filings.toolsItem 1. Business
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Item 1. Business
OVERVIEW
NEE is one of the largest electric power and energy infrastructure companies in North America and a leader in the renewable energy industry. NEE has two principal businesses, FPL and NEER. FPL is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. FPL’s strategic focus is centered on investing in generation, transmission and distribution facilities to continue to deliver on its value proposition of low bills, high reliability, outstanding customer service and clean energy solutions for the benefit of its more than five million customers. NEER is the world's largest generator of renewable energy from the wind and sun. NEER’s strategic focus is centered on the development, construction and operation of long-term contracted assets throughout the U.S. and Canada, including renewable generation facilities, natural gas pipelines, electric transmission facilities and battery storage projects. In January 2019, NEE completed the acquisition of Gulf Power, a rate-regulated electric utility engaged in the generation, transmission, distribution and sale of electric energy in northwest Florida. See Gulf Power section below.
As described in more detail in the following sections, NEE seeks to create value in its two principal businesses by meeting its customers' needs more economically and more reliably than its competitors. NEE's strategy has resulted in profitable growth over sustained periods at both FPL and NEER. Management seeks to grow each business in a manner consistent with the varying opportunities available to it; however, management believes that the diversification and balance represented by FPL and NEER is a valuable characteristic of the enterprise and recognizes that each business contributes to NEE's financial strength in different ways. FPL and NEER share a common platform with the objective of lowering costs and creating efficiencies for their businesses. NEE and its subsidiaries continue to develop and implement enterprise-wide initiatives focused on improving productivity, process effectiveness and quality.
NEE, which employed approximately 14,800 people at December 31, 2019, was incorporated in 1984 under the laws of Florida. NEE's segments for financial reporting purposes are FPL, Gulf Power and NEER, which is comprised of two wholly owned subsidiaries of NEE that are combined for segment reporting purposes. NEECH, another wholly owned subsidiary of NEE, owns and provides funding for NEE's operating subsidiaries, other than FPL and its subsidiaries and Gulf Power. NEP, an affiliate of NextEra Energy Resources, was formed in 2014. NEP acquires, manages and owns contracted clean energy projects with stable, long-term cash flows. See NEER section below for further discussion of NEP, including changes to its governance structure, which resulted in the deconsolidation of NEP in January 2018.
FPL
FPL was incorporated under the laws of Florida in 1925 and is a rate-regulated electric utility engaged primarily in the generation, transmission, distribution and sale of electric energy in Florida. In 2018, FPL acquired a retail gas business (see Note 8 - Other). FPL is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. At December 31, 2019, FPL had approximately 27,400 MW of net generating capacity, approximately 75,400 circuit miles of transmission and distribution lines and 661 substations. FPL provides service to its electric customers through an integrated transmission and distribution system that links its generation facilities to its customers. At December 31, 2019, FPL served more than ten million people through more than five million customer accounts. FPL's service territory, which covers most of the east and lower west coasts of Florida, and plant locations at December 31, 2019 were as follows (see FPL Sources of Generation below):
CUSTOMERS AND REVENUE
FPL's primary source of operating revenues is from its retail customer base; it also serves a limited number of wholesale customers within Florida. The percentage of FPL's operating revenues and customer accounts by customer class were as follows:
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For both retail and wholesale customers, the prices (or rates) that FPL may charge are approved by regulatory bodies, by the FPSC in the case of retail customers and by the FERC in the case of wholesale customers. In general, under U.S. and Florida law, regulated rates are intended to cover the cost of providing service, including a reasonable rate of return on invested capital. Since the regulatory bodies have authority to determine the relevant cost of providing service and the appropriate rate of return on capital employed, there can be no guarantee that FPL will be able to earn any particular rate of return or recover all of its costs through regulated rates. See FPL Regulation below.
FPL seeks to maintain attractive rates for its customers. Since rates are largely cost-based, maintaining low rates requires a strategy focused on developing and maintaining a low-cost position, including the implementation of ideas generated from cost savings initiatives. A common benchmark used in the electric power industry for comparing rates across companies is the price of 1,000 kWh of consumption per month for a residential customer. FPL's 2019 average bill for 1,000 kWh of monthly residential usage was well below both the average of reporting electric utilities within Florida and the July 2019 national average (the latest date for which this data is available) as indicated below:
FRANCHISE AGREEMENTS AND COMPETITION
FPL's service to its electric retail customers is provided primarily under franchise agreements negotiated with municipalities or counties. During the term of a franchise agreement, which is typically 30 years, the municipality or county agrees not to form its own utility, and FPL has the right to offer electric service to residents. FPL currently holds 184 franchise agreements with various municipalities and counties in Florida with varying expiration dates through 2049. These franchise agreements cover approximately 88% of FPL's retail customer base in Florida. FPL also provides service to customers in 11 other municipalities and to 22 unincorporated areas within its service area without franchise agreements pursuant to the general obligation to serve as a public utility. FPL relies upon Florida law for access to public rights of way.
Because any customer may elect to provide his/her own electric services, FPL effectively must compete for an individual customer's business. As a practical matter, few customers provide their own service at the present time since FPL's cost of service is lower than the cost of self-generation for the vast majority of customers. Changing technology, economic conditions and other factors could alter the favorable relative cost position that FPL currently enjoys; however, FPL seeks as a matter of strategy to ensure that it delivers superior value, in the form of low customer bills, high reliability and outstanding customer service.
In addition to self-generation by residential, commercial and industrial customers, FPL also faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources. In each of 2019, 2018 and 2017, operating revenues from wholesale and industrial electric customers combined represented approximately five percent of FPL's total operating revenues.
For the building of new steam and solar generating capacity of 75 MW or greater, the FPSC requires investor-owned electric utilities, including FPL, to issue a request for proposal (RFP) except when the FPSC determines that an exception from the RFP process is in the public interest. The RFP process allows independent power producers and others to bid to supply the new generating capacity. If a bidder has the most cost-effective alternative, meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and/or operating generating capacity of the type proposed, the investor-owned electric utility would seek to negotiate a purchased power agreement with the selected bidder and request that the FPSC approve the terms of the purchased power agreement and, if appropriate, provide the required authorization for the construction of the bidder's generating capacity.
