Business Context and Reporting Period
NextEra Energy, Inc. (NEE) filed a combined Form 10-K with Florida Power & Light Company (FPL) for the fiscal year ended December 31, 2021. The filing is annual rather than a standalone 2021 fourth-quarter filing. NEE operates primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources and NextEra Energy Transmission (collectively, NEER), focused on renewable generation, storage, competitive energy and regulated transmission.
FPL and Gulf Power merged on January 1, 2021. Gulf Power remained a separate NEE operating segment during 2021, while FPL became one regulated entity and one NEE operating segment beginning January 1, 2022.
Key Financial Metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Operating revenues | $17.069 billion | $17.997 billion | Down $928 million |
| Operating income | $2.913 billion | $5.116 billion | Down $2.203 billion |
| Net income attributable to NEE | $3.573 billion | $2.919 billion | Up $654 million |
| Diluted EPS | $1.81 | $1.48 | Up $0.33 |
| Operating margin | Approximately 17.1% | Approximately 28.4% | Down |
| Net cash from operating activities | $7.553 billion | $7.983 billion | Down $430 million |
| Capital expenditures and investments | $16.077 billion | $14.610 billion | Up $1.467 billion |
| Long-term debt, including current portion | $52.745 billion | $46.082 billion | Up $6.663 billion |
| Cash and cash equivalents | $639 million | $1.105 billion | Down $466 million |
| Net available liquidity | $10.624 billion | Not clearly provided in the filing text | Not comparable |
NEE's total assets were $140.912 billion and total liabilities were $95.243 billion at December 31, 2021. FPL's net income was $3.206 billion, compared with $2.890 billion in 2020, and FPL's operating revenues were $14.102 billion, compared with $13.060 billion.
FPL generated $5.358 billion of operating cash flow and invested $7.570 billion in capital expenditures, independent power and other investments, and nuclear fuel. FPL ended the year with $18.510 billion of long-term debt, including the current portion, and $55 million of cash and cash equivalents.
Material Changes Versus the Prior Comparable Period
- NEE's attributable net income increased 22%, primarily due to higher FPL and Gulf Power earnings, the absence of the 2020 Mountain Valley Pipeline impairment, and higher earnings from new NEER investments.
- Operating revenues declined despite higher FPL revenues because NEER recorded approximately $2.510 billion of non-qualifying commodity hedge losses in 2021, compared with $244 million in 2020. The hedge losses substantially reduced reported operating income and revenue, although management views some of the volatility as economically offset by positions not marked to market.
- FPL segment net income increased $285 million to $2.935 billion, supported primarily by approximately $3.3 billion of average retail rate-base growth and continued investment in generation, solar, transmission and distribution assets.
- FPL's retail base revenues decreased $9 million, reflecting a 2.6% decline in average usage per customer, partly offset by 1.5% customer-account growth. Fuel cost recovery revenues increased approximately $775 million because of higher fuel and energy prices.
- FPL recorded approximately $516 million of net underrecovered cost-recovery-clause amounts in operating cash flow, primarily related to fuel costs. These amounts are expected to be collected through future customer charges.
- NEER added approximately 2,008 MW of wind capacity and 728 MW of solar capacity, repowered approximately 435 MW of wind capacity, and acquired GridLiance, a regulated transmission business.
- NEER's net income increased to $599 million from $531 million, but results were affected by the February 2021 Texas winter weather event, lower existing-generation results, project sales and unfavorable hedge activity.
- NEE's effective income tax rate increased to approximately 11.0% from 1.8%, while remaining below the statutory rate primarily because of production and investment tax credits and regulatory tax benefits.
Guidance, Outlook, Commentary, Risks and Unusual Items
The filing does not provide a clear standalone 2022 earnings guidance figure in the supplied text. Management's outlook emphasizes continued investment in FPL's regulated rate base and NEER's renewable, storage and transmission pipeline.
- The FPL 2021 rate agreement, effective January 2022 through at least December 2025, provides annualized retail base-revenue increases of $692 million beginning January 1, 2022 and $560 million beginning January 1, 2023.
- FPL's authorized regulatory ROE is 10.60%, with a 9.70% to 11.70% range. FPL may amortize up to $1.45 billion of depreciation reserve surplus over the agreement term, subject to conditions.
- FPL expects substantial investment through 2026, including approximately $38.855 billion of projected capital expenditures. NEER's projected capital expenditures total approximately $10.180 billion for 2022 through 2026.
- FPL plans continued solar expansion, including up to 894 MW annually through the SoBRA mechanism in 2024 and 2025 and an additional 1,788 MW under SolarTogether through 2025.
- Three facilities included in a December 2021 project sale were still under construction. Approximately $668 million of related proceeds were recorded as contract liabilities and could be subject to repayment or repurchase obligations if specified 2022 completion and tax-credit conditions are not met.
- Mountain Valley Pipeline remained a significant unusual item. After a $1.5 billion impairment charge in 2020, NEE recorded an additional approximately $0.8 billion impairment charge in the first quarter of 2022, including approximately $0.6 billion after tax, resulting in a complete write-off of the investment and recognition of an estimated asset-retirement obligation.
- The Department of Justice was investigating alleged violations of the Migratory Bird Treaty Act and Bald and Golden Eagle Protection Act involving eagle fatalities near NEER wind facilities. Management expected a resolution not to have a material adverse impact, but the matter remained contingent.
- Key risks include regulatory cost-recovery decisions, changes to renewable-energy incentives, environmental and greenhouse-gas regulation, severe weather and hurricanes, cyberattacks, commodity and derivative volatility, nuclear operations, project delays and cost overruns, counterparty performance, credit-market access, interest rates and credit ratings.
- NEE's total mark-to-market energy contract position was a net liability of approximately $441 million at year-end 2021. The filing identifies significant valuation uncertainty for Level 3 derivatives; unrealized Level 3 losses included in operating revenues were approximately $924 million.
Most Important Facts for Investors to Verify
- Reconcile GAAP earnings with adjusted earnings and isolate the effect of non-qualifying hedge losses, tax credits, asset sales and other nonrecurring items.
- Review the collection timing and regulatory treatment of FPL's approximately $516 million fuel-related underrecovery.
- Assess whether the 2021 FPL rate agreement, including the authorized ROE, base-rate increases and solar mechanisms, remains effective after pending appeals.
- Track FPL's and NEER's large capital programs against financing capacity, project completion schedules, supply-chain conditions and expected regulatory recovery.
- Monitor Mountain Valley Pipeline's further obligations, including the 2022 impairment and estimated asset-retirement costs.
- Evaluate debt growth, near-term maturities, interest-rate exposure, collateral requirements and the availability of approximately $10.6 billion of net liquidity.
- Review derivative valuation assumptions, counterparty exposure and potential collateral requirements following adverse commodity-price or credit-rating movements.
- Follow the DOJ wind-facility investigation, nuclear license-renewal applications, environmental proceedings and exposure to severe-weather restoration costs.
- Confirm the effect of the January 2022 FPL consolidation into one operating and ratemaking segment on future segment comparability.