NEXTERA ENERGY INC annual report, FY2022

Business context and reporting period

NextEra Energy, Inc. (NEE) filed a combined Form 10-K with wholly owned Florida Power & Light Company (FPL) for the fiscal year ended December 31, 2022. NEE operates primarily through FPL, a regulated Florida electric utility serving approximately 5.8 million customer accounts, and NextEra Energy Resources and NextEra Energy Transmission (collectively, NEER), a competitive clean-energy, storage, gas-infrastructure and transmission business.

Effective January 1, 2022, FPL became one unified ratemaking entity following the 2021 merger of FPL and Gulf Power and was reported as a single NEE segment. The filing contains annual results rather than a separately presented fourth-quarter report.

Financial performance and key metrics

Metric	2022	2021	Change
NEE operating revenues	$20.956 billion	$17.069 billion	+$3.887 billion
Operating income	$4.081 billion	$2.913 billion	+$1.168 billion
Net income attributable to NEE	$4.147 billion	$3.573 billion	+16.1%
Diluted EPS	$2.10	$1.81	+$0.29
Operating cash flow	$8.262 billion	$7.553 billion	+$709 million
Capital expenditures and investments	$19.283 billion	$16.077 billion	+$3.206 billion
Long-term debt, including current portion	$61.889 billion	$52.745 billion	+$9.144 billion

• NEE’s reported operating margin was approximately 19.5%, and net income attributable to NEE represented approximately 19.8% of operating revenues. These are derived ratios and are affected by derivative mark-to-market accounting and pass-through revenues.
• FPL net income increased to $3.701 billion from $3.206 billion. FPL operating revenues rose to $17.282 billion from $14.102 billion, largely reflecting higher fuel-cost recovery revenues and new base rates. FPL operating cash flow was $4.894 billion, compared with $5.358 billion in 2021.
• NEER net income attributable to NEE declined to $285 million from $599 million. The decrease reflected the Mountain Valley Pipeline impairment, unfavorable nuclear decommissioning-fund equity-market results and other items, partly offset by improved hedge results, new investments and project-disposal gains.
• NEE ended 2022 with $1.601 billion of cash and cash equivalents and approximately $12.5 billion of net available liquidity, including $12.457 billion for FPL and NEECH. Credit facilities had no borrowings outstanding at year-end, although approximately $3.7 billion of letters of credit were outstanding.
• Total liabilities were $109.499 billion, versus $95.243 billion at year-end 2021. FPL’s total debt, including current maturities, was $21.002 billion, compared with $18.510 billion in 2021.
• NEE paid $3.352 billion in common-stock dividends in 2022. In February 2023, the quarterly dividend was increased from $0.425 to $0.4675 per share.

Material changes versus the prior comparable period

• FPL’s earnings benefited from approximately $5.6 billion of average rate-base growth, including the 1,246 MW Dania Beach Clean Energy Center, solar additions and transmission and distribution investment.
• FPL’s 2021 rate agreement produced annualized retail base-revenue increases of $692 million beginning January 1, 2022 and $560 million beginning January 1, 2023. FPL’s authorized regulatory ROE increased to 10.80%, with a 9.80% to 11.80% range, effective September 1, 2022 after a Treasury-rate condition was met.
• Higher fuel and energy prices increased FPL fuel-cost recovery revenue by approximately $1.716 billion and fuel, purchased-power and interchange expense by approximately $1.732 billion. FPL recorded approximately $1.465 billion of 2022 fuel and other clause under-recovery affecting operating cash flow.
• Hurricanes Ian and Nicole generated approximately $1.3 billion of recoverable FPL storm-restoration costs. The storm deficit above the reserve was approximately $1.1 billion at year-end, with approximately $618 million of restoration costs unpaid.
• NEER added approximately 2,850 MW of wind capacity and 887 MW of solar capacity in 2022 and repowered 239 MW of wind capacity. Approximately 93% of NEER net generating capacity was committed under long-term contracts at year-end.
• NEER recorded an approximately $0.8 billion pre-tax, or approximately $0.6 billion after-tax, impairment related to Mountain Valley Pipeline, effectively writing off its remaining equity-method investment and recording a liability for estimated future dismantlement costs.
• NEE recorded $522 million of net gains on asset and business disposals, including gains from sales of wind, solar and battery-storage interests to NextEra Energy Partners.
• NEE’s net energy-contract derivative liability was approximately $1.748 billion at year-end, compared with a $413 million net asset at year-end 2021. Non-qualifying hedge losses were $696 million after tax in 2022, compared with $1.576 billion in 2021; management excludes these items in its non-GAAP adjusted-earnings analysis.
• The Inflation Reduction Act expanded and extended renewable-energy tax incentives, including credits for solar, standalone storage and renewable natural gas. Management stated that the legislation provides long-term visibility and supports growth, while FPL expects customer savings of approximately $400 million over the remaining rate-agreement term.

