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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
Commission File Number | Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number | IRS Employer Identification Number | ||
1-8841 | NEXTERA ENERGY, INC. | 59-2449419 | ||
2-27612 | FLORIDA POWER & LIGHT COMPANY | 59-0247775 | ||
700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 | ||||
State or other jurisdiction of incorporation or organization: Florida
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.
NextEra Energy, Inc. Yes þ No ¨ Florida Power & Light Company Yes þ No ¨ |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
NextEra Energy, Inc. Yes þ No ¨ Florida Power & Light Company Yes þ No ¨ |
Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
NextEra Energy, Inc. | Large Accelerated Filer þ | Accelerated Filer ¨ | Non-Accelerated Filer ¨ | Smaller Reporting Company ¨ | Emerging Growth Company ¨ |
Florida Power & Light Company | Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer þ | Smaller Reporting Company ¨ | Emerging Growth Company ¨ |
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. o
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No þ
Number of shares of NextEra Energy, Inc. common stock, $0.01 par value, outstanding at June 30, 2018: 471,604,684
Number of shares of Florida Power & Light Company common stock, without par value, outstanding at June 30, 2018, all of which were held, beneficially and of record, by NextEra Energy, Inc.: 1,000
This combined Form 10-Q represents separate filings by NextEra Energy, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to NextEra Energy, Inc.'s other operations.
Florida Power & Light Company meets the conditions set forth in General Instruction H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.
DEFINITIONS
Acronyms and defined terms used in the text include the following:
Term | Meaning |
AFUDC | allowance for funds used during construction |
AFUDC - equity | equity component of AFUDC |
AOCI | accumulated other comprehensive income |
capacity clause | capacity cost recovery clause, as established by the FPSC |
Duane Arnold | Duane Arnold Energy Center |
EPA | U.S. Environmental Protection Agency |
FASB | Financial Accounting Standards Board |
FERC | U.S. Federal Energy Regulatory Commission |
Florida Southeast Connection | Florida Southeast Connection, LLC, a wholly owned NEER subsidiary |
FPL | Florida Power & Light Company |
FPSC | Florida Public Service Commission |
fuel clause | fuel and purchased power cost recovery clause, as established by the FPSC |
GAAP | generally accepted accounting principles in the U.S. |
ISO | independent system operator |
ITC | investment tax credit |
kWh | kilowatt-hour(s) |
Management's Discussion | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
MMBtu | One million British thermal units |
MW | megawatt(s) |
MWh | megawatt-hour(s) |
NEE | NextEra Energy, Inc. |
NEECH | NextEra Energy Capital Holdings, Inc. |
NEER | NextEra Energy Resources, LLC |
NEET | NextEra Energy Transmission, LLC |
NEP | NextEra Energy Partners, LP |
NEP OpCo | NextEra Energy Operating Partners, LP |
Note __ | Note __ to condensed consolidated financial statements |
NRC | U.S. Nuclear Regulatory Commission |
O&M expenses | other operations and maintenance expenses in the condensed consolidated statements of income |
OCI | other comprehensive income |
OTC | over-the-counter |
OTTI | other than temporary impairment |
PTC | production tax credit |
PV | photovoltaic |
Recovery Act | American Recovery and Reinvestment Act of 2009, as amended |
regulatory ROE | return on common equity as determined for regulatory purposes |
Sabal Trail | Sabal Trail Transmission, LLC, an entity in which a wholly owned NEER subsidiary has a 42.5% ownership interest |
Seabrook | Seabrook Station |
SEC | U.S. Securities and Exchange Commission |
tax reform | Tax Cuts and Jobs Act |
U.S. | United States of America |
NEE, FPL, NEECH and NEER each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, NextEra, FPL Group, FPL Group Capital, FPL Energy, FPLE, NEP and similar references. For convenience and simplicity, in this report the terms NEE, FPL, NEECH and NEER are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.
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TABLE OF CONTENTS
Page No. | ||
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, is anticipated, aim, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on NEE's and/or FPL's operations and financial results, and could cause NEE's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEE and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.
Regulatory, Legislative and Legal Risks
• | NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected by the extensive regulation of their business. |
• | NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if they are unable to recover in a timely manner any significant amount of costs, a return on certain assets or a reasonable return on invested capital through base rates, cost recovery clauses, other regulatory mechanisms or otherwise. |
• | Regulatory decisions that are important to NEE and FPL may be materially adversely affected by political, regulatory and economic factors. |
• | FPL's use of derivative instruments could be subject to prudence challenges and, if found imprudent, could result in disallowances of cost recovery for such use by the FPSC. |
• | Any reductions or modifications to, or the elimination of, governmental incentives or policies that support utility scale renewable energy, including, but not limited to, tax laws, policies and incentives, renewable portfolio standards, feed-in tariffs or the EPA's final rule under Section 111(d) of the Clean Air Act, or the imposition of additional taxes or other assessments on renewable energy, could result in, among other items, the lack of a satisfactory market for the development and/or financing of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in renewable energy projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects. |
• | NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected as a result of new or revised laws, regulations, interpretations or other regulatory initiatives. |
• | NEE and FPL are subject to numerous environmental laws, regulations and other standards that may result in capital expenditures, increased operating costs and various liabilities, and may require NEE and FPL to limit or eliminate certain operations. |
• | NEE's and FPL's business could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions. |
• | Extensive federal regulation of the operations and businesses of NEE and FPL exposes NEE and FPL to significant and increasing compliance costs and may also expose them to substantial monetary penalties and other sanctions for compliance failures. |
• | Changes in tax laws, guidance or policies, including but not limited to changes in corporate income tax rates, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects. |
• | NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected due to adverse results of litigation. |
Operational Risks
• | NEE's and FPL's business, financial condition, results of operations and prospects could suffer if NEE and FPL do not proceed with projects under development or are unable to complete the construction of, or capital improvements to, electric generation, transmission and distribution facilities, gas infrastructure facilities or other facilities on schedule or within budget. |
• | NEE and FPL may face risks related to project siting, financing, construction, permitting, governmental approvals and the negotiation of project development agreements that may impede their development and operating activities. |
• | The operation and maintenance of NEE's and FPL's electric generation, transmission and distribution facilities, gas infrastructure facilities and other facilities are subject to many operational risks, the consequences of which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects. |
