NEXTERA ENERGY INC quarterly report, Q2 FY2015

NextEra Energy, Inc. Form 10-Q Summary

Reporting period: Quarter and six months ended June 30, 2015. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned, rate-regulated subsidiary Florida Power & Light Company (FPL). NEE’s principal segments are FPL and NextEra Energy Resources (NEER), its competitive energy business.

Financial performance

Metric	Q2 2015	Q2 2014	Change
NEE operating revenues	$4.358 billion	$4.029 billion	+$329 million
NEE operating income	$1.146 billion	$951 million	+$195 million
Net income attributable to NEE	$716 million	$492 million	+$224 million
Diluted EPS	$1.59	$1.12	+$0.47
FPL net income	$435 million	$423 million	+$12 million
NEER net income attributable to NEE	$273 million	$81 million	+$192 million

For the six months ended June 30, 2015, NEE reported operating revenues of $8.463 billion, operating income of $2.276 billion, net income attributable to NEE of $1.366 billion and diluted EPS of $3.04, compared with $7.703 billion, $1.690 billion, $921 million and $2.10, respectively, in the prior-year period.

NEE’s Q2 operating margin was approximately 26.3%, compared with approximately 23.6% in Q2 2014. The six-month operating margin was approximately 26.9%, compared with approximately 21.9% in the prior-year period. The filing does not present a separately identified consolidated net margin.

NEE paid dividends of $0.770 per common share in Q2 2015, compared with $0.725 in Q2 2014. The effective income tax rate was approximately 28% for Q2 and 29% for the six-month period, benefiting from production tax credits, investment tax credits and related deferred tax benefits.

Cash flow, balance sheet and liquidity

Six-month operating cash flow was $2.934 billion, up from $2.448 billion in 2014.
Six-month investing cash use was $3.754 billion, including $3.809 billion of capital expenditures, independent power investments and nuclear fuel purchases.
Six-month financing cash flow was $794 million, including $1.706 billion of long-term debt issuances, $1.403 billion of retirements, $630 million of common-stock issuances and $683 million of dividends.
Cash and cash equivalents were $551 million at June 30, 2015, compared with $577 million at December 31, 2014.
Total assets were $77.201 billion, total equity was $21.601 billion and long-term debt was $25.235 billion at June 30, 2015.
NEE reported approximately $6.7 billion of net available liquidity, including approximately $3.0 billion for FPL. This included approximately $7.85 billion of bank revolving credit facilities before letters of credit and other adjustments.

Material changes versus the prior comparable period

NEE’s earnings improvement was concentrated in NEER, which benefited from favorable changes in unrealized mark-to-market results, improved customer supply and proprietary trading results, earnings from new wind and solar investments, and the absence of 2014 NEP-related charges and costs.
NEER’s results were partly offset by weaker wind resources, lower results from certain existing assets, unfavorable ERCOT market conditions and lower gas-infrastructure results.
FPL earnings increased modestly, primarily from growth in plant in service and rate base earnings, higher AFUDC-equity, favorable customer usage and account growth, and lower operating and maintenance costs. These benefits were partly offset by lower cost-recovery clause earnings.
FPL’s average retail customer usage increased 6.1% in Q2 and 3.1% for the six-month period; average customer accounts increased 1.4% in both periods. Management attributed part of the revenue increase to favorable weather.
Depreciation and amortization increased materially, reflecting higher plant balances and changes in FPL reserve amortization. FPL recorded a $66 million reserve reversal in Q2 2015, compared with $6 million of reserve amortization in Q2 2014.
NEE’s reported earnings benefited from approximately $202 million of Q2 derivative gains, compared with a $167 million loss in Q2 2014. For the six-month period, derivative gains were approximately $428 million versus a $465 million loss in 2014. These mark-to-market movements make reported earnings more volatile.

Guidance, outlook and management commentary

FPL expected 2015–2018 capital investment of approximately $13.9 billion to $15.6 billion, primarily for generation, transmission and distribution, reliability, fuel-cost reduction, emissions reduction and maintenance.
NEER expected 2015–2018 capital investment of approximately $13.7 billion to $15.1 billion, including approximately 3,000–3,300 MW of new wind generation and 1,800–1,900 MW of new solar generation, as well as gas infrastructure, nuclear fuel and maintenance investments.
Corporate and Other expected 2015–2018 capital investment of approximately $2.9 billion to $3.1 billion, primarily for natural-gas pipeline and transmission infrastructure.
FPL had selected a self-build option for a proposed approximately 1,620 MW natural-gas combined-cycle unit in Okeechobee County, Florida. The project remained subject to FPSC and Siting Board approvals.
NEP agreed after quarter-end to acquire NET Midstream, a portfolio of seven contracted Texas natural-gas pipelines, for approximately $2 billion less assumed debt, subject to closing conditions. Management identified completion and integration of the acquisition as a risk.
FPL’s planned purchase of a 250 MW Jacksonville coal-fired facility for approximately $521 million remained subject to FPSC approval. The transaction could terminate approximately $1.48 billion of remaining purchased-power obligations if completed.

Risks, contingencies and unusual items

NEE and FPL remain exposed to regulatory and legislative decisions, including the ability to recover costs and earn authorized returns through rates and cost-recovery mechanisms.
NEE’s competitive businesses are exposed to volatility in power, natural-gas and other commodity prices, derivative valuations, trading results, counterparty performance and market liquidity.
A credit downgrade could increase collateral requirements. At June 30, 2015, a downgrade to below investment grade could have required approximately $2.5 billion of additional collateral for NEE subsidiaries, including approximately $600 million for FPL.
The Spain solar projects had project-level financing defaults, liquidation proceedings had commenced at project subsidiaries, and lenders could seek acceleration or exercise other remedies. Project-level debt and associated derivative liabilities totaled approximately $587 million and $99 million, respectively, at June 30, 2015.
FPL faced potential operating restrictions at its Turkey Point nuclear units if cooling-canal temperatures exceeded permitted limits. Management had mitigation and contingency plans, including possible temporary power reductions.
NEE maintained significant nuclear, environmental, storm, cyber, operational, insurance and litigation exposures. Management stated that currently known legal proceedings were not expected to have a material adverse effect, but adverse outcomes could affect financial statements.
Proposed merger-related expenses were $9 million pretax in Q2 and $13 million pretax for the six-month period. The Hawaiian Electric merger remained subject to regulatory approvals.
New accounting standards concerning consolidation, debt issuance costs and revenue recognition had been issued or amended; the filing states that the effects were still under evaluation.

Investor verification points

Reconcile GAAP earnings with management’s adjusted earnings, particularly the effect of non-qualifying hedge mark-to-market gains and losses.
Evaluate whether projected FPL, NEER and Corporate capital spending can be funded while maintaining credit ratings and dividend growth.
Monitor FPL regulatory approvals for the Okeechobee generation project, natural-gas reserve investments and the Jacksonville coal-plant purchase.
Assess the status, collateral exposure and potential recovery values associated with the Spain solar project financing.
Track the closing, financing, holdbacks and operating performance of the NET Midstream acquisition.
Review the sensitivity of earnings, liquidity and collateral requirements to commodity prices, interest rates, credit ratings and derivative valuations.