Krause Fund Research 2 Spring 2021 NextEra Energy, Inc. (NYSE: NEE) Stock Rating: Utilities th April 16 , 2021 HOLD Analysts z Caleb Fitch Jerome Mays Guy Renquist Grant Wambold
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Investment Thesis Target Price: $85.47-$89.85 Drivers of Thesis: Model Prices • Two of NextEra’s largest subsidiaries, Florida Power and Light (FPL) DCF $87.66 and Gulf Power, are set to see large increases in demand for their services DDM $87.85 in 2021 and 2022. FPL and Gulf Power provide public electricity services to Relative PE $29.95 a large majority of the popular vacation destinations in Florida. As the vaccine Price Data rollout continues in the U.S. and the COVID-19 pandemic draws to a close, Current Price $80.94 safety concerns will diminish. As this happens, we expect Americans to 52-week Low $55.66 increase travel and head to NextEra’s rate-regulated service areas. This 52-week High $87.69 expectation is built into our model with combined revenue growth of 13% in $1 2021 and 6.7% in 2022 for both segments. Key Statistics • NextEra Energy Resources (NEER) will grow at an accelerated rate as Market Capitalization $158.76 B more businesses and consumers look for cleaner energy sources and the Shares Outstanding 1.96 B market for electric vehicle infrastructure expands. NEER is the largest EPS (2021E) $2.15 provider of energy sourced from the wind and sun in the World. NEER’s P/E Ratio (TTM) 54.0 attractive generating portfolio will draw in more customers who are looking Forward P/E Ratio 37.1 for electricity sourced from renewables. Additionally, NEER has already Forward Dividend $1.54 positioned themselves to take advantage of the shift to electric vehicles. We Trailing Annual Dividend Yield 1.73% see NEER’s revenue growing 9.27% on average over the next five years. Payout Ratio 94.59% Risks of Thesis: Operating Revenues (TTM) $17.997 B • The anticipated rise in interest rates could lead to investors selling their shares in NextEra, leading to a drop in share price. Utilities offer stable Financial Ratios
cash flows to investors due to their consistent dividends. As rates rise, ROE 5.66% investors pull their assets out of utilities and into less risky bonds. Our model ROA 2.01% cannot account for this. Therefore, our share price may be off if rates rise. Debt/EBITDA 5.25x • Further delays in the economic recovery and vaccine rollout. If Americans Debt/Equity 1.07x hold off on travelling and the economy takes longer to recover than envisioned, our projections for growth could be considerably off-target. If this Company Description is the case, our valuation could be significantly off. Our sensitivity analysis shows that if 2021 revenue growth is as little as 2% off, our share price would NextEra Energy, Inc. is an energy drop around $9. infrastructure and electric power company. It operates through three main subsidiaries: Florida Power and Light (FPL), Gulf Power, Stock Performance and NextEra Energy Resources (NEER). FPL and Gulf Power are regulated electric utility companies located in the state of Florida that generate, transmit, and distribute electric power to their roughly 5.6 million retail and commercial customers. NEER is the world’s largest generator of renewable energy sourced from the wind
and sun. The segment spans across North America and sells a full range of energy services to their various customers through the wholesale market.
Source: FactSet Page | 1
the energy/utilities sector because demand for electricity Executive Summary increases with economic growth2. The U.S. saw a decrease in Real GDP of 3.49% in 2020. This was largely due to the adverse effects of the COVID-19 NextEra Energy operates both rate-regulated and unregulated pandemic. The Congressional Budget Office projects Real GDP utility companies across North America. Their diversified to grow 3.7% in 2021 and 2.6% from 2022 until 2025, on segments and generating capacity have made NextEra into the average3. Our estimates are in line with CBO’s projections. market leader in the utility industry. We are issuing a hold rating This increase in demand is mainly from industrial and on NextEra Energy’s stock with a target price range of $85.47 commercial customer accounts. These customers are producing - $89.85. This represents a 5.5%-11% increase above the the extra quantity of goods and services represented by real closing price on April 16th of $80.94. GDP growth and this new production often requires electricity.
We believe the predicted economic climate and rise in real GDP will benefit NextEra. Elevated economic output will lead to Annual Real GDP projections more electricity consumption. Furthermore, the hike in housing 4% starts will enlarge NextEra’s customer accounts. Increasing 3% interest rates and prices of natural gas will lead to higher costs for NextEra. This will dampen earnings growth but NextEra’s 2% ability to pass on costs to their customers will soften the blow. 1% 0% NextEra’s segments all have great upside in the coming years 2016 2018 2020 2022 2024 2026 2028 2030 with strong positions in their respective markets and unique -1% competitive advantages. Florida Power and Light has large -2% growth potential through the expected population growth in -3% Florida and a return post-pandemic to normal tourism levels. 2020 saw a 34% decrease in visitors to Florida and the state is Source: CBO3 only just beginning to see its hotels and tourism hotspots revert to normal attendance numbers.1 Gulf Power is also going to NEE holds commercial and industrial accounts through their benefit from their exposure to the Florida economy. They could various subsidiaries. Commercial accounts represented 35% of 21 also see lower rates for customers if the rate case filed by FPL’s revenue in 2019 and 32% in 2020. Additionally, many of the customers of the subsidiaries under the NEECH umbrella NextEra passes and they are merged with FPL. NextEra Energy will see an increase in demand as well due to economic growth. Resources has positioned themselves to capitalize on the rising The U.S. Energy Information Administration (EIA) expects importance of renewable energy generation, battery storage, commercial sector electricity consumption to rise .9% and and electric vehicles. With increasing investments into their industrial sector consumption to rise 1.2% in 20214. This core business and new areas they continue to develop value to increased consumption will carry on to 2022 and beyond as shareholders by placing themselves at the forefront of new economic output continues to rise. industry trends. This expected increase in real GDP- which results in higher NextEra is heavily exposed to Florida and their future success electricity consumption- will lead to more revenues being is tied directly into the state’s economy. FPL and Gulf Power’s brought in by NextEra and their subsidiaries in 2021 and the revenue growth depends on the state coming out of the rest of our projection period. pandemic and seeing our expected elevated demand for energy Housing Starts services. NEER operates in extremely competitive wholesale markets and will need to continue to innovate in order to stay Housing starts are an important economic indicator for the competitive and drive our projected revenue growth. With the utility sector because it represents the number of new homes emphasis on renewables for the future, NEER will begin to see being built each year. These new homes will need to be many other companies moving into their market space to try provided with electricity from local utilities. This leads to more and capitalize on the goals to reach zero-emissions. customer accounts and higher volume demand. Housing starts have been steadily increasing year-over-year Our hold recommendation is based upon the information since the last economic recession in 2008 and 2009. There were highlighted below and the outcome of our valuation models. approximately 1.38 million housing starts in 2020, a 7% increase from 20195. Currently, supply of houses and demand are at levels not seen in a long time. Demand is through roof as Economic Analysis Americans became to desire homes with more space while working remotely from home during the COVID-19 pandemic. We do not expect this demand to wane either. With work-from- Real GDP growth home being a viable option for consumers moving forward due Real GDP growth is the change in quantity of goods and to the societal impacts COVID-19 caused, consumers will services produced in an economy. Real GDP growth impacts continue to desire more spacious living arrangements. On the
Page | 2 flip side, the supply of houses is at all-time lows. At the end of February, there were 1.03 million homes for sale which was the 10-Year Treasury Constant Maturity Rate 6 lowest level in data going back to 1982 . Housing starts are one 4.00 way to have supply meet demand. We project housing starts to continue to increase in the coming years at a strong pace. We 3.00 project housing starts to be around 1.45 million in 2021 and 1.65 million in 2022. Many other estimates are higher for 2021 2.00 but we believe low supply of labor and elevated prices of Percent 1.00 housing materials will hold down housing starts from their potential. As prices of materials fall to more normalized levels 0.00
and the labor supply increases, housing starts will boom in
2-12 2-14 2-16 2-18 2-20 2-13 2-15 2-17 2-19 2-21 2022. This growth will diminish after 2022 as mortgage rates 2-11 increase and demand and supply move closer to equilibrium. Source: FRED7 We estimate annual housing starts to hover around 1.4 million from 2023 to 2025. This rise in interest rates will increase the cost of capital for NextEra. But overall, we believe NextEra’s ability to adjust the Housing starts rates they charge their customers will offset the increased costs of borrowing. 2250 2000 Natural Gas Prices 1750 1500 Natural gas prices have a significant impact on the utility 1250 1000 industry. For electric utilities like FPL and Gulf Power, 41.3% 750 of their electricity generation was sourced from natural gas Thousands 500 during the first 10 months of 20204. Natural gas is now the most 250 0 significant fuel source for electricity in the U.S.4 Natural gas prices have been at tampered levels lately due to high supply. In 2020, natural gas spot prices averaged $2.11/million British thermal units (MMBtu)4. The EIA Source: IBISWorld5 projects spot prices to average $3.13/MMBtu in 2021 and 4 These favorable projections will benefit NextEra because it will $3.40/MMBtu in 2022 . This increase in prices will have a lead to an increase in customer accounts and overall demand for significant impact on the revenues and costs of NextEra. 73% 21 their services. of FPL’s net generation comes from natural gas. Interest Rates The increase in prices will lead to higher costs for FPL, Gulf Power, and NextEra overall. These heightened costs can be met Long-Term Treasury yields significantly impact utility by an increase in revenues due to FPL’s ability to pass increased companies since these firms finance many of their large fuel costs on to their customers. infrastructure projects by raising debt. The rates on these debt holdings directly impact the cost of capital for these corporations. For electric utilities, long-term treasury yields are Industry Analysis the most important indicator of the cost of their debt because of the longer durations of their debt holdings. Industry Overview The rates on U.S. treasury bonds have reached historic lows in the last year. The rate on the 10-year U.S. treasury bond The electric utilities industry is primarily made up of regulated bottomed out at .52% on August 4th, 20207. Rates have since companies and subsidiaries that generate, transmit, and increased. As of April 16th, 2021, the rate on a 10-year treasury distribute electric power. Revenue is generated by selling bond sits at 1.59%7. 1.59% is still very low when looking at electricity to downstream residential, commercial, and historical rates. Moving forward, the Federal Reserve has been industrial customers. Most utilities are regulated by state adamant that they will not raise rates in the near term. We government public utility commissions which set the rates and believe other factors such as inflation will cause interest rates return on equity the utilities can earn.2 These caps on returns to continue to rise organically, but not to an impactful level. and rates limit industry and investment upside. However, When looking long term, we do expect rates to reach 2.75% and because people and businesses will always need electricity no above. matter the conditions, utilities are viewed as one of the safest investments because of their consistent demand. The industry is very capital intensive. This is due to the high cost and quantity of infrastructure required to provide the utility products and services. Additionally, utilities are incentivized to invest in infrastructure. Public utility commissions have a track record of granting higher rate increases to utilities that invest in infrastructure2.
