Business Context and Reporting Period
NextEra Energy, Inc. filed a combined Form 10-K with its wholly owned regulated utility, Florida Power & Light Company (FPL), for the fiscal year ended December 31, 2010. The filing is an annual report, not a standalone fourth-quarter filing. NextEra Energy operated through FPL and NextEra Energy Resources, with approximately 43,000 megawatts of generation capacity, including significant natural gas, wind, nuclear, solar, coal, oil and hydro assets.
FPL served more than 8.7 million people through approximately 4.5 million customer accounts in Florida. NextEra Energy Resources operated approximately 18,866 megawatts of competitive generation capacity, including 8,298 megawatts of wind capacity and 4,740 megawatts of contracted non-wind capacity.
Financial Performance and Key Metrics
| Metric | NextEra Energy 2010 | 2009 | Change |
|---|---|---|---|
| Operating revenues | $15.317 billion | $15.643 billion | Down 2.1% |
| Operating income | $3.243 billion | $2.594 billion | Up 25.0% |
| Net income | $1.957 billion | $1.615 billion | Up 21.2% |
| Basic EPS | $4.77 | $3.99 | Up 19.5% |
| Operating margin | 21.2% | 16.6% | Improved |
| Net margin | 12.8% | 10.3% | Improved |
| Cash flow from operations | $3.834 billion | $4.463 billion | Down 14.1% |
| Capital expenditures and investments | $5.846 billion | $6.006 billion | Down 2.7% |
| Long-term debt, excluding current maturities | $18.013 billion | $16.300 billion | Up 10.5% |
| Total assets | $52.994 billion | $48.458 billion | Up 9.4% |
NextEra Energy ended 2010 with $302 million of cash and approximately $6.3 billion of net available liquidity, including approximately $3.1 billion attributable to FPL. Revolving credit facilities totaled approximately $7.4 billion before letters of credit. Commercial paper outstanding was $889 million.
FPL reported operating revenues of $10.485 billion, operating income of $1.849 billion and net income of $945 million. FPL’s operating margin was approximately 17.6% and net margin was approximately 9.0%. FPL generated $1.934 billion of operating cash flow and invested approximately $2.7 billion in capital expenditures and nuclear fuel.
Material Changes Versus the Prior Comparable Period
- Consolidated revenue declined primarily because FPL’s lower fuel-recovery revenues more than offset growth at NextEra Energy Resources. FPL revenue fell 8.8%, largely due to a $404 million customer refund of prior fuel overcollections and lower fuel factors.
- FPL net income increased $114 million to $945 million, supported by higher retail usage, customer growth, base-rate increases associated with WCEC Units 1 and 2, the 2010 FPSC rate order and higher cost-recovery clause earnings.
- NextEra Energy Resources net income increased $221 million to $980 million. Drivers included new wind investments, improved Seabrook results, lower wind curtailments, stronger wind resources, higher gas-infrastructure earnings and a $176 million after-tax gain from non-qualifying hedge mark-to-market activity.
- FPL customer accounts increased 0.5% and retail customer usage increased 1.7%. However, management reported continued weakness in non-weather-related usage, reflecting economic conditions, housing weakness and energy-efficiency measures.
- Operating cash flow declined as FPL cash flows were negatively affected by cost-recovery clause and franchise-fee activity, including an approximately $629 million change in deferred clause and franchise balances.
- Debt increased to support capital investment and growth. NextEra Energy issued approximately $3.7 billion of long-term debt and borrowed under revolving facilities while reducing short-term debt by approximately $1.1 billion.
Guidance, Outlook, Commentary, Risks and Unusual Items
FPL’s 2010 rate agreement, approved by the FPSC on February 1, 2011, effectively freezes retail base rates through December 31, 2012, subject to specified provisions. FPL may seek rate relief if earned regulatory ROE falls below 9%, while parties may seek rate reductions if ROE exceeds 11%. The agreement permits recovery of qualifying WCEC Unit 3 costs through the capacity clause up to projected customer fuel savings.
FPL expected WCEC Unit 3, a roughly 1,220-megawatt natural-gas combined-cycle unit, to enter service by mid-2011. FPL also planned approximately 400 to 460 megawatts of nuclear uprate capacity through 2013 and modernization of the Cape Canaveral and Riviera Beach plants, expected in 2013 and 2014.
FPL estimated $12.690 billion of capital expenditures for 2011 through 2015. NextEra Energy Resources estimated $5.230 billion over the same period, including $2.335 billion for solar, $1.625 billion for nuclear and $550 million for wind. These estimates were subject to continuing review and could vary materially.
NextEra Energy Resources planned to add approximately 3,500 to 5,000 megawatts of wind generation during 2010 through 2014 and approximately 400 to 600 megawatts of solar generation. Execution depended on renewable-energy policy support, transmission availability, market demand, supply chains and access to capital.
Important unusual items included a $176 million after-tax non-qualifying hedge gain, $9 million of after-tax other-than-temporary impairment losses on nuclear decommissioning investments, $13 million of after-tax impairment reversals, a $24 million one-time corporate tax benefit and an approximately $11 million after-tax writedown related to California wind assets. Management also discontinued hedge accounting for certain commodity cash-flow hedges in January 2010, increasing potential earnings volatility.
- Principal risks included extensive regulation, potential cost disallowances, changing environmental and greenhouse-gas rules, nuclear operating and decommissioning obligations, severe weather and storm costs, commodity-price and derivative exposure, counterparty risk, credit-market access and project construction risk.
- At December 31, 2010, NextEra Energy had approximately $9.5 billion of notional guarantees, $977 million of standby letters of credit and $87 million of surety bonds. No liabilities were recorded for these guarantees because management considered a payment obligation unlikely.
- Total contractual obligations were approximately $91.8 billion, including $18.7 billion of corporate and other long-term debt obligations, $30.7 billion of FPL purchase obligations and $9.7 billion of NextEra Energy Resources asset-retirement obligations.
- Material proceedings included the Scherer Unit 4 Clean Air Act matter, the Adelphia fraudulent-transfer litigation and the TXU renewable-energy-credit dispute. Management expected that the ultimate resolution of disclosed proceedings would not materially affect the financial statements, but acknowledged uncertainty.
Most Important Facts for Investors to Verify
- Reconcile consolidated net income growth with the contribution from non-qualifying hedge gains, tax benefits and other unusual items.
- Review the sustainability of FPL earnings under base-rate freezes through 2012 and the 9% to 11% regulatory ROE framework.
- Assess whether planned capital expenditures can be funded while managing the increase in debt, current maturities and contractual obligations.
- Evaluate liquidity under potential derivative collateral requirements, credit-rating changes and commodity-market volatility.
- Monitor the timing, cost and regulatory status of WCEC Unit 3, nuclear uprates, plant modernizations, renewable projects and the Lone Star transmission project.
- Review environmental, nuclear decommissioning, spent-fuel storage and storm-restoration contingencies, including the adequacy of restricted funds and insurance.
- Confirm the impact of customer usage trends, Florida economic conditions and future fuel-cost recovery adjustments on FPL cash flow.
- Verify the assumptions underlying derivative fair values, pension assets, asset-retirement obligations and regulatory assets and liabilities.