NextEra Energy, Inc. 2020 Q2 Form 10-Q Summary
Business context and reporting period
NextEra Energy, Inc. (NEE) and its wholly owned subsidiary Florida Power & Light Company (FPL) filed a combined unaudited Form 10-Q for the quarter and six months ended June 30, 2020. NEE’s principal businesses are FPL, a regulated Florida electric utility serving more than five million customer accounts, and NextEra Energy Resources (NEER), a competitive energy and renewable generation and transmission business. Gulf Power is also reported as a regulated utility business.
Key financial metrics
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 |
|---|---|---|---|---|
| NEE operating revenues | $4.204 billion | $4.970 billion | $8.817 billion | $9.044 billion |
| NEE operating income | $1.186 billion | $1.747 billion | $3.167 billion | $2.882 billion |
| NEE net income attributable to NEE | $1.275 billion | $1.234 billion | $1.695 billion | $1.914 billion |
| NEE diluted EPS | $2.59 | $2.56 | $3.45 | $3.97 |
| FPL operating revenues | $2.825 billion | $3.158 billion | $5.365 billion | $5.776 billion |
| FPL net income | $749 million | $663 million | $1.391 billion | $1.251 billion |
NEE’s approximate consolidated operating margin was 28.2% in the second quarter and 35.9% for the first six months. Net income attributable to NEE represented approximately 30.3% of second-quarter revenue and 19.2% of six-month revenue; these figures were affected by derivative mark-to-market results, investment gains and losses, and other unusual items.
- Six-month operating cash flow was $3.792 billion, compared with $3.281 billion in 2019.
- Six-month investing cash flow was negative $6.185 billion, including $6.278 billion of capital expenditures, acquisitions, independent power and other investments, and nuclear fuel purchases.
- Six-month financing cash flow was positive $2.723 billion. NEE issued $8.470 billion of long-term debt, retired $2.332 billion, reduced commercial paper and other short-term debt, and paid $1.371 billion in common dividends.
- At June 30, 2020, NEE reported $1.009 billion of cash, $42.667 billion of long-term debt, $3.068 billion of current long-term debt, and total capitalization of $84.532 billion.
- NEE reported approximately $13.0 billion of total net available liquidity, including cash and unused credit facilities, net of borrowings and issued letters of credit.
- FPL generated $2.497 billion of operating cash flow and used $3.273 billion in investing activities during the first six months. FPL received $1.900 billion of capital contributions from NEE.
- FPL’s regulatory return on equity was 11.60% in both comparable periods, based on its trailing thirteen-month average retail rate base.
Material changes versus the prior comparable period
- NEE second-quarter net income attributable to NEE increased $41 million, while six-month net income decreased $219 million. Second-quarter diluted EPS increased from $2.56 to $2.59; six-month diluted EPS declined from $3.97 to $3.45.
- FPL net income increased $86 million in the quarter and $140 million for the six months, primarily due to continued investment in plant and rate base. Lower fuel prices reduced both revenues and fuel expense.
- FPL operating revenue declined $333 million in the quarter and $411 million for the six months, mainly because of lower fuel revenues and lower storm-related revenues. Average usage per retail customer declined 2.2% in the quarter and 0.4% for the six months, while customer accounts increased 1.5%.
- NEER earnings declined $191 million in the quarter and $194 million for the six months. Drivers included unfavorable non-qualifying hedge activity, the absence of 2019 gains from sales of interests to NextEra Energy Partners, and unfavorable year-to-date investment-fund valuation changes. These effects were partly offset by new investments, existing generation assets, and the 2020 Spain solar-project sale.
- NEE’s six-month results included a $270 million pretax and after-tax gain from the February 2020 sale of two Spain solar facilities. The 2019 comparable period included approximately $351 million of gain from sales of wind and solar interests to NEP.
- NEE’s six-month effective tax rate was negative 3.7%, compared with 10.2% in 2019, primarily reflecting derivative and investment fair-value changes, tax credits, and the nontaxable Spain-project gain. FPL’s six-month effective tax rate was 18.6%, compared with 14.2%.
- NEE adopted the current expected credit loss model on January 1, 2020, reducing retained earnings by approximately $11 million; the impact on FPL was not material.
Guidance, outlook, commentary, risks and unusual items
- The filing does not provide a clear new quantitative earnings or revenue guidance figure. Management emphasizes continued investment in regulated infrastructure, renewable generation, transmission, pipelines and battery storage.
- FPL’s SolarTogether program was approved in March 2020. Six of 20 planned 74.5 MW solar plants were in service at June 30, 2020; the remainder were expected to be placed in service by mid-2021.
- NEE, FPL and Gulf Power filed with FERC on May 1, 2020 to merge Gulf Power into FPL, subject to approval. The proposed effective date was January 1, 2021, with a FERC decision expected by October 28, 2020.
- Management stated that COVID-19 had not materially affected workforce, operations, financial performance, liquidity or supply chains through the filing date, but the ultimate severity and duration remained uncertain.
- NEE’s results remain sensitive to commodity prices, interest rates, foreign exchange, equity-market performance, derivative valuations, counterparty credit, regulatory decisions, tax credits, weather, nuclear outages, construction execution and capital-market access.
- At June 30, 2020, NEE had approximately $2.052 billion of net derivative liabilities and $2.470 billion of net derivative assets. A downgrade below investment grade could require approximately $1.0 billion of additional collateral for certain derivative arrangements, with further potential requirements under other contractual triggers.
- Approved estimated capital expenditures for the remainder of 2020 through 2024 totaled $29.710 billion for FPL, $3.440 billion for Gulf Power and $7.745 billion for NEER. Actual spending may vary materially.
- NEE reported approximately $3.6 billion of guarantees related to purchased-power, nuclear, tax-credit and other contractual obligations, in addition to approximately $1.6 billion of standby letters of credit and $646 million of surety bonds.
- Nuclear liabilities include potential retrospective assessments of up to approximately $1.1 billion for NEE, including $550 million for FPL, for a qualifying nuclear incident, subject to statutory limits and recovery from minority owners where applicable.
- The company reported no material changes to the risk factors disclosed in its 2019 Form 10-K and March 2020 Form 10-Q.
Important facts for investors to verify
- Reconcile GAAP earnings with management’s adjusted-earnings measures, particularly non-qualifying hedge activity, NEP investment gains, nuclear decommissioning-fund valuations and disposal gains.
- Assess the sustainability of FPL’s earnings growth, reserve amortization, regulatory ROE, rate-base expansion and customer-usage trends.
- Review NEE’s debt maturities, interest-rate derivative exposure, collateral requirements and continued access to credit and capital markets.
- Monitor approval and execution of the proposed FPL-Gulf Power merger and the company’s substantial 2020–2024 capital program.
- Evaluate COVID-19 effects on demand, collections, construction schedules, supply chains, counterparties and regulatory recovery mechanisms as additional information becomes available.
- Review nuclear, storm, environmental, litigation, regulatory and guarantee contingencies, including exposures that may not be fully reflected as recorded liabilities.