NEXTERA ENERGY INC quarterly report, Q1 FY2022

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Business Context and Reporting Period

NextEra Energy, Inc. (NEE) and its wholly owned subsidiary Florida Power & Light Company (FPL) filed a combined unaudited Form 10-Q for the three months ended March 31, 2022. NEE operates primarily through FPL, a regulated Florida electric utility serving more than 5.7 million customer accounts, and NextEra Energy Resources (NEER), a competitive renewable generation, energy trading, gas infrastructure and transmission business.

Effective January 1, 2022, FPL became one reportable segment following implementation of unified rates and tariffs. Prior-period segment data was retrospectively adjusted.

Financial Results and Key Metrics

NextEra Energy, Inc.

  • Operating revenue was $2.890 billion, down from $3.726 billion in the prior-year quarter.
  • Operating loss was $775 million, compared with operating income of $669 million.
  • Net loss attributable to NEE was $451 million, or $0.23 diluted loss per share, versus net income of $1.666 billion, or $0.84 diluted earnings per share.
  • Net cash provided by operating activities was $1.962 billion, compared with $1.292 billion.
  • Capital expenditures, independent power and other investments, and nuclear fuel purchases totaled $4.893 billion.
  • Cash, cash equivalents and restricted cash ended at $2.738 billion, compared with $2.165 billion at March 31, 2021. Cash and cash equivalents were $1.477 billion.
  • Total assets were $144.945 billion and total liabilities were $100.693 billion at March 31, 2022.
  • Long-term debt, including the current portion, was $56.538 billion, compared with $52.745 billion at December 31, 2021.
  • NEE reported approximately $10.3 billion of net available liquidity, including FPL and NEECH facilities, cash, and after short-term borrowings and amounts due under the cash sweep agreement.

Florida Power & Light Company

  • Operating revenue was $3.712 billion, up from $2.970 billion.
  • Net income was $875 million, up from $777 million.
  • Operating income was $1.243 billion, compared with $1.114 billion.
  • Net cash provided by operating activities was $1.531 billion, compared with $1.274 billion.
  • Capital expenditures were $2.167 billion, compared with $1.520 billion.
  • Long-term debt, including the current portion, was $20.993 billion, compared with $18.510 billion at December 31, 2021.
  • Cash, cash equivalents and restricted cash ended at $97 million, compared with $138 million at March 31, 2021.
  • FPL paid a $2.0 billion dividend to NEE during the quarter.

Material Changes Versus the Prior Comparable Period

  • NEE’s results deteriorated primarily because of unfavorable non-qualifying hedge activity, losses on equity securities in NEER’s nuclear decommissioning funds, and the Mountain Valley Pipeline impairment.
  • NEER reported a net loss attributable to NEE of $1.499 billion, compared with net income of $491 million. The after-tax decline included approximately $1.276 billion from changes in non-qualifying hedge activity, $139 million from nuclear decommissioning fund securities and other-than-temporary impairment effects, and a $607 million Mountain Valley Pipeline impairment charge.
  • NEER’s operating revenue declined by approximately $1.581 billion, primarily due to approximately $2.150 billion of losses from non-qualifying commodity hedges, partly offset by stronger existing generation and storage results.
  • FPL’s earnings increased due principally to continued investment in plant and a larger retail rate base. Average retail rate base increased approximately $4.1 billion year over year.
  • FPL revenue increased primarily from higher fuel revenues of approximately $385 million, new retail base rates contributing approximately $132 million, favorable weather, 1.6% customer-account growth and higher cost-recovery revenues.
  • Higher FPL fuel and purchased-power costs, depreciation and amortization, and taxes partly offset the revenue increase.
  • NEE’s operating cash flow improved despite the GAAP loss, reflecting substantial noncash derivative losses, depreciation and equity-method loss adjustments.
  • NEE issued $4.309 billion of long-term debt and increased commercial paper and other short-term debt by approximately $1.073 billion, while paying $836 million of common-stock dividends.