• | NEE's and FPL's business, financial condition, results of operations and prospects may be negatively affected by a lack of growth or slower growth in the number of customers or in customer usage. |
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• | NEE's and FPL's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather. |
• | Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt NEE's and FPL's business, or the businesses of third parties, may materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects. |
• | The ability of NEE and FPL to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers. NEE's and FPL's insurance coverage does not provide protection against all significant losses. |
• | NEE invests in gas and oil producing and transmission assets through NEER’s gas infrastructure business. The gas infrastructure business is exposed to fluctuating market prices of natural gas, natural gas liquids, oil and other energy commodities. A prolonged period of low gas and oil prices could impact NEER’s gas infrastructure business and cause NEER to delay or cancel certain gas infrastructure projects and for certain existing projects to be impaired, which could materially adversely affect NEE's results of operations. |
• | If supply costs necessary to provide NEER's full energy and capacity requirement services are not favorable, operating costs could increase and materially adversely affect NEE's business, financial condition, results of operations and prospects. |
• | Due to the potential for significant volatility in market prices for fuel, electricity and renewable and other energy commodities, NEER's inability or failure to manage properly or hedge effectively the commodity risks within its portfolios could materially adversely affect NEE's business, financial condition, results of operations and prospects. |
• | Reductions in the liquidity of energy markets may restrict the ability of NEE to manage its operational risks, which, in turn, could negatively affect NEE's results of operations. |
• | NEE's and FPL's hedging and trading procedures and associated risk management tools may not protect against significant losses. |
• | If price movements significantly or persistently deviate from historical behavior, NEE's and FPL's risk management tools associated with their hedging and trading procedures may not protect against significant losses. |
• | If power transmission or natural gas, nuclear fuel or other commodity transportation facilities are unavailable or disrupted, FPL's and NEER's ability to sell and deliver power or natural gas may be limited. |
• | NEE and FPL are subject to credit and performance risk from customers, hedging counterparties and vendors. |
• | NEE and FPL could recognize financial losses or a reduction in operating cash flows if a counterparty fails to perform or make payments in accordance with the terms of derivative contracts or if NEE or FPL is required to post margin cash collateral under derivative contracts. |
• | NEE and FPL are highly dependent on sensitive and complex information technology systems, and any failure or breach of those systems could have a material adverse effect on their business, financial condition, results of operations and prospects. |
• | NEE's and FPL's retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in a material adverse impact to their reputation and/or have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL. |
• | NEE and FPL could recognize financial losses as a result of volatility in the market values of derivative instruments and limited liquidity in OTC markets. |
• | NEE and FPL may be materially adversely affected by negative publicity. |
• | NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected if FPL is unable to maintain, negotiate or renegotiate franchise agreements on acceptable terms with municipalities and counties in Florida. |
• | NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected by work strikes or stoppages and increasing personnel costs. |
• | NEE's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry. |
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Nuclear Generation Risks
• | The operation and maintenance of NEE's and FPL's nuclear generation facilities involve environmental, health and financial risks that could result in fines or the closure of the facilities and in increased costs and capital expenditures. |
• | In the event of an incident at any nuclear generation facility in the U.S. or at certain nuclear generation facilities in Europe, NEE and FPL could be assessed significant retrospective assessments and/or retrospective insurance premiums as a result of their participation in a secondary financial protection system and nuclear insurance mutual companies. |
• | NRC orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require NEE and FPL to incur substantial operating and capital expenditures at their nuclear generation facilities and/or result in reduced revenues. |
• | The inability to operate any of NEE's or FPL's nuclear generation units through the end of their respective operating licenses could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects. |
• | NEE's and FPL's nuclear units are periodically removed from service to accommodate planned refueling and maintenance outages, and for other purposes. If planned outages last longer than anticipated or if there are unplanned outages, NEE's and FPL's results of operations and financial condition could be materially adversely affected. |
Liquidity, Capital Requirements and Common Stock Risks
• | Disruptions, uncertainty or volatility in the credit and capital markets may negatively affect NEE's and FPL's ability to fund their liquidity and capital needs and to meet their growth objectives, and can also materially adversely affect the results of operations and financial condition of NEE and FPL. |
• | NEE's, NEECH's and FPL's inability to maintain their current credit ratings may materially adversely affect NEE's and FPL's liquidity and results of operations, limit the ability of NEE and FPL to grow their business, and increase interest costs. |
• | NEE's and FPL's liquidity may be impaired if their credit providers are unable to fund their credit commitments to the companies or to maintain their current credit ratings. |
• | Poor market performance and other economic factors could affect NEE's defined benefit pension plan's funded status, which may materially adversely affect NEE's and FPL's business, financial condition, liquidity and results of operations and prospects. |
• | Poor market performance and other economic factors could adversely affect the asset values of NEE's and FPL's nuclear decommissioning funds, which may materially adversely affect NEE's and FPL's liquidity, financial condition and results of operations. |
• | Certain of NEE's investments are subject to changes in market value and other risks, which may materially adversely affect NEE's liquidity, financial condition and results of operations. |
• | NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to NEE. |
• | NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if NEE is required to perform under guarantees of obligations of its subsidiaries. |
• | NEP may not be able to access sources of capital on commercially reasonable terms, which would have a material adverse effect on its ability to consummate future acquisitions and on the value of NEE’s limited partner interest in NEP OpCo. |
• | Disruptions, uncertainty or volatility in the credit and capital markets may exert downward pressure on the market price of NEE's common stock. |
These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in NEE's and FPL's Annual Report on Form 10-K for the year ended December 31, 2017 (2017 Form 10-K), and investors should refer to that section of the 2017 Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and NEE and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.
