 31, 2011

1,373


5,464


4,013


$

10,850


Net income

-


-


1,240


Capital contributions from NEE

-


440


-


Other

-


(1

)

1


Balances, December 31, 2012

1,373


5,903


5,254


$

12,530


Net income

-


-


1,349


Capital contributions from NEE

-


275


-


Dividends to NEE

-


-


(1,070

)

Other

-


1


(1

)

Balances, December 31, 2013

$

1,373


$

6,179


$

5,532


$

13,084





































The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.



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NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2013, 2012 and 2011


1.  Summary of Significant Accounting and Reporting Policies


Basis of Presentation - The operations of NextEra Energy, Inc. (NEE) are conducted primarily through its wholly-owned subsidiary Florida Power & Light Company (FPL) and its wholly-owned indirect subsidiary NextEra Energy Resources, LLC (NEER).  FPL, a rate-regulated electric utility, supplies electric service to approximately 4.7 million customer accounts throughout most of the east and lower west coasts of Florida.  NEER invests in independent power projects through both controlled and consolidated entities and non-controlling ownership interests in joint ventures essentially all of which are accounted for under the equity method.


The consolidated financial statements of NEE and FPL include the accounts of their respective majority-owned and controlled subsidiaries.  Intercompany balances and transactions have been eliminated in consolidation.  Certain amounts included in prior years' consolidated financial statements have been reclassified to conform to the current year's presentation.  The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Actual results could differ from those estimates.


Regulation - FPL is subject to rate regulation by the Florida Public Service Commission (FPSC) and the Federal Energy Regulatory Commission (FERC).  Its rates are designed to recover the cost of providing electric service to its customers including a reasonable rate of return on invested capital.  As a result of this cost-based regulation, FPL follows the accounting guidance that allows regulators to create assets and impose liabilities that would not be recorded by non-rate regulated entities.  Regulatory assets and liabilities represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process.


Cost recovery clauses, which are designed to permit full recovery of certain costs and provide a return on certain assets allowed to be recovered through the various clauses, include substantially all fuel, purchased power and interchange costs, certain construction-related costs for FPL's planned additional nuclear units at Turkey Point and FPL's solar generating facilities, and conservation and certain environmental-related costs. Revenues from cost recovery clauses are recorded when billed; FPL achieves matching of costs and related revenues by deferring the net underrecovery or overrecovery.  Any underrecovered costs or overrecovered revenues are collected from or returned to customers in subsequent periods.


If FPL were no longer subject to cost-based rate regulation, the existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund.  In addition, the FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred.  The continued applicability of regulatory accounting is assessed at each reporting period.


Revenues and Rates - FPL's retail and wholesale utility rate schedules are approved by the FPSC and the FERC, respectively.  FPL records unbilled base revenues for the estimated amount of energy delivered to customers but not yet billed.  FPL's unbilled base revenues are included in customer receivables on NEE's and FPL's consolidated balance sheets and amounted to approximately $200 million and $175 million at December 31, 2013 and 2012, respectively.  FPL's operating revenues also include amounts resulting from cost recovery clauses (see Regulation above), franchise fees, gross receipts taxes and surcharges related to storm-recovery bonds (see Note 8 - FPL).  Franchise fees and gross receipts taxes are imposed on FPL; however, the FPSC allows FPL to include in the amounts charged to customers the amount of the gross receipts tax for all customers and the franchise amount for those customers located in the jurisdiction that imposes the fee.  Accordingly, franchise fees and gross receipts taxes are reported gross in operating revenues and taxes other than income taxes and other in NEE's and FPL's consolidated statements of income and were approximately $680 million , $684 million and $716 million in 2013, 2012 and 2011, respectively.  The revenues from the surcharges related to storm-recovery bonds included in operating revenues in NEE's and FPL's consolidated statements of income were approximately $108 million , $106 million and $100 million in 2013, 2012 and 2011, respectively.  FPL also collects municipal utility taxes which are reported gross in customer receivables and accounts payable on NEE's and FPL's consolidated balance sheets.


FPL Rates Effective January 2013 - December 2016 - In January 2013, the FPSC issued a final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2012 rate agreement).  Key elements of the 2012 rate agreement, which is effective from January 2013 through December 2016, include, among other things, the following:


New retail base rates and charges were established in January 2013 resulting in an increase in retail base revenues of $350 million on an annualized basis.

FPL's allowed regulatory return on common equity (ROE) is 10.50% , with a range of plus or minus 100 basis points.  If FPL's earned regulatory ROE falls below 9.50% , FPL may seek retail base rate relief.  If the earned regulatory ROE rises above 11.50% , any party to the 2012 rate agreement other than FPL may seek a review of FPL's retail base rates.

Retail base rates will be increased by the annualized base revenue requirements for FPL's three modernization projects (Cape Canaveral, Riviera Beach and Port Everglades) as each of the modernized power plants becomes operational. (Cape Canaveral became operational in April 2013 and Riviera Beach and Port Everglades are expected to be operational in the second quarter of 2014 and by mid-2016, respectively.)


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NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Cost recovery of FPL's West County Energy Center (WCEC) Unit No. 3 will continue to occur through the capacity cost recovery clause (capacity clause) (reported as retail base rates); however, such recovery will not be limited to the projected annual fuel cost savings as was the case in the previous rate agreement discussed below.

Subject to certain conditions, FPL may amortize, over the term of the 2012 rate agreement, a depreciation reserve surplus remaining at the end of 2012 under the 2010 rate agreement discussed below (approximately $224 million ) and may amortize a portion of FPL's fossil dismantlement reserve up to a maximum of $176 million (collectively, the reserve), provided that in any year of the 2012 rate agreement, FPL must amortize at least enough reserve to maintain a 9.50% earned regulatory ROE but may not amortize any reserve that would result in an earned regulatory ROE in excess of 11.50% .

Future storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that could produce a surcharge of no more than $4 for every 1,000 kilowatt-hours (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 to recover the amount above $800 million .

An incentive mechanism whereby customers will receive 100% of certain gains, including but not limited to, gains from the purchase and sale of electricity and natural gas (including transportation and storage), up to a specified threshold.  The gains exceeding that specified threshold will be shared by FPL and its customers.


In September 2013, the Florida Supreme Court heard oral argument on the State of Florida Office of Public Counsel's appeal of the FPSC's final order regarding the 2012 rate agreement.  A ruling by the Florida Supreme Court is pending.


