FPL Group, Inc. 2009 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2009. The filing is a combined annual report for FPL Group, Inc. and Florida Power & Light Company. The filing predates the company’s later name change to NextEra Energy, Inc. FPL Group operated primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources, a competitive generation and energy-marketing business.
Business Context
- FPL served approximately 4.5 million customer accounts and more than 8.7 million people in Florida. Retail operations represented approximately 99% of FPL’s 2009 operating revenues.
- NextEra Energy Resources owned interests in approximately 18,148 MW of generation capacity, including approximately 7,544 MW of wind capacity and 7,071 MW of merchant capacity.
- FPL Group and its subsidiaries employed approximately 15,400 people at year-end.
Key Financial Metrics
| FPL Group, $ millions except per-share data | 2009 | 2008 | Change |
|---|---|---|---|
| Operating revenues | $15,643 | $16,410 | Down $767 |
| Operating income | $2,594 | $2,825 | Down $231 |
| Operating margin | 16.6% | 17.2% | Down 0.6 percentage points |
| Net income | $1,615 | $1,639 | Down $24 |
| Net margin | 10.3% | 10.0% | Up 0.3 percentage points |
| Diluted EPS | $3.97 | $4.07 | Down $0.10 |
| Operating cash flow | $4,463 | $3,403 | Up $1,060 |
| Capital expenditures and investments | $6,006 | $5,236 | Up $770 |
| Long-term debt, excluding current maturities | $16,300 | $13,833 | Up $2,467 |
| Total assets | $48,458 | $44,821 | Up $3,637 |
FPL generated $11,491 million of operating revenue and $831 million of net income in 2009, compared with $11,649 million and $789 million, respectively, in 2008. FPL’s operating income increased to $1,581 million from $1,529 million, but depreciation and amortization increased by $237 million, primarily due to nuclear cost-recovery amortization and new West County Energy Center units.
NextEra Energy Resources generated $849 million of net income in 2009, down from $915 million in 2008. New investments and energy-management activities contributed positively, but unfavorable wholesale market conditions, lower wind resources and approximately $20 million of after-tax losses from non-qualifying hedges reduced results.
Cash Flow, Debt and Liquidity
- Operating cash flow increased to $4.463 billion, helped by FPL’s fuel-cost overrecovery and recovery of prior-period deferrals.
- Investing cash outflows were $5.935 billion, including approximately $2.7 billion of FPL investments and $3.2 billion of NextEra Energy Resources investments.
- Financing activities provided $1.175 billion, including $3.220 billion of long-term debt issuance, $154 million of increased short-term debt and $766 million of common dividends.
- Cash and cash equivalents declined by $297 million to $238 million at year-end.
- Net available liquidity was approximately $4.363 billion, consisting of approximately $1.985 billion at FPL and $2.378 billion at FPL Group Capital.
- Commercial paper outstanding was $2.020 billion. Total long-term debt, including current maturities, was approximately $16.869 billion, compared with $15.221 billion at year-end 2008.
- Total contractual obligations were estimated at $83.075 billion, including debt, purchase obligations and asset-retirement activities.
Material Changes Versus 2008
- Consolidated revenue decreased 4.7%, primarily reflecting lower fuel-related revenue and a substantial unfavorable swing in non-qualifying hedge results.
- Net income decreased 1.5%, while diluted EPS decreased 2.5% because of lower earnings despite a higher share count.
- FPL earnings increased $42 million due to West County Energy Center rate recovery, higher AFUDC and favorable weather-related usage, partially offset by higher O&M and depreciation expense.
- NextEra Energy Resources earnings decreased $66 million. New investments added approximately $176 million, but existing assets declined approximately $171 million and hedge activity reduced results by approximately $190 million versus 2008.
- After-tax other-than-temporary impairment losses on nuclear decommissioning fund securities declined to $36 million, net of $23 million of reversals, compared with $82 million of losses, net of $6 million of reversals, in 2008.
- FPL placed its first utility-scale solar facility into service and continued construction of additional solar projects. NextEra Energy Resources added approximately 1,170 MW of wind generation.
Guidance, Outlook and Management Commentary
- NextEra Energy Resources expected to add approximately 1,000 MW of wind generation in 2010 and 1,000 to 1,500 MW annually in 2011 and 2012, subject to market demand, transmission availability, public-policy support and access to capital.
- FPL planned approximately $8.940 billion of capital expenditures for 2010–2014; NextEra Energy Resources planned approximately $5.400 billion, excluding certain additional wind-development spending and projects subject to approval.
- FPL was constructing a 1,220 MW natural-gas combined-cycle unit at West County Energy Center, expected in service by mid-2011, and approximately 400 MW of nuclear uprates expected by the end of 2012.
- In January 2010, the Florida Public Service Commission indicated that FPL’s new rates would increase annualized base revenue by approximately $75 million, establish a 10.0% regulatory ROE with a plus-or-minus 1.0% range and shift certain costs to the capacity clause. The final written order was pending at the filing date.
- FPL suspended approximately $10 billion of planned five-year investments, including additional Turkey Point nuclear units, Cape Canaveral and Riviera modernization, a proposed gas pipeline and other infrastructure, pending review of the rate decision and related financial effects.
- Moody’s, S&P and Fitch placed FPL Group, FPL Group Capital and FPL on negative credit watch in January 2010, citing regulatory and economic concerns in Florida.
Risks, Contingencies and Unusual Items
- FPL’s earnings and cash flow depend on regulatory approval, cost recovery, allowed ROE and continued application of regulatory accounting. The FPSC may disallow costs considered imprudent or excessive.
- Economic weakness in Florida contributed to a 0.2% decline in average customer accounts and weaker non-weather-related usage. Florida’s unemployment rate was 11.8% in December 2009.
- Commodity prices, weather, wind conditions, wholesale power prices, counterparty performance and derivative valuations create earnings and collateral volatility at NextEra Energy Resources.
- FPL Group reported approximately $8.9 billion of guarantees, $751 million of standby letters of credit and $95 million of surety bonds; management stated that liabilities were not expected under these arrangements.
- Nuclear decommissioning and asset-retirement obligations totaled $2.418 billion for FPL Group’s consolidated AROs, while total accrued decommissioning, dismantlement and other asset-removal costs were $5.285 billion.
- FPL’s estimated ultimate nuclear decommissioning cost was approximately $10.9 billion, or $2.4 billion in 2009 dollars. NextEra Energy Resources’ estimated cost was approximately $6.6 billion, or $1.6 billion in 2009 dollars.
- Potential exposures included environmental and climate-change regulation, nuclear safety and spent-fuel storage, severe weather and hurricanes, uninsured transmission and distribution property, pending legal proceedings and possible credit-rating downgrades.
- Management and Deloitte & Touche reported effective internal control over financial reporting and issued unqualified audit opinions.
Investor Verification Items
- Verify the final outcome and financial impact of the FPSC’s January 2010 rate ruling, including the approved ROE, depreciation treatment, cost reallocations and any appeals.
- Reconcile reported earnings with adjusted earnings by reviewing non-qualifying hedge gains and losses, decommissioning-fund impairments and related tax credits.
- Assess debt maturities, refinancing needs, credit-watch implications and potential collateral requirements under derivative and commodity contracts.
- Review whether planned FPL and renewable-generation capital expenditures remain economically justified and fully permitted.
- Evaluate customer growth, electricity usage, fuel-cost recovery, overrecovery refunds and the effect of Florida economic conditions on future cash flow.
- Review nuclear decommissioning funding, spent-fuel obligations, environmental contingencies and the status of material legal proceedings.