NEXTERA ENERGY OVERVIEW
NEE's operating performance is driven primarily by the operations of its two principal businesses, FPL, which serves more than five million customer accounts inFlorida and is one of the largest electric utilities in theU.S. , and NEER, which together with affiliated entities is the world's largest generator of renewable energy from the wind and sun based on 2019 MWh produced on a net generation basis. The table below presents net income (loss) attributable to NEE and earnings (loss) per share attributable to NEE, assuming dilution, by reportable segment, FPL and NEER, as well asGulf Power , acquired inJanuary 2019 (see Note 7 -Gulf Power ), and Corporate and Other, which is primarily comprised of the operating results of other business activities, as well as other income and expense items, including interest expense, and eliminating entries. See Note 13 for additional segment information, including a discussion of a change in segment reporting. The following discussions should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 2019 Form 10-K. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussions, all comparisons are with the corresponding items in the prior year periods. Earnings (Loss) Earnings (Loss) Per Share Attributable to Per Share Attributable to Net Income (Loss) NEE, Net Income (Loss) NEE, Attributable to NEE Assuming Dilution Attributable to NEE Assuming Dilution Three Months Ended June 30, Three Months Ended June 30, Six Months Ended June 30, Six Months Ended June 30, 2020 2019 2020 2019 2020 2019 2020 2019 (millions) (millions) FPL $ 749$ 663 $ 1.52 $ 1.37 $ 1,391 $ 1,251 $ 2.83 $ 2.59 Gulf Power 55 45 0.11 0.09 94 81 0.19 0.17 NEER(a)(b) 481 672 0.97 1.39 799 993 1.62 2.06 Corporate and Other(b) (10 ) (146 ) (0.01 ) (0.29 ) (589 ) (411 ) (1.19 ) (0.85 ) NEE$ 1,275 $ 1,234 $ 2.59 $ 2.56 $ 1,695 $ 1,914 $ 3.45 $ 3.97 ---------------
(a) NEER's results reflect an allocation of interest expense from NEECH based on
a deemed capital structure of 70% debt and differential membership interests
sold by
(b) NEER's and Corporate and Other's results for 2019 were retrospectively
adjusted to reflect a segment change. See Note 13.
Adjusted Earnings
NEE prepares its financial statements under GAAP. However, management uses
earnings adjusted for certain items (adjusted earnings), a non-GAAP financial
measure, internally for financial planning, analysis of performance, reporting
of results to the Board of Directors and as an input in determining
performance-based compensation under NEE's employee incentive compensation
plans. NEE also uses adjusted earnings when communicating its financial results
and earnings outlook to analysts and investors. NEE's management believes that
adjusted earnings provide a more meaningful representation of NEE's fundamental
earnings power. Although these amounts are properly reflected in the
determination of net income under GAAP, management believes that the amount
and/or nature of such items make period to period comparisons of operations
difficult and potentially confusing. Adjusted earnings do not represent a
substitute for net income, as prepared under GAAP.
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Six Months Ended
Three Months Ended June 30, June 30,
2020 2019 2020 2019
(millions)
Net losses associated with non-qualifying hedge
activity(a) $ (127 ) $ (117 ) $ (846 ) $ (483 )
Differential membership interests-related - NEER $ (21 ) $ (22 ) $ (46 ) $ (44 )
NEP investment gains, net - NEER $ (36 ) $ 218 $ (72 ) $ 182
Gain on disposal of a business - NEER(b) $ 16 $ - $ 274 $ -
Change in unrealized gains (losses) on NEER's
nuclear decommissioning funds and OTTI, net - NEER $ 157 $ 31 $ (72 ) $ 116
Operating results of solar projects in Spain - NEER $ - $ 7 $ 1 $ 8
Acquisition-related(c) $ - $ (16 ) $ - $ (58 )
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(a) For the three months ended
and
30, 2020 and 2019,
included in NEER's net income; the balance is included in Corporate and
Other. The change in non-qualifying hedge activity is primarily attributable
to changes in forward power and natural gas prices, interest rates and
foreign currency exchange rates, as well as the reversal of previously
recognized unrealized mark-to-market gains or losses as the underlying
transactions were realized.
