The Henry Fund Henry B. Tippie College of Business Ruotian Kang [[email protected]]

NextEra Energy (NEE) March 11, 2020 Energy – Renewable Energy Stock Rating Buy Investment Thesis Target Price $284-300 DCF Model $284 We give a BUY recommendation on NextEra Energy, Inc with a target price DDM Model $300 range of $284-300. NextEra Energy is a leading company in the both regulated EV/EBITDA $308 electricity generation and renewable energy. The company remains the Price Data world's largest generator of renewable energy from wind and solar. NextEra Current Price $255.73 Energy is planning to make between $50 billion and $55 billion in new infrastructure investments through 2022. NextEra Energy has a long-term 52wk Range $186.92 – 283.35 track record of delivering value to shareholders. From last 15 years, NEE Consensus 1yr Target $266.94 delivered a total shareholder return of 945% compared to 309% for the S&P Key Statistics 500 Utilities. Market Cap (B) $129.65B Shares Outstanding (M) 488.78M Drivers of Thesis CapEx as % of Sales 63%  We forecast a 10% increase of operating revenue on NextEra Energy Five Year Beta 0.59 Recourse segment in the next 2 years based on the company’s Dividend Yield 2.20% infrastructure investment plan on wind and solar Est. 5yr Growth 9.1% Price/Sales 7.7  We estimate NEER will keep the operating expense of renewable energy Price/Sales (2020E) 6.8 side as 65% of total revenue and continue to decrease to 55% in the long run after the company’s cost-reducing new infrastructure plan completed EV/EBITDA 22.0 EV/EBITDA (2020E) 16.4  Gulf Power as the company’s new business sector has generated a very Profitability favorable return to the company and this sector expected to have a 3% of Operating Margin 20.42% revenue growth and 19% of revenue as operating expense in 2020 Net Margin 21.55% Return on Assets (TTM) 3.4% Risks to Thesis Return on Equity (TTM) 10.59%  The potential downtrend of natural gas price may decrease the demand of renewable energy NEE Industry Sector 40 Data source: FactSet  Solar panel and windmill are facing tariffs from different countries. The 30 35.6 potential adverse policy will increase the cost 20 22.0 18.8 10 12.6 Earnings Estimates 11.3 10.6 10.3 11.6 Year 2017 2018 2019 2020E 2021E 2022E 0 EPS $11.47 $14.03 $7.82 $12.10 $13.92 $12.91 P/E ROE-5.8 EV/EBITDA -10 Consensus $11.86 $12.54 $13.25 growth 82.4% 22.3% -44.3% 54.7% 15.1% -7.3% 12 Month Performance Company Description NEE S&P 500 50% NextEra Energy’s base market is in Florida, where 40% Data source: Yahoo Finance it focuses on its core regulated power operations. 30% But it has grown in assets and revenue thanks to its broad push for wind and solar power in the 20% regulated and unregulated markets. The company 10% has been named to Fortune's 2020 list of the "World's Most Admired Companies" and ranked 0% No. 1 in the electric and gas utilities industry for -10% the 13th time in 14 years. MAMJJASONDJF

Important disclosures appear on the last page of this report.

EXECUTIVE SUMMARY Florida Power & Light

NextEra Energy still has more room to grow even at its Florida Power & Light provides electricity to about 5.0 current market capitalization of $125 billion and forward million customers in an area covering nearly all of Florida's P/E ratio of 30. The company consistently produces great eastern seaboard, as well as the southern part of the state. returns and is one of the most forward-looking power At December 31, 2019, FPL had approximately 27,400 MW companies in the industry. In the likely scenario that of net generating capacity, approximately 75,400 circuit NextEra Energy's big bets in emerging technologies like miles of transmission and distribution lines and 661 solar and storage payoff, NextEra Energy should continue substations1. The following map shows the FPL's service to see upward momentum. territory.

We recommend a BUY rating on NEE stock. We estimate a target price range of $284–$300 per share of NEE stock, which shows an upside of 11–17% from its current price. NextEra is at the leading position whatever in the hybrid business, regulated business and nonregulated business. NextEra also impressively has the lowest level of cost in both regulated business and nonregulated business. COMPANY DESCRIPTION

NextEra Energy is one of the largest electric power companies in North America and a leader in the renewable energy industry, with about 54,400 megawatts (MW) of generating capacity at the end of 2019. NEE has two principal businesses: Florida Power & Light Co. (FPL), and NextEra Energy Resources (NEER). FPL and Gulf Power Source: NEE 10-K report, 2019 generated 63% and 8% of 2019 revenues respectively as the regulated business and NEER generated about 29% of At December 31, 2019, FPL served more than ten million the total revenue as the unregulated business which is a people through more than five million customer accounts. wholesale generator of electricity with operations FPL's primary source of operating revenues is from primarily in the U.S. and operations in Canada as well1. NEE residential and commercial account, but it also serves a also owns Lone Star, a rate-regulated transmission service limited number of wholesale customers within Florida. provider in Texas. There are almost 55% of FPL’s revenue is from residential account, followed by the second largest component which NEE Revenue Component is commercial account.

GP, 8%

NEER, 29%

FPL, 63%

NEER FPL GP

Source: NEE 10-K report, 2019

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Source: NEE 10-K report, 2019

As for the commercial accounts and residential accounts as the percentage of total accounts number. There is 89% of accounts are residential accounts and only 11% are 1 commercial accounts as of Dec 2019 . The industrial, Source: NEE 10-K report, 2019 wholesale and other collectively accounts are less than 1%. Based on the Florida area’s 2020 electricity rates, the average monthly electricity cost is $107.55/1,000-kWh. FPL is currently offering a lower bill rate to residents which is $102.72/1,000-kWh2. This means that FPL is continuing to maintain a cost-efficient position, which makes them able to provide a relative lower price of electricity to customers. So, we expect a 3% growth in the following 3 years comparing with the growth rate of 2.78% in 2019 due to its attractive low-price electricity.

NextEra Energy Resources

The unregulated NextEra Energy Resources subsidiary is one of the largest wholesale generators of electric power in the U.S. with approximately 21,900 MW of total net generating capacity at December 31, 20191. NEER Source: NEE 10-K report, 2019 produces the majority of its electricity from clean and As for the fuel type that FPL uses to generate electricity, renewable sources. NEER is the world's largest generator there are major 4 types of fuel sources which are natural of renewable energy from the wind and sun based on 2019 gas, nuclear, coal and solar. The following bar chart shows MWh produced on a net generation basis. In addition, the distribution of these different fuels. NEER develops and constructs battery storage projects, which when combined with its renewable projects, serve to enhance its ability to meet customer needs for a nearly firm generation source. The following map shows NEER’s generating assets.

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manage reliable customized risk solutions to wholesale customers are competitive advantages.

Compared with the regulated business of NEE, this unregulated segment’s future performance is relatively fluctuant because there are a some of factors may impact the demand and the price of renewable energy. Natural gas price is the most crucial factor which will further influence the revenue of NEER. Due to the extreme downtrend of natural gas price in early of 2020, we decide to cut the growth rate of 15.6% in 2019 to 10% in 2020 and 2021. Also, we estimate an increase of its operating expense. The forecasted operating expense is growing Source: NEE 10-K report, 2019 from 35.5% of total revenue in 2019 to 65% in the following 3 years. As for its generating assets at the end of 2019, 65% of net generation capacity which is about 15,955 MW are Gulf Power attributable to wind power, 12% which is about 2,684 MW are attributable to solar facilities, also 12% is belonged to Gulf Power, a rate-regulated electric utility, is engaged in nuclear facilities. Finally, 7% and 4% of net generation the generation, transmission, distribution and sale of capacity which is totally 2,110 MW are attributable to electric energy in northwest Florida. NEE completed the fossil facilities1. acquisition of all of the outstanding common shares of Gulf Power on January 1, 2019. Gulf Power is subject to regulations similar to FPL. The follow map demonstrates the distribution of Gulf Power’s operating territory.

