NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2015. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned, rate-regulated subsidiary Florida Power & Light Company (FPL). NEE’s principal segments are FPL and NextEra Energy Resources (NEER), its competitive energy business.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Change |
|---|---|---|---|
| NEE operating revenues | $4.358 billion | $4.029 billion | +$329 million |
| NEE operating income | $1.146 billion | $951 million | +$195 million |
| Net income attributable to NEE | $716 million | $492 million | +$224 million |
| Diluted EPS | $1.59 | $1.12 | +$0.47 |
| FPL net income | $435 million | $423 million | +$12 million |
| NEER net income attributable to NEE | $273 million | $81 million | +$192 million |
For the six months ended June 30, 2015, NEE reported operating revenues of $8.463 billion, operating income of $2.276 billion, net income attributable to NEE of $1.366 billion and diluted EPS of $3.04, compared with $7.703 billion, $1.690 billion, $921 million and $2.10, respectively, in the prior-year period.
NEE’s Q2 operating margin was approximately 26.3%, compared with approximately 23.6% in Q2 2014. The six-month operating margin was approximately 26.9%, compared with approximately 21.9% in the prior-year period. The filing does not present a separately identified consolidated net margin.
NEE paid dividends of $0.770 per common share in Q2 2015, compared with $0.725 in Q2 2014. The effective income tax rate was approximately 28% for Q2 and 29% for the six-month period, benefiting from production tax credits, investment tax credits and related deferred tax benefits.
Cash flow, balance sheet and liquidity
- Six-month operating cash flow was $2.934 billion, up from $2.448 billion in 2014.
- Six-month investing cash use was $3.754 billion, including $3.809 billion of capital expenditures, independent power investments and nuclear fuel purchases.
- Six-month financing cash flow was $794 million, including $1.706 billion of long-term debt issuances, $1.403 billion of retirements, $630 million of common-stock issuances and $683 million of dividends.
- Cash and cash equivalents were $551 million at June 30, 2015, compared with $577 million at December 31, 2014.
- Total assets were $77.201 billion, total equity was $21.601 billion and long-term debt was $25.235 billion at June 30, 2015.
- NEE reported approximately $6.7 billion of net available liquidity, including approximately $3.0 billion for FPL. This included approximately $7.85 billion of bank revolving credit facilities before letters of credit and other adjustments.
Material changes versus the prior comparable period
- NEE’s earnings improvement was concentrated in NEER, which benefited from favorable changes in unrealized mark-to-market results, improved customer supply and proprietary trading results, earnings from new wind and solar investments, and the absence of 2014 NEP-related charges and costs.
- NEER’s results were partly offset by weaker wind resources, lower results from certain existing assets, unfavorable ERCOT market conditions and lower gas-infrastructure results.
- FPL earnings increased modestly, primarily from growth in plant in service and rate base earnings, higher AFUDC-equity, favorable customer usage and account growth, and lower operating and maintenance costs. These benefits were partly offset by lower cost-recovery clause earnings.
- FPL’s average retail customer usage increased 6.1% in Q2 and 3.1% for the six-month period; average customer accounts increased 1.4% in both periods. Management attributed part of the revenue increase to favorable weather.
- Depreciation and amortization increased materially, reflecting higher plant balances and changes in FPL reserve amortization. FPL recorded a $66 million reserve reversal in Q2 2015, compared with $6 million of reserve amortization in Q2 2014.
- NEE’s reported earnings benefited from approximately $202 million of Q2 derivative gains, compared with a $167 million loss in Q2 2014. For the six-month period, derivative gains were approximately $428 million versus a $465 million loss in 2014. These mark-to-market movements make reported earnings more volatile.
Guidance, outlook and management commentary
- FPL expected 2015–2018 capital investment of approximately $13.9 billion to $15.6 billion, primarily for generation, transmission and distribution, reliability, fuel-cost reduction, emissions reduction and maintenance.
- NEER expected 2015–2018 capital investment of approximately $13.7 billion to $15.1 billion, including approximately 3,000–3,300 MW of new wind generation and 1,800–1,900 MW of new solar generation, as well as gas infrastructure, nuclear fuel and maintenance investments.
- Corporate and Other expected 2015–2018 capital investment of approximately $2.9 billion to $3.1 billion, primarily for natural-gas pipeline and transmission infrastructure.
- FPL had selected a self-build option for a proposed approximately 1,620 MW natural-gas combined-cycle unit in Okeechobee County, Florida. The project remained subject to FPSC and Siting Board approvals.
- NEP agreed after quarter-end to acquire NET Midstream, a portfolio of seven contracted Texas natural-gas pipelines, for approximately $2 billion less assumed debt, subject to closing conditions. Management identified completion and integration of the acquisition as a risk.
- FPL’s planned purchase of a 250 MW Jacksonville coal-fired facility for approximately $521 million remained subject to FPSC approval. The transaction could terminate approximately $1.48 billion of remaining purchased-power obligations if completed.
Risks, contingencies and unusual items
- NEE and FPL remain exposed to regulatory and legislative decisions, including the ability to recover costs and earn authorized returns through rates and cost-recovery mechanisms.
- NEE’s competitive businesses are exposed to volatility in power, natural-gas and other commodity prices, derivative valuations, trading results, counterparty performance and market liquidity.
- A credit downgrade could increase collateral requirements. At June 30, 2015, a downgrade to below investment grade could have required approximately $2.5 billion of additional collateral for NEE subsidiaries, including approximately $600 million for FPL.
- The Spain solar projects had project-level financing defaults, liquidation proceedings had commenced at project subsidiaries, and lenders could seek acceleration or exercise other remedies. Project-level debt and associated derivative liabilities totaled approximately $587 million and $99 million, respectively, at June 30, 2015.
- FPL faced potential operating restrictions at its Turkey Point nuclear units if cooling-canal temperatures exceeded permitted limits. Management had mitigation and contingency plans, including possible temporary power reductions.
- NEE maintained significant nuclear, environmental, storm, cyber, operational, insurance and litigation exposures. Management stated that currently known legal proceedings were not expected to have a material adverse effect, but adverse outcomes could affect financial statements.
- Proposed merger-related expenses were $9 million pretax in Q2 and $13 million pretax for the six-month period. The Hawaiian Electric merger remained subject to regulatory approvals.
- New accounting standards concerning consolidation, debt issuance costs and revenue recognition had been issued or amended; the filing states that the effects were still under evaluation.
Investor verification points
- Reconcile GAAP earnings with management’s adjusted earnings, particularly the effect of non-qualifying hedge mark-to-market gains and losses.
- Evaluate whether projected FPL, NEER and Corporate capital spending can be funded while maintaining credit ratings and dividend growth.
- Monitor FPL regulatory approvals for the Okeechobee generation project, natural-gas reserve investments and the Jacksonville coal-plant purchase.
- Assess the status, collateral exposure and potential recovery values associated with the Spain solar project financing.
- Track the closing, financing, holdbacks and operating performance of the NET Midstream acquisition.
- Review the sensitivity of earnings, liquidity and collateral requirements to commodity prices, interest rates, credit ratings and derivative valuations.