NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned regulated utility, Florida Power & Light Company (FPL). NEE's principal businesses are FPL and competitive energy provider NextEra Energy Resources (NEER). Financial statements are unaudited.
Financial performance and position
| NEE consolidated metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|
| Operating revenues | $3,843 million | $4,382 million | $10,881 million | $11,476 million |
| Operating income | $749 million | $911 million | $2,615 million | $2,246 million |
| Net income | $415 million | $407 million | $1,482 million | $1,256 million |
| Diluted EPS | $0.98 | $0.97 | $3.55 | $3.00 |
| Dividends per share | $0.60 | $0.55 | $1.80 | $1.65 |
| Operating margin | 19.5% | 20.8% | 24.0% | 19.6% |
| Net margin | 10.8% | 9.3% | 13.6% | 10.9% |
- Q3 net income increased $8 million, or approximately 2%, despite a $539 million decline in revenue. Nine-month net income increased $226 million, or approximately 18%.
- Q3 operating income declined primarily because of lower NEER results and greater unrealized mark-to-market losses. Nine-month operating income improved because of lower operating expenses, including the absence of 2011 impairment charges.
- NEE generated $3,157 million of operating cash flow in the first nine months, compared with $3,117 million in the prior-year period. Capital expenditures, independent power investments and nuclear fuel purchases were $6,689 million, up from $4,317 million.
- Cash and cash equivalents were $246 million at September 30, 2012, compared with $377 million at December 31, 2011. Net available liquidity was approximately $5.5 billion, including approximately $2.8 billion at FPL.
- Long-term debt was $22,714 million, compared with $20,810 million at year-end 2011. Current liabilities increased to $7,875 million from $6,719 million, including $2,062 million of current maturities of long-term debt.
- Total assets increased to $62,049 million from $57,188 million, while shareholders' equity increased to $15,886 million from $14,943 million.
FPL performance
| FPL metric | Q3 2012 | Q3 2011 | 9M 2012 | 9M 2011 |
|---|
| Operating revenues | $2,975 million | $3,152 million | $7,778 million | $8,200 million |
| Operating income | $719 million | $656 million | $1,862 million | $1,634 million |
| Net income | $392 million | $347 million | $984 million | $852 million |
| Operating margin | 24.2% | 20.8% | 23.9% | 19.9% |
- FPL net income rose $45 million in Q3 and $132 million year to date. Drivers included higher plant investment, use of surplus depreciation credits under the 2010 rate agreement, higher cost-recovery clause results and increased AFUDC equity.
- Average usage per retail customer declined 3.5% in Q3 and 2.6% year to date, partly offset by customer-account growth of 0.7% and 0.6%, respectively.
- FPL operating cash flow increased to $2,302 million from $1,748 million. Capital expenditures increased to $3,061 million from $2,128 million.
NEER and Corporate and Other
- NEER net income decreased $23 million to $44 million in Q3, primarily from higher non-qualifying hedge losses and weaker existing-asset results, partly offset by new investments, improved trading results and the absence of the 2011 generating-asset sale loss.
- NEER net income increased $145 million to $516 million for the first nine months, primarily because the 2011 generating-asset sale loss and impairment charges did not recur, and because of new investments and lower year-to-date hedge losses.
- Corporate and Other reported a Q3 loss of $21 million versus $7 million, and a nine-month loss of $18 million versus income of $33 million. The change included higher interest expense, the absence of a 2011 state tax benefit and a $13 million after-tax impairment of an early-stage technology investment.
Material changes versus the prior comparable periods
- NEE revenue declined 12% in Q3 and 5% year to date, reflecting the sale of five natural gas-fired plants in late 2011, unfavorable power-market conditions and Q3 non-qualifying hedge losses.
- Fuel, purchased power and interchange expense declined $385 million in Q3 and $929 million year to date, primarily because of lower fuel and energy prices and lower sales.
- NEE's Q3 non-qualifying hedge activity produced an after-tax loss of $130 million, compared with a $38 million loss in Q3 2011. The year-to-date loss was $28 million, compared with $85 million in 2011.
- The prior-year periods included a $148 million pretax loss on natural gas-fired generating assets held for sale and a $51 million impairment charge. These items did not recur in 2012.
- NEE issued $4,226 million of long-term debt in the first nine months and issued $386 million of common stock net. It also sold $600 million and $650 million of equity units in May and September 2012, respectively.
Outlook, management commentary and risks
- Management expects FPL cost-recovery clause earnings to be higher in 2012, primarily because of additional nuclear-capacity investments.
- FPL and intervenors submitted a proposed 2012 rate agreement for 2013-2016. It would increase annualized retail base revenues by $378 million beginning in January 2013, establish a 10.70% regulatory ROE with a plus-or-minus 100-basis-point range, and provide mechanisms for recovery of modernization and storm-restoration costs. FPSC approval was pending as of the filing date, and the Florida Office of Public Counsel opposed the agreement.
- FPL planned modernization projects at Cape Canaveral, Riviera Beach and Port Everglades, as well as at least 526 MW of added nuclear capacity at St. Lucie and Turkey Point. The filing estimates total FPL capital expenditures of $9.3 billion from the remainder of 2012 through 2016 and NEER expenditures of $4.2 billion.
- NEER planned approximately 1,500 MW of new U.S. wind generation in 2012, 100 MW in 2013 and approximately 900 MW of new solar generation through 2016. The economics of these projects depend partly on federal production and investment tax credits, whose availability was uncertain for future projects.
- Key risks include extensive regulatory oversight, rate-recovery and prudence challenges, environmental requirements, nuclear operating and decommissioning risks, severe weather, construction and permitting delays, commodity-price volatility, derivative valuation and counterparty risk, credit-rating changes, interest-rate exposure, cybersecurity and access to capital markets.
- At September 30, 2012, derivative contracts with credit-related contingent features could require approximately $350 million of collateral after a specified downgrade and up to approximately $2.2 billion if ratings fell below investment grade, with additional collateral exposure possible under other triggers.
- An NEER subsidiary was not expected to make a January 2013 interest payment on debt associated with a hydro project and could default or face bankruptcy if the debt were not restructured; management did not expect a material effect on NEE.
- Material proceedings included Clean Air Act litigation concerning FPL's interest in Scherer Unit No. 4, the Adelphia fraudulent-transfer litigation, and a TXU contract dispute. Management believed the ultimate resolution of these matters was not expected to have a material adverse effect, although outcomes were uncertain.
- FPL planned to begin retiring and dismantling several fossil units in the fourth quarter of 2012 and expected to reclassify their net book value to a regulatory asset, subject to the requested recovery mechanism.
Investor verification points
- Verify the final FPSC disposition of the proposed 2012 FPL rate agreement and the resulting allowed ROE, base rates and storm-cost recovery terms.
- Assess whether NEER's earnings volatility from non-qualifying hedge mark-to-market losses is temporary or reflects deteriorating underlying asset economics.
- Review the funding plan for the $6.7 billion of 2012 year-to-date investment spending and the projected $13.9 billion of FPL and NEER capital expenditures through 2016.
- Monitor debt maturities, credit ratings, available liquidity and potential collateral requirements under derivative agreements.
- Evaluate exposure to expiring or changing renewable-energy tax incentives, including the federal wind PTC.
- Track nuclear outages, modernization projects, environmental proceedings and the potential hydro-project debt default.
- Reconcile GAAP earnings with management's adjusted-earnings measure, particularly the treatment of hedge valuation changes, impairment items and tax credits.