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Porter’s Five Forces Recent Developments and Trends Degree of Rivalry/Competition- Low Shift toward clean energy Regulated electricity generation is dominated by a small U.S. power providers and utilities have been leading the clean number of utilities in each state. This is because utilities are energy transition. Pressure from a variety of stakeholders has granted franchises to be the sole provider of a given state or intensified over the last few years as society demands a shift in locality4. Because regulated utilities have a limited scope of energy production sources8. Utilities, cities, and states have coverage, each utility has a low percent of market share1. The been announcing plans to fully decarbonize over the next three regulators protect the citizens interests through regulations on decades8. These are bold initiatives, but the current trajectory is pricing and costs. promising. Bargaining Power of Customers- Low Currently, renewables account for 10% of the current U.S. energy mix9. This number is expected to grow to 39% by 20309. Customers do not have much say in the pricing of their At the end of 2020, regulated utilities owned approximately electricity and gas. Rates are set by the regulators. Industrial 12% of these renewable energy resources9. By 2030, it is customers have the highest amount of bargaining power estimated utilities will own 70% of all U.S. renewable energy because they are more sensitive to economic conditions and resources9. These numbers show that utilities will be the driving have a greater ability to change their demand based on those force behind this transition and utilities will be heavily 4 conditions . investing in renewable energy projects moving forward. Bargaining Power of Suppliers- High The continuing decline in the cost of renewable energy is a huge Power suppliers have a very high level of bargaining power factor in allowing this trend to continue. Levelized costs of through their commodity fuels that are necessary for power energy (the revenue required to build and operate a generator generation4. Commodity prices change based on supply and over a specified cost recovery period) of utility-scale solar have demand in the markets and suppliers can charge more based on been declining ever since inception. Costs for new-build utility- scale solar PV have declined, on average, 11% per year since these conditions. Utilities can change their fuel source for their 10 plants, but this can come at a higher cost than the increased 2015 . The same is true for the costs of new-build onshore supplier prices for fuel. wind. Onshore wind costs have been declining by 5% per year over the same time period10. These reductions have allowed Threat of Substitutes- Low renewable generation to compete with the more carbon- intensive energy sources on a cost basis. Currently, utility-scale There is a very low threat of substitutes for rate-regulated solar and utility-scale wind cost around $31/MWh and electricity. Switching to gas or another source of energy would $26/MWh, respectively10. The marginal cost for coal generation be extremely costly due the electricity infrastructure already in stands at an average of $41/MWh while combined gas 4 place . The costs would then lead to a rise in customers rates, generation costs around $29/MWh10. making regulators less likely to approve a change. Energy policy could lead to negative impacts on the revenues of some $60 inefficient utility companies. In the wholesale markets there is a high level for substitutes as firms compete to offer the best $50 and most reliable pricing for customers. $40 Threat of New Entrants or New Entry $30 The utilities industries are state or local government approved monopolies on the power delivery and generation in their given $20 areas. With large investments already made in the operating areas of large utilities it is unlikely that a new competitor would $10 attempt to invest in infrastructure in a utility companies service Cost Energy of ($/MWh) area. At home solar energy is becoming increasing popular $0 Onshore Onshore Solar PV - Solar PV - Coal Nuclear Gas - alternative to paying for utilities replacing some demand for Wind Wind Utility Scale Utility Scale Combined (Subsidized) (Subsidized) Cycle clean energy. The wholesale energy markets have high threats of entry if a firm is able to offer lower pricing than the already established utilities in the geographic region of the market. Source: Lazard10 Five Forces Summary The fact that renewable energy production costs are on par with conventional production now, makes the transition to NextEra’s rate-regulated electricity segments face much lower renewable energy economically viable. As costs continue to competition than their wholesale and un-regulated segments decline, utilities will replace their coal and gas plants with due to the low ability for entry and bargaining power of renewable infrastructure. We expect NextEra to continue to customers. The wholesale markets that NEER operates in have decommission many of their conventional generation much more robust competition due to the volatility of daily spot installations and replace them with less costly renewable markets and lower barriers for entry by firms looking to infrastructure. undercut pricing.
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EVs and charging infrastructure already delayed and overbudget before the pandemic and making their push to meet deadlines even more necessary. The The growth of electric vehicles (EVs) is looking like a Southern Company is looking to continue to acquire contracts promising avenue for utility companies to grow earnings. More for future projects and will compete with NextEra and its and more EVs are entering the automotive market every day. renewable subsidiaries for market share.13 14 As EVs become a larger portion of the U.S. vehicle fleet, the demand for charging stations and electricity will increase Dominion Energy proportionally. This creates an opportunity for utilities to step in and meet this demand by investing in charging infrastructure Dominion Energy Inc (D) operates nuclear, gas, coal, and expanding their production capacities. Regulators and hydroelectric, solar and oil energy plants on the Eastern governments are beginning to allow utilities to do just this. seaboard of the United States and in Utah and surrounding Regulators have already approved $2.6 billion in utility western states. Virginia Utility, a subsidiary of Dominion transportation electrification projects8. The competition in the Energy Inc that represents 55% of their revenue, is planning to EV charging market will be fierce, however. Automakers, complete a massive offshore wind farm off the coast of independent EV charging network operators, and even oil Virginia. The Coastal Virginia Offshore Wind Farm would companies are in the process of developing their own charging become the largest U.S. project of its kind, and the first U.S. stations and networks8. If regulators continue to allow regulated offshore farm owned by an electric utility company. If utilities to invest in EV infrastructure, and utilities can establish Dominion can successfully complete this project, they would a foothold in the market, then utilities are likely to see become the leading creator of offshore wind farms giving them considerable expansion in business and earnings. a great position to acquire future contracts to build more offshore wind farms. NextEra will have a much harder time Competitor Overview beating out Dominion for offshore wind contracts if Dominion is able to build the credibility as being the largest builder of Market Cap Generating offshore wind farms.15 16 17 (millions) Revenue Capacity (MW) NEE 156,504 17,977 51,680 NextEra vs Competitors DUK 77,076 23,868 53,375 Generating Capacity SO 68,793 20,375 58,299 NextEra Energy has given themselves an extremely strong lead D 60,611 14,172 27,100 as the number one renewable energy provider. Other large Data Sourced from Bloomberg utility companies have been late to the renewable investments game giving NextEra a great position to continue their Duke Energy Corporation unparalleled renewable growth. 35% of NextEra’s generating Duke Energy Corporation (DUK) is a large generator of electric capacity is invested in renewable energy projects with the next power, natural gas transportation, and manager of power closest comp being the Southern Company at 13% renewable distribution. One of their subsidiaries, Duke Energy Florida is and hydroelectric in their generating capacity. This wide gap a main geographic competitor for FPL. Duke Energy that NextEra holds above its peers in the renewables space gives Corporation has a strong presence in the United States with them a large advantage over their comparable companies much of its infrastructure in North Carolina. DUK services moving forward as renewable continue to be emphasized by customers in both the retail and wholesale markets. Their American society and legislation. growing commercial renewables segment has potential to compete with NEER for projects around the United States. Fuel Type % of 2019 Total Duke operates wind and solar projects using long-term contracts in wholesale markets. NextEra Energy attempted to Generating Capacity acquire Duke Energy Corporation to grow their integrated 100% electric utilities control and utilize the company's proximity to FPL. DUK management rejected the merger offer and the deal 80% would have been difficult to get regulators to approve due to the size of the transaction. A merger between the two companies 60% would have greatly benefit NextEra’s energy generation but 40% could face regulatory pushback from the FERC.11 12 20% The Southern Company 0% The Southern Company (SO) is a public utility holding NEE DUK SO D company that operates natural gas, renewable, and nuclear energy generation subsidiaries, and projects. The Southern Hydro Nuclear Fossil Fuels Renewables Company has 52 long-term wind and solar contracts throughout the United States with expiration dates ranging from 2028 to Source: Bloomberg 2046 making them a large player in the growing renewable energy generation sector. The Southern Company currently has Operating Performance the only nuclear power plant in construction during the NextEra’s focus on reliability and efficiency in its subsidiaries coronavirus pandemic. Their Vogtle nuclear project was has helped give them some of the best returns in the utilities
Page | 5 industry as shown above in the 5-year average returns. on the other hand pay out very attractive dividend yields. Regulated utilities can operate within a margin of their While NextEra may pay a lower dividend than its comps, they regulated returns and NextEra has been able to outclass its are beginning to increase their dividend payout. Management competition by bringing in above average returns. This table has announced that they plan on raising their annual dividend helps reflect the operating efficiency that the management team by 10% for the next five years. Our model reflects this at NextEra can execute across their subsidiaries. Our model has projected increase by raising NextEra’s dividends per share to forecasted NextEra to have an average ROE of 9.57% until $2.25 in 2025. 2025. We believe that NextEra will continue to offer higher returns than many other utilities over our forecast period. Forward 5 Year Annual Forward Annual Average ROA ROE ROIC Dividend Dividend Yield Dividend Yield NEE 1.54 1.90% 2.38% NEE 4.3 14.5 7.1 DUK 3.86 3.83% 4.22% SO 2.56 3.94% 4.56% DUK 1.8 6.2 2.9 D 2.52 3.19% 4.26% SO 2.4 10.5 4.0 Source: Yahoo! Finance
D 2.7 11.6 4.3
Source: FactSet (5-year averages) Company Analysis
Debt and Credit Ratings Company Structure Utilities depend on debt to finance their large investments in generation, transmission, and distribution assets. A company’s NextEra Energy is comprised of two main segments, Florida ability to borrow money can highly depend on their credit rating Power and Light and NextEra Energy Capital Holdings, with which serves a benchmark for lenders to base their interest rates subsegments below the two large segments. Gulf Power is on. A good credit rating will lead to lower interest rates from being reported as a separate segment from FPL for 2021 but lenders, making it easier to raise debt and utilize it in could be merged into one segment if the two utilities are investments.18 NextEra’s credit rating is in the upper medium allowed to operate under the same rate case. NextEra Energy grade level of S&P ratings allowing them to borrow for lower Capital Holdings contains NextEra Energy Resources (NEER), interest rates than some of their peers. In 2019 only 31% of NextEra Energy Transmission (NEET), and other subsidiaries. investor-owned utilities had a S&P credit rating of an A- or NEER encompasses all NextEra subsidiaries under NEECH on above, putting NextEra above 79% of its competition.19 This the reported financial statements. NEER has an indirect limited partnership with NextEra Energy Partners (NEP) and owns ability to raise capital at lower rates than peers have allowed 21 NextEra to invest in renewable energy and other innovative 57.2% of the outstanding common stock. NextEra has been projects. We expect NextEra to continue to utilize debt to invest able to utilize the balance and diversification from FPL and in more project through our forecast period. NextEra’s lower NEER to create more value through the differences in the two. debt to capitalization than its peers will allow them to utilize more debt in the coming years without negatively affecting their credit rating. We have projected NextEra’s debt to capitalization to reach 56% by 2025 as they continue to utilize debt to fund investments. Debt to Credit Rating Capitalization (S&P) NEE 52.00% A- DUK 56.70% BBB+ SO 61.10% A- D 58.70% BBB+ Source: NextEra’s 2020 10-K 21 Source: Debt to Capitalization from Bloomberg and Credit Ratings from FactSet Florida Power and Light Dividends Florida Power and Light’s rate-regulated electricity services represent 64% of NextEra Energy’s operating revenue with 5.1 Utility companies are used as safe havens during economic million customer accounts representing 11 million people. downturns due to the high cash flows that are associated with FPL’s customer accounts are 89% residential customers and their high dividend yields. Investors look for attractive 11% commercial.21 The population of Florida is expected to dividend yields from utilities when bond rates fall, and they grow from 21,555,986 in 2020 to 23,130,870 in 202522. We need a place to supplement the income from bonds. The have reflected the expected rise in Florida’s population by average dividend yield of utility stocks in the S&P 500 is growing FPL’s customer accounts by 377,600 accounts to their 3.7%, putting NextEra on the low end of dividend paying projected total of 5,504,000 in 2025. FPL’s service areas are utility companies.20 The peers we have chosen for comparison
Page | 6 some of the most populous counties in the State of Florida, projects, they will also begin to phase out their classic placing them in a great position to capitalize on the large generation facilities. This is reflected through our model by the population growth of the state. The upcoming rise in tourism much slower increase in generating capacity than NEER. We will help bolster FPL’s commercial and residential revenues. see Florida Power and Light increasing their generating capacity to 29,131 MW in 2025. The increasing investments in Florida Power and Light is regulated by Florida Public Service renewable energy will continue to drive shareholder value and Commission for their retail services and the Federal Energy continue to improve FPL’s competitive advantages over its Regulatory Commission for their activity in wholesale markets peers by offering one of the cleanest generating fleets. but wholesale market sales only account for 4% of 2020 revenues.21 FPL’s revenue is driven by their commercial sales in 2021 which we see rising by 27.09% due to Florida’s return to normalcy and economic recovery. FPL’s goal is to offer low customer bills, high reliability, and clean energy solutions. Florida Power and Light has continued to offer best in-class reliability and has been recognized as the most reliable electric utility in the U.S. for five of the last six years.23 This continued reliability will continue to entice customers to use FPL as their electricity service provider and helps protect FPL’s current position in the Florida electricity markets. FPL has continually been able to offer lower prices than their competition with an average typical monthly bill well below the national average. This competitive advantage allows FPL to continue to be the most cost-effective option for energy generation in Florida and has driven us to project their revenues increasing by four billion over the next five years to $15,431 million in 2025. Source: NextEra's 2020 10-K 21
Gulf Power The recently acquired Gulf Power Company is an extremely strong addition to the NextEra subsidiary portfolio. Gulf Power services 8 northwestern Florida counties with approximately 470,000 customer accounts. Gulf Power operates 2,300 MW of fossil-fuel generating capacity and 9,500 miles of transmission lines primarily in Florida.21 NextEra plans to implement similar investments increase that are planned for FPL and increase Gulf Power’s renewable generating capacity.
