NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2013; filed May 1, 2013. The combined filing covers NextEra Energy, Inc. (NEE) and wholly owned Florida Power & Light Company (FPL). NEE operates primarily through FPL, a regulated Florida electric utility serving approximately 4.6 million customer accounts, and NextEra Energy Resources (NEER), a competitive power and renewable-energy business.
Financial Performance and Position
| Metric | NEE Q1 2013 | NEE Q1 2012 | FPL Q1 2013 | FPL Q1 2012 |
|---|---|---|---|---|
| Operating revenues | $3.279 billion | $3.371 billion | $2.188 billion | $2.224 billion |
| Operating income | $434 million | $803 million | $543 million | $481 million |
| Income from continuing operations | $84 million | $461 million | Not separately applicable | Not separately applicable |
| Net income | $272 million | $461 million | $288 million | $239 million |
| Diluted EPS | $0.64 | $1.11 | Not applicable | Not applicable |
| Operating cash flow | $1.082 billion | $835 million | $776 million | $558 million |
| Capital expenditures and investments | $1.867 billion | $2.014 billion | $821 million | $1.112 billion |
- NEE’s revenue declined 3%, while operating income declined 46%. The operating margin was approximately 13.2%, versus 23.8% in the prior-year quarter.
- NEE’s net income included a $188 million after-tax gain from discontinued operations. Continuing-operations EPS was $0.20, compared with $1.12 in the prior year.
- FPL net income increased $49 million, or 21%, primarily from rate-base investment, use of surplus depreciation credits to earn an 11% regulatory return on equity, higher base revenues and increased allowance for equity funds used during construction.
- NEE generated $1.082 billion of operating cash flow and ended the quarter with $215 million of cash. FPL generated $776 million and ended with $35 million of cash.
- NEE reported $22.866 billion of long-term debt, $5.058 billion of debt due within one year and $1.501 billion of commercial paper. NEE total net available liquidity was approximately $5.7 billion, including approximately $2.9 billion for FPL.
- NEE paid $279 million in common dividends; dividends per share were $0.66, compared with $0.60 in Q1 2012.
Material Changes Versus the Prior Comparable Period
- NEER reported a $40 million net loss versus $221 million of net income in Q1 2012. The decline primarily reflected a $342 million after-tax impairment charge for Spain solar projects and a $90 million unfavorable change in unrealized mark-to-market results from non-qualifying hedges.
- The Spain solar impairment followed Spanish legislative changes that reduced project economics. Approximately $800 million of property and equipment was written down to an estimated fair value of approximately $500 million.
- NEE sold a portfolio of hydropower plants in March 2013 for consideration primarily consisting of the buyer’s assumption of $700 million of debt, producing a $231 million after-tax gain. NEE also recorded a $43 million after-tax write-down related to planned sales of Maine fossil plants.
- NEE’s effective tax rate increased to approximately 67% from 25%, primarily because of a $132 million valuation allowance on deferred tax assets associated with the Spain solar projects.
- FPL benefited from lower fuel and energy prices, lower nuclear and fossil outage costs, higher plant-in-service balances and new base-rate revenues. Average usage per retail customer declined 4.2%, partly due to weather and one fewer sales day, while customer accounts increased 0.7%.
- FPL’s capital spending declined from $1.112 billion to $821 million, while NEER’s investments increased from $756 million to $985 million, led by wind and solar projects.
Guidance, Outlook, Risks and Unusual Items
- FPL’s retail base rates were expected to increase approximately $164 million on an annualized basis beginning April 24, 2013, following the planned entry into service of the Cape Canaveral combined-cycle unit. FPL placed the approximately 1,210 MW unit in service on that date.
- FPL expected approximately $245 million of additional 2013 base revenues related to new nuclear capacity placed in service in 2012. It also expected to acquire the City of Vero Beach electric system in 2014, subject to approvals and other conditions, adding approximately 34,000 customer accounts.
- Estimated capital expenditures for the remainder of 2013 through 2017 totaled $10.940 billion for FPL, $2.855 billion for NEER and $375 million for Corporate and Other. Management stated that actual expenditures may vary significantly.
- NEER expected additional U.S. wind development of approximately 500 MW to 1,500 MW through 2014, incremental solar development of up to 300 MW through 2016 and approximately $200 million to $250 million per year of net gas-infrastructure capital through 2016.
- An event of default occurred under financing agreements for the Spain solar projects following changes in Spanish law. Approximately $631 million of project debt and $102 million of related derivative liabilities were classified as current. Lenders had provided waivers through May 31, 2013, while restructuring negotiations continued.
- NEECH filed a lawsuit seeking confirmation that its guarantee exposure was limited to approximately $40 million of remaining unfunded equity commitments rather than approximately $653 million of project debt, $173 million of swap breakage and other costs. The outcome and restructuring were uncertain.
- Key ongoing risks include extensive utility and environmental regulation, recovery of costs through rates, commodity and derivative volatility, counterparty and collateral requirements, nuclear operating and decommissioning obligations, severe weather, cyber and operational disruptions, construction and permitting risk, credit-market access, and litigation.
- NEE reported approximately $11.5 billion of guarantees and indemnifications, $1.2 billion of standby letters of credit and $168 million of surety bonds. Management stated that liabilities were not recorded because significant payments were considered unlikely.
- The filing reported no material changes to the risk factors in the 2012 Form 10-K. Management concluded that disclosure controls were effective and that there were no material changes in internal control over financial reporting.
Investor Verification Items
- Verify the recurring earnings impact of the Spain solar impairment, the related tax valuation allowance and the resolution of the project financing default and litigation.
- Separate GAAP results from management’s adjusted earnings, particularly the effects of non-qualifying hedge mark-to-market volatility and discontinued operations.
- Assess FPL’s rate-base growth, regulatory ROE mechanics, surplus depreciation credits and the timing of new generation placed in service.
- Reconcile planned capital expenditures with operating cash flow, debt maturities, commercial paper balances and available credit facilities.
- Monitor commodity prices, derivative fair values, collateral requirements and credit-rating triggers; a downgrade below investment grade could require approximately $2.1 billion of additional collateral for NEE, including approximately $0.5 billion for FPL.
- Review nuclear, environmental and legal contingencies, including potential uninsured losses, nuclear retrospective assessments and the Scherer Clean Air Act proceeding.