Source: NEE 10-K report, 2019

NEER competes in different regions to differing degrees, but in general it seeks to enter into long-term bilateral contracts for the full output of its generation facilities. At Source: Florida Public Service Commission December 31, 2019, approximately 90% of NEER's net generating capacity was committed under long-term As of December 31, 2019, Gulf Power served contracts. NEER primarily competes on the basis of price, approximately 470,000 customers in eight counties but believes the green attributes of NEER's generation throughout northwest Florida and had approximately assets, its creditworthiness and its ability to offer and 2,300 MW of fossil-fueled electric net generating capacity

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and 9,500 miles of transmission and distribution lines As our estimation, we think NEE’s EPS will step in an located primarily in Florida1. upward trend and we estimate a $9.00 EPS for 2020 followed by $9.77 in 2021, $9.79 in 2022. These numbers Due to the limited data of Gulf Power since the acquisition are relatively lower than the company’s expectation, was completed. We only have one annual report on Gulf because we consider the current serious oil price drop will Power’s performance. Thus, we decide to look for the decrease the demand of renewable energy. company’s forecasted guidance to estimate the future growth of Gulf Power. According to the company’s history RECENT DEVELOPMENTS and forecast of energy consumption in the beginning of 2019, the company estimates 1.4%, -1.4% and 2% growth NextEra reported earnings saw a decline during Q4 after rates in the period of 2019-2023 on residential, the adjusted net income hit $706 million, down from $718 commercial and industrial respectively3. Combining with million in the same quarter for the previous year. This the current downtrend of oil and gas price, we forecast a equates to EPS of $1.44, down from $1.49 in the previous 3% growth in the year of 2020-2022 and 2% from 2023- period due to storm restoration costs from FPL5. 2024. Strong Performance of NEER Company Analysis In the fourth quarter of 2019, NextEra Energy's Florida The energy industry is rapidly transforming as new energy Power & Light unit posted a net income of $400 million or and grid technologies emerge. We think NextEra is well- $0.81 in EPS after adding an average of 100,000 more new positioned to take advantage of the changing energy customers5 from the prior year quarter. For another landscape. NextEra Energy Resources added an impressive regulated business, Gulf Power, it shows $80 million in net 5,800 MW to its backlog and commissioned 2,700 MW of income, or $0.05 per share, in the recently concluded solar, wind, repowering projects, and storage in 20194. quarter. This is the reason why we believe NEER will the leading business of NEE and we also forecast a 10% growth on the NEER in the 2020 and 2021 followed by 8% in 2022 and 2023 and 5% in 2024.

NEE also has strengthening financials. The company shows earnings per share of $7.82 in 2019. While the company missed Q4 estimates, the company is still experiencing steady growth. The company grew its revenue 14% Y/Y to $19.2 billion. In 2019, the company also had a total return of 44%, outperforming the S&P 500 Utilities Index with 10% return. NextEra Energy experienced an average CAGR Source: Q4 Presentation of 8.5% over the past 15 years and continues to rank among the top performers in the power industry4. On the other hand, NEER saw a net income figure of $326 million or $0.66 per share of the adjusted earnings, about 12-Month Performance of NEE and S&P 500 Utilities Index flat from last year. However, for the year, there was EPS of $3.49 versus $3.11 in 2018, which represents an 11% year- over-year growth5.

Source: Yahoo Finance

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As for the renewable energy aspects, considerable costs reducing and significant rise in efficiently producing renewable energy will lower the cost of renewable energy. Those factors drove growth in 2019. In the first half of 2019, the cost of onshore wind and utility-scale solar declined by 10% and 18% individually. The greatest cost- reducing was in the battery storage field, which fell 35% during the same year4. This steady decline of prices for battery storage has begun to add value to renewable energy because the more effective battery helps intermittent wind and solar power more competitive compared with the energy generated by traditional fossil fuels.

Source: Q4 Presentation Strong Future of Solar Photovoltaic New Infrastructure Investment through 2020 Solar PV, in particular, is one of the most promising The company news says that it will continue making a huge emerging energy technologies. Solar adoption has been investment in building new infrastructure through 2020 in growing at an exponential rate, albeit from a very small order to increase its economic scale. We believe the base. While solar adoption is still relatively low, its growth company catches a period of time to investment because does not seem to be slowing down. In fact, solar PV now the Florida power market is still growing, and current fuel consistently ranks among the top energy technologies price is at a lower level. For our capital expenditure when it comes to new installed capacity. assumption, we use the guidance from Bloomberg which Given that solar PV is based on semiconductor technology, are $11 Billion in 2020, $9.8 Billion in 2021 and $9.3 Billion it is not surprising to see exponential improvements in in 2022. solar PV similar to those experienced in other FPL announced a 30-by-30 plan with the ambitious goal of semiconductor industries. NextEra Energy clearly sees the installing a stunning 30 million solar panels by 2030. This potential of solar as is evident in its growing emphasis on translates to roughly 10 GW of solar capacity, which would the sector. make Florida a solar powerhouse4. NextEra Energy would Electricity Generation by Renewable Sources also further cement its status as one of the most dominant solar energy plays, which is incredibly impressive given that the company is also heavily involved in other energy sectors like fossil fuels. INDUSTRY TRENDS

Our fundamental outlook for the electric utilities sub- industry is positive as we expect earnings to grow in the 5% in 2020. We think the electric distribution utilities will benefit from low fuel and purchased power costs and new Source: Bloomberg rate increases, partly offset by higher operations & maintenance and depreciation costs. We also look for Innovation of Energy Storage continued growth in industrial sales to benefit electric utilities. However, we expect wholesale power operators The decreasing cost of energy storage, particularly in to remain challenged by pressure on spot power prices lithium-ion batteries, is making baseload power far less of due to low natural gas prices because major players in the an issue for renewables. As increasingly cost-effective industry will need to lower the price of electricity to gain energy storage hits the markets, solar and wind are the competitiveness.

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becoming far more viable. NextEra Energy is becoming one of the leaders in energy storage. The company is even starting to view energy storage as a standalone business.

NEE is regularly adding hundreds of megawatts of storage capacity to its businesses. By building a strong energy storage infrastructure, we believe NEE will have a competitive edge on other utilities and power companies moving forward. As more investments pour into energy storage R&D as a result of growing EV and renewable demand, NextEra should be increasingly well-situated moving forward. The following graph shows the capacity of energy storage projects in 2019.

Source: Statista

On the other hand, nonregulated electricity especially for renewable energy market is segmented into type, end-use, and region. Based on type, the market is divided into hydroelectric power, wind power, bioenergy, solar energy, and geothermal energy. Based on end-use, the market is categorized into residential, commercial, industrial, and others.

Source: Statista MARKETS AND COMPETITION

The regulated electric and gas delivery businesses are experiencing customer growth, helped by population growth that drives higher residential and commercial usage and economic growth that drives higher commercial and industrial usage6. Utilities’ capital expenditures on their delivery systems are also leading to higher rate base, Source: Allied Market Research which in turn leads to higher customer rates over time. Based on type, the renewable energy market is classified Capital spending on regulated generation also helps to into hydroelectric power, wind power, bioenergy, solar drive rate base higher. energy, and geothermal energy. The hydroelectric power NEE is a typical leading player within the regulated electric segment is expected to dominate the market during the industry. It has the biggest market capitalization of $90.7 forecast period. Historically, the solar power consumption Billion followed by Duke Energy with $64.9 Billion market is growing at a rate of 20% YoY. Prospectively, we still value and Enel (Italy) with $63.1 Billion market value. The expect the solar energy segment is to grow at the around following graph demonstrates the world’s largest electric 22% YoY based on the forecast from U.S. Energy utility companies in 2019. Information Administration (EIA).

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NEE vs. EXC, PPL, VST and SRE

Source: Yahoo Finance

NEE vs. AES and FSLR

Source: Statista

Peer Comparisons

The peer companies we chose are AES Corporation (AES), Exelon Corporation (EXC), PPL Corporation (PPL), Duke Energy Corporation (DUK), Vistra Energy Corp. (VST),

Sempra Energy (SRE), First Solar, Inc. (FSLR) and Avangrid, Source: Yahoo Finance Inc. (AGR). To be more specific, NEE, Duke Energy and Avangrid are doing both of regulated electricity business After comparing the performance of those different peer and renewable energy business. For Exelon, PPL, Vistra companies. We discover that NextEra is at the leading Energy and Sempra Energy, there are only doing the position whatever in the hybrid business, regulated traditional energy generation, power marketing, and business and nonregulated business. energy delivery business. As for AES and First Solar, these two companies focus on the renewable energy aspects. Peer Comparisons of Size, Dividends, Capital Spending The following graphs shows the last year performances of Market CapEx these companies’ stocks (blue line demonstrates NEE). Dividend Companies Cap as % of Yield NEE vs. DUK and AGR ($ billion) Sales NextEra 125.04 2.06% 63% AES 11.11 2.78% 24% Exelon 42.01 3.18% 21% PPL 22.90 4.60% 40% Duke Energy 69.67 4.11% 44% Vistra Energy 9.43 2.17% 9% Sempra 38.17 3.31% 32% Energy Source: Yahoo Finance First Solar 4.33 0.00% 22% Avangrid 15.39 25.30% 43%

Source: FactSet

From this comparative table we find that NEE has the biggest market Cap around $125 Billion currently. The striking point of NEE is the company has 63% of capital expenditure as % of sales, which means that the company

