NEXTERA ENERGY OVERVIEW
NEE's operating performance is driven primarily by the operations of its two principal businesses, FPL, which serves more than 5.6 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 2020 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, the FPL segment and NEER, as well as an operating segment of NEE,Gulf Power , which was acquired by NEE inJanuary 2019 and merged into FPL onJanuary 1, 2021 (see Note 5 - Merger ofFPL andGulf Power Company ). Corporate and Other 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, and may include the net effect of rounding. Prior year's share-based data included in Management's Discussion has been retrospectively adjusted to reflect the 2020 stock split. See Note 10 - Earnings Per Share. 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 2020 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, 2021 2020 2021 2020 2021 2020 2021 2020 (millions) (millions) FPL Segment$ 819 $ 749 $ 0.42 $ 0.38 $ 1,539 $ 1,391 $ 0.78 $ 0.71 Gulf Power 63 55 0.03 0.03 120 94 0.06 0.05 NEER(a) (315) 481 (0.16) 0.24 176 799 0.09 0.41 Corporate and Other (311) (10) (0.16) - 87 (589) 0.05 (0.31) NEE$ 256 $ 1,275 $ 0.13 $ 0.65 $ 1,922 $ 1,695 $ 0.98 $ 0.86 --------------- (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 byNextEra Energy Resources' subsidiaries.
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.
The following table provides details of the after-tax adjustments to net income considered in computing NEE's adjusted earnings discussed above.
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(millions)
Net losses associated with non-qualifying hedge activity(a)
$ (127) $ (790) $ (845) Differential membership interests-related - NEER$ (23) $ (21) $ (46) $ (46) NEP investment gains, net - NEER$ (34) $ (36) $ (85) $ (72) Gain on disposal of a business - NEER(b) $ -
$ 76
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(a) For the three months endedJune 30, 2021 and 2020, approximately$908 million and$166 million of losses, respectively, and for the six months endedJune 30, 2021 and 2020,$984 million and$345 million of losses, respectively, are 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/Assets and Sale of Noncontrolling Ownership Interests for a discussion of the sale of two solar generation facilities inSpain (Spain projects). 42 -------------------------------------------------------------------------------- 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 is 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 2. RESULTS OF OPERATIONS Summary Net income attributable to NEE for the three months endedJune 30, 2021 was lower than the prior year period by$1,019 million reflecting lower results at NEER and Corporate and Other, partly offset by higher results at the FPL segment andGulf Power . Net income attributable to NEE for the six months endedJune 30, 2021 was higher than the prior year period by$227 million reflecting higher results at Corporate and Other, the FPL segment andGulf Power , partly offset by lower results at NEER. FPL's net income increased by$79 million for the three months endedJune 30, 2021 primarily reflecting$70 million higher results at the FPL segment and$8 million higher results atGulf Power . FPL's net income increased by$174 million for the six months endedJune 30, 2021 primarily reflecting$148 million higher results at the FPL segment and$26 million higher results atGulf Power . The FPL segment's increase in net income for the three and six months endedJune 30, 2021 was primarily driven by continued investments in plant in service and other property.Gulf Power's increase in net income for the three and six months endedJune 30, 2021 was primarily driven by an increase in AFUDC - equity and reductions in O&M expenses. NEER's results decreased for the three months endedJune 30, 2021 primarily reflecting unfavorable non-qualifying hedge activity compared to 2020 and lower gains associated with changes in the fair value of equity securities in NEER's nuclear decommissioning funds compared to 2020, partly offset by higher earnings from new investments. NEER's results decreased for the six months endedJune 30, 2021 primarily reflecting unfavorable non-qualifying hedge activity compared to 2020 and the absence of the 2020 gain on the sale of theSpain projects, partly offset by favorable changes in the fair value of equity securities in NEER's nuclear decommissioning funds compared to 2020 and higher earnings from new investments. InJuly 2021 , subsidiaries ofNextEra Energy Resources