Website Access to SEC Filings. NEE and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEE's internet website, www.nexteraenergy.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC. The information and materials available on NEE's website (or any of its subsidiaries' or affiliates' websites) are not incorporated by reference into this combined Form 10-Q. The SEC maintains an internet website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC at www.sec.gov.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017(a) | 2018 | 2017(a) | |||||||||||||
OPERATING REVENUES | $ | 4,069 | $ | 4,404 | $ | 7,932 | $ | 8,377 | ||||||||
OPERATING EXPENSES (INCOME) | ||||||||||||||||
Fuel, purchased power and interchange | 894 | 1,018 | 1,713 | 1,917 | ||||||||||||
Other operations and maintenance | 849 | 844 | 1,626 | 1,683 | ||||||||||||
Merger-related | 1 | 4 | 1 | 15 | ||||||||||||
Depreciation and amortization | 831 | 886 | 1,688 | 1,505 | ||||||||||||
Gains on disposal of a business/assets - net | (39 | ) | (1 | ) | (55 | ) | (1,101 | ) | ||||||||
Taxes other than income taxes and other - net | 371 | 377 | 750 | 720 | ||||||||||||
Total operating expenses - net | 2,907 | 3,128 | 5,723 | 4,739 | ||||||||||||
OPERATING INCOME | 1,162 | 1,276 | 2,209 | 3,638 | ||||||||||||
OTHER INCOME (DEDUCTIONS) | ||||||||||||||||
Interest expense | (394 | ) | (430 | ) | (620 | ) | (790 | ) | ||||||||
Benefits associated with differential membership interests - net | — | 119 | — | 244 | ||||||||||||
Equity in earnings of equity method investees | 54 | 66 | 251 | 97 | ||||||||||||
Allowance for equity funds used during construction | 22 | 25 | 44 | 47 | ||||||||||||
Interest income | 10 | 19 | 28 | 39 | ||||||||||||
Gain on NEP deconsolidation | — | — | 3,935 | — | ||||||||||||
Gains on disposal of investments and other property - net | 3 | 3 | 53 | 48 | ||||||||||||
Change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds - net | 13 | — | (7 | ) | — | |||||||||||
Other net periodic benefit income | 51 | 10 | 102 | 53 | ||||||||||||
Other - net | 10 | 5 | 16 | (17 | ) | |||||||||||
Total other income (deductions) - net | (231 | ) | (183 | ) | 3,802 | (279 | ) | |||||||||
INCOME BEFORE INCOME TAXES | 931 | 1,093 | 6,011 | 3,359 | ||||||||||||
INCOME TAXES | 230 | 289 | 1,479 | 964 | ||||||||||||
NET INCOME | 701 | 804 | 4,532 | 2,395 | ||||||||||||
NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 94 | (11 | ) | 691 | (19 | ) | ||||||||||
NET INCOME ATTRIBUTABLE TO NEE | $ | 795 | $ | 793 | $ | 5,223 | $ | 2,376 | ||||||||
Earnings per share attributable to NEE: | ||||||||||||||||
Basic | $ | 1.69 | $ | 1.69 | $ | 11.09 | $ | 5.08 | ||||||||
Assuming dilution | $ | 1.64 | $ | 1.68 | $ | 10.95 | $ | 5.05 | ||||||||
Dividends per share of common stock | $ | 1.11 | $ | 0.9825 | $ | 2.22 | $ | 1.965 | ||||||||
Weighted-average number of common shares outstanding: | ||||||||||||||||
Basic | 471.1 | 467.9 | 470.9 | 467.7 | ||||||||||||
Assuming dilution | 475.2 | 471.7 | 474.7 | 471.0 | ||||||||||||
——————————————— | ||||||||||||||||
(a) Prior period amounts have been retrospectively adjusted as discussed in Note 3 - Amendments to Presentation of Retirement Benefits. | ||||||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
NET INCOME | $ | 701 | $ | 804 | $ | 4,532 | $ | 2,395 | |||||||
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | |||||||||||||||
Reclassification of unrealized losses on cash flow hedges from accumulated other comprehensive income (loss) to net income (net of $2, $1, $5 and $4 tax expense, respectively) | 7 | 5 | 14 | 14 | |||||||||||
Net unrealized gains (losses) on available for sale securities: | |||||||||||||||
Net unrealized gains (losses) on securities still held (net of $1 tax benefit, $19 tax expense, $3 tax benefit and $45 tax expense, respectively) | (3 | ) | 26 | (9 | ) | 60 | |||||||||
Reclassification from accumulated other comprehensive income (loss) to net income (net of less than $1 tax expense, $1, $1 and $11 tax benefit, respectively) | — | (1 | ) | — | (17 | ) | |||||||||
Defined benefit pension and other benefits plans (net of less than $1 tax benefit, $6 tax expense, $1 tax benefit and $4 tax expense, respectively) | (1 | ) | 10 | (3 | ) | 7 | |||||||||
Net unrealized gains (losses) on foreign currency translation (net of $0, less than $1 tax expense, $0 and less than $1 tax expense, respectively) | — | 5 | (20 | ) | 21 | ||||||||||
Other comprehensive income (loss) related to equity method investees (net of less than $1 tax benefit, less than $1 tax benefit and $1 tax expense, respectively) | 2 | (1 | ) | 4 | — | ||||||||||
Total other comprehensive income (loss), net of tax | 5 | 44 | (14 | ) | 85 | ||||||||||
IMPACT OF NEP DECONSOLIDATION (NET OF $15 TAX EXPENSE) | — | — | 58 | — | |||||||||||
COMPREHENSIVE INCOME | 706 | 848 | 4,576 | 2,480 | |||||||||||
COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 94 | (12 | ) | 691 | (31 | ) | |||||||||
COMPREHENSIVE INCOME ATTRIBUTABLE TO NEE | $ | 800 | $ | 836 | $ | 5,267 | $ | 2,449 | |||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except par value)
(unaudited)
June 30, 2018 | December 31, 2017 | |||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||
Electric plant in service and other property | $ | 80,535 | $ | 85,337 | ||||
Nuclear fuel | 1,869 | 1,767 | ||||||
Construction work in progress | 7,347 | 6,679 | ||||||
Accumulated depreciation and amortization | (21,092 | ) | (21,367 | ) | ||||
Total property, plant and equipment - net ($9,756 and $16,485 related to VIEs, respectively) | 68,659 | 72,416 | ||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | 478 | 1,714 | ||||||
Customer receivables, net of allowances of $7 and $7, respectively | 2,230 | 2,220 | ||||||
Other receivables | 661 | 517 | ||||||
Materials, supplies and fossil fuel inventory | 1,159 | 1,273 | ||||||
Regulatory assets ($73 and $71 related to a VIE, respectively) | 344 | 336 | ||||||
Derivatives | 459 | 489 | ||||||
Other | 554 | 608 | ||||||
Total current assets | 5,885 | 7,157 | ||||||
OTHER ASSETS | ||||||||
Special use funds | 6,134 | 6,003 | ||||||
Investment in equity method investees | 6,217 | 2,321 | ||||||
Prepaid benefit costs | 1,490 | 1,427 | ||||||
Regulatory assets ($3 and $37 related to a VIE, respectively) | 2,503 | 2,469 | ||||||
Derivatives | 1,460 | 1,315 | ||||||
Other ($470 related to a VIE at December 31, 2017) | 3,142 | 4,719 | ||||||
Total other assets | 20,946 | 18,254 | ||||||
TOTAL ASSETS | $ | 95,490 | $ | 97,827 | ||||
CAPITALIZATION | ||||||||
Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 472 and 471, respectively) | $ | 5 | $ | 5 | ||||
Additional paid-in capital | 9,736 | 9,100 | ||||||
Retained earnings | 23,453 | 18,992 | ||||||
Accumulated other comprehensive income (loss) | (173 | ) | 111 | |||||
Total common shareholders' equity | 33,021 | 28,208 | ||||||
Noncontrolling interests ($3,151 and $1,006 related to VIEs, respectively) | 3,151 | 1,290 | ||||||
