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, 2017. NEE operates primarily through FPL, a regulated Florida electric utility serving nearly five million customer accounts, and NextEra Energy Resources (NEER), a competitive energy business focused on contracted wind, solar, nuclear generation, natural gas infrastructure, and energy marketing.
The filing reports full-year 2017 results; the December 2017 quarter is included in the unaudited quarterly data but is not the primary reporting period.
Key Financial Metrics
| Metric | 2017 | 2016 | Change |
|---|---|---|---|
| Operating revenues | $17.195 billion | $16.155 billion | +6.4% |
| Operating income | $5.326 billion | $4.608 billion | +15.6% |
| Net income attributable to NEE | $5.378 billion | $2.912 billion | +84.7% |
| Diluted EPS | $11.38 | $6.25 | +$5.13 |
| Cash flow from operations | $6.413 billion | $6.293 billion | +1.9% |
| Capital expenditures and investments | $10.740 billion | $9.636 billion | +11.5% |
| Long-term debt, excluding current maturities | $31.463 billion | $27.818 billion | +13.1% |
| Total assets | $97.827 billion | $89.993 billion | +8.7% |
- NEE operating margin was approximately 31.0%, compared with 28.5% in 2016. Net income attributable to NEE represented approximately 31.3% of revenue, compared with 18.0% in 2016; the comparison was materially affected by tax reform and other unusual items.
- FPL net income was $1.880 billion, compared with $1.727 billion. FPL operating revenues rose to $11.972 billion from $10.895 billion, while operating income increased to $3.391 billion from $3.158 billion.
- NEER net income attributable to NEE was $2.963 billion, compared with $1.125 billion, primarily reflecting tax reform, new investments, and improved non-qualifying hedge results.
- NEE ended 2017 with approximately $1.714 billion of cash and cash equivalents and approximately $9.173 billion of net available liquidity, including cash and undrawn credit facilities net of borrowings and letters of credit.
- Common shareholders’ equity increased to $28.208 billion from $24.341 billion. Dividends paid were $3.93 per share, and NEE announced an increase in the quarterly dividend from $0.9825 to $1.11 per share effective in 2018.
Material Changes Versus the Prior Comparable Period
- Tax reform enacted in December 2017 reduced the federal corporate tax rate to 21% and produced an estimated $1.928 billion favorable after-tax impact attributable to NEE. NEE’s income tax line showed a $653 million benefit in 2017 versus $1.383 billion of expense in 2016.
- FPL’s results benefited from the 2016 rate agreement, higher plant investment, and increased retail base revenues. FPL’s average retail rate base grew by approximately $3.5 billion during 2017.
- Hurricane Irma generated approximately $1.3 billion of storm restoration costs. FPL wrote off the related regulatory asset and used reserve amortization to offset nearly all of the expense rather than pursuing a customer surcharge.
- FPL recorded $1.250 billion of reserve amortization in 2017 versus $13 million in 2016, substantially reducing reported depreciation and amortization expense.
- NEER added approximately 355 MW of wind capacity, repowered approximately 1,596 MW of wind capacity, and added approximately 200 MW of U.S. solar capacity. New-investment earnings increased by approximately $363 million after tax.
- NEER recorded a $420 million pretax, or $258 million after-tax, impairment charge for the Duane Arnold nuclear facility after concluding that its power purchase agreement was unlikely to be extended beyond 2025.
- NEE recorded an approximately $685 million after-tax gain on the January 2017 sale of its fiber-optic telecommunications business. The prior year included approximately $219 million of after-tax gains on natural gas generation facility sales.
- NEP was consolidated at December 31, 2017 but was deconsolidated in January 2018 after governance changes. NEE expected an approximately $4 billion pretax, or $3 billion after-tax, gain from remeasuring its retained NEP interest at fair value.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide a clear company-wide 2018 earnings guidance figure. It identifies continued investment in FPL’s regulated rate base and NEER’s contracted renewable and pipeline portfolio as key growth drivers.
- FPL’s rate agreement is effective from January 2017 through at least December 2020. It provides annualized retail base revenue increases of $400 million beginning in 2017, $211 million beginning in 2018, and $200 million upon commercial operation of the approximately 1,750 MW Okeechobee Clean Energy Center, expected in mid-2019.
- FPL expects approximately 300 MW of new solar capacity to become operational in January 2018, another 300 MW by March 2018, and additional 300 MW additions in each of 2019 and 2020, subject to regulatory conditions and cost limits.
- Approved or internally authorized capital expenditures for 2018 through 2022 total approximately $29.930 billion: $22.615 billion for FPL, $7.205 billion for NEER, and $110 million for Corporate and Other.
- Principal risks include extensive regulatory oversight and potential disallowance of costs, changes in renewable-energy incentives, commodity and interest-rate volatility, counterparty and liquidity risk, severe weather and hurricanes, cyber and operational disruptions, nuclear operating and decommissioning risks, and project construction delays or cost overruns.
- FPL’s allowed regulatory ROE is 10.55%, with a range of 9.60% to 11.60%. Its reported 2017 regulatory ROE was approximately 11.08%.
- NEE had approximately $119.126 billion of contractual obligations at year-end, including debt, purchase obligations, asset-retirement activities, and other commitments.
- The company reported effective internal control over financial reporting, and Deloitte & Touche issued unqualified audit opinions on the financial statements and internal controls.
Most Important Facts for Investors to Verify
- Separate recurring earnings from the approximately $1.9 billion favorable tax-reform impact, the fiber-optic sale gain, hedge-market movements, and the Duane Arnold impairment.
- Confirm the sustainability and regulatory treatment of FPL’s reserve amortization, storm costs, tax savings, and the pending appeal of the 2016 rate agreement.
- Assess whether the planned FPL and NEER capital program can be funded while maintaining credit ratings, liquidity, and dividend growth.
- Review the January 2018 NEP deconsolidation, including the fair-value gain, future equity-method earnings, and effects on reported revenue, assets, debt, and cash flow.
- Evaluate exposure to nuclear decommissioning obligations, severe weather losses, regulatory cost disallowances, and potential collateral requirements following credit-rating or market changes.