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reinvest a higher portion of income into toward assets for We also do the research about the cost per kWh electricity future operations than any of its peers. It looks like generation of these comparable companies. reasonable because the company has planned a $50 Billion investment in infrastructure. We give a positive Cost per Cost per prospective that these two advantages contribute toward kWh kWh Companies NextEra’s ability to gain a further leading position in the (Renewable) (Regulated) capital demanding wind and solar power industries. For in cents in cents the dividend yield, NEE’s figure is not at the leading level. NextEra 2.5 5 We consider the reason is the company is large now and AES 3.2 expect to distribute a constant middle level of dividend. Exelon 7 Peer Comparisons of Margins, Valuation, Leverage PPL 12 Duke Energy 3 11 Gross EV/EBITD Debt/Equit Companies Vistra Energy 9.9 Margin A y Sempra NextEra 30.3% 15.88x 116% Energy 25 AES 23.2% 8.87x 527% First Solar 3 Exelon 17.8% 8.21x 122% Avangrid 3.5 11 PPL 40.6% 10.51x 178% Source: Forbes Duke Energy 28.0% 12.59x 134% Vistra Energy 22.3% 5.95x 142% NextEra impressively has the lowest level of cost in both regulated business and nonregulated business. We believe Sempra 25.2% 14.44x 143% that is why NEE could maintain the high rate of gross Energy margin and generate enough profit to invest in new First Solar 17.9% 7.79x 12% infrastructures. Avangrid 25.3% 11.64x 54% Source: FactSet ECONOMIC OUTLOOK We notice that NEE has an effective gross margin at 30% GDP which rank the second of those peers. As for the Total Debt/Total Equity ratio, NextEra’s leverage is current at a The US GDP grew 2.1 percent in Q4 2019. Basically, it healthy level compared with the market capitalization of remained at the same level as Q3 and matched the these companies. Furthermore, NEE’s EV/EBITDA is at the estimate. We consider the GDP in 2020 will potential suffer leading position. We consider the reason is NextEra has a leading position in both regulated electricity industry and a decrease due to the outbreak of coronavirus. However, renewable energy industry with enormous potential. So, we think the utility industry will be relatively safe, because the company’s growth prospects determine their stock is utilities have been insulated from the global turmoil as trading at a premium to those peer companies. majority of their earnings are regulated and come from domestic holdings. According the economic study, 1% GDP

decrease will cause 0.7% decrease of electricity demand. In the past three months, Utilities have lost 2.3%, much narrower than the S&P 500 group’s decline of 4.8%7. The

government potentially will be active to take steps to keep the economy strong in order to enforce people’s confidence in the market. With the further agreement

achieved between the US and China, we believe the trade war will calm down at a certain level in 2020. Due to the coronavirus’s threat to the Chinese economy, it is possible

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that the Chinese government will make concessions in common source of electricity production is natural gas. multiple aspects such as tariffs and capital control in order Because of the nature of a substitute, the demand for to unfreeze the frozen economy in the first quarter of renewable energy will be stronger when the natural gas price goes high, but the decreasing oil price will hurt the 2020. consumption of renewable energy.

Natural Gas Price YDT

Source: Trading Economics

Interest Rates Source: Market Insider Currently, the United States is in a decreasing interest rate period. The 10-year T-Bond rate is experiencing a On the other hand, the decreasing natural price is significant drop. The 10-year Treasure yield is down to beneficial for regulated electricity business. It provides 7.48% as of March 11. The following graph shows the 10- opportunity to FPL lowering its operating expense on fuel year T-Bond yield in 1-year period. cost. We think NEE will not suffer so much due to the natural gas price change, because the company’s regulated business and renewable energy business can hedge the risk of natural gas price change. INVESTMENT POSITIVES

• We expect revenues grow at 5.4% in 2020 and 5.3% in 2021 partly helped by the Gulf Power acquisitions

Source: Yahoo Finance • We see positive impacts from new infrastructure entering service through 2022 For the utility industry, the positive influence of decreasing interest rates is the companies could lower its cost of debt. •NEE’s net debt to capitalization ratio is well below the This is an especially important factor for utility companies electric utility average, because of their typically high debt levels. Major utility firms have major capital expenditures and high debt-to- market cap levels. The construction of power plants and the maintenance of the vast infrastructure required to INVESTMENT NEGATIVES deliver gas, water, or electricity makes utilities a very expensive business that requires major debt financing. On • Changes in interest rates, generation availability, long- the other hand, the decreasing interest rate will hurt the term weather patterns and economic conditions in NEE's attractiveness of the utility companies’ bonds. service area • Natural gas price change may lower the demand of Natural Gas Price renewable energy and further increase the cost the NEER Natural gas price is a crucial factor that can impact the demand for renewable energy. In the US, the most

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VALUATION of FPL’s business stepping into the steady state. So, we choose an average figure as the result. For the operating We estimate a target price range of $284–$300 per share expense estimation of Gulf Power, we decide to increase of NEE stock, which shows an upside of 11–17% from its its operating expense as % of revenue from 18.2% to 19% current price. We reached the upside of target price using in 2020, to 20% in 2021 and 2022, and gradually down to our Dividend Discount Model, which yielded a value of 18% in 2024. It is because we consider the first 3 years $299.81 based on the theoretical dividend NEE could since Gulf Power be acquired by NEE will be adjustment afford to pay in the last year of our forecast period. And period of its business. Due to its small business scale, it’s our Discounted Cash Flow model determining the operating expense can’t maintain such a low level. But downside, which offer a value of $284.84. The reason why after its business grow up, the cost will deduct to the we choose DCF as the downside of target price range is company’s expected level. that we estimate the NOPLAT and invested capital in a relatively conservative way. We want to use the DCF When it comes to NEER’s revenue. the historical data is model to yield the core value of the stock. Due to the much noisier and more volatile. Due to the extreme company’s high EPS estimates, we decide to use the DDM downtrend of natural gas price in early of 2020, we decide model as the upside estimate. A 30.2 P/E ratio provide a to cut the growth rate of 15.6% in 2019 to 10% in 2020 and very positive expectation for the company. In addition, we 2021. And then continue decrease to 5% in 2024 as NEER performed a relative valuation using the average going to steady state. For the operating expense of NEE, EV/EBITDA multiple of a group of comparable companies, we decide to predict the operating expense as % of including the peer companies we mentioned before. This revenue as well. Due to the volatile of its operating approach yielded a target price of $300.98 per share of expense, we estimate the 2020’s operating expense as % NextEra stock. We do not favor this approach because of revenue by using a middle level of historical number. So, NextEra’s business is diversified enough that there is not a we choose 65% in the first 3 years and then down to 55% great deal of truly comparable companies. in the following 2 years. First, the company has the lowest cost per kWh electricity generation comparing with its Revenue Decomposition peers. Second, NEE is investing new infrastructure in renewable energy business which will complete in 2022. In order to forecast NEE’s revenue, we began with the 3- This will further help NEER to lower its operating expense. year historical segment information. This information is typically presented in terms of operating revenues and Assets operating expenses for each segment. We analyzed these revenue values in terms of year-over-year growth and As for total PPE, we choose to use the estimated Capex estimate expenses in terms of a percentage of revenue. plan for the company which are $11.04 Billion in 2020, $9.81 Billion in 2021 followed by $9.26 Billion in 2022, The way we predict Florida Power & Light’s revenue is to 2023 and 2024 individually. When it comes to current grow by 3% in the first 3 years and 2% in the following 2 assets, we forecast receivables, inventory, regulatory years. First, we predict 3% growth because of its attractive assets, derivatives and other current assets by using the % low-price electricity. Second, we consider FPL will going to of revenue. We first come up with the percentage base line steady state in the after 2023 because regulated electricity by calculating the average level of last 3 years, and then business only has limited growth margin. For Gulf Power, adjust those rates to be increased slightly. This is because we use the same growth rate to estimate its future we believe those items related to operating will grow up operating revenue because both of these two segments with the company’s expansion. For other assets, we are doing regulated business. So, we think they should predict Prepaid benefit costs as a % of sales with a experience the relatively same horizon of growth. We decreasing trend because this number experience a decide to predict the operating expense as % of revenue. constant decrease during the last three years. Also, we For FPL, we estimate a 72% of revenue as operating decide a 3% growth rate to estimate the rest items under expense in 2020 and 2021 down from 72.9% in 2019 other assets because these assets should have a constant because the decreasing natural gas price will help FPL to growth with the increase of company’s operating revenue. lower its operating expense. We give 73% of revenue as Finally, we choose to forecast Cash as a plug account. operating expense in the following 3 years. That is the time

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Capitalization

NEE divides its capitalization into total equity and long- term debt. As for equity, we predict common stock by using last year’s number plus the value of option granted calculated by ESOP. Finally, the way we predict long-term debt is to use the estimated debt growth rate of 8%, 3%, 2% in the first forecasted years. Then we predict the debt growth rate down to 1% in 2023 and 2024.

WACC Assumption

Risk-free rate = 10-year T-note rate = 1.01%

Beta = 0.59 Equity Risk Premium = 5.20% Cost of Equity = 4.05%

Pre-Tax Cost of Debt = 4.11% Marginal Tax Rate = 21% After-Tax Cost of Debt = 3.25%

Market Value of Equity = 123,261.86 M MV Weights = 73.18%

Market Value of Debt = 45,184.26 M MV Weights = 26.82%

Estimated WACC = 3.87% KEYS TO MONITOR

Moving into 2020, we should be noted that, many companies in the renewable energy industry, their eligibility for the Production Tax Credit (PTC) for new wind build expires and the solar Investment Tax Credit (ITC) step down starts in 20208, both of which have been key drivers for wind and solar growth in the US renewable energy market.

