NextEra Energy, Inc. 2011 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, 2011. The filing was signed February 27, 2012. NEE operates primarily through FPL and NextEra Energy Resources, LLC (NEER), with additional activities in transmission, telecommunications and related businesses.
- NEE had more than 41,000 MW of generating capacity, approximately 14,800 employees and served more than 4 million customers.
- FPL served approximately 4.6 million customer accounts and had 24,460 MW of generating capacity.
- NEER had 16,607 MW of generating capacity, including 8,569 MW of wind capacity; approximately 93% of NEE’s 2011 generation came from renewable, nuclear or natural-gas facilities.
Financial performance and key metrics
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| NEE operating revenues | $15.341 billion | $15.317 billion | 0.2% increase |
| NEE operating income | $3.378 billion | $3.243 billion | 4.2% increase |
| NEE net income | $1.923 billion | $1.957 billion | 1.7% decrease |
| Diluted EPS | $4.59 | $4.74 | 3.2% decrease |
| Operating margin | 22.0% | 21.2% | Improved |
| Net margin | 12.5% | 12.8% | Declined |
| Cash flow from operations | $4.074 billion | $3.834 billion | 6.3% increase |
| Capital expenditures and related investments | $6.628 billion | $5.846 billion | 13.4% increase |
| Long-term debt, excluding current maturities | $20.810 billion | $18.013 billion | 15.5% increase |
| Total assets | $57.188 billion | $52.994 billion | 7.9% increase |
NEE ended 2011 with $377 million of cash and cash equivalents, compared with $302 million in 2010. Net available liquidity was approximately $5.1 billion as of February 9, 2012, including $2.8 billion for FPL. Credit ratings were investment grade with stable outlooks. NEE paid $920 million in common-stock dividends and $2.20 per share in dividends during 2011; the quarterly dividend was increased from $0.55 to $0.60 per share in February 2012.
Segment results and material changes
- FPL: Net income increased to $1.068 billion from $945 million. FPL earned an 11% regulatory ROE in both years. Growth reflected higher plant investment, use of $187 million of surplus depreciation credit, and improved cost-recovery clause results. Energy sales declined to 106,662 million kWh from 107,978 million kWh, while average customer accounts increased 0.6%.
- NEER: Net income declined to $774 million from $980 million. Results were pressured by a $92 million after-tax loss on natural-gas asset sales, extended and unplanned outages at Seabrook, weaker customer-supply and trading results, and lower deferred tax benefits. These effects were partly offset by stronger wind resources, gas-infrastructure results and new projects.
- Corporate and Other: Net income increased to $81 million from $32 million, primarily because of state deferred-tax benefits and a tax benefit related to the dissolution of a subsidiary.
- NEE added 379 MW of wind capacity, secured approximately 1,600 MW of long-term wind contracts, and began construction of the Genesis and Desert Sunlight solar projects.
- NEER sold approximately 2,700 MW of natural-gas generating assets for net cash proceeds of approximately $1.2 billion; approximately $363 million was used to repay associated debt.
- NEE repurchased approximately 6.7 million shares for $375 million under an accelerated share repurchase agreement.
- Fourth-quarter 2011 net income was $667 million, or $1.59 diluted EPS, compared with $263 million, or $0.63 diluted EPS, in the fourth quarter of 2010. Fourth-quarter revenue was $3.864 billion versus $3.413 billion.
Cash flow, debt and capital program
- Operating cash flow of $4.074 billion funded a portion of the $6.628 billion capital program; the remaining funding came primarily from debt issuance, asset sales, cash grants and other financing sources.
- NEE issued $3.940 billion of long-term debt and retired $2.121 billion during 2011. Commercial paper outstanding was $1.349 billion at year-end.
- Planned 2012–2016 capital expenditures totaled approximately $17.365 billion: $10.725 billion for FPL, $5.790 billion for NEER and $850 million for Corporate and Other.
- FPL’s long-term debt, including current maturities, was $7.533 billion; NEER’s was $5.848 billion; and NEECH’s was $8.237 billion.
Guidance, outlook and unusual items
- FPL expected to earn an 11% regulatory ROE in 2012. Its base rates were effectively frozen through December 2012 under the 2010 rate agreement.
- FPL notified the FPSC that it expected to request a base-rate increase of approximately $525 million effective January 2013, plus approximately $170 million annually when the modernized Cape Canaveral plant enters service, expected in June 2013. These amounts were proposed requests and were subject to regulatory approval.
- FPL expected to complete the Cape Canaveral and Riviera Beach modernization projects and add approximately 450–490 MW through nuclear uprates by 2013. Port Everglades modernization, estimated at $1.2 billion, remained contingent on FPSC approval.
- NEER planned to add approximately 1,150–1,500 MW of U.S. wind generation in 2012 and approximately 935 MW of solar generation during 2012–2016.
- Lone Star planned to complete approximately 320 miles of Texas transmission lines by the end of the first quarter of 2013. Its requested rates could produce approximately $14 million of 2012 revenue and $110 million of 2013 revenue, subject to PUCT approval and potential refunds.
- Material 2011 items included the $151 million pretax loss on natural-gas asset sales, $51 million of impairment charges, $190 million of after-tax unrealized gains from non-qualifying hedges, and $6 million of after-tax OTTI losses on nuclear decommissioning investments.
Principal risks and contingencies
- Regulatory recovery risk: FPL may not recover all costs or earn its authorized ROE; regulators may disallow costs considered excessive or imprudent.
- Construction and execution risk: major generation, transmission and renewable projects may face delays, cost overruns, permitting issues or cancellation.
- Nuclear risk: outages, new NRC requirements following the Fukushima events, spent-fuel disposal uncertainty and potential decommissioning cost changes could increase costs or reduce generation.
- Commodity and trading risk: NEER’s merchant generation and trading operations are exposed to power, natural-gas, fuel, interest-rate, credit and liquidity volatility.
- Environmental risk: air, water, greenhouse-gas, coal-ash, wildlife and other rules could require material capital expenditures or restrict operations.
- Liquidity and collateral risk: a ratings downgrade or adverse derivative-market movements could require substantial collateral postings. A downgrade to below investment grade could require approximately $2.8 billion of total collateral for NEE, including approximately $0.9 billion for FPL.
- Legal proceedings included an EPA Clean Air Act matter involving FPL’s interest in Scherer Unit No. 4, the Adelphia bankruptcy litigation and a TXU dispute involving wind contracts. Management did not expect the ultimate resolution of these matters to have a material adverse effect, but outcomes remained uncertain.
- NEE reported approximately $14.5 billion of guarantees and indemnifications, including approximately $9.2 billion expiring within five years; no liabilities were recorded because management considered payment unlikely.
Investor verification checklist
- Verify the final FPSC decision and approved amount and timing of FPL’s proposed 2013 base-rate increases.
- Assess whether FPL and NEER projects remain on schedule and within the disclosed $17.365 billion 2012–2016 capital plan.
- Review NEER’s normalized earnings excluding non-qualifying hedge gains, asset-sale losses, impairment charges and tax benefits.
- Monitor debt maturities, credit ratings, available liquidity and potential derivative collateral requirements.
- Track Seabrook and other nuclear outages, NRC responses to post-Fukushima recommendations, and spent-fuel and decommissioning obligations.
- Evaluate the effect of environmental rules, renewable-energy incentives and tax-credit availability on future project economics.
- Confirm that customer growth, usage trends and FPL’s 11% regulatory ROE remain consistent with management’s outlook.