FPL SOURCES OF GENERATION
At December 31, 2019, FPL's resources for serving load consisted of approximately 27,554 MW, of which 27,440 MW were from FPL-owned facilities and 114 MW were available through purchased power agreements. FPL owned and operated 31 units that used fossil fuels, primarily natural gas, with generating capacity of 22,170 MW and had a joint ownership interest in 1 out-of-state coal unit, which it does not operate, with net generating capacity of 634 MW. In addition, FPL owned, or had undivided interests in, and operated, 4 nuclear units with net generating capacity totaling 3,479 MW (see Nuclear Operations below) and owned and operated 17 solar generation facilities with generating capacity totaling 1,157 MW (excluding 75 MW of non-incremental solar capability which is provided in conjunction with a natural gas generation facility). FPL customer usage and operating revenues are typically higher during the summer months, largely due to the prevalent use of air conditioning in FPL's service territory. Occasionally, unusually cold temperatures during the winter months result in significant increases in electricity usage for short periods of time.
FPL is in the process of modernizing two generating units at its Lauderdale facility to a high-efficiency, clean-burning natural gas unit (Dania Beach Clean Energy Center). The Dania Beach Clean Energy Center is expected to provide approximately 1,200 MW of generating capacity and to be in service in 2022.
Fuel Sources
FPL relies upon a mix of fuel sources for its generation facilities, the ability of some of its generation facilities to operate on both natural gas and oil, and on purchased power to maintain the flexibility to achieve a more economical fuel mix in order to respond to market and industry developments.
| *approximately 71% has dual fuel capability | *Oil is less than 1% |
Significant Fuel and Transportation Contracts. At December 31, 2019, FPL had the following significant fuel and transportation contracts in place:
| • | FPL has firm transportation contracts with seven different transportation suppliers for natural gas pipeline capacity for an aggregate maximum quantity of 2,769,000 MMBtu/day currently, of which 1,969,000 MMBtu/day have expiration dates ranging from 2020 to 2036. The remaining 800,000 MMBtu/day increases to 1,200,000 MMBtu/day starting in mid-2020 through 2042. See Note 15 - Contracts. |
| • | FPL has several contracts for the supply of uranium and the conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from March 2020 through 2032. |
| • | Additionally, FPL enters into short- and medium-term natural gas supply contracts to provide a portion of FPL's anticipated needs for natural gas. The remainder of FPL's natural gas requirements is purchased in the spot market. |
Nuclear Operations
At December 31, 2019, FPL owned, or had undivided interests in, and operated the four nuclear units in Florida discussed below. FPL's nuclear units are periodically removed from service to accommodate planned refueling and maintenance outages, including inspections, repairs and certain other modifications. Scheduled nuclear refueling outages require the unit to be removed from service for variable lengths of time.
| Facility | FPL's Ownership (MW) | Beginning of Next Scheduled Refueling Outage | Operating License Expiration Date | |||
| St. Lucie Unit No. 1 | 981 | April 2021 | 2036 | |||
| St. Lucie Unit No. 2 | 840(a) | February 2020 | 2043 | |||
| Turkey Point Unit No. 3 | 837 | March 2020 | 2052 | |||
| Turkey Point Unit No. 4 | 821 | October 2020 | 2053 |
| (a) | Excludes 147 MW operated by FPL but owned by non-affiliates. |
NRC regulations require FPL to submit a plan for decontamination and decommissioning five years before the projected end of plant operation. FPL's current plans, under the existing operating licenses, provide for St. Lucie Unit No. 1 to be shut down in 2036 with decommissioning activities to be integrated with the dismantlement of St. Lucie Unit No. 2 commencing in 2043. Current plans provide for the dismantlement of Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2052 and 2053, respectively.
FPL's nuclear facilities use both on-site storage pools and dry storage casks to store spent nuclear fuel generated by these facilities, which are expected to provide sufficient storage of spent nuclear fuel that is generated at these facilities through license expiration.
FPL ENERGY MARKETING AND TRADING
FPL's Energy Marketing & Trading division (EMT) buys and sells wholesale energy commodities, such as natural gas, oil and electricity. EMT procures natural gas and oil for FPL's use in power generation and sells excess natural gas, oil and electricity. EMT also uses derivative instruments (primarily swaps, options and forwards) to manage the physical and financial risks inherent in the purchase and sale of fuel and electricity. Substantially all of the results of EMT's activities are passed through to customers in the fuel or capacity clauses. See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity and Note 4.
FPL REGULATION
FPL's operations are subject to regulation by a number of federal, state and other organizations, including, but not limited to, the following:
| • | the FPSC, which has jurisdiction over retail rates, service territory, issuances of securities, planning, siting and construction of facilities, among other things; |
| • | the FERC, which oversees the acquisition and disposition of generation, transmission and other facilities, transmission of electricity and natural gas in interstate commerce, proposals to build and operate interstate natural gas pipelines and storage facilities, and wholesale purchases and sales of electric energy, among other things; |
| • | the NERC, which, through its regional entities, establishes and enforces mandatory reliability standards, subject to approval by the FERC, to ensure the reliability of the U.S. electric transmission and generation system and to prevent major system blackouts; |
| • | the NRC, which has jurisdiction over the operation of nuclear power plants through the issuance of operating licenses, rules, regulations and orders; and |
| • | the EPA, which has the responsibility to maintain and enforce national standards under a variety of environmental laws, in some cases delegating authority to state agencies. The EPA also works with industries and all levels of government, including federal and state governments, in a wide variety of voluntary pollution prevention programs and energy conservation efforts. |
FPL Electric Rate Regulation
The FPSC sets rates at a level that is intended to allow FPL the opportunity to collect from retail customers total revenues (revenue requirements) equal to FPL's cost of providing service, including a reasonable rate of return on invested capital. To accomplish this, the FPSC uses various ratemaking mechanisms, including, among other things, base rates and cost recovery clauses.
