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, 2015. NEE operates primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive generation, renewable energy, energy trading, and gas infrastructure business.
- NEE had approximately 46,400 MW of generating capacity, more than 5.3 million customers, and approximately 14,300 employees.
- FPL served approximately 4.8 million customer accounts and had 25,254 MW of generating capacity.
- NEER had approximately 21,140 MW of generating capacity before noncontrolling interests and 14,317 MW of contracted generation capacity.
Financial Performance and Key Metrics
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| NEE operating revenues | $17.486 billion | $17.021 billion | +2.7% |
| Operating income | $4.632 billion | $4.384 billion | +5.7% |
| Net income attributable to NEE | $2.752 billion | $2.465 billion | +11.6% |
| Diluted EPS | $6.06 | $5.60 | +8.2% |
| Operating margin | Approximately 26.5% | Approximately 25.8% | Improved |
| Net margin attributable to NEE | Approximately 15.7% | Approximately 14.5% | Improved |
| Cash flow from operations | $6.116 billion | $5.500 billion | +11.2% |
| Capital expenditures and related investments | $8.377 billion | $7.017 billion | +19.4% |
| Long-term debt, excluding current maturities | $26.681 billion | $24.044 billion | +11.0% |
| Total assets | $82.479 billion | $74.605 billion | +10.6% |
- FPL operating revenues were $11.651 billion, up from $11.421 billion, and net income was $1.648 billion, up from $1.517 billion. FPL reported an 11.50% regulatory ROE for 2015.
- NEER net income attributable to NEE was $1.092 billion, compared with $989 million in 2014.
- NEE ended the year with $571 million of cash and approximately $7.7 billion of net available liquidity, including approximately $3.1 billion attributable to FPL.
- NEE paid $1.385 billion of common dividends. The quarterly dividend was $0.77 per share during 2015; in February 2016, the company announced an increase to $0.87.
- Fourth-quarter 2015 NEE operating revenues were $4.069 billion, operating income was $876 million, net income attributable to NEE was $507 million, and diluted EPS was $1.10.
Material Changes Versus the Prior Comparable Period
- NEE earnings increased primarily because of higher FPL results, contributions from new NEER investments, improved customer supply and proprietary trading results, favorable tax adjustments, and investment gains.
- FPL benefited from approximately $1.0 billion of rate-base growth, higher earnings on plant in service, higher AFUDC-equity, increased equity financing, and higher cost-recovery clause earnings.
- NEER added approximately 1,207 MW of wind capacity and 285 MW of solar capacity during 2015. New-investment earnings increased by approximately $138 million, while existing-asset earnings declined by approximately $96 million, principally because of weaker wind resources.
- NEER acquired the Texas pipeline business through NEP for approximately $2 billion, including approximately $934 million of cash consideration and assumed debt. The acquisition added approximately $16 million of after-tax earnings from new investments in 2015.
- NEE invested $8.377 billion in capital expenditures and related investments, including $3.633 billion at FPL and $4.661 billion at NEER. NEER spending increased substantially on solar projects and natural gas pipelines.
- NEE’s long-term debt increased by approximately $2.6 billion, while total equity increased by approximately $2.9 billion, partly reflecting common-stock issuances and noncontrolling interests.
- FPL assumed ownership of the 250 MW Cedar Bay coal facility for approximately $521 million and terminated substantially all of the related purchased-power agreement. The transaction produced a regulatory asset of approximately $817 million at year-end after associated adjustments.
Guidance, Outlook, Commentary, Risks and Unusual Items
- FPL’s 2012 rate agreement expires at the end of 2016. FPL notified the FPSC of its intent to seek a four-year rate plan beginning in 2017, including preliminary requested base-revenue increases of approximately $860 million in 2017, $265 million in 2018, and $200 million when the proposed Okeechobee gas unit enters service, expected in mid-2019. These amounts and an expected 11.50% ROE midpoint were preliminary requests, not approved guidance.
- FPL expects the Port Everglades modernization project to enter service by April 2016, completion of peaker upgrades by December 2016, and three solar PV projects of approximately 74 MW each by the end of 2016.
- NEER expects to add approximately 1,400 MW of contracted wind generation and 1,100 MW of contracted solar generation in 2016. Management also expects continued investment in natural gas pipeline infrastructure.
- FPL’s projected summer 2016 reserve margin was approximately 22%.
- The pending Hawaiian Electric Industries merger remained subject to regulatory approval and other closing conditions. Either party could terminate if the transaction was not completed by June 3, 2016. NEE recorded approximately $20 million of after-tax merger-related expenses in 2015; specified termination provisions included a potential $90 million termination fee plus up to $5 million of reimbursable expenses.
- NEE classified 2,884 MW of Texas merchant gas generation assets as held for sale; the transaction was expected to close in the first quarter of 2016, subject to approvals and customary conditions.
- NEE’s 2015 earnings included approximately $183 million of after-tax unrealized gains from non-qualifying hedges and a $15 million after-tax loss from OTTI on securities in NEER’s nuclear decommissioning funds. These items can make GAAP earnings volatile and are excluded from management’s adjusted-earnings measure.
- Spain solar project financing remained subject to events of default, liquidation proceedings, and negotiations to restructure project debt. At December 31, 2015, related project debt and interest-rate swap liabilities totaled approximately $559 million and $101 million, respectively.
- Key risks include extensive regulatory oversight and potential cost disallowances, environmental and greenhouse-gas rules, renewable-energy incentive changes, commodity and power-price volatility, weather and hurricane exposure, nuclear operating and decommissioning liabilities, cyber and operational disruptions, counterparty credit risk, construction delays or cost overruns, and access to capital markets.
- NEE had approximately $113.7 billion of disclosed contractual obligations, including debt, purchase obligations, asset-retirement activities, and other commitments. The filing does not provide a simple consolidated net-debt ratio.
Important Facts for Investors to Verify
- Whether FPL’s requested 2017–2020 rate plan and proposed 11.50% ROE midpoint are approved, modified, or denied by the FPSC.
- Completion, final proceeds, and accounting consequences of the Texas merchant generation asset sale.
- Resolution of the Hawaiian Electric merger, including regulatory approval, termination rights, and potential fees.
- Progress, financing, and cost recovery for FPL’s Port Everglades, peaker, solar, Okeechobee, and Turkey Point projects.
- NEER’s actual renewable additions, contracted capacity, production levels, tax-credit benefits, and exposure to weaker wind or solar resources.
- Resolution of the Spain solar project defaults, liquidation proceedings, debt restructuring, and potential lender remedies.
- Changes in NEE’s leverage, liquidity, credit ratings, collateral requirements, and upcoming debt maturities.
- Potential effects of regulatory, environmental, nuclear, storm, cyber, litigation, and counterparty matters on cash flow and earnings.