NextEra Energy, Inc. 2020 Q1 Form 10-Q Summary
Business context and reporting period
NextEra Energy, Inc. (NEE) and Florida Power & Light Company (FPL) filed a combined unaudited Form 10-Q for the three months ended March 31, 2020. NEE operates primarily through FPL, a regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive energy and renewable generation business. Gulf Power is also reported as a regulated utility following its 2019 acquisition.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| NEE operating revenue | $4.613 billion | $4.075 billion | +$538 million |
| NEE operating income | $1.981 billion | $1.135 billion | +$846 million |
| NEE operating margin | 43.0% | 27.9% | Higher |
| Net income attributable to NEE | $421 million | $680 million | -$259 million |
| EPS, diluted | $0.86 | $1.41 | -$0.55 |
| Cash flow from operations | $1.894 billion | $1.597 billion | +$297 million |
| Capital expenditures, acquisitions and investments | $3.284 billion | $7.029 billion | Lower, primarily because Q1 2019 included Gulf Power acquisition spending |
- NEE reported consolidated net income of $308 million, including a $113 million net loss attributable to noncontrolling interests; net income attributable to NEE was $421 million.
- NEE’s operating results included a $260 million pretax and after-tax gain from the February 2020 sale of two Spain solar projects.
- NEE’s effective tax rate was approximately negative 322%, versus approximately 11% in the prior-year quarter, reflecting derivative and nuclear decommissioning fund valuation changes, tax credits and the nontaxable Spain-project gain.
- At March 31, 2020, NEE had total assets of $120.637 billion, cash and cash equivalents of $3.335 billion, long-term debt of $41.116 billion and current debt of $6.090 billion, including commercial paper and other short-term debt.
- Total available liquidity was approximately $10.1 billion, including cash, revolving credit capacity and letter-of-credit capacity, net of specified borrowings and outstanding commercial paper.
- NEE issued $4.354 billion of long-term debt during the quarter, paid $685 million of common dividends and ended the quarter with $3.834 billion of cash, cash equivalents and restricted cash.
Segment performance and material changes
- FPL net income increased to $642 million from $588 million. Revenue declined to $2.540 billion from $2.618 billion, primarily because of lower fuel, energy and storm-related revenues, while lower fuel costs and growth in the regulated rate base supported earnings.
- FPL’s operating margin increased to approximately 36.0% from 32.7%. Average retail rate base increased approximately $3.7 billion year over year, and customer accounts increased 1.4%; average usage per retail customer increased 1.8%.
- FPL reported an 11.60% regulatory return on equity in both comparable periods. Reserve amortization was approximately $149 million in Q1 2020 versus $156 million in Q1 2019.
- Gulf Power net income attributable to NEE increased to $40 million from $37 million, with revenue of approximately $328 million in both periods.
- NEER net income attributable to NEE declined slightly to $318 million from $321 million. Higher earnings from new and existing renewable assets, pipelines and transmission were largely offset by unfavorable nuclear decommissioning fund equity-market results and other items.
- Corporate and Other loss increased to $579 million from $266 million, primarily because of approximately $345 million of additional after-tax losses from non-qualifying hedge activity, particularly interest-rate derivatives.
- NEE’s equity in losses of equity-method investees was $390 million versus equity in earnings of $16 million in Q1 2019, primarily reflecting unfavorable valuation changes at NEP.
- NEE’s net derivative liability exposure increased materially. Net derivative assets were $2.930 billion and net derivative liabilities were $2.304 billion at March 31, 2020, compared with $2.386 billion and $1.340 billion, respectively, at December 31, 2019.
Guidance, outlook, risks and unusual items
The filing does not provide a clear quantitative earnings or revenue guidance update. Management states that capital requirements are expected to be funded through operating cash flow, debt and equity-market access, project-level financing, asset sales and other capital sources while maintaining a strong investment-grade credit profile.
- Approved estimated capital expenditures for the remainder of 2020 through 2024 total approximately $31.050 billion for FPL, $3.405 billion for Gulf Power and $7.485 billion for NEER.
- FPL’s SolarTogether program was approved in March 2020 and includes 20 new 74.5 MW solar plants; six were in service at March 31, 2020 and the remainder were expected by mid-2021.
- NEE and FPL implemented pandemic response plans. As of the filing date, COVID-19 had not materially affected workforce, operations, financial performance, liquidity or supply chains, but management could not predict the pandemic’s ultimate severity or duration.
- Principal risks include regulatory cost-recovery and rate-setting decisions, severe weather, environmental and nuclear obligations, commodity and derivative volatility, counterparty and collateral requirements, cybersecurity, access to capital markets, credit-rating changes, construction and permitting risks, and COVID-19 effects.
- At March 31, 2020, NEE subsidiaries had approximately $3.5 billion of guarantees related to purchased-power agreements, nuclear activities, production tax credits and other contractual obligations, plus approximately $1.6 billion of standby letters of credit and $672 million of surety bonds.
- Nuclear insurance arrangements could require retrospective assessments of up to approximately $1.1 billion for NEE, including $550 million for FPL, plus applicable taxes, following a qualifying nuclear incident.
- The company adopted the current expected credit loss standard on January 1, 2020, reducing retained earnings by approximately $11 million at NEE; the effect on FPL was not material.
Important facts for investors to verify
- Reconcile GAAP net income attributable to NEE with management’s adjusted-earnings presentation, particularly the $718 million after-tax adjustment for non-qualifying hedge activity and the $258 million Spain-project disposal gain.
- Assess the sustainability of earnings excluding volatile derivative marks, nuclear-fund equity valuations, tax credits and asset-sale gains.
- Review the increase in interest-rate derivative losses and the potential collateral requirements triggered by credit-rating downgrades or other contractual events.
- Evaluate NEE’s ability to fund the substantial 2020–2024 capital program while preserving credit ratings, dividend capacity and liquidity.
- Monitor COVID-19 effects on demand, collections, construction schedules, supply chains, capital markets and regulatory cost recovery.
- Review regulatory assumptions supporting FPL’s 11.60% ROE, reserve amortization and recovery of fuel, storm and infrastructure costs.