NextEra Energy, Inc. and Florida Power & Light Company — 2017 Q3 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017; filed October 26, 2017. The combined report contains separate unaudited financial statements for NextEra Energy, Inc. (NEE) and its principal regulated subsidiary, Florida Power & Light Company (FPL). NEE's principal segments are FPL and NextEra Energy Resources (NEER).
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| NEE operating revenues | $4,808 million | $4,805 million | $13,185 million | $12,457 million |
| NEE operating income | $1,399 million | $1,279 million | $5,090 million | $3,682 million |
| Net income attributable to NEE | $847 million | $753 million | $3,223 million | $1,946 million |
| Diluted EPS | $1.79 | $1.62 | $6.83 | $4.19 |
| Operating margin | 29.1% | 26.6% | 38.6% | 29.5% |
| Net margin attributable to NEE | 17.6% | 15.7% | 24.4% | 15.6% |
FPL: Operating revenues were $3,477 million in the quarter and $9,095 million for the nine months, compared with $3,283 million and $8,337 million, respectively, in 2016. Net income was $566 million and $1,537 million, compared with $515 million and $1,356 million. FPL reported a regulatory return on equity target of 11.50%.
Cash flow and capital investment: NEE generated $5,160 million of operating cash flow in the first nine months, versus $5,294 million in 2016. Investing cash flow was negative $6,835 million, including $8,587 million of capital expenditures, independent power investments and nuclear fuel purchases. Financing cash flow was positive $1,764 million. Ending cash was $1,381 million, compared with $681 million at September 30, 2016.
Capitalization and liquidity: At September 30, 2017, NEE had total assets of $96,781 million, total equity of $27,321 million, long-term debt of $30,345 million and current liabilities of $11,604 million. Commercial paper was $2,074 million and current maturities of long-term debt were $2,285 million. Reported net available liquidity for FPL and NEECH was approximately $8.6 billion, including cash and available credit facilities.
Material changes versus the prior comparable period
- NEE net income attributable to NEE increased by $94 million in the quarter and $1,277 million for the nine months.
- FPL earnings increased primarily from continued investment in plant and rate base, including new rates under the 2016 rate agreement. Average retail rate base increased approximately $2.8 billion in the quarter and $3.1 billion for the nine months.
- NEER quarterly earnings declined $15 million because of unfavorable non-qualifying hedge activity, higher interest costs and lower wind resources, partly offset by new investments. Nine-month NEER earnings increased $304 million, primarily from new investments and favorable hedge activity.
- NEE recorded an approximately $1.1 billion pretax gain, or approximately $685 million after tax, on the January 2017 sale of its fiber-optic telecommunications business.
- NEER changed the estimated useful lives of certain wind equipment from 30 to 35 years, increasing NEE net income by approximately $15 million in the quarter and $45 million for the nine months.
- NEE's commercial paper increased materially from $268 million at December 31, 2016 to $2,074 million at September 30, 2017, while long-term debt increased from $27,818 million to $30,345 million.
Outlook, management commentary, risks and unusual items
- Hurricane Irma: FPL estimated approximately $1.3 billion of storm restoration costs recoverable from customers, subject to Florida Public Service Commission prudence review. Approximately $1.2 billion remained unpaid at September 30, 2017. FPL expected to seek a surcharge beginning in March 2018 and later recovery of remaining costs and replenishment of the storm reserve.
- Capital plans: Approved or authorized estimated capital expenditures from the remainder of 2017 through 2021 totaled approximately $19.6 billion for FPL, $6.0 billion for NEER and $260 million for Corporate and Other. Actual spending may vary significantly.
- Growth plans: NEER expected to add approximately 5,400–8,400 MW of new wind, 3,300–4,300 MW of wind repowering and 1,400–3,800 MW of new solar generation from 2017 through 2020. FPL was developing solar projects and evaluating a roughly $900 million Dania Beach Clean Energy Center, subject to regulatory approvals.
- NEP deconsolidation: Governance changes were expected to result in NEE deconsolidating NextEra Energy Partners beginning in January 2018. NEE expected to account for its interest under the equity method and recognize a material gain at deconsolidation, although the exact amount was not provided.
- Oncor-related litigation: NEE was pursuing a $275 million termination fee after the failed Oncor transaction. An October 2017 court order denied authorization for payment; NEE intended to appeal. The filing also disclosed a potential $72.3 million termination fee under a separate TTHC merger agreement in specified circumstances.
- Market and operating risks: Key risks include extensive regulation and cost-recovery decisions, severe weather, construction and permitting delays, commodity and derivative volatility, interest rates, credit and collateral requirements, nuclear operations, cybersecurity, environmental obligations, insurance limitations and access to capital markets. The filing stated that no material changes had occurred from the risk factors in the 2016 Form 10-K.
- Accounting changes: NEE and FPL planned 2018 adoption of new revenue recognition, partial-sale and retirement-benefit presentation standards. The filing stated that the potential effects were still being evaluated.
Investor verification points
- Verify the final amount and regulatory recovery treatment of Hurricane Irma costs, including the timing and amount of FPL customer surcharges.
- Assess the effect of NEP deconsolidation on NEE's reported assets, debt, earnings, cash flows and the anticipated material gain.
- Separate recurring operating earnings from the $685 million after-tax fiber-optic sale gain, hedge mark-to-market effects, tax credits and other adjusted-earnings exclusions.
- Review NEE's rising short-term borrowings, long-term debt maturities, credit ratings and available liquidity relative to planned capital spending.
- Monitor the Oncor termination-fee appeal and the separate TTHC transaction, including potential payments and regulatory outcomes.
- Evaluate exposure to weather, commodity prices, interest rates, derivative collateral calls, nuclear liabilities, environmental obligations and project execution risk.