(b) See Note 11 - Disposal of Businesses for a discussion of the sale of two
solar generation facilities in
(c) For the three months ended
million of costs were included in
respectively; the remaining balance is included in Corporate and Other. For
the six months ended
of costs were included in
the remaining balance is included in Corporate and Other.
NEE segregates into two categories unrealized mark-to-market gains and losses and timing impacts related to derivative transactions. The first category, referred to as non-qualifying hedges, represents certain energy derivative, interest rate derivative and foreign currency transactions entered into as economic hedges, which do not meet the requirements for hedge accounting or for which hedge accounting treatment was not elected or has been discontinued. Changes in the fair value of those transactions are marked to market and reported in the condensed consolidated statements of income, resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market. As a consequence, NEE's net income reflects only the movement in one part of economically-linked transactions. For example, a gain (loss) in the non-qualifying hedge category for certain energy derivatives is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under GAAP. For this reason, NEE's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance. The second category, referred to as trading activities, which is included in adjusted earnings, represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities. At FPL, substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel clause. See Note 4. RESULTS OF OPERATIONS Summary Net income attributable to NEE for the three months endedJune 30, 2020 was higher than the prior year period by$41 million , reflecting higher results at Corporate and Other,FPL and Gulf Power , partly offset by lower results at NEER. Net income attributable to NEE for the six months endedJune 30, 2020 was lower than the prior year period by$219 million reflecting lower results at NEER and Corporate and Other, partly offset by higher results atFPL and Gulf Power . FPL's increase in net income for the three and six months endedJune 30, 2020 was primarily driven by continued investments in plant in service and other property. During both 2020 and 2019, FPL earned an 11.60% regulatory ROE on its retail rate base, based on a trailing thirteen-month average retail rate base as ofJune 30, 2020 andJune 30, 2019 .
NEER's results decreased for the three months endedJune 30, 2020 primarily reflecting the absence of NEP investment gains recorded upon the sale of ownership interests to NEP inJune 2019 and unfavorable non-qualifying hedge activity, partly offset by favorable changes in the fair value of equity securities in NEER's nuclear decommissioning funds compared to 2019 and higher earnings on new investments and existing generation assets. NEER's results decreased for the six months endedJune 30, 2020 primarily reflecting the absence of NEP investment gains recorded upon the sale of ownership interests to NEP inJune 2019 , unfavorable changes in the fair value of equity securities in NEER's nuclear decommissioning funds compared to 2019 and unfavorable non-qualifying hedge activity, partly offset by the gain recognized on the sale of theSpain projects and higher earnings on new investments and existing generation assets. 39 -------------------------------------------------------------------------------- Corporate and Other's results increased for the three months endedJune 30, 2020 primarily due to favorable non-qualifying hedge activity. Corporate and Other's results decreased for the six months endedJune 30, 2020 primarily due to unfavorable non-qualifying hedge activity, partly offset by the absence of 2019 acquisition-related costs. NEE's effective income tax rates for the three months endedJune 30, 2020 and 2019 were approximately 14% and 10%, respectively. NEE's effective income tax rates for the six months endedJune 30, 2020 and 2019 were approximately (4)% and 10%, respectively. See Note 6 for a discussion of NEE's and FPL's effective income tax rates. OnMay 1, 2020 , NEE, together withFPL and Gulf Power , filed an application with theFERC for approval to mergeGulf Power with and into FPL, with FPL as the surviving entity. See Note 7 - Proposed Merger ofFPL and Gulf Power .
NEE and FPL are closely monitoring the global outbreak of COVID-19 and are taking steps intended to mitigate the potential risks to NEE and FPL posed by COVID-19. See Note 12 - Coronavirus Pandemic.
