Business Context and Reporting Period
NextEra Energy, Inc. (NEE) and its wholly owned subsidiary Florida Power & Light Company (FPL) filed a combined unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. NEE operates primarily through FPL, a rate-regulated Florida electric utility serving approximately 5.8 million customer accounts, and NextEra Energy Resources (NEER), a competitive renewable energy, generation, gas infrastructure and transmission business.
Effective January 1, 2022, FPL became one reportable segment following the integration of Gulf Power operations. Prior-period segment information was retrospectively adjusted.
Key Financial Metrics
NextEra Energy, Inc.
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Operating revenues | $6.719 billion | $4.370 billion | $14.792 billion | $12.023 billion |
| Operating income | $1.862 billion | $379 million | $2.035 billion | $1.558 billion |
| Net income attributable to NEE | $1.696 billion | $447 million | $2.625 billion | $2.369 billion |
| Diluted EPS | $0.86 | $0.23 | $1.33 | $1.20 |
| Net cash from operating activities | Not separately provided | Not separately provided | $7.267 billion | $6.236 billion |
Q3 2022 operating margin was approximately 27.7%, compared with 8.7% in Q3 2021. Nine-month operating margin was approximately 13.8%, compared with 13.0% in the prior-year period. These calculated margins were affected by derivative mark-to-market results and other unusual items.
Florida Power & Light Company
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Operating revenues | $5.075 billion | $4.134 billion | $13.211 billion | $10.673 billion |
| Operating income | $1.507 billion | $1.266 billion | $4.152 billion | $3.610 billion |
| Net income | $1.074 billion | $927 million | $2.939 billion | $2.586 billion |
| Net cash from operating activities | Not separately provided | Not separately provided | $4.550 billion | $4.700 billion |
FPL’s Q3 operating margin was approximately 29.7%, compared with 30.6% in Q3 2021. Nine-month operating margin was approximately 31.4%, compared with 33.8% in the prior-year period.
Balance Sheet, Debt and Liquidity
- At September 30, 2022, NEE had total assets of $156.409 billion, total liabilities of $109.663 billion and total equity of $46.746 billion.
- NEE cash and cash equivalents were $2.508 billion, compared with $639 million at December 31, 2021. Cash, cash equivalents and restricted cash totaled $3.967 billion at September 30, 2022.
- NEE long-term debt, including the current portion, was $61.962 billion, compared with $52.745 billion at December 31, 2021. Estimated fair value was $57.029 billion.
- FPL cash and cash equivalents were $1.218 billion, compared with $55 million at December 31, 2021. FPL long-term debt, including the current portion, was $20.998 billion, compared with $18.510 billion.
- NEE reported approximately $13.977 billion of net available liquidity at September 30, 2022, including $2.502 billion of cash and $14.403 billion of unused facility capacity before cash, borrowings and related-party amounts.
- NEE and its subsidiaries had credit facilities with total capacity of approximately $18.5 billion, including $6.0 billion for FPL; no borrowings were outstanding under those facilities at quarter-end, although letters of credit were outstanding.
Cash Flow and Capital Allocation
- NEE generated $7.267 billion of operating cash flow during the first nine months of 2022, up from $6.236 billion in the prior-year period.
- NEE used $13.849 billion in investing activities, including $6.021 billion of FPL capital expenditures and $7.252 billion of NEER independent power and other investments.
- NEE generated $9.238 billion from financing activities, primarily through $11.616 billion of long-term debt issuance and $1.458 billion of common stock and equity-unit issuance. Dividends paid were $2.507 billion.
- FPL generated $4.550 billion of operating cash flow and used $6.190 billion in investing activities, including $6.021 billion of capital expenditures. FPL received $3.700 billion of capital contributions from NEE and paid $2.000 billion in dividends to NEE.
- Estimated capital expenditures from the remainder of 2022 through 2026 totaled $38.045 billion for FPL and $9.510 billion for NEER. Management noted that actual expenditures may vary, particularly because of solar and battery-storage supply-chain disruptions.
Material Changes Versus the Prior Comparable Period
- NEE net income attributable to NEE increased by $1.249 billion in Q3 and $256 million for the first nine months. The quarterly increase was driven by higher FPL, NEER and Corporate and Other results; the nine-month increase was driven primarily by FPL and Corporate and Other, partly offset by lower NEER results.
- FPL net income increased $147 million in Q3 and $353 million for the nine months, primarily from continued investment in plant and rate base growth. Average FPL rate base was approximately $5.6 billion higher than in the comparable periods.
- NEER generated net income of $655 million in Q3 2022 versus a $428 million loss in Q3 2021. Nine-month NEER results were a $711 million loss versus a $252 million loss in 2021.
- NEER’s quarterly improvement primarily reflected more favorable non-qualifying hedge activity, while the nine-month decline reflected a $650 million after-tax Mountain Valley Pipeline impairment and unfavorable nuclear decommissioning fund investment results.
- NEE’s derivative-related commodity losses included in operating revenues were $122 million in Q3 and $3.488 billion for the first nine months, compared with $1.291 billion and $2.708 billion of losses, respectively, in the prior-year periods.