Total equity | 36,172 | 29,498 | ||||||
Long-term debt ($1,081 and $5,941 related to VIEs, respectively) | 28,356 | 31,463 | ||||||
Total capitalization | 64,528 | 60,961 | ||||||
CURRENT LIABILITIES | ||||||||
Commercial paper | 2,392 | 1,687 | ||||||
Other short-term debt | 205 | 255 | ||||||
Current maturities of long-term debt ($72 and $70 related to a VIE, respectively) | 1,613 | 1,676 | ||||||
Accounts payable | 2,298 | 3,235 | ||||||
Customer deposits | 445 | 448 | ||||||
Accrued interest and taxes | 737 | 622 | ||||||
Derivatives | 496 | 364 | ||||||
Accrued construction-related expenditures | 686 | 1,033 | ||||||
Regulatory liabilities | 385 | 346 | ||||||
Other | 927 | 1,566 | ||||||
Total current liabilities | 10,184 | 11,232 | ||||||
OTHER LIABILITIES AND DEFERRED CREDITS | ||||||||
Asset retirement obligations | 3,048 | 3,031 | ||||||
Deferred income taxes | 7,162 | 5,754 | ||||||
Regulatory liabilities | 8,846 | 8,765 | ||||||
Derivatives | 491 | 535 | ||||||
Deferral related to differential membership interests - VIEs | — | 5,403 | ||||||
Other | 1,231 | 2,146 | ||||||
Total other liabilities and deferred credits | 20,778 | 25,634 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 95,490 | $ | 97,827 | ||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
Six Months Ended June 30, | ||||||||
2018 | 2017(a) | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 4,532 | $ | 2,395 | ||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 1,688 | 1,505 | ||||||
Nuclear fuel and other amortization | 127 | 143 | ||||||
Unrealized losses (gains) on marked to market derivative contracts - net | (1 | ) | 14 | |||||
Foreign currency transaction losses (gains) | 11 | (12 | ) | |||||
Deferred income taxes | 1,395 | 886 | ||||||
Cost recovery clauses and franchise fees | (49 | ) | 10 | |||||
Acquisition of purchased power agreement | (52 | ) | (243 | ) | ||||
Gains on disposal of a business/assets - net | (108 | ) | (1,149 | ) | ||||
Gain on NEP deconsolidation | (3,935 | ) | — | |||||
Recoverable storm-related costs | — | (105 | ) | |||||
Other - net | (101 | ) | (106 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Current assets | (126 | ) | (229 | ) | ||||
Noncurrent assets | (6 | ) | (105 | ) | ||||
Current liabilities | (419 | ) | 206 | |||||
Noncurrent liabilities | (23 | ) | 41 | |||||
Net cash provided by operating activities | 2,933 | 3,251 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Capital expenditures of FPL | (2,414 | ) | (2,648 | ) | ||||
Independent power and other investments of NEER | (3,220 | ) | (4,106 | ) | ||||
Nuclear fuel purchases | (188 | ) | (149 | ) | ||||
Other capital expenditures and other investments | (101 | ) | (34 | ) | ||||
Proceeds from sale of the fiber-optic telecommunications business | — | 1,482 | ||||||
Proceeds from sale or maturity of securities in special use funds and other investments | 1,788 | 1,419 | ||||||
Purchases of securities in special use funds and other investments | (1,992 | ) | (1,531 | ) | ||||
Distributions from equity method investees | 633 | 7 | ||||||
Other - net | 139 | 46 | ||||||
Net cash used in investing activities | (5,355 | ) | (5,514 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuances of long-term debt | 2,875 | 2,771 | ||||||
Retirements of long-term debt | (1,214 | ) | (1,885 | ) | ||||
Net change in commercial paper | 705 | 1,847 | ||||||
Proceeds from other short-term debt | 200 | 200 | ||||||
Repayments of other short-term debt | (250 | ) | — | |||||
Issuances of common stock - net | 11 | 25 | ||||||
Dividends on common stock | (1,047 | ) | (920 | ) | ||||
Other - net | (90 | ) | (361 | ) | ||||
Net cash provided by financing activities | 1,190 | 1,677 | ||||||
Effects of currency translation on cash, cash equivalents and restricted cash | (15 | ) | — | |||||
Net decrease in cash, cash equivalents and restricted cash | (1,247 | ) | (586 | ) | ||||
Cash, cash equivalents and restricted cash at beginning of period | 1,983 | 1,529 | ||||||
Cash, cash equivalents and restricted cash at end of period | $ | 736 | $ | 943 | ||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||||||||
Accrued property additions | $ | 1,772 | $ | 1,288 | ||||
Increase in property, plant and equipment - net as a result of cash grants primarily under the Recovery Act | $ | — | $ | (145 | ) | |||
Decrease (increase) in property, plant and equipment - net as a result of a settlement/noncash exchange | $ | 14 | $ | (142 | ) | |||
——————————————— | ||||||||
(a) Prior period amounts have been retrospectively adjusted as discussed in Note 11 - Restricted Cash. | ||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
10
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(millions)
(unaudited)
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Common Shareholders' Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||
Shares | Aggregate Par Value | |||||||||||||||||||||||||||||
Balances, December 31, 2017 | 471 | $ | 5 | $ | 9,100 | $ | 111 | $ | 18,992 | $ | 28,208 | $ | 1,290 | $ | 29,498 | |||||||||||||||
Net income (loss) | — | — | — | — | 5,223 | 5,223 | (691 | ) | ||||||||||||||||||||||
Share-based payment activity | 1 | — | 43 | — | — | 43 | — | |||||||||||||||||||||||
Dividends on common stock | — | — | — | — | (1,047 | ) | (1,047 | ) | — | |||||||||||||||||||||
Other comprehensive loss | — | — | — | (14 | ) | — | (14 | ) | — | |||||||||||||||||||||
Impact of NEP deconsolidation(a) | — | — | — | 58 | — | 58 | (2,695 | ) | ||||||||||||||||||||||
Adoption of accounting standards updates(b) | — | — | 593 | (328 | ) | 285 | 550 | 5,303 | ||||||||||||||||||||||
Other | — | — | — | — | — | — | (56 | ) | ||||||||||||||||||||||
Balances, June 30, 2018 | 472 | $ | 5 | $ | 9,736 | $ | (173 | ) | $ | 23,453 | $ | 33,021 | $ | 3,151 | $ | 36,172 | ||||||||||||||
——————————————— | ||||||||||||||||||||||||||||||
(a) See Note 2. | ||||||||||||||||||||||||||||||
(b) See Notes 1, 5 - Financial Instruments Accounting Standards Update, 6 and 11 - Accounting for Partial Sales of Nonfinancial Assets. | ||||||||||||||||||||||||||||||
Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Common Shareholders' Equity | Non- controlling Interests | Total Equity | ||||||||||||||||||||||||
Shares | Aggregate Par Value | |||||||||||||||||||||||||||||
Balances, December 31, 2016 | 468 | $ | 5 | $ | 8,948 | $ | (70 | ) | $ | 15,458 | $ | 24,341 | $ | 990 | $ | 25,331 | ||||||||||||||
Net income | — | — | — | — | 2,376 | 2,376 | 19 | |||||||||||||||||||||||
Issuances of common stock, net of issuance cost of less than $1 | 1 | — | 15 | — | — | 15 | — | |||||||||||||||||||||||
Share-based payment activity | — | — | 44 | — | — | 44 | — | |||||||||||||||||||||||
Dividends on common stock | — | — | — | — | (920 | ) | (920 | ) | — | |||||||||||||||||||||
Other comprehensive income | — | — | — | 73 | — | 73 | 12 | |||||||||||||||||||||||