The addition of Gulf Power to NextEra has helped strengthen the company’s position within Florida and opened the Source: NextEra's 2020 10-K northwest Florida geography for future operational growth as they now contribute 7.72% of total revenue. NextEra merged Energy Generation Gulf Power and Florida Power & Light at the beginning of this Florida Power and Light operates a generating fleet with a total calendar year with the goal of filing a combined rate case for 27 capacity of 28,528 MW. They have 30 units that operate on new rates in 2022. The combination of the two segments fossil fuels and represent 22,008 MW of generating capacity depends heavily on the approval of the merger by the Florida which is primarily natural gas with dual capabilities to use oil Public Service Commission. Gulf Power and FPL will be and gas fuel sources. They also operate four nuclear units in separately regulated entities until the FPSC approves Florida that have a total generating capacity of 3,502 MW. consolidation of their rates and tariffs. The combination of the Their remaining generating capacity is made up of mainly solar businesses would lower the bills paid by Gulf Power residential generation facilities and some wind facilities.21 FPL plans on customer from $140 a month closer to the FPL benchmark of 28 installing 30 million solar panels by 2030, greatly increasing the $99. This would allow NextEra to continue to provide share of solar energy in their generation fleet.24 FPL has begun company standard low rates to all Florida customers work on the Manatee Energy Storage Center with 409 MW in incentivizing customers to transition to FPL/Gulf Power as their generating capacity and 900 MWh in storage capabilities.25 electricity provider. This facility will allow FPL to retire natural gas plants with the NextEra Energy Resources Manatee Energy Storage Center picking up the demand needs after retirements are completed. FPL also plans on retrofitting NextEra Energy Resources is the world’s largest generator of the Okeechobee power plant that currently runs on natural gas renewable energy from wind and solar facilities and a leader in to begin burning hydrogen as a pilot project.26 This investment battery storage. NEER focuses on development, construction, will allow NextEra to use hydrogen in an existing plant test the and the operations of long-term contracted assets. The majority viability of transitioning their whole natural gas fleet over of which are renewable energy generation facilities, battery cleaner hydrogen fuel. As FPL invests in more renewable storage projects, and electric transmission facilities. NEER
Page | 7 invested over 479% more into battery storage in 2020 compared owns approximately 23,900 MW of generating capacity and to 2019.21 These investments will allow NEER to become operates a total of 27,300 MW of generating capacity. Wind increasingly more competitive by generating power in down energy is 16,073 MW of NEER’s operational generating hours and storing the power for peak demand times. We believe capacity and is in 20 U.S. states and 4 Canadian provinces. that NEER will see large increases in revenue as more of their NEER added 2,299 MW of new generating capacity in 2020 battery storage and renewable energy projects come online in and plans on continuing investments into wind energy projects. the coming years. Our model reflects the benefits of their NEER also operates solar facilities in 27 U.S. states with a net competitive advantages through high revenue growth where generating capacity of 3,629 MW.21 The solar projects are a they grow their revenue by $2.752 billion dollars to 2025. blend of photovoltaic and solar thermal energy panels. The diversified nature of their solar generation plants is a large NEER operates in extremely competitive wholesale markets benefit to make up for the unreliability of solar panels. NEER run by Regional Transmission Organizations and Independent heavily invested into new solar projects in 2020 and plans to System Operators across North America. NEER competes for closely follow their wind investment plan with solar energy long-term, bilateral contracts for the output of their facilities projects. NEER has undivided interest in three emissions-free and sells any extra power not used for these contracts in the nuclear units, one in New Hampshire and twin generators in wholesale markets. The Federal Energy Regulatory Wisconsin, that represent 2,295 MW of generating capacity. Commission, North American Electric Reliability Corporation, NEER does not plan on investing in any more nuclear plants and the Environmental Protection Agency all have some level and is going to focus mainly on renewable projects and battery of jurisdiction over NEER’s operations. NEER is comprised of storage moving forward. The Duane Arnold Energy Center in NextEra’s competitive energy and rate-regulated transmission Iowa was jointly owned by NEER but has begun subsidiaries. NextEra Energy Transmission is the subsidiary decommissioning in 2020 that will continue until 2080 leading combined with NEER for reporting purposes and recently to lower required fuel reflected within our model. NEP owns 38 completed the acquisition of GridLiance. NEET owns and wind and solar energy projects with a total generating capacity operates 215 substations and 1,910 miles of transmission lines of 5,730 MW. NEER operates all energy projects owned by 21 across the U.S., primarily in Texas and California. NEER also NEP and owns 3,379 MW of NEP’s energy portfolio.21 NEER owns 57.2% of NextEra Energy Partners outstanding common has given guidance to almost double their generating capacity stock and accounts for earnings/losses from NEP as equity in with high capital expenditures over the next five years. We have earnings (losses) of equity method investees on the NextEra projected them growing their generating fleet from 27,300 MW 21 Income Statement. NEP was deconsolidated from NEER at in 2020 to 61,355 MW in 2025. NextEra Energy Resources the beginning of 2018 and has been purchasing assets from offers the largest portfolio of renewable energy generating NEER to help fund new NextEra projects and subsidiaries. assets in the world. This renown gives NEER a competitive NEER is positioned throughout North America to be one of the advantage over their competition and continue to drive their most competitive renewable energy providers in the wholesale investments in renewable energy projects. energy markets and energy storage. Their generation fleet of mainly renewable energy solutions gives NEER a leg up over their fossil-fuel burning competition.
Source: NextEra's 2020 10-K Source: NextEra's 2020 10-K Energy Generation Electric Vehicles NEER’s generation fleet is diverse in both location and fuel type. They have a presence in almost every growing geography NEER began to work out an agreement with First Student and in the United States as shown in the map above, driving growth First Transit, the largest school and public transportation in demand in the wholesale markets NEER operates in. NEER operators, at the beginning of this year to electrify their fleet of school and public transportation vehicles. This deal is an
Page | 8 opportunity for NEER to begin to take on the role as a market vacation destinations in Florida. This will lead to more leader in both electric vehicle conversion and eventually electricity consumption. This is the sole reasoning for our vehicle to grid services. NextEra has begun to expose strong revenue growth estimates for FPL. themselves to the electric automotive industry more and is using the transition of the transportation fleet as a trial run for future Gulf Power is expected to grow 7.91% in 2021 and at an entrances into the EV market. NEER CEO John Ketchum average rate of 3.15% to 2025. Gulf Power services mainly stated, “The growing shift away from internal combustion residential customers in the panhandle of Florida and we expect engines is expected to drive over one fifth of U.S. energy there to be high population growth within their service areas to demand by 2050.”29 This quote highlights how important drive revenue growth. NextEra’s entrance into the EV market will be for future NextEra Energy Resources’ revenue is projected to grow business growth as they continue to look for new investment 21.59% in 2021. We have also forecasted NEER’s revenue to opportunities. NextEra Energy and is continually looking for grow at an average rate of 9.27% throughout our projections. beneficial investments in new markets making electric vehicles Energy NextEra Energy Resources is going to be a key driver an obvious addition to their business plan. of revenue growth for NextEra moving forward. 97% of their Mergers and Acquisitions generation comes from renewable energy fuel sources giving them a competitive edge over other utility companies in the NextEra has been an active acquirer of businesses over the last wholesale energy markets. With society and legislatures change few years, and we expect them to continue to look for emphasizing renewable energy, NEER is well positioned to investment opportunities driving more growth. The acquisition capitalize on these changes which is reflected through our of the Gulf Power Company on January 1st, 2019 for $4.44 model. We expect NEER’s share of overall electric revenue billion in cash will be a large driver of revenue growth in our gradually to increase over our forecast period. forecast period.21 The merger between FPL and Gulf Power will lead to rate decreases for Gulf Power customers to more Fuel, Purchased Power & Interchange Expenses standard NextEra rates. NextEra has also been investing into the We expect the Fuel, purchased power & interchange expenses transmission side of the utility business. They closed the to increase for the next two years as generating capacity needs acquisition of GridLiance from Blackstone Energy Partners for 30 and the price of natural gas increase. NextEra will be able to $660 million on March 31 this year. GridLiance services hedge against a rise in prices because they own companies that midwestern states and Nevada, adding to NEET’s ever growing produce and transmit natural gas. This allows them to control transmission portfolio. NextEra has been on the hunt to find prices. We predict total costs will rise before continuing to another large utility company to add to their business portfolio follow the historical trend of a -2.35% decrease in the expense’s after their acquisition of Gulf Power and wants to utilize their percentage of sales. The decrease in the fuel, energy and high share price in a new acquisition. NextEra attempted to capacity charges is due to the rise of renewable energy sources initiate a takeover of the large North Carolina utility, Duke 31 in their generating fleet and overall increases in efficiency of Energy. Duke’s management rejected the offer, but NextEra energy production. NextEra has also begun decommissioning could still possibly be interested in merger with Duke. A deal the Duane Arnold plant, which has led to a decrease in the of this magnitude, merging two of the largest southern utilities, purchased fuel required to run their operations represented in would completely shake up the utilities industry. NextEra is our nuclear fuel line on the balance sheet. The trend throughout constantly on the prowl to find new acquisition opportunities the utilities industry is decreasing fuel and energy costs over and it is very likely they attempt another merger or acquisition time which we have reflected for NextEra within our model. with another utility company during our forecast period. Other Operations & Maintenance Expenses Valuation Analysis We based the assumption for the percentage of sales related other operations & maintenance expenses on the historical average of the last five years of 20.01%. This accurately Revenue Decomposition represents the stable level that these expenses have sat in relation to sales. Other operations & maintenance expenses are We are projecting NextEra to have large revenue growth until for routine plant maintenance, repairs and operations of 2025 before stabilizing at 3.00% into perpetuity. This high regulated operation.21 This description and historical levels of expected growth is based on increases in NextEra’s customer the expense led to us using the historical average across the base and higher demand for renewable energy generation. forecast time period. We expect Florida Power & Light (FPL) revenues to grow Depreciation & Amortization 13.59% out of the 2020 pandemic. One argument for this growth is an increase in demand from FPL’s commercial Depreciation & Amortization make up a large portion of our customers and continued growth in the residential customer Revenue making it an integral line item on the Income base. As noted earlier in this report, commercial and industrial Statement. This expense is forecasted using the average sector electricity consumption is expected to rise .9% and 1.2% percentage of our historical depreciation & amortization in 20213. This growth is nationally. We predict Florida will see expense over the beginning net property, plant & equipment. even more growth in consumption than this. Florida is a popular The historical depreciation rate is 4.68% from 2011-2020. We vacation destination. As the COVID-19 pandemic draws to a multiply the Property, plant & equipment – net line on the close, and people pick up travel again, many of them will be Balance sheet by the historical rate to calculate our depreciation travelling to Florida. FPL provides electricity to many popular & amortization expense. The high projected capital