- NEE’s effective tax rate was 17.2% in Q3 and 11.5% for the first nine months, compared with negative 9.7% and 4.3% in the respective 2021 periods. Tax credits, derivative valuation changes and the Mountain Valley Pipeline impairment materially affected the rates.
- NEE issued $2.0 billion of equity units in September 2022 and issued 21.6 million common shares in connection with the settlement of earlier equity-unit purchase contracts.
Guidance, Outlook, Commentary and Unusual Items
- Management did not provide a clear new quantitative earnings guidance range in the supplied filing text.
- The Inflation Reduction Act, enacted August 16, 2022, expanded and extended wind and solar tax credits and created or expanded credits for standalone storage, renewable natural gas and hydrogen. Management expects the law to support clean-energy development, subject to qualification requirements.
- FPL estimated a greater than 10% fuel under-recovery for 2022 and did not plan to seek a 2022 midcourse correction. FPL expected to request recovery toward the end of 2022 or beginning of 2023, with the timing and recovery period dependent on fuel costs and natural-gas market conditions.
- Hurricane Ian caused approximately 2.1 million customer outages in late September 2022. FPL’s preliminary estimate of recoverable restoration costs was approximately $1.1 billion, exceeding its pre-storm reserve by approximately $900 million. The amount remains subject to finalization and FPSC prudence review.
- FPL recorded approximately $900 million of estimated Hurricane Ian storm-cost deficit as a regulatory asset. Approximately $1.3 billion of unpaid restoration costs, including estimated capital costs, was included in current liabilities. Recovery is expected through customer surcharges, subject to regulatory approval and statutory limits.
- FPL filed for approval of a $25 million customer refund and an approximately $70 million annualized reduction in base revenues beginning January 1, 2023, reflecting solar production tax credits under the Inflation Reduction Act.
- FPL’s authorized regulatory return on equity increased effective September 1, 2022, to 10.80%, with a range of 9.80% to 11.80%; the filing states that this did not affect current base rates.
- NEER completed the sale of a 67% controlling interest in a 230 MW battery-storage facility for approximately $194 million of proceeds and recorded an approximately $87 million pretax gain, or $66 million after tax.
- NEER entered into agreements on October 27, 2022 to acquire a renewable natural gas and landfill-gas portfolio for approximately $1.1 billion, plus approximately $37 million of project-finance debt, subject to approvals and expected closing in early 2023.
- NEE recorded an approximately $0.8 billion pretax impairment, or $650 million after tax, on its Mountain Valley Pipeline investment during the first quarter of 2022 after legal and regulatory challenges made completion highly unlikely.
- At September 30, 2022, derivative liabilities subject to credit-related contingent features had an aggregate fair value of approximately $9.0 billion. A downgrade below investment grade could require approximately $5.8 billion of collateral, with additional potential requirements under other financial triggers.
- NEE disclosed an ongoing outside-counsel review of allegations concerning potential campaign-finance violations involving FPL and certain executives. The outcome was not predictable as of the filing date, and potential regulatory inquiries, fines, penalties or other sanctions could result.
Principal Risks and Contingencies
- Regulatory decisions, cost-recovery approvals, rate proceedings and prudence reviews could affect FPL’s ability to recover fuel, storm and infrastructure costs and earn its authorized return.
- Commodity-price, derivative valuation, counterparty-credit and collateral-posting exposures create significant earnings and liquidity volatility, particularly at NEER.
- Interest-rate increases could raise financing costs and reduce the fair value of debt and investment portfolios; NEE reported substantial exposure to interest-rate derivatives and variable-rate financing.
- Large capital commitments, debt maturities, construction execution, permitting, supply-chain disruptions and the availability of tax credits could affect project returns and liquidity.
- Hurricane, severe-weather, cyberattack, nuclear, environmental, insurance and operational risks could generate uninsured losses or additional capital requirements.
- Legal and regulatory challenges to Mountain Valley Pipeline, campaign-finance allegations and other litigation or governmental investigations could result in impairments, fines, penalties or reputational effects.
Investor Verification Checklist
- Verify the final Hurricane Ian restoration costs, FPSC prudence review and timing and structure of customer surcharge recovery.
- Assess the sustainability of earnings excluding non-qualifying hedge mark-to-market effects, decommissioning-fund valuation changes and other unusual items.
- Review FPL’s 2022 fuel under-recovery estimate and the eventual recovery period and customer-rate impact.
- Monitor NEE’s debt issuance, refinancing requirements, interest costs, credit ratings and available liquidity, including potential derivative collateral requirements.
- Reconcile the $38.0 billion FPL and $9.5 billion NEER capital-expenditure plans with operating cash flow, asset sales, debt and equity financing.
- Track implementation of Inflation Reduction Act tax credits and related FPL base-rate adjustments.
- Follow the campaign-finance review and any resulting FEC, regulatory, investigative or enforcement actions.
- Evaluate the closing and financing of the announced approximately $1.1 billion renewable natural gas acquisition.