Sale of NEER assets to NEP | — | — | — | — | — | — | (17 | ) | ||||||||||||||||||||||
Other | — | — | (3 | ) | — | — | (3 | ) | (54 | ) | ||||||||||||||||||||
Balances, June 30, 2017 | 469 | $ | 5 | $ | 9,004 | $ | 3 | $ | 16,914 | $ | 25,926 | $ | 950 | $ | 26,876 | |||||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
11
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions)
(unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
OPERATING REVENUES | $ | 2,908 | $ | 3,091 | $ | 5,528 | $ | 5,618 | ||||||||
OPERATING EXPENSES (INCOME) | ||||||||||||||||
Fuel, purchased power and interchange | 765 | 893 | 1,477 | 1,661 | ||||||||||||
Other operations and maintenance | 388 | 404 | 734 | 775 | ||||||||||||
Depreciation and amortization | 511 | 537 | 1,056 | 810 | ||||||||||||
Taxes other than income taxes and other - net | 322 | 316 | 632 | 620 | ||||||||||||
Total operating expenses - net | 1,986 | 2,150 | 3,899 | 3,866 | ||||||||||||
OPERATING INCOME | 922 | 941 | 1,629 | 1,752 | ||||||||||||
OTHER INCOME (DEDUCTIONS) | ||||||||||||||||
Interest expense | (141 | ) | (121 | ) | (275 | ) | (240 | ) | ||||||||
Allowance for equity funds used during construction | 20 | 19 | 42 | 34 | ||||||||||||
Other - net | 1 | — | 2 | 1 | ||||||||||||
Total other deductions - net | (120 | ) | (102 | ) | (231 | ) | (205 | ) | ||||||||
INCOME BEFORE INCOME TAXES | 802 | 839 | 1,398 | 1,547 | ||||||||||||
INCOME TAXES | 176 | 313 | 288 | 576 | ||||||||||||
NET INCOME(a) | $ | 626 | $ | 526 | $ | 1,110 | $ | 971 | ||||||||
_______________________
(a) | FPL's comprehensive income is the same as reported net income. |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
12
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amount)
(unaudited)
June 30, 2018 | December 31, 2017 | ||||||||
ELECTRIC UTILITY PLANT AND OTHER PROPERTY | |||||||||
Plant in service and other property | $ | 48,629 | $ | 47,167 | |||||
Nuclear fuel | 1,218 | 1,192 | |||||||
Construction work in progress | 3,458 | 3,623 | |||||||
Accumulated depreciation and amortization | (12,885 | ) | (12,802 | ) | |||||
Total electric utility plant and other property - net | 40,420 | 39,180 | |||||||
CURRENT ASSETS | |||||||||
Cash and cash equivalents | 38 | 33 | |||||||
Customer receivables, net of allowances of $2 and $2, respectively | 1,148 | 1,073 | |||||||
Other receivables | 239 | 160 | |||||||
Materials, supplies and fossil fuel inventory | 783 | 840 | |||||||
Regulatory assets ($73 and $71 related to a VIE, respectively) | 344 | 335 | |||||||
Other | 175 | 243 | |||||||
Total current assets | 2,727 | 2,684 | |||||||
OTHER ASSETS | |||||||||
Special use funds | 4,210 | 4,090 | |||||||
Prepaid benefit costs | 1,391 | 1,351 | |||||||
Regulatory assets ($3 and $37 related to a VIE, respectively) | 2,264 | 2,249 | |||||||
Other | 599 | 690 | |||||||
Total other assets | 8,464 | 8,380 | |||||||
TOTAL ASSETS | $ | 51,611 | $ | 50,244 | |||||
CAPITALIZATION | |||||||||
Common stock (no par value, 1,000 shares authorized, issued and outstanding) | $ | 1,373 | $ | 1,373 | |||||
Additional paid-in capital | 9,141 | 8,291 | |||||||
Retained earnings | 8,479 | 7,376 | |||||||
Total common shareholder's equity | 18,993 | 17,040 | |||||||
Long-term debt ($35 and $74 related to a VIE, respectively) | 12,379 | 11,236 | |||||||
Total capitalization | 31,372 | 28,276 | |||||||
CURRENT LIABILITIES | |||||||||
Commercial paper | 987 | 1,687 | |||||||
Other short-term debt | — | 250 | |||||||
Current maturities of long-term debt ($72 and $70 related to a VIE, respectively) | 92 | 466 | |||||||
Accounts payable | 713 | 893 | |||||||
Customer deposits | 442 | 445 | |||||||
Accrued interest and taxes | 522 | 439 | |||||||
Accrued construction-related expenditures | 270 | 300 | |||||||
Regulatory liabilities | 372 | 333 | |||||||
Other | 444 | 984 | |||||||
Total current liabilities | 3,842 | 5,797 | |||||||
OTHER LIABILITIES AND DEFERRED CREDITS | |||||||||
Asset retirement obligations | 2,097 | 2,047 | |||||||
Deferred income taxes | 5,122 | 5,005 | |||||||
Regulatory liabilities | 8,728 | 8,642 | |||||||
Other | 450 | 477 | |||||||
Total other liabilities and deferred credits | 16,397 | 16,171 | |||||||
COMMITMENTS AND CONTINGENCIES | |||||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 51,611 | $ | 50,244 | |||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
13
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
Six Months Ended June 30, | |||||||||
2018 | 2017(a) | ||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||
Net income | $ | 1,110 | $ | 971 | |||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||
Depreciation and amortization | 1,056 | 810 | |||||||
Nuclear fuel and other amortization | 76 | 101 | |||||||
Deferred income taxes | 268 | 399 | |||||||
Cost recovery clauses and franchise fees | (49 | ) | 10 | ||||||
Acquisition of purchased power agreement | (52 | ) | (243 | ) | |||||
Recoverable storm-related costs | — | (105 | ) | ||||||
Other - net | 4 | (44 | ) | ||||||
Changes in operating assets and liabilities: | |||||||||
Current assets | (139 | ) | (227 | ) | |||||
Noncurrent assets | (15 | ) | (16 | ) | |||||
Current liabilities | (325 | ) | 437 | ||||||
Noncurrent liabilities | (55 | ) | (13 | ) | |||||
Net cash provided by operating activities | 1,879 | 2,080 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||
Capital expenditures | (2,414 | ) | (2,648 | ) | |||||
Nuclear fuel purchases | (90 | ) | (94 | ) | |||||
Proceeds from sale or maturity of securities in special use funds | 1,101 | 902 | |||||||
Purchases of securities in special use funds | (1,228 | ) | (949 | ) | |||||
Other - net | 22 | (1 | ) | ||||||
Net cash used in investing activities | (2,609 | ) | (2,790 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||
Issuances of long-term debt | 1,594 | 200 | |||||||
Retirements of long-term debt | (798 | ) | (35 | ) | |||||
Net change in commercial paper | (700 | ) | 732 | ||||||
Proceeds from other short-term debt | — | 200 | |||||||
Repayments of other short-term debt | (250 | ) | — | ||||||
Capital contribution from NEE | 850 | — | |||||||
Dividends to NEE | — | (400 | ) | ||||||
Other - net | (28 | ) | (2 | ) | |||||
Net cash provided by financing activities | 668 | 695 | |||||||
Net decrease in cash, cash equivalents and restricted cash | (62 | ) | (15 | ) | |||||
Cash, cash equivalents and restricted cash at beginning of period | 174 | 153 | |||||||
Cash, cash equivalents and restricted cash at end of period | $ | 112 | $ | 138 | |||||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||
Accrued property additions | $ | 488 | $ | 477 | |||||
Decrease (increase) in electric utility plant and other property - net as a result of a noncash exchange | $ | 14 | $ | (144 | ) | ||||
——————————————— | |||||||||
(a) Prior period amounts have been retrospectively adjusted as discussed in Note 11 - Restricted Cash. | |||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.
