NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Three months ended March 31, 2015. This combined filing covers NextEra Energy, Inc. (NEE) and wholly owned Florida Power & Light Company (FPL). NEE’s principal businesses are FPL, a rate-regulated Florida electric utility serving approximately 4.8 million customer accounts, and NextEra Energy Resources (NEER), a competitive renewable and other energy business.
Key financial metrics
| Metric | NEE 2015 Q1 | NEE 2014 Q1 | Change |
|---|---|---|---|
| Operating revenues | $4.104 billion | $3.674 billion | +$430 million |
| Operating income | $1.129 billion | $738 million | +$391 million |
| Net income attributable to NEE | $650 million | $430 million | +$220 million |
| Diluted EPS | $1.45 | $0.98 | +$0.47 |
| Operating cash flow | $1.181 billion | $1.017 billion | +$164 million |
| Capital expenditures and investments | $1.566 billion | $1.866 billion | -$300 million |
| Cash and cash equivalents, period-end | $469 million | $488 million | -$19 million |
NEE’s operating margin increased to approximately 27.5% from 20.1%, and net margin increased to approximately 15.8% from 11.7%. Interest expense was $321 million versus $319 million, while income taxes were $286 million versus $153 million. The effective tax rate increased to approximately 31% from 26%, partly reflecting the relationship between pretax income and wind production tax credits.
- Balance sheet: Total assets were $74.929 billion at March 31, 2015, unchanged from December 31, 2014. Long-term debt, including current maturities, was approximately $27.7 billion; total equity was $20.464 billion.
- Liquidity: NEE reported approximately $6.6 billion of net available liquidity, including approximately $2.8 billion attributable to FPL. Period-end cash was $469 million and short-term debt was approximately $1.745 billion.
- Dividends: NEE paid $341 million of common-stock dividends and declared dividends of $0.770 per share, up from $0.725 in the prior-year quarter.
FPL results
| Metric | 2015 Q1 | 2014 Q1 | Change |
|---|---|---|---|
| Operating revenues | $2.541 billion | $2.535 billion | +$6 million |
| Operating income | $667 million | $632 million | +$35 million |
| Net income | $359 million | $347 million | +$12 million |
| Operating cash flow | $952 million | $875 million | +$77 million |
| Capital expenditures and nuclear fuel purchases | $765 million | $1.067 billion | -$302 million |
- FPL’s net income benefited primarily from approximately $20 million of higher earnings on plant in service and $6 million from increased wholesale services.
- Average customer accounts increased 1.4%, while average usage per retail customer declined 0.5%.
- Fuel, purchased power and interchange expense declined $31 million to $1.005 billion, primarily because of lower fuel and energy prices, partly offset by higher energy sales and recognition of deferred retail fuel costs.
- FPL continued earning an 11.50% regulatory return on equity under its rate agreement. Reserve amortization was approximately $99 million, compared with $125 million in the prior-year quarter; approximately $179 million remained available for future amortization.
- FPL’s March 31, 2015 balance sheet included $39.553 billion of assets, $9.381 billion of long-term debt and $14.060 billion of common equity.
Material changes versus the prior comparable period
- NEE earnings increased substantially, driven mainly by NEER’s $192 million increase in net income and FPL’s $12 million increase.
- NEER benefited from a $146 million after-tax improvement in non-qualifying hedge activity, higher customer supply and proprietary trading results, new investments, and improved market conditions. NEER’s net income increased to $278 million from $86 million.
- NEER added approximately 1,467 MW of wind generation and 545 MW of solar generation during or after the comparable prior-year period. Existing-asset results declined, including approximately $59 million from weaker wind resources.
- NEE operating revenues included a $226 million net gain from derivative activity in the quarter, compared with a $298 million net loss in the prior-year quarter. These mark-to-market results can create significant period-to-period earnings volatility.
- The 2014 quarter included a $21 million pretax gain, or $12 million after tax, related to the Maine fossil assets; there was no comparable gain in 2015.
- 2015 included $4 million of pretax merger-related costs associated with the proposed Hawaiian Electric transaction.
