NextEra Energy, Inc. 2019 Q1 Form 10-Q Summary
Business context and reporting period
Combined unaudited quarterly filing for NextEra Energy, Inc. (NEE) and Florida Power & Light Company (FPL) for the three months ended March 31, 2019, filed April 23, 2019. NEE’s principal businesses are FPL, a regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive energy business focused on renewable generation, natural gas infrastructure and energy marketing. NEE acquired Gulf Power on January 1, 2019.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| NEE operating revenues | $4.075 billion | $3.857 billion | +5.7% |
| NEE operating income | $1.135 billion | $1.059 billion | +7.2% |
| NEE net income attributable to NEE | $680 million | $4.431 billion | -$3.751 billion |
| NEE diluted EPS | $1.41 | $9.32 | Down from prior period |
| NEE operating margin | 27.9% | 27.5% | Improved |
| FPL operating revenues | $2.618 billion | $2.620 billion | Approximately flat |
| FPL net income | $588 million | $484 million | +21.5% |
| FPL operating margin | 32.7% | 27.0% | Improved |
| NEE cash flow from operations | $1.597 billion | $1.291 billion | +$306 million |
| NEE capital expenditures, investments and nuclear fuel purchases | $7.029 billion | $3.588 billion | +96.0% |
| NEE long-term debt, including current portion | $32.497 billion | $29.498 billion at December 31, 2018 | Increased |
| NEE cash, cash equivalents and restricted cash | $1.341 billion | $908 million at March 31, 2018 | Increased year over year |
| NEE net available liquidity | $8.499 billion | Not provided in the filing excerpt | Not comparable |
NEE’s net income attributable to NEE was $680 million, while consolidated net income was $606 million and the filing reported a $74 million net loss attributable to noncontrolling interests. NEE’s effective income tax rate was approximately 11%, compared with 25% in the prior-year quarter, principally reflecting production and investment tax credits and the absence of certain 2018 tax effects.
Material changes versus the prior comparable period
- FPL net income increased $104 million, primarily from continued rate-base investment, lower depreciation and amortization, and approximately $156 million of reserve amortization recorded in 2019 under the 2016 rate agreement. FPL reported an 11.60% regulatory ROE versus 11.17% in the prior-year period.
- NEER net income attributable to NEE declined to $301 million from $3.929 billion. The prior-year result included a $3.9 billion pretax gain, or approximately $3.0 billion after tax, from NEP deconsolidation, as well as favorable tax-related and differential membership-interest adjustments.
- NEER also experienced approximately $174 million of after-tax losses from non-qualifying hedge activity in 2019, compared with approximately $93 million of gains in 2018. Lower wind resources reduced existing-asset results, partly offset by contributions from new wind and solar projects, trading activities and gas infrastructure.
- Gulf Power contributed $328 million of operating revenue and $37 million of net income attributable to NEE in its first quarter under NEE ownership.
- NEE’s interest expense increased to $714 million from $226 million, reflecting higher debt and unfavorable changes in interest-rate derivative fair values.
- Operating cash flow increased, but investing cash use rose sharply because of the $4.551 billion Gulf Power acquisition and continued renewable and utility capital investment. NEE’s cash, cash equivalents and restricted cash declined by $3.912 billion during the quarter.
Guidance, outlook, commentary, risks and unusual items
The filing does not provide a clear quantitative earnings guidance range in the supplied text. Management expects capital needs to be funded through operating cash flow, debt and equity-market access, project or asset sales and available credit facilities. Approved capital expenditures for the remainder of 2019 through 2023 include $28.405 billion for FPL, $2.995 billion for Gulf Power, $8.035 billion for NEER and $105 million for Corporate and Other.
- In March 2019, NEER agreed to sell six wind and solar facilities with approximately 611 MW of net generating capacity to an NEP subsidiary for approximately $1.020 billion, subject to approvals and closing conditions. The transaction was expected to close in the second quarter of 2019.
- NEE expected to close its approximately $1.05 billion acquisition of Trans Bay Cable, including assumed debt, in 2019, pending California regulatory approval.
- NEE issued $2.768 billion of long-term debt during the quarter. In April 2019, NEECH issued additional debt and repaid the $4.5 billion of short-term borrowings used to finance the Gulf Power acquisition.
- NEE’s derivative portfolio and market-based businesses create exposure to commodity prices, interest rates, foreign exchange, credit and liquidity. A downgrade below investment grade could require approximately $1.1 billion of additional collateral for certain derivative contracts, including $30 million at FPL; other contractual triggers could require additional collateral of up to approximately $800 million.
- Key risks include extensive utility regulation, cost-recovery and rate decisions, construction and permitting, severe weather, environmental requirements, nuclear operations, cyber and information-technology failures, commodity volatility, counterparty performance, capital-market access and the integration of Gulf Power.
- NEE’s nuclear insurance arrangements could result in retrospective assessments of up to approximately $1.1 billion per incident under the secondary nuclear liability system, plus other nuclear insurance assessments.
- The NRC approved a 20-year renewal of the Seabrook operating license in March 2019, extending its expiration to 2050.
- Management stated that there were no material changes to the risk factors disclosed in the 2018 Form 10-K and concluded that disclosure controls and procedures were effective as of March 31, 2019.
Most important facts for investors to verify
- Reconcile GAAP earnings with adjusted earnings, especially the effects of non-qualifying hedges, NEP-related gains, tax credits, nuclear-fund valuation changes and acquisition costs.
- Assess whether the Gulf Power acquisition and the planned Trans Bay Cable transaction improve regulated earnings and leverage after integration and financing costs.
- Monitor NEE’s debt growth, interest expense, April 2019 refinancing activity and the $8.499 billion of reported net available liquidity.
- Evaluate the funding requirements and execution risk associated with approximately $39.5 billion of approved capital expenditures for FPL, Gulf Power and NEER through 2023.
- Track FPL’s regulatory ROE, reserve amortization, rate-base growth, fuel-cost recovery and exposure to storm-related costs.
- Review derivative fair values, collateral requirements and the sensitivity of earnings and liquidity to commodity prices, interest rates and credit-rating changes.
- Confirm the timing and regulatory approvals for the NEP facility sale and Trans Bay Cable acquisition, and the accounting effects when completed.