FPL Rates Effective March 2010 - December 2012 - Effective March 1, 2010, pursuant to an FPSC final order (2010 FPSC rate order), new retail base rates for FPL were established, resulting in an increase in retail base revenues of approximately $75 million on an annualized basis.  The 2010 FPSC rate order, among other things, also established a regulatory ROE of 10.0% with a range of plus or minus 100 basis points.  In February 2011, the FPSC issued a final order approving a stipulation and settlement agreement between FPL and principal parties in FPL's 2009 rate case (2010 rate agreement).  The 2010 rate agreement, which was effective through December 31, 2012, provided for, among other things, a reduction in depreciation expense (surplus depreciation credit) in any calendar year up to a cap in 2010 of $267 million , a cap in subsequent years of $267 million plus the amount of any unused portion from prior years, and a total cap of $776 million over the course of the 2010 rate agreement, provided that in any year of the 2010 rate agreement FPL was required to use enough surplus depreciation credit to maintain an earned regulatory ROE within the range of 9.0% - 11.0% .  The 2010 rate agreement also permitted incremental cost recovery through FPL's capacity clause for WCEC Unit No. 3 up to the amount of the projected annual fuel savings for customers.


NEER's revenue is recorded on the basis of commodities delivered, contracts settled or services rendered and includes estimated amounts yet to be billed to customers.  Certain commodity contracts for the purchase and sale of power that meet the definition of a derivative are recorded at fair value with subsequent changes in fair value recognized as revenue.  See Energy Trading below and Note 3.


Electric Plant, Depreciation and Amortization - The cost of additions to units of property of FPL and NEER is added to electric plant in service.  In accordance with regulatory accounting, the cost of FPL's units of utility property retired, less estimated net salvage value, is charged to accumulated depreciation.  Maintenance and repairs of property as well as replacements and renewals of items determined to be less than units of utility property are charged to other operations and maintenance (O&M) expenses.  At December 31, 2013, the electric generating, transmission, distribution and general facilities of FPL represented approximately 51% , 11% , 33% and 5% , respectively, of FPL's gross investment in electric utility plant in service and other property.  Substantially all of FPL's properties are subject to the lien of FPL's mortgage, which secures most debt securities issued by FPL.  A number of NEER's generating facilities are encumbered by liens securing various financings.  The net book value of NEER's assets serving as collateral was approximately $10.2 billion at December 31, 2013 .  The American Recovery and Reinvestment Act of 2009, as amended (Recovery Act), provided for an option to elect a cash grant (convertible investment tax credits (ITCs)) for certain renewable energy property (renewable property).  Convertible ITCs are recorded as a reduction in property, plant and equipment on NEE's and FPL's consolidated balance sheets and are amortized as a reduction to depreciation and amortization expense over the estimated life of the related property.  At December 31, 2013 and 2012 , convertible ITCs, net of amortization, were approximately $1.5 billion ( $165 million at FPL) and $1.4 billion ( $171 million at FPL).  At December 31, 2013 and 2012 , approximately $182 million and $170 million , respectively, of such convertible ITCs are included in other receivables on NEE's consolidated balance sheets.


Depreciation of FPL's electric property is primarily provided on a straight-line average remaining life basis.  FPL includes in depreciation expense a provision for fossil and solar plant dismantlement, interim asset removal costs, accretion related to asset retirement obligations (see Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs), storm recovery amortization and amortization of pre-construction costs associated with planned nuclear units recovered through a cost recovery clause.  For substantially all of FPL's property, depreciation studies are typically performed and filed with the FPSC at least every four years.  As part of the 2010 FPSC rate order, the FPSC approved new depreciation rates which became effective January 1, 2010.  In accordance with the 2012 rate agreement, FPL is not required to file depreciation studies during the effective period of the agreement and the previously approved depreciation rates remain in effect.  As discussed in Revenue and Rates above, the use of reserve amortization (the reduction of the reserve under the 2012 rate agreement and the surplus depreciation credit under the 2010 rate agreement) is permitted under the 2012 and 2010 rate agreements.  FPL files a twelve-month forecast


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NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




with the FPSC each year which contains a regulatory ROE intended to be earned based on the best information FPL has at that time assuming normal weather.  This forecast establishes a fixed targeted regulatory ROE.  In order to earn the targeted regulatory ROE in each reporting period under the 2012 and 2010 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 is adjusted, in part, by reserve amortization to earn the targeted regulatory ROE. In accordance with the 2012 and 2010 rate agreements, FPL recorded approximately $155 million , $480 million and $187 million of reserve amortization in 2013, 2012 and 2011, respectively.  Beginning in 2013, the reserve is amortized as a reduction of regulatory liabilities - accrued asset removal costs on NEE's and FPL's consolidated balance sheets.  The weighted annual composite depreciation and amortization rate for FPL's electric utility plant in service, including capitalized software, but excluding the effects of decommissioning, dismantlement and the depreciation adjustments discussed above, was approximately 3.4% , 3.3% and 3.2% for 2013, 2012 and 2011, respectively.


At December 31, 2012, approximately $309 million and $258 million was included in plant in service and other property and accumulated depreciation and amortization, respectively, on FPL's balance sheets (electric plant in service and other property and accumulated depreciation and amortization, respectively, for NEE) with respect to Port Everglades Units Nos. 3 and 4, which FPL retired and began dismantling in 2013. Upon retirement in 2013, FPL reclassified the net book value to a regulatory asset and began amortizing it over a four-year period.


NEER's electric plant in service less salvage value, if any, are depreciated primarily using the straight-line method over their estimated useful lives.  At December 31, 2013 and 2012, wind, nuclear, natural gas and solar plants represented approximately 62% and 67% , 13% and 14% , 9% and 10% , and 6% and 1% , respectively, of NEER's depreciable electric plant in service and other property.  The estimated useful lives of NEER's plants range primarily from 25 to 30 years for wind, natural gas and solar plants and from 25 to 47 years for nuclear plants. NEER reviews the estimated useful lives of its fixed assets on an ongoing basis.  In 2011, this review indicated that the actual lives of certain equipment at NEER's wind plants are expected to be longer than the previously estimated useful lives used for depreciation purposes.  As a result, effective January 1, 2011 , NEER changed the estimates of the useful lives of certain equipment to better reflect the estimated periods during which these assets are expected to remain in service.  The useful lives of substantially all of the wind plants' equipment that were previously estimated to be 25 years were increased to 30 years.  The effect of this change in estimate was to reduce depreciation and amortization expense by approximately $75 million , increase net income by $44 million and increase basic and diluted earnings per share by approximately $0.11 for the year ended December 31, 2011.