entered into an agreement to sell to a NEP subsidiary ownership interests in a portfolio of wind and solar generation facilities with a combined net generating capacity totaling approximately 589 MW. See Note 11 - Disposal of Businesses/Assets and Sale of Noncontrolling Ownership Interests. Corporate and Other's results decreased for the three months endedJune 30, 2021 primarily due to unfavorable non-qualifying hedge activity. Corporate and Other's results increased for the six months endedJune 30, 2021 primarily due to favorable non-qualifying hedge activity. NEE's effective income tax rates for the three months endedJune 30, 2021 and 2020 were approximately 206% and 14%, respectively. NEE's effective income tax rates for the six months endedJune 30, 2021 and 2020 were approximately 7% and (4)%, respectively. See Note 4 for a discussion of NEE's and FPL's effective income tax rates. OnJune 30, 2021 , the Internal Revenue Service issued guidance that extends the safe harbor for continuous efforts and continuous construction requirements to provide wind and solar facilities that began construction between 2016 and 2019 with six years to complete construction and to provide wind and solar facilities that began construction in 2020 with five years to achieve their in service dates and qualify for the applicable tax credits. Also, if the time period to satisfy the safe harbor has passed, the continuity requirement is satisfied by demonstrating satisfaction of either the continuous efforts or continuous construction requirement, regardless of the method used to begin construction.
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.
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--------------------------------------------------------------------------------FPL: Results of Operations
The table below presents net income for FPL by reportable segment, the FPL segment andGulf Power . OnJanuary 1, 2021 ,FPL andGulf Power Company merged, with FPL as the surviving entity. However, FPL will continue to be regulated as two separate ratemaking entities until the FPSC approves consolidation of the FPL segment andGulf Power rates and tariffs. The FPL segment andGulf Power will continue to be separate operating segments of NEE as well as FPL, through 2021. See Note 5 - Merger ofFPL andGulf Power Company . Prior year FPL amounts have been retrospectively adjusted to reflect the merger ofFPL andGulf Power Company . In the following discussions, all comparisons are with the corresponding items in the prior year periods.
Net Income
Three Months Ended June 30, Six Months Ended June 30,
2021 2020 2021 2020
(millions)
FPL Segment $ 819 $ 749 $ 1,539 $ 1,391
Gulf Power 63 55 120 94
Corporate and Other - (1) 1 1
FPL $ 882 $ 803 $ 1,660 $ 1,486 FPL Segment: Results of Operations
Investments in plant in service and other property grew the FPL segment's average retail rate base for the three and six months endedJune 30, 2021 by approximately$3.3 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 the 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 the FPL segment'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 and revenue and costs not recoverable from retail customers. During the three and six months endedJune 30, 2021 , the FPL segment recorded reserve amortization of approximately$100 million and$415 million , respectively. During the three and six months endedJune 30, 2020 , the FPL segment recorded reserve amortization of approximately$7 million and$156 million , respectively. During both 2021 and 2020, the FPL segment earned an approximately 11.60% regulatory ROE on its retail rate base, based on a trailing thirteen-month average retail rate base as ofJune 30, 2021 andJune 30, 2020 . OnMarch 12, 2021 , FPL filed a petition with the FPSC requesting, among other things, approval of a four-year rate plan that would begin inJanuary 2022 (proposed four-year rate plan) replacing the 2016 rate agreement. AsGulf Power Company legally merged into FPL onJanuary 1, 2021 , the proposed four-year rate plan set forth in the petition includes the total revenue requirements of the combined utility system, reflecting the legal and operational consolidation ofGulf Power Company into FPL. See Note 11 - FPL 2021 Base Rate Proceeding. InMarch 2020 , the FPSC approved the SolarTogether program, a voluntary community solar program that gives certain FPL electric customers an opportunity to participate directly in the expansion of solar energy and receive credits on their related monthly customer bill. The program