Guidance, Outlook, Commentary and Unusual Items

  • Management uses adjusted earnings to evaluate underlying performance, but the filing does not provide a new full-year earnings guidance figure in the supplied text.
  • NEE recorded an approximately $0.8 billion pretax impairment, or approximately $607 million after tax, related to its Mountain Valley Pipeline investment. The impairment fully wrote off the approximately $0.6 billion investment carrying amount and recognized an approximately $0.2 billion liability for estimated future dismantlement costs.
  • Derivative mark-to-market effects caused significant earnings volatility. NEE recorded approximately $2.389 billion of commodity-derivative losses in operating revenues for the quarter, compared with $488 million of losses in the prior-year quarter.
  • FPL earned an approximately 11.60% regulatory ROE in both periods. FPL recorded approximately $238 million of reserve amortization in 2022, including a $114 million one-time adjustment required under the 2021 rate agreement.
  • NEE and FPL were monitoring a U.S. Department of Commerce investigation involving potential antidumping and countervailing duties on solar panels from Malaysia, Vietnam, Thailand and Cambodia, as well as potential impacts from the Uyghur Forced Labor Prevention Act. Management reported no material financial impact to date but identified potential disruption to solar development and construction.
  • NEE expects substantial capital investment. Estimated capital expenditures for the remainder of 2022 through 2026 were $38.310 billion for FPL and $11.200 billion for NEER, subject to review and potential changes.
  • On April 1, 2022, an NEER subsidiary entered into an agreement with the Department of Justice concerning accidental eagle fatalities at wind facilities. The agreement included approximately $6 million of fines and restitution, five years of probation, an eagle management plan and pursuit of permits. Management does not expect a material adverse financial impact.
  • The NRC reversed a prior decision concerning Turkey Point license renewal and directed restoration of prior license expiration dates of 2032 and 2033 for Units 3 and 4. Management does not expect a material effect on operations or financial statements.

Principal Risks and Contingencies

  • Regulatory recovery, rate decisions, environmental requirements, tax policy and renewable-energy incentives could materially affect results.
  • Commodity-price volatility, derivative valuation, counterparty performance and collateral requirements are significant risks. A downgrade below investment grade could require approximately $3.9 billion of additional collateral for applicable NEE subsidiaries; other contractual triggers could require up to an additional $1.1 billion.
  • NEE’s energy-marketing and trading credit exposure, after collateral and netting, was approximately $2.8 billion, including $60 million for FPL.
  • NEE had approximately $3.382 billion of guarantees and related support primarily for NEP subsidiaries, approximately $5.2 billion of guarantees for purchased-power, nuclear and other obligations, $4.1 billion of standby letters of credit and $918 million of surety bonds.
  • Nuclear facilities are subject to operational, insurance, decommissioning, regulatory and retrospective-assessment risks. NEE’s potential retrospective nuclear liability assessment was up to approximately $963 million per incident, including up to $550 million for FPL.
  • FPL and NEER face supply-chain, permitting and construction risks, including solar-module availability and potential tariffs. Actual capital expenditures may differ materially from estimates.
  • NEE does not carry property insurance for a substantial portion of transmission, distribution and natural-gas-pipeline assets; uninsured losses could affect liquidity and results.

Investor Verification Checklist

  • Reconcile GAAP earnings with management’s adjusted-earnings presentation, particularly the $1.131 billion after-tax impact from non-qualifying hedge activity and the $607 million Mountain Valley Pipeline impairment.
  • Review derivative positions, valuation assumptions, collateral requirements and sensitivity to commodity, interest-rate and equity-price changes.
  • Assess the sustainability of FPL’s earnings growth, rate-base expansion, reserve amortization and 11.60% regulatory ROE.
  • Evaluate funding needs for the disclosed $49.510 billion of estimated FPL and NEER capital expenditures through 2026.
  • Monitor solar supply-chain investigations, renewable tax incentives, permitting and the potential effect on project timing and costs.
  • Review debt maturities, credit ratings, available liquidity and contingent collateral obligations.
  • Track Mountain Valley Pipeline legal and regulatory developments, NEER’s guarantees to NEP, nuclear liabilities and the eagle-related probation agreement.