Nuclear Fuel - FPL and NEER have several contracts for the supply of uranium, conversion, enrichment and fabrication of nuclear fuel.  See Note 13 - Contracts.  FPL's and NEER's nuclear fuel costs are charged to fuel expense on a unit of production method.


Construction Activity - Allowance for funds used during construction (AFUDC) is a non-cash item which represents the allowed cost of capital, including an ROE, used to finance FPL construction projects.  The portion of AFUDC attributable to borrowed funds is recorded as a reduction of interest expense and the remainder is recorded as other income.  FPSC rules limit the recording of AFUDC to projects that have an estimated cost in excess of 0.5% of a utility's plant in service balance and require more than one year to complete.  FPSC rules allow construction projects below the 0.5% threshold as a component of rate base.  During 2013, 2012 and 2011, FPL capitalized AFUDC at a rate of 6.52% , 6.41% and 6.41% , respectively, which amounted to approximately $81 million , $74 million and $50 million , respectively.  See Note 13 - Commitments.


FPL's construction work in progress includes construction materials, progress payments on major equipment contracts, engineering costs, AFUDC and other costs directly associated with the construction of various projects.  Upon completion of the projects, these costs are transferred to electric utility plant in service and other property.  Capitalized costs associated with construction activities are charged to O&M expenses when recoverability is no longer probable.  See Regulation above for information on recovery of costs associated with new nuclear capacity and solar generating facilities.


NEER capitalizes project development costs once it is probable that such costs will be realized through the ultimate construction of a power plant or sale of development rights.  At December 31, 2013 and 2012 , NEER's capitalized development costs totaled approximately $162 million and $106 million , respectively, which are included in noncurrent other assets on NEE's consolidated balance sheets.  These costs include land rights and other third-party costs directly associated with the development of a new project.  Upon commencement of construction, these costs either are transferred to construction work in progress or remain in other assets, depending upon the nature of the cost.  Capitalized development costs are charged to O&M expenses when it is probable that these costs are not realizable.


NEER's construction work in progress includes construction materials, prepayments on turbine generators and other equipment, third-party engineering costs, capitalized interest and other costs directly associated with the construction and development of various projects.  Interest capitalized on construction projects amounted to approximately $109 million , $139 million and $104 million during 2013, 2012 and 2011 , respectively.  Interest expense allocated from NextEra Energy Capital Holdings, Inc. (NEECH) to NEER is based on a deemed capital structure of 70% debt.  Upon commencement of plant operation, costs associated with construction work in progress are transferred to electric plant in service and other property.


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NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)





Asset Retirement Obligations - NEE and FPL each account for asset retirement obligations and conditional asset retirement obligations (collectively, AROs) under accounting guidance that requires a liability for the fair value of an ARO to be recognized in the period in which it is incurred if it can be reasonably estimated, with the offsetting associated asset retirement costs capitalized as part of the carrying amount of the long-lived assets.  The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the asset's estimated useful life.  Changes in the ARO resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense, which is included in depreciation and amortization expense in the consolidated statements of income.  Changes resulting from revisions to the timing or amount of the original estimate of cash flows are recognized as an increase or a decrease in the asset retirement cost, or income when asset retirement cost is depleted, in the case of NEE's non-rate regulated operations, and ARO and regulatory liability, in the case of FPL.  See Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs below and Note 12.


Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs - For ratemaking purposes, FPL accrues for the cost of end of life retirement and disposal of its nuclear, fossil and solar plants over the expected service life of each unit based on nuclear decommissioning and fossil and solar dismantlement studies periodically filed with the FPSC.  In addition, FPL accrues for interim removal costs over the life of the related assets based on depreciation studies approved by the FPSC.  As approved by the FPSC, FPL previously suspended its annual decommissioning accrual.  For financial reporting purposes, FPL recognizes decommissioning and dismantlement liabilities in accordance with accounting guidance that requires a liability for the fair value of an ARO to be recognized in the period in which it is incurred.  Any differences between expense recognized for financial reporting purposes and the amount recovered through rates are reported as a regulatory liability in accordance with regulatory accounting.  See Revenues and Rates, Electric Plant, Depreciation and Amortization, Asset Retirement Obligations and Note 12.


Nuclear decommissioning studies are performed at least every five years and are submitted to the FPSC for approval.  FPL filed updated nuclear decommissioning studies with the FPSC in December 2010.  These studies reflect FPL's current plans, under the operating licenses, for prompt dismantlement of Turkey Point Units Nos. 3 and 4 following the end of plant operation with decommissioning activities commencing in 2032 and 2033, respectively, and provide for St. Lucie Unit No. 1 to be mothballed beginning in 2036 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 in 2043.  These studies also assume that FPL will be storing spent fuel on site pending removal to a U.S. government facility.  The studies indicate FPL's portion of the ultimate costs of decommissioning its four nuclear units, including costs associated with spent fuel storage above what is expected to be refunded by the U.S. Department of Energy (DOE) under a spent fuel settlement agreement, to be approximately $6.2 billion , or  $2.5 billion expressed in 2013 dollars.


Restricted funds for the payment of future expenditures to decommission FPL's nuclear units are included in nuclear decommissioning reserve funds, which are included in special use funds on NEE's and FPL's consolidated balance sheets.  Marketable securities held in the decommissioning funds are primarily classified as available for sale and carried at fair value.  See Note 4.  FPL does not currently make contributions to the decommissioning funds, other than the reinvestment of dividends and interest.  Fund earnings, consisting of dividends, interest and realized gains and losses, as well as any changes in unrealized gains and losses are not recognized in income and are reflected as a corresponding offset in the related regulatory liability accounts.  During 2013, 2012 and 2011 fund earnings on decommissioning funds were approximately $167 million , $98 million and $66 million , respectively.  The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes.


Fossil and solar plant dismantlement studies are typically performed at least every four years and are submitted to the FPSC for approval.  FPL's latest fossil and solar plant dismantlement studies became effective January 1, 2010 and resulted in an annual expense of $18 million which is recorded in depreciation and amortization expense in NEE's and FPL's consolidated statements of income.  At December 31, 2013, FPL's portion of the ultimate cost to dismantle its fossil and solar units is approximately $751 million , or $394 million expressed in 2013 dollars.  In accordance with the 2012 rate agreement, FPL is not required to file fossil and solar dismantlement studies during the effective period of the agreement.


