NextEra Energy, Inc. 2012 Form 10-K Summary
Business context and reporting period
This combined Form 10-K covers NextEra Energy, Inc. (NEE) and its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL), for the fiscal year ended December 31, 2012. NEE operates primarily through FPL and competitive energy subsidiary NextEra Energy Resources (NEER). NEE had more than 42,000 MW of generating capacity, approximately 14,800 employees and nearly 5 million customers. FPL served approximately 4.6 million customer accounts in Florida, while NEER operated more than 18,100 MW of generation capacity across the United States and Canada.
NEE's portfolio emphasized regulated utility operations, wind and solar generation, nuclear power, natural-gas generation, transmission, energy marketing and trading. Approximately 97% of NEE's 2012 generation came from renewable, nuclear or natural-gas facilities.
Key financial metrics
| Metric | 2012 | 2011 | Change |
|---|---|---|---|
| Operating revenues | $14.256 billion | $15.341 billion | Down $1.085 billion |
| Operating income | $3.276 billion | $3.261 billion | Up $15 million |
| Net income | $1.911 billion | $1.923 billion | Down $12 million |
| Diluted EPS | $4.56 | $4.59 | Down $0.03 |
| Operating margin | 23.0% | 21.3% | Improved |
| Net margin | 13.4% | 12.5% | Improved |
| Operating cash flow | $3.992 billion | $4.074 billion | Down $82 million |
| Capital expenditures and investments | $9.461 billion | $6.628 billion | Up $2.833 billion |
| Long-term debt, excluding current maturities | $23.177 billion | $20.810 billion | Up $2.367 billion |
| Total assets | $64.439 billion | $57.188 billion | Up $7.251 billion |
NEE's total capitalization was $39.245 billion, including $16.068 billion of common shareholders' equity and $23.177 billion of long-term debt excluding current maturities. Cash and cash equivalents were $329 million at year-end. As of February 8, 2013, estimated net available liquidity was approximately $5.663 billion, including $3.143 billion for FPL and $2.520 billion for NEECH. NEE's reported credit ratings had stable outlooks, including A-/A- from S&P and Fitch and Baa1 from Moody's.
NEE paid $1.004 billion in common dividends during 2012, or $2.40 per share. In February 2013, the quarterly dividend was increased from $0.60 to $0.66 per share.
Segment performance and material changes
- FPL: Net income increased to $1.240 billion from $1.068 billion. Operating revenues declined to $10.114 billion from $10.613 billion, primarily because of lower fuel cost recovery revenues and lower energy sales. Operating income increased to $2.357 billion from $2.076 billion, and the operating margin improved to approximately 23.3% from 19.6%.
- FPL's earnings benefited from higher plant investment, increased use of its surplus depreciation credit, higher cost-recovery clause results and higher allowance for equity funds used during construction. FPL recorded $480 million of surplus depreciation credit in 2012, compared with $187 million in 2011.
- FPL's energy sales declined to 105,109 million kWh from 106,662 million kWh, while average customer accounts increased to approximately 4.576 million from 4.547 million. Average billed price declined to 9.51 cents per kWh from 9.83 cents.
- NEER: Net income decreased to $687 million from $774 million. Results were reduced by $230 million from the year-over-year change in unrealized mark-to-market results on non-qualifying hedges and by weaker performance from existing wind, merchant and contracted assets. These effects were partly offset by new investments, improved customer supply and trading results, gas infrastructure earnings and the absence of the 2011 loss on sales of natural-gas plants.
- NEER added approximately 1,520 MW of wind capacity during 2012 and had approximately 10,057 MW of wind capacity and 2,826 MW of contracted generation capacity at year-end. Its 2012 capital investments totaled $4.681 billion, including $2.365 billion for wind and $1.235 billion for solar.
- Corporate and Other: Results declined to a $16 million loss from $81 million of income, primarily because 2011 included state tax benefits related to tax law changes and a subsidiary dissolution. 2012 also included investment losses and a loss on the redemption of NEECH junior subordinated debentures.
Cash flow, capital requirements and financing
- Operating cash flow remained strong at $3.992 billion, but capital spending increased substantially to $9.461 billion. FPL invested $4.285 billion, NEER invested $4.681 billion and Corporate and Other invested $495 million.
- NEE issued $6.630 billion of long-term debt, retired $1.612 billion and generated $4.888 billion of net financing cash flow. Year-end cash declined by $48 million.
- FPL's long-term debt excluding current maturities increased to $8.329 billion from $7.483 billion. FPL generated $2.823 billion of operating cash flow and invested $4.070 billion in capital expenditures.