Guidance, outlook, commentary, risks and unusual items

The filing does not provide a clear 2023 or longer-term GAAP earnings guidance value in the supplied text. Management’s stated outlook emphasizes continued FPL rate-base investment and NEER development of contracted wind, solar, storage, renewable-fuels and transmission projects.

• Estimated 2023–2027 capital expenditures total $43.140 billion for FPL and $13.705 billion for NEER, subject to adjustment. The plan includes approximately 2,955 MW of wind projects and approximately 6,618 MW of solar and solar-plus-storage projects.
• FPL filed to recover approximately $2.1 billion of 2022 fuel under-recovery over 21 months beginning April 2023 and requested a $1.0 billion mid-course reduction in 2023 levelized fuel charges. An FPSC decision was expected in March 2023.
• FPL requested interim recovery of hurricane costs and replenishment of its storm reserve through a surcharge beginning April 1, 2023. Collections remain subject to FPSC prudence review and potential refunds.
• The Florida Supreme Court heard arguments regarding challenges to FPL’s 2021 rate agreement; a ruling was pending when the filing was issued.
• Key risks include regulatory cost disallowance, changes to renewable-energy incentives, inflation, supply-chain disruptions affecting solar equipment, rising interest rates, commodity-price volatility, derivative and counterparty exposure, severe weather, hurricanes, cyberattacks, environmental and wildlife regulation, nuclear operating and decommissioning risks, and access to capital markets.
• NEE had approximately $5.5 billion of guarantees related to PPAs, nuclear activities, tax-credit obligations and other contracts, approximately $3.4 billion of mark-to-market and settlement exposure associated with trading guarantees, and approximately $5.4 billion of standby letters of credit.
• Management reported effective disclosure controls and internal control over financial reporting. Deloitte & Touche issued unqualified audit opinions. Critical audit matters included valuation of complex energy derivatives and the impact of FPL rate regulation on the financial statements.

Most important facts for an investor to verify

• Confirm the treatment, timing and regulatory recovery of FPL’s approximately $2.1 billion fuel under-recovery and approximately $1.3 billion of hurricane-restoration costs.
• Assess the sustainability of FPL’s earnings growth after separating base-rate growth from fuel-cost pass-throughs, storm items, reserve amortization and other regulatory adjustments.
• Reconcile GAAP earnings with management’s non-GAAP adjusted earnings, particularly the effect of non-qualifying hedges, decommissioning-fund investment losses and the Mountain Valley Pipeline impairment.
• Review the funding requirements for the $56.845 billion of estimated 2023–2027 FPL and NEER capital expenditures and the associated debt, equity and asset-sale financing needs.
• Monitor debt maturities, interest-rate exposure, credit ratings and potential collateral requirements under derivative and guarantee arrangements.
• Verify the outcome of the FPL rate-agreement appeal, pending nuclear-license renewals and regulatory approvals for renewable, transmission, renewable-natural-gas and pipeline projects.
• Evaluate whether renewable tax-credit benefits under the Inflation Reduction Act offset execution risks from permitting, interconnection, equipment availability, labor and construction-cost inflation.