NextEra Energy, Inc. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2013. The combined filing covers NextEra Energy, Inc. (NEE) and its wholly owned regulated utility subsidiary, Florida Power & Light Company (FPL). NEE's principal businesses are FPL, a Florida rate-regulated electric utility serving approximately 4.6 million customer accounts, and NextEra Energy Resources (NEER), a competitive power-generation and renewable-energy business.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| NEE operating revenues | $3.833 billion, versus $3.667 billion | $7.112 billion, versus $7.038 billion |
| NEE net income | $610 million, versus $607 million | $883 million, versus $1.068 billion |
| NEE diluted EPS | $1.44, versus $1.45 | $2.08, versus $2.57 |
| NEE operating income | $981 million, versus $1.000 billion | $1.415 billion, versus $1.803 billion |
| FPL operating revenues | $2.696 billion, versus $2.580 billion | $4.885 billion, versus $4.804 billion |
| FPL net income | $391 million, versus $353 million | $679 million, versus $592 million |
| FPL operating income | $724 million, versus $662 million | $1.267 billion, versus $1.143 billion |
Margins: NEE operating margin was approximately 25.6% for the quarter and 19.9% year to date, compared with approximately 27.3% and 25.6%, respectively, in the prior-year periods. FPL operating margin was approximately 26.9% for the quarter and 25.9% year to date, compared with approximately 25.7% and 23.8%.
- Cash flow: NEE generated $2.250 billion of operating cash flow in the first six months, up from $1.928 billion. FPL generated $1.546 billion, up from $1.267 billion.
- Capital investment: NEE used $2.785 billion in investing activities, including $3.154 billion of capital expenditures, independent power investments and nuclear fuel purchases. FPL capital expenditures and nuclear fuel purchases totaled approximately $1.506 billion.
- Liquidity: NEE reported approximately $6.8 billion of total net available liquidity at June 30, 2013, including $2.9 billion attributable to FPL. Consolidated cash and cash equivalents were $411 million; FPL cash was $30 million.
- Debt: NEE long-term debt, including current maturities, totaled approximately $27.183 billion; FPL's totaled $8.853 billion. NEE issued $2.862 billion and retired $1.425 billion of long-term debt during the first six months. FPL issued $498 million and retired $427 million.
- Dividends: NEE paid $557 million of common dividends in the first six months, or $1.32 per share, versus $500 million, or $1.20 per share, in the prior-year period.
- Balance sheet: NEE total assets were $65.217 billion and common shareholders' equity was $16.601 billion at June 30, compared with $64.439 billion and $16.068 billion at December 31, 2012.
Material changes versus the prior comparable period
- Quarterly NEE net income increased modestly by $3 million, while diluted EPS declined one cent because of higher shares outstanding. FPL earnings increased $38 million, primarily from higher earnings on a larger regulated plant-in-service base and lower operating costs.
- Year-to-date NEE net income declined $185 million, primarily because of NEER performance. NEER net income fell to $189 million from $472 million, despite contributions from new wind and solar investments.
- NEER recorded a $300 million impairment charge, or $342 million after tax, on solar thermal projects in Spain following changes in Spanish renewable-energy laws.
- NEE recorded a $188 million after-tax gain from discontinued operations, consisting principally of a $231 million gain on the sale of hydropower assets, partly offset by a $43 million after-tax write-down associated with Maine fossil plants.
- NEE's year-to-date effective tax rate increased to approximately 35% from 27%, mainly because of a $132 million valuation allowance on deferred tax assets related to the Spain solar projects.
- Unrealized mark-to-market results from non-qualifying hedges shifted from gains in 2012 to losses in 2013, reducing year-to-date results by approximately $161 million after tax versus the prior period.
- FPL's retail base revenues increased, supported by new rates under its 2012 rate agreement, recovery related to new nuclear capacity, and the April 2013 commercial operation of the approximately 1,210 MW Cape Canaveral combined-cycle unit. Lower fuel prices and the absence of certain prior-year nuclear outage costs also benefited FPL.
Guidance, outlook, risks and unusual items
- FPL expects a 2013 regulatory return on equity of approximately 11.0% to 11.25%. The filing states that FPL earned an 11.0% regulatory ROE in the periods presented.
- NEE and FPL expect to fund ongoing capital requirements through operating cash flow, debt and equity-market access while maintaining a strong investment-grade credit profile. Estimated capital expenditures from the remainder of 2013 through 2017 are $10.620 billion for FPL, $2.635 billion for NEER and $345 million for Corporate and Other.
- NEE expects additional renewable and infrastructure investment, including up to 1,500 MW of U.S. wind generation through 2014, incremental solar development and approximately $200 million to $250 million of annual net gas-infrastructure investment through 2016.
- The Spain solar projects experienced financing defaults following changes in Spanish law. Approximately $677 million of project debt and $91 million of related derivative liabilities were classified as current at June 30. NEECH is litigating whether its guarantee is limited to approximately $17 million of remaining unfunded equity commitments or extends to project debt, swap breakage costs and other amounts. The lenders disputed NEECH's position, and the filing states that restructuring was not assured.
- FPL announced proposed natural-gas pipeline projects with estimated capital expenditures of approximately $1.6 billion for its relevant interests. The commitments remain subject to FPSC and FERC approvals and construction conditions.
- Key risks include extensive regulatory oversight and cost-recovery decisions, commodity-price and derivative volatility, interest rates, counterparty credit, nuclear operations and insurance, severe weather, environmental regulation, cyber and information-technology risks, construction execution, tax-credit availability and access to capital markets.
- The filing identifies no material changes to the risk factors reported in the 2012 Form 10-K. Management concluded that disclosure controls were effective and that no material change occurred in internal control over financial reporting.
Investor verification priorities
- Verify the ultimate restructuring, litigation and guarantee exposure associated with the Spain solar-project financing, including the $677 million debt and $161 million of cited potential swap breakage costs.
- Reconcile GAAP earnings with management's adjusted earnings, particularly the Spain impairment, discontinued-operations gain and non-qualifying hedge mark-to-market effects.
- Assess whether FPL's expected 11.0% to 11.25% regulatory ROE and rate-agreement recovery remain achievable, including the pending appeal of the 2012 rate agreement.
- Review funding requirements for FPL, NEER and proposed pipeline projects against operating cash flow, available liquidity, debt maturities and credit-rating requirements.
- Monitor exposure to derivative collateral calls: a downgrade below investment grade could require approximately $2.2 billion of collateral for applicable NEE subsidiaries, including approximately $0.5 billion for FPL.
- Evaluate sensitivity to interest rates, equity markets, weather, fuel and power prices, renewable tax incentives, nuclear outages and environmental rules.