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, 2019. NEE operates primarily through FPL, Gulf Power and NextEra Energy Resources (NEER). FPL is a regulated Florida electric utility; Gulf Power was acquired on January 1, 2019; and NEER develops and operates renewable generation, wholesale power, transmission, natural-gas infrastructure and related energy businesses.
The filing presents full-year 2019 results, with quarterly data included. The company’s principal businesses are FPL and NEER; the filing also reports Gulf Power separately and includes Corporate and Other activities.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Operating revenues | $19.204 billion | $16.727 billion | +$2.477 billion |
| Operating income | $5.353 billion | $4.280 billion | +$1.073 billion |
| Net income | $3.388 billion | $5.776 billion | -$2.388 billion |
| Net income attributable to NEE | $3.769 billion | $6.638 billion | -$2.869 billion |
| Diluted EPS attributable to NEE | $7.76 | $13.88 | -$6.12 |
| Cash flow from operating activities | $8.155 billion | $6.593 billion | +$1.562 billion |
| Capital expenditures, investments and nuclear fuel | $17.462 billion | $13.004 billion | +$4.458 billion |
| Long-term debt, excluding current portion | $37.543 billion | $26.782 billion | +$10.761 billion |
| Total assets | $117.691 billion | $103.702 billion | +$13.989 billion |
Operating margin was approximately 27.9% in 2019 versus 25.6% in 2018. Net margin attributable to NEE was approximately 19.6% versus 39.7%, primarily because 2018 included a roughly $3.0 billion after-tax gain from the deconsolidation of NextEra Energy Partners (NEP).
Segment Performance
- FPL: Net income attributable to NEE increased to $2.334 billion from $2.171 billion. Operating revenues increased to $12.192 billion from $11.862 billion. Results benefited primarily from growth in plant in service, solar additions, transmission and distribution investment, and the Okeechobee Clean Energy Center.
- Gulf Power: Contributed $180 million of net income attributable to NEE and $1.487 billion of operating revenues during its first year in the consolidated results.
- NEER: Net income attributable to NEE declined to $1.807 billion from $4.704 billion, mainly because 2018 included NEP-related gains and favorable tax-related adjustments. New renewable investments, gas infrastructure and favorable nuclear decommissioning fund investment results partly offset the decline.
- Corporate and Other: Loss increased to $552 million from $237 million, primarily due to higher interest expense, unfavorable non-qualifying hedge activity, and acquisition and integration costs.
Cash Flow, Liquidity and Debt
- Operating cash flow was $8.155 billion, compared with $17.462 billion of capital expenditures, acquisitions, investments and nuclear fuel purchases.
- Net cash used in investing activities was $16.177 billion. Financing activities provided $3.873 billion, including $13.919 billion of long-term debt issuance and $1.494 billion of net common-stock issuance, partially offset by $5.492 billion of long-term debt retirements and $2.408 billion of common-stock dividends.
- Cash, cash equivalents and restricted cash declined by $4.145 billion to $1.108 billion at year-end. Reported cash and cash equivalents were $600 million.
- Net available liquidity was approximately $8.5 billion at December 31, 2019, including $2.215 billion for FPL, $514 million for Gulf Power and $5.740 billion for NEECH.
- Total long-term debt, including the current portion, was approximately $39.667 billion, versus $29.498 billion in 2018. The increase reflects acquisition financing, capital investment and other funding needs.
- NEE, FPL and NEECH had stable investment-grade credit outlooks at February 14, 2020. NEE’s corporate ratings were Baa1/A-/A-; FPL’s were A1/A/A; and NEECH’s were Baa1/A-/A-.
Material Changes Versus the Prior Comparable Period
- NEE acquired Gulf Power for approximately $4.44 billion in cash and assumed approximately $1.3 billion of debt. The acquisition added regulated utility earnings, assets and approximately $2.7 billion of goodwill.
- NEET acquired Trans Bay Cable for approximately $670 million in cash and assumed approximately $422 million of debt, adding approximately $610 million of goodwill.