We will also be watching US tariff policies in the year 2020. Because of the influence of the trade war between China and the US. The US government expanded tariffs on

Chinese imports, most recently including bifacial solar modules, and is considering increasing tariff amounts. If these tariffs are imposed based on existing tariffs on equipment from China, this will cause the increasing price pressure on prices could shut down some new projects.

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REFERENCES IMPORTANT DISCLAIMER

1. NEE 10-K, 2019 Henry Fund reports are created by graduate students https://www.sec.gov/ix?doc=/Archives/edgar/data/37 enrolled in the Applied Securities Management program at 634/000075330820000021/nee-12312019x10k.htm the University of Iowa’s Tippie College of Business. These 2. FPL Newsroom reports provide potential employers and other interested http://newsroom.fpl.com/2018-02-27-FPL-rates-to- parties an example of the analytical skills, investment decrease-beginning-March-1-FPLs-typical-customer- knowledge, and communication abilities of our students. bill-will-be-approximately-30-percent-lower-than-the- Henry Fund analysts are not registered investment national-average advisors, brokers or officially licensed financial 3. Golf Power Ten Year Site Plan professionals. The investment opinion contained in this http://www.psc.state.fl.us/Files/PDF/Utilities/Electricg report does not represent an offer or solicitation to buy or as/TenYearSitePlans/2019/Gulf%20Power.pdf sell any of the aforementioned securities. Unless 4. NextEra Energy: Betting On A Renewable Future otherwise noted, facts and figures included in this report https://seekingalpha.com/article/4322880-nextera- are from publicly available sources. This report is not a energy-betting-on-renewable-future complete compilation of data, and its accuracy is not 5. NextEra Energy: One Of Our Top 2020 Picks Is Off And guaranteed. From time to time, the University of Iowa, its Running faculty, staff, students, or the Henry Fund may hold an https://seekingalpha.com/article/4319039-nextera- investment position in the companies mentioned in this energy-one-of-top-2020-picks-is-off-and-running report. 6. Industry Survey https://www-capitaliq- com.proxy.lib.uiowa.edu/CIQDotNet/Research/Docum entViewer.aspx?documentViewerDocumentId=438516 89 7. Coronavirus Pulls Down Market, Utilities Remain a Safe Bet https://finance.yahoo.com/news/coronavirus-pulls- down-market-utilities-143002643.html 8. Solar energy: what you need to knowhttps://www.energysage.com/solar/

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NextEra Energy, Inc. Key Assumptions of Valuation Model

Ticker Symbol NEE Current Share Price $255.73 Current Model Date 3/10/2020 FY End (month/day) Dec. 31 Last FYE Date 12/31/2019 Next FYE Date 12/31/2020 Pre-Tax Cost of Debt 4.11% Beta 0.59 Risk-Free Rate 1.01% Equity Risk Premium 5.15% CV Growth of NOPLAT 2.00% CV Growth of EPS 1.10% Current Dividend Yield 2.20% Marginal Tax Rate 21.00% Effective Tax Rate 9.00% Cost of Equity 4.12% Intrinsic Value of DCF $ 284.84 WACC 3.83% 2024 ROIC 6.22% 2024 Beg. IC 87,798 Operating Icome 5666 FCF 2,988 NOPLAT 5,464 CV ROE 10.03% DDM Price $ 299.81 LT debt growth rate 8.0% NextEra Energy, Inc. Revenue Decomposition All numbers in millions US dollar

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Florida Power & Light Operating Revenue 11972 11862 12192 12558 12934 13323 13589 13861 YoY growth 9.89% -0.92% 2.78% 3.00% 3.00% 3.00% 2.00% 2.00% Operating Expense - net 8582 8708 8890 9042 9313 9725 9920 10118 % of revenue 71.68% 73.41% 72.92% 72.00% 72.00% 73.00% 73.00% 73.00% Customer Accounts 5 5 5 5.1 5.2 5.2 5.3 5.3 Residential 89% 89% 89% 89% 89% 89% 89% 89% Commercial 11% 11% 11% 11% 11% 11% 11% 11%

Gulf Power Operating Revenue 1487 1532 1578 1625 1657 1691 YoY growth 3.00% 3.00% 3.00% 2.00% 2.00% Operating Expense - net 271 291 316 325 315 304 % of revenue 18.22% 19.00% 20.00% 20.00% 19.00% 18.00%

NextEra Energy Resourse Operating Revenue 5164 4878 5639 6203 6823 7369 7959 8356 YoY growth 5.91% -5.54% 15.60% 10.00% 10.00% 8.00% 8.00% 5.00% Operating Expense - net 4296 3568 2004 4032 4435 4790 4377 4596 % of revenue 83.19% 73.14% 35.54% 65.00% 65.00% 65.00% 55.00% 55.00% Generating Capacity 19060 MW 21000 MW 21900 MW 23000 MW 25000 MW 26000 MW27100 MW 28000 MW Wind 69.00% 64.00% 65.00% 68% 70% 71% 71% 73% Nuclear 14.00% 13.00% 12.00% 10% 11.00% 10% 11.00% 10% Solar 11.00% 11.00% 12.00% 13% 14% 15% 16% 16% Natural Gas 4.00% 8.00% 7.00% 5% 4% 3% 2% 1% Oil 2.00% 4.00% 4.00% 4% 1% 1% 0% 0%

Corporate and Other Operating Revenue 37 -13 -114 -57 -26 -10 -5 -3 YoY growth -89.92% -135.14% 776.92% -50.00% -55.00% -60.00% -50.00% -40.00% Operating Expense - net -878 171 110 51 21 7 3 2 % of revenue -2372.97% -1315.38% -96.49% -90.00% -80.00% -70.00% -60.00% -50.00% NextEra Energy, Inc. Income Statement All numbers in millions US dollar

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Operating revenues 17,195 16,727 19,204 20235 21310 22306 23200 23905 Total operating expenses -11,869 -12,447 -13,851 -14569 -15343 -16284 -16936 -17689 Fuel, purchased power and interchange -4,071 -3,732 -4,363 -4654 -4901 -5130 -5568 -5737 Other operations and maintenance -3,327 -3,330 -3,640 -3845 -4049 -4461 -4640 -5020 Acquisition-related -69 -32 -35 -42 -43 -33 -42 -41 Depreciation and amortization -4,058 -3,925 -4,522 -4897 -5264 -5535 -5757 -5966 Losses / gains on disposal of assets - net 1,111 80 406 488 618 661 927 987 Taxes other than income taxes and other - net -1,455 -1,508 -1,697 -1619 -1705 -1784 -1856 -1912 Operating income / loss 5,326 4,280 5,353 5666 5967 6023 6264 6215 Total other income / deductions - net -659 3,072 -1,517 -653 -474 -512 -436 -151 Interest expense -1,558 -1,498 -2,249 -1630 -1754 -1894 -1921 -1838 Benefits associated with differential membership interests - net 460 0 66 100 200 300 300 400 Other - net 289 4199 687 800 1000 1000 1100 1200 Interest income 81 51 54 78 80 82 85 87 Income / loss before income taxes 4,667 7,352 3,836 5013 5493 5511 5828 6064 Income tax expense / benefit 653 -1,576 -448 -1053 -1153 -1157 -1224 -1274 Net income / loss 5,320 5,776 3,388 3960 4339 4354 4604 4791 Net income attributable to noncontrolling interests 58 862 381 381 381 381 381 381 Net income / loss attributable to NextEra Energy, Inc. 5,378 6,638 3,769 4341 4720 4735 4985 5172

Per share Basic 11.47 14.03 7.82 9.00 9.77 9.79 10.30 10.68 Weighted average shares Basic 468.8 473.2 482 482.5 482.9 483.4 483.9 484.4 Dividends per shares 3.93 4.44 5.00 5.60 6.21 6.92 7.52 8.20 NextEra Energy, Inc. Balance Sheet All numbers in millions US dollar

