NextEra Energy, Inc. and Florida Power & Light Company — Q2 2022 Form 10-Q
Business context and reporting period
Combined unaudited quarterly filing for NextEra Energy, Inc. (NEE) and its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL), for the three and six months ended June 30, 2022. NEE’s principal businesses are FPL, serving approximately 5.8 million Florida customer accounts, and NextEra Energy Resources (NEER), a competitive renewable generation, storage, transmission and energy infrastructure business.
Effective January 1, 2022, FPL became one unified ratemaking entity and one reportable segment at NEE. Prior-period segment information was retrospectively adjusted.
Key financial metrics
| Metric | NEE Q2 2022 | NEE Q2 2021 | NEE six months 2022 | NEE six months 2021 |
|---|---|---|---|---|
| Operating revenues | $5.183 billion | $3.927 billion | $8.073 billion | $7.653 billion |
| Operating income | $948 million | $510 million | $173 million | $1.179 billion |
| Net income attributable to NEE | $1.380 billion | $256 million | $929 million | $1.922 billion |
| Diluted EPS | $0.70 | $0.13 | $0.47 | $0.98 |
| Operating margin | 18.3% | 13.0% | 2.1% | 15.4% |
| Net income attributable to NEE margin | 26.6% | 6.5% | 11.5% | 25.1% |
| Net cash from operating activities | Not separately provided | Not separately provided | $4.793 billion | $3.495 billion |
NEE’s six-month operating income and earnings were affected by substantial derivative mark-to-market losses, unfavorable equity-market movements in NEER’s nuclear decommissioning funds and a Mountain Valley Pipeline impairment.
| FPL metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenues | $4.425 billion | $3.569 billion | $8.137 billion | $6.539 billion |
| Operating income | $1.402 billion | $1.230 billion | $2.645 billion | $2.344 billion |
| Net income | $989 million | $882 million | $1.864 billion | $1.660 billion |
| Operating margin | 31.7% | 34.5% | 32.5% | 35.8% |
| Net income margin | 22.4% | 24.7% | 22.9% | 25.4% |
| Net cash from operating activities | Not separately provided | Not separately provided | $3.202 billion | $2.727 billion |
Cash flow, balance sheet, debt and liquidity
- NEE generated $4.793 billion of operating cash flow during the first six months, compared with $3.495 billion in the prior-year period. Investing cash flow was negative $9.308 billion, including $4.007 billion of FPL capital expenditures and $4.939 billion of NEER investments. Financing cash flow was positive $7.695 billion.
- NEE ended June 30, 2022 with $2.861 billion of cash and cash equivalents, total assets of $151.770 billion, total liabilities of $107.163 billion and total equity of $44.554 billion.
- NEE’s long-term debt, including the current portion, was $60.632 billion at June 30, 2022, compared with $52.745 billion at December 31, 2021. Estimated fair value was $57.473 billion.
- NEE reported approximately $15.6 billion of net available liquidity, including $2.858 billion of cash and $16.235 billion of available credit facilities before cash, short-term borrowings and related-party amounts.
- FPL generated $3.202 billion of operating cash flow and used $4.131 billion in investing activities during the first six months. FPL’s long-term debt, including the current portion, was $21.335 billion at June 30, 2022, compared with $18.510 billion at year-end 2021.
- FPL had approximately $5.842 billion of net available liquidity. FPL received $1.500 billion of capital contributions from NEE and paid $2.000 billion of dividends to NEE during the first six months.
- NEE and its subsidiaries had total credit-facility capacity of approximately $20.9 billion, including $6.0 billion for FPL; no borrowings were outstanding under those credit facilities at June 30, 2022, although letters of credit were outstanding.
Material changes versus the prior comparable period
- NEE’s second-quarter net income attributable to NEE increased $1.124 billion, primarily because NEER and Corporate and Other experienced less unfavorable non-qualifying hedge activity, while FPL also improved.
- NEE’s six-month net income attributable to NEE decreased $993 million. NEER declined by $1.542 billion, primarily due to more unfavorable non-qualifying hedge activity, the Mountain Valley Pipeline impairment and unfavorable decommissioning-fund equity securities results. FPL increased by $204 million.