Page | 9 expenditures in our model lead to a large increase in the expense in 2025. The key assumptions for the two valuation models during 2021 and beyond. were the CV Growth Rate of NOPLAT, the CV Year ROIC, the WACC, and the Cost of Equity. We used a CV Growth of WACC NOPLAT of 3.00% to reflect NextEra’s growth prospects from The WACC that we calculated for NextEra Energy is 4.38%. renewable energy demand and Florida’s growing population. To calculate our WACC we needed to make assumptions on the The CV Year ROIC is calculated on the Drivers sheet by Risk-Free Rate, the Beta, the Equity Risk, the Pre-Tax Cost of dividing NOPLAT by Beginning Invested Capital. We used the Debt, and Marginal Tax Rate. For the Risk-Free Rate we used WACC of 4.36% as the discount rate of both the Free Cash the 20-year treasury bond yield to reflect an expected rise in Flow and Economic Profit used in each valuation model. Our interest rates. This assumption represents the rates that we Cost of Equity used to find the Implied Price as of Today was expect moving forward into our projection period. Our Beta calculated on the WACC sheet and is 4.38%. assumption of 0.613 is the average of every daily, weekly, The DCF model uses the Free Cash Flow’s for NextEra monthly and quarterly Beta on Bloomberg. We felt that this calculated on our Drivers sheet. The FCF’s are calculated by most accurately represented NextEra Energy’s volatility to the subtracting the change in Invested Capital from the NOPLAT market because of the wide range in the Beta’s available on for each projection year. The Continuing Value is calculated Bloomberg. Our Equity Risk Premium of 4.14% was taken using our CV Growth of NOPLAT, CV Year ROIC, and from Damodaran’s website and is the implied ERP on April 1st. WACC assumptions and the calculated 2025E NOPLAT value. The Pre-Tax Cost of Debt assumptions is taken from the YTM The sum of the discounted FCF’s and the Continuing Value on NextEra’s corporate bond with a maturity of 10/1/2044. The equal our Value of Operating Assets of $209,579 million. Marginal Tax Rate is an average of NextEra’s marginal tax rate for the last three years. This represents their lower tax rate after The EP model uses the Economic Profit for NextEra calculated the 2017 corporate tax cuts. NextEra Energy has 76.33% of on the Drivers sheet. The economic profit for each year are Equity and 23.67% of Debt in their capital structure. We have calculated by multiplying the Beginning Invested Capital by the reflected this into our WACC calculation by calculating the ROIC minus the WACC for each projection year. The market values of common equity and debt to apply the weights Continuing Value uses the calculated EP and NOPLAT for to their respective costs. 2025E and the CV Growth of NOPLAT, CV Year ROIC and the WACC assumptions. The sum of the discounted EP’s and Cost of Equity Continuing value equal our Value of Operating Assets of We calculated our Cost of Equity using our Risk-Free Rate, $209,579 million. Beta, and Equity Risk Premium assumptions. The 20-year The Value of Operating Assets were then used to calculate the treasury bond yield represents our expectations for higher rates Implied Price as of Today for each valuation model. We added in the future after the recovery from the pandemic. Our Beta of Non-Operating Adjustments, subtracted the Value of Debt and 0.613 shows the low volatility related to NextEra’s business and the Value of Other to the Value of Operating Assets to reach the stability as a market leader in the utilities industry. The Equity Value of Equity. To reach the Implied Price as of Today we Risk Premium of 4.14% taken from Damodaran’s website is the divided the Value of Equity by Shares Outstanding and then implied Equity Risk Premium on April 1st, 2021. Our Cost of discounting the Value of the Last FYE forward to today. Our Equity is calculated as the Risk-Free Rate plus the Beta times final Implied Price as of Today of $87.66. We believe that this the Equity Risk Premium. The final Cost of Equity for our model and the DDM were the best representation of NextEra’s WACC calculation is 4.38%. per share value due to the intrinsic nature of the valuation. Our Cost of Debt relative valuation is skewed much lower due to NextEra trading a high premium compared to other utility companies. Our Cost of Debt was calculated using the Risk-Free Rate, Pre- Tax Cost of Debt, and the Marginal Tax assumptions. For the DDM Risk-Free Rate assumption, we utilized the 20-year treasury The Dividend Discount Model utilizes the same forecast period bond reflecting higher rates in the future. The Pre-Tax Cost of as our DCF and EP models of 5 years. The main assumptions Debt of 3.881% was taken from the New Issue Analysis for the DDM are the CV growth of EPS, the CV Year ROE, and function on Bloomberg and represents the YTM on NextEra’s the Cost of Equity. The CV Growth of EPS is in line with our corporate bond with a maturity date of 10/01/2044. The time estimate for the CV Growth of NOPLAT due to the rise in horizon of our forecast is extremely long, and the 2044 maturity renewable energy demand and population increases in Florida. bond represents the longest available YTM for NextEra’s The CV Year ROE is calculated by dividing the Net Income outstanding debt. We used our Risk-Free Rate and Pre-Tax Cost from 2025E on the Income Statement by the Total Equity value of Debt to calculate our Implied Default Premium of 1.78%. for 2025E on the Balance Sheet. The Cost of Equity calculation The Marginal Tax rate of 23.40% is the average of the previous is denoted in the Cost of Equity section above. three historical years marginal tax rates. By multiplying the Pre- Tax Cost of Debt by the Marginal Tax Rate to calculate an Dividends per Share are used as the cash flows for the DDM After-Tax Cost of Debt of 3.08% used in our WACC and are discounted back to today using the Cost of Equity. We calculation. expect annual dividends to increase by 10% based on management guidance out to 2025. The CV Growth of EPS, CV DCF and EP Year ROE, and Cost of Equity assumptions to calculate the CV For our DCF and EP models we decided to forecast NextEra 5 Year P/E Multiple. The 2025 P/E multiple is multiplied by the years into the future with the Continuing Value being calculated 2025E EPS to get a Future Stock Price of $97.65 in 2025. This
Page | 10 is then discounted back to the present and added to the sum of the dividend cash flows for an Intrinsic Value of Last FYE of $87.35. The final Implied Price as of Today is calculated to be $87.85 by discounting the Price of Last FYE forward to today. The DDM is a good representative of NextEra’s per share value because it is based on our assumptions and management guidance and is not affected by market differences from value.
We feel that because the implied share price is so in line with the DCF/EP models share price that they both offer a good Source: Model estimate of the value per share of NextEra. WACC and CV Growth of NOPLAT Relative Valuation We decided to look at how a change in the WACC or our 3% For our Relative Valuation Models, we used our three main CV growth of NOPLAT assumption would affect our model. comparable companies Duke Energy Corp, the Southern We thought it was important to analyze these two inputs Company, and Dominion Energy Inc along with five of the because they both impact our terminal value, and the terminal other larger utility companies who are involved in both fossil value makes up a substantial percentage of our total enterprise fuel and renewable generation. We have taken the stock price valuation. The WACC has a direct impact on our valuation. A for all the comparable companies as of 4/16/2021 and their higher WACC leads to a lower valuation, vice versa. This earnings estimates from FactSet for the next two years. The correlation is proven by our analysis. When we raised our average P/E multiples for 2021 and 2022 are 19.71 and 18.61 WACC from 4.36 to 4.56%, our valuation dropped from $87.66 respectively. NextEra is currently trading at a 37.1 (2021 P/E) to $72.91. A rise in our CV growth had the opposite result. and 33.6 (2022 P/E) representing an extremely large premium When we adjusted our CV growth from 3% to 3.15%, the price compared to our comparable utilities. This premium comes per share increased. Both inputs had similar impacts on our from NextEra being a market leader in renewable energy and model. controlling some of the most populous counties in Florida. Our estimated 5-year EPS growth rates were taken from FactSet and the average PEG for 2021 and 2022 are both higher than NextEra’s calculated PEG in our model. For our final relative comparison multiple we decided to use EV/EBIT to represent the utilities enterprise value multiple to their operating cash flows. We chose not to use EV/EBITDA because we felt it was important to include depreciation and amortization within the multiple as it is a large part of most utilities’ income statements. The average EV/EBIT multiple was calculated to be 23.93x Source: Model while NextEra is trading at a 51.47x multiple. This discrepancy in trading multiples leads our implied EV of $96,326.76 2021 Revenue Growth and Average Other Operations and (million) and implied price of $29.95 to be much lower than Maintenance Expenses NextEra’s actual valuation or our DCF and EP models. Due to We wanted to analyze our 2021 revenue growth assumption these factors, we believe that our DCF, EP, and DDM models because some might view it as an optimistic projection, and we better represent NextEra’s value than our Relative models. hoped to get a better picture of its impact on our total valuation. We compared changes in this input with a change in the percentage other operations & maintenance expenses are of Sensitivity Analysis total revenues. We thought other operations & maintenance expenses was an important metric to look at because it is the Equity Risk Premium and Beta largest expense NextEra has outside of depreciation and amortization. We straight-lined the percent in our model so Both equity risk premium and the beta of NextEra’s stock fluctuations are expected, and the sensitivity analysis provides impact NextEra’s cost of equity. The cost of equity for NextEra insight into the significance of these fluctuations. Both accounts has a significant impact on the WACC used in our model have a substantial effect on earnings and margins. We found because 76.74% of NextEra's capital structure is equity. The that a 2% change in each input affected our stock price by about fluctuation in the WACC due to changes in both metrics is $9 causing significant fluctuation in the price. particularly important because of the large effect the WACC has on our overall valuation. The results of our analysis show that if both the ERP and beta for NextEra were to fall, this would have a large, positive affect NextEra’s share price. For example, if NextEra’s beta were to fall from .61 to .55, holding all else constant, the share price would increase from $87.66 to $107.33. This shows that our model’s sensitivity to NextEra’s beta is very high. Source: Model
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Marginal Tax Rate and Depreciation Expense Depreciation expenses and the marginal tax rate affect the overall earnings of NextEra. Higher depreciation expenses lead to lower pre-tax income. If this pre-tax income is then taxed at a higher marginal tax rate, reported earnings will drop even further for NextEra. The same can be said the other way. If depreciation expenses are lower, earnings are higher. Lower tax rates result in higher earnings. Our analysis showed, however, that the impact of a change in the marginal tax rate is minimal on our valuation. This is not true for a change in depreciation expenses. In our model, we calculated depreciation by saying each year’s expense was a percentage of the net plant, property, and equipment NextEra had at the beginning of the year. When we decreased this percentage-meaning total depreciation decreased-there was a sizeable change in our price. For example, if we would have assumed depreciation expense was 4.3% of beginning net PP&E every year, rather than 4.68%, our price would have increased $12.19. This large gain is because NextEra’s biggest expense is depreciation thanks to the abundant amount of capital they own. Less expenses lead to higher earnings.
Source: Model
Pre-Tax Cost of Debt and Percent Actual Capital Expenditures is above Management Guidance The pre-tax cost of debt and capital expenditures are correlated because much of NextEra’s capital expenditures are financed by issuing debt. The two are inversely related. As pre-tax of debt goes up, CapEx is likely to go down because fewer projects can generate the returns necessary to cover the increased costs, vice versa. From 2022 to 2025, our CapEx estimates consisted of two parts: capex guidance from management for each year and additional expenditures based on the average percent actual capex has been above management guidance in previous years. We decided to test the sensitivity of our model to the percent we used because it is the number most likely to waver from our estimates. We found that a higher percentage-meaning more capex- decreased our valuation. The decrease was minimal, however. The same is true for a rise in the pre-tax cost of debt. A higher pre-tax cost of debt led to a slightly lower price.
Source: Model
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Important Disclaimer
This report was created by students enrolled in the Applied Equity Valuation class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report.
