NextEra Energy, Inc. and Florida Power & Light Company — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned subsidiary Florida Power & Light Company (FPL). Results are unaudited and should be read with the 2020 Form 10-K. FPL and Gulf Power legally merged on January 1, 2021, but continued as separate ratemaking and operating segments during 2021.
Business context
NEE operates primarily through FPL, a regulated Florida electric utility serving more than 5.6 million customer accounts, and NextEra Energy Resources (NEER), which owns competitive generation, renewable energy, gas infrastructure and transmission assets. NEE describes NEER as the world's largest generator of renewable energy from wind and solar based on 2020 net generation.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| NEE operating revenues | $3.726 billion | $4.613 billion | Down $887 million |
| NEE operating income | $669 million | $1.981 billion | Down $1.312 billion |
| NEE net income attributable to NEE | $1.666 billion | $421 million | Up $1.245 billion |
| NEE diluted EPS | $0.84 | $0.21 | Up $0.63 |
| NEE operating margin | Approximately 18% | Approximately 43% | Lower |
| FPL net income | $777 million | $682 million | Up $95 million |
| FPL operating revenues | $2.970 billion | $2.868 billion | Up $102 million |
| FPL operating margin | Approximately 37.5% | Approximately 34.0% | Higher |
| Net cash from operating activities — NEE | $1.292 billion | $1.894 billion | Down $602 million |
| Net cash from operating activities — FPL | $1.274 billion | $1.280 billion | Down $6 million |
NEE's reported net income benefited substantially from favorable changes in interest-rate derivatives, equity securities in NEER's nuclear decommissioning funds and equity-method earnings. NEE's effective tax rate was 14.3%, compared with negative 321.9% in the prior-year quarter. FPL's effective tax rate was 21.2%, compared with 17.8%.
At March 31, 2021, NEE had $1.462 billion of cash and cash equivalents, total assets of $132.441 billion, total liabilities of $86.711 billion and total equity of $45.730 billion. NEE long-term debt, including the current portion, was $49.902 billion, compared with $46.082 billion at December 31, 2020. FPL long-term debt, including the current portion, was $17.421 billion, compared with $17.236 billion.
NEE generated $1.292 billion of operating cash flow and used $4.420 billion in investing activities, including $4.519 billion of capital expenditures and independent power investments. Financing activities provided $3.743 billion, including $4.616 billion of long-term debt issuance and $755 million of common dividends. NEE's cash, cash equivalents and restricted cash increased by $619 million to $2.165 billion.
FPL generated $1.274 billion of operating cash flow and used $1.575 billion in investing activities, including $1.520 billion of capital expenditures. Financing activities provided $279 million, including $1.035 billion of capital contributions from NEE, partly offset by a $932 million reduction in commercial paper.
NEE reported approximately $10.6 billion of net available liquidity at March 31, 2021, consisting of available revolving and letter-of-credit facilities plus cash, less commercial paper and other short-term borrowings.
Material changes versus the prior comparable period
- NEE net income attributable to NEE increased primarily because of favorable non-qualifying hedge results, improved equity-market performance in nuclear decommissioning funds and higher equity-method earnings. The prior year included a $260 million after-tax gain from selling two Spanish solar projects, which did not recur.
- NEER net income increased $173 million, supported by new wind, solar and storage investments, favorable hedge activity and nuclear fund gains. These benefits were partly offset by lower existing-generation results, the February 2021 Texas winter-weather event, closure of the Duane Arnold plant and the absence of the Spain-project gain.
- NEE operating revenues declined largely because of approximately $571 million of losses from non-qualifying commodity hedges versus approximately $441 million of gains in Q1 2020, as well as lower existing-generation revenues.
- NEE recorded approximately $152 million of bad-debt expense, compared with $11 million in Q1 2020. The increase primarily related to NEER credit losses associated with the Texas winter-weather event.
- FPL net income increased $95 million, with $78 million from the FPL segment and $17 million from Gulf Power. FPL segment results benefited from continued investment in plant and infrastructure, while Gulf Power benefited from lower operations and maintenance expense.
- FPL retail base revenues were approximately flat; average usage per retail customer declined 3.0%, partly offset by a 1.4% increase in average customer accounts. Higher fuel and energy prices increased fuel revenues and fuel expense.
Guidance, outlook, commentary and unusual items
FPL filed a proposed four-year rate plan with the Florida Public Service Commission beginning January 2022. The request includes approximately $1.108 billion of additional annual base revenue requirements in 2022 and $607 million in 2023, plus a proposed solar base-rate adjustment mechanism for up to 894 MW of solar projects in each of 2024 and 2025. The requested regulatory ROE is 11.50%, including a 50-basis-point performance incentive. Hearings were scheduled for the third quarter of 2021, with a final decision expected in the fourth quarter of 2021. These amounts are requested, not approved guidance.
FPSC approved approximately $462 million of regulatory assets for unrecovered investment in Gulf Power's Plant Crist, subject to prudence review and future rate recovery. FPL also began recovering estimated Hurricane Sally restoration costs of approximately $187 million through an interim surcharge, subject to refund and prudence review.
On March 31, 2021, NEE acquired GridLiance for approximately $502 million in cash consideration and assumed approximately $175 million of debt. The transaction added approximately $599 million of goodwill and approximately $264 million of contingent consideration related to future development expenditures.
NEE expects capital expenditures and investments from the remainder of 2021 through 2025 of approximately $31.855 billion for the FPL segment, $3.395 billion for Gulf Power and $7.125 billion for NEER, subject to continuing review and adjustment. The filing does not provide formal consolidated earnings guidance in the supplied text.
COVID-19 had not materially affected NEE's or FPL's workforce, operations, financial performance, liquidity or supply chain as of the filing date, but management stated that future effects remained uncertain. Key ongoing risks include regulation and rate recovery, capital-market access and credit ratings, commodity and derivative volatility, counterparty credit losses, severe weather, nuclear operations, environmental requirements, cybersecurity and project construction or permitting.
Derivative and market-value changes materially affected comparability. NEE reported a $367 million after-tax adjustment for non-qualifying hedge activity in Q1 2021 versus a $717 million after-tax loss in Q1 2020. At March 31, 2021, derivative instruments with credit-risk-related contingent features had approximately $1.5 billion of liability fair value; a downgrade below investment grade could require approximately $1.2 billion of additional collateral, subject to contractual conditions.
Most important facts for investors to verify
- Whether the FPSC approves, modifies or rejects FPL's proposed 2022–2025 rate plan and the requested 11.50% regulatory ROE.
- The collectability and ultimate financial impact of NEER receivables and bad-debt provisions related to the February 2021 Texas winter-weather event.
- The extent to which Q1 earnings were driven by volatile derivative marks, nuclear decommissioning fund securities and tax credits rather than recurring operating performance.
- NEE's debt refinancing needs, interest-rate exposure and capacity to maintain approximately $10.6 billion of net available liquidity while funding its large capital program.
- GridLiance integration, contingent consideration of approximately $264 million and the final purchase-price allocation.
- Regulatory recovery and prudence review for the $462 million Gulf Power regulatory asset and approximately $187 million of Hurricane Sally restoration costs.
- Execution, permitting and financing risks associated with the approximately $42.4 billion of disclosed FPL, Gulf Power and NEER capital expenditures for the remainder of 2021 through 2025.