Business Context and Reporting Period
Combined unaudited Form 10-Q for NextEra Energy, Inc. (NEE) and Florida Power & Light Company (FPL) for the three and nine months ended September 30, 2019. NEE operates primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive energy business focused on renewable generation, gas infrastructure and energy marketing. NEE acquired Gulf Power on January 1, 2019, and acquired Trans Bay Cable in July 2019.
Key Financial Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| NEE operating revenues | $5,572 million | $4,416 million | $14,616 million | $12,337 million |
| NEE operating income | $1,593 million | $968 million | $4,476 million | $3,173 million |
| NEE net income attributable to NEE | $879 million | $1,005 million | $2,794 million | $6,216 million |
| Diluted EPS | $1.81 | $2.10 | $5.78 | $13.00 |
| NEE operating margin | 28.6% | 21.9% | 30.6% | 25.7% |
| NEE net attributable margin | 15.8% | 22.8% | 19.1% | 50.4% |
Margins are calculated from reported revenues and income and are approximate. Nine-month 2018 results included a $3.9 billion pretax gain, approximately $3.0 billion after tax, from the deconsolidation of NEP.
- FPL: Q3 operating revenues were $3,491 million and net income was $683 million, compared with $3,399 million and $654 million, respectively, in Q3 2018. Nine-month revenue was $9,267 million and net income was $1,934 million, versus $8,927 million and $1,764 million in the prior-year period. FPL reported a regulatory ROE of 11.60% in both comparable periods.
- Gulf Power: Contributed $440 million of revenue and $76 million of NEE-attributable net income in Q3; nine-month contributions were $1,134 million and $158 million.
- NEER: Contributed $367 million of NEE-attributable net income in Q3 and $1,330 million for nine months, compared with $212 million and $4,401 million in the respective 2018 periods.
- Cash flow: NEE generated $6,243 million of operating cash flow in the first nine months, up from $5,231 million. Investing cash usage was $12,463 million, including $4,928 million for Gulf Power acquisition and capital expenditures and $3,880 million of NEER investments. Financing cash flow was $2,523 million. Cash, cash equivalents and restricted cash declined to $1,558 million from $5,253 million at the beginning of the year.
- Capital structure and liquidity: At September 30, NEE had $36,144 million of long-term debt, $2,888 million of current maturities, $2,515 million of commercial paper and $40,174 million of total equity. Reported net available liquidity was approximately $9.8 billion, including $4.3 billion for FPL, $950 million for Gulf Power and $4.5 billion for NEECH.
- FPL balance sheet: FPL had $14,144 million of long-term debt, $445 million of commercial paper, $137 million of cash and $20,998 million of common equity at September 30, 2019.
Material Changes Versus the Prior Comparable Period
- NEE revenue increased 26% in Q3 and 18% for the first nine months, primarily reflecting Gulf Power, higher NEER commodity hedge results, new investments and customer supply and gas infrastructure activity.
- NEE-attributable net income declined 13% in Q3 and 55% for nine months. The nine-month comparison was dominated by the absence of the 2018 NEP deconsolidation gain, the absence of favorable 2018 tax-related adjustments and higher 2019 hedge-related losses.
- NEE interest expense increased to $746 million in Q3 from $168 million and to $2,061 million for nine months from $788 million, reflecting higher debt balances and unfavorable interest-rate derivative valuation changes.
- FPL earnings increased due primarily to rate-base growth, solar and transmission investments, the Okeechobee Clean Energy Center and customer growth. FPL’s average retail rate base was approximately $3.5 billion higher in Q3 and $3.2 billion higher for nine months than in the comparable 2018 periods.
- NEER’s Q3 results benefited from favorable non-qualifying hedge activity, while nine-month results were reduced by the absence of the 2018 NEP gain and tax benefits. NEER also recorded a $341 million pretax gain on the sale of renewable assets to NEP during 2019.
- NEE’s balance sheet expanded substantially: total assets increased to $114.2 billion from $103.7 billion and long-term debt increased to $36.1 billion from $26.8 billion, primarily reflecting acquisitions and financing activity.
Guidance, Outlook, Management Commentary, Risks and Unusual Items
- The filing does not provide a clear quantitative earnings guidance figure. Management uses adjusted earnings, a non-GAAP measure, but the filing does not state a new formal earnings target.
- Management expects funding needs to be met through operating cash flow, debt and equity issuance, credit facilities, asset sales and proceeds from project-level investors, while maintaining a strong investment-grade credit profile.
- Approved estimated capital expenditures for the remainder of 2019 through 2023 total approximately $36.6 billion: FPL $25.5 billion, Gulf Power $3.4 billion, NEER $7.2 billion and Corporate and Other $445 million.
- FPL recorded approximately $274 million of recoverable Hurricane Dorian restoration costs. The storm reserve deficiency was approximately $166 million, with recovery subject to FPSC prudence review and surcharge or other regulatory mechanisms.
- NEER abandoned development of a 220 MW wind facility because of unresolved permitting issues and recorded a $73 million pretax charge, or $54 million after tax.
- FPL’s June 2019 tax-reform rate order was appealed by the Florida Office of Public Counsel; the appeal was pending before the Florida Supreme Court at the filing date.
- During the second and third quarters, waivers were obtained for events of default related to a counterparty bankruptcy affecting certain power purchase agreement financings. The related debt was classified as long-term at September 30, 2019.
- Key ongoing risks include extensive regulatory oversight, timely recovery of costs and storm expenditures, construction and permitting delays, commodity and derivative volatility, interest rates, counterparty and credit risk, cyber and operational risks, nuclear liabilities, environmental requirements and access to capital markets.
- NEE reported approximately $3.0 billion of guarantees related to purchased-power agreements, nuclear activities, tax-credit obligations and other contracts, plus approximately $1.5 billion of standby letters of credit and $504 million of surety bonds.
Investor Verification Checklist
- Verify the effect of the Gulf Power and Trans Bay Cable acquisitions on future earnings, debt, goodwill and regulatory capital requirements.
- Reconcile GAAP earnings with adjusted earnings, particularly the $694 million after-tax nine-month impact from non-qualifying hedge activity and other disclosed adjustments.
- Assess the sustainability of FPL’s 11.60% regulatory ROE, reserve amortization practices and recovery of Hurricane Dorian costs.
- Review NEE’s increased leverage, debt maturities, interest-rate derivative exposure and approximately $9.8 billion of available liquidity.
- Evaluate the funding requirements and execution risks associated with approximately $36.6 billion of planned capital expenditures through 2023.
- Monitor the FPSC rate-order appeal, permitting risks, nuclear and storm contingencies, and the potential collateral requirements under derivative contracts if credit ratings decline.