NEER records nuclear decommissioning liabilities for Seabrook Station (Seabrook), Duane Arnold Energy Center (Duane Arnold) and Point Beach Nuclear Power Plant (Point Beach) in accordance with accounting guidance that requires a liability for the fair value of an ARO to be recognized in the period in which it is incurred.  The liability is being accreted using the interest method through the date decommissioning activities are expected to be complete.  See Note 12.  At December 31, 2013 and 2012, NEER's ARO related to nuclear decommissioning totaled approximately $434 million and $408 million , respectively, and was determined using various internal and external data and applying a probability percentage to a variety of scenarios regarding the life of the plant and timing of decommissioning.  NEER's portion of the ultimate cost of decommissioning its nuclear plants, including costs associated with spent fuel storage above what is expected to be refunded by the DOE under a spent fuel settlement agreement, is estimated to be approximately $11.9 billion , or $2.0 billion expressed in 2013 dollars.


Seabrook files a comprehensive nuclear decommissioning study with the New Hampshire Nuclear Decommissioning Financing Committee (NDFC) every four years; the most recent study was filed in 2011.  Seabrook's decommissioning funding plan is also subject to annual review by the NDFC.  Currently, there are no ongoing decommissioning funding requirements for Seabrook, Duane


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Arnold and Point Beach, however, the U.S. Nuclear Regulatory Commission (NRC), and in the case of Seabrook, the NDFC, has the authority to require additional funding in the future.  NEER's portion of Seabrook's, Duane Arnold's and Point Beach's restricted funds for the payment of future expenditures to decommission these plants is included in nuclear decommissioning reserve funds, which are included in special use funds on NEE's consolidated balance sheets.  Marketable securities held in the decommissioning funds are primarily classified as available for sale and carried at fair value.  Market adjustments result in a corresponding adjustment to other comprehensive income (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 in NEE's consolidated statements of income.  Fund earnings are recognized in income and are reinvested in the funds.  See Note 4.  The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes.


Major Maintenance Costs - FPL uses the accrue-in-advance method for recognizing costs associated with planned major nuclear maintenance, in accordance with regulatory treatment, and records the related accrual as a regulatory liability.  FPL expenses costs associated with planned fossil maintenance as incurred.  FPL's estimated nuclear maintenance costs for each nuclear unit's next planned outage are accrued over the period from the end of the last outage to the end of the next planned outage.  Any difference between the estimated and actual costs is included in O&M expenses when known.  The accrued liability for nuclear maintenance costs at December 31, 2013 and 2012 totaled approximately $70 million and $35 million , respectively, and is included in regulatory liabilities - other on NEE's and FPL's consolidated balance sheets.  For the years ended December 31, 2013, 2012 and 2011, FPL recognized approximately $92 million , $104 million and $97 million , respectively, in nuclear maintenance costs which are primarily included in O&M expenses in NEE's and FPL's consolidated statements of income.


NEER uses the deferral method to account for certain planned major maintenance costs.  NEER's major maintenance costs for its nuclear generating units and combustion turbines are capitalized and amortized on a unit of production method over the period from the end of the last outage to the beginning of the next planned outage.  NEER's capitalized major maintenance costs, net of accumulated amortization, totaled approximately $92 million and $148 million at December 31, 2013 and 2012 , respectively, and are included in noncurrent other assets on NEE's consolidated balance sheets.  For the years ended December 31, 2013, 2012 and 2011 , NEER amortized approximately $93 million , $100 million and $77 million in major maintenance costs which are included in O&M expenses in NEE's consolidated statements of income.


Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.


Restricted Cash - At December 31, 2013 and 2012 , NEE had approximately $215 million ( $38 million for FPL) and $149 million ($ 38 million for FPL), respectively, of restricted cash included in other current assets on NEE's and FPL's consolidated balance sheets, which was restricted primarily for debt service payments and margin cash collateral. Where offsetting positions exist, restricted cash related to margin cash collateral is netted against derivative instruments. See Note 3. In addition, NEE had approximately $2 million and $251 million of noncurrent restricted cash at December 31, 2013 and 2012, respectively, related to loan proceeds held for construction at NEER, which is included in noncurrent other assets on NEE's consolidated balance sheets.


Allowance for Doubtful Accounts - FPL maintains an accumulated provision for uncollectible customer accounts receivable that is estimated using a percentage, derived from historical revenue and write-off trends, of the previous five months of revenue.  Additional amounts are included in the provision to address specific items that are not considered in the calculation described above.  NEER regularly reviews collectibility of its receivables and establishes a provision for losses estimated as a percentage of accounts receivable based on the historical bad debt write-off trends for its retail electricity provider operations and, when necessary, using the specific identification method for all other receivables.


Inventory - FPL values materials, supplies and fossil fuel inventory using a weighted-average cost method.  NEER's materials, supplies and fossil fuel inventories are carried at the lower of weighted-average cost or market, unless evidence indicates that the weighted-average cost (even if in excess of market) will be recovered with a normal profit upon sale in the ordinary course of business.


Energy Trading - NEE provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, in certain markets and engages in power and gas marketing and trading activities to optimize the value of electricity and fuel contracts, generating facilities and gas infrastructure assets, as well as to take advantage of projected favorable commodity price movements.  Trading contracts that meet the definition of a derivative are accounted for at fair value and realized gains and losses from all trading contracts, including those where physical delivery is required, are recorded net for all periods presented.  See Note 3.


Securitized Storm-Recovery Costs, Storm Fund and Storm Reserve - In connection with the 2007 storm-recovery bond financing (see Note 8 - FPL), the net proceeds to FPL from the sale of the storm-recovery property were used primarily to reimburse FPL for its estimated net of tax deficiency in its storm and property insurance reserve (storm reserve) and provide for a storm and property insurance reserve fund (storm fund).  Upon the issuance of the storm-recovery bonds, the storm reserve deficiency was reclassified to securitized storm-recovery costs and is recorded as a regulatory asset on NEE's and FPL's consolidated balance sheets.  As storm-recovery charges are billed to customers, the securitized storm-recovery costs are amortized and included in depreciation


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and amortization in NEE's and FPL's consolidated statements of income.  Marketable securities held in the storm fund are classified as available for sale and are carried at fair value with market adjustments, including any other than temporary impairment losses, resulting in a corresponding adjustment to the storm reserve.  Fund earnings, net of taxes, are reinvested in the fund.  The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes.  The storm fund is included in special use funds on NEE's and FPL's consolidated balance sheets and was approximately $74 million and $73 million at December 31, 2013 and 2012, respectively.  See Note 4.


