|
Quotes & Info
|
| All Recent SEC Filings |
27-Jul-2012
Quarterly Report
This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) appearing in the 2011 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 discussion, all comparisons are with the corresponding items in the prior year period.
OVERVIEW
NEE's operating performance is driven primarily by the operations of its two principal subsidiaries, FPL, which serves approximately 4.6 million customer accounts in Florida and is one of the largest rate-regulated electric utilities in the U.S., and NEER, which together with affiliated entities is the largest generator in the U.S. of renewable energy from the wind and sun. The table below presents NEE's net income and earnings per share by reportable segment - FPL, NEER and Corporate and Other, which is primarily comprised of interest expense, the operating results of FPL FiberNet, Lone Star and other business activities, as well as other income and expense items, including income taxes and eliminating entries (see Note 10 for additional segment information).
Earnings Per Share, Earnings Per Share,
Net Income assuming dilution Net Income assuming dilution
Three Months Ended June 30, Six Months Ended June 30,
2012 2011 2012 2011 2012 2011 2012 2011
(millions) (millions)
FPL $ 353 $ 301 $ 0.85 $ 0.72 $ 592 $ 506 $ 1.42 $ 1.21
NEER(a) 251 239 0.60 0.57 472 304 1.13 0.73
Corporate and Other 3 40 - 0.09 4 38 0.02 0.09
NEE $ 607 $ 580 $ 1.45 $ 1.38 $ 1,068 $ 848 $ 2.57 $ 2.03
____________________
|
Adjusted Earnings
NEE prepares its financial statements in accordance with U.S. generally accepted accounting principles (GAAP). However, management uses earnings excluding certain items (adjusted earnings), a non-GAAP financial measure, internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and as an input in determining whether performance goals are met for performance-based compensation under NEE's employee incentive compensation plans. NEE also uses adjusted earnings when communicating its financial results and earnings outlook to investors. NEE's management believes adjusted earnings provides a more meaningful representation of the company's fundamental earnings power. Although the excluded amounts are properly included in the determination of net income in accordance with 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 in accordance with GAAP.
Adjusted earnings exclude the unrealized mark-to-market effect of non-qualifying hedges (as described below) and other than temporary impairment (OTTI) losses on securities held in NEER's nuclear decommissioning funds, net of the reversal of previously recognized OTTI losses on securities sold and losses on securities where price recovery was deemed unlikely (collectively, OTTI reversals). OTTI losses and OTTI reversals are reported in other - net in NEE's condensed consolidated statements of income.
NEE and NEER segregate into two categories unrealized mark-to-market gains and losses on energy derivative transactions which are used to manage commodity price risk. The first category, referred to as non-qualifying hedges, represents certain transactions entered into as economic hedges but the transactions do not meet the requirements for hedge accounting or hedge accounting treatment is not elected. Changes in the fair value of those transactions are marked to market and reported in the consolidated statements of income, resulting in earnings volatility because the economic offset to the positions which are required to be marked to market (such as the physical assets from which power is generated) are not marked to market. As a consequence, NEE's net income reflects only the movement in one part of economically-linked transactions. For this reason, NEE's management views results expressed excluding the unrealized mark-to-market impact of the non-qualifying hedges as a meaningful measure of current period performance. The second category, referred to as trading activities, 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 or the capacity clause. See Note 2.
The following table provides details of the net unrealized after-tax gains and losses from non-qualifying hedges and after-tax OTTI losses, net of reversals.
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(millions)
Net unrealized mark-to-market after-tax
gains (losses) from non-qualifying hedge
activity(a) $ 65 $ 78 $ 102 $ (47 )
Income (loss) from OTTI after-tax losses on
securities held in NEER's nuclear
decommissioning funds, net of OTTI
reversals $ 15 $ 2 $ 17 $ 3
____________________
|
The change in unrealized mark-to-market activity from non-qualifying hedges is
primarily attributable to changes in forward power and natural gas prices, as
well as the reversal of previously recognized unrealized mark-to-market gains or
losses as the underlying transactions were realized. As a general rule, a gain
(loss) in the non-qualifying hedge category 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.
RESULTS OF OPERATIONS
Summary
NEE's net income for the three months ended June 30, 2012 and 2011 was $607 million and $580 million, respectively, an increase of $27 million, and reflects the following:
• higher results at FPL of $52 million primarily due to investments in plant in service and FPL's ability to use the surplus depreciation credit, as permitted under the terms of the stipulation and settlement regarding FPL's base rates (2010 rate agreement), to earn an 11% regulatory return on equity (ROE) in 2012, as well as higher cost recovery clause results, and
• higher results at NEER of $12 million primarily due to the absence of an impairment charge recorded in the prior year and contributions from new investments, offset in part by a lower wind resource,
partly offset by,
• lower results at Corporate and Other of $37 million primarily due to the
absence of the state deferred income tax benefit related to state tax law
changes recorded in 2011.