includes the addition of 20 dedicated 74.5 MW solar power plants owned and operated by FPL. As ofJune 30, 2021 , all 20 plants have been placed into service. Operating Revenues During the three and six months endedJune 30, 2021 , operating revenues increased$394 million and$477 million , respectively. The increase for the three and six months endedJune 30, 2021 primarily reflects higher fuel revenues of approximately$337 million and$395 million , respectively, primarily related to higher fuel and energy prices and the impact of the accelerated flow back of lower expected fuel costs to retail customers inMay 2020 . Retail base revenues were flat during the three and six months endedJune 30, 2021 as compared to the prior year period. Retail base revenues during the three and six months endedJune 30, 2021 were impacted by a decrease of 1.5% and 2.2%, respectively, in the average usage per retail customer, primarily related to unfavorable weather when compared to the prior year period, 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 increased$341 million and$399 million for the three and six months endedJune 30, 2021 , respectively, primarily reflecting higher fuel and energy prices. 44 -------------------------------------------------------------------------------- Depreciation and Amortization Expense Depreciation and amortization expense decreased$185 million during the six months endedJune 30, 2021 . During the six months endedJune 30, 2021 and 2020, reserve amortization of approximately$415 million and$156 million , respectively, was recorded. Reserve 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 to accrued asset removal costs which is reflected in noncurrent regulatory liabilities on the condensed consolidated balance sheets. AtJune 30, 2021 , approximately$473 million remains in accrued asset removal costs related to reserve amortization.
Gulf Power's net income increased$8 million and$26 million for the three and six months endedJune 30, 2021 , respectively. Operating revenues increased$17 million and$37 million for the three and six months endedJune 30, 2021 , respectively, primarily related to higher fuel revenues. Operating expenses - net increased$14 million and$22 million for the three and six months endedJune 30, 2021 , respectively, primarily related to increases of$12 million and$30 million , respectively, in fuel, purchased power and interchange expense, partly offset by lower O&M expenses for the six months endedJune 30, 2021 . AFUDC - equity increased$4 million and$6 million for the three and six months endedJune 30, 2021 , respectively. InMarch 2021 , the FPSC approved a request to begin recovering eligible storm restoration costs related to Hurricane Sally. See Note 11 - Regulatory Assets ofGulf Power . 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 Six Months Ended
June 30, 2021 June 30, 2021 (millions)
New investments(a) $ 85 $ 163 Existing generation and storage assets(a) 24 (50) Gas infrastructure(a) (1) 47 Customer supply and proprietary power and gas trading(b) (52) (85) NEET(b) 17 15 Other (32) 22 Change in non-qualifying hedge activity(c) (742) (639)
Change in unrealized gains/losses on equity securities held in nuclear decommissioning funds and OTTI, net(c)
(81) 191
NEP investment gains, net(c) 2 (13)
Disposal of a business(d) (16) (274)
Decrease in net income less net loss attributable to
noncontrolling interests $ (796) $ (623)
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(a) Reflects after-tax project contributions, including the net effect of
deferred income taxes and other benefits associated with PTCs and ITCs for wind,
solar, and storage 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, including repowered wind projects, are
included in existing generation and storage assets and pipeline results are
included in gas infrastructure beginning with the thirteenth month of operation
or ownership.
(b) Excludes allocation of interest expense and corporate general and
administrative expenses.
(c) See Overview - Adjusted Earnings for additional information.
(d) Relates to the sale of the Spain projects. See Note 11 - Disposal of
Businesses/Assets and Sale of Noncontrolling Ownership Interests.
New Investments
Results from new investments for the three and six months ended June 30, 2021
increased primarily due to higher earnings, including federal income tax
credits, related to new wind and solar generating facilities and solar storage
facilities that entered service during or after the three and six months ended
June 30, 2020 .
