NextEra Energy, Inc. 2014 Q3 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for NextEra Energy, Inc. (NEE) and wholly owned Florida Power & Light Company (FPL), covering the three and nine months ended September 30, 2014. NEE operates primarily through FPL, a regulated Florida electric utility serving approximately 4.7 million customer accounts, and NextEra Energy Resources (NEER), a competitive power and renewable-energy business.
Key financial metrics
| Metric | Q3 2014 | Q3 2013 | 9M 2014 | 9M 2013 |
|---|---|---|---|---|
| NEE operating revenues | $4,654 million | $4,394 million | $12,357 million | $11,506 million |
| NEE operating income | $1,163 million | $1,185 million | $2,853 million | $2,601 million |
| NEE net income attributable to NEE | $660 million | $698 million | $1,581 million | $1,581 million |
| Diluted EPS from continuing operations | $1.50 | $1.64 | $3.60 | $3.18 |
| NEE operating margin | 25.0% | 27.0% | 23.1% | 22.6% |
| NEE net margin attributable to NEE | 14.2% | 15.9% | 12.8% | 13.7% |
| FPL net income | $462 million | $422 million | $1,231 million | $1,101 million |
| Dividends per NEE common share | $0.725 | $0.660 | $2.175 | $1.980 |
NEE generated $3,968 million of operating cash flow during the first nine months, versus $3,390 million in the prior-year period. Investing cash use was $4,078 million, including $5,058 million of capital expenditures, independent-power investments and nuclear-fuel purchases. Financing provided $157 million, and cash ended at $485 million versus $438 million at December 31, 2013.
At September 30, 2014, NEE reported total assets of $72.2 billion, long-term debt of $24.9 billion, current maturities of long-term debt of $3.4 billion, commercial paper and short-term debt of $1.2 billion, and total capitalization of $44.0 billion. Net available liquidity was approximately $6.7 billion, including approximately $3.0 billion at FPL.
Material changes versus the prior comparable period
- Q3 NEE net income decreased $38 million, or approximately 5%, primarily because NEER earnings fell $77 million to $204 million; FPL earnings increased $40 million to $462 million.
- For the first nine months, NEE net income was unchanged at $1,581 million. FPL earnings increased $130 million, while NEER earnings declined $99 million and Corporate and Other moved from $10 million of income to a $21 million loss.
- FPL benefited from growth in its regulated plant rate base, higher wholesale services, customer growth and usage, and a higher targeted regulatory return on equity. FPL’s regulatory ROE was 11.41% for the twelve months ended September 30, 2014, compared with 11.07% in the prior-year period.
- NEER results benefited from new wind and solar investments, stronger wind resources and favorable ERCOT market conditions, but were reduced by unfavorable mark-to-market hedge activity, weaker customer-supply results for the nine-month period, higher interest expense and Spain solar project issues.
- NEE’s nine-month results no longer included the prior-year $231 million after-tax gain from the hydro sale or the $342 million after-tax Spain solar impairment charge. The company recorded a $12 million after-tax gain from deciding not to sell the Maine fossil assets.
- NEE formed NextEra Energy Partners (NEP), which completed a July 2014 IPO raising approximately $438 million. NEE retained control and consolidated NEP, while recognizing $334 million of noncontrolling interests at September 30, 2014.
Guidance, outlook, risks and unusual items
The filing does not provide a clear new consolidated earnings-per-share guidance figure. Management expects continued investment in FPL infrastructure and NEER renewable projects. Estimated capital expenditures from the remainder of 2014 through 2018 total $11.2 billion for FPL, $5.1 billion for NEER and $1.7 billion for Corporate and Other. FPL also identified $750 million to $1.0 billion of potential incremental capital expenditures through 2016.
- NEER expects additional U.S. wind, Canadian wind and U.S. solar capacity through 2015-2016. NEP agreements announced in October 2014 contemplated acquisitions of approximately 250 MW of wind and 20 MW of solar projects from NEER, expected to close in the first quarter of 2015.
- Spain solar project financing remained subject to events of default, including debt-service-coverage covenant issues arising in Q3. Project-level debt of approximately $689 million and related derivative liabilities of $128 million were classified as current; restructuring discussions continued with lenders.
- FPL’s natural-gas pipeline commitments and proposed investments remain subject to conditions including Federal Energy Regulatory Commission approval. FPL expected an FPSC decision on a proposed long-term natural-gas supply investment by year-end 2014 or early 2015.
- Key risks include extensive utility and environmental regulation, cost-recovery and prudence challenges, commodity-price and derivative volatility, credit and collateral requirements, construction and permitting risk, nuclear operating and decommissioning risk, severe weather, cybersecurity, litigation, and access to capital markets.
- Derivative credit provisions could require approximately $400 million of collateral following specified rating downgrades, up to approximately $2.4 billion if applicable entities fell below investment grade, and additional collateral of up to approximately $700 million under other triggers.
- NEE had approximately $1.0 billion of standby letters of credit, $187 million of surety bonds and $10.6 billion of guarantees and indemnifications; management recorded no liabilities for these arrangements and considered payment unlikely.
- The filing states that there were no material changes to the risk factors disclosed in the 2013 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Reconcile GAAP earnings with management’s adjusted-earnings presentation, particularly the effects of non-qualifying hedge mark-to-market losses, Spain solar results, Maine fossil, NEP transaction costs and tax credits.
- Monitor Spain solar financing defaults, lender waivers, restructuring progress and potential collateral or debt-acceleration exposure.
- Assess whether FPL’s planned capital program, targeted 11.50% regulatory ROE and cost-recovery mechanisms remain achievable under future FPSC decisions.
- Review NEE’s debt maturities, interest-rate exposure, available liquidity and potential derivative collateral requirements.
- Evaluate execution, permitting and financing risks for renewable projects, FPL modernization projects and proposed natural-gas pipeline investments.
- Consider the sensitivity of earnings and equity to commodity prices, interest rates, renewable tax incentives, weather, nuclear outages and regulatory changes.