NEE's net income for the six months ended June 30, 2012 and 2011 was $1,068 million and $848 million, respectively, an increase of $220 million, and reflects the following:
• higher results at FPL of $86 million primarily due to the reasons discussed above, and
• higher results at NEER of $168 million primarily due to net unrealized mark-to-market after-tax gains from non-qualifying hedge activity for the six months ended June 30, 2012 compared to losses on such hedges for the six months ended June 30, 2011,
partly offset by,
• lower results at Corporate and Other of $34 million primarily due to the
absence of the state deferred income tax benefit recorded in 2011.
NEE's effective income tax rates for the three and six months ended June 30, 2012 were approximately 29% and 27%, respectively; NEE's effective income tax rates for the corresponding periods in 2011 were 20% and 12%. These rates reflect the effect of PTCs for wind projects at NEER and deferred income tax benefits associated with convertible ITCs under the Recovery Act. PTCs and deferred income tax benefits associated with convertible ITCs can significantly affect NEE's effective income tax rate depending on the amount of pretax income. PTCs can be significantly affected by wind generation and by the expiration of PTCs after ten years of production. PTCs for the three and six months ended June 30, 2012 were approximately $50 million and $112 million, respectively, and $84 million and $163 million for the comparable periods in 2011. Deferred income tax benefits associated with convertible ITCs for the three and six months ended June 30, 2012 were approximately $10 million and $23 million, respectively, and $1 million and $8 million for the comparable periods in 2011. NEE's effective income tax rates for the three and six months ended June 30, 2011 were also reduced by the approximately $64 million state deferred income tax benefit recorded at Corporate and Other and, for the six months ended June 30, 2011, the $26 million state ITC benefit. See Note 5.
FPL: Results of Operations
FPL's net income for the three months ended June 30, 2012 and 2011 was $353 million and $301 million, respectively, an increase of $52 million. FPL's net income for the six months ended June 30, 2012 and 2011 was $592 million and $506 million, respectively, an increase of $86 million. See Summary above for a discussion of the major drivers of these increases.
FPL's operating revenues consisted of the following:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(millions)
Retail base $ 1,086 $ 1,128 $ 2,021 $ 1,997
Fuel cost recovery 959 1,157 1,785 2,110
Other cost recovery clauses and
pass-through costs, net of any
deferrals 469 454 880 832
Other, primarily pole attachment
rentals, transmission and wholesale
sales and customer-related fees 66 62 118 108
Total $ 2,580 $ 2,801 $ 4,804 $ 5,047
|
Retail Base
As permitted by the 2010 rate agreement, for the three and six months ended June 30, 2012, FPL collected approximately $16 million and $52 million, respectively, in additional retail base revenues through the capacity clause related to the placement in service of West County Energy Center Unit No. 3 in May 2011. Additional base revenues of approximately $6 million and $11 million were collected during the three and six months ended June 30, 2012, respectively, as permitted by the FPSC's nuclear cost recovery rule, related to new nuclear capacity which was placed in service in 2011.
Retail Customer Usage and Growth
For the three months ended June 30, 2012, FPL experienced a 6.2% decrease in
average usage per retail customer, reflecting weather and other factors, which
decreased retail base revenues by approximately $71 million. For the six months
ended June 30, 2012, FPL experienced a 2.0% decrease in average usage per retail
customer, reflecting weather and other factors, which decreased retail base
revenues by approximately $51 million. For both the three and six months ended
June 30, 2012, FPL experienced a 0.6% increase in the average number of customer
accounts, which increased retail base revenues by approximately $7 million and
$12 million, respectively.
Cost Recovery Clauses
For the three months ended June 30, 2012 and 2011, cost recovery clauses contributed $38 million and $25 million, respectively, to FPL's net income; the amounts for the six months ended June 30, 2012 and 2011 were $71 million and $49 million, respectively. The increase in cost recovery clause results was primarily due to a return related to additional nuclear capacity investments. In 2012, it is expected that cost recovery clauses will contribute higher earnings for FPL primarily as a result of additional nuclear capacity investments. Fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel, purchased power and interchange expense in the condensed consolidated statements of income, as well as by changes in energy sales. Fluctuations in revenues from other cost recovery clauses and pass-through costs are primarily driven by changes in storm-related surcharges, capacity charges, franchise fee costs, the impact of changes in other operations and maintenance (O&M) and depreciation expenses on the underlying cost recovery clause, investment in solar and environmental projects, investment in nuclear capacity until such capacity goes into service and is recovered in base rates, pre-construction costs associated with the development of two additional nuclear units at the Turkey Point site and changes in energy sales. Capacity charges and franchise fee costs are included in fuel, purchased power and interchange and taxes other than income taxes and other, respectively, in the condensed consolidated statements of income.
