NextEra’s regulated business packs more revenue punch
NextEra Energy: The greenest power utility in the US (Part 3 of 18)
Subsidiaries
NextEra Energy’s (NEE) operations cover all aspects of the power business, from electricity generation, electricity sales, and transmission to delivery to end consumers. NextEra carries out most of these functions through its principal subsidiaries, Florida Power & Light Company, or FPL, and NextEra Energy Resources, or NEER.
Aside from FPL and NEER, there’s NextEra Energy Transmission, or NEET, and other subsidiaries. All of these companies are part of NextEra’s operations. Meanwhile, FPL and NEER are responsible for the majority of NextEra’s earnings.
Segments
NextEra Energy is involved in both the more traditional, regulated side and the unregulated side of the US power industry. The regulated business is headed by FPL, while NEER leads NextEra’s unregulated business.
Florida Power & Light Company
FPL operates as a regulated utility. As a regulated utility, FPL’s profits are based on a markup over electricity production costs that are set by state governments. So, FPL’s earnings are relatively stable compared to NextEra’s unregulated business. FPL contributes more than 70% of NextEra’s total revenues.
Like NextEra, Duke Energy (DUK) and Southern Company (SO) operate mainly as regulated utilities. All three of these companies are part of the Select Sector Utilities Select Sector SPDR Fund (XLU).
NextEra Energy Resources
NEER is involved in competitive power generation. While FPL ensures stable earnings for NextEra, NEER provides NextEra with a growth platform. Unlike FPL, NEER’s profitability is linked to the market price of electricity. A rise in electricity demand leads to a rise in electricity prices, which in turn benefits the profits of unregulated power companies. The downside of this model? Market-based profitability makes NEER’s earnings more volatile.
Examples of pure-play unregulated power companies the US include Dynegy Inc. (DYN) and Calpine Corporation (CPN).
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