Filing Overview
Registrant and period: This combined, unaudited Form 10-Q was filed by FPL Group, Inc. and Florida Power & Light Company for the quarter and six months ended June 30, 2009. The filing predates the company’s later name change to NextEra Energy, Inc. FPL Group comprised the regulated FPL utility, competitive energy business NextEra Energy Resources, and Corporate and Other activities.
Financial Performance
| FPL Group consolidated | Q2 2009 | Q2 2008 | 6M 2009 | 6M 2008 |
|---|---|---|---|---|
| Operating revenues | $3,811 million | $3,585 million | $7,515 million | $7,020 million |
| Operating income | $605 million | $313 million | $1,188 million | $757 million |
| Net income | $370 million | $209 million | $734 million | $458 million |
| Diluted EPS | $0.91 | $0.52 | $1.81 | $1.14 |
| Net cash from operations | Not provided quarterly | Not provided quarterly | $2,144 million | $2,068 million |
Consolidated operating margin was approximately 15.9% in Q2 2009 versus 8.7% in Q2 2008, and approximately 15.8% for the first six months versus 10.8% in the prior-year period. Net margin was approximately 9.7% in Q2 2009 versus 5.8% in Q2 2008, and 9.8% for the six months versus 6.5% in 2008.
- FPL: Q2 revenue was $2,864 million and net income was $213 million, compared with $2,871 million and $217 million, respectively. Six-month revenue was $5,437 million and net income was $340 million, compared with $5,406 million and $325 million.
- NextEra Energy Resources: Net income increased to $186 million in Q2 from $3 million and to $438 million for six months from $167 million. Drivers included new investments, improved requirements-services and trading results, absence of Seabrook outages, and significantly lower mark-to-market losses.
- Cash flow and investment: Six-month investing cash outflow was $2,421 million, including $1,088 million of FPL capital expenditures, $1,084 million of independent power investments and $167 million of nuclear fuel purchases. Financing cash flow was $18 million.
- Liquidity: Cash and cash equivalents declined to $276 million from $535 million at December 31, 2008. Net available liquidity was approximately $5.1 billion, including $1.7 billion for FPL.
- Debt and capitalization: Consolidated long-term debt was $15,664 million at June 30, 2009, up from $13,833 million at year-end 2008. Current commercial paper was $1,122 million, down from $1,835 million. Shareholders’ equity was $12,244 million, versus $11,681 million.
- Dividends and equity issuance: Six-month common dividends were $382 million. FPL Group issued approximately $65 million of common stock under its continuous offering agreement and sold $350 million of equity units in May 2009.
Material Changes Versus Prior Period
- Consolidated Q2 net income rose $161 million, or approximately 77%, while six-month net income rose $276 million, or approximately 60%.
- The largest improvement came from NextEra Energy Resources, driven partly by after-tax non-qualifying hedge losses of only $31 million in Q2 2009 versus $157 million in Q2 2008, and $1 million for six months versus $209 million.
- FPL’s Q2 earnings declined modestly because of lower retail customer usage; six-month earnings increased because of the spent-fuel settlement, lower operations and maintenance expense, and higher allowance for equity funds used during construction.
- FPL retail customer usage per customer declined 2.5% in Q2 and 3.4% for six months, reflecting the economic slowdown and housing weakness. Average customer counts also declined 0.3% and 0.4%, respectively.
- Depreciation and amortization increased by $84 million in Q2 and $141 million for six months, primarily due to amortization of pre-construction costs for planned nuclear units and higher transmission and distribution depreciation.
- The spent-fuel settlement increased first-quarter 2009 net income by approximately $16 million for FPL Group and $9 million for FPL, reduced property, plant and equipment by $107 million, and generated approximately $124 million of government collections through June 30, 2009.
Outlook, Risks and Unusual Items
- FPL requested permanent base-rate increases expected to increase annual retail base revenues by approximately $1 billion in 2010 and an additional $250 million in 2011, subject to Florida Public Service Commission approval. The filing states that FPL expected approximately $65 million of 2009 revenue from the GBRA mechanism for West County Energy Center Units 1 and 2.
- FPL expected West County Energy Center Units 1 and 2 to enter service in the third and fourth quarters of 2009, respectively, with Unit 3 expected in mid-2011. Planned projects also included nuclear uprates, modernization of the Cape Canaveral and Riviera plants, a proposed natural-gas pipeline, and two additional Turkey Point nuclear units.
- FPL Group estimated planned capital expenditures from the remainder of 2009 through 2013 of $11.9 billion for FPL, $3.1 billion for NextEra Energy Resources, and $120 million for FPL FiberNet. Certain major projects were excluded from these amounts, including potential additional nuclear and pipeline expenditures.
- NextEra Energy Resources expected approximately 1,000 MW of new wind generation in 2009 and 2010, and approximately 1,000 to 2,000 MW annually in 2011 and 2012, subject to policy support, transmission availability, and capital-market access.
- Derivative activities remain material. At June 30, 2009, FPL Group’s net mark-to-market derivative position was a liability of approximately $384 million, and derivative contracts with credit-related contingent features had approximately $2.4 billion of liability fair value. A downgrade to below investment grade could require total collateral postings of approximately $2.2 billion.
- FPL’s regulatory asset for fuel-procurement derivatives was approximately $873 million. Cost-recovery mechanisms generally pass fuel and other clause-related changes through to customers but can materially affect operating cash flow.
- Material contingencies included a potential additional FERC-related refund obligation of approximately $41 million, ongoing Clean Air Act litigation involving the Scherer plant, an unresolved FERC reliability investigation, and various legal proceedings. Management did not expect the described matters to have a material adverse effect based on information available at filing.
- Nuclear, weather, fuel and power prices, regulatory decisions, credit ratings, counterparty performance, collateral requirements, capital-market conditions, construction execution, and cybersecurity or catastrophic events were identified as significant risks.
- FPL Group and FPL reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No material changes to previously disclosed risk factors were reported.
Investor Verification Points
- Confirm the final outcome of FPL’s requested 2010 and 2011 rate increases and the GBRA mechanism.
- Track actual versus planned capital spending, project approvals, construction schedules, and financing needs for West County, nuclear, pipeline, and renewable projects.
- Reconcile reported earnings with recurring earnings by separately evaluating derivative mark-to-market effects, tax credits, impairment activity, and the spent-fuel settlement.
- Monitor debt maturities, credit ratings, commercial-paper access, available liquidity, and potential collateral requirements under derivative agreements.
- Assess the effect of declining customer usage and customer growth on FPL’s regulated earnings and cash flows.
- Review the FERC reliability matter, Scherer Clean Air Act litigation, FMPA refund petition, nuclear decommissioning funding requirements, and other legal or regulatory contingencies.
- Consider adoption effects of new variable-interest-entity accounting guidance scheduled for January 1, 2010; the filing states that the impact was still under evaluation.