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Total assets 97,827 103,702 117,691 125477 134390 140433 144084 151994 Total property, plant and equipment - net 72,416 70,334 82,010 88,150 92,691 96,413 99,913 103,204 Electric plant in service and other property 85,337 81,986 96,093 100,000 110,000 115,000 117,000 120,000 Nuclear fuel 1,767 1,740 1,755 1,800 1,600 1,500 1,400 1,600 Construction work in progress 6,679 8,357 9,330 11,000 11,000 11,000 12,000 13,000 Accumulated depreciation and amortization -21,367 -21,749 -25,168 -24650 -29909 -31087 -30487 -31396 Total current assets 7,157 6,393 7,408 8,209 11,715 13,179 12,459 16,198 Cash and cash equivalents 1,714 638 600 958 3,952 4,562 3,381 6,485 Customer receivables, net of allowances 2,220 2,302 2,282 2,226 2,344 2,677 2,784 3,108 Other receivables 517 667 525 506 533 669 696 837 Materials, supplies and fossil fuel inventory 1,273 1,223 1,328 1,356 1,343 1,338 1,276 1,195 Regulatory assets 336 448 335 431 454 475 494 509 Derivatives 489 564 762 911 1,172 1,450 1,508 1,673 Assets held for sale 140 0 0 0 0 0 0 0 Other 468 551 1,576 1,821 1,918 2,008 2,320 2,390 Total other assets 18,254 26,975 28,273 29,118 29,983 30,841 31,712 32,592 Special use funds 6,003 5,886 6,954 7,163 7,377 7,599 7,827 8,062 Investment in equity method investees 0 6,748 7,453 7,677 7,907 8,144 8,388 8,640 Prepaid benefit costs 1,427 1,284 1,437 1,477 1,513 1,517 1,508 1,482 Regulatory assets 2,469 3,290 3,287 3,386 3,487 3,592 3,700 3,811 Others 5,396 9,767 9,142 9,416 9,699 9,990 10,289 10,598 Other investments 2,959 0 0 0 0 0 0 0

Total capitalization and liabilities 97,827 103,702 117,691 125,477 134,390 140,433 144,084 151,994 Total capitalization 60,961 64,663 79,390 84,517 87,940 90,649 92,907 95,023 Total equity 29,498 37,413 41,360 43,971 46,177 48,051 49,883 51,569 Total common shareholders' equity 28,208 34,144 37,005 39,129 41,335 43,209 45,041 46,727 Common stock 9,105 10,495 11,975 12,457 12,939 13,420 13,902 14,384 Retained earnings 18,992 23,837 25,199 26841 28565 29958 31308 32512 Accumulated other comprehensive income (loss) 111 -188 -169 -169 -169 -169 -169 -169 Noncontrolling interests 1,290 3,737 4,842 4,842 4,842 4,842 4,842 4,842 Long-term debt 31,463 26,782 37,543 40546 41763 42598 43024 43454

Total current liabilities 11,232 17,563 13,853 14,105 16,998 17,534 15,687 17,948 Commercial paper 1,687 2,749 2,516 2,797 2,994 3,324 3,502 3,746 Other short-term debt 255 5,465 400 435 466 431 454 486 Current maturities of long-term debt 1,676 2,716 2,124 2124 4323 4134 1700 3380 Accounts payable 3,235 2,386 3,631 3506 3693 3865 4020 4142 Customer deposits 448 445 499 530 559 585 608 627 Accrued interest and taxes 622 477 558 632 666 697 725 747 Derivatives 364 675 344 536 564 591 614 633 Notes payable 0 0 0 0 0 0 0 0 Other 2,581 2,325 3,461 3166 3334 3490 3629 3740 Regulatory liabilities 346 325 320 379 399 418 435 448 Liabilities associated with assets held for sale 18 0 0 0 0 0 0 0

Total other liabilities and deferred credits 25,634 21,476 24,448 26,854 29,453 32,250 35,490 39,023 Asset retirement obligations 3,031 3,135 3,457 3,739 4,044 4,374 4,731 5,118 Deferred income taxes 5,754 7,367 8,361 9448 10676 12064 13632 15405 Regulatory liabilities 8,765 9,009 9,936 10585 11277 12015 12800 13637 Derivatives 535 516 863 1081 1355 1697 2126 2664 Other 7,549 1,449 1,831 2,000 2,100 2,100 2,200 2,200 NextEra Energy, Inc. Historical Cash Flow Statement All figures in millions of U.S. Dollar

Fiscal Years Ending Dec. 31 2015 2016 2017 2018 2019 Net income / loss 2,762 3,005 5,320 5,776 3,388 Adjustments to reconcile net income to net cash provided by / used in operating activities 3,354 3,331 1,093 817 4,767 Depreciation and amortization 2,831 3,077 2,357 3,911 4,216 Nuclear fuel and other amortization 372 300 272 236 262 Impairment charges 2 0 446 11 72 Unrealized gains / losses on marked to market derivative contracts - net -337 -44 436 54 -108 Foreign currency transaction losses (gains) 0 13 -25 16 17 Deferred income taxes 1,162 1,230 -875 1,463 258 Cost recovery clauses and franchise fees 176 94 82 -225 155 Acquisition / termination of purchased power agreement -521 0 -243 -52 0 Benefits associated with differential membership interests - net -216 -309 -460 0 0 Equity in losses / earnings of equity method investees 0 0 0 -358 -66 Distributions of earnings from equity method investees 0 0 0 328 438 Losses (gains) on disposal of a business/assets - net 0 -490 -1,225 -191 -461 Gain on NEP deconsolidation 0 0 0 -3,927 0 Recoverable storm-related costs 0 -223 -108 0 -180 Other - net -23 -94 90 156 -213 Change in operating assets and liabilities -156 -223 346 -605 377 Net cash provided by / used in operating activities 6,116 6,336 6,413 6,593 8,155

Capital expenditures of FPL -3,428 -3,776 -5,174 -5,012 -5,560 Acquisition and capital expenditures of Gulf Power 0 0 0 0 -5,165 Independent power and other investments of NEER -4,505 -5,396 -5,295 -6,994 -6,385 Cash grants under the American Recovery and Reinvestment Act of 2009 8 335 78 3 0 Nuclear fuel purchases -361 -283 -197 -267 -315 Other capital expenditures and other investments -83 -181 -74 -731 -37 Proceeds from sale of the fiber-optic telecommunications business 0 0 1,454 0 0 Other - net 150 599 327 1737 1437 Proceeds from sale or maturity of securities in special use funds and other investments 4,851 3,776 3,207 3,410 4,008 Purchases of securities in special use funds and other investments -4,982 -3,829 -3,244 -3,733 -4,160 Proceeds from sales of non controlling interests in NEP 345 645 0 0 0 Net cash used in / provided by investing activities -8,005 -8,110 -8,918 -10,950 -16,177

Issuances of long-term debt 5,772 5,657 8,354 4,399 13,919 Retirements of long-term debt -3,972 -3,310 -6,780 -3,102 -5,492 Proceeds from differential membership investors 761 1,859 1,414 1,841 1,604 Net change in commercial paper -668 -106 1,419 1,062 -234 Proceeds from other short-term debt 1,125 500 450 5,665 200 Repayments of other short-term debt -813 -662 -2 -455 -4,765 Other - net 0 0 -680 -393 -445 Issuances of common stock - net 1,298 537 603 718 1,494 Dividends on common stock -1,385 -1,612 -1,845 -2,101 -2,408 Payments to differential membership investors -92 -122 0 0 0 Other - net excluding repurchases of common stock and proceeds from differential membership investors -143 -246 0 0 0 Effects of currency translation on cash, cash equivalents and restricted cash 26 -7 4 Net increase (decrease) in cash, cash equivalents and restricted cash -6 721 454 3270 -4145 Cash, cash equivalents and restricted cash at beginning of period 577 571 1529 1983 5253 Cash and cash equivalents at end of period 571 1292 1983 5253 1108 Net cash provided by / used in financing activities 1,883 2,495 2,933 7,634 3,873 NextEra Energy, Inc. Forecasted Cash Flow Statement All numbers in millions US dollar

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E Cash flows from operating activities: Net income 4341 4720 4735 4985 5172

Adjustments to reconcile net income to cash from operating activities Depreciation & Amortization -518 5259 1178 -600 909

Change in Working Capital Accounts Decrease (increase) in Customer receivables, net 56 -118 -333 -107 -324 Decrease (increase) in Other receivables 19 -27 -136 -27 -141 Decrease (increase) in Materials, supplies & fossil fuel inventory -28 13 4 62 81 Decrease (increase) in Current regulated assets -96 -23 -21 -19 -15 Decrease (increase) in Other current assets -245 -97 -90 -312 -70 Increase (decrease) in Accounts payable -125 186 173 155 122 Increase (decrease) in Customer deposits 31 28 26 23 18 Increase (decrease) in Accrued interest & taxes 74 34 31 28 22 Increase (decrease) in Current regulated liabilities 59 20 19 17 13 Increase (decrease) in Other current liabilities -295 168 156 140 110 Net cash flows from operating activities 3275 10164 5741 4345 5898

Cash flows from investing activities Decrease (increase) in Gross PPE -5622 -9800 -4900 -2900 -4200 Decrease (increase) in Derivatives -149 -261 -278 -58 -165 Decrease (increase) in Special use funds -209 -215 -221 -228 -235 Decrease (increase) in Investment in equity method investees -224 -230 -237 -244 -252 Decrease (increase) in Prepaid benefit costs -40 -36 -4 9 26 Decrease (increase) in non-current regulated assets -99 -102 -105 -108 -111 Decrease (increase) in Other non-current asstes -274 -282 -291 -300 -309 Net cash flows from investing activities -6616 -10926 -6036 -3829 -5246