The storm reserve that was reestablished in an FPSC financing order related to the issuance of the storm-recovery bonds was not initially reflected on NEE's and FPL's consolidated balance sheets because the associated regulatory asset did not meet the specific recognition criteria under the accounting guidance for certain regulated entities.  As a result, the storm reserve will be recognized as a regulatory liability as the storm-recovery charges are billed to customers and charged to depreciation and amortization in NEE's and FPL's consolidated statements of income.  Furthermore, the storm reserve will be reduced as storm costs are reimbursed.  As of December 31, 2013, FPL had the capacity to absorb up to approximately $121 million in future prudently incurred storm restoration costs without seeking recovery through a rate adjustment from the FPSC or filing a petition with the FPSC.


Impairment of Long-Lived Assets - NEE evaluates long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable.   An impairment loss is required to be recognized if the carrying value of the asset exceeds the undiscounted future net cash flows associated with that asset.  The impairment loss to be recognized is the amount by which the carrying value of the long-lived asset exceeds the asset's fair value.  In most instances, the fair value is determined by discounting estimated future cash flows using an appropriate interest rate.  See Note 4 - Nonrecurring Fair Value Measurements and Note 6.


Goodwill and Other Intangible Assets - NEE's goodwill and other intangible assets are as follows:


Weighted-

Average

Useful Lives

December 31,

2013

2012

(years)

(millions)

Goodwill:

Merchant reporting unit

$

72


$

72


Wind reporting unit

49


51


Fiber-optic telecommunications reporting unit

28


28


Total goodwill

$

149


$

151


Other intangible assets not subject to amortization, primarily land easements

$

143


$

143


Other intangible assets subject to amortization:

Purchased power agreements

20

$

70


$

72


Customer lists

5

35


39


Other, primarily transmission and development rights, permits and licenses

24

98


87


Total

203


198


Less accumulated amortization

(112

)

(102

)

Total other intangible assets subject to amortization - net

$

91


$

96



NEE's goodwill relates to various acquisitions which were accounted for using the purchase method of accounting.  Other intangible assets subject to amortization are amortized, primarily on a straight-line basis, over their estimated useful lives.  For the years ended December 31, 2013 , 2012 and 2011 , amortization expense was approximately $13 million , $14 million and $14 million , respectively, and is expected to be approximately $12 million , $10 million , $6 million , $6 million and $5 million for 2014, 2015, 2016, 2017 and 2018, respectively.


Goodwill and other intangible assets are included in noncurrent other assets on NEE's consolidated balance sheets.  Goodwill and other intangible assets not subject to amortization are assessed for impairment at least annually by applying a fair value-based analysis.  Other intangible assets subject to amortization are periodically reviewed when impairment indicators are present to assess recoverability from future operations using undiscounted future cash flows.


Pension and Other Postretirement Plans - NEE allocates net periodic pension benefit income to its subsidiaries based on the pensionable earnings of the subsidiaries' employees; net periodic supplemental executive retirement plan (SERP) benefit costs to its subsidiaries based upon actuarial calculations by participant; and postretirement health care and life insurance benefits (other benefits) net periodic benefit costs to its subsidiaries based upon the number of eligible employees at each subsidiary.


Accounting guidance requires recognition of the funded status of benefit plans in the balance sheet, with changes in the funded status recognized in other comprehensive income within shareholders' equity in the year in which the changes occur.  Since NEE is the plan sponsor, and its subsidiaries do not have separate rights to the plan assets or direct obligations to their employees, this


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accounting guidance is reflected at NEE and not allocated to the subsidiaries.  The portion of previously unrecognized actuarial gains and losses, prior service costs or credits and transition obligations that are estimated to be allocable to FPL as net periodic benefit (income) cost in future periods and that otherwise would be recorded in accumulated other comprehensive income (AOCI) are classified as regulatory assets and liabilities at NEE in accordance with regulatory treatment.


Stock-Based Compensation - NEE accounts for stock-based payment transactions based on grant-date fair value.  Compensation costs for awards with graded vesting are recognized on a straight-line basis over the requisite service period for the entire award.  See Note 10 - Stock-Based Compensation.


Income Taxes - Deferred income taxes are recognized on all significant temporary differences between the financial statement and tax bases of assets and liabilities.  In connection with the tax sharing agreement between NEE and its subsidiaries, the income tax provision at each subsidiary reflects the use of the "separate return method," except that tax benefits that could not be used on a separate return basis, but are used on the consolidated tax return, are recorded by the subsidiary that generated the tax benefits.  Any remaining consolidated income tax benefits or expenses are recorded at the corporate level.  Included in other regulatory assets and other regulatory liabilities on NEE's and FPL's consolidated balance sheets is the revenue equivalent of the difference in accumulated deferred income taxes computed under accounting rules, as compared to regulatory accounting rules.  The net regulatory asset totaled $ 233 million ( $218 million for FPL) and $ 206 million ( $195 million for FPL) at December 31, 2013 and 2012 , respectively, and is being amortized in accordance with the regulatory treatment over the estimated lives of the assets or liabilities for which the deferred tax amount was initially recognized.


NEER recognizes ITCs as a reduction to income tax expense when the related energy property is placed into service.  Production tax credits (PTCs) are recognized as wind energy is generated and sold based on a per kWh rate prescribed in applicable federal and state statutes and are recorded as a reduction of current income taxes payable, unless limited by tax law in which instance they are recorded as deferred tax assets.  NEE and FPL record a deferred income tax benefit created by the convertible ITCs on the difference between the financial statement and tax bases of renewable property.  For NEER, this deferred income tax benefit is recorded in income tax expense in the year that the renewable property is placed in service.  For FPL, this deferred income tax benefit is offset by a regulatory liability, which is amortized as a reduction of depreciation expense over the approximate lives of the related renewable property in accordance with the regulatory treatment.  At December 31, 2013 and 2012 , the net deferred income tax benefits associated with FPL's convertible ITCs were approximately $ 52 million and $ 54 million , respectively, and are included in other regulatory assets and regulatory liabilities on NEE's and FPL's consolidated balance sheets.