Risk Management Fuel Procurement Program FPL uses a risk management fuel procurement program which was approved by the FPSC. The FPSC reviews the program activities and results for prudence on an annual basis as part of its annual review of fuel costs. The program is intended to manage fuel price volatility by locking in fuel prices for a portion of FPL's fuel requirements. The current regulatory asset for the change in fair value of derivative instruments used in the fuel procurement program was approximately $316 million and $502 million at June 30, 2012 and December 31, 2011, respectively.
The decrease in fuel cost recovery revenues for the three months ended June 30, 2012 is primarily due to a lower average fuel factor of approximately $160 million and lower energy sales of $38 million. The decrease in fuel cost recovery revenues for the six months ended June 30, 2012 is primarily due to a lower average fuel factor of approximately $284 million and lower energy sales of $41 million. The change from December 31, 2011 to June 30, 2012 in deferred clause and franchise expenses and deferred clause and franchise revenues was approximately $73 million and positively affected NEE's and FPL's cash flows from operating activities for the six months ended June 30, 2012.
Other Items Impacting FPL Results
Fuel, Purchased Power and Interchange
The major components of FPL's fuel, purchased power and interchange expense are
as follows:
38
--------------------------------------------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(millions)
Fuel and energy charges during the
period $ 930 $ 1,253 $ 1,688 $ 2,114
Net deferral of retail fuel costs - (100 ) - (14 )
Net collection of previously deferred
retail fuel costs 26 - 92 -
Other, primarily capacity charges, net
of any capacity deferral 130 151 241 275
Total $ 1,086 $ 1,304 $ 2,021 $ 2,375
|
The decrease in fuel and energy charges for the three months ended June 30, 2012 reflects lower fuel and energy prices of $266 million and lower energy sales of $57 million. The decrease in fuel and energy charges for the six months ended June 30, 2012 reflects lower fuel and energy prices of $394 million and lower energy sales of $32 million.
O&M Expenses
FPL's O&M expenses increased $8 million for the three months ended June 30, 2012
primarily due to higher employee-related costs and higher distribution costs
primarily due to tree trimming activities. FPL's O&M expenses increased $71
million for the six months ended June 30, 2012, reflecting higher maintenance
costs primarily due to the timing and extent of nuclear and fossil unit outages,
higher restoration and tree trimming costs and higher employee-related costs.
Depreciation and Amortization Expense
The major components of FPL's depreciation and amortization expense are as
follows:
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
(millions)
Surplus depreciation credit recorded under
the 2010 rate agreement $ (165 ) $ (31 ) $ (329 ) $ (131 )
Other depreciation and amortization recovered
under base rates 251 231 502 459
Depreciation and amortization recovered under
cost recovery clauses and securitized
storm-recovery cost amortization 39 12 70 26
Total $ 125 $ 212 $ 243 $ 354
|
Under the terms of the 2010 rate agreement, FPL can vary the amount of surplus depreciation credit taken to earn up to an 11% regulatory ROE; as of June 30, 2012, approximately $256 million of surplus depreciation credit remained available for use in 2012. The increase in other depreciation and amortization expense recovered under base rates for the three and six months ended June 30, 2012 is primarily due to higher plant in service balances. The increase in depreciation and amortization recovered under cost recovery clauses and securitized storm-recovery cost amortization for the three and six months ended June 30, 2012 is primarily due to true ups of prior year recoveries under the FPSC's nuclear cost recovery rule.
Interest Expense
The increase in interest expense for the three and six months ended June 30,
2012 is primarily due to additional debt outstanding, partly offset by lower
average interest rates.
FPL Rate Case
In March 2012, FPL filed a petition with the FPSC requesting, among other things, a permanent base rate increase, on an annualized basis, of approximately $517 million effective January 2013 and an additional approximately $174 million commencing when FPL's modernized Cape Canaveral power plant becomes operational, which is expected to occur in June 2013. FPL's requested increases are based on an allowed regulatory ROE of 11.50%, with a range of plus or minus 100 basis points, consisting of a base ROE of 11.25% and a 0.25% ROE performance adder conditioned on FPL maintaining the lowest typical residential customer bill among all the electric utilities in Florida based on a twelve-month average. Additionally, FPL's petition proposes the continuation of the mechanism for recovery of future storm restoration costs provided under the 2010 rate agreement. Hearings on the base rate proceeding are expected during the third quarter of 2012 and a final decision is expected in the fourth quarter of 2012. The 2010 rate agreement expires at the end of December 2012.
