Business Context and Reporting Period
NextEra Energy, Inc. (NEE) and its wholly owned utility subsidiary, Florida Power & Light Company (FPL), filed a combined unaudited Form 10-Q for the three months ended March 31, 2023. NEE operates primarily through FPL, a regulated Florida electric utility serving approximately 5.8 million customer accounts, and NextEra Energy Resources (NEER), a competitive energy and renewable-generation business.
Key Financial Metrics
| Metric | NEE Q1 2023 | NEE Q1 2022 | FPL Q1 2023 | FPL Q1 2022 |
|---|---|---|---|---|
| Operating revenue | $6.716 billion | $2.890 billion | $3.919 billion | $3.712 billion |
| Operating income | $2.942 billion | $(775) million | $1.546 billion | $1.243 billion |
| Net income | $1.785 billion | $(693) million | $1.070 billion | $875 million |
| Net income attributable to NEE | $2.086 billion | $(451) million | Not applicable | Not applicable |
| EPS attributable to NEE | $1.04 | $(0.23) | Not applicable | Not applicable |
| Cash flow from operations | $1.673 billion | $1.962 billion | $1.679 billion | $1.531 billion |
NEE's operating margin was approximately 43.8% in Q1 2023, compared with a negative margin in Q1 2022; FPL's operating margin increased to approximately 39.4% from 33.5%. NEE's effective tax rate declined to 17.8% from 34.1%, primarily reflecting tax credits and the prior-year effects of derivative losses and the Mountain Valley Pipeline impairment.
- NEE ended the quarter with $2.275 billion of cash and cash equivalents and approximately $14.1 billion of net available liquidity.
- NEE's debt included $6.923 billion of current debt and $59.007 billion of long-term debt. FPL's corresponding balances were $2.531 billion and $20.926 billion.
- NEE invested $7.245 billion in capital expenditures, independent power and other investments, including $2.274 billion at FPL and $4.965 billion at NEER.
- NEE issued $6.655 billion of long-term debt and $2.502 billion of common stock and equity units, paid $2.601 billion of long-term debt and distributed $930 million of common-stock dividends.
- NEE's total assets were $165.357 billion and total equity was $52.123 billion at March 31, 2023. FPL's total assets were $88.025 billion and equity was $39.900 billion.
Material Changes Versus the Prior Comparable Period
- NEE's net income attributable to NEE increased by $2.537 billion, driven mainly by NEER's $2.939 billion improvement and FPL's $195 million increase, partly offset by a $597 million decline in Corporate and Other.
- NEER benefited from favorable non-qualifying hedge activity, higher earnings from new renewable investments, improved customer supply and power and gas trading margins, favorable nuclear decommissioning-fund equity-market results, and the absence of most of the prior-year Mountain Valley Pipeline impairment.
- NEER's non-qualifying hedge activity produced approximately $682 million of after-tax gains in Q1 2023 versus $1.352 billion of after-tax losses in Q1 2022. This created significant GAAP earnings volatility and is not necessarily indicative of recurring operating performance.
- FPL revenue increased $207 million, including approximately $140 million from higher retail base revenues and $55 million from higher fuel revenues. Average customer accounts increased 1.1%, while average usage per retail customer decreased 0.7%.
- FPL's depreciation and amortization expense decreased $128 million, primarily because of higher reserve amortization. FPL recorded approximately $373 million of reserve amortization in Q1 2023 versus $124 million in the comparable 2022 period, which supported its targeted regulatory return on equity.
- NEE's operating cash flow decreased $289 million, while investing cash use increased $3.124 billion, principally because of greater NEER investments. Financing cash inflows increased $2.737 billion.
Guidance, Outlook, Commentary, Risks and Unusual Items
- The filing does not provide a clear new consolidated earnings guidance figure. Management expects funding needs to be met through operating cash flow, debt and equity issuance, credit facilities, differential membership interests, and asset sales.
- FPL's average rate base increased by approximately $6.0 billion year over year. FPL earned an approximately 11.80% regulatory ROE in Q1 2023 versus 11.60% in Q1 2022.
- Beginning April 2023, FPL began recovering approximately $2.1 billion of 2022 fuel under-recovery over 21 months and reducing 2023 levelized fuel charges by $1.0 billion over nine months. Beginning May 2023, fuel charges were scheduled to be reduced by an additional approximately $379 million over eight months.
- FPL also implemented an interim surcharge beginning April 2023 to recover approximately $1.5 billion of unrecovered storm costs, primarily related to Hurricanes Ian and Nicole. Recovery remains subject to an FPSC prudence review and possible refund.
- On March 21, 2023, NEER acquired a portfolio of 31 biogas and renewable natural gas projects for approximately $1.1 billion in cash, assumed approximately $34 million of debt, and recorded approximately $0.3 billion of provisional goodwill.
- In April 2023, NEER agreed to sell eight wind and solar facilities totaling 688 MW to a NEP subsidiary for approximately $566 million in cash, subject to closing adjustments and customary conditions.
- NEE's remaining estimated capital expenditures for the remainder of 2023 through 2027 total approximately $54.4 billion, consisting of $40.6 billion for FPL and $13.8 billion for NEER. Actual spending may vary materially.
- Key risks include regulatory cost recovery and prudence decisions, severe weather and storm costs, commodity and derivative-price volatility, interest rates, credit and counterparty exposure, cyber and operational disruptions, nuclear liabilities, construction and permitting risk, and access to capital markets.
- FPL faces a purported class-action lawsuit concerning Hurricane Irma service interruptions. Trial was scheduled for November 2023; management stated it could not predict the outcome with certainty.
- NEE reported approximately $5.8 billion of derivative liabilities with credit-related contingent features. A downgrade below investment grade could require approximately $3.5 billion of additional collateral, with further collateral possible under other contractual triggers.
Investor Verification Checklist
- Verify the sustainability of NEE's Q1 earnings improvement after excluding approximately $382 million of after-tax non-qualifying hedge gains and other identified adjustments.
- Review the effect of FPL's fuel-charge reductions, storm-cost surcharge, regulatory recovery and prudence review on future customer bills and earnings.
- Assess funding requirements for the approximately $54.4 billion of projected 2023–2027 capital expenditures against debt capacity, equity issuance and operating cash flow.
- Monitor leverage, refinancing needs, credit ratings and collateral requirements associated with derivatives and guarantees.
- Evaluate the provisional accounting for the RNG acquisition and the timing and economics of the planned NEER asset sale to NEP.
- Review the Hurricane Irma litigation, nuclear insurance exposures, guarantees, structured payables of approximately $3.6 billion, and other commitments and contingencies.