A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets when it is more likely than not that such assets will not be realized.  NEE recognizes interest income (expense) related to unrecognized tax benefits (liabilities) in interest income and interest expense, respectively, net of the amount deferred at FPL.  At FPL, the offset to accrued interest receivable (payable) on income taxes is classified as a regulatory liability (regulatory asset) which will be amortized to income (expense) over a five-year period upon settlement in accordance with regulatory treatment.  All tax positions taken by NEE in its income tax returns that are recognized in the financial statements must satisfy a more-likely-than-not threshold.  See Note 5.


Sale of Differential Membership Interests - Certain subsidiaries of NEER sold their Class B membership interest in entities that have ownership interests in wind facilities, with generating capacity totaling approximately 3,541 megawatts (MW) at December 31, 2013, to third-party investors.  In exchange for the cash received, the holders of the Class B membership interests will receive a portion of the economic attributes of the facilities, including income tax attributes, for variable periods.  The transactions are not treated as a sale under the accounting rules and the proceeds received are deferred and recorded as a liability in deferral related to differential membership interests - VIEs on NEE's consolidated balance sheets.  The deferred amount is being recognized in benefits associated with differential membership interests - net in NEE's consolidated statements of income as the Class B members receive their portion of the economic attributes. NEE continues to operate and manage the wind facilities, and consolidates the entities that own the wind facilities.


Variable Interest Entities (VIEs) - An entity is considered to be a VIE when its total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, or its equity investors, as a group, lack the characteristics of having a controlling financial interest.  A reporting company is required to consolidate a VIE as its primary beneficiary when it has both the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.  NEE and FPL evaluate whether an entity is a VIE whenever reconsideration events as defined by the accounting guidance occur.  See Note 8.


2.  Employee Retirement Benefits


Employee Benefit Plans and Other Postretirement Plan - NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries.  NEE also has a SERP, which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees.  The impact of this SERP component is included within pension benefits in the following tables, and was not material to NEE's financial statements for the years ended December 31, 2013 , 2012 and 2011 .  In addition to pension benefits, NEE sponsors a contributory postretirement plan for other benefits for retirees of NEE and its subsidiaries meeting certain eligibility requirements.


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Plan Assets, Benefit Obligations and Funded Status - The changes in assets and benefit obligations of the plans and the plans' funded status are as follows:


Pension Benefits

Other Benefits

2013

2012

2013

2012

(millions)

Change in plan assets:

Fair value of plan assets at January 1

$

3,385


$

3,122


$

26


$

28


Actual return on plan assets

455


362


2


1


Employer contributions (a)

1


9


28


29


Participant contributions

-


-


5


6


Benefit payments (a)

(149

)

(108

)

(35

)

(38

)

Fair value of plan assets at December 31

$

3,692


$

3,385


$

26


$

26


Change in benefit obligation:





Obligation at January 1

$

2,372


$

2,123


$

397


$

427


Service cost

73


65


4


5


Interest cost

95


98


14


18


Participant contributions

-


-


5


6


Plan amendments (b)

-


26


-


(42

)

Special termination benefits (c)

46


-


-


-


Actuarial losses (gains) - net

(183

)

168


(31

)

21


Benefit payments (a)

(149

)

(108

)

(35

)

(38

)

Obligation at December 31 (d)

$

2,254


$

2,372


$

354


$

397


Funded status:





Prepaid (accrued) benefit cost at NEE at December 31

$

1,438


$

1,013


$

(328

)

$

(371

)

Prepaid (accrued) benefit cost at FPL at December 31

$

1,139


$

1,132


$

(249

)

$

(261

)

______________________

(a)

Employer contributions and benefit payments include only those amounts contributed directly to, or paid directly from, plan assets.  FPL's portion of contributions related to SERP benefits was less than $ 1 million and $ 7 million for 2013 and 2012 , respectively.  FPL's portion of contributions related to other benefits was $ 25 million and $ 27 million for 2013 and 2012 , respectively.

(b)

In 2012, certain active plan participants in the postretirement plan in other benefits elected a pension credit in lieu of retiree life insurance benefits.

(c)

Reflects an enhanced early retirement program offered in 2013 as part of an enterprise-wide cost savings initiative.

(d)

NEE's accumulated pension benefit obligation, which includes no assumption about future salary levels, for its pension plans at December 31, 2013 and 2012 was $ 2,197 million and $ 2,305 million , respectively.


NEE's and FPL's prepaid (accrued) benefit cost shown above are included on the consolidated balance sheets as follows:


NEE

FPL

Pension Benefits

Other Benefits

Pension Benefits

Other Benefits

2013

2012

2013

2012

2013

2012

2013

2012

(millions)

Prepaid benefit costs

$

1,456


$

1,031


$

-


$

-


$

1,142


$

1,135


$

-


$

-


Accrued benefit cost included in other current liabilities

(5

)

(2

)

(26

)

(28

)

(2

)

(2

)

(22

)

(23

)

Accrued benefit cost included in other liabilities

(13

)

(16

)

(302

)

(343

)

(1

)

(1

)

(227

)

(238

)

Prepaid (accrued) benefit cost at December 31

$

1,438


$

1,013


$

(328

)

$

(371

)

$

1,139


$

1,132


$

(249

)

$

(261

)



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NEE's unrecognized amounts included in accumulated other comprehensive income (loss) yet to be recognized as components of prepaid (accrued) benefit cost are as follows:


Pension Benefits

Other Benefits

2013

2012

2013

2012

(millions)

Components of AOCI:

Unrecognized prior service benefit (cost) (net of $4 tax benefit, $5 tax benefit, $2 tax expense and $3 tax expense, respectively)

$

(8

)

$

(9

)

$

4


$

4


Unrecognized gain (loss) (net of $18 tax expense, $39 tax benefit, $3 tax benefit and $6 tax benefit, respectively)

30


(63

)

(3

)

(6

)

Total

$

22


$

(72

)

$

1


$

(2

)


NEE's unrecognized amounts included in regulatory assets (liabilities) yet to be recognized as components of net prepaid (accrued) benefit cost are as follows:


Regulatory
Assets (Liabilities)
(Pension)

Regulatory
Assets (Liabilities)
(SERP and Other)

2013

2012

2013

2012

(millions)

Unrecognized prior service cost (benefit)

$

25


$

30


$

(14

)

$

(16

)

Unrecognized losses (gains)

(98

)

154


29


58


Total

$

(73

)

$

184


$

15


$

42



The following table provides the weighted-average assumptions used to determine benefit obligations for the plans.  These rates are used in determining net periodic benefit cost in the following year.