- NEER added approximately 1,125 MW of wind capacity, repowered approximately 1,091 MW of wind capacity and added approximately 512 MW of solar capacity in 2019.
- NEER sold interests in six wind and solar facilities totaling approximately 611 MW to NEP for approximately $1.0 billion of cash proceeds and recognized a $341 million pretax gain.
- FPL’s average retail customer accounts increased 2.0%, while average usage per retail customer decreased 0.3%. FPL’s retail rate base increased by approximately $3.3 billion.
- FPL recorded approximately $260 million of Hurricane Dorian storm restoration costs and elected not to seek recovery through a customer surcharge; available reserve amortization offset the costs.
- FPL completed repayment of its storm-recovery bonds in August 2019.
- NEER recorded a $72 million impairment charge, primarily for capitalized costs related to a 220 MW wind project abandoned because of unresolved permitting issues.
- NEE’s effective income tax rate declined to approximately 11.7% from 21.4%, reflecting regulatory credit amortization, higher tax credits, an adjustment related to differential membership interests and lower pretax income.
Guidance, Outlook, Risks and Unusual Items
- FPL’s 2016 rate agreement is effective through at least December 2020. It provides an allowed regulatory ROE of 10.55%, with a 9.60% to 11.60% range. FPL reported regulatory ROE of approximately 11.60% for both 2019 and 2018.
- Approved or internally authorized capital expenditures for 2020 through 2024 total approximately $31.095 billion for FPL, $3.545 billion for Gulf Power and $7.350 billion for NEER. Actual expenditures may vary materially.
- Management expects FPL’s Dania Beach Clean Energy Center, with approximately 1,200 MW of capacity, to enter service in 2022. FPL also expected an additional 300 MW of solar capacity in the second quarter of 2020.
- NEER’s contracted assets represented approximately 90% of net generating capacity at year-end, with a weighted-average remaining contracted term of approximately 16 years for certain contracted generation assets.
- NEER’s Duane Arnold nuclear facility is expected to cease operations in late 2020 after its power purchase agreement was shortened to expire December 31, 2020.
- On February 11, 2020, NEE was selected as the recommended bidder for Santee Cooper. The proposed approximately $8.5 billion cash purchase, plus approximately $941 million of customer refunds, remained subject to legislation, definitive agreements and regulatory approvals.
- Key risks include extensive regulatory oversight and potential cost disallowances; dependence on capital markets and credit ratings; interest-rate, commodity, derivative and counterparty exposure; severe weather and hurricanes; environmental and permitting requirements; nuclear operations and decommissioning; cybersecurity; renewable-energy tax incentives; and project delays or cost overruns.
- At year-end, NEE had approximately $3.6 billion of guarantees related to purchased power agreements, nuclear activities, tax credits and other contractual obligations, plus approximately $733 million of estimated trading-related mark-to-market exposure net of collateral.
- Derivative valuations include material Level 3 estimates. The auditor identified operating revenue from unrealized gains on energy derivatives as a critical audit matter; approximately $638 million of unrealized gains from Level 3 transactions were included in 2019 operating revenues.
Investor Verification Priorities
- Verify the sustainability of earnings excluding the 2018 NEP deconsolidation gain and other nonrecurring items, including non-qualifying hedge impacts and tax-related adjustments.
- Assess leverage and refinancing requirements following the Gulf Power acquisition, major capital investment program and increase in long-term debt.
- Review FPL and Gulf Power rate cases, allowed ROEs, regulatory asset and liability balances, and the risk of future cost disallowances.
- Confirm the timing, permitting status and required funding for planned renewable, transmission, pipeline and generation projects.
- Evaluate exposure to hurricanes, uninsured property losses, nuclear incidents, decommissioning obligations and potential regulatory recovery limitations.
- Review derivative valuation assumptions, collateral requirements and sensitivity to commodity, interest-rate and credit-market movements.
- Monitor the status and financing implications of the proposed Santee Cooper transaction and other acquisitions or asset sales disclosed after year-end.