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29 NextEra Energy. (2021, January 26). First Student, First
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30 NextEra Energy Transmission. (2021, March 31). NextEra
Energy Transmission completes acquisition of independent transmission company. Retrieved from PR Newswire: https://www.prnewswire.com/news-releases/nextera-energy- transmission-completes-acquisition-of-independent- transmission-company-301259930.html
31 Lombardo, C., Farrell, M., & Cimilluca, D. (2020,
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Duke Energy. Retrieved from Wall Street Journal: https://www.wsj.com/articles/nextera-energy-made-takeover- approach-to-duke-energy-11601422006
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NextEra Energy Inc. Revenue Decomposition
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E Revenue 16,155 17,195 16,727 19,204 17,997 20,786.5 22,346 23,239 24,053 24,774 Revenue growth rate -7.61% 6.44% -2.72% 14.81% -6.29% 15.50% 7.50% 4.00% 3.50% 3.00% Revenue from Electric 15,771 17,136 16,740 19,318 18,106 20,890 22,444 23,333 24,142 24,859 Florida Power & Light: Residential 5,992 6,585 6,524 6,706 6,764 7,287 7,788 8,054 8,289 8,489 Residential growth rate -4.76% 9.89% -0.92% 2.78% 0.87% 7.74% 6.87% 3.41% 2.92% 2.42% Commercial 3,922 4,190 4,033 4,267 3,732 4,743 5,069 5,242 5,395 5,525 Commercial growth rate -6.49% 6.83% -3.75% 5.80% -12.55% 27.09% 6.87% 3.41% 2.92% 2.42% Wholesale 436 359 474 366 350 365 390 403 415 425 Wholesale growth rate -6.49% -17.59% 32.11% -22.91% -4.35% 4.21% 6.87% 3.41% 2.92% 2.42% Other 545 838 830 853 816 852 910 941 969 992 Other growth rate -22.07% 53.84% -0.92% 2.78% -4.35% 4.32% 6.87% 3.41% 2.92% 2.42% Florida Power & Light Total 10,895 11,972 11,862 12,192 11,662 13,246 14,157 14,640 15,067 15,431 FPL growth rate -6.49% 9.89% -0.92% 2.78% -4.35% 13.59% 6.87% 3.41% 2.92% 2.42% Gulf Power - - - 1,487 1,398 1,509 1,583 1,607 1,623 1,629 Gulf Power growth rate -5.99% 7.91% 4.96% 1.50% 0.96% 0.42% NEER 4,876 5,164 4,878 5,639 5,046 6,135 6,704 7,086 7,452 7,798 NEER growth rate -10.43% 5.91% -5.54% 15.60% -10.52% 21.59% 9.27% 5.70% 5.17% 4.64% Corporate and Other 367 37 (13) (114) (109) (104) (98) (93) (89) (84) Corporate and Other growth rate -6.14% -89.92% -135.14% -776.92% 4.39% 5.00% 5.00% 5.00% 5.00% 5.00%
Percentage of Electric Revenue Florida Power & Light 69.08% 69.86% 70.86% 63.11% 64.41% 63.41% 63.08% 62.74% 62.41% 62.08% Gulf Power - - - 7.70% 7.72% 7.22% 7.05% 6.89% 6.72% 6.55% NEER 30.92% 30.14% 29.14% 29.19% 27.87% 29.37% 29.87% 30.37% 30.87% 31.37%
Generating Capacity Florida Power & Light Total MW 31,260 26,600 24,500 27,400 28,414 28,556 28,699 28,842 28,987 29,131 Revenue per MW 0.35 0.45 0.48 0.44 0.41 0.46 0.49 0.51 0.52 0.53 Generating Capacity growth rate -3.33% -14.91% -7.89% 11.84% 3.70% 0.50% 0.50% 0.50% 0.50% 0.50% Gulf Power Total MW - - - 2,300 2,400 2,448 2,497 2,547 2,598 2,650 Revenue per MW - - - 0.65 0.58 0.62 0.63 0.63 0.62 0.61 Generating Capacity growth rate - - - - 4.35% 2.00% 2.00% 2.00% 2.00% 2.00% NEER Total MW 14,639 19,060 21,000 21,900 27,300 33,926 40,551 47,178 53,801 61,355 Revenue per MW 0.33 0.27 0.23 0.26 0.18 0.18 0.17 0.15 0.14 0.13 Generating Capacity growth rate 6.05% 30.20% 10.18% 4.29% 24.66% 24.27% 19.53% 16.34% 14.04% 14.04%
Customer Accounts Florida Power & Light Accounts 4,840,000 4,920,000 5,004,000 5,093,000 5,126,400 5,203,296 5,281,345 5,360,566 5,440,974 5,504,000 Account growth rate 1.36% 1.65% 1.71% 1.78% 0.66% 1.50% 1.50% 1.50% 1.50% 1.16% Revenue per Account (in dollars) 2,251 2,433 2,371 2,394 2,275 2,546 2,681 2,731 2,769 2,804 Revenue per Account growth rate -8.39% 7.49% -2.65% 0.98% -5.23% 10.64% 5.03% 1.85% 1.38% 1.23%
Gulf Power Accounts 468,300 473,600 480,704 487,915 495,233 502,662 510,202 Revenue per Account (in dollars) 3,175 2,952 3,138 3,245 3,245 3,228 3,194 Account growth rate 1.12% 1.50% 1.50% 1.50% 1.50% 1.50% NextEra Energy Inc. Income Statement 2021 2022 2023 2024 2025 Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E Operating revenues 16,155 17,195 16,727 19,204 17,997 20,787 22,346 23,239 24,053 24,774 Fuel, purchased power & interchange expenses 4,042 4,071 3,732 4,363 3,539 3,645 3,755 3,666 3,580 3,496 Other operations & maintenance expenses 3,389 3,327 3,330 3,640 3,751 4,159 4,471 4,649 4,812 4,956 Storm restoration costs - 1,255 3 234 183 141 195 624 305 359 Depreciation & amortization expenses 3,077 2,357 3,911 4,216 4,052 4,700 5,028 5,303 5,579 5,848 Taxes other than income taxes & other expenses - net 1,485 1,970 1,551 1,804 1,709 1,882 2,023 2,104 2,178 2,243 Total operating expenses - net 11,993 12,980 12,527 14,257 13,234 14,527 15,471 16,347 16,455 16,903 Gains (losses) on disposal of businesses or assets - net 446 1,111 80 406 353 353 353 353 353 353 Operating income (loss) 4,608 5,326 4,280 5,353 5,116 6,613 7,227 7,245 7,950 8,224
Interest expense 1,093 1,558 1,498 2,249 1,950 1,866 2,046 2,135 2,371 2,538 Equity in earnings (losses) of equity method investees 148 141 358 66 (1,351) 138 149 155 160 165 Allowance for equity funds used during construction 86 92 96 67 93 96 62 57 58 57 Interest income 82 81 51 54 38 43 25 (11) 45 69 Gain on NextEra Energy Partners, LP deconsolidation - - 3,927 ------Gains (losses) on disposal of investments & other property - net 40 114 111 55 50 50 50 50 50 50 Change in unrealized gains (losses) on equity securities held in NextEra Energy Resources, - LLC's - nuclear decommissioning (189) 238 funds - net 163 163 163 163 163 163 Other net periodic benefit income - - 168 185 200 213 229 239 248 259 Other income (deductions) - net 517 471 48 67 54 65 72 72 76 78 Total other income (deductions) - net (220) (659) 3,072 (1,517) (2,703) (1,098) (1,297) (1,411) (1,572) (1,697) Income (loss) before income taxes 4,388 4,667 7,352 3,836 2,413 5,515 5,931 5,834 6,379 6,528
Income taxes 1,383 (653) 1,576 448 44 1,291 1,388 1,365 1,493 1,527 Net income (loss) 3,005 5,320 5,776 3,388 2,369 4,225 4,543 4,469 4,886 5,000 Net loss (gain) attributable to noncontrolling interests (93) 58 862 381 550 414 560 683 600 643 Net income attributable to NextEra Energy, Inc. 2,912 5,378 6,638 3,769 2,919 4,639 5,103 5,152 5,486 5,643
Year end shares outstanding 1,872 1,884 1,912 1,956 1,960 1,962 1,963 1,965 1,966 1,968 Weighted average shares outstanding - basic 1,852 1,875 1,893 1,928 1,959 1,961 1,962 1,964 1,965 1,967 Net income (loss) per share - basic 1.57 2.87 3.51 1.96 1.49 2.15 2.31 2.27 2.49 2.54 Dividends per share of common stock 0.87 0.98 1.11 1.25 1.40 1.54 1.69 1.86 2.05 2.25 NextEra Energy Inc. Historical Cash Flow Statement
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 Net income (loss) 3,005 5,320 5,776 3,388 2,369 Cash Flows from Operations Depreciation & amortization 3,077 2,357 3,911 4,216 4,052 Nuclear fuel & other amortization 300 272 236 262 263 Impairment charges - 446 11 72 - Unrealized losses (gains) on marked to market derivative contracts - net (44) 436 54 (108) 533 Foreign currency transaction losses (gains) 13 (25) 16 17 45 Deferred income taxes 1,230 (875) 1,463 258 (78) Cost recovery clauses & franchise fees 94 82 (225) 155 (121) Equity in losses (earnings) of equity method investees - - (358) (66) 1,351 Distributions of losses (earnings) from equity method investees - - 328 438 456 Losses (gains) on disposal of businesses, assets & investments - net - (1,225) (191) (461) (403) Loss (gain) on NextEra Energy Partners, LP deconsolidation - - (3,927) - - Recoverable storm-related costs (223) (108) - (180) (69) Other adjustments - net (893) (613) 104 (213) 189 Current assets (120) (353) (631) 123 (364) Noncurrent assets (67) (60) (220) (93) (234) Current liabilities (24) 766 163 116 (6) Noncurrent liabilities (12) (7) 83 231 - Net cash flows from operating activities 6,336 6,413 6,593 8,155 7,983
Cash Flows from Investing Capital expenditures of Florida Power & Light Company (3,776) (5,174) (5,012) (10,725) (7,489) Independent power & other investments of NextEra Energy Resources, LLC (5,396) (5,295) (6,994) (6,385) (6,851) Funds received from a spent fuel settlement - - - - - Nuclear fuel purchases (283) (197) (267) (315) (245) Other capital expenditures, acquisitions & other investments (181) (74) (731) (37) (25) Sale of independent power investments & other investments of NextEra Energy Resources, LLC 658 178 1,617 1,163 1,012 Proceeds from sale or maturity of securities in special use funds & other investments 3,776 3,207 3,410 4,008 3,916 Purchases of securities in special use funds & other investments (3,829) (3,244) (3,733) (4,160) (4,100) Distributions from equity method investees - - 637 - - Other investing activities - net 921 1,681 123 274 83 Net cash flows from investing activities (8,110) (8,918) (10,950) (16,177) (13,699)
Cash Flows from Financing Issuances of long-term debt, including premiums & discounts 5,657 8,354 4,399 13,905 12,404 Retirements of long-term debt (3,310) (6,780) (3,102) (5,492) (6,103) Proceeds from differential membership investors 1,859 1,414 1,841 1,604 3,522 Net change in commercial paper (106) 1,419 1,062 (234) (965) Proceeds from other short-term debt 500 450 5,665 200 2,158 Repayments of other short-term debt (662) (2) (455) (4,765) (2,100) Payments to related parties under a cash sweep & credit support agreement - net - - (21) (54) (2) Issuances of common stock or equity units - net 537 55 718 1,494 (92) Proceeds from sale of noncontrolling interests - - - 99 501 Dividends on common stock (1,612) (1,845) (2,101) (2,408) (2,743) Other financing activities - net (368) (132) (372) (476) (406) Net cash flows from financing activities 2,495 2,933 7,634 3,873 6,174