Cash flows from financing activities Change in long-term debt 3003 1216 835 426 430 Change in commercial paper 281 198 329 178 245 Change in other short-term debt 35 31 -35 23 32 Change in current portion of long-term debt 0 2199 -189 -2434 1680 Change in derivatives 192 28 26 24 19 Change in asset retirement obligations 282 305 330 357 386 Change in defered income tax 1087 1228 1388 1568 1772 Change in non-current Regulatory liabilities 649 692 737 785 837 Change in non-current Derivatives 218 273 343 429 538 Change in non-current other liabilities 169 100 0 100 0 Payment of dividends -2699 -2996 -3342 -3635 -3968 Issuance of common stock 482 482 482 482 482 Net cash flows from financing activities 3699 3757 905 -1697 2452

Net increase (decrease) in cash & cash equivalents 358 2994 610 -1181 3104 Cash & cash equivalents at beginning of year 600 958 3,952 4,562 3,381 Cash & cash equivalents at end of year 958 3952 4562 3381 6485 NextEra Energy, Inc. Common Size Income Statement % of Operating Revenues

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Operating revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Total operating expenses -69.03% -74.41% -72.13% -72.00% -72.00% -73.00% -73.00% -74.00% Fuel, purchased power and interchange -23.68% -22.31% -22.72% -23.00% -23.00% -23.00% -24.00% -24.00% Other operations and maintenance -19.35% -19.91% -18.95% -19.00% -19.00% -20.00% -20.00% -21.00% Acquisition-related -0.40% -0.19% -0.18% -0.21% -0.20% -0.15% -0.18% -0.17% Depreciation and amortization -23.60% -23.47% -23.55% -24.20% -24.70% -24.81% -24.82% -24.96% Losses / gains on disposal of assets - net 6.46% 0.48% 2.11% 2.41% 2.90% 2.96% 4.00% 4.13% Taxes other than income taxes and other - net -8.46% -9.02% -8.84% -8.00% -8.00% -8.00% -8.00% -8.00% Operating income / loss 30.97% 25.59% 27.87% 0.00% 0.00% 27.00% 27.00% 26.00% Total other income / deductions - net -3.83% 18.37% -7.90% 1.34% 3.72% 0.46% 1.42% 2.03% Interest expense -9.06% -8.96% -11.71% -8.02% -7.74% -7.83% -7.48% -6.86% Benefits associated with differential membership interests - net 2.68% 0.00% 0.34% 0.49% 0.92% 1.29% 1.21% 1.52% Other - net 1.68% 25.10% 3.58% 8.48% 10.17% 6.64% 7.35% 7.04% Interest income 0.47% 0.30% 0.28% 0.38% 0.37% 0.35% 0.34% 0.33% Income / loss before income taxes 27.14% 43.95% 19.98% 29.20% 31.26% 26.44% 26.66% 25.64% Income tax expense / benefit 3.80% -9.42% -2.33% -2.63% -2.81% -2.38% -2.40% -2.31% Net income / loss 30.94% 34.53% 17.64% 26.58% 28.44% 24.06% 24.26% 23.33% Net income attributable to noncontrolling interests 0.34% 5.15% 1.98% 2.13% 2.58% 1.98% 1.95% 1.90% Net income / loss attributable to NextEra Energy, Inc. 31.28% 39.68% 19.63% 28.71% 31.02% 26.04% 26.21% 25.23%

Per share Basic 11.47 14.03 7.82 0.06% 0.06% 0.05% 0.05% 0.05% Weighted average shares Basic 468.8 473.2 482 2.37% 2.23% 2.08% 1.95% 1.84% Dividends per shares 3.93 4.44 5.00 0.03% 0.03% 0.03% 0.03% 0.03% NextEra Energy, Inc. Common Size Balance Sheet % of Operating Revenues

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E Total assets 568.93% 619.97% 612.85% 616.57% 637.34% 643.84% 645.30% 669.09% Total property, plant and equipment - net 421.15% 420.48% 427.05% 431.86% 429.58% 425.87% 421.65% 418.25% Electric plant in service and other property 496.29% 490.14% 500.38% 494.19% 516.20% 515.55% 504.31% 501.99% Nuclear fuel 10.28% 10.40% 9.14% 8.90% 7.51% 6.72% 6.03% 6.69% Construction work in progress 38.84% 49.96% 48.58% 54.36% 51.62% 49.31% 51.72% 54.38% Accumulated depreciation and amortization -124.26% -130.02% -131.06% -125.58% -145.74% -145.72% -140.42% -144.82% Total current assets 41.62% 38.22% 38.58% 40.81% 67.06% 79.70% 86.95% 114.50% Cash and cash equivalents 9.97% 3.81% 3.12% 2.98% 26.63% 37.07% 42.82% 68.87% Customer receivables, net of allowances 12.91% 13.76% 11.88% 11.00% 11.00% 12.00% 12.00% 13.00% Other receivables 3.01% 3.99% 2.73% 2.50% 2.50% 3.00% 3.00% 3.50% Materials, supplies and fossil fuel inventory 7.40% 7.31% 6.92% 6.70% 6.30% 6.00% 5.50% 5.00% Regulatory assets 1.95% 2.68% 1.74% 2.13% 2.13% 2.13% 2.13% 2.13% Derivatives 2.84% 3.37% 3.97% 4.50% 5.50% 6.50% 6.50% 7.00% Assets held for sale 0.81% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other 2.72% 3.29% 8.21% 11.00% 13.00% 13.00% 15.00% 15.00% Total other assets 106.16% 161.27% 147.22% 143.90% 140.70% 138.26% 136.69% 136.34% Special use funds 34.91% 35.19% 36.21% 35.40% 34.62% 34.07% 33.74% 33.72% Investment in equity method investees 0.00% 40.34% 38.81% 37.94% 37.10% 36.51% 36.16% 36.14% Prepaid benefit costs 8.30% 7.68% 7.48% 7.30% 7.10% 6.80% 6.50% 6.20% Regulatory assets 14.36% 19.67% 17.12% 16.73% 16.36% 16.10% 15.95% 15.94% Others 31.38% 58.39% 47.60% 46.53% 45.51% 44.78% 44.35% 44.33% Other investments 17.21% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Total capitalization and liabilities 568.93% 619.97% 612.85% 616.57% 637.34% 643.84% 645.30% 669.09% Total capitalization 354.53% 386.58% 413.40% 413.65% 417.99% 418.91% 422.52% 428.58% Total equity 171.55% 223.67% 215.37% 222.55% 231.08% 234.99% 240.39% 246.52% Total common shareholders' equity 164.05% 204.13% 192.69% 198.62% 208.36% 213.29% 219.52% 226.26% Common stock 52.95% 62.74% 62.36% 61.56% 60.72% 60.16% 59.92% 60.17% Retained earnings 110.45% 142.51% 131.22% 137.89% 148.43% 153.88% 160.32% 166.80% Accumulated other comprehensive income (loss) 0.65% -1.12% -0.88% -0.84% -0.79% -0.76% -0.73% -0.71% Noncontrolling interests 7.50% 19.54% 22.68% 23.93% 22.72% 21.71% 20.87% 20.26% Long-term debt 182.98% 160.11% 195.50% 191.10% 186.91% 183.91% 182.14% 182.07%

Total current liabilities 65.32% 105.00% 72.14% 70.22% 81.14% 80.35% 69.80% 77.26% Commercial paper 9.81% 16.43% 13.10% 14.59% 15.59% 16.44% 17.02% 17.60% Other short-term debt 1.48% 32.67% 2.08% 1.89% 2.02% 2.13% 2.21% 2.28% Current maturities of long-term debt 9.75% 16.24% 11.06% 10.50% 20.29% 18.53% 7.33% 14.14% Accounts payable 18.81% 14.26% 18.91% 17.33% 17.33% 17.33% 17.33% 17.33% Customer deposits 2.61% 2.66% 2.60% 2.62% 2.62% 2.62% 2.62% 2.62% Accrued interest and taxes 3.62% 2.85% 2.91% 3.12% 3.12% 3.12% 3.12% 3.12% Derivatives 2.12% 4.04% 1.79% 2.65% 2.65% 2.65% 2.65% 2.65% Notes payable 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Other 15.01% 13.90% 18.02% 15.64% 15.64% 15.64% 15.64% 15.64% Regulatory liabilities 2.01% 1.94% 1.67% 1.87% 1.87% 1.87% 1.87% 1.87% Liabilities associated with assets held for sale 0.10% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Total other liabilities and deferred credits 149.08% 128.39% 127.31% 132.71% 138.21% 144.58% 152.98% 163.24% Asset retirement obligations 17.63% 18.74% 18.00% 18.48% 18.98% 19.61% 20.39% 21.41% Deferred income taxes 33.46% 44.04% 43.54% 46.69% 50.10% 54.08% 58.76% 64.44% Regulatory liabilities 50.97% 53.86% 51.74% 52.31% 52.92% 53.86% 55.17% 57.05% Derivatives 3.11% 3.08% 4.49% 5.34% 6.36% 7.61% 9.16% 11.14% Other 43.90% 8.66% 9.53% 9.88% 9.85% 9.41% 9.48% 9.20% NextEra Energy, Inc. Value Driver Estimation All numbers in millions US dollar