14
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2017 Form 10-K. In the opinion of NEE and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
1. Revenue from Contracts with Customers
Effective January 1, 2018, NEE and FPL adopted an accounting standards update that provides guidance on the recognition of revenue from contracts with customers and requires additional disclosures regarding such contracts (new revenue standard). Under the new revenue standard, revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The promised goods or services in the majority of NEE’s contracts with customers is, at FPL, for the delivery of electricity and, at NEER, for the delivery of energy commodities and the availability of electric capacity and electric transmission. NEE and FPL adopted the new revenue standard using the modified retrospective approach applying it only to contracts that were not complete at January 1, 2018. On January 1, 2018, NEE recorded a reduction to retained earnings of approximately $25 million representing the cumulative effect of adopting the new revenue standard, which was primarily due to identifying separate performance obligations in certain energy-related contracts at NEER. The cumulative effect of adopting the new revenue standard was not material at FPL. The impact of applying the new revenue standard to NEE’s and FPL's June 30, 2018 financial statements as compared to the prior revenue standard was not material.
FPL and NEER generate substantially all of NEE’s operating revenues, which primarily include revenues from contracts with customers, as well as, at NEER, derivative and lease transactions. For the vast majority of contracts with customers, NEE believes that the obligation to deliver energy, capacity or transmission is satisfied over time as the customer simultaneously receives and consumes benefits as NEE performs. For the three and six months ended June 30, 2018, NEE’s revenue from contracts with customers was approximately $3.5 billion ($2.9 billion at FPL) and $6.8 billion ($5.5 billion at FPL), respectively. NEE's and FPL's receivables are primarily associated with revenues earned from contracts with customers, as well as, at NEER, derivative and lease transactions, and consist of both billed and unbilled amounts, which are recorded in customer receivables and other receivables on NEE's and FPL's condensed consolidated balance sheets. Receivables represent unconditional rights to consideration and reflect the differences in timing of revenue recognition and cash collections. For substantially all of NEE's and FPL's receivables, regardless of the type of revenue transaction from which the receivable originated, customer and counterparty credit risk is managed in the same manner and the terms and conditions of payment are similar.
FPL - FPL’s revenue from contracts with customers is derived primarily from tariff-based sales that result from providing electricity to retail customers in Florida with no defined contractual term. Electricity sales to retail customers account for approximately 90% of FPL’s operating revenues, the majority of which is to residential customers. FPL’s retail customers receive a bill monthly based on the amount of monthly kWh usage with payment due monthly. For these types of sales, FPL recognizes revenue as electricity is delivered and billed to customers, as well as an estimate for electricity delivered and not yet billed. The billed and unbilled amounts represent the value of electricity delivered to the customer.
NEER - NEER’s revenue from contracts with customers is derived primarily from the sale of energy commodities, electric capacity and electric transmission. For these types of sales, NEER recognizes revenue as energy commodities are delivered and as electric capacity and electric transmission are made available, consistent with the amounts billed to customers based on rates stipulated in the respective contracts as well as an accrual for amounts earned but not yet billed. The amounts billed and accrued represent the value of energy or transmission delivered and/or the capacity of energy or transmission available to the customer. Revenues yet to be earned under these contracts, which have maturity dates ranging from 2018 to 2043, will vary based on the volume of energy or transmission delivered and/or available. NEER’s customers typically receive bills monthly with payment due within 30 days. Certain contracts with customers contain a fixed price related primarily to electric capacity sales associated with ISO annual auctions through 2020 and certain power purchase agreements with maturity dates through 2034. At June 30, 2018, NEER expects to record approximately $680 million of revenues related to the fixed price components of such contracts over the remaining terms of the related contracts as the capacity is provided.
2. NEP Deconsolidation
During the third quarter of 2017, changes to NEP's governance structure were made that, among other things, enhanced NEP unitholder governance rights. The new governance structure established a NEP board of directors where NEP unitholders have the ability to nominate and elect board members, subject to certain limitations and requirements. As a result of these governance changes, NEP was deconsolidated from NEE on January 1, 2018, which is when the term of office of the first NEP unitholder-elected directors took effect. NEER continues to operate the projects owned by NEP and provide services to NEP under various related party operations and maintenance, administrative and management services agreements.
15
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
In connection with the deconsolidation, NEE recorded an initial investment in NEP of approximately $4.4 billion based on the fair value of NEP OpCo and NEP common units that were held by subsidiaries of NEE on the deconsolidation date, which investment is included in investment in equity method investees on NEE's condensed consolidated balance sheet at June 30, 2018. The fair value was based on the market price of NEP common units as of January 1, 2018, which resulted in NEE recording a gain of approximately $3.9 billion ($3.0 billion after tax) during the six months ended June 30, 2018. Total assets of approximately $7.8 billion, primarily property, plant and equipment, total liabilities of approximately $4.8 billion, primarily long-term debt, and total noncontrolling interests of approximately $2.7 billion were removed from NEE's balance sheet as part of the deconsolidation.
The equity method investment in NEP represents NEE’s partnership interest in NEP OpCo's operating projects of approximately 65.1% (and NEE’s direct interest in 2.6% of NEP’s common units) at June 30, 2018. The equity method investment in NEP includes approximately $3.3 billion related to NEE’s share of the basis difference between the fair value and the underlying carrying value of NEP’s net assets attributable to NEP OpCo's common unitholders at June 30, 2018, a portion of which is being amortized. Basis difference amounts related to property, plant and equipment, net are being amortized over the remaining useful lives of such property, and amounts related to power purchase agreements are being amortized over the remaining terms of such agreements. The related amortization is included in equity in earnings of equity method investees in NEE's condensed consolidated statements of income.