Pension Benefits

Other Benefits

2013

2012

2013

2012

Discount rate

4.80

%

4.00

%

4.60

%

3.75

%

Salary increase

4.00

%

4.00

%

4.00

%

4.00

%


With regard to the other benefits plan, currently the retiree cost sharing structure largely insulates NEE and FPL from the effects of any future increase in health care costs.  An increase or decrease of one percentage point in assumed health care cost trend rates would have a corresponding effect on the other benefits accumulated obligation of approximately $ 2 million at December 31, 2013 .


NEE's investment policy for the pension plan recognizes the benefit of protecting the plan's funded status, thereby avoiding the necessity of future employer contributions.  Its broad objectives are to achieve a high rate of total return with a prudent level of risk taking while maintaining sufficient liquidity and diversification to avoid large losses and preserve capital over the long term.


The NEE pension plan fund's current target asset allocation, which is expected to be reached over time, is 45% equity investments, 32% fixed income investments, 13% alternative investments and 10% convertible securities.  The pension fund's investment strategy emphasizes traditional investments, broadly diversified across the global equity and fixed income markets, using a combination of different investment styles and vehicles.  The pension fund's equity and fixed income holdings consist of both directly held securities as well as commingled investment arrangements such as common and collective trusts, pooled separate accounts, registered investment companies and limited partnerships.  The pension fund's convertible security assets are principally direct holdings of convertible securities and includes a convertible security oriented limited partnership.  The pension fund's alternative investment holdings are primarily absolute return oriented limited partnerships that use a broad range of investment strategies on a global basis.



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The fair value measurements of NEE's pension plan assets by fair value hierarchy level are as follows:


December 31, 2013 (a)

Quoted Prices

in Active

Markets for

Identical Assets

or Liabilities

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

(millions)

Equity securities (b)

$

1,028


$

-


$

-


$

1,028


Equity commingled vehicles (c)

-


656


-


656


U.S. Government and municipal bonds

115


35


-


150


Corporate debt securities (d)

-


348


-


348


Asset-backed securities

-


249


-


249


Debt security commingled vehicles (e)

-


526


-


526


Convertible securities

46


236


-


282


Limited partnerships (f)

-


226


227


453


Total

$

1,189


$

2,276


$

227


$

3,692


______________________

(a)

See Note 4 for discussion of fair value measurement techniques and inputs.

(b)

Includes foreign investments of $ 337 million .

(c)

Includes foreign investments of $ 234 million .

(d)

Includes foreign investments of $ 67 million .

(e)

Includes foreign investments of $ 54 million and $ 145 million of short-term commingled vehicles.

(f)

Includes foreign investments of $ 104 million . Also includes fixed income oriented commingled investment arrangements of $ 244 million , convertible security oriented limited partnerships of $ 80 million and alternative investments of $ 129 million .  Fair values have been estimated using net asset value (NAV) per share of the investments.  Those investments subject to certain restrictions have been classified as Level 3.


December 31, 2012 (a)

Quoted Prices

in Active

Markets for

Identical Assets

or Liabilities

(Level 1)

Significant

Other

Observable

Inputs

(Level 2)

Significant

Unobservable

Inputs

(Level 3)

Total

(millions)

Equity securities (b)

$

833


$

-


$

-


$

833


Equity commingled vehicles (c)

-


590


-


590


U.S. Government and municipal bonds

166


50


-


216


Corporate debt securities (d)

-


349


-


349


Asset-backed securities

-


273


-


273


Debt security commingled vehicles (e)

-


589


-


589


Convertible securities

-


261


-


261


Limited partnerships (f)

-


134


140


274


Total

$

999


$

2,246


$

140


$

3,385


______________________

(a)

See Note 4 for discussion of fair value measurement techniques and inputs.

(b)

Includes foreign investments of $ 308 million .

(c)

Includes foreign investments of $ 204 million .

(d)

Includes foreign investments of $ 66 million .

(e)

Includes foreign investments of $ 60 million and $ 135 million of short-term commingled vehicles.

(f)

Includes foreign investments of $ 39 million . Also, includes fixed income oriented commingled investment arrangements of $ 90 million , convertible security oriented limited partnerships of $ 77 million and alternative investments of $ 107 million .  Fair values have been estimated using NAV per share of the investments.  Those investments subject to certain restrictions have been classified as Level 3.


With regard to its other benefits plan, NEE's policy is to fund claims as incurred during the year through NEE contributions, participant contributions and plan assets.  The other benefits plan's assets are invested with a focus on assuring the availability of funds to pay benefits while maintaining sufficient diversification to avoid large losses and preserve capital.  The other benefits plan's fund has a strategic asset allocation that targets a mix of 60% equity investments and 40% fixed income investments.  The fund's investment strategy consists of traditional investments, diversified across the global equity and fixed income markets.  The fund's equity and fixed income investments are comprised of assets classified as commingled vehicles such as common and collective trusts, pooled separate accounts, registered investment companies or other forms of pooled investment arrangements.


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The fair value measurements of NEE's other benefits plan assets at December 31, 2013 and 2012 are substantially all Level 2 and include approximately $ 18 million and $ 18 million of equity commingled vehicles (of which $ 5 million and $ 4 million were foreign investments) and $ 6 million and $ 7 million of debt security commingled vehicles, respectively.


Expected Cash Flows - NEE anticipates paying approximately $ 26 million for eligible retiree medical expenses on behalf of the other benefits plan during 2014 .


The following table provides information about benefit payments expected to be paid by the plans, net of government drug subsidy, for each of the following calendar years:


Pension

Benefits

Other

Benefits

(millions)

2014

$

275


$

34


2015

$

139


$

31


2016

$

146


$

29


2017

$

150


$

30


2018

$

155


$

29


2019 - 2023

$

817


$

132



Net Periodic Cost - The components of net periodic benefit (income) cost for the plans are as follows:


Pension Benefits

Other Benefits

2013

2012

2011

2013

2012

2011

(millions)

Service cost

$

73


$

65


$

64


$

4


$

5


$

6


Interest cost

95


98


98


14


18


21


Expected return on plan assets

(237

)

(238

)

(238

)

(1

)

(2

)

(2

)

Amortization of transition obligation

-


-


-


-


1


3


Amortization of prior service cost (benefit)

7


5


(3

)

(2

)

(1

)

-


Amortization of losses

2


-


-


2


-


-


SERP settlements

-


3


-


-


-


-


Special termination benefits

46


-


-


-


-


-


Net periodic benefit (income) cost at NEE

$

(14

)

$

(67

)