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E NOPLAT: 3,719 5,288 2,942 4,716 4,973 4,999 5,213 5,464 EBITA: 5,985 4,271 5,311 5,302 5,478 5,486 5,473 5,367 Operating Revenues 17,195 16,727 19,204 20235 21310 22306 23200 23905 – Fuel, purchased power & interchange 4,071 3,732 4,363 4654 4901 5130 5568 5737 – Other operations & maintenance 3,327 3,330 3,640 3845 4049 4461 4640 5020 – Depreciation & amortization 2,357 3,911 4,216 4897 5264 5535 5757 5966 – Taxes other than income taxes & other expenses - net 1,455 1,508 1,697 1619 1705 1784 1856 1912 + Interests on PV operating leases 0 25 23 82 87 91 95 98

Less Adjusted Taxes: 1,391 447 2,627 1,673 1,733 1,875 1,829 1,675 Income tax expense (benefit) 1558 1498 2249 1630 1754 1894 1921 1838 + tax shield on interest expense 576 554 832 342 368 398 403 386 + tax shield on operating leases interests 0 8 8 17 18 19 20 21 – tax on acquisition related -26 -12 -13 -9 -9 -7 -9 -9 – tax on interest income -30 -19 -20 -16 -17 -17 -18 -18 – tax on gains (losses) on disposal of investments -411 -30 -150 -102 -130 -139 -195 -207 – tax on membership interests -170 0 -24 -21 -42 -63 -63 -84 – tax on other - net -107 -1554 -254 -168 -210 -210 -231 -252 Plus Change in Deferred Taxes: -875 1,463 258 1087 1228 1388 1568 1772

Invested Capital (IC): 64,782 61,808 72,549 78,491 82,124 85,174 87,798 90,274 Net Operating Working Capital: -2,074 -432 -2,039 -1,470 -1,633 -1,442 -1,383 -1,186 Normal cash (2% of sales) 344 335 384 405 426 446 464 478 Customer receivables, net 2,220 2,302 2,282 2,226 2,344 2,677 2,784 3,108 Other receivables 517 667 525 506 533 669 696 837 Materials, supplies & fossil fuel inventory 1,273 1,223 1,328 1356 1343 1338 1276 1195 Current regulatory assets 336 448 335 431 454 475 494 509 Other current assets 468 551 1,576 1821 1918 2008 2320 2390 - Accounts payable -3235 -2386 -3631 -3506 -3693 -3865 -4020 -4142 - Notes payable 0 0 0 0 0 0 0 0 - Customer deposits -448 -445 -499 -530 -559 -585 -608 -627 - Accrued interest & taxes -622 -477 -558 -632 -666 -697 -725 -747 - Current regulatory liabilities -346 -325 -320 -379 -399 -418 -435 -448 - Other current liabilities -2581 -2325 -3461 -3166 -3334 -3490 -3629 -3740

Plus Net PP&E: 72,416 70,334 82,010 88150 92691 96413 99913 103204

Plus Net Other Operating Assets: 6,237 4,050 5,971 6,136 6,387 6,592 6,800 7,011 Capitalized PV of operating leases 809 760 2,684 2750 2900 3000 3100 3200 Other regulated assets 2,469 3,290 3,287 3386 3487 3592 3700 3811 Other investments 2,959 0 0 0 0 0 0 0

Less Other Operating Liabilities: 11,796 12,144 13,393 14,325 15,322 16,389 17,531 18,754 Asset retirement obligations 3,031 3,135 3,457 3739 4044 4374 4731 5118 Other liabilities & deferred credits 8,765 9,009 9,936 10585 11277 12015 12800 13637

Free Cash Flow (FCF): NOPLAT 3,719 5,288 2,942 4,716 4,973 4,999 5,213 5,464 Change in IC 3,075 -2,975 10,742 5,942 3,632 3,051 2,623 2,476 FCF 644 8,263 -7,800 -1,226 1,341 1,949 2,589 2,988

Return on Invested Capital (ROIC): NOPLAT 3,719 5,288 2,942 4,716 4,973 4,999 5,213 5,464 Beg. IC 61,707 64,782 61,808 72,549 78,491 82,124 85,174 87,798 ROIC 6.03% 8.16% 4.76% 6.50% 6.34% 6.09% 6.12% 6.22%

Economic Profit (EP): Beg. IC 61,707 64,782 61,808 72,549 78,491 82,124 85,174 87,798 x (ROIC - WACC) 2.19% 4.33% 0.93% 2.67% 2.50% 2.25% 2.29% 2.39% EP 1354 2804 573 1935 1964 1851 1948 2099 NextEra Energy, Inc. Weighted Average Cost of Capital (WACC) Estimation

Cost of Equity: ASSUMPTIONS: Risk-Free Rate 1.01% Risk-free rate=1.01% Beta 0.59 Beta=0.59 Equity Risk Premium 5.15% Cost of Equity 4.05%

Cost of Debt: Pre-Tax Cost of Debt 4.11% Marginal Tax Rate 21% After-Tax Cost of Debt 3.25%

Market Value of Common Equity: MV Weights Total Shares Outstanding 482 Current Stock Price $255.73 MV of Equity 123,261.86 73.18%

Market Value of Debt: Short-Term Debt 2,916 Current Portion of LTD 2,124 Long-Term Debt 37,543 PV of Operating Leases 2601 MV of Total Debt 45,184.26 26.82%

Market Value of the Firm 168,446.12 100.00%

Estimated WACC 3.83% NextEra Energy, Inc. Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs: CV Growth of NOPLAT 2.00% CV Year ROIC 6.22% WACC 3.83% Cost of Equity 4.05%

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E

DCF Model: Free Cash Flow (FCF) -1226 1341 1949 2589 2988 Continuing Value (CV) 202258 PV of FCF -1180 1244 1741 2228 174003

Value of Operating Assets: 178035 +Asset Hold for Sale 762 +Special use fund 6954 +Investment in equity method investees 7453 +Prepaid benefit costs 1437 -PV of Operating Leases -2684 -ESOPs -699 -Current maturities of long-term debt -2124 - Other Regulatory liabilities -9936 - Noncontrolling interests -4842 - Long-term debt -37543 Value of Equity 136812 Shares Outstanding 482 Intrinsic Value of Last FYE $ 283.84 Implied Price as of Today $ 284.84

EP Model: Economic Profit (EP) 1935 1964 1851 1948 2099 Continuing Value (CV) 114460 PV of EP 1864 1822 1654 1676 98470

Total PV of EP 105485 Invested Capital (last FYE) 72549 Value of Operating Assets: 178035 +Asset Hold for Sale 762 +Special use fund 6954 +Investment in equity method investees 7453 +Prepaid benefit costs 1437 -PV of Operating Leases -2684 -ESOPs -699 -Current maturities of long-term debt -2124 - Other Regulatory liabilities -9936 - Noncontrolling interests -4842 - Long-term debt -37543 Value of Equity 136812 Shares Outstanding 482 Intrinsic Value of Last FYE $ 283.84 Implied Price as of Today $ 284.84 NextEra Energy, Inc. Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E

EPS $ 9.00 $ 9.77 $ 9.79 $ 10.30 $ 10.68

Key Assumptions CV growth of EPS 1.10% CV Year ROE 10.03% Cost of Equity 4.05%

Future Cash Flows P/E Multiple (CV Year) 30.20 EPS (CV Year) 10.68 Future Stock Price 322.41 Dividends Per Share $ 5.60 $ 6.21 $ 6.92 $ 7.52 Discounted Cash Flows $ 5.38 $ 5.74 $ 6.14 $ 6.42 $ 275.088

Intrinsic Value as of Last FYE $ 298.77 Implied Price as of Today $ 299.81 NextEra Energy, Inc. Relative Valuation Models

EPS EPS P/E P/E P/S EV/EBITDA Ticker Company Price 2020E 2021E 2020E 2021E 2020E 2020E AES AES Corporation $16.73 $1.44 $1.57 11.62 10.66 1.00 8.50 EXC Exelon $46.13 $3.11 $2.99 14.83 15.43 1.40 9.50 PPL PPL Corporation $31.68 $2.51 $2.50 12.60 12.70 3.00 10.20 DUK Duck Energy $100.13 $5.21 $5.45 19.20 18.40 2.80 12.40 VST Vistra Energy $20.64 $2.27 $2.12 9.09 9.74 0.90 6.20 SRE Sempra Energy $141.76 $7.13 $7.90 19.90 17.90 3.60 14.80 FSLR First Solar $45.47 $3.33 $3.85 13.65 11.81 1.70 5.00 AGR Avangrid $52.17 $2.30 $2.53 22.68 20.62 2.40 10.50 Average 15.45 14.66 2.10 9.64