Base Rates. In general, the basic costs of providing electric service, other than fuel and certain other costs, are recovered through base rates, which are designed to recover the costs of constructing, operating and maintaining the utility system. These basic costs include O&M expenses, depreciation and taxes, as well as a return on FPL's investment in assets used and useful in providing electric service (rate base). At the time base rates are established, the allowed rate of return on rate base approximates the FPSC's determination of FPL's estimated weighted-average cost of capital, which includes its costs for outstanding debt and an allowed return on common equity. The FPSC monitors FPL's actual regulatory ROE through a surveillance report that is filed monthly by FPL with the FPSC. The FPSC does not provide assurance that any regulatory ROE will be achieved. Base rates are determined in rate proceedings or through negotiated settlements of those proceedings. Proceedings can occur at the initiative of FPL or upon action by the FPSC. Existing base rates remain in effect until new base rates are approved by the FPSC.
Base Rates Effective January 2017 through at least December 2020 - In December 2016, the FPSC issued a final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2016 rate agreement). Key elements of the 2016 rate agreement, which is effective from January 2017 through at least December 2020, include, among other things, the following:
| • | New retail base rates and charges were established resulting in the following increases in annualized retail base revenues: |
| ◦ | $400 million beginning January 1, 2017; |
| ◦ | $211 million beginning January 1, 2018; and |
| ◦ | $200 million beginning April 1, 2019 for a new approximately 1,720 MW natural gas-fired combined-cycle unit in Okeechobee County, Florida (Okeechobee Clean Energy Center) that achieved commercial operation on March 31, 2019. |
| • | In addition, FPL is eligible to receive base rate increases associated with the addition of up to 300 MW annually of new solar generation in each of 2017 through 2020 with an installed cost cap of $1,750 per kW. Approximately 900 MW of new solar generating capacity has become operational, 600 MW in the first quarter of 2018 and 300 MW in the first quarter of 2019. An additional 300 MW is expected to be operational in the second quarter of 2020. |
| • | FPL's allowed regulatory ROE is 10.55%, with a range of 9.60% to 11.60%. If FPL's earned regulatory ROE falls below 9.60%, FPL may seek retail base rate relief. If the earned regulatory ROE rises above 11.60%, any party other than FPL may seek a review of FPL's retail base rates. |
| • | Subject to certain conditions, FPL may amortize, over the term of the 2016 rate agreement, up to $1.0 billion of depreciation reserve surplus plus the reserve amount that remained under FPL's previous rate agreement (approximately $250 million), provided that in any year of the 2016 rate agreement FPL must amortize at least enough reserve to maintain a 9.60% earned regulatory ROE but may not amortize any reserve that would result in an earned regulatory ROE in excess of 11.60%. |
| • | Future storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that could produce a surcharge of no more than $4 for every 1,000 kWh of usage on residential bills during the first 12 months of cost recovery. Any additional costs would be eligible for recovery in subsequent years. If storm restoration costs exceed $800 million in any given calendar year, FPL may request an increase to the $4 surcharge to recover amounts above $400 million. See Note 1 - Storm Fund, Storm Reserve and Storm Cost Recovery regarding several hurricanes that impacted FPL's service territory from 2016 - 2019. |
Cost Recovery Clauses. Cost recovery clauses are designed to permit full recovery of certain costs and provide a return on certain assets allowed to be recovered through various clauses. Cost recovery clause costs are recovered through levelized monthly charges per kWh or kW, depending on the customer's rate class. These cost recovery clause charges are calculated annually based on estimated costs and estimated customer usage for the following year, plus or minus true-up adjustments to reflect the estimated over or under recovery of costs for the current and prior periods. An adjustment to the levelized charges may be approved during the course of a year to reflect revised estimates. FPL recovers costs from customers through the following clauses:
| • | Fuel - primarily fuel costs, the most significant of the cost recovery clauses in terms of operating revenues (see Note 1 - Rate Regulation); |
| • | Capacity - primarily certain costs associated with the acquisition of several electric generation facilities (see Note 1 - Rate Regulation); |
| • | Energy Conservation - costs associated with implementing energy conservation programs; and |
| • | Environmental - certain costs of complying with federal, state and local environmental regulations enacted after April 1993 and costs associated with three of FPL's solar facilities placed in service prior to 2016. |
In June 2019, Florida's Governor signed legislation into law which directed the FPSC to propose new rules that would (i) require state investor-owned utilities to submit a 10-year transmission and distribution storm protection plan (SPP) to the FPSC for approval at least every three years and (ii) provide for annual clause recovery of storm protection plan costs not already recovered in base rates or through other clauses, including costs for hardening of overhead transmission and distribution lines, undergrounding of certain distribution lines and vegetation management. In October 2019, the FPSC issued its proposed SPP and SPP cost recovery clause rules. Final rules will become effective on February 18, 2020.
The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred. These costs may include, among others, fuel and O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable, storm restoration costs and costs associated with the construction or acquisition of new facilities.
FERC
The Federal Power Act grants the FERC exclusive ratemaking jurisdiction over wholesale sales of electricity and the transmission of electricity and natural gas in interstate commerce. Pursuant to the Federal Power Act, electric utilities must maintain tariffs and rate schedules on file with the FERC which govern the rates, terms and conditions for the provision of FERC-jurisdictional wholesale power and transmission services. The Federal Power Act also gives the FERC authority to certify and oversee an electric reliability organization with authority to establish and independently enforce mandatory reliability standards applicable to all users, owners and operators of the bulk-power system. See NERC below. Electric utilities are subject to accounting, record-keeping and reporting requirements administered by the FERC. The FERC also places certain limitations on transactions between electric utilities and their affiliates.
NERC
The NERC has been certified by the FERC as an electric reliability organization. The NERC's mandate is to ensure the reliability and security of the North American bulk-power system through the establishment and enforcement of reliability standards approved by FERC. The NERC's regional entities also enforce reliability standards approved by the FERC. FPL is subject to these reliability standards and incurs costs to ensure compliance with continually heightened requirements, and can incur significant penalties for failing to comply with them.
FPL Environmental Regulation
FPL is subject to environmental laws and regulations as described in the NEE Environmental Matters section below. FPL expects to seek recovery through the environmental clause for compliance costs associated with any new environmental laws and regulations.
FPL EMPLOYEES
FPL had approximately 8,900 employees at December 31, 2019, with approximately 32% of these employees represented by the International Brotherhood of Electrical Workers (IBEW), substantially all of which are under a collective bargaining agreement with FPL that expires October 31, 2020.
NEER
NextEra Energy Resources was formed in 1998 to aggregate NEE's competitive energy businesses. During the fourth quarter of 2019, NEE began reporting NextEra Energy Resources and NEET, a rate-regulated transmission business, on a combined basis for segment reporting purposes, and the combined segment is referred to as NEER. NEET previously was reported in Corporate and Other. See Note 16. NEER is a diversified clean energy business with a strategy that emphasizes the development, construction and operation of long-term contracted assets with a focus on renewable projects. The NEER segment currently owns, develops, constructs, manages and operates electric generation facilities in wholesale energy markets primarily in the U.S. and Canada. NEER, with approximately 21,900 MW of total net generating capacity at December 31, 2019, is one of the largest wholesale generators of electric power in the U.S., including approximately 21,240 MW of net generating capacity across 37 states and 520 MW of net generating capacity in 4 Canadian provinces (see Note 1 - Disposal of Businesses/Assets). At December 31, 2019**,** NEER operates facilities with a total generating capacity of 24,700 MW. NEER produces the majority of its electricity from clean and renewable sources as described more fully below. NEER is the world's largest generator of renewable energy from the wind and sun based on 2019 MWh produced on a net generation basis. In addition, 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. NEER also owns and operates rate-regulated transmission facilities, primarily in Texas and California, and transmission lines that connect its electric generation facilities to the electric grid, which are comprised of approximately 190 substations and 1,865 circuit miles of transmission lines at December 31, 2019.
NEER also engages in energy-related commodity marketing and trading activities, including entering into financial and physical contracts, primarily to hedge the production from its generation assets that is not sold under long-term power supply agreements. These contracts primarily include power and gas commodities and their related products, as well as provide full energy and capacity requirements services primarily to distribution utilities in certain markets and offer customized power and gas and related risk management services to wholesale customers. In addition, NEER participates in natural gas, natural gas liquids and oil production through operating and non-operating ownership interests, and in pipeline infrastructure development, construction, management and operations, through either wholly owned subsidiaries or noncontrolling or joint venture interests, hereafter referred to as the gas infrastructure business. NEER also hedges the expected output from its gas infrastructure production assets to protect against price movements.
NEP - NEP was formed in 2014 to acquire, manage and own contracted clean energy projects with stable long-term cash flows through a limited partner interest in NEP OpCo. NEP's projects include energy projects contributed by NextEra Energy Resources to NEP OpCo in connection with NEP’s initial public offering in July 2014 as well as additional energy projects acquired thereafter. NextEra Energy Resources' indirect limited partnership interest in NEP OpCo based on the number of outstanding NEP OpCo common units was approximately 60.8% at December 31, 2019. NEP was deconsolidated from NEE for financial reporting purposes in January 2018 as a result of changes made to NEP's governance structure that enhanced NEP unitholder governance rights. As a result, NextEra Energy Resources began reflecting its ownership interest in NEP as an equity method investment with its earnings/losses from NEP as equity in earnings (losses) of equity method investees and accounting for its asset sales to NEP as third-party sales in its consolidated financial statements. See Note 1 - NextEra Energy Partners, LP. Prior to the deconsolidation, NEE owned a controlling general partner interest in NEP and consolidated NEP. At December 31, 2019, NEP owned, or had an interest in, a portfolio of 36 wind and solar projects with generating capacity totaling approximately 5,331 MW and had membership interests in contracted natural gas pipelines, all located in the U.S. as further discussed in Generation and Other Operations. NextEra Energy Resources operates essentially all of the energy projects in NEP's portfolio and its ownership interest in the portfolio's generating capacity was approximately 3,240 MW at December 31, 2019.
GENERATION AND OTHER OPERATIONS
NEER sells products associated with its own generation facilities (energy, capacity, renewable energy credits (RECs) and ancillary services) in competitive markets in regions where those facilities are located. Customer transactions may be supplied from NEER generation facilities or from purchases in the wholesale markets, or from a combination thereof. See Markets and Competition below.
At December 31, 2019, NEER managed or participated in the management of essentially all of the following generation projects, natural gas pipelines and transmission facilities that it wholly owned or in which it had an ownership interest.
Generation Assets and Other Operations
Generation Assets.
NEER's portfolio of generation assets primarily consist of generation facilities with long-term power sales agreements for substantially all of their capacity and/or energy output. Information related to contracted generation assets at December 31, 2019 was as follows:
| • | represented approximately 19,796 MW of total net generating capacity; |
| • | weighted-average remaining contract term of the power sales agreements and the remaining life of the PTCs associated with repowered wind facilities of approximately 16 years, based on forecasted contributions to earnings and forecasted amounts of electricity produced by the repowered wind facilities; and |
| • | contracts for the supply of uranium and the conversion, enrichment and fabrication of nuclear fuel have expiration dates ranging from March 2020 through 2033 (see Note 15 - Contracts). |
NEER's merchant generation assets primarily consist of a nuclear generation facility and oil-fired generation facilities that do not have long-term power sales agreements to sell their capacity and/or energy output and therefore require active marketing and hedging. Merchant generation assets at December 31, 2019 represented approximately 2,070 MW of total net generating capacity, including 1,102 MW from nuclear generation and 805 MW from oil-fired peak generation facilities, and are primarily located in the Northeast region of the U.S. NEER utilizes swaps, options, futures and forwards to lock in pricing and manage the commodity price risk inherent in power sales and fuel purchases.
Other Operations.
Gas Infrastructure Business - At December 31, 2019, NextEra Energy Resources had ownership interests in natural gas pipelines, the most significant of which are discussed below, and in oil and gas shale formations located primarily in the Midwest and South regions of the U.S.
| Miles of Pipeline | Pipeline Location/Route | Ownership | Total Net Capacity (per day) | Actual/Expected In-Service Dates | |||||
| Operational: | |||||||||
| Texas Pipelines(a) | 542 | South Texas | 58.8% | (b) | 2.32 Bcf | 1950 - 2014 | |||
| Sabal Trail(c) | 517 | Southwestern Alabama to Central Florida | 42.5% | 0.35 Bcf - 0.46 Bcf | June 2017 - Mid-2021 | ||||
| Florida Southeast Connection(c) | 169 | Central Florida to South Florida | 100% | 0.64 Bcf | June 2017 | ||||
| Central Penn Line(d) | 185 | Northeastern Pennsylvania to Southeastern Pennsylvania | 23.7% | (b) | 0.30 Bcf - 0.43 Bcf | October 2018 - Mid-2022 | |||
| Under Construction: | |||||||||
| Mountain Valley Pipeline(e) | 303 | Northwestern West Virginia to Southern Virginia | 31% | 0.62 Bcf | End of 2020 |
| (a) | A NEP portfolio of seven natural gas pipelines, of which a third party owns a 10% interest in a 120-mile pipeline with a daily capacity of approximately 2.3 Bcf. Approximately 1.82 Bcf per day of net capacity is contracted with firm ship-or-pay contracts that have expiration dates ranging from 2020 to 2035. |
| (b) | Ownership percentage based on NextEra Energy Resources limited partnership interest in NEP OpCo common units. |
| (c) | See Note 15 - Contracts for a discussion of transportation contracts with FPL. |
| (d) | NEP has an indirect equity method investment in the Central Penn Line (CPL) which represents an approximately 39% aggregate ownership interest in the CPL. |
| (e) | Completion of construction of the natural gas pipeline is subject to final permitting. Also, see Note 15 - Contracts for a discussion of a transportation contract with a NextEra Energy Resources subsidiary. |
Rate-Regulated Transmission - At December 31, 2019, certain entities within the NEER segment had ownership interests in rate-regulated transmission facilities, the most significant of which are discussed below, which facilities are located primarily in ERCOT, CAISO and Independent Electricity System Operator (IESO) jurisdictions.
| Miles | Substations | Kilovolt | Location | Rate Regulator | Ownership | Actual/Expected In-Service Dates | |||||||
| Operational: | |||||||||||||
| Lone Star | 330 | 6 | 345 | Central Texas | PUCT | 100% | 2013 | ||||||
| Trans Bay Cable | 53 | 2 | 200 DC(a) | Northern California | FERC | 100% | 2010 | ||||||
| Under Construction: | |||||||||||||
| NextBridge Infrastructure | 280 | - | 230 | Ontario, Canada | OEB | 50% | Fourth Quarter of 2021 |
| (a) | Direct current |
Customer Supply and Proprietary Power and Gas Trading - NEER provides commodities-related products to customers, engages in energy-related commodity marketing and trading activities and includes the operations of a retail electricity provider. Through NextEra Energy Resources subsidiary PMI, NEER:
| • | manages risk associated with fluctuating commodity prices and optimizes the value of NEER's power generation and gas infrastructure production assets through the use of swaps, options, futures and forwards; |
| • | sells output from NEER's plants that is not sold under long-term contracts and procures fossil fuel for use by NEER's generation fleet; |
| • | provides full energy and capacity requirements to customers; and |
| • | markets and trades energy-related commodity products and provides a wide range of electricity and fuel commodity products as well as marketing and trading services to customers. |
NEER Generation Assets Fuel/Technology Mix
NextEra Energy Resources utilized the following mix of fuel sources for generation facilities in which it has an ownership interest:
| *Oil is less than 1% |
Wind Facilities
| • | located in 19 states in the U.S. and 4 provinces in Canada; |
| • | operated a total generating capacity of 15,955 MW at December 31, 2019; |
| • | ownership interests in a total net generating capacity of 14,111 MW at December 31, 2019; |
| ◦ | all MW are from contracted wind assets located primarily throughout Texas and the West and Midwest regions of the U.S. and Canada; |
| ◦ | added approximately 1,125 MW of new generating capacity and repowered wind generating capacity totaling 1,091 MW in the U.S. in 2019 (see Note 1 - Disposal of Businesses/Assets for asset sales to NEP). |
Solar Facilities
| • | located in 26 states in the U.S.; |
| • | operated PV and solar thermal facilities with a total generating capacity of 2,684 MW at December 31, 2019; |
| • | ownership interests in PV and solar thermal facilities with a total net generating capacity of 2,662 MW at December 31, 2019; |
| ◦ | essentially all MW are from contracted solar facilities located primarily throughout the West and South regions of the U.S.; |
| ◦ | added approximately 512 MW of generating capacity in the U.S. in 2019 (see Note 1 - Disposal of Businesses/Assets for asset sales to NEP). |
Fossil Facilities
| • | operated natural gas generation facilities with a total generating capacity of 2,110 MW at December 31, 2019; |
| • | ownership interests in natural gas generation facilities with a total net generating capacity of 1,565 MW at December 31, 2019; |
| ◦ | approximately 1,407 MW are contracted and 158 MW are merchant; |
| ◦ | located in 2 states in the Northeast region of the U.S. and in Florida; and |
| • | operated oil-fired peak generation facilities with a total generating capacity of 878 MW with an ownership or undivided interests in total net generating capacity of 805 MW at December 31, 2019 primarily located in Maine. |
Nuclear Facilities
At December 31, 2019, NextEra Energy Resources owned, or had undivided interests in, and operated the four nuclear units discussed below. NEER's nuclear units are periodically removed from service to accommodate planned refueling and maintenance outages, including inspections, repairs and certain other modifications. Scheduled nuclear refueling outages require the unit to be removed from service for variable lengths of time.
| Facility | Location | Ownership (MW) | Portfolio Category | Next Scheduled Refueling Outage | Operating License Expiration Date | |||||
| Seabrook | New Hampshire | 1,102(a) | Merchant | April 2020 | 2050 | |||||
| Duane Arnold | Iowa | 431(b) | Contracted(c) | None(c) | 2034(c) | |||||
| Point Beach Unit No. 1 | Wisconsin | 595 | Contracted(d) | October 2020 | 2030 | |||||
| Point Beach Unit No. 2 | Wisconsin | 595 | Contracted(d) | March 2020 | 2033 |
| (a) | Excludes 147 MW operated by NEER but owned by non-affiliates. |
| (b) | Excludes 184 MW operated by NEER but owned by non-affiliates. |
| (c) | NEER sells all of its share of the output of Duane Arnold under an amended long-term contract expiring in December 2020. Operations of Duane Arnold are expected to cease in late 2020. See Note 5 - Nonrecurring Fair Value Measurements. |
| (d) | NEER sells all of the output of Point Beach Units Nos. 1 and 2 under long-term contracts through their current operating license expiration dates. |
NEER is responsible for all nuclear unit operations and the ultimate decommissioning of the nuclear units, the cost of which is shared on a pro-rata basis by the joint owners for the jointly-owned units. NRC regulations require plant owners to submit a plan for decontamination and decommissioning five years before the projected end of plant operation. In the case of Duane Arnold, a plan for decontamination and decommissioning is required to be submitted to the NRC no later than 2 years following shutdown of the facility.
NEER's nuclear facilities use both on-site storage pools and dry storage casks to store spent nuclear fuel generated by these facilities, which are expected to provide sufficient storage of spent nuclear fuel that is generated at these facilities through license expiration or, in the case of Duane Arnold, through expected shutdown of the facility.
Policy Incentives for Renewable Energy Projects
U.S. federal, state and local governments have established various incentives to support the development of renewable energy projects. These incentives include accelerated tax depreciation, PTCs, ITCs, cash grants, tax abatements and RPS programs. Pursuant to the U.S. federal Modified Accelerated Cost Recovery System, wind and solar projects are fully depreciated for tax purposes over a five-year period even though the useful life of such projects is generally much longer than five years.
Owners of utility-scale wind facilities are eligible to claim an income tax credit (the PTC, or an ITC in lieu of the PTC) upon initially achieving commercial operation. The PTC is determined based on the amount of electricity produced by the wind facility during the first ten years of commercial operation. This incentive was created under the Energy Policy Act of 1992 and has been extended several times. Alternatively, an ITC equal to 30% of the cost of a wind facility may be claimed in lieu of the PTC. Owners of solar facilities are eligible to claim a 30% ITC for new solar facilities. Previously, owners of solar facilities could have elected to receive an equivalent cash payment from the U.S. Department of Treasury for the value of the 30% ITC (convertible ITC) for qualifying solar facilities where construction began before the end of 2011 and the facilities were placed in service before 2017. In order to qualify for the PTC (or an ITC in lieu of the PTC) for wind or ITC for solar, construction of a facility must begin before a specified date and the taxpayer must maintain a continuous program of construction or continuous efforts to advance the project to completion. The Internal Revenue Service (IRS) issued guidance stating that the safe harbor for continuous efforts and continuous construction requirements will generally be satisfied if the facility is placed in service no more than four years after the year in which construction of the facility began. The IRS also confirmed that retrofitted wind facilities may re-qualify for PTCs or ITCs pursuant to the 5% safe harbor for the begin construction requirement, as long as the cost basis of the new investment is at least 80% of the facility’s total fair value. Tax credits for qualifying wind and solar projects are subject to the following schedule.
| Year construction of project begins(a) | |||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||||
| PTC(b) | 100 | % | 100 | % | 80 | % | 60 | % | 40 | % | 60 | % | - | - | |||||||||
| Wind ITC(c) | 30 | % | 30 | % | 24 | % | 18 | % | 12 | % | 18 | % | - | - | |||||||||
| Solar ITC(d) | 30 | % | 30 | % | 30 | % | 30 | % | 30 | % | 26 | % | 22 | % | 10 | % |
| (a) | Project must be placed in service no more than four years after the year in which construction of the project began to qualify for the PTC or ITC. |
| (b) | Percentage of the full PTC available for wind projects that begin construction during the applicable year. |
| (c) | Percentage of eligible project costs that can be claimed as ITC by wind projects that begin construction during the applicable year. |
| (d) | Percentage of eligible project costs that can be claimed as ITC by solar projects that begin construction during the applicable year. ITC is limited to 10% for solar projects not placed in service before January 1, 2024. |
Other countries, including Canada, provide for incentives like feed-in-tariffs for renewable energy projects. The feed-in-tariffs promote renewable energy investments by offering long-term contracts to renewable energy producers, typically based on the cost of generation of each technology.
MARKETS AND COMPETITION
Electricity markets in the U.S. and Canada are regional and diverse in character. All are extensively regulated, and competition in these markets is shaped and constrained by regulation. The nature of the products offered varies based on the specifics of regulation in each region. Generally, in addition to the natural constraints on pricing freedom presented by competition, NEER may also face specific constraints in the form of price caps, or maximum allowed prices, for certain products. NEER's ability to sell the output of its generation facilities may also be constrained by available transmission capacity, which can vary from time to time and can have a significant impact on pricing.
The degree and nature of competition is different in wholesale markets than in retail markets. During 2019, 2018 and 2017, approximately 85% of NEER's revenue was derived from wholesale electricity markets.
Wholesale power generation is a capital-intensive, commodity-driven business with numerous industry participants. NEER primarily competes on the basis of price, but believes the green attributes of NEER's generation assets, its creditworthiness and its ability to offer and manage reliable customized risk solutions to wholesale customers are competitive advantages. Wholesale power generation is a regional business that is highly fragmented relative to many other commodity industries and diverse in terms of industry structure. As such, there is a wide variation in terms of the capabilities, resources, nature and identity of the companies NEER competes with depending on the market. In wholesale markets, customers' needs are met through a variety of means, including long-term bilateral contracts, standardized bilateral products such as full requirements service and customized supply and risk management services.