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, 2021 decreased $697
million primarily due to:
•the impact of non-qualifying commodity hedges due primarily to changes in
energy prices (approximately $970 million of losses for the three months ended
June 30, 2021 compared to $257 million of losses for the comparable period in
2020),
•lower revenues from existing generation and storage assets of $48 million
primarily due to the closure of Duane Arnold in August 2020 , and
•net decreases in revenues of $34 million from the customer supply, proprietary
power and gas trading, and gas infrastructure businesses,
partly offset by,
•revenues from new investments of $77 million .
Operating revenues for the six months ended June 30, 2021 decreased $1,687
million primarily due to:
•the impact of non-qualifying commodity hedges due primarily to changes in
energy prices (approximately $1,540 million of losses for the six months ended
June 30, 2021 compared to $184 million of gains for the comparable period in
2020), and
•lower revenues from existing generation and storage assets of $259 million
primarily due to the closure of Duane Arnold in August 2020 and the February
weather event,
partly offset by,
•net increases in revenues of $111 million from the customer supply, proprietary
power and gas trading, and gas infrastructure businesses, and
•revenues from new investments of $154 million .
Operating Expenses - net
Operating expenses - net for the six months ended June 30, 2021 increased $222
million primarily due to an increase of $101 million in O&M expenses primarily
related to bad debt expense associated with the February weather event (see Note
11 - Credit Losses) and an increase in depreciation expense of $75 million
primarily related to new investments.
Gains (Losses) on Disposal of Businesses/Assets - net
The change in gains on disposal of businesses/assets - net primarily relates to
the absence in the six months ended June 30, 2021 of the sale of the Spain
projects that occurred in the first quarter of 2020. See Note 11 - Disposal of
Businesses/Assets and Sale of Noncontrolling Ownership Interests.
Interest Expense
NEER's interest expense for the six months ended
Equity in Earnings (Losses) of Equity Method Investees NEER recognized$84 million of equity in losses of equity method investees for the three months endedJune 30, 2021 compared to$154 million of equity in earnings of equity method investees for the prior year period. The change for the three months endedJune 30, 2021 primarily reflects equity in losses of NEP recorded in 2021 primarily due to unfavorable impacts related to changes in the fair value of interest rate derivative instruments. NEER recognized$356 million of equity in earnings of equity method investees for the six months endedJune 30, 2021 compared to$236 million of equity in losses of equity method investees for the prior year period. The change for the six months endedJune 30, 2021 primarily reflects equity in earnings of NEP recorded in 2021 primarily due to favorable 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 endedJune 30, 2021 , changes in the fair value of equity securities in NEER's nuclear decommissioning funds related to less favorable market conditions as compared to the prior year period. For the six months endedJune 30, 2021 , changes in the fair value of equity securities in NEER's nuclear decommissioning funds related to favorable market conditions in 2021 compared to unfavorable market conditions in 2020. 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 4 for a discussion of other income tax impacts. GridLiance Acquisition OnMarch 31, 2021 , a wholly owned subsidiary of NEET acquired GridLiance, which owns and operates threeFERC -regulated transmission utilities across six states, five in the Midwest andNevada . See Note 5 - GridLiance. 46 --------------------------------------------------------------------------------
Corporate and Other: Results of Operations
Corporate and Other at NEE 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 decreased$301 million and increased$676 million during the three and six months endedJune 30, 2021 , respectively. The decrease for the three months endedJune 30, 2021 primarily reflects unfavorable after-tax impacts of approximately$289 million related to non-qualifying hedge activity as a result of changes in the fair value of interest rate derivative instruments. The increase for the six months endedJune 30, 2021 primarily reflects favorable after-tax impacts of approximately$694 million related to non-qualifying hedge activity as a result of changes in the fair value of interest rate derivative instruments.
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 (see Note 12 - Commitments), investments in or acquisitions of assets and businesses (see Note 5), payment of maturing debt and related derivative obligations (see Note 2) 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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