Effects of currency translation on cash, cash equivalents & restricted cash - 26 (7) 4 (20) Net increase (decrease) in cash, cash equivalents & restricted cash 721 454 3,270 (4,145) 438 Cash, cash equivalents & restricted cash at beginning of year 571 1,529 1,983 5,253 1,108 Cash, cash equivalents & restricted cash at end of year 1,292 1,983 5,253 1,108 1,546 NextEra Energy Inc. Balance Sheet
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E ASSETS Current Assets: Cash & cash equivalents 1,292 1,714 638 600 1,105 299 (1,323) 1,159 2,213 (645) Customer receivables, net 1,784 2,220 2,302 2,282 2,263 2,585 2,841 2,945 2,996 3,114 Other receivables 655 517 667 525 711 737 770 821 828 888 Materials, supplies & fossil fuel inventory 1,289 1,273 1,223 1,328 1,552 1,589 1,694 1,770 1,846 1,939 Regulatory assets (Short-term) 524 336 448 335 377 487 483 512 508 541 Derivatives (Short-term) 885 489 564 762 570 583 596 609 623 637 Other current assets 980 608 551 1,576 804 822 840 859 878 898 Total current assets 7,409 7,157 6,393 7,408 7,382 7,102 5,901 8,675 9,892 7,372 Other Assets: Electric plant in service & other property 80,150 85,337 81,986 96,093 105,860 117,749 128,336 138,062 147,955 157,829 Nuclear fuel 2,131 1,767 1,740 1,755 1,604 1,601 1,598 1,595 1,591 1,588 Construction work in progress 4,732 6,679 8,357 9,330 10,639 11,640 12,532 13,351 14,185 15,016 Accumulated depreciation & amortization 20,101 21,367 21,749 25,168 26,300 30,459 34,929 39,578 44,390 49,347 Property, plant & equipment - net 66,912 72,416 70,334 82,010 91,803 100,531 107,537 113,430 119,341 125,086 Special use funds 5,434 6,003 5,886 6,954 7,779 7,935 8,094 8,256 8,421 8,589 Investment in equity method investees 2,482 2,959 6,748 7,453 5,728 6,014 6,315 6,631 6,962 7,311 Prepaid benefit costs 1,177 1,427 1,284 1,437 1,707 1,804 1,907 2,015 2,130 2,251 Regulatory assets (Long-term) 1,894 2,469 3,290 3,287 3,712 3,730 4,210 4,330 4,572 4,609 Goodwill 779 764 891 4,204 4,254 4,254 4,254 4,254 4,254 4,254 Derivatives (Long-term) 571 551 464 1,624 1,647 1,684 1,722 1,760 1,800 1,840 Other assets 3,335 4,081 8,412 3,314 3,672 4,263 4,623 4,921 5,161 5,406 Total other assets 82,584 90,670 97,309 110,283 120,302 130,215 138,660 145,596 152,641 159,346 Total Assets 89,993 97,827 103,702 117,691 127,684 137,317 144,561 154,271 162,533 166,719 LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES Current Liabilities: Commercial paper 268 1,687 2,749 2,516 1,551 2,467 2,671 2,843 2,984 3,125 Other short-term debt 150 255 5,465 400 458 415 450 479 502 526 Current portion of long-term debt 2,604 1,676 2,716 2,124 4,138 2,471 3,329 6,064 7,640 6,250 Accounts payable 3,447 3,235 2,386 3,631 4,615 5,330 5,730 5,959 6,168 6,353 Customer deposits 470 448 445 499 474 540 548 556 565 572 Accrued interest & taxes 480 622 477 558 519 843 917 935 1,032 1,086 Derivatives (Short-term) 404 364 675 344 311 318 325 332 340 347 Accrued construction-related expenditures 1,120 1,033 1,195 1,152 991 1,763 1,898 2,022 2,148 2,274 Regulatory liabilities 299 346 325 320 245 367 391 394 396 407 Other current liabilities 1,677 1,566 1,130 2,309 2,256 2,287 2,447 2,581 2,715 2,846 Total current liabilities 10,919 11,232 17,563 13,853 15,558 16,803 18,706 22,167 24,491 23,787 Other Liabilities: Long-term debt - net 27,818 31,463 26,782 37,543 41,944 47,365 48,565 51,708 54,270 56,824 Asset retirement obligations 2,736 3,031 3,135 3,457 3,057 3,611 3,909 4,162 4,368 4,574 Deferred income taxes 11,101 5,754 7,367 8,361 8,020 8,344 9,145 9,690 10,513 11,193 Regulatory liabilities 4,906 8,765 9,009 9,936 10,735 11,236 12,251 12,797 13,445 13,616 Derivatives (Long-term) 477 535 516 863 1,199 1,226 1,253 1,281 1,310 1,339 Other liabilities & deferred credits 6,705 7,549 1,449 1,831 2,242 2,124 2,283 2,465 2,616 2,596 Total other liabilities & deferred credits 53,743 57,097 48,258 61,991 67,197 73,906 77,407 82,104 86,522 90,143 Total liabilities 64,662 68,329 65,821 75,844 82,755 90,709 96,113 104,270 111,013 113,929 EQUITY Common equity 8,953 9,105 10,495 11,975 11,242 11,301 11,361 11,420 11,480 11,539 Retained earnings (accumulated deficit) 15,458 18,992 23,837 25,199 25,363 26,569 27,789 28,601 29,460 30,027 Accumulated other comprehensive income (loss) (70) 111 (188) (169) (92) (92) (92) (92) (92) (92) Noncontrolling interests 990 1,290 3,737 4,842 8,416 8,830 9,389 10,072 10,672 11,316 Total equity (deficit) 25,331 29,498 37,881 41,847 44,929 46,609 48,448 50,001 51,520 52,789 Total liabilities and equity 89,993 97,827 103,702 117,691 127,684 137,317 144,561 154,271 162,533 166,719 NextEra Energy Inc. Circuit Breaker 1 Forecasted Cash Flow Statement
Fiscal Years Ending Dec. 31 2021E 2022E 2023E 2024E 2025E CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) 4,225 4,543 4,469 4,886 5,000 Adjustments to reconcile net income to cash from operating activities: Depreciation and Amortization 4,700 5,028 5,303 5,579 5,848 Change in Deferred Taxes 324 802 545 822 680 Asset retirement obligations 554 298 253 206 206 Increases (decreases) in working capital accounts: Customer receivables, net (322) (256) (104) (51) (118) Other receivables (26) (33) (51) (7) (60) Materials, supplies & fossil fuel inventory (37) (104) (76) (77) (93) Regulatory assets (110) 4 (29) 5 (33) Other current assets (18) (18) (19) (19) (20) Accounts payable 715 400 229 209 185 Customer deposits 66 8 8 8 7 Accrued interest & taxes 324 74 18 97 54 Accrued construction-related expenditures 772 135 124 126 126 Regulatory liabilities 122 24 3 2 11 Other current liabilities 31 159 134 134 131 Other liabilities & deferred credits (118) 159 182 151 (20) Regulatory liabilities (long-term) 501 1,015 546 648 171 Net Cash Provided by Operating Activities 11,704 12,237 11,535 12,721 12,074
CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures (13,428) (12,033) (11,196) (11,491) (11,594) Special use funds (156) (159) (162) (165) (169) Investment in equity method investees (286) (301) (316) (332) (348) Prepaid benefit costs (97) (103) (109) (115) (121) Goodwill - - - - - Other assets (591) (359) (298) (240) (244) Regulatory assets (long-term) (18) (480) (120) (243) (37) Net Cash Provided by Investing Activities (14,577) (13,435) (12,200) (12,585) (12,513)
CASH FLOWS FROM FINANCING ACTIVITIES Commercial paper 916 203 173 141 140 Other short-term debt (43) 34 29 24 24 Current portion of long-term debt (1,667) 858 2,735 1,576 (1,390) Long-term debt - net 5,421 1,200 3,142 2,562 2,554 Derivatives (short-term assets) (13) (13) (13) (14) (14) Derivatives (long-term assets) (37) (38) (39) (39) (40) Derivatives (short-term liabilities) 7 7 7 7 8 Derivatives (long-term liabilities) 27 27 28 29 29 Issuance (repurchases) of Common equity 59 59 59 59 59 Payment of Dividends (3,018) (3,323) (3,658) (4,027) (4,433) Accumulated other conprehensive (income) loss - - - - - Noncontrolling interests 414 560 683 600 643 Net Cash Provided by Financing Activities 2,067 (424) 3,147 918 (2,419)
Net Increase (Decrease) In Cash (806) (1,622) 2,482 1,055 (2,858) Cash, Beginning of Year 1,105 299 (1,323) 1,159 2,213 Cash, End of Year 299 (1,323) 1,159 2,213 (645) NextEra Energy Inc. Common Size Income Statement 2021 2022 2023 2024 2025 Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E Operating revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Fuel, purchased power & interchange expenses 25.02% 23.68% 22.31% 22.72% 19.66% 17.54% 16.80% 15.78% 14.89% 14.11% Other operations & maintenance expenses 20.98% 19.35% 19.91% 18.95% 20.84% 20.01% 20.01% 20.01% 20.01% 20.01% Storm restoration costs - 7.30% 0.02% 1.22% 1.02% 0.68% 0.87% 2.68% 1.27% 1.45% Depreciation & amortization expenses 19.05% 13.71% 23.38% 21.95% 22.51% 22.61% 22.50% 22.82% 23.20% 23.61% Taxes other than income taxes & other expenses - net 9.19% 11.46% 9.27% 9.39% 9.50% 9.06% 9.06% 9.06% 9.06% 9.06% Total operating expenses - net 74.24% 75.49% 74.89% 74.24% 73.53% 69.88% 69.24% 70.34% 68.41% 68.23% Gains (losses) on disposal of businesses or assets - net 2.76% 6.46% 0.48% 2.11% 1.96% 1.70% 1.58% 1.52% 1.47% 1.42% Operating income (loss) 28.52% 30.97% 25.59% 27.87% 28.43% 31.81% 32.34% 31.18% 33.05% 33.20%
Interest expense 6.77% 9.06% 8.96% 11.71% 10.84% 8.98% 9.16% 9.19% 9.86% 10.24% Equity in earnings (losses) of equity method investees 0.92% 0.82% 2.14% 0.34% -7.51% 0.67% 0.67% 0.67% 0.67% 0.67% Allowance for equity funds used during construction 0.53% 0.54% 0.57% 0.35% 0.52% 0.46% 0.28% 0.24% 0.24% 0.23% Interest income 0.51% 0.47% 0.30% 0.28% 0.21% 0.21% 0.11% -0.05% 0.19% 0.28% Gain on NextEra Energy Partners, LP deconsolidation - - 23.48% ------Gains (losses) on disposal of investments & other property - net 0.25% 0.66% 0.66% 0.29% 0.28% 0.24% 0.22% 0.22% 0.21% 0.20% Change in unrealized gains (losses) on equity securities held in NextEra Energy Resources,- LLC's nuclear- -1.13%decommissioning1.24% funds - net0.91% 0.78% 0.73% 0.70% 0.68% 0.66% Other net periodic benefit income - - 1.00% 0.96% 1.11% 1.03% 1.03% 1.03% 1.03% 1.04% Other income (deductions) - net 3.20% 2.74% 0.29% 0.35% 0.30% 0.31% 0.32% 0.31% 0.31% 0.32% Total other income (deductions) - net -1.36% -3.83% 18.37% -7.90% -15.02% -5.28% -5.80% -6.07% -6.53% -6.85% Income (loss) before income taxes 27.16% 27.14% 43.95% 19.98% 13.41% 26.53% 26.54% 25.11% 26.52% 26.35%