FPL: Results of Operations
Investments in plant in service and other property grew FPL's average retail rate base for the three and six months endedJune 30, 2020 by approximately$3.4 billion and$3.6 billion , respectively, when compared to the same periods in the prior year, reflecting, among other things, solar generation additions and ongoing transmission and distribution additions. The use of reserve amortization is permitted by aDecember 2016 FPSC final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2016 rate agreement). In order to earn a targeted regulatory ROE, subject to limitations associated with the 2016 rate agreement, reserve amortization is calculated using a trailing thirteen-month average of retail rate base and capital structure in conjunction with the trailing twelve months regulatory retail base net operating income, which primarily includes the retail base portion of base and other revenues, net of O&M, depreciation and amortization, interest and tax expenses. In general, the net impact of these income statement line items must be adjusted, in part, by reserve amortization to earn the targeted regulatory ROE. In certain periods, reserve amortization is reversed so as not to exceed the targeted regulatory ROE. The drivers of FPL's net income not reflected in the reserve amortization calculation typically include wholesale and transmission service revenues and expenses, cost recovery clause revenues and expenses, AFUDC - equity as well as revenue and costs not recoverable from retail customers by the FPSC. During the three and six months endedJune 30, 2020 , FPL recorded reserve amortization of approximately$7 million and$156 million , respectively. During the three and six months endedJune 30, 2019 , FPL recorded the reversal of reserve amortization of approximately$222 million and$66 million , respectively. InMarch 2020 , the FPSC approved FPL's SolarTogether program, a voluntary community solar program that gives FPL customers an opportunity to participate directly in the expansion of solar energy and receive credits on their monthly FPL bill. The program includes the addition of 20 dedicated 74.5 MW solar power plants owned and operated by FPL. As ofJune 30, 2020 , 6 of the 20 plants have been placed into service. The remainder of the plants are expected to be placed into service by mid-2021. Operating Revenues During the three and six months endedJune 30, 2020 , FPL's operating revenues decreased$333 million and$411 million , respectively. The decreases for the three and six months endedJune 30, 2020 reflect lower fuel revenues of approximately$291 million and$431 million , respectively, primarily related to lower fuel and energy prices, including the accelerated flow back of lower expected fuel costs to retail customers inMay 2020 , and lower storm-related revenues. These decreases for the three and six months endedJune 30, 2020 were partly offset by increases of$30 million and$124 million , respectively, in retail base revenues reflecting additional revenues of approximately$11 million and$56 million , respectively, related to retail base rate increases primarily associated with the addition of new solar generation and, for the six months endedJune 30, 2020 , the Okeechobee Clean Energy Center which achieved commercial operation at the end of the first quarter of 2019. Retail base revenues during the three and six months endedJune 30, 2020 were also impacted by a decrease of 2.2% and 0.4%, respectively, in the average usage per retail customer and an increase of 1.5% in the average number of customer accounts for both periods. Fuel,Purchased Power and Interchange Expense Fuel, purchased power and interchange expense decreased$295 million and$439 million for the three and six months endedJune 30, 2020 , respectively, primarily reflecting lower fuel and energy prices. Depreciation and Amortization Expense Depreciation and amortization expense decreased$226 million and$200 million during the three and six months endedJune 30, 2020 , respectively. During the three and six months endedJune 30, 2020 , FPL recorded reserve amortization of approximately$7 million and$156 million , respectively, compared to the reversal of reserve amortization of approximately$222 million and$66 million during the three and six months endedJune 30, 2019 , respectively. Reserve amortization, or reversal of such amortization, reflects adjustments to accrued asset removal costs provided under the 2016 rate agreement in order to achieve the targeted regulatory ROE. Reserve amortization is recorded as a reduction (or when reversed as an increase) to accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the condensed consolidated balance sheets. AtJune 30, 2020 , approximately$736 million remains in accrued asset removal costs related to reserve amortization. 40 -------------------------------------------------------------------------------- Income Taxes During the three and six months endedJune 30, 2020 , income taxes increased approximately$129 million and$110 million , respectively, primarily related to the 2019 adjustment to income tax expense recorded pursuant to the FPSC's order in connection with its review of impacts associated with tax reform, as well as higher income before income taxes in 2020.
