Business Context and Reporting Period
Combined unaudited Form 10-Q filings for NextEra Energy, Inc. and its wholly owned regulated utility, Florida Power & Light Company (FPL), for the three months ended March 31, 2011. NextEra Energy reports FPL, NextEra Energy Resources, and Corporate and Other. FPL's results are presented in a reduced disclosure format.
Key Financial Metrics
| Metric | NextEra Energy 2011 | NextEra Energy 2010 | FPL 2011 | FPL 2010 |
|---|---|---|---|---|
| Operating revenues | $3,134 million | $3,622 million | $2,246 million | $2,328 million |
| Operating income | $428 million | $939 million | $406 million | $393 million |
| Net income | $268 million | $556 million | $205 million | $191 million |
| Net margin | 8.6% | 15.4% | 9.1% | 8.2% |
| Operating margin | 13.7% | 25.9% | 18.1% | 16.9% |
| Net cash from operations | $983 million | $896 million | $632 million | $389 million |
| Capital and other investing cash outflows | $1,077 million | $1,361 million | $554 million | $787 million |
| Cash and cash equivalents at March 31 | $425 million | $1,215 million | $21 million | $590 million |
NextEra Energy had total assets of $53.3 billion, long-term debt of $18.3 billion, current maturities of long-term debt of $1.6 billion, commercial paper of $1.4 billion, and shareholders' equity of $14.6 billion at March 31, 2011. FPL had total assets of $29.0 billion, long-term debt of $6.7 billion, current maturities of $48 million, commercial paper of $431 million, and shareholders' equity of $9.6 billion.
Reported dividends per NextEra Energy common share increased to $0.55 from $0.50. Diluted earnings per share were $0.64 versus $1.36.
At March 31, 2011, consolidated net available liquidity was approximately $5.8 billion, including $2.8 billion for FPL. This included $425 million of cash, $1.4 billion of consolidated commercial paper outstanding, and available revolving credit capacity net of letters of credit.
Material Changes Versus the Prior Comparable Period
- NextEra Energy net income declined $288 million, or approximately 52%, primarily because NextEra Energy Resources recorded a $125 million after-tax loss from unrealized mark-to-market non-qualifying hedges, compared with a $167 million gain in 2010. NextEra Energy Resources net income fell $302 million to $65 million.
- NextEra Energy revenues decreased $488 million, while operating expenses increased $23 million. The decline primarily reflected derivative mark-to-market movements, lower power-marketing revenues, and weaker trading results.
- FPL net income increased $14 million, or approximately 7%, to $205 million. The improvement reflected additional nuclear capacity, solar and environmental cost recovery, higher AFUDC equity, and use of the surplus depreciation credit under the 2010 rate agreement.
- FPL revenue declined $82 million, but fuel and purchased-power expense declined $36 million. The prior-year period included approximately $404 million of customer refunds related to fuel over-recovery; the absence of that refund supported 2011 fuel-recovery revenues.
- Operating cash flow improved at both registrants, principally from net income and working-capital changes. Consolidated financing cash flow fell sharply to $217 million from $1.4 billion, while FPL financing cash flow changed to a $77 million use from a $905 million source.
- NextEra Energy Resources changed the estimated useful lives of most wind-plant equipment from 25 to 30 years. The change reduced first-quarter depreciation by approximately $18 million and increased net income by approximately $11 million, or $0.03 per share. The expected full-year 2011 benefit is $44 million of net income, or $0.11 per share.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- FPL expected cost-recovery clauses to contribute higher earnings in 2011. FPL was constructing the approximately 1,220 MW West County Energy Center Unit 3, expected in service by mid-2011, and planned approximately 400 to 460 MW of nuclear uprates by 2013. Cape Canaveral and Riviera Beach modernization projects were expected in service in 2013 and 2014.
- NextEra Energy Resources planned approximately 3,500 to 5,000 MW of new wind generation and 400 to 600 MW of new solar generation during 2010 through 2014, subject to regulatory approvals, renewable-energy policy support, transmission availability, market demand, supply-chain capacity, and access to capital.
- Planned capital expenditures for the remainder of 2011 through 2015 totaled approximately $12.0 billion for FPL, $5.3 billion for NextEra Energy Resources, and $915 million for Corporate and Other. Management stated that actual expenditures may vary significantly.
- The March 2011 earthquake and tsunami in Japan prompted an NRC review of U.S. nuclear safety requirements. Potential new requirements could affect nuclear uprates, licenses, operations, costs, and capital expenditures, including FPL's proposed additional Turkey Point units. Third parties requested suspension of certain nuclear approvals; the filing states that the timing and outcome were uncertain.
- Proposed EPA rules concerning air toxics and cooling-water intake structures could require additional controls or operational changes at multiple FPL and NextEra Energy Resources facilities. The economic and operational effects were not determinable but could be material.
- Key risks include extensive regulation, cost-recovery delays, environmental compliance, nuclear operations and insurance, severe weather, fuel and commodity-price volatility, counterparty credit risk, derivative collateral requirements, credit-rating changes, capital-market access, and slower customer growth or usage.
- Derivative contracts with credit-related contingent features had approximately $1.5 billion of liability fair value at NextEra Energy and $0.2 billion at FPL. A specified downgrade could require approximately $300 million of collateral for NextEra Energy, including $50 million for FPL; below-investment-grade ratings could increase total collateral requirements to approximately $2.0 billion and $0.6 billion, respectively.
- Notable legal matters included the EPA Clean Air Act case involving Scherer Unit 4, the Adelphia fraudulent-transfer litigation scheduled for trial in September 2011, and the TXU renewable-energy-credit litigation pending before the Texas Supreme Court. Management believed the proceedings were defensible and did not expect their ultimate resolution to have a material adverse effect, although outcomes were uncertain.
- NextEra Energy completed an IRS settlement and closed examinations for specified tax years, reducing gross unrecognized tax benefits by $248 million to $16 million; the settlement did not materially affect net income.
- NextEra Energy's effective tax rate was approximately negative 14%, versus 28% in 2010, due mainly to wind production tax credits, Recovery Act investment tax benefits, and a $26 million state investment-tax-credit valuation allowance reversal.
Most Important Facts for Investors to Verify
- Reconcile GAAP earnings with adjusted earnings by isolating the $125 million after-tax non-qualifying hedge loss and other excluded items.
- Assess the sustainability of FPL's earnings improvement, including the use and remaining availability of surplus depreciation credits and the recovery of fuel, nuclear, solar, and environmental investments.
- Confirm capital-expenditure timing, project approvals, financing needs, and execution risk for FPL's generation projects and NextEra Energy Resources' renewable portfolio.
- Monitor NRC actions following the Japan-related nuclear review and EPA final rules on air toxics and cooling-water intake structures.
- Evaluate liquidity under potential derivative collateral calls, credit-rating downgrades, commodity-price changes, and reduced access to capital markets.
- Review the status and potential exposure of the disclosed legal, environmental, nuclear-insurance, guarantee, and long-term purchase commitments.