- Operating cash flow improved despite lower capital spending. NEE used $1.564 billion in investing activities and provided $275 million in financing activities, resulting in a $108 million decrease in cash.
Guidance, outlook and capital plans
- For 2015 through 2018, FPL expects 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.
- For 2015 through 2018, NEER expects capital investment of approximately $13.4 billion to $14.8 billion, including 3,000–3,300 MW of new wind generation, 1,600–1,800 MW of new solar generation, gas infrastructure, nuclear fuel and maintenance.
- Corporate and Other expects approximately $2.9 billion to $3.1 billion of capital investment during 2015–2018, primarily for natural-gas pipelines and transmission facilities.
- FPL was evaluating alternatives to meet an expected 2019 generation need, including a proposed approximately 1,620 MW natural-gas combined-cycle unit and third-party power-purchase proposals. FPL planned to select an option before the end of July 2015.
- FPL announced plans to replace 44 gas turbines totaling approximately 1,700 MW with lower-emission combustion turbines and upgrade additional capacity by December 2016.
- NEER sold a 250 MW Texas wind facility and an approximately 20 MW California solar facility to affiliates of NextEra Energy Partners. A further sale of four wind facilities totaling approximately 664 MW was expected in the second quarter of 2015.
Risks, contingencies and unusual items
- Spain solar projects: Project-level financing remained subject to events of default and debt-service-coverage issues. Current maturities of project debt were $575 million and related interest-rate swap liabilities were $127 million at March 31, 2015. Project subsidiaries commenced liquidation proceedings on April 23, 2015; lenders had not accelerated the debt as of the filing, but restructuring and lender remedies remained uncertain.
- Turkey Point cooling system: Elevated cooling-canal temperatures could require reduced nuclear output or shutdown if permitted limits are exceeded, unless NRC relief is obtained.
- Natural-gas pipeline commitments: FPL’s long-term transportation agreements with Sabal Trail and Florida Southeast Connection are contingent on regulatory approvals and construction completion. Corporate and Other included approximately $2.2 billion of remaining pipeline construction commitments.
- Coal facility purchase: FPL agreed to purchase a 250 MW Jacksonville facility for approximately $521 million, subject to FPSC approval. The transaction was expected to close by October 2015 and would terminate approximately $1.515 billion of remaining purchased-power obligations.
- Legal proceedings: The filing discusses Clean Air Act litigation involving Scherer Unit No. 4 and an Adelphia bankruptcy claim. In March 2015, a federal district court affirmed findings in NEE’s favor in the Adelphia matter; Adelphia appealed in April 2015. Management did not expect the ultimate resolution of disclosed proceedings to have a material adverse effect, although outcomes were uncertain.
- Derivative and collateral exposure: A downgrade to below investment grade could require approximately $2.6 billion of collateral for NEE subsidiaries, including approximately $700 million for FPL. Additional collateral requirements could arise from financial-ratio or cross-default provisions.
- Nuclear and environmental exposure: NEE participates in nuclear insurance and retrospective assessment programs and maintains limited property insurance for certain transmission and distribution assets. Environmental regulation, nuclear outages, severe weather, commodity prices, counterparty performance, cyber threats and access to capital markets remain material risks.
- The filing states that there were no material changes to the risk factors disclosed in the 2014 Form 10-K. Management concluded that disclosure controls were effective and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Whether NEE’s earnings growth is sustainable after excluding derivative mark-to-market gains, merger costs, tax credits, the prior-year Maine fossil gain and Spain solar results.
- The status and financial consequences of the Spain solar financing restructuring and liquidation proceedings.
- FPSC and FERC approvals, construction progress and final economics for the pipeline projects and FPL’s proposed generation projects.
- FPL’s ability to maintain its regulatory return and use remaining reserve amortization under the 2012 rate agreement.
- Actual capital expenditures, financing needs and leverage relative to the $13.9–$15.6 billion FPL and $13.4–$14.8 billion NEER investment ranges.
- Exposure to collateral calls, derivative valuation changes, commodity prices, interest rates and credit-rating changes.
- Potential effects of Turkey Point cooling-canal temperatures, nuclear outages, environmental proceedings and severe weather.