Gulf Power's net income attributable to NEE increased$10 million and$13 million for the three and six months endedJune 30, 2020 , respectively, primarily reflecting the absence of 2019 acquisition-related costs. Operating revenues decreased$33 million and$34 million for the three and six months endedJune 30, 2020 , respectively, primarily related to lower fuel revenues. Operating expenses - net decreased$39 million and$42 million for the three and six months endedJune 30, 2020 , respectively, primarily related to decreases in fuel, purchased power and interchange expense, as well as the absence of 2019 acquisition-related costs. NEER: Results of Operations
NEER's net income less net loss attributable to noncontrolling interests
decreased
Increase (Decrease)
From Prior Year Period
Three Months Ended June Six Months Ended June
30, 2020 30, 2020
(millions)
New investments(a) $ 37 $ 74
Existing generation assets(a) 25 71
Gas infrastructure(a) 1 11
Customer supply and proprietary power and gas
trading(b) (22 ) (31 )
NEET(b) 15 35
Interest and other general and administrative
expenses(c) 2 (27 )
Other, including other investment income and
income taxes 8 3
Change in non-qualifying hedge activity(d) (146 ) (151 )
Change in unrealized gains/losses on equity
securities held in nuclear decommissioning funds
and OTTI, net(d) 126 (188 )
NEP investment gains, net(d) (254 ) (254 )
Disposals of businesses/assets(e) 16 262
Acquisition-related(d) 1 1
Decrease in net income less net loss attributable
to noncontrolling interests $ (191 ) $ (194 )
---------------(a) Reflects after-tax project contributions, including the net effect of
deferred income taxes and other benefits associated with PTCs and ITCs for
wind and solar projects, as applicable, but excludes allocation of interest
expense or corporate general and administrative expenses. Results from
projects and pipelines are included in new investments during the first
twelve months of operation or ownership. Project results are included in
existing generation assets and pipeline results are included in gasinfrastructure beginning with the thirteenth month of operation or ownership.
(b) Excludes allocation of interest expense and corporate general and
administrative expenses.
(c) Includes differential membership interest costs. Excludes unrealized
mark-to-market gains and losses related to interest rate derivative
contracts, which are included in change in non-qualifying hedge activity.
(d) See Overview - Adjusted Earnings for additional information.
(e) Primarily relates to the sale of the
of Businesses.
New Investments
Results from new investments for the three and six months ended June 30, 2020
increased primarily due to higher earnings, including federal income tax
credits, related to new wind generating facilities that entered service during
or after the three and six months ended June 30, 2019 as well as investments in
pipelines.
Existing Generation Assets
Results from existing generation assets for the three and six months ended June
30, 2020 increased primarily due to higher results from wind generation
facilities related to more favorable wind resource as compared to the prior year
period and increased tax credits from repowered wind generation facilities,
partly offset by lower earnings related to a refueling outage at the Seabrook
nuclear facility.
Other Factors
Supplemental to the primary drivers of the changes in NEER's net income less net
loss attributable to noncontrolling interests discussed above, the discussion
below describes changes in certain line items set forth in NEE's condensed
consolidated statements of income as they relate to NEER.
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Operating Revenues
Operating revenues for the three months ended June 30, 2020 decreased $388
million primarily due to:
• the impact of non-qualifying commodity hedges (approximately $257 million of
losses for the three months ended
gains for the comparable period in 2019),
• lower revenues from existing generation assets of
related to a refueling outage at the Seabrook nuclear facility and the sale
of the
• net decreases in revenues of
proprietary power and gas trading business and gas infrastructure business,
partly offset by, • higher revenues of$52 million from NEET, and
• revenues from new investments of
Operating revenues for the six months endedJune 30, 2020 increased$223 million primarily due to: • the impact of gains from non-qualifying commodity hedges (approximately$184
million of gains for the six months ended
million of gains for the comparable period in 2019),
• higher revenues of
• net increases in revenues of
proprietary power and gas trading business and gas infrastructure business,
and
• revenues from new investments of
partly offset by,
• lower revenues from existing generation assets of
related to a refueling outage at the Seabrook nuclear facility and the sale
of the Spain projects.
Operating Expenses - net
Operating expenses - net for the three months ended June 30, 2020 increased $378
million primarily due to lower gains on the disposal of assets of approximately
$336 million primarily related to absence of the June 2019 sale of ownership
interests to NEP, as well as higher other operations and maintenance expenses of
$35 million and higher depreciation expense of $12 million primarily associated
with new investments and acquisitions.
Operating expenses - net for the six months ended June 30, 2020 increased $219
million primarily due to lower gains on the disposal of assets of approximately
$88 million primarily related to absence of the June 2019 sale of ownership
interests to NEP offset by the gain on the sale of the Spain solar projects in
the first quarter of 2020 (see Note 11 - Disposal of Businesses). In addition,
increases of $81 million in other operations and maintenance expenses and $40
million in depreciation expense are primarily associated with new investments
and acquisitions.
