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NextEra’s profit-boosting recipe? It’s all in the mix

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Falling fuel costs

The price of fuel is the major cost consideration for power producers. Power generation fuel costs represent 36% of NextEra Energy’s (NEE) total expenditures.

In fiscal 2008, fuel costs constituted a whopping 57% of NextEra’s total expenses. Remarkably, the company has managed to lower these costs by more than 41% since then, from $8.4 billion in fiscal 2008 to $4.9 billion in fiscal 2013.

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Factors helping NextEra cut fuel costs

NextEra’s power generation mix is the key reason for its lower fuel costs. As we learned in Part 4 of this series, natural gas and wind energy are the major sources of power for NextEra’s regulated and unregulated segments.

The shale gas boom in the last ten years has led to a surge in natural gas production in the US and has resulted in lower gas prices. NRG Energy (NRG) and Southern Company (SO) own the largest natural gas-based capacity among all companies held by the Select Sector Utilities Select Sector SPDR Fund (XLU).

Meanwhile, the operating costs of electricity generation units that use wind are also fairly low. Obviously, they come with zero fuel costs. Only operation and maintenance expenses need to be factored in to this form of power generation.

After NextEra, Duke Energy and Exelon Corporation (EXC) operate the largest number of wind energy facilities in the US.

Other cost components

In fiscal 2013, these were the other cost components of NextEra’s total costs, by percentage:

  • depreciation – 15.7%
  • operating and maintenance cost – 25.3%
  • interest costs – 8.1%
  • tax expenses – 15.1%
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