NEER provides management, administrative and transportation and fuel management services to NEP and its subsidiaries under various agreements (service agreements). NEER is also party to a cash sweep and credit support (CSCS) agreement with a subsidiary of NEP. At June 30, 2018, the cash sweep amount (due to NEP and its subsidiaries) held in accounts belonging to NEER or its subsidiaries was approximately $137 million and is included in accounts payable. Fee income totaling approximately $24 million and $48 million related to the CSCS agreement and the service agreements is included in operating revenues in NEE's condensed consolidated statements of income for the three and six months ended June 30, 2018, respectively. Amounts due from NEP of approximately $43 million and $21 million at June 30, 2018 are primarily included in other receivables and noncurrent other assets, respectively. Under the CSCS agreement, NEECH or NEER guaranteed or provided indemnifications, letters of credit or bonds totaling approximately $650 million at June 30, 2018 primarily related to obligations on behalf of NEP's subsidiaries with maturity dates ranging from 2018 to 2050 and including certain project performance obligations, obligations under financing and interconnection agreements and obligations related to the sale of differential membership interests. Payment guarantees and related contracts with respect to unconsolidated entities for which NEE or one of its subsidiaries are the guarantor are recorded on NEE’s condensed consolidated balance sheet at fair value. As a result of deconsolidation, approximately $32 million related to the fair value of the credit support provided under the CSCS agreement is recorded as noncurrent other liabilities on NEE's condensed consolidated balance sheet at June 30, 2018.
3. Employee Retirement Benefits
NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries and sponsors a contributory postretirement plan for other benefits for retirees of NEE and its subsidiaries meeting certain eligibility requirements.
The components of net periodic benefit (income) cost for the plans are as follows:
Pension Benefits | Postretirement Benefits | Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | Six Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | 2018 | 2017 | ||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||
Service cost | $ | 18 | $ | 17 | $ | — | $ | 1 | $ | 35 | $ | 33 | $ | 1 | $ | 1 | |||||||||||||||
Interest cost | 20 | 21 | 2 | 2 | 41 | 42 | 3 | 4 | |||||||||||||||||||||||
Expected return on plan assets | (69 | ) | (68 | ) | — | — | (138 | ) | (135 | ) | — | — | |||||||||||||||||||
Amortization of prior service benefit | — | (1 | ) | (4 | ) | (2 | ) | — | (1 | ) | (8 | ) | (2 | ) | |||||||||||||||||
Special termination benefits | — | 37 | — | — | — | 38 | — | — | |||||||||||||||||||||||
Postretirement benefits settlement | — | — | — | 1 | — | — | — | 1 | |||||||||||||||||||||||
Net periodic benefit (income) cost at NEE | $ | (31 | ) | $ | 6 | $ | (2 | ) | $ | 2 | $ | (62 | ) | $ | (23 | ) | $ | (4 | ) | $ | 4 | ||||||||||
Net periodic benefit (income) cost at FPL | $ | (20 | ) | $ | 6 | $ | (2 | ) | $ | 1 | $ | (40 | ) | $ | (12 | ) | $ | (3 | ) | $ | 3 | ||||||||||
16
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Amendments to Presentation of Retirement Benefits - Effective January 1, 2018, NEE adopted an accounting standards update that requires certain changes in classification of components of net periodic pension and postretirement benefit costs within the income statement and allows only the service cost component to be eligible for capitalization. NEE adopted the standards update using the retrospective approach for presentation of the components of net periodic pension and postretirement benefit costs and the prospective approach for capitalization of service cost. Upon adoption, NEE, among other things, reclassified the non-service cost components noted in the net periodic benefit (income) cost table above from O&M expense to other net periodic benefit income in NEE's condensed consolidated statements of income. The adoption of this standards update did not have an impact on net income attributable to NEE and did not have any impact on FPL as NEE is the plan sponsor.
4. Derivative Instruments
NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the physical and financial risks inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated primarily with outstanding and expected future debt issuances and borrowings, and to optimize the value of NEER's power generation and gas infrastructure assets. NEE and FPL do not utilize hedge accounting for their cash flow and fair value hedges.
With respect to commodities related to NEE's competitive energy business, NEER employs risk management procedures to conduct its activities related to optimizing the value of its power generation and gas infrastructure assets, providing full energy and capacity requirements services primarily to distribution utilities, and engaging in power and gas marketing and trading activities to take advantage of expected future favorable price movements and changes in the expected volatility of prices in the energy markets. These risk management activities involve the use of derivative instruments executed within prescribed limits to manage the risk associated with fluctuating commodity prices. Transactions in derivative instruments are executed on recognized exchanges or via the OTC markets, depending on the most favorable credit terms and market execution factors. For NEER's power generation and gas infrastructure assets, derivative instruments are used to hedge all or a portion of the expected output of these assets. These hedges are designed to reduce the effect of adverse changes in the wholesale forward commodity markets associated with NEER's power generation and gas infrastructure assets. With regard to full energy and capacity requirements services, NEER is required to vary the quantity of energy and related services based on the load demands of the customers served. For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and reduce the effect of unfavorable changes in the forward energy markets. Additionally, NEER takes positions in energy markets based on differences between actual forward market levels and management's view of fundamental market conditions, including supply/demand imbalances, changes in traditional flows of energy, changes in short- and long-term weather patterns and anticipated regulatory and legislative outcomes. NEER uses derivative instruments to realize value from these market dislocations, subject to strict risk management limits around market, operational and credit exposure.
Derivative instruments, when required to be marked to market, are recorded on NEE's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in the derivatives' fair value 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. For NEE's non-rate regulated operations, predominantly NEER, essentially all changes in the derivatives' fair value for power purchases and sales, fuel sales and trading activities are recognized on a net basis in operating revenues; the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income. For commodity derivatives, NEE believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes. Settlements related to derivative instruments are primarily recognized in net cash provided by operating activities in NEE's and FPL's condensed consolidated statements of cash flows.
For interest rate and foreign currency derivative instruments, essentially all changes in the derivatives' fair value, as well as the transaction gain or loss on foreign denominated debt, are recognized in interest expense and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. At June 30, 2018, NEE's AOCI included amounts related to discontinued interest rate cash flow hedges with expiration dates through March 2035 and foreign currency cash flow hedges with expiration dates through September 2030. Approximately $22 million of net losses included in AOCI at June 30, 2018 is expected to be reclassified into earnings within the next 12 months as the principal and/or interest payments are made. Such amounts assume no change in scheduled principal payments.
17
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Fair Value of Derivative Instruments - The tables below present NEE's and FPL's gross derivative positions at June 30, 2018 and December 31, 2017, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting agreements and generally would not be contractually settled on a gross basis. Therefore, the tables below also present the derivative positions on a net basis, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral (see Note 5 - Recurring Fair Value Measurements for netting information), as well as the location of the net derivative position on the condensed consolidated balance sheets.
