Business Context and Reporting Period
NextEra Energy, Inc. (NEE) filed a combined unaudited Form 10-Q with its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL), for the three months ended March 31, 2012. NEE operates primarily through FPL, serving approximately 4.6 million Florida customer accounts, and NextEra Energy Resources (NEER), a competitive power and renewable-energy business.
Key Financial Metrics
| Metric | NEE Q1 2012 | NEE Q1 2011 | FPL Q1 2012 | FPL Q1 2011 |
|---|---|---|---|---|
| Operating revenues | $3,371 million | $3,134 million | $2,224 million | $2,246 million |
| Operating income | $843 million | $428 million | $481 million | $406 million |
| Net income | $461 million | $268 million | $239 million | $205 million |
| Diluted EPS | $1.11 | $0.64 | Not applicable | Not applicable |
| Operating margin | 25.0% | 13.7% | 21.6% | 18.1% |
| Net margin | 13.7% | 8.6% | 10.7% | 9.1% |
| Operating cash flow | $835 million | $983 million | $558 million | $632 million |
NEE declared quarterly dividends of $0.60 per share, compared with $0.55 in the prior-year quarter. Comprehensive income was $521 million, versus $304 million.
At March 31, 2012, NEE reported total assets of $59.2 billion, cash and cash equivalents of $275 million, long-term debt of $20.6 billion, commercial paper of $1.7 billion, and current maturities of long-term debt of $1.5 billion. FPL reported total assets of $33.0 billion, cash of $16 million, long-term debt of $7.1 billion, commercial paper of $837 million, and current maturities of long-term debt of $451 million.
NEE generated $835 million of operating cash flow and used $2.0 billion for investing activities, including $2.0 billion of capital expenditures, independent power investments and nuclear fuel purchases. Financing activities provided $1.1 billion, including $566 million of long-term debt issuance, $303 million from the sale of differential membership interests, and $582 million of net short-term debt proceeds. FPL generated $558 million of operating cash flow and used $1.1 billion for investing activities, primarily capital expenditures.
NEE reported approximately $4.7 billion of net available liquidity at March 31, 2012, including approximately $2.4 billion attributable to FPL. NEE's total capitalization was $35.8 billion, including $15.2 billion of common equity and $20.6 billion of long-term debt.
Material Changes Versus the Prior Comparable Period
- NEE net income increased $193 million, or approximately 72%, primarily from a $156 million increase at NEER and a $34 million increase at FPL.
- NEER net income rose to $221 million from $65 million, primarily because after-tax unrealized mark-to-market gains on non-qualifying hedges were $37 million, compared with a $125 million loss in the prior-year period.
- FPL net income increased to $239 million from $205 million. Drivers included higher plant-in-service investment, use of surplus depreciation credits under the 2010 rate agreement, and higher cost-recovery clause results.
- NEE revenue increased 8%, while operating expenses decreased 7%, primarily because of lower fuel, purchased-power and interchange costs and favorable derivative valuation changes.
- FPL revenue decreased slightly, but operating income increased as fuel and energy costs declined by $103 million, partially offset by a $62 million increase in operations and maintenance expense.
- NEE operating cash flow declined $148 million, while investing cash use increased $918 million. Capital expenditures and other investments increased to $2.0 billion from $1.4 billion.
- NEE's effective tax rate was approximately 25%, compared with a negative 14% in the prior-year quarter. Results continued to benefit from wind production tax credits and Recovery Act investment tax benefits; the prior period also included a $26 million state investment tax credit benefit.
Guidance, Outlook, Risks and Unusual Items
- FPL filed a rate-case petition requesting an annualized base-rate increase of approximately $517 million effective January 2013 and an additional approximately $174 million when the modernized Cape Canaveral plant enters service, expected in June 2013. Hearings were expected in the third quarter of 2012, with a final decision expected in the fourth quarter.
- FPL estimated planned capital expenditures of $11.2 billion for the remainder of 2012 through 2016. NEER estimated $5.9 billion over the same period, including wind, solar, nuclear and other projects. Actual spending may vary significantly.
- NEER planned approximately 1,300 megawatts of new U.S. wind generation in 2012, including 177 megawatts added in the first quarter, and approximately 900 megawatts of new solar generation through 2016.
- NEER's results remain sensitive to unrealized derivative mark-to-market changes, commodity prices, power and gas trading performance, weather, generation output, nuclear outages, and the expiration or reduction of renewable-energy incentives. Management stated that Seabrook was expected to operate at reduced capacity until a fall 2012 refueling and repair outage.
- FPL's fuel-procurement derivatives generated a regulatory asset of approximately $590 million at March 31, 2012, compared with $502 million at December 31, 2011. Changes are generally deferred and recovered through regulatory mechanisms, subject to prudence review.
- Implementation of Dodd-Frank OTC-derivative rules could increase collateral requirements, compliance costs and restrictions on hedging and trading activities; the ultimate impact was not determinable.
- Key risks include extensive regulation and cost-recovery decisions, environmental and nuclear liabilities, severe weather and uninsured property losses, construction and permitting risks, commodity and interest-rate volatility, counterparty and collateral exposure, credit-rating changes, cybersecurity, and reductions in renewable-energy incentives.
- Material proceedings included a Clean Air Act case involving FPL's interest in Scherer Unit No. 4, an Adelphia fraudulent-transfer claim, and a TXU contract dispute involving NEER affiliates. Management believed the defenses were meritorious and did not expect the ultimate resolution of these matters to have a material adverse effect, although outcomes remained uncertain.
Most Important Facts for Investors to Verify
- Reconcile reported earnings growth with the substantial improvement in NEER's unrealized mark-to-market hedge results and assess the sustainability of those gains.
- Track the outcome of FPL's rate case, including the requested $517 million base-rate increase and the proposed Cape Canaveral-related increase.
- Monitor NEE's elevated capital program, debt maturities, commercial-paper balances and approximately $4.7 billion of net available liquidity.
- Review exposure to renewable-energy tax credits and other governmental incentives, particularly the wind production tax credit's then-current expiration framework.
- Assess nuclear availability and the expected Seabrook repair outage, along with potential nuclear insurance assessments and decommissioning-fund market risk.
- Evaluate derivative fair values, collateral requirements and credit-rating triggers; a downgrade below investment grade could require approximately $3.2 billion of additional collateral for NEE, including approximately $1.0 billion for FPL.
- Confirm the status and potential exposure from the disclosed legal, regulatory, environmental and storm-restoration matters.