Interest Expense
NEER's interest expense for the three months ended June 30, 2020 decreased
approximately $110 million primarily reflecting $60 million of favorable impacts
related to changes in the fair value of interest rate derivative instruments as
well as the absence of 2019 expenses associated with certain debt repayments and
lower interest rates in 2020.
Equity in Earnings (Losses) of Equity Method Investees
NEER recognized $154 million of equity in earnings of equity method investees
for the three months ended June 30, 2020 compared to $6 million of equity in
losses of equity method investees for the prior year period. The change for the
three months ended June 30, 2020 primarily reflects equity in earnings of NEP
recorded in 2020 primarily related to favorable impacts related to changes in
the fair value of interest rate derivative instruments.
NEER recognized $236 million of equity in losses of equity method investees for
the six months ended June 30, 2020 compared to $10 million of equity in earnings
of equity method investees for the prior year period. The change for the six
months ended June 30, 2020 primarily reflects equity in losses of NEP recorded
in 2020 primarily related to unfavorable impacts related to changes in the fair
value of interest rate derivative instruments.
Change in Unrealized Gains (Losses) on Equity Securities Held in NEER's Nuclear
Decommissioning Funds - net
For the three months ended June 30, 2020 , changes in the fair value of equity
securities in NEER's nuclear decommissioning funds, primarily equity securities
in NEER's special use funds, related to more favorable market conditions as
compared to the prior year period. For the six months ended June 30, 2020 ,
changes in the fair value of equity securities in NEER's nuclear decommissioning
funds, primarily equity securities in NEER's special use funds, related to
unfavorable market conditions overall in 2020 compared to favorable market
conditions in 2019.
Tax Credits, Benefits and Expenses
PTCs from wind projects and ITCs from solar and certain wind projects are
included in NEER's earnings. PTCs are recognized as wind energy is generated and
sold based on a per kWh rate prescribed in applicable federal and state
statutes. A portion of the PTCs and ITCs have been allocated to investors in
connection with sales of differential membership interests. Also see Note 6 for
a discussion of PTCs and ITCs and other income tax impacts.
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In May 2020 , the IRS issued guidance that extends the safe harbor for continuous
efforts and continuous construction requirements to include wind and solar
facilities that began construction in 2016 and 2017 and are placed in service no
more than five years after the year in which construction of the facilities
began.
Corporate and Other: Results of Operations
Corporate and Other is primarily comprised of the operating results of other business activities, as well as corporate interest income and expenses. Corporate and Other allocates a portion of NEECH's corporate interest expense to NEER. Interest expense is allocated based on a deemed capital structure of 70% debt and differential membership interests sold byNextEra Energy Resources' subsidiaries. Corporate and Other's results increased$136 million and decreased$178 million during the three and six months endedJune 30, 2020 , respectively. The increase for the three months endedJune 30, 2020 was primarily due to favorable after-tax impacts of approximately$136 million related to non-qualifying hedge activity as a result of changes in the fair value of interest rate derivative instruments. The decrease for the six months endedJune 30, 2020 primarily reflects higher after-tax losses of approximately$212 million related to non-qualifying hedge activity as a result of unfavorable impacts related to changes in the fair value of interest rate derivative instruments, partly offset by the absence of acquisition and integration costs incurred in 2019.
LIQUIDITY AND CAPITAL RESOURCES
NEE and its subsidiaries require funds to support and grow their businesses. These funds are used for, among other things, working capital, capital expenditures, investments in or acquisitions of assets and businesses, payment of maturing debt obligations and, from time to time, redemption or repurchase of outstanding debt or equity securities. It is anticipated that these requirements will be satisfied through a combination of cash flows from operations, short- and long-term borrowings, the issuance of short- and long-term debt and, from time to time, equity securities, proceeds from differential membership investors and sales of assets to NEP or third parties, consistent with NEE's and FPL's objective of maintaining, on a long-term basis, a capital structure that will support a strong investment grade credit rating. NEE, FPL and NEECH rely on access to credit and capital markets as significant sources of liquidity for capital requirements and other operations that are not satisfied by operating cash flows. The inability of NEE, FPL and NEECH to maintain their current credit ratings could affect their ability to raise short- and long-term capital, their cost of capital and the execution of their respective financing strategies, and could require the posting of additional collateral under certain agreements.
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