Major Capital Projects
In April 2012, the FPSC issued an order approving the modernization of FPL's Port Everglades power plant to a high-efficiency natural gas-fired approximately 1,280 mw unit, which is expected to be in service in 2016. In May 2012, the Florida Industrial Power
Users Group appealed the FPSC's order, which appeal will be heard by the Florida Supreme Court.
NEER: Results of Operations
NEER's net income for the three months ended June 30, 2012 and 2011 was $251 million and $239 million, respectively, an increase of $12 million. NEER's net income for the six months ended June 30, 2012 and 2011 was $472 million and $304 million, respectively, an increase of $168 million. The primary drivers, on an after-tax basis, of these increases were as follows:
Increase (Decrease)
From Prior Period
Three Months Ended Six Months Ended
June 30, 2012 June 30, 2012
(millions)
New investments(a) $ 13 $ 43
Existing assets(a) (40 ) (87 )
Gas infrastructure(b) 5 34
Customer supply and proprietary power and gas trading
businesses(b) (1 ) (9 )
Impairment charges in 2011 31 31
Interest expense, differential membership costs and
other 6 (5 )
Change in unrealized mark-to-market non-qualifying
hedge activity(c)(d) (15 ) 147
Change in OTTI losses on securities held in nuclear
decommissioning funds, net of OTTI reversals(d) 13 14
Net income increase $ 12 $ 168
_______________________
|
(b) Does not include allocation of interest expense or corporate general and administrative expenses.
(c) See Note 2 and Overview related to derivative instruments.
(d) See table in Overview for additional detail.
New Investments
Results from new investments for the three months ended June 30, 2012 reflect the following:
• the addition of approximately 556 mw of wind and 45 mw of solar generation during or after the three months ended June 30, 2011,
• the absence of an after-tax benefit associated with convertible ITCs of $19 million recorded for the three months ended June 30, 2011 from the sale of membership interests where the investors elected to receive the convertible ITCs related to the underlying wind project; the pretax amount of such benefit is reflected in taxes other than income taxes and other in NEE's condensed consolidated statements of income for the three months ended June 30, 2011, and
• higher deferred tax benefits associated with convertible ITCs of $10 million.
Results from new investments for the six months ended June 30, 2012 reflect the following:
• the addition of approximately 556 mw of wind and 45 mw of solar generation during or after the six months ended June 30, 2011,
• lower after-tax benefits associated with convertible ITCs of $9 million from the sale of membership interests where the investors elected to receive the convertible ITCs, as discussed above, and
• higher deferred tax benefits associated with convertible ITCs of $15 million.
Existing Assets
For the three months ended June 30, 2012, results from NEER's existing asset portfolio decreased $40 million primarily due to:
• lower results from wind assets of $43 million primarily due to a lower wind resource and the roll off of PTCs of $15 million on certain wind projects after ten years of production, and
• lower results from non-wind merchant assets of $6 million primarily reflecting unfavorable market conditions and a lower hydro resource, offset in part by improved results from Seabrook primarily due to the absence of an outage in the prior year,
partly offset by,
• higher results from contracted assets of $3 million primarily due to the
absence of a planned outage in the prior year and the addition of 167 mw of
capacity, completed in June 2011, at the Point Beach Nuclear Power Plant
(Point Beach) which contributed $16 million, partly offset by lower results
of $6 million related to the expiration of power sales agreements at certain
joint venture
projects, which is reflected in equity in earnings of equity method investees in NEE's condensed consolidated statements of income.
For the six months ended June 30, 2012, results from NEER's existing asset portfolio decreased $87 million primarily due to:
• lower results from wind assets of $71 million primarily due to the absence of approximately $33 million of state ITC benefit recorded in the prior period, the roll-off of PTCs of $28 million on certain wind projects after ten years of production and the balance primarily associated with a lower wind resource,
• lower results from non-wind merchant assets of $16 million primarily associated with reduced capacity at Seabrook, lower priced hedges, lower gains on decommissioning funds, and a lower hydro resource offset in part by the absence of an extended refueling outage in 2011 at Seabrook, and
• essentially flat results from contracted assets with increased results at Point Beach of $22 million due to the absence of a planned outage in the prior year and the addition of 167 mw of capacity, substantially offset by $17 million of lower results from certain joint venture projects primarily . . .
|