NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned regulated utility, Florida Power & Light Company (FPL). NEE’s principal businesses are FPL and NextEra Energy Resources (NEER), a competitive energy business focused on renewable generation, gas infrastructure, power marketing and related activities. The financial statements are unaudited.
Financial Results and Key Metrics
| Metric | Q2 2017 | Q2 2016 | Change |
|---|
| NEE operating revenues | $4,404 million | $3,817 million | +$587 million |
| NEE net income attributable to NEE | $793 million | $540 million | +$253 million |
| NEE diluted EPS | $1.68 | $1.16 | +$0.52 |
| FPL operating revenues | $3,091 million | $2,750 million | +$341 million |
| FPL net income | $526 million | $448 million | +$78 million |
| Metric | Six months 2017 | Six months 2016 | Change |
|---|
| NEE operating revenues | $8,377 million | $7,651 million | +$726 million |
| NEE net income attributable to NEE | $2,376 million | $1,193 million | +$1,183 million |
| NEE diluted EPS | $5.05 | $2.57 | +$2.48 |
| FPL operating revenues | $5,618 million | $5,054 million | +$564 million |
| FPL net income | $971 million | $841 million | +$130 million |
- NEE’s Q2 operating income was $1,285 million versus $1,169 million in the prior-year quarter. Six-month operating income was $3,690 million versus $2,403 million.
- NEE’s six-month net income benefited materially from the approximately $1.1 billion pretax, or approximately $685 million after-tax, gain on the January 2017 sale of its fiber-optic telecommunications business.
- NEE’s effective tax rate was approximately 26% in Q2 and 29% for the six months. Results benefited from production tax credits, investment tax credits and related deferred tax benefits associated primarily with renewable projects.
- NEE paid $0.9825 per common share in Q2 2017 versus $0.87 in Q2 2016. Six-month dividends were $1.965 per share versus $1.74.
- FPL reported a regulatory return on equity of 11.50% and continued to benefit from growth in its retail rate base, new rates under the 2016 rate agreement and storm-cost recovery revenues.
Cash Flow, Balance Sheet, Debt and Liquidity
| NEE metric | June 30, 2017 | December 31, 2016 |
|---|
| Total assets | $92,890 million | $89,993 million |
| Cash and cash equivalents | $642 million | $1,292 million |
| Long-term debt | $30,392 million | $27,818 million |
| Total capitalization | $57,268 million | $53,149 million |
| Total equity | $26,876 million | $25,331 million |
- NEE generated $3,165 million of operating cash flow in the first six months, compared with $3,270 million in the prior-year period.
- Investing cash outflows were $5,509 million, including $2,648 million of FPL capital expenditures and $4,106 million of NEER investments, partly offset by $1,482 million of fiber-optic sale proceeds.
- Financing activities provided $1,694 million, including $2,771 million of long-term debt issuance and a $1,847 million increase in commercial paper, partially offset by $1,885 million of debt retirements and $920 million of common dividends.
- Cash declined by $650 million during the six months, ending at $642 million. Management reported approximately $7.9 billion of total net available liquidity at June 30, 2017, including cash and available credit facilities for FPL and NEECH.
- FPL had $10,088 million of long-term debt and $1,000 million of commercial paper at June 30, 2017. FPL generated $2,053 million of operating cash flow and used $2,763 million in investing activities during the first six months.
Material Changes Versus the Prior Comparable Period
- FPL: Earnings increased primarily because of continued investment in generation, transmission and distribution assets and the resulting rate-base growth. Retail base revenues also reflected new rates under the 2016 rate agreement. Average usage per retail customer declined 0.6% in Q2 and 1.4% for the six months, while customer accounts increased 1.3% in both periods.
- NEER: Results benefited from lower losses, and in the six-month period gains, from non-qualifying hedge activity; contributions from new wind, solar and pipeline investments; and higher customer supply and trading results. These benefits were partly offset by higher interest and general and administrative costs, lower gas-infrastructure results and a 2017 Seabrook refueling outage.
- Divestitures and unusual items: The 2016 period included a $254 million pretax gain on the sale of Texas natural gas generation facilities. The 2017 period included the fiber-optic business sale gain. These items make reported year-over-year earnings less representative of recurring operations.
- Capital structure: Long-term debt increased from $27.8 billion at year-end 2016 to $30.4 billion at June 30, 2017, while commercial paper increased from $268 million to $2.1 billion.
- NEP: NEE announced intended governance changes at NextEra Energy Partners, LP and expects to deconsolidate NEP beginning in January 2018. NEE expects to account for its interest using the equity method, with a potentially material gain upon deconsolidation.
Guidance, Outlook, Risks and Unusual Items
- NEER expects to add approximately 5,400 to 8,400 MW of new wind generation, 3,300 to 4,300 MW of wind repowering capacity and 1,400 to 3,800 MW of new solar generation from 2017 through 2020.
- Approved and internally authorized capital expenditures for the remainder of 2017 through 2021 totaled approximately $20.4 billion for FPL, $6.4 billion for NEER and $275 million for Corporate and Other. Actual spending may vary significantly.
- FPL commenced construction on eight solar sites totaling approximately 596 MW and is evaluating an approximately 1,200 MW Dania Beach natural-gas modernization project with an estimated cost of approximately $900 million and a potential mid-2022 in-service date, subject to approvals.
- FPL agreed to shut down the St. Johns River Power Park coal units, targeted for early January 2018, and expects to pay JEA approximately $90 million. The agreement requires Florida Public Service Commission approval.
- NEE and FPL face extensive regulatory, environmental, tax, legal, nuclear, weather, construction, commodity-price, counterparty, credit, cybersecurity and capital-market risks. Management stated that there were no material changes to the risk factors disclosed in the 2016 Form 10-K.
- Derivative positions remain significant. At June 30, 2017, NEE reported net derivative assets of $1,974 million and net derivative liabilities of $784 million. A downgrade below investment grade could require approximately $1.0 billion of additional collateral posting by applicable NEE subsidiaries, with additional exposure from other contractual triggers.
- NEE reported approximately $2.6 billion of guarantees related to purchased-power agreements, nuclear activities, production tax credits and other obligations, plus approximately $1.1 billion of standby letters of credit and $395 million of surety bonds.
- NEE terminated two $3.75 billion variable-rate bilateral term-loan agreements on June 26, 2017. The filing also discloses that NEE is pursuing a potential $275 million termination fee related to the failed Oncor transaction, subject to the specified conditions.
Important Facts for Investors to Verify
- Separate recurring earnings from the fiber-optic sale gain, the prior-year Texas generation sale gain, tax benefits and non-qualifying hedge volatility.
- Monitor the effect of planned NEP deconsolidation in January 2018, including the expected gain, future equity-method earnings and changes in reported debt, assets and noncontrolling interests.
- Assess whether the planned FPL and NEER capital program can be funded while maintaining investment-grade credit ratings and acceptable liquidity.
- Review regulatory approvals and cost recovery for FPL’s solar projects, storm costs, coal-unit shutdown and proposed Dania Beach project.
- Track collateral requirements, derivative valuation exposure and potential effects of commodity prices, interest rates and credit-rating changes.
- Evaluate the sustainability of reported earnings growth given lower customer usage, nuclear outages, gas-infrastructure weakness and reliance on tax incentives.
