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 ), 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. 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) Per Share Attributable to NEE, Net Income (Loss) Attributable to NEE Assuming Dilution Three Months Ended March Three Months Ended March 31, 31, 2021 2020 2021 2020 (millions) FPL Segment$ 720 $ 642 $ 0.37 $ 0.33 Gulf Power 57 40 0.03 0.02 NEER(a) 491 318 0.25 0.16 Corporate and Other 398 (579) 0.19 (0.30) NEE$ 1,666 $ 421 $ 0.84 $ 0.21 --------------- (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 March 31,
2021 2020
(millions)Net gains (losses) associated with non-qualifying hedge activity(a)
$ 367 $ (717) Differential membership interests-related - NEER$ (23) $ (25) NEP investment gains, net - NEER$ (51) $ (36) Gain on disposal of a business - NEER(b) $ -$ 258
Change in unrealized gains (losses) on NEER's nuclear decommissioning funds and OTTI, net - NEER
$ 43 $ (229)
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(a) For the three months endedMarch 31, 2021 and 2020, approximately$76 million and$179 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 a Business for a discussion of the sale of two solar generation facilities inSpain (Spain projects).
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
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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 ended March 31, 2021 was
higher than the prior year period by $1,245 million reflecting higher results at
Corporate and Other, NEER, the FPL segment and Gulf Power .
FPL's net income increased by $95 million for the three months ended March 31,
2021 primarily reflecting $78 million higher results at the FPL segment and $17
million higher results at Gulf Power . The FPL segment's increase in net income
for the three months ended March 31, 2021 was primarily driven by continued
investments in plant in service and other property. Gulf Power's increase in net
income for the three months ended March 31, 2021 was primarily driven by
reductions in other operating and maintenance expenses.
NEER's results increased for the three months ended March 31, 2021 primarily
reflecting favorable changes in the fair value of equity securities in NEER's
nuclear decommissioning funds compared to 2020, favorable non-qualifying hedge
activity compared to 2020 and higher earnings on new investments, partly offset
by the absence of the 2020 gain on the sale of the Spain projects and lower
earnings on existing generation assets.
Corporate and Other's results increased for the three months ended
NEE's effective income tax rates for the three months ended
NEE and FPL are closely monitoring the global outbreak of COVID-19 and are taking steps intended to mitigate the potential risks to NEE and FPL posed by COVID-19. See Note 12 - Coronavirus Pandemic.
FPL: Results of Operations
The table below presents net income for FPL by reportable segment, the FPL segment andGulf Power . OnJanuary 1, 2021 ,FPL andGulf Power Company merged, with FPL as the surviving entity. However, FPL will continue to be regulated as two separate ratemaking entities until the FPSC approves consolidation of theFPL and Gulf Power rates and tariffs. The FPL segment andGulf Power will continue to be separate operating segments of NEE as well as FPL, through 2021. See Note 5 - Merger ofFPL andGulf Power Company . Prior year FPL amounts have been retrospectively adjusted to reflect the merger ofFPL andGulf Power Company . In the following discussions, all comparisons are with the corresponding items in the prior year period. Net Income Three Months Ended March 31, 2021 2020 (millions) FPL Segment$ 720 $ 642 Gulf Power 57 40 FPL$ 777 $ 682
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 months ended
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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 months ended March 31, 2021 and 2020, the FPL segment recorded reserve
amortization of approximately $316 million and $149 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 of March 31, 2021 and March 31, 2020 .
On March 12, 2021 , FPL filed a petition with the FPSC requesting, among other
things, approval of a four-year rate plan that would begin in January 2022
(proposed four-year rate plan) replacing the 2016 rate agreement. As Gulf Power
Company legally merged into FPL on January 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 of
Gulf Power Company into FPL. See Note 11 - FPL 2021 Base Rate Proceeding.
In March 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 of March 31,
2021 , 15 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 months ended March 31, 2021 , operating revenues increased $83
million . The increase for the three months ended March 31, 2021 primarily
reflects higher fuel revenues of approximately $58 million primarily related to
higher fuel and energy prices. Retail base revenues were flat during the three
months ended March 31, 2021 as compared to the prior year period. Retail base
revenues during the three months ended March 31, 2021 were impacted by a
decrease of 3.0% in the average usage per retail customer, primarily related to
unfavorable weather when compared to the prior year, and an increase of 1.4% in
the average number of customer accounts.
Fuel, Purchased Power and Interchange Expense
Fuel, purchased power and interchange expense increased $57 million for the
three months ended March 31, 2021 primarily reflecting higher fuel and energy
prices.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $132 million during the three
months ended March 31, 2021 . During the three months ended March 31, 2021 and
2020, reserve amortization of approximately $316 million and $149 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. At March 31, 2021 ,
approximately $578 million remains in accrued asset removal costs related to
reserve amortization.
Gulf Power's net income increased$17 million for the three months endedMarch 31, 2021 . Operating revenues increased$19 million for the three months endedMarch 31, 2021 primarily related to higher fuel revenues. Operating expenses - net increased$6 million for the three months endedMarch 31, 2021 primarily related to increases of$19 million in fuel, purchased power and interchange expense, partly offset by lower O&M expenses. 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 . 40 --------------------------------------------------------------------------------
NEER: Results of Operations
NEER's net income less net loss attributable to noncontrolling interests
increased
Increase
(Decrease)
From Prior Year
Period
Three Months Ended
March 31, 2021
(millions)
New investments(a) $ 77
Existing generation and storage assets(a) (73)
Gas infrastructure(a) 48
Customer supply and proprietary power and gas trading(b) (33)
Other 51
Change in non-qualifying hedge activity(c) 104
Change in unrealized gains/losses on equity securities held in nuclear decommissioning funds and OTTI, net(c)
272
NEP investment gains, net(c) (15)
Disposals of businesses/assets(d) (258)
Increase in net income less net loss attributable to noncontrolling interests $
173
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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) Primarily relates to the sale of theSpain projects. See Note 11 - Disposal of a Business. New Investments Results from new investments for the three months endedMarch 31, 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 months endedMarch 31, 2020 . Existing Generation and Storage Assets Results from existing generation and storage assets for the three months endedMarch 31, 2021 decreased primarily due to unfavorable results driven by the operational and energy market impacts of severe prolonged winter weather inTexas inFebruary 2021 (February weather event). 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. Operating Revenues Operating revenues for the three months endedMarch 31, 2021 decreased$992 million primarily due to: •the impact of non-qualifying commodity hedges due primarily to changes in energy prices (approximately$571 million of losses for the three months endedMarch 31, 2021 compared to$441 million of gains for the comparable period in 2020), and •lower revenues from existing generation and storage assets of$213 million primarily due to the February weather event and the closure ofDuane Arnold inAugust 2020 , partly offset by, •net increases in revenues of$148 million from the customer supply and proprietary power and gas trading business and gas infrastructure business, and •revenues from new investments of$76 million . Operating Expenses - net Operating expenses - net for the three months endedMarch 31, 2021 increased$192 million primarily due to increases of$144 million in other operations and maintenance expenses primarily due to bad debt expense related to the February weather event (see Note 11 - Credit Losses). Gains on Disposal of Businesses/Assets - net The change in gains on disposal of businesses/assets - net primarily relates to the absence in the three months endedMarch 31, 2021 of the sale of theSpain projects that occurred in the first quarter of 2020. See Note 11 - Disposal of a Business. 41 --------------------------------------------------------------------------------
Interest Expense
NEER's interest expense for the three months ended
Equity in Earnings (Losses) of Equity Method Investees NEER recognized$440 million of equity in earnings of equity method investees for the three months endedMarch 31, 2021 compared to$390 million of equity in losses of equity method investees for the prior year period. The change for the three months endedMarch 31, 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 endedMarch 31, 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.
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 increased$977 million during the three months endedMarch 31, 2021 . The increase for the three months endedMarch 31, 2021 primarily reflects favorable after-tax impacts of approximately$981 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 (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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