June 30, 2018 | |||||||||||||||
Gross Basis | Net Basis | ||||||||||||||
Assets | Liabilities | Assets | Liabilities | ||||||||||||
(millions) | |||||||||||||||
NEE: | |||||||||||||||
Commodity contracts | $ | 4,097 | $ | 2,908 | $ | 1,792 | $ | 657 | |||||||
Interest rate contracts | 102 | 291 | 101 | 290 | |||||||||||
Foreign currency contracts | 14 | 28 | 26 | 40 | |||||||||||
Total fair values | $ | 4,213 | $ | 3,227 | $ | 1,919 | $ | 987 | |||||||
FPL: | |||||||||||||||
Commodity contracts | $ | 5 | $ | 5 | $ | 3 | $ | 3 | |||||||
Net fair value by NEE balance sheet line item: | |||||||||||||||
Current derivative assets(a) | $ | 459 | |||||||||||||
Noncurrent derivative assets(b) | 1,460 | ||||||||||||||
Current derivative liabilities | $ | 496 | |||||||||||||
Noncurrent derivative liabilities | 491 | ||||||||||||||
Total derivatives | $ | 1,919 | $ | 987 | |||||||||||
Net fair value by FPL balance sheet line item: | |||||||||||||||
Current other assets | $ | 3 | |||||||||||||
Current other liabilities | $ | 2 | |||||||||||||
Noncurrent other liabilities | 1 | ||||||||||||||
Total derivatives | $ | 3 | $ | 3 | |||||||||||
———————————————
(a) | Reflects the netting of approximately $11 million in margin cash collateral received from counterparties. |
(b) | Reflects the netting of approximately $43 million in margin cash collateral received from counterparties. |
18
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
December 31, 2017 | |||||||||||||||
Gross Basis | Net Basis | ||||||||||||||
Assets | Liabilities | Assets | Liabilities | ||||||||||||
(millions) | |||||||||||||||
NEE: | |||||||||||||||
Commodity contracts | $ | 3,962 | $ | 2,792 | $ | 1,737 | $ | 567 | |||||||
Interest rate contracts | 50 | 275 | 55 | 280 | |||||||||||
Foreign currency contracts | — | 40 | 12 | 52 | |||||||||||
Total fair values | $ | 4,012 | $ | 3,107 | $ | 1,804 | $ | 899 | |||||||
FPL: | |||||||||||||||
Commodity contracts | $ | 3 | $ | 3 | $ | 2 | $ | 2 | |||||||
Net fair value by NEE balance sheet line item: | |||||||||||||||
Current derivative assets(a) | $ | 489 | |||||||||||||
Noncurrent derivative assets | 1,315 | ||||||||||||||
Current derivative liabilities | $ | 364 | |||||||||||||
Noncurrent derivative liabilities(b) | 535 | ||||||||||||||
Total derivatives | $ | 1,804 | $ | 899 | |||||||||||
Net fair value by FPL balance sheet line item: | |||||||||||||||
Current other assets | $ | 2 | |||||||||||||
Current other liabilities | $ | 2 | |||||||||||||
Total derivatives | $ | 2 | $ | 2 | |||||||||||
———————————————
(a) | Reflects the netting of approximately $39 million in margin cash collateral received from counterparties. |
(b) | Reflects the netting of approximately $39 million in margin cash collateral paid to counterparties. |
At June 30, 2018 and December 31, 2017, NEE had approximately $8 million and $10 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets in the above presentation. These amounts are included in current other liabilities on NEE's condensed consolidated balance sheets. Additionally, at June 30, 2018 and December 31, 2017, NEE had approximately $188 million and $40 million (none at FPL), respectively, in margin cash collateral paid to counterparties that was not offset against derivative assets or liabilities in the above presentation. These amounts are included in current other assets on NEE's condensed consolidated balance sheets.
Income Statement Impact of Derivative Instruments - Gains (losses) related to NEE's derivatives are recorded in NEE's condensed consolidated statements of income as follows:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
(millions) | |||||||||||||||
Commodity contracts(a) - operating revenues | $ | 42 | $ | 132 | $ | 180 | $ | 424 | |||||||
Foreign currency contracts - interest expense | (25 | ) | 36 | 20 | 57 | ||||||||||
Foreign currency contracts - other - net | — | (2 | ) | — | (2 | ) | |||||||||
Interest rate contracts - interest expense | (83 | ) | (145 | ) | (27 | ) | (190 | ) | |||||||
Losses reclassified from AOCI to interest expense: | |||||||||||||||
Interest rate contracts | (8 | ) | (13 | ) | (17 | ) | (23 | ) | |||||||
Foreign currency contracts | (1 | ) | (77 | ) | (2 | ) | (79 | ) | |||||||
Total | $ | (75 | ) | $ | (69 | ) | $ | 154 | $ | 187 | |||||
———————————————
(a) | For the three and six months ended June 30, 2018, FPL recorded losses of approximately $1 million and gains of $3 million, respectively, related to commodity contracts as regulatory assets and regulatory liabilities, respectively, on its condensed consolidated balance sheets. For the three and six months ended June 30, 2017, FPL recorded losses of approximately $47 million and $152 million, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets. |
19
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Notional Volumes of Derivative Instruments - The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in NEE's and FPL's condensed consolidated financial statements. The table includes significant volumes of transactions that have minimal exposure to commodity price changes because they are variably priced agreements. These volumes are only an indication of the commodity exposure that is managed through the use of derivatives. They do not represent net physical asset positions or non-derivative positions and their hedges, nor do they represent NEE’s and FPL’s net economic exposure, but only the net notional derivative positions that fully or partially hedge the related asset positions. NEE and FPL had derivative commodity contracts for the following net notional volumes:
June 30, 2018 | December 31, 2017 | |||||||||||||||||||
Commodity Type | NEE | FPL | NEE | FPL | ||||||||||||||||
(millions) | ||||||||||||||||||||
Power | (107 | ) | MWh | — | (109 | ) | MWh | — | ||||||||||||
Natural gas | (110 | ) | MMBtu | 375 | MMBtu | (74 | ) | MMBtu | 142 | MMBtu | ||||||||||
Oil | (28 | ) | barrels | — | (15 | ) | barrels | — | ||||||||||||
At June 30, 2018 and December 31, 2017, NEE had interest rate contracts with notional amounts totaling approximately $13.0 billion and $12.1 billion, respectively, and foreign currency contracts with notional amounts totaling approximately $656 million and $718 million, respectively. In July 2018, NEECH entered into a forward starting interest rate swap agreement with a notional amount of $3 billion to manage interest rate risk associated with forecasted debt issuances.
Credit-Risk-Related Contingent Features - Certain derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating f