Overview of Financial Performance

NextEra Energy (NEE) reported mixed financial results for the three and nine months ended September 30, 2024. Net income attributable to NEE increased by $633 million for the three-month period, but decreased by $357 million for the nine-month period.

The increase in net income for the three-month period was driven by higher results at the company’s two main subsidiaries - Florida Power & Light (FPL) and NextEra Energy Resources (NEER). However, the decrease for the nine-month period was due to lower results at the Corporate and Other segment, which offset the improvements at FPL and NEER.

FPL: Steady Growth

FPL, the company’s regulated electric utility, saw its net income increase for both the three and nine-month periods. This was primarily driven by continued investments in its electric system and generation facilities, which grew the utility’s average rate base by around $6 billion compared to the prior year periods.

FPL was also able to earn its targeted regulatory return on equity (ROE) of approximately 11.80% during the periods presented by using reserve amortization as permitted under its 2021 rate agreement. In July 2024, FPL reduced its targeted ROE for the full-year 2024 to 11.40%.

The utility completed a 12-month storm restoration charge in 2023 related to Hurricanes Ian and Nicole, but was impacted by new storms in 2024 that resulted in additional recoverable storm restoration costs.

NEER: Improved Results

NEER, NEE’s competitive energy business, reported significantly higher results for the three-month period, but more modest improvement for the nine-month period. The key drivers were:

• New investments: Earnings from new wind, solar and battery storage projects that came online during or after the third quarter of 2023.
• Existing clean energy assets: Slightly lower earnings, partly offset by the absence of 2023 nuclear refueling outages.
• Gas infrastructure: Mixed, with higher earnings from the pipeline joint venture offset by lower results in the gas infrastructure business.
• Customer supply: Lower origination activity and margins compared to the prior year periods.
• Non-qualifying hedge activity: Favorable changes in fair value compared to 2023.
• Equity investment in NEP: Absence of a large impairment charge recorded in 2023.

NEER’s operating revenues and expenses increased across most business lines due to growth and higher costs. The segment also saw higher interest expense related to changes in the fair value of interest rate derivatives and increased debt levels.

Corporate and Other: Weaker Performance

The Corporate and Other segment, which includes other business activities and corporate functions, reported significantly lower results for both periods. This was primarily due to unfavorable changes in the fair value of interest rate derivatives compared to 2023.

Liquidity and Capital Resources

NEE and its subsidiaries require substantial funds to support and grow their businesses through capital expenditures, investments, debt repayment and other cash needs. The company relies on a combination of operating cash flows, short-term and long-term borrowings, and occasional equity issuances to meet these requirements.

As of September 30, 2024, NEE had total net available liquidity of approximately $12 billion, consisting of available credit facilities, cash and cash equivalents, offset by short-term borrowings. FPL and NEECH, NEE’s main financing subsidiaries, had $5.3 billion and $6.8 billion of net available liquidity, respectively.

NEE also utilizes various forms of credit support, such as guarantees, letters of credit and surety bonds, to facilitate its commercial activities and project financing. At the end of the third quarter, these credit support instruments totaled around $6 billion.

Outlook and Analysis

The mixed financial results for NEE in 2024 reflect the company’s diversified business model, with the regulated utility FPL providing steady earnings growth offset by more volatile performance in the competitive NEER segment and corporate activities.

FPL’s consistent performance, driven by disciplined capital investment and regulatory mechanisms like reserve amortization, demonstrates the strength of the utility’s business model. The utility’s ability to earn its targeted ROE and its recent reduction in that target suggest it is managing the balance between customer rates and shareholder returns effectively.

NEER’s results were more uneven, with new renewable project additions boosting earnings, but other business lines like customer supply and gas infrastructure facing headwinds. The segment’s sensitivity to commodity price movements and interest rate changes also introduced volatility. However, the absence of the large 2023 impairment charge related to the NEP investment was a positive.

The weaker performance in the Corporate and Other segment, driven by interest rate derivative impacts, highlights the importance of NEE’s centralized risk management and hedging activities. While these introduce some earnings variability, they help mitigate risks across the broader enterprise.

Looking ahead, NEE’s substantial liquidity and access to capital markets should allow it to continue funding its substantial capital investment program, which is focused on growing its renewable energy and electric transmission and distribution assets. The company’s diversified business model and disciplined financial management also position it to navigate the evolving energy landscape.

However, NEE does face risks such as commodity price fluctuations, interest rate movements, regulatory changes and extreme weather events that could impact its financial performance. Maintaining constructive regulatory relationships, prudent risk management and operational excellence will be critical to delivering consistent results for shareholders.

Overall, NEE appears to be navigating the current environment effectively, with its regulated utility providing a stable foundation and its competitive energy business pursuing growth opportunities, albeit with some volatility. Investors will likely focus on the company’s ability to balance these elements and manage its risks to drive long-term value creation.