NextEra Energy, Inc. Form 10-Q Summary
Business context and reporting period
Combined quarterly report for NextEra Energy, Inc. (formerly FPL Group, Inc.) and Florida Power & Light Company (FPL) for the quarter and six months ended June 30, 2010. NextEra Energy operates through FPL, a regulated Florida electric utility, and NextEra Energy Resources, a competitive power and renewable-energy business. The financial statements are unaudited.
Key financial metrics
| Metric | Three months ended June 30, 2010 | Three months ended June 30, 2009 | Six months ended June 30, 2010 | Six months ended June 30, 2009 |
|---|---|---|---|---|
| NextEra Energy operating revenues | $3,591 million | $3,811 million | $7,213 million | $7,515 million |
| NextEra Energy operating income | $709 million | $605 million | $1,648 million | $1,188 million |
| NextEra Energy net income | $417 million | $370 million | $973 million | $734 million |
| NextEra Energy diluted EPS | $1.01 | $0.91 | $2.37 | $1.81 |
| FPL operating revenues | $2,580 million | $2,864 million | $4,908 million | $5,437 million |
| FPL operating income | $501 million | $396 million | $894 million | $658 million |
| FPL net income | $265 million | $213 million | $456 million | $340 million |
NextEra Energy operating margin was approximately 19.7% in the second quarter and 22.8% for the six-month period, compared with approximately 15.9% and 15.8%, respectively, in the prior-year periods. Net margin was approximately 11.6% for the quarter and 13.5% year to date. Revenue declined approximately 6% in the quarter and 4% year to date, while net income increased approximately 13% and 33%, respectively.
- FPL net income increased $52 million in the quarter and $116 million year to date. Drivers included higher customer usage, base-rate increases associated with West County Energy Center Units 1 and 2, the March 2010 rate order, and higher cost-recovery clause results.
- NextEra Energy Resources net income was $154 million in the quarter, down $9 million, and $521 million year to date, up $130 million. Year-to-date growth reflected new investments, asset-sale gains, and favorable derivative mark-to-market results, partly offset by weaker existing-asset performance and higher growth-related costs.
- NextEra Energy generated $1,748 million of operating cash flow in the first six months, compared with $2,144 million in 2009. Investing cash outflow was $2,283 million, including $1,462 million of FPL capital expenditures and $1,168 million of NextEra Energy Resources investments, partly offset by $511 million of Recovery Act cash grants.
- Financing cash inflow was $1,126 million, including $1,585 million of long-term debt issuance, $190 million from the sale of differential membership interests, and $69 million from common-stock issuance. Common-stock dividends were $410 million.
- Cash and cash equivalents increased from $238 million at December 31, 2009 to $829 million at June 30, 2010. FPL cash increased from $83 million to $379 million.
- At June 30, 2010, NextEra Energy reported total assets of $51.2 billion, common shareholders’ equity of $13.5 billion, long-term debt of $17.2 billion, commercial paper of $1.7 billion, and total current liabilities of $7.1 billion. FPL reported assets of $28.4 billion, equity of $9.0 billion, long-term debt of $6.3 billion, and commercial paper of $639 million.
- Net available liquidity was approximately $5.2 billion for NextEra Energy, including $2.7 billion for FPL. Management stated that FPL and FPL Group Capital remained able to access commercial paper and short- and long-term capital markets.
Material changes versus the prior comparable period
- Lower fuel prices and higher energy sales reduced FPL fuel and energy charges, while FPL’s fuel revenues declined because of lower fuel factors and a $404 million customer refund of prior-year fuel overrecoveries.
- FPL operations and maintenance expense increased by $48 million in the quarter and $82 million year to date, including a $20 million workforce-reduction charge and higher generation, distribution, employee-benefit, and insurance costs.
- FPL depreciation and amortization expense decreased $80 million in the quarter and $101 million year to date, primarily due to the FPSC rate order, amortization of a depreciation reserve surplus, and lower pass-through costs.
- NextEra Energy’s year-to-date results benefited from $131 million of after-tax net unrealized mark-to-market gains from non-qualifying hedges, compared with a $1 million loss in the prior-year period. The quarter included a $36 million after-tax loss from this category.
- NextEra Energy discontinued hedge accounting for commodity cash-flow hedges in January 2010, which may increase earnings volatility.
- Interest expense increased to $247 million in the quarter and $485 million year to date, from $215 million and $426 million, respectively, primarily because of higher average debt balances.
- Accumulated other comprehensive income declined to $49 million from $169 million at year-end 2009, reflecting losses on cash-flow hedges, securities, and foreign-currency translation.
Outlook, management commentary, risks, and unusual items
- The March 2010 FPSC rate order increased FPL annualized retail base revenues by approximately $75 million, established a 10.0% regulatory ROE with a plus-or-minus 100-basis-point range, and required depreciation-reserve surplus reductions over 2010–2013. FPL’s motion for reconsideration remained pending at quarter-end.
- FPL resumed modernization of its Cape Canaveral and Riviera Beach plants, targeted for service in 2013 and 2014. West County Energy Center Unit 3 was expected in service by mid-2011; additional nuclear capacity at St. Lucie and Turkey Point was projected for 2011–2013.
- FPL deferred consideration of a third natural-gas pipeline until 2011 because revised load forecasts indicated additional capacity would not be needed until 2015–2016. Construction of two additional Turkey Point nuclear units was not expected to proceed until at least receipt of combined operating licenses; potential in-service dates were 2022 and 2023.
- Planned capital expenditures from the remainder of 2010 through 2014 totaled approximately $10.8 billion for FPL, $3.5 billion for NextEra Energy Resources, and $160 million for Corporate and Other. NextEra Energy Resources planned approximately 3,500–5,000 MW of new wind and 400–600 MW of new solar capacity through 2014.
- Significant risks include regulation and cost recovery, environmental and greenhouse-gas requirements, nuclear operations and decommissioning, weather and customer usage, construction execution, renewable-policy support, credit and counterparty risk, capital-market access, derivatives and collateral requirements, cyber and operational disruption, and insurance limitations.
- Derivative liabilities with credit-related contingent features had aggregate fair value of approximately $1.6 billion for NextEra Energy and $0.3 billion for FPL. A downgrade to BBB could require total collateral of approximately $450 million for NextEra Energy and $130 million for FPL; below-investment-grade ratings could increase those amounts to approximately $2.2 billion and $0.8 billion, respectively.
- Legal and regulatory matters included the Scherer Unit 4 Clean Air Act proceeding, the Adelphia fraudulent-transfer litigation, and a Texas renewable-energy-credit dispute in which an appellate court ruled that damages may be payable; management believed the matters were defensible and did not expect a material adverse resolution based on information then available.
- The filing identifies no material change in previously disclosed risk factors. Disclosure controls were deemed effective, and no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Confirm the final outcome and financial effect of FPL’s pending FPSC motion regarding rate-order calculations and depreciation.
- Assess the sustainability of earnings excluding derivative mark-to-market gains and other unusual items, including tax credits and asset-sale gains.
- Monitor cash flow conversion, capital spending, debt maturities, commercial-paper reliance, and the $5.2 billion net liquidity position.
- Review collateral exposure from derivatives and potential credit-rating changes, including the stated $2.2 billion below-investment-grade collateral scenario.
- Evaluate execution, permitting, and funding requirements for FPL modernization, nuclear, solar, transmission, and NextEra Energy Resources renewable projects.
- Track legal proceedings, proposed air-quality regulations, nuclear-license renewals, storm exposure, uninsured property risk, and other environmental contingencies.
- Verify the effect of the January 2010 commodity-hedge accounting change on future earnings volatility and comparability.