In general, U.S. and Canadian electricity markets encompass three classes of services: energy, capacity and ancillary services. Energy services relate to the physical delivery of power; capacity services relate to the availability of MW capacity of a power generation asset; and ancillary services are other services that relate to power generation assets, such as load regulation and spinning and non-spinning reserves. The exact nature of these classes of services is defined in part by regional tariffs. Not all regions have a capacity services class, and the specific definitions of ancillary services vary from region to region.
RTOs and ISOs exist throughout much of North America to coordinate generation and transmission across wide geographic areas and to run markets. NEER operates in all RTO and ISO jurisdictions. At December 31, 2019, NEER also had generation facilities with ownership interests in a total net generating capacity of approximately 4,642 MW that fall within reliability regions that are not under the jurisdiction of an established RTO or ISO, including 2,365 MW within the Western Electricity Coordinating Council and 1,252 MW within the Florida Reliability Coordinating Council. Although each RTO and ISO may have differing objectives and structures, some benefits of these entities include regional planning, managing transmission congestion, developing larger wholesale markets for energy and capacity, maintaining reliability and facilitating competition among wholesale electricity providers. NEER has operations that fall within the following RTOs and ISOs:
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 December 31, 2019, approximately 90% of NEER's net generating capacity was committed under long-term contracts. Where long-term contracts are not in effect, NEER sells the output of its facilities into daily spot markets. In such cases, NEER will frequently enter into shorter term bilateral contracts, typically of less than three years duration, to hedge the price risk associated with selling into a daily spot market. Such bilateral contracts, which may be hedges either for physical delivery or for financial (pricing) offset, serve to protect a portion of the revenue that NEER expects to derive from the associated generation facility. Contracts that serve the economic purpose of hedging some portion of the expected revenue of a generation facility but are not recorded as hedges under GAAP are referred to as “non-qualifying hedges” for adjusted earnings purposes. See Management's Discussion - Overview - Adjusted Earnings.
Certain facilities within the NEER wind and solar generation portfolio produce RECs and other environmental attributes which are typically sold along with the energy from the plants under long-term contracts, or may be sold separately for the wind and solar generation not sold under long-term contracts. The purchasing party is solely entitled to the reporting rights and ownership of the environmental attributes.
While the majority of NEER's revenue is derived from the output of its generation facilities, NEER is also an active competitor in several regions in the wholesale full requirements business and in providing structured and customized power and fuel products and services to a variety of customers. In the full requirements service, typically, the supplier agrees to meet the customer's needs for a full range of products for every hour of the day, at a fixed price, for a predetermined period of time, thereby assuming the risk of fluctuations in the customer's volume requirements.
Expanded competition in a frequently changing regulatory environment presents both opportunities and risks for NEER. Opportunities exist for the selective acquisition of generation assets and for the construction and operation of efficient facilities that can sell power in competitive markets. NEER seeks to reduce its market risk by having a diversified portfolio by fuel type and location, as well as by contracting for the future sale of a significant amount of the electricity output of its facilities.
NEER REGULATION
The energy markets in which NEER operates are subject to domestic and foreign regulation, as the case may be, including local, state and federal regulation, and other specific rules.
At December 31, 2019, essentially all of NEER's operating independent power projects located in the U.S. have received exempt wholesale generator status as defined under the Public Utility Holding Company Act of 2005. Exempt wholesale generators own
or operate a facility exclusively to sell electricity to wholesale customers. They are barred from selling electricity directly to retail customers. While projects with exempt wholesale generator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including, but not limited to, those regarding siting, construction, operation, licensing, pollution abatement and other environmental laws.
Additionally, most of the NEER facilities located in the U.S. are subject to FERC regulations and market rules and the NERC's mandatory reliability standards, all of its facilities are subject to environmental laws and the EPA's environmental regulations, and its nuclear facilities are also subject to the jurisdiction of the NRC. See FPL - FPL Regulation for additional discussion of FERC, NERC, NRC and EPA regulations. Rates of NEER's rate-regulated transmission businesses are set by regulatory bodies as noted in Generation and Other Operations - Generation Assets and Other Operations - Other Operations - Rate-Regulated Transmission. With the exception of facilities located in ERCOT, the FERC has jurisdiction over various aspects of NEER's business in the U.S., including the oversight and investigation of competitive wholesale energy markets, regulation of the transmission and sale of natural gas, and oversight of environmental matters related to natural gas projects and major electricity policy initiatives. The PUCT has jurisdiction, including the regulation of rates and services, oversight of competitive markets, and enforcement of statutes and rules, over NEER facilities located in ERCOT.
Certain entities within the NEER segment and their affiliates are also subject to federal and provincial or regional regulations in Canada related to energy operations, energy markets and environmental standards. In Canada, activities related to owning and operating wind and solar projects and participating in wholesale and retail energy markets are regulated at the provincial level. In Ontario, for example, electricity generation facilities must be licensed by the OEB and may also be required to complete registrations and maintain market participant status with the IESO, in which case they must agree to be bound by and comply with the provisions of the market rules for the Ontario electricity market as well as the mandatory reliability standards of the NERC.
In addition, NEER is subject to environmental laws and regulations as described in the NEE Environmental Matters section below. In order to better anticipate potential regulatory changes, NEER continues to actively evaluate and participate in regional market redesigns of existing operating rules for the integration of renewable energy resources and for the purchase and sale of energy commodities.
NEER EMPLOYEES
NEER had approximately 5,000 employees at December 31, 2019. NEER has collective bargaining agreements with the IBEW, the Utility Workers Union of America, and the Security Police and Fire Professionals of America, which collectively represent approximately 15% of NEER's employees. The collective bargaining agreements have two- to five-year terms and expire between March 2021 and September 2022.