Income taxes 8.56% -3.80% 9.42% 2.33% 0.24% 6.21% 6.21% 5.87% 6.21% 6.17% Net income (loss) 18.60% 30.94% 34.53% 17.64% 13.16% 20.32% 20.33% 19.23% 20.31% 20.18% Net loss (gain) attributable to noncontrolling interests -0.58% 0.34% 5.15% 1.98% 3.06% 1.99% 2.50% 2.94% 2.49% 2.60% Net income attributable to NextEra Energy, Inc. 18.03% 31.28% 39.68% 19.63% 16.22% 22.32% 22.83% 22.17% 22.81% 22.78% NextEra Energy Inc. Common Size Balance Sheet
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E ASSETS Current Assets: Cash & cash equivalents 8.00% 9.97% 3.81% 3.12% 6.14% 1.44% -5.92% 4.99% 9.20% -2.60% Customer receivables, net 11.04% 12.91% 13.76% 11.88% 12.57% 12.43% 12.71% 12.67% 12.46% 12.57% Other receivables 4.05% 3.01% 3.99% 2.73% 3.95% 3.55% 3.45% 3.53% 3.44% 3.58% Materials, supplies & fossil fuel inventory 7.98% 7.40% 7.31% 6.92% 8.62% 7.65% 7.58% 7.62% 7.68% 7.83% Regulatory assets 3.24% 1.95% 2.68% 1.74% 2.09% 2.34% 2.16% 2.20% 2.11% 2.18% Derivatives 5.48% 2.84% 3.37% 3.97% 3.17% 2.80% 2.67% 2.62% 2.59% 2.57% Other current assets 6.07% 3.54% 3.29% 8.21% 4.47% 3.95% 3.76% 3.70% 3.65% 3.63% Total current assets 45.86% 41.62% 38.22% 38.58% 41.02% 34.17% 26.41% 37.33% 41.13% 29.76% Other Assets: Electric plant in service & other property 496.13% 496.29% 490.14% 500.38% 588.21% 566.47% 574.33% 594.09% 615.13% 637.07% Nuclear fuel 13.19% 10.28% 10.40% 9.14% 8.91% 7.70% 7.15% 6.86% 6.62% 6.41% Construction work in progress 29.29% 38.84% 49.96% 48.58% 59.12% 56.00% 56.08% 57.45% 58.97% 60.61% Accumulated depreciation & amortization 124.43% 124.26% 130.02% 131.06% 146.14% 146.53% 156.31% 170.31% 184.55% 199.19% Property, plant & equipment - net 414.19% 421.15% 420.48% 427.05% 510.10% 483.64% 481.25% 488.09% 496.16% 504.90% Special use funds 33.64% 34.91% 35.19% 36.21% 43.22% 38.17% 36.22% 35.52% 35.01% 34.67% Investment in equity method investees 15.36% 17.21% 40.34% 38.81% 31.83% 28.93% 28.26% 28.53% 28.95% 29.51% Prepaid benefit costs 7.29% 8.30% 7.68% 7.48% 9.48% 8.68% 8.53% 8.67% 8.86% 9.09% Regulatory assets (Long-term) 11.72% 14.36% 19.67% 17.12% 20.63% 17.94% 18.84% 18.63% 19.01% 18.61% Goodwill 4.82% 4.44% 5.33% 21.89% 23.64% 20.47% 19.04% 18.31% 17.69% 17.17% Derivatives 3.53% 3.20% 2.77% 8.46% 9.15% 8.10% 7.70% 7.57% 7.48% 7.43% Other assets 20.64% 23.73% 50.29% 17.26% 20.40% 20.51% 20.69% 21.17% 21.46% 21.82% Total other assets 511.20% 527.30% 581.75% 574.27% 668.46% 626.44% 620.53% 626.51% 634.61% 643.19% Total Assets 557.06% 568.93% 619.97% 612.85% 709.47% 660.61% 646.93% 663.84% 675.74% 672.95% LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES Current Liabilities: Commercial paper 1.66% 9.81% 16.43% 13.10% 8.62% 11.87% 11.95% 12.24% 12.41% 12.61% Other short-term debt 0.93% 1.48% 32.67% 2.08% 2.54% 2.00% 2.01% 2.06% 2.09% 2.12% Current portion of long-term debt 16.12% 9.75% 16.24% 11.06% 22.99% 11.89% 14.90% 26.09% 31.76% 25.23% Accounts payable 21.34% 18.81% 14.26% 18.91% 25.64% 25.64% 25.64% 25.64% 25.64% 25.64% Customer deposits 2.91% 2.61% 2.66% 2.60% 2.63% 2.60% 2.45% 2.39% 2.35% 2.31% Accrued interest & taxes 2.97% 3.62% 2.85% 2.91% 2.88% 4.06% 4.10% 4.02% 4.29% 4.38% Derivatives 2.50% 2.12% 4.04% 1.79% 1.73% 1.53% 1.45% 1.43% 1.41% 1.40% Accrued construction-related expenditures 6.93% 6.01% 7.14% 6.00% 5.51% 8.48% 8.49% 8.70% 8.93% 9.18% Regulatory liabilities 1.85% 2.01% 1.94% 1.67% 1.36% 1.77% 1.75% 1.70% 1.65% 1.64% Other current liabilities 10.38% 9.11% 6.76% 12.02% 12.54% 11.00% 10.95% 11.11% 11.29% 11.49% Total current liabilities 67.59% 65.32% 105.00% 72.14% 86.45% 80.84% 83.71% 95.38% 101.82% 96.01% Other Liabilities: Long-term debt - net 172.19% 182.98% 160.11% 195.50% 233.06% 227.86% 217.34% 222.50% 225.63% 229.37% Asset retirement obligations 16.94% 17.63% 18.74% 18.00% 16.99% 17.37% 17.49% 17.91% 18.16% 18.46% Deferred income taxes 68.72% 33.46% 44.04% 43.54% 44.56% 40.14% 40.93% 41.70% 43.71% 45.18% Regulatory liabilities 30.37% 50.97% 53.86% 51.74% 59.65% 54.06% 54.83% 55.07% 55.90% 54.96% Derivatives 2.95% 3.11% 3.08% 4.49% 6.66% 5.90% 5.61% 5.51% 5.45% 5.41% Other liabilities & deferred credits 41.50% 43.90% 8.66% 9.53% 12.46% 10.22% 10.22% 10.61% 10.88% 10.48% Total other liabilities & deferred credits 332.67% 332.06% 288.50% 322.80% 373.38% 355.55% 346.41% 353.30% 359.72% 363.86% Total liabilities 400.26% 397.38% 393.50% 394.94% 459.83% 436.38% 430.12% 448.68% 461.54% 459.87% EQUITY Common equity 55.42% 52.95% 62.74% 62.36% 62.47% 54.37% 50.84% 49.14% 47.73% 46.58% Retained earnings (accumulated deficit) 95.69% 110.45% 142.51% 131.22% 140.93% 127.82% 124.36% 123.07% 122.48% 121.20% Accumulated other comprehensive income (loss) -0.43% 0.65% -1.12% -0.88% -0.51% -0.44% -0.41% -0.40% -0.38% -0.37% Noncontrolling interests 6.13% 7.50% 22.34% 25.21% 46.76% 42.48% 42.02% 43.34% 44.37% 45.67% Total equity (deficit) 156.80% 171.55% 226.47% 217.91% 249.65% 224.23% 216.81% 215.16% 214.19% 213.08% Total liabilities and equity 557.06% 568.93% 619.97% 612.85% 709.47% 660.61% 646.93% 663.84% 675.74% 672.95% NextEra Energy Inc. Value Driver Estimation
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
NOPLAT: Operating revenues 16,155 17,195 16,727 19,204 17,997 20,787 22,346 23,239 24,053 24,774 Less: Fuel, purchased power & interchange expenses 4,042 4,071 3,732 4,363 3,539 3,645 3,755 3,666 3,580 3,496 Less: Other operations & maintenance expenses 3,389 3,327 3,330 3,640 3,751 4,159 4,471 4,649 4,812 4,956 Less: Storm Restoration Costs - 1,255 3 234 183 141 195 624 305 359 Less: Depreciation & amortization expenses 3,077 2,357 3,911 4,216 4,052 4,700 5,028 5,303 5,579 5,848 Less: Taxes other than income taxes & other expenses - net 1,485 1,970 1,551 1,804 1,709 1,882 2,023 2,104 2,178 2,243 EBITA 4,162 4,215 4,200 4,947 4,763 6,260 6,874 6,892 7,597 7,871
Income tax Provision 1,383 (653) 1,576 448 44 1,291 1,388 1,365 1,493 1,527 Plus: Tax shield on interest expense 413 590 366 549 417 437 479 500 555 594 Less: Tax on Equity Investee Earnings (Losses) (56) (53) (87) (16) 289 (32) (35) (36) (37) (39) Less: Tax shield on Allowance for Equity Funds used during Construction (33) (35) (23) (16) (20) (23) (14) (13) (13) (13) Less: Tax on interest (or investment) income (31) (31) (12) (13) (8) (10) (6) 3 (11) (16) Less: Tax shield on Other Net Periodic Benefit Income - - (41) (45) (43) (50) (54) (56) (58) (61) Less: Tax shield on Gain (Losses) on Disposal of Business or Assets - net (169) (421) (20) (99) (76) (83) (83) (83) (83) (83) Less: Tax shield on Other Income (Deductions) - net 23 (195) (179) (12) (16) (12) (15) (17) (17) (18) (18) Adjusted Taxes 2,280 656 2,137 1,203 330 1,515 1,658 1,663 1,828 1,892
Change in Deferred Taxes 1,230 (875) 1,463 258 (78) 324 802 545 822 680
NOPLAT 3,112 2,684 3,526 4,002 4,355 5,069 6,018 5,775 6,592 6,659
Invested Capital (IC): Net Operating WC Operating Current Assets: Normal Cash 373 397 386 444 416 480 516 537 556 572 Customer Receivables-Net 1,784 2,220 2,302 2,282 2,263 2,585 2,841 2,945 2,996 3,114 Other Receivables 655 517 667 525 711 737 770 821 828 888 Materials, supplies and fossil fuel inventory 1,289 1,273 1,223 1,328 1,552 1,589 1,694 1,770 1,846 1,939 Regulatory Assets 524 336 448 335 377 487 483 512 508 541 Other Current Assets 980 608 551 1,576 804 822 840 859 878 898 Total Operating Current Assets 5,605 5,351 5,577 6,490 6,123 6,701 7,144 7,444 7,612 7,953 Operating Current Liabilities: Accounts Payable 3,447 3,235 2,386 3,631 4,615 5,330 5,730 5,959 6,168 6,353 Customer Deposits 470 448 445 499 474 540 548 556 565 572 Accrued Construction Related Expenses 1,120 1,033 1,195 1,152 991 1,763 1,898 2,022 2,148 2,274 Regulatory Liablilities 299 346 325 320 245 367 391 394 396 407 Other Current Liabilities 1,677 1,566 1,130 2,309 2,256 2,287 2,447 2,581 2,715 2,846 Total Operating Current Liabilities 7,013 6,628 5,481 7,911 8,581 10,288 11,014 11,513 11,993 12,452 Net Operating WC (1,408) (1,277) 96 (1,421) (2,458) (3,587) (3,870) (4,069) (4,381) (4,500)
Net PP&E 66,912 72,416 70,334 82,010 91,803 100,531 107,537 113,430 119,341 125,086 Other L-T Operating Assets Regulatory Assets 1,894 2,469 3,290 3,287 3,712 3,730 4,210 4,330 4,572 4,609 Other Assets 3,335 4,081 8,412 3,314 3,672 4,263 4,623 4,921 5,161 5,406 Total Other L-T Operating Assets 5,229 6,550 11,702 6,601 7,384 7,993 8,832 9,251 9,733 10,015 Other L-T Operating Liabilities Regulatory Liablilities 4,906 8,765 9,009 9,936 10,735 11,236 12,251 12,797 13,445 13,616 Other liabilities & deferred credits 6,705 7,549 1,449 1,831 2,242 2,124 2,283 2,465 2,616 2,596 Total Other L-T Operating Liabilities 11,611 16,314 10,458 11,767 12,977 13,360 14,534 15,262 16,061 16,213
Total Invested Capital 59,122 61,375 71,674 75,423 83,752 91,577 97,965 103,349 108,632 114,389
Free Cash Flow (FCF): NOPLAT 3,112 2,684 3,526 4,002 4,355 5,069 6,018 5,775 6,592 6,659 Change in IC 2,326 2,253 10,299 3,748 8,329 7,825 6,388 5,384 5,283 5,757 FCF 786 431 (6,773) 254 (3,974) (2,756) (371) 391 1,309 902
Return on Invested Capital (ROIC): NOPLAT 3,112 2,684 3,526 4,002 4,355 5,069 6,018 5,775 6,592 6,659 Beginning IC 56,796 59,122 61,375 71,674 75,423 83,752 91,577 97,965 103,349 108,632 ROIC 5.48% 4.54% 5.75% 5.58% 5.77% 6.05% 6.57% 5.89% 6.38% 6.13%
Economic Profit (EP): Beginning IC 56,796 59,122 61,375 71,674 75,423 83,752 91,577 97,965 103,349 108,632 x (ROIC - WACC) 1.12% 0.18% 1.39% 1.23% 1.42% 1.69% 2.21% 1.54% 2.02% 1.77% EP 637.19 107.36 851.28 878.46 1,067.92 1,418.85 2,026.86 1,505.24 2,088.14 1,925.16 NextEra Energy Inc. Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity: ASSUMPTIONS: Risk-Free Rate 2.24% 20-year treasury bond Beta 0.61 Average of all Bloomberg Beta's Equity Risk Premium 4.14% Damodaran Implied April 1st ERP Cost of Equity 4.78%
