NEXTERA ENERGY INC quarterly report, Q2 FY2021

NextEra Energy, Inc. and Florida Power & Light Company

Filing and period: Combined unaudited Form 10-Q for the quarter and six months ended June 30, 2021. The filing covers NextEra Energy, Inc. (NEE) and its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL). NEE's principal businesses are FPL, serving more than 5.6 million customer accounts, and NextEra Energy Resources (NEER), a large renewable-energy and competitive-energy business.

Financial performance and position

Metric	Three months ended June 30, 2021	Three months ended June 30, 2020	Six months ended June 30, 2021	Six months ended June 30, 2020
NEE operating revenues	$3.927 billion	$4.204 billion	$7.653 billion	$8.817 billion
NEE operating income	$510 million	$1.186 billion	$1.179 billion	$3.167 billion
Net income attributable to NEE	$256 million	$1.275 billion	$1.922 billion	$1.695 billion
Diluted EPS	$0.13	$0.65	$0.98	$0.86
FPL net income	$882 million	$803 million	$1.660 billion	$1.486 billion
NEE operating margin	13.0%	28.2%	15.4%	35.9%

Profit drivers: FPL and Gulf Power delivered higher earnings, primarily from continued investment in plant and infrastructure. NEER reported a $315 million attributable loss in the quarter, versus $481 million of income in the prior-year quarter, driven chiefly by unfavorable non-qualifying hedge activity and lower nuclear decommissioning-fund equity gains. Six-month NEER income attributable to NEE was $176 million, down from $799 million.

Cash flow: Six-month operating cash flow was $3.495 billion, down from $3.792 billion. Investing cash use was $8.161 billion, including $8.315 billion of capital expenditures, independent-power investments and nuclear-fuel purchases. Financing cash flow was $4.549 billion.
Cash and liquidity: NEE ended June 30 with $884 million of cash and cash equivalents and $1.433 billion of cash, cash equivalents and restricted cash. Reported net available liquidity for FPL and NEECH was approximately $11.6 billion.
Debt: NEE had $52.063 billion of long-term debt including the current portion; FPL had $18.568 billion. NEE's total liabilities were $89.899 billion, compared with total equity of $45.114 billion.
Capital spending outlook: Approved estimated capital expenditures for the remainder of 2021 through 2025 total approximately $42.9 billion, comprising $30.285 billion for the FPL segment, $3.235 billion for Gulf Power and $9.365 billion for NEER.
Dividends: NEE paid $1.511 billion in common dividends during the first six months, or $0.385 per share in each quarter.

Material changes versus the prior comparable period

Second-quarter NEE attributable earnings declined $1.019 billion, primarily because of unfavorable hedge results at NEER and Corporate and Other. Six-month earnings increased $227 million, as favorable Corporate and Other hedge results and stronger FPL earnings more than offset weaker NEER results.
NEE's second-quarter revenue fell 6.6% and six-month revenue fell 13.2%, primarily because of mark-to-market losses on non-qualifying commodity hedges and the absence of the 2020 Spain solar-project disposal gain.
FPL's second-quarter revenue rose $411 million and six-month revenue rose $514 million, largely reflecting higher fuel revenues. Fuel, purchased-power and interchange costs also increased materially, limiting the effect on operating income.
FPL's average retail customer count increased 1.5%, while average usage per retail customer declined 1.5% in the quarter and 2.2% for the six-month period, primarily due to unfavorable weather.
NEER recorded approximately $146 million of bad-debt expense for the first six months, compared with $43 million in the prior year, primarily due to credit losses associated with the February 2021 Texas winter-weather event. Approximately $142 million of related allowances remained at June 30.
FPL and Gulf Power legally merged on January 1, 2021, with FPL as the surviving entity. Gulf Power and the FPL segment remained separate ratemaking and operating segments through 2021, and prior FPL figures were retrospectively adjusted.
NEER acquired GridLiance on March 31, 2021 for approximately $502 million of cash plus assumed debt of approximately $175 million. The acquisition added approximately $592 million of goodwill and approximately $264 million of contingent consideration liabilities.

Guidance, outlook, risks and unusual items

FPL rate proceeding: FPL requested a four-year rate plan beginning January 2022, including base-revenue increases of approximately $1.075 billion in 2022 and $605 million in 2023. It also requested a solar base-rate adjustment mechanism for up to 894 MW of solar additions in each of 2024 and 2025, with preliminary annual adjustments of approximately $140 million for each year if fully constructed. Hearings were scheduled for the third quarter of 2021, with a final decision expected in the fourth quarter.
Regulatory items: The FPSC approved approximately $462 million of regulatory assets for unrecovered Plant Crist investment, subject to prudence review, and approved recovery of estimated Hurricane Sally restoration costs of approximately $185 million through an interim surcharge, also subject to review.
Derivative and valuation volatility: NEE recognized approximately $1.420 billion of commodity-derivative losses in operating revenues for the first six months, versus a $572 million gain in the prior-year period. These mark-to-market effects can materially distort GAAP earnings relative to underlying operating performance. Level 3 commodity derivative assets and liabilities were $1.520 billion and $936 million, respectively, at June 30.
Post-quarter financing: On July 15, 2021, subsidiaries issued $1.513 billion of 2.92% senior secured notes due 2038 and $260 million of 4.70% senior secured notes due 2028.
Asset sales: In July 2021, NEER agreed to sell interests in wind and solar facilities with approximately 589 MW of combined net generating capacity to a NEP subsidiary for approximately $563 million, subject to closing adjustments and customary conditions.
Key risks: The filing highlights extensive regulatory oversight, rate-recovery and prudence risk, commodity and interest-rate volatility, counterparty credit losses, capital-market access and credit ratings, construction and permitting risk, nuclear operations, severe weather, cyber and operational disruptions, environmental requirements, and COVID-19 uncertainty. Management reported no material COVID-19 impact through June 30, 2021.
Contingencies: NEE had approximately $4.2 billion of guarantees related to purchased-power agreements, nuclear activities, production-tax-credit obligations and other contracts; approximately $2.3 billion of standby letters of credit and $721 million of surety bonds were also outstanding. The filing states that no material exposure was expected from guarantee arrangements, but collateral requirements could increase following credit-rating deterioration or other contractual triggers.

Most important facts for investors to verify

Whether the FPL rate plan and requested 2022-2025 rate increases were approved, modified or rejected by the FPSC.
The extent to which NEER's hedge-related mark-to-market losses reverse or become realized, and how adjusted earnings reconcile to GAAP results.
Collectibility and ultimate recovery of the approximately $180 million of NEER reimbursable expenses and related credit losses arising from the February Texas weather event.
Actual capital expenditures, project completion timing and financing needs relative to the approximately $42.9 billion 2021-2025 approved program.
Changes in NEE's debt balances, interest costs, credit ratings, available liquidity and potential derivative-collateral requirements.
Closing and economics of the announced NEER asset sale to NEP, including debt and noncontrolling interests transferred.
Potential impacts of nuclear, storm, environmental, cyber, regulatory and counterparty risks, including the adequacy of insurance and regulatory recovery mechanisms.