Business Context and Reporting Period
Combined unaudited Form 10-Q for NextEra Energy, Inc. (NEE) and Florida Power & Light Company (FPL) for the quarter and nine months ended September 30, 2021, filed October 25, 2021. NEE operates primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive renewable-energy, generation, transmission and gas-infrastructure business. FPL and Gulf Power merged on January 1, 2021, but remained separate ratemaking and operating segments during 2021.
Financial Performance and Key Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| NEE operating revenues | $4.370 billion vs. $4.785 billion | $12.023 billion vs. $13.602 billion |
| NEE operating income | $379 million vs. $1.008 billion | $1.558 billion vs. $4.176 billion |
| NEE net income attributable to NEE | $447 million vs. $1.229 billion | $2.369 billion vs. $2.924 billion |
| NEE diluted EPS | $0.23 vs. $0.62 | $1.20 vs. $1.49 |
| FPL net income | $927 million vs. $848 million | $2.586 billion vs. $2.334 billion |
| NEE operating cash flow | Not separately reported | $6.236 billion vs. $6.631 billion |
| FPL operating cash flow | Not separately reported | $4.700 billion vs. $4.694 billion |
NEE’s nine-month operating margin was approximately 13.0%, compared with approximately 30.7% in the prior-year period, reflecting substantial derivative mark-to-market losses and the absence of the 2020 Spain solar-disposal gain. FPL’s nine-month operating margin was approximately 33.8%, compared with approximately 33.3% in the prior-year period.
- NEE’s nine-month commodity-derivative losses recognized in operating revenues were approximately $2.708 billion, compared with a $245 million gain in 2020. Total derivative-related losses recognized in NEE’s income statement were approximately $2.443 billion.
- NEER’s net income attributable to NEE was a loss of $252 million for the nine months, compared with income of $1.175 billion in 2020. FPL segment earnings increased to $2.375 billion from $2.148 billion, while Gulf Power earnings increased to $211 million from $185 million.
- NEE’s nine-month capital expenditures, independent power and other investments, and nuclear fuel purchases totaled $12.005 billion, up from $9.312 billion. NEER investments were $6.895 billion; FPL segment investments were $4.582 billion.
Liquidity, Debt and Balance Sheet
- At September 30, 2021, NEE reported total assets of $139.163 billion, cash and cash equivalents of $692 million, current assets of $9.572 billion and total liabilities of $94.437 billion.
- NEE had commercial paper of $3.594 billion, current maturities of long-term debt of $2.955 billion and long-term debt of $48.092 billion. Long-term debt, including current maturities, had a carrying amount of $51.047 billion and estimated fair value of $55.102 billion.
- NEE’s total net available liquidity was approximately $7.6 billion, consisting primarily of FPL and NEECH revolving credit capacity after letters of credit, borrowings, cash and related-party amounts.
- NEE generated $6.236 billion of operating cash flow, used $11.845 billion in investing activities and generated $5.066 billion in financing activities. Cash, cash equivalents and restricted cash declined by $542 million to $1.004 billion.
- FPL had cash and cash equivalents of $71 million, total debt of approximately $17.324 billion including current maturities, and $4.947 billion of net available liquidity.
- NEE issued approximately $9.614 billion of long-term debt and retired $4.262 billion during the first nine months. FPL redeemed $1.25 billion of floating-rate notes in August 2021.
Material Changes Versus the Prior Comparable Period
- NEE’s results declined principally because of unfavorable non-qualifying hedge activity, driven by changes in forward power, natural-gas, interest-rate and foreign-currency markets. NEER reported approximately $2.808 billion of commodity-hedge losses for the nine months versus $226 million of losses in 2020.
- NEER’s results also reflected the February 2021 Texas winter-weather event, including approximately $143 million of bad-debt expense for the first nine months and approximately $180 million of revenue deemed not probable of collection from a counterparty. Approximately $127 million of related allowances remained in noncurrent assets at September 30.
- The 2020 period included an approximately $270 million gain from the sale of solar projects in Spain; no comparable gain was recorded in 2021.
- FPL benefited from continued investment in plant and infrastructure. The FPL segment’s average retail rate base increased by approximately $3.0 billion for the quarter and $3.4 billion for the nine-month comparison. Retail customer accounts increased 1.5%, while average usage per retail customer declined 2.9% in the quarter and 2.4% for the nine months, primarily due to unfavorable weather.
- FPL’s revenue increases were largely offset by higher fuel and purchased-power costs, reflecting higher fuel and energy prices.
Guidance, Outlook, Management Commentary and Risks
- FPL and intervenors submitted a proposed rate agreement to the Florida Public Service Commission (FPSC) covering January 2022 through at least December 2025. Proposed annualized retail base-revenue increases are $692 million beginning January 1, 2022, and $560 million beginning January 1, 2023. The proposal was subject to FPSC approval at the filing date, with a decision expected October 26, 2021.
- The proposed agreement includes an authorized regulatory ROE of 10.60%, a 9.70% to 11.70% range, potential Solar Base Rate Adjustments for up to 894 MW annually in 2024 and 2025, and authorization to amortize up to $1.45 billion of depreciation-reserve surplus subject to conditions.
- Estimated capital expenditures for the remainder of 2021 through 2025 total $31.160 billion for the FPL segment, $3.010 billion for Gulf Power and $9.860 billion for NEER. Management cautions that estimates may change materially.
- In October 2021, NEER completed sales to a NextEra Energy Partners subsidiary for approximately $589 million of wind and solar generating interests. NEER also agreed to sell controlling interests in projects under construction for approximately $849 million, subject to closing conditions and adjustments.
- Key risks include extensive regulatory oversight and cost-recovery risk; commodity, derivative, credit and collateral exposure; construction, permitting and project-completion risk; severe weather and storm-restoration costs; nuclear operating and insurance risks; cybersecurity; environmental and climate regulation; capital-market access and credit ratings; and COVID-19 uncertainty.
- At September 30, 2021, NEE’s derivative contracts with credit-related contingent features had approximately $6.2 billion of liabilities. A downgrade below investment grade could require approximately $2.8 billion of collateral, subject to contractual netting and available credit support.
- The filing states that there were no material changes to the risk factors in the 2020 Form 10-K, no legal proceedings reportable under Item 1, and effective disclosure controls and procedures.
Most Important Facts for Investors to Verify
- Whether the FPSC approved, modified or rejected the proposed FPL rate agreement and how the final terms affect rate base, ROE, solar investment and depreciation-reserve amortization.
- Whether NEER’s large 2021 hedge losses reverse, are realized or continue as market prices and derivative positions change; GAAP earnings may remain volatile even when underlying economic hedges perform as intended.
- The collectability and ultimate recovery of receivables and allowances related to the February 2021 Texas weather event.
- Execution, funding and regulatory approval for the substantial 2021–2025 capital program, including renewable, transmission, storage and gas-infrastructure projects.
- NEE’s leverage, refinancing needs, credit ratings, collateral requirements and available liquidity, particularly given increased commercial paper and derivative exposures.
- Final accounting and cash proceeds for the October 2021 NEER asset sales to NEP, including noncontrolling-interest effects and any closing adjustments.