NextEra Energy Inc (NYSE:NEE) is an interesting cross between an independent power producer (IPP) and a regulated utility. And, there are very few of its kind out there.
On the IPP side, NEE is the country’s leading provider of renewable energy — mostly wind and solar — to its regulated side, as well as other utilities that are interested in growing their renewable footprint.
In 2009, NextEra bought Florida Power and Light (FPL), a major Florida utility and the No. 3 nuclear energy power producer in the U.S. It serves nearly 5 million customers in the Sunshine State and is the world’s largest generator of wind and solar energy.
Its IPP operations sell power to its regulated subsidiary, and the virtuous circle is complete. The success of FPL has been a long time coming because Florida was an extremely tough place to be a utility — regulators were very hard to read and weren’t always interested in rates to cover expanding the energy needs of the customers.
Add to that the fact that the weather in Florida is not conducive to long equipment lifespans. That means it’s expensive to operate the utility on a day-to-day basis. What’s more, this doesn’t even take into consideration the regular threat of extreme weather from hurricanes and tropical storms.
What’s Different About NEE?
Perhaps it’s because of these challenges that NextEra Energy — and NEE stock — has managed to do so well with its hybrid model. After the industry’s deregulation boom in the beginning of the century, when all the big utilities spun off IPPs, everything came crashing down when Enron imploded.
All the big utilities spun out or dismantled their IPPs and went back to their former regulated selves. NEE has managed to not only become a successful renewable energy player, but has also turned FPL into a model modern utility company in the process.
NEE stock has outperformed Southern neighbors Duke Energy Corp (NYSE:DUK), Dominion Resources, Inc. (NYSE:D) and Southern Co (NYSE:SO) by double or more in the past 12 months. And, it still throws off a respectable 3% dividend yield.
FPL grew its regulated capital base by 8.3% in fiscal 2016, and NEE grew its revenue by 10% in the same time frame. As a matter of fact, NEE has delivered compounded annual growth of 8% per year since 2005.
These are significant numbers for a utility or an IPP, especially when most of the revenue comes from a state that doesn’t suffer any real winter weather (usually the peak earnings season for most utilities).
What’s more, FPL is planning on adding 1.5 GW of solar power over the next seven years to bring its total to 2.1 GW. More growth for FPL means more growth for NextEra Energy, and a bright future for NEE stock.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.