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, 2013. NEE operates primarily through FPL, a rate-regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive wholesale generation and renewable energy business. NEE had approximately 42,500 MW of generating capacity, nearly 5 million customers and approximately 13,900 employees at year-end.
FPL served approximately 4.7 million customer accounts and had 24,273 MW of owned generating capacity. NEER had approximately 18,303 MW of net generating capacity, including 10,210 MW of wind and 477 MW of solar capacity.
Financial and Operating Metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| NEE operating revenues | $15.136 billion | $14.256 billion | 6.2% increase |
| Income from continuing operations | $1.720 billion | $1.911 billion | 10.0% decrease |
| Net income | $1.908 billion | $1.911 billion | 0.2% decrease |
| Diluted EPS | $4.47 | $4.56 | 2.0% decrease |
| Operating income | $3.241 billion | $3.276 billion | 1.1% decrease |
| Cash flow from operations | $5.102 billion | $3.992 billion | 27.8% increase |
| Capital expenditures and related investments | $6.682 billion | $9.461 billion | 29.4% decrease |
| Long-term debt, excluding current maturities | $23.969 billion | $23.177 billion | 3.4% increase |
| Total assets | $69.306 billion | $64.439 billion | 7.6% increase |
Calculated consolidated operating margin was approximately 21.4% in 2013 versus 23.0% in 2012. Net margin was approximately 12.6% in both years. The filing does not present a company-wide adjusted EBITDA measure.
FPL operating revenues increased to $10.445 billion from $10.114 billion, while net income increased to $1.349 billion from $1.240 billion. FPL generated $3.558 billion of operating cash flow and invested $2.903 billion in capital expenditures, independent power and nuclear fuel purchases. FPL earned a 10.96% regulatory ROE, compared with 11.0% in 2012.
NEER net income declined to $556 million from $687 million. NEER's results included a $300 million pretax impairment of the Spain solar projects, or approximately $342 million after tax, partly offset by a $175 million after-tax gain from discontinued operations and earnings from new investments.
At December 31, 2013, NEE reported $438 million of cash and cash equivalents and approximately $6.7 billion of net available liquidity, including approximately $3.0 billion attributable to FPL. NEE's total debt, including current maturities, was approximately $27.7 billion based on carrying value. FPL's total debt, including current maturities, was approximately $8.8 billion.
Material Changes Versus the Prior Comparable Period
- FPL benefited from the 2012 rate agreement, which increased annualized retail base revenues by approximately $350 million, and from the April 2013 placement in service of the 1,210 MW Cape Canaveral modernization project.
- FPL completed a nuclear generation uprate project that added approximately 520 MW, completed installation of approximately 4.5 million smart meters and increased its retail rate base through continued infrastructure investment.
- FPL's reserve amortization declined to $155 million from $480 million in 2012, while higher earnings on plant in service increased net income.
- NEER added approximately 374 MW of wind capacity in the United States and Canada and 280 MW of U.S. solar capacity, but lower wind generation, production tax credit roll-off, lower customer-supply margins and the Spain solar impairment reduced earnings.
- NEE sold a portfolio of hydroelectric assets with approximately 351 MW of capacity, recognizing a $231 million after-tax gain. NEE also initiated a plan to sell approximately 796 MW of Maine oil-fired assets and recorded a $43 million after-tax write-down.
- NEE began an enterprise-wide cost savings initiative. Transition costs were approximately $72 million pretax, or $44 million after tax, including $32 million at FPL and $12 million at NEER.
- Operating cash flow improved substantially, while total capital investments fell primarily because 2012 included heavier construction spending at FPL and NEER.
- NEE issued common stock and entered into a forward sale agreement covering 6.6 million shares, with settlement required no later than December 31, 2014. The potential proceeds were approximately $576 million at year-end.
Guidance, Outlook, Risks and Unusual Items
Management expected FPL's 2012 rate agreement to provide base-rate predictability through December 2016. The agreement permits additional base-rate increases when the Riviera Beach modernization project, expected in the second quarter of 2014, and the Port Everglades modernization project, expected by mid-2016, enter service. FPL expected 2014 wholesale revenues to increase by approximately $100 million due primarily to higher contracted load.
NEE planned continued investment in renewable generation, including approximately 805 MW of solar additions during 2014 through 2016 and additional wind development in the United States and Canada. NEER also expected to complete four planned nuclear refueling outages in 2014.
NEE and FPL expected aggregate 2014-2018 capital expenditures of approximately $19.2 billion, consisting of $11.7 billion for FPL, $5.8 billion for NEER and $1.8 billion for Corporate and Other. The proposed Florida natural gas pipeline system accounted for approximately $1.4 billion of Corporate and Other capital expenditures and remained subject to FERC approval, expected in 2015.
- The Spain solar projects were affected by changes in Spanish law. Project-level debt of approximately $799 million and related interest-rate swap liabilities of approximately $93 million were classified as current at year-end. Further impairment or a partial refund of tariff revenues remained possible.
- FPL's 2012 rate agreement was subject to an appeal pending before the Florida Supreme Court.
- FPL's natural gas transportation commitments with Sabal Trail and Florida Southeast Connection were contingent on FERC approval and pipeline construction.
- Key risks include regulatory cost disallowance, inability to recover capital expenditures, changes to renewable-energy incentives, environmental compliance costs, nuclear operating and decommissioning risks, severe weather, commodity-price volatility, counterparty and derivative exposure, cybersecurity, credit-market access and interest-rate changes.
- NEE had approximately $11.2 billion of guarantees and indemnifications, $1.4 billion of standby letters of credit and $151 million of surety bonds at year-end; management believed material payment was unlikely and recorded no related liabilities.
- FPL's storm restoration cost recovery remained subject to regulatory approval. FPL could absorb approximately $121 million of future prudently incurred storm restoration costs without seeking a rate adjustment or filing a recovery petition.
Important Facts for Investors to Verify
- Reconcile GAAP net income of $1.908 billion with continuing operations of $1.720 billion, including the $188 million discontinued-operations gain and the Spain solar impairment.
- Assess the sustainability of FPL's earnings growth, including the 10.96% regulatory ROE, reserve amortization, rate-agreement provisions and future rate-base additions.
- Review NEER's exposure to production tax credit roll-off, merchant power prices, wind and solar resource variability, and the profitability of customer-supply and trading activities.
- Evaluate the Spain solar projects' remaining debt, regulatory outcome, potential additional impairment and possible tariff-revenue refunds.
- Compare the approximately $6.7 billion of available liquidity with near-term debt maturities, planned capital expenditures, collateral requirements and guarantees.
- Review the $108.2 billion of reported contractual obligations, including debt service, fuel and purchased-power commitments, asset-retirement obligations and pipeline investments.
- Confirm the status of the Florida Supreme Court appeal, FERC pipeline approvals, environmental proceedings and other legal contingencies.
- Consider the effect of potential credit-rating changes: a downgrade below investment grade could require approximately $2.3 billion of additional collateral under identified derivative and commodity contracts.
- Note that management and Deloitte & Touche reported effective internal control over financial reporting and an unqualified audit opinion for 2013.