$

(79

)

$

17


$

21


$

28


Net periodic benefit (income) cost at FPL

$

(5

)

$

(43

)

$

(51

)

$

13


$

16


$

21



Other Comprehensive Income - The components of net periodic benefit income (cost) recognized in OCI for the plans are as follows:


Pension Benefits

Other Benefits

2013

2012

2011

2013

2012

2011

(millions)

Prior service benefit (cost) (net of $3 tax benefit, $4 tax expense and $2 tax benefit, respectively)

$

-


$

(6

)

$

-


$

-


$

7


$

(3

)

Net gains (losses) (net of $58 tax expense, $16 tax benefit, $32 tax benefit, $3 tax expense, $3 tax benefit, and $2 tax expense, respectively)

91


(25

)

(45

)

4


(5

)

3


Amortization of prior service benefit (cost)

2


1


(1

)

-


-


-


Amortization of transition obligation

-


-


-


-


-


1


Total

$

93


$

(30

)

$

(46

)

$

4


$

2


$

1




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NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Regulatory Assets (Liabilities) - The components of net periodic benefit (income) cost recognized during the year in regulatory assets (liabilities) for the plans are as follows:


Regulatory

Assets (Liabilities)

(Pension)

Regulatory

Assets (Liabilities)

(SERP and Other)

2013

2012

2013

2012

(millions)

Prior service cost (benefit)

$

-


$

17


$

-


$

(29

)

Unrecognized losses (gains)

(252

)

1


(26

)

16


Amortization of prior service cost (benefit)

(4

)

(3

)

1


-


Amortization of transition obligation

-


-


-


(1

)

Amortization of unrecognized losses

(1

)

-


(2

)

(3

)

Total

$

(257

)

$

15


$

(27

)

$

(17

)


The weighted-average assumptions used to determine net periodic benefit (income) cost for the plans are as follows:


Pension Benefits

Other Benefits

2013

2012

2011

2013

2012

2011

Discount rate

4.00

%

4.65

%

5.00

%

3.75

%

4.53

%

(a)

5.25

%

Salary increase

4.00

%

4.00

%

4.00

%

4.00

%

4.00

%

4.00

%

Expected long-term rate of return (b)

7.75

%

7.75

%

7.75

%

7.75

%

8.00

%

8.00

%

______________________

(a)

Reflects a mid-year rate change due to cost remeasurement resulting from a plan amendment.

(b)

In developing the expected long-term rate of return on assets assumption for its plans, NEE evaluated input, including other qualitative and quantitative factors, from its actuaries and consultants, as well as information available in the marketplace.  NEE considered different models, capital market return assumptions and historical returns for a portfolio with an equity/bond asset mix similar to its funds.  NEE also considered its funds' historical compounded returns.


Employee Contribution Plans - NEE offers employee retirement savings plans which allow eligible participants to contribute a percentage of qualified compensation through payroll deductions.  NEE makes matching contributions to participants' accounts.  Defined contribution expense pursuant to these plans was approximately $ 46 million , $ 44 million and $ 42 million for NEE ($ 30 million , $ 29 million and $ 28 million for FPL) for the years ended December 31, 2013 , 2012 and 2011 , respectively.  See Note 10 - Employee Stock Ownership Plan.


3.  Derivative Instruments


NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with outstanding and forecasted debt issuances, and to optimize the value of NEER's power generation and gas infrastructure assets.


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 gas 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 over-the-counter 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 the commodity price risk associated with the fuel requirements of the assets, where applicable, as well as 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 the 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.


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Derivative instruments, when required to be marked to market, are recorded on NEE's and FPL's 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 and purchased power cost recovery clause (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; fuel purchases used in the production of electricity are recognized in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's consolidated statements of income.  Settlement gains and losses are included within the line items in the 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 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 primarily recognized in net cash provided by operating activities in NEE's and FPL's consolidated statements of cash flows.


While most of NEE's derivatives are entered into for the purpose of managing commodity price risk, optimizing the value of NEER's power generation and gas infrastructure assets, reducing the impact of volatility in interest rates on outstanding and forecasted debt issuances and managing foreign currency risk, hedge accounting is only applied where specific criteria are met and it is practicable to do so.  In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk.  Additionally, for hedges of forecasted transactions, the forecasted transactions must be probable.  For interest rate and foreign currency derivative instruments, generally NEE assesses a hedging instrument's effectiveness by using nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item.  Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life.  The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of OCI and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings or when it becomes probable that a forecasted transaction being hedged would not occur.  The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period. In April 2013, NEE discontinued hedge accounting for cash flow hedges related to interest rate swaps associated with the solar projects in Spain (see Note 13 - Spain Solar Projects).  At December 31, 2013 , NEE's AOCI included amounts related to interest rate cash flow hedges with expiration dates through June 2031 and foreign currency cash flow hedges with expiration dates through September 2030 .  Approximately $64 million of net losses included in AOCI at December 31, 2013 is 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 interest rates, currency exchange rates or scheduled principal payments.


In 2011, subsidiaries of NEER sold their ownership interests in five natural gas-fired generating plants.  See Note 4 - Nonrecurring Fair Value Measurements.  Certain of the plants had hedged their exposure to interest rate and commodity price fluctuations by entering into derivative contracts.  Because the plants were sold to a third party, it became probable that the future hedged transactions would not occur.  Therefore, NEE was required to reclassify any gains or losses in AOCI related to those hedges to earnings.  During the year ended December 31, 2011, NEE reclassified approximately $21 million of net losses to earnings, with $30 million of losses recorded in loss on sale of natural gas-fired generating assets and $9 million of gains recorded in other - net.



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)




Fair Value of Derivative Instruments - The tables below present NEE's and FPL's gross derivative positions at December 31, 2013 and December 31, 2012, 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 (see Note 4 - Recurring Fair Value Measurements for netting information), as well as the location of the net derivative position on the consolidated balance sheets.


December 31, 2013

Fair Values of Derivatives

Designated as Hedging

Instruments for Accounting

Purposes - Gross Basis

Fair Values of Derivatives Not

Designated as Hedging

Instruments for Accounting

Purposes - Gross Basis

Total Derivatives Combined -

Net Basis

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

(millions)

NEE:

Commodity contracts

$

-


$

-


$

4,543


$

3,633


$

1,571


$

940


Interest rate contracts

89


127


1


93


90


220


Foreign currency swaps

-


50


-


101


-


151


Total fair values

$

89


$

177


$

4,544