- Estimated total contractual obligations were $97.852 billion, including $48.238 billion of long-term debt obligations including interest, $28.715 billion of purchase obligations and $19.876 billion of asset-retirement obligations.
Guidance, outlook and unusual items
- FPL's 2012 rate agreement, effective January 2013 through December 2016, increased annualized retail base revenues by approximately $350 million and established an allowed regulatory ROE of 10.50%, with a range of 9.50% to 11.50%. The agreement also provides for rate increases as the Cape Canaveral, Riviera Beach and Port Everglades modernization projects enter service.
- FPL expected to complete at least 510 MW of nuclear uprate capacity by spring 2013, with approximately 395 MW already in service at December 31, 2012. Modernization projects were expected to enter service by June 2013, June 2014 and mid-2016, respectively.
- FPL issued an RFP for a proposed approximately 700-mile natural-gas pipeline to support Florida generation needs, with operation targeted for 2017 subject to selection and regulatory approvals.
- NEER planned to add nearly 900 MW of solar capacity by 2016, approximately 600 MW of Canadian wind capacity by the end of 2015 and 175 MW of U.S. wind capacity in 2013. Lone Star expected commercial operation of approximately 330 miles of Texas transmission lines by the end of the first quarter of 2013.
- The Spanish government changed renewable-energy pricing in February 2013, materially reducing expected returns on NEER's 99.8 MW Spain solar projects. NEER estimated maximum exposure of approximately $300 million if the projects were abandoned.
- NEE's 2012 GAAP earnings included a $34 million after-tax loss from unrealized mark-to-market changes on non-qualifying hedges and a $31 million after-tax benefit from OTTI reversals. Adjusted earnings exclude these items and are a non-GAAP measure.
- A subsidiary of NEER agreed to sell 351 MW of hydroelectric assets, with closing expected in the first quarter of 2013. The filing expected a gain, but stated that the assets were not material to consolidated results.
Principal risks and contingencies
- FPL depends on regulatory approval and timely recovery of fuel, storm, environmental, nuclear and construction costs. The Office of Public Counsel appealed the 2012 rate agreement, and regulators may disallow costs considered excessive or imprudent.
- NEER's competitive results are exposed to wholesale power and natural-gas prices, wind and solar resources, transmission constraints, hedge performance, counterparty credit risk and market liquidity.
- Renewable projects depend materially on federal production and investment tax credits, renewable portfolio standards and other governmental incentives. Changes in these programs could reduce project returns.
- Nuclear operations face outage, safety, licensing, spent-fuel disposal, decommissioning and insurance risks. NRC post-Fukushima requirements could result in significant additional capital and operating costs.
- Environmental rules concerning greenhouse gases, air emissions, water use, cooling-water intake, wildlife and hydraulic fracturing could require additional capital expenditures or restrict operations.
- NEE had approximately $13.1 billion of guarantees and indemnifications and $1.3 billion of standby letters of credit at December 31, 2012. Management believed material losses under these arrangements were unlikely and recorded no related liability.
- Potential collateral requirements under derivative agreements could increase materially following credit-rating downgrades. The filing estimated total collateral requirements of approximately $400 million at specified lower ratings and up to approximately $2.3 billion if ratings fell below investment grade, subject to contractual conditions.
- Material legal proceedings included an EPA Clean Air Act case involving FPL's interest in Scherer Unit No. 4, an Adelphia bankruptcy-related fraudulent-transfer claim and a TXU dispute involving wind-energy supply obligations. Management did not expect the ultimate resolution to have a material adverse effect, although outcomes were uncertain.
Most important facts for investors to verify
- Reconcile 2012 GAAP earnings with adjusted earnings, particularly the effect of non-qualifying hedge mark-to-market activity and OTTI reversals.
- Assess whether FPL's 2012 rate agreement, including the $350 million annualized base-rate increase and 10.50% allowed ROE, remains effective after the appeal.
- Monitor completion costs, timing and regulatory recovery for FPL's three modernization projects, nuclear uprate, proposed gas pipeline and Lone Star transmission project.
- Evaluate NEER's exposure to renewable tax-credit changes, merchant power prices, wind resources and the Spanish solar-project restructuring.
- Review debt maturities, refinancing needs and the ability to maintain credit ratings and approximately $5.7 billion of reported net available liquidity.
- Review the $9.461 billion 2012 investment program and the approximately $14.8 billion of estimated capital expenditures for 2013-2017, excluding projects requiring additional internal approvals.
- Track nuclear regulatory requirements, spent-fuel developments, decommissioning funding and potential environmental compliance costs.