GULF POWER
On January 1, 2019, NEE completed the acquisition of all of the outstanding common shares of Gulf Power under a stock purchase agreement with The Southern Company dated May 20, 2018, as amended, for approximately $4.44 billion in cash consideration and the assumption of approximately $1.3 billion of Gulf Power debt. Gulf Power was incorporated under the laws of Maine in 1925 and became a Florida corporation after being domesticated under the laws of Florida in 2005. Gulf Power, a rate-regulated electric utility under the jurisdiction of the FPSC, is engaged in the generation, transmission, distribution and sale of electric energy in northwest Florida. Gulf Power is subject to regulations similar to FPL (see FPL - FPL Regulation above). Gulf Power operates under a base rate settlement agreement, which took effect July 1, 2017, that provides for an allowed regulatory ROE of 10.25%, with a range of 9.25% to 11.25%. As of December 31, 2019, Gulf Power served approximately 470,000 customers in eight counties throughout northwest Florida and had approximately 2,300 MW of fossil-fueled electric net generating capacity and 9,500 miles of transmission and distribution lines located primarily in Florida. See Note 8 - Gulf Power Company for further discussion.
NEE ENVIRONMENTAL MATTERS
NEE and its subsidiaries, including FPL, are subject to environmental laws and regulations, including extensive federal, state and local environmental statutes, rules and regulations, for the siting, construction and ongoing operations of their facilities. The U.S. government and certain states and regions, as well as the Government of Canada and its provinces, have taken and continue to take certain actions, such as proposing and finalizing regulations or setting targets or goals, regarding the regulation and reduction of GHG emissions and the increase of renewable energy generation. Numerous environmental regulations also affecting FPL, NEER, Gulf Power, and certain other subsidiaries relate to threatened and endangered species and/or their habitats, as well as other avian and bat species. The environmental laws in the U.S., including, among others, the Endangered Species Act, the Migratory Bird Treaty Act, and the Bald and Golden Eagle Protection Act, provide for the protection of numerous species, including endangered species of birds and bats and/or their habitats, migratory birds and eagles. The environmental laws in Canada, including, among others, the Species at Risk Act, provide for the recovery of wildlife species that are endangered or threatened and the management of species of special concern. Complying with these environmental laws and regulations could result in, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities. Failure to comply could result in fines, penalties, criminal sanctions or injunctions. The impact of complying with current environmental laws and regulations has not had, and, along with compliance with proposed regulations as currently written, is not expected to have, a material adverse effect on the financial statements of NEE and FPL. NEE's rate-regulated subsidiaries expect to seek recovery for compliance costs associated with any new environmental laws and regulations, which recovery for FPL and Gulf Power would be through their respective environmental clause.
WEBSITE ACCESS TO SEC FILINGS
NEE and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEE's internet website, www.nexteraenergy.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC. The information and materials available on NEE's website (or any of its subsidiaries' or affiliates' websites) are not incorporated by reference into this combined Form 10-K.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS(a)
| Name | Age | Position | Effective Date | |||
| Miguel Arechabala | 58 | Executive Vice President, Power Generation Division of NEE Executive Vice President, Power Generation Division of FPL | January 1, 2014 | |||
| Deborah H. Caplan | 57 | Executive Vice President, Human Resources and Corporate Services of NEE Executive Vice President, Human Resources and Corporate Services of FPL | April 15, 2013 | |||
| Paul I. Cutler | 60 | Treasurer of NEE Treasurer of FPL Assistant Secretary of NEE | February 19, 2003 February 18, 2003 December 10, 1997 | |||
| Joseph T. Kelliher | 59 | Executive Vice President, Federal Regulatory Affairs of NEE | May 18, 2009 | |||
| John W. Ketchum | 49 | President and Chief Executive Officer of NextEra Energy Resources | March 1, 2019 | |||
| Rebecca J. Kujawa | 44 | Executive Vice President, Finance and Chief Financial Officer of NEE Executive Vice President, Finance and Chief Financial Officer of FPL | March 1, 2019 | |||
| James M. May | 43 | Vice President, Controller and Chief Accounting Officer of NEE | March 1, 2019 | |||
| Donald A. Moul | 54 | Executive Vice President, Nuclear Division and Chief Nuclear Officer of NEE Vice President and Chief Nuclear Officer of FPL | January 1, 2020 May 17, 2019 | |||
| Ronald R. Reagan | 51 | Executive Vice President, Engineering, Construction and Integrated Supply Chain of NEE Vice President, Engineering and Construction of FPL | January 1, 2020 March 1, 2019 | |||
| James L. Robo | 57 | Chairman, President and Chief Executive Officer of NEE Chairman of FPL | December 13, 2013 May 2, 2012 | |||
| Charles E. Sieving | 47 | Executive Vice President & General Counsel of NEE Executive Vice President of FPL | December 1, 2008 January 1, 2009 | |||
| Eric E. Silagy | 54 | President and Chief Executive Officer of FPL | May 30, 2014 |
| (a) | Information is as of February 14, 2020. Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors. Except as noted below, each officer has held his/her present position for five years or more and his/her employment history is continuous. Mr. Ketchum served as Executive Vice President, Finance and Chief Financial Officer of NEE and FPL from March 2016 to February 2019 and NEE’s Senior Vice President, Finance from February 2015 to March 2016. Ms. Kujawa served as Vice President, Business Management of NextEra Energy Resources from March 2012 to February 2019. Mr. May served as Controller of NextEra Energy Resources from April 2015 to February 2019 and was Director of Accounting of NextEra Energy Resources from July 2013 to April 2015. Mr. Moul served as Vice President and Chief Nuclear Officer of NEE from May 2019 to December 2019. He previously held various roles at several subsidiaries of FirstEnergy Corp., which are energy suppliers involved in the generation, transmission and distribution of electricity. Mr. Moul was Executive on Special Assignment of FirstEnergy Solutions Corp. from March 2019 to May 2019, President and Chief Nuclear Officer of FirstEnergy Generation Companies from March 2018 to March 2019, President of FirstEnergy Generation LLC from April 2017 to March 2018, Senior Vice President, Fossil Operations and Environmental of FirstEnergy Solutions from August 2015 to April 2017, and Vice President, Commodity Operations of FirstEnergy Solutions from October 2012 to August 2015. Mr. Reagan served as Vice President, Engineering and Construction of NEE from November 2018 to December 2019 and Vice President, Integrated Supply Chain of NEE from October 2012 to November 2018. |
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