Business Context and Reporting Period
NextEra Energy, Inc. (NEE) filed a combined Form 10-K with wholly owned Florida Power & Light Company (FPL) for the fiscal year ended December 31, 2016. NEE operates primarily through FPL, a rate-regulated Florida electric utility, and NextEra Energy Resources (NEER), a competitive renewable, generation, trading and gas-infrastructure business. The filing includes unaudited fourth-quarter data but is principally an annual report.
- NEE had approximately 45,900 MW of generating capacity, more than 5.4 million customer accounts and approximately 14,700 employees.
- Approximately 98% of 2016 generation came from renewable, nuclear and natural-gas facilities.
- FPL served approximately 4.9 million customer accounts and about 10 million people in Florida.
Financial Performance and Key Metrics
| Metric | 2016 | 2015 | Change |
|---|---|---|---|
| Operating revenues | $16.155 billion | $17.486 billion | Down $1.331 billion |
| Operating income | $4.608 billion | $4.632 billion | Down $24 million |
| Net income | $3.005 billion | $2.762 billion | Up $243 million |
| Net income attributable to NEE | $2.912 billion | $2.752 billion | Up $160 million |
| Diluted EPS | $6.25 | $6.06 | Up $0.19 |
| Operating cash flow | $6.336 billion | $6.116 billion | Up $220 million |
| Capital expenditures and investments | $9.636 billion | $8.377 billion | Up $1.259 billion |
| Long-term debt, excluding current maturities | $27.818 billion | $26.681 billion | Up $1.137 billion |
- NEE operating margin was approximately 28.5% in 2016 versus 26.5% in 2015; net income attributable to NEE represented approximately 18.0% of revenue versus 15.7%.
- FPL net income increased to $1.727 billion from $1.648 billion. FPL revenue declined to $10.895 billion from $11.651 billion, primarily because lower fuel prices reduced pass-through fuel-recovery revenue.
- NEER net income attributable to NEE increased to $1.125 billion from $1.092 billion, despite lower revenue and unfavorable non-qualifying hedge results.
- Cash and cash equivalents were $1.292 billion at year-end, compared with $571 million in 2015. Net available liquidity for FPL and NEECH was reported at approximately $8.639 billion as of February 10, 2017.
- NEE's total assets increased to $89.993 billion from $82.479 billion, while total equity increased to $25.331 billion from $23.112 billion.
- Common dividends paid increased to $3.48 per share from $3.08. In February 2017, NEE announced an increase in the quarterly dividend from $0.87 to $0.9825 per share.
Material Changes Versus the Prior Comparable Period
- Revenue decreased primarily because lower fuel and commodity prices reduced FPL cost-recovery revenues and NEER experienced unfavorable mark-to-market hedge movements.
- FPL earnings benefited from continued investment in rate base, including the Port Everglades Clean Energy Center, and an 11.50% earned regulatory ROE. Average FPL customer accounts grew 1.4%, but usage per retail customer declined 2.1% because of milder weather and hurricane-related interruptions.
- NEER added approximately 1,465 MW of U.S. wind capacity and 980 MW of U.S. solar capacity during 2016. New investments contributed approximately $293 million of incremental after-tax earnings.
- NEER completed sales of natural-gas generation assets totaling 3,724 MW and recorded approximately $219 million of after-tax gains. The Texas pipeline contingent consideration was revalued, increasing after-tax earnings by approximately $80 million.
- NEER's earnings were reduced by approximately $408 million from the year-over-year change in non-qualifying hedge activity, reflecting a 2016 loss compared with a 2015 gain.
- FPL incurred approximately $315 million of eligible restoration costs from Hurricanes Hermine and Matthew. Its storm reserve was fully depleted, leaving a $203 million regulatory asset at December 31, 2016.
- NEE recorded $135 million of merger-related expenses, including costs related to the terminated Hawaiian Electric Industries transaction and the proposed Oncor transactions.
Guidance, Outlook, Commentary and Risks
- FPL's 2016 rate agreement, effective January 2017 through at least December 2020, provides for annualized base-revenue increases of $400 million in 2017, $211 million in 2018 and $200 million when the approximately 1,750 MW Okeechobee Clean Energy Center enters service, expected in mid-2019.
- FPL may add up to 300 MW of solar generation annually from 2017 through 2020, subject to specified conditions and a $1,750 per kW installed-cost cap.
- FPL plans approximately $21.210 billion of capital expenditures for 2017-2021; NEER plans approximately $6.010 billion, primarily for wind, solar, nuclear and natural-gas pipeline projects.
- NEER expects to add approximately 2,400 to 4,100 MW of contracted wind generation, 1,600 MW of wind repowering and 400 to 1,300 MW of contracted solar generation during 2017-2018.
- NEE proposed acquiring Energy Future Holdings and related interests in Oncor. Total consideration under the principal agreement was approximately $9.796 billion, with additional Oncor-related agreements totaling approximately $2.4 billion. Closing remained subject to regulatory and tax approvals; management expected completion in the first half of 2017.
- In January 2017, NEE completed the sale of FPL FiberNet for approximately $1.1 billion of net cash proceeds after repayment of $370 million of debt. The company expected an approximately $700 million after-tax gain in the first quarter of 2017.
- Key risks include extensive regulatory oversight and possible cost disallowances, changes to renewable-energy incentives, commodity and interest-rate volatility, nuclear outages and decommissioning obligations, hurricanes and other severe weather, cyberattacks, counterparty exposure, capital-market access, credit-rating changes and execution or approval risks for major projects and acquisitions.
- FPL's 2016 rate agreement was challenged by the Sierra Club in January 2017; the appeal was pending before the Florida Supreme Court.
- The independent auditor issued unqualified opinions on NEE's and FPL's financial statements and internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the proposed Oncor acquisition closed on the expected timetable and the final purchase price, financing mix and regulatory conditions.
- Actual 2017-2021 capital spending, project execution and the in-service timing and cost of the Okeechobee facility, solar additions and NEER renewable projects.
- FPL's recovery of hurricane restoration costs and the outcome of the appeal of the 2016 rate agreement.
- The sustainability of earnings excluding the $219 million after-tax asset-sale gains, $80 million contingent-consideration benefit and volatile hedge-related items.
- Debt maturities, refinancing needs, credit ratings, collateral requirements and the effect of the proposed Oncor financing on leverage and liquidity.
- Changes in renewable tax credits, environmental rules, wholesale power prices, natural-gas prices and NEER's gas-infrastructure asset values.
- Progress on FPL FiberNet proceeds and the expected first-quarter 2017 gain.
- The filing text does not provide a single consolidated adjusted-earnings figure or a company-wide EBITDA measure; investors should reconcile management's non-GAAP adjusted earnings to GAAP net income.