Cost of Debt: Risk-Free Rate 2.24% 20-year treasury bond Implied Default Premium 1.64% Pre-Tax Cost of Debt 3.88% YTM on company's corporate bond with maturity at 10/1/2044 Marginal Tax Rate 23.40% After-Tax Cost of Debt 2.97%
Market Value of Common Equity: MV Weights Total Shares Outstanding 1960 Current Stock Price $80.94 MV of Equity 158,632.26 76.74%
Market Value of Debt: Short-Term Debt 2009 Current Portion of LTD 4138 Long-Term Debt 41944 PV of Operating Leases MV of Total Debt 48,091.00 23.26%
Market Value of the Firm 206,723.26 100.00%
Estimated WACC 4.36% NextEra Energy Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs: CV Growth of NOPLAT 3.00% CV Year ROIC 6.13% WACC 4.36% Cost of Equity 4.78%
Fiscal Years Ending Dec. 31 2021E 2022E 2023E 2024E 2025E
DCF Model: Free Cash Flow (FCF) (2,756.1) (370.5) 390.5 1,309.4 Continuing Value (CV) 250,390.9 PV of FCF (2,641.0) (340.2) 343.6 1,104.0 211,112.8
Value of Operating Assets: 209,579 Non-Operating Adjustments Excess Cash 689 Derivatives (Short-term) 570 Special use funds 7,779 Investment in equity method investees 5,728 Prepaid benefit costs 1,707 Derivatives (Long-term) 1,647 Noncontrolling Interest (8,416) Value of Debt: Commercial paper (1,551) Other short-term debt (458) Current portion of long-term debt (4,138) Long-term debt - net (41,944) Value of Other: ESOP (351)
Value of Equity 170,841 Shares Outstanding 1,960 Intrinsic Value of Last FYE $ 87.17 Implied Price as of Today $ 87.66
EP Model: Economic Profit (EP) 1,418.9 2,026.9 1,505.2 2,088.1 Continuing Value (CV) 141,759.1 PV of EP 1,359.6 1,861.1 1,324.4 1,760.6 119,521.8
Total PV of EP 125,827 Invested Capital (last FYE) 83,752 Value of Operating Assets: 209,579 Non-Operating Adjustments Excess Cash 689 Derivatives (Short-term) 570 Special use funds 7,779 Investment in equity method investees 5,728 Prepaid benefit costs 1,707 Derivatives (Long-term) 1,647 Noncontrolling Interest (8,416) Value of Debt: Commercial paper (1,551) Other short-term debt (458) Current portion of long-term debt (4,138) Long-term debt - net (41,944) Value of Other: ESOP (351)
Value of Equity 170,841 Shares Outstanding 1,960 Intrinsic Value of Last FYE $ 87.17 Implied Price as of Today $ 87.66 NextEra Energy Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31 2021E 2022E 2023E 2024E 2025E
EPS $ 2.15 $ 2.31 $ 2.27 $ 2.49 $ 2.54
Key Assumptions CV growth of EPS 3.00% CV Year ROE 9.47% Cost of Equity 4.78%
Future Cash Flows P/E Multiple (CV Year) 38.43 EPS (CV Year) $ 2.54 Future Stock Price $ 97.65 Dividends Per Share 1.54 1.69 1.86 2.05 Discounted Cash Flows 1.47 1.54 1.62 1.70 81.02
Intrinsic Value of Last FYE $ 87.35 Implied Price as of Today $ 87.85 NextEra Energy Inc. Relative Valuation Models
EPS EPS Est. 5yr EV/ Ticker Company Price 2021E 2022E P/E 21 P/E 22 EPS gr. PEG 21 PEG 22 EV EBIT EBIT DUK Duke Energy Corp$ 100.67 $5.22 $5.49 19.29 18.34 4.9 3.94 3.74 137,714 5,527 25 SO Southern Company$ 65.01 $3.31 $3.57 19.64 18.21 6.2 3.17 2.94 122,041 5,037 24.23 D Dominion Energy Inc$ 78.89 $3.86 $4.11 20.44 19.19 6.7 3.05 2.86 100,754 4,175 24.13 SRE Sempra Energy$ 138.14 $8.18 $8.67 16.89 15.93 3.0 5.63 5.31 65,082 2,735 23.80 XEL Xcel Energy$ 70.37 $2.99 $3.19 23.54 22.06 6.7 3.51 3.29 57,910 2,130 27.19 EXC Exelon$ 46.16 $2.85 $2.93 16.20 15.75 2.0 8.10 7.88 83,024 4,249 19.54 DTE DTE Energy Company$ 140.68 $7.16 $7.46 19.65 18.86 5.4 3.64 3.49 42,826 2,104 20.35 LNT Alliant Energy Corp $ 56.16 $2.55 $2.74 22.02 20.50 5.8 3.80 3.53 20,203 740 27.30 Average 19.71 18.61 4.35 4.13 23.93
NEE NextEra Energy Inc. $80.94 2.18 2.41 37.1 33.6 11.3 3.3 3.0 207157 4025.00 51.47
Implied Relative Value: P/E (EPS21) $ 42.96 P/E (EPS22)$ 44.84 PEG (EPS21)$ 106.93 PEG (EPS22)$ 112.18 Implied EV$ 96,326.76 Implied Price$ 29.95 NextEra Energy Inc. Key Management Ratios
Fiscal Years Ending Dec. 31 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E
Liquidity Ratios: Current Ratio (Current Assets / Current Liabilities) 67.85% 63.72% 36.40% 53.48% 47.45% 42.27% 31.54% 39.14% 40.39% 30.99% Quick Ratio (Cash + Customer Receivables + Other Receivables34.17% / Current 39.63% Liabilities) 20.54% 24.59% 26.22% 21.55% 12.23% 22.22% 24.65% 14.11% Cash Ratio (Cash / Current Liabilities) 11.83% 15.26% 3.63% 4.33% 7.10% 1.78% -7.07% 5.23% 9.04% -2.71%
Asset-Management Ratios: Total asset turnover (Operating Revenues/Total Asset Turnover)17.95% 17.58% 16.13% 16.32% 14.09% 15.14% 15.46% 15.06% 14.80% 14.86% Fixed asset turover (operating revenues/Total other assets)19.56% 18.96% 17.19% 17.41% 14.96% 15.96% 16.12% 15.96% 15.76% 15.55% Day sales outstanding (total receivables/(annual sales/365))55.1 days 58.1 days 64.8 days 53.4 days 60.3 days 58.3 days 59.0 days 59.2 days 58.0 days 59.0 days
Financial Leverage Ratios: Debt to Assets Ratio (Total Debt / Total Assets) 0.34x 0.36x 0.36x 0.36x 0.38x 0.38x 0.38x 0.40x 0.40x 0.40x Debt to Equity Ratio (Total Debt / TSE) 1.22x 1.19x 1.00x 1.02x 1.07x 1.13x 1.14x 1.22x 1.27x 1.26x Debt to Capital Ratio (Total Debt / Total Debt + TSE) 54.90% 54.32% 49.89% 50.44% 51.70% 53.08% 53.17% 54.99% 55.93% 55.83% Debt to EBITDA Ratio (Total Debt / EBITDA) 4.01x 4.57x 4.60x 4.45x 5.25x 4.66x 4.49x 4.87x 4.83x 4.74x
Profitability Ratios: Return on Equity (NI/Beg TSE) 13.00% 21.00% 19.58% 8.94% 5.66% 9.40% 9.75% 9.22% 9.77% 9.71% Return on Assets (NI/Beg TA) 3.64% 5.91% 5.90% 3.27% 2.01% 3.31% 3.31% 3.09% 3.17% 3.08% Operating Income Margin (Operating Income / Revenue) 28.52% 30.97% 25.59% 27.87% 28.43% 31.81% 32.34% 31.18% 33.05% 33.20%
Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 55.31% 34.17% 31.64% 63.94% 93.96% 71.50% 73.20% 81.91% 82.48% 88.73% Total Payout Ratio ((Divs. + Repurchases)/NI) 53.64% 34.68% 36.37% 71.07% 115.79% 71.45% 73.14% 81.85% 82.42% 88.66% NextEra Energy Inc. Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding
Number of Options Outstanding (shares): 9.62 Average Time to Maturity (years): 6.20 Expected Annual Number of Options Exercised: 1.55
Current Average Strike Price: $ 38.32 Cost of Equity: 4.78% Current Stock Price: $80.94
Fiscal Years Ending Dec. 31 2021E 2022E 2023E 2024E 2025E Increase in Shares Outstanding: 1.55 1.55 1.55 1.55 1.55 Average Strike Price: $ 38.32 $ 38.32 $ 38.32 $ 38.32 $ 38.32 Increase in Common Stock Account: 59 59 59 59 59
Share Repurchases ($) 0 Expected Price of Repurchased Shares: $ 80.94 $ 82.55 $ 84.20 $ 85.87 $ 87.59 Number of Shares Repurchased: - - - - -
Shares Outstanding (beginning of the year) 1,960 1,962 1,963 1,965 1,966 Plus: Shares Issued Through ESOP 1.55 1.55 1.55 1.55 1.55 Less: Shares Repurchased in Treasury - - - - - Shares Outstanding (end of the year) 1,962 1,963 1,965 1,966 1,968 NextEra Energy Inc. Valuation of Options Granted under ESOP
Current Stock Price $80.94 Risk Free Rate 2.24% Current Dividend Yield 2.79% Annualized St. Dev. of Stock Returns 24.82%
Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 9,618,204 38.32 6.20 $ 36.50 $ 351,093,114
Total 9,618,204 $ 38.32 6.20 $ 48.42 $ 351,093,114 NextEra Energy Inc. Sensitivity Tables
Beta CV Growth of NOPLAT 87.66 0.45 0.50 0.55 0.61 0.65 0.70 0.75 87.66 2.55% 2.70% 2.85% 3.00% 3.15% 3.30% 3.45% 3.69% 199.34 160.75 133.44 108.63 97.38 84.84 74.63 3.76% 121.63 134.96 152.69 177.41 214.29 275.22 395.12 3.84% 183.50 148.59 123.66 100.83 90.42 78.79 69.27 3.96% 100.51 109.26 120.36 134.94 154.92 183.98 230.13 3.99% 169.74 137.92 115.01 93.88 84.21 73.36 64.46 4.16% 84.64 90.60 97.92 107.13 119.07 135.18 158.10 4.14% 157.68 128.48 107.30 87.66 78.63 68.47 60.11 4.36% 72.40 76.56 81.56 87.66 95.28 105.05 118.05 ERP 4.29% 147.01 120.07 100.40 82.05 73.58 64.04 56.16 4.56% 62.40 65.34 68.79 72.91 77.90 84.09 91.94 4.44% 137.52 112.53 94.17 76.97 69.00 60.00 52.56 4.76% 54.31 56.40 58.81 61.64 65.00 69.05 74.02 4.59% 129.02 105.73 88.53 72.35 64.83 56.31 49.26 4.96% 47.56 49.04 50.73 52.68 54.95 57.64 60.85
Average Other Operations & Maintenance Expenses as % of Revenue Depreciation Expense as % of Beginning Net PPE 87.66 17% 18% 19% 20% 21% 22% 23% 87.66 3.50% 3.90% 4.30% 4.68% 5.10% 5.50% 5.90% 10.0% 75.16 71.25 67.34 63.39 59.51 55.60 51.69 21.00% 130.54 117.51 104.48 92.10 78.41 65.38 52.35 12.0% 84.20 80.21 76.23 72.21 68.26 64.28 60.30 22.00% 128.41 115.46 102.51 90.20 76.60 63.65 50.69 14.0% 93.23 89.18 85.12 81.03 77.02 72.96 68.91 23.00% 126.26 113.38 100.51 88.28 74.77 61.89 49.02 15.5% 100.01 95.90 91.79 87.65 83.58 79.47 75.36 23.40% 125.38 112.54 99.70 87.51 74.03 61.19 48.35 17.0% 106.79 102.63 98.46 94.26 90.14 85.98 81.82 25.00% 121.85 109.15 96.44 84.37 71.02 58.31 45.61 GrowthRate 2021 Revenue 2021 19.0% 115.82 111.59 107.36 103.08 98.89 94.66 90.43 26.00% 119.61 106.98 94.36 82.37 69.11 56.49 43.86 21.0% 124.86 120.55 116.25 111.90 107.64 103.34 99.04 Rate Tax Marginal 27.00% 117.33 104.79 92.25 80.34 67.18 54.64 42.10
% Actual CapEx is Above Projected Capex 87.66 25.00% 30.00% 35.00% 39.48% 45.00% 50.00% 55.00% 3.60% 100.48 97.55 94.63 92.01 88.79 85.86 82.94 3.70% 98.79 95.90 93.02 90.43 87.24 84.35 81.46 3.80% 97.15 94.30 91.44 88.88 85.73 82.88 80.02 3.88% 95.86 93.03 90.20 87.66 84.54 81.71 78.88 4.10% 92.49 89.73 86.96 84.49 81.44 78.68 75.92 4.30% 89.57 86.87 84.16 81.74 78.76 76.05 73.35
r-a oto etWACC Debt Costof Pre-Tax 4.50% 86.80 84.15 81.50 79.13 76.21 73.56 70.91