- FPL revenue increased $856 million in the quarter and $1.598 billion for the six months, primarily from higher fuel and energy prices, new retail base rates under the 2021 rate agreement, favorable weather, customer growth and higher cost-recovery revenues. Fuel, purchased power and interchange expense rose $468 million and $896 million, respectively.
- FPL’s average rate base increased approximately $5.6 billion from the comparable periods, reflecting the 1,246 MW Dania Beach Clean Energy Center placed in service on May 31, 2022, solar additions and transmission and distribution investments.
- FPL earned an approximately 11.60% regulatory return on equity for the trailing periods ended June 30, 2022 and June 30, 2021. FPL recorded a $44 million reversal of reserve amortization in Q2 2022, compared with $100 million of amortization in Q2 2021.
- NEE recognized a roughly $0.8 billion pre-tax, $0.6 billion after-tax impairment in the first quarter related to its Mountain Valley Pipeline investment, resulting in a complete write-off of the equity investment and recognition of an estimated dismantlement-cost liability.
- NEE’s effective tax rate was approximately 20.9% in Q2 2022 versus 205.9% in Q2 2021, and negative 18.3% for the first six months versus 6.6% in the prior-year period. The changes primarily reflect derivative valuation, production and investment tax credits, equity-security valuation and the Mountain Valley Pipeline impairment.
Outlook, management commentary, risks and unusual items
- The filing does not provide a clear new numerical earnings or revenue guidance range. Management expects capital needs to be funded through operating cash flow, debt and other capital-market transactions, equity or project-level financing, asset sales and proceeds from differential membership investors.
- Estimated capital expenditures from the remainder of 2022 through 2026 total $37.230 billion for FPL and $10.335 billion for NEER. Management cautions that timing and costs may change materially.
- Solar and battery-storage development may be affected by supply-chain disruptions associated with the U.S. Department of Commerce investigation into antidumping and countervailing-duty circumvention claims. Management stated that no material operating or financial impact had occurred as of the filing date.
- NEE’s derivative positions create significant earnings volatility. At June 30, 2022, total derivative assets were $3.601 billion and derivative liabilities were $6.304 billion. NEE reported a total mark-to-market energy-contract net liability of approximately $3.031 billion.
- Derivative credit triggers could require substantial collateral. A downgrade to BBB/Baa2 could require approximately $2.815 billion of collateral, while a downgrade below investment grade could require approximately $6.3 billion, before certain additional financial-covenant exposures.
- Key ongoing risks include regulatory cost recovery and allowed returns, severe weather and hurricanes, fuel and power prices, commodity and interest-rate volatility, counterparty and collateral risk, cyber and information-technology failures, nuclear operations and insurance exposure, environmental and legal requirements, construction delays and cost overruns, and access to capital markets.
- NEE provided or guaranteed approximately $2.730 billion of obligations primarily on behalf of NEP subsidiaries, had approximately $5.5 billion of other guarantees, $5.8 billion of standby letters of credit and $935 million of surety bonds.
- NEE expects to sell a 67% controlling interest in a 230 MW California battery-storage facility to NEP for approximately $191 million, subject to commercial operation, regulatory approvals and other closing conditions. A separate prior project sale remains subject to a solar production-tax-credit contingency; failure of the contingency could require approximately $117 million to be returned to NEP.
- No material changes to previously disclosed risk factors were reported, and the filing reported no legal proceedings requiring disclosure under the stated policy.
Most important facts an investor should verify
- Whether NEE’s reported earnings improvement in Q2 is sustainable after excluding non-qualifying hedge valuation effects, decommissioning-fund market losses and other unusual items.
- The ultimate timing, cost and regulatory status of FPL’s large capital program and the $47.565 billion of disclosed FPL and NEER capital expenditures through 2026.
- Exposure to derivative collateral calls, commodity-market losses and credit-rating changes, including the approximately $3.031 billion energy-contract net liability.
- The outcome and remaining financial exposure of the Mountain Valley Pipeline impairment and related dismantlement-cost liability.
- Progress and potential cost effects from solar-module and battery-storage supply-chain disruptions and the Department of Commerce investigation.
- NEE’s debt maturities, refinancing needs, credit ratings and ability to preserve approximately $15.6 billion of net available liquidity while funding capital expenditures and dividends.
- FPL’s regulatory recovery of fuel, storm, environmental and other costs, including the continued use of reserve amortization under the 2021 rate agreement.