NEE NextEra Energy, Inc. $255.73 $9.00 $9.77 28.4 26.2 6.8 16.4

Implied Relative Value: P/E (EPS20) $ 139.00 P/E (EPS21) $ 143.25 P/S (EPS20) $ 285.20 EV/EBITDA (EPS20) $ 300.98 NextEra Energy, Inc. Key Management Ratios

Fiscal Years Ending Dec. 31 2017 2018 2019 2020E 2021E 2022E 2023E 2024E

Liquidity Ratios: Current Ratio (current assets / current liabilities) 63.72% 36.40% 53.48% 58.19% 68.92% 75.16% 79.42% 90.25% Quick Ratio (cash & accts receivable / current liabilities) 39.63% 20.54% 24.59% 26.16% 40.18% 45.10% 43.74% 58.11% Cash Ratio (cash / current liabilities) 15.26% 3.63% 4.33% 6.79% 23.25% 26.02% 21.55% 36.13%

Asset-Management Ratios: Inventory Turnover (cost of sales / average inventory) 9.32 10.18 10.43 10.75 11.43 12.17 13.27 14.80 Asset Turnover (net sales / average total assets) 0.18 0.16 0.16 0.16 0.16 0.16 0.16 0.16 Receiveables Turnover (net sales / average accts receivable) 3.86 4.64 5.64 5.48 3.12 2.82 3.38 2.29 Payables Turnover (cost of sales / average accts payable) 3.67 5.22 3.81 4.16 4.16 4.21 4.21 4.27 Financial Leverage Ratios: Total Debt/Equity Ratio (total debt / total stockholders' equity) 117.48% 86.39% 107.19% 109.05% 111.49% 108.15% 99.30% 100.23% Total Debt/Total Assets (total debt / total assets) 33.88% 28.44% 33.70% 34.01% 34.29% 33.28% 31.04% 30.81% Total Debt/EBITDA (total debt/operating income ex depreciation & amortization) 3.53 3.60 4.02 4.04 4.10 4.04 3.72 3.84 EBITDA/Interests Expense (operating income ex depreciation & amortization/interests expense) 6.02 5.48 4.39 6.48 6.40 6.10 6.26 6.63 Profitability Ratios: Operating margin (operating income / net sales) 30.97% 25.59% 27.87% 28.00% 28.00% 27.00% 27.00% 26.00% Return on assets (net income / beginning total assets) 5.44% 5.57% 2.88% 3.16% 3.23% 3.10% 3.20% 3.15% Return on equity (net income / beginning total stockholders' equity) 18.86% 16.92% 9.16% 10.12% 10.50% 10.08% 10.22% 10.25% Payout Policy Ratios: Dividend Payout Ratio (Dividend/EPS) 34.26% 31.65% 63.94% 62.24% 63.54% 70.66% 72.99% 76.80% Total Payout Ratio ((Divs. + Repurchases)/NI) 34.26% 31.65% 63.94% 62.24% 63.54% 70.66% 72.99% 76.80% NextEra Energy, Inc. Present Value of Operating Lease Obligations

Fiscal Years Ending Dec. 31 2017 2018 2019 Year 1 150.0 141.0 498.0 Year 2 150.0 141.0 498.0 Year 3 150.0 141.0 498.0 Year 4 150.0 141.0 498.0 Year 5 150.0 141.0 498.0 Thereafter 150.0 141.0 498.0 Total Minimum Payments 900.0 846.0 2988.0 Less: Cumulative Interest 116.5 109.5 386.7 PV of Minimum Payments 783.5 736.5 2601.3

Implied Interest in Year 1 Payment 0.0 32.2 30.3

Pre-Tax Cost of Debt 4.11% 4.11% 4.11% Years Implied by Year 6 Payment 1.0 1.0 1.0 Expected Obligation in Year 6 & Beyond 150 141 498

Present Value of Lease Payments PV of Year 1 144.1 135.4 478.3 PV of Year 2 138.4 130.1 459.5 PV of Year 3 132.9 125.0 441.3 PV of Year 4 127.7 120.0 423.9 PV of Year 5 122.6 115.3 407.2 PV of 6 & beyond 117.8 110.7 391.1 Capitalized PV of Payments 783.5 736.5 2601.3 NextEra Energy, Inc. Effects of ESOP Exercise and Share Repurchases on Common Stock Account and Number of Shares Outstanding

Number of Options Outstanding (shares): 2.46 Average Time to Maturity (years): 5.20 Expected Annual Number of Options Exercised: 0.47

Current Average Strike Price: $ 53.56 Cost of Equity: 4.05% Current Stock Price: $255.73

Fiscal Years Ending Dec. 31 2020E 2021E 2022E 2023E 2024E Increase in Shares Outstanding: 0.47 0.47 0.47 0.47 0.47 Average Strike Price: 53.56 53.56 53.56 53.56 53.56 Increase in Common Stock Account: 25.34 25.34 25.34 25.34 25.34

Shares Outstanding (beginning of the year) 482 482.47 482.95 483.42 483.89 Plus: Shares Issued Through ESOP 0.47 0.47 0.47 0.47 0.47 Less: Shares Repurchased in Treasury 0.00 0.00 0.00 0.00 0.00 Shares Outstanding (end of the year) 482.47 482.95 483.42 483.89 484.37 NextEra Energy, Inc. Valuation of Options Granted under ESOP

Current Stock Price $277.59 Risk Free Rate 1.01% Current Dividend Yield 2.00% Annualized St. Dev. of Stock Returns 33.40%

Average Average B-S Value Range of Number Exercise Remaining Option of Options Outstanding Options of Shares Price Life (yrs) Price Granted Range 1 2.46 53.56 6.20 $ 195.85 $ 482 Total 2.46 $ 53.56 6.20 $ 227.90 $ 482 NextEra Energy, Inc. Sensitivity Tables

Beta 284.84 0.45 0.49 0.54 0.59 0.64 0.69 0.74 2.15% 2,129.87 1,761.10 1,442.15 1,216.42 1,048.26 918.14 814.46 3.15% 994.28 857.55 728.12 629.45 551.74 488.95 437.16 4.15% 624.51 544.11 465.58 404.07 354.58 313.91 279.88 5.15% 441.24 384.99 329.18 284.84 248.77 218.85 193.63 6.15% 331.78 288.74 245.62 211.07 182.76 159.15 139.15 7.15% 259.03 224.25 189.18 160.92 137.66 118.18 101.62

Equity Risk Risk EquityPremium 8.15% 207.17 178.03 148.51 124.62 104.89 88.32 74.20

Risk-free Rate 284.84 0.71% 0.81% 0.91% 1.01% 1.11% 1.21% 1.31% 1.11% 946.30 873.59 810.35 754.86 705.77 662.02 622.81 2.11% 669.85 625.43 585.87 550.42 518.46 489.52 463.18 3.11% 477.95 449.42 423.59 400.09 378.63 358.93 340.81 4.11% 336.84 318.00 300.73 284.84 270.17 256.58 243.96 5.11% 228.66 216.07 204.42 193.61 183.54 174.14 165.35 6.11% 143.03 134.66 126.85 119.55 112.71 106.29 100.24 7.11% 73.52 68.10 63.00 58.21 53.70 49.43 45.40

CV Growth of NOPLAT 284.84 1.70% 1.80% 1.90% 2.00% 2.10% 2.20% 2.30% 3.27% 385.83 406.40 429.97 457.26 489.20 527.12 572.86 3.47% 330.28 345.13 361.88 380.91 402.72 427.96 457.51 3.67% 286.02 296.99 309.20 322.87 338.28 355.79 375.86 3.83% 256.01 264.67 274.23 284.83 296.66 309.93 324.94

WACC 4.07% 219.94 226.18 232.99 240.47 248.70 257.81 267.95 4.27% 194.63 199.39 204.56 210.17 216.30 223.03 230.44 4.47% 172.99 176.63 180.55 184.79 189.39 194.39 199.86

CV ROE 299.81 7.19% 8.19% 9.19% 10.03% 11.19% 12.19% 13.19% 0.80% 273.87 277.70 280.69 282.74 285.07 286.72 288.12 0.90% 277.78 282.22 285.69 288.07 290.77 292.69 294.31 1.00% 281.94 287.03 291.02 293.75 296.85 299.05 300.91 1.10% 286.39 292.18 296.71 299.82 303.34 305.84 307.96 1.20% 291.14 297.68 302.80 306.31 310.29 313.11 315.51 1.30% 296.24 303.59 309.33 313.27 317.74 320.91 323.60 CV Growth of EPS Pre-tax Cost of Capital Cost of Pre-tax EPS of Growth CV 1.40% 301.73 309.94 316.36 320.76 325.76 329.30 332.30