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Understanding NextEra Energy Resources’ Expansion of Renewables

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NextEra Energy’s subsidiaries

NextEra Energy’s (NEE) regulated utility Florida Power & Light (FPL) reported earnings of $0.85 per share in 1Q16, as compared to earnings of $0.80 per share in 1Q15. NextEra Energy Resources posted earnings of $0.66 per share during the quarter, as compared to earnings of $0.58 per share in 1Q15.

Understanding NextEra Energy Resources' Expansion of Renewables

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Florida Power & Light

As we previously discussed, NextEra Energy’s regulated operations were positively impacted by robust growth in the company’s customer base. Economic factors in NextEra Energy’s principal operational zones also played a key role in boosting customer growth. In March 2016, the unemployment rate in Florida dropped to an eight-year low of 4.9%. The rate was 0.7 percentage points higher in 1Q15. During the same period, the number of new jobs added in Florida increased by 2.9%.

According to NextEra’s management, FPL’s operating performance increased due to more efficient power plants and lower fuel prices. In the past fifteen years, the company’s fuel efficiency programs have saved more than $8 billion and prevented nearly 95 million tons of carbon emission.

NextEra Energy Resources

NEER’s incremental earnings are due to the impact of 1,825 megawatts of new renewable projects that began operations during or after 1Q15. NEER has been consistently adding capacity for renewables (PBW), which can significantly support its earnings after over time. Also, NEER sells most of its unregulated generation under long-term contracts in competitive markets. This gives stable and predictable cash flows, unlike those of its utility peers (JXI).

Utilities companies’ performances can be tracked by the iShares US Utilities ETF (IDU). NextEra Energy and Duke Energy (DUK) are top constituents of IDU, both with a weight of ~7.5%. Other top holdings in IDU include Dominion Resources (D) and Exelon Corporation (EXC), which have weights of 6%, and 4.4%, respectively.

Now let’s look at NextEra’s current valuation.

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