Fitch Affirms Florida Power & Light Co. at 'A'; Outlook Stable
Fitch Ratings has affirmed the Issuer Default Rating (IDR) for Florida
Power & Light Company (FPL) at 'A' with a Stable Rating Outlook.
FPL's ratings reflect the predictable nature of cash flows from
regulated electric operations, a favorable outcome to the 2012 base rate
case that provides for four years of regulatory certainty, recovering
electric sales in its service territory after a prolonged trough,
management focus on O&M cost containment that is expected to drive
returns close to the upper end of the authorized return on equity (ROE)
range, and a strong balance sheet and liquidity profile. The ratings
also reflect high-capex investments over 2015-18 as the utility spends
on new generation and other infrastructure improvements.
KEY RATING DRIVERS
Constructive Regulation: A favorable turnaround in the regulatory
climate in Florida and an extended period of regulatory certainty are
key credit positives for FPL. The 2012 rate order spans a four-year term
(until December 2016), set rates based on 10.5% ROE with a 100 bps band
and automatically adjusts base rates on commercial operations of new
generation plants over 2013-2016. The company has received several other
constructive orders from the Florida Public Service Commission (FPSC)
such as approval to invest up to $500 million each year in natural gas
reserve projects and permission to acquire and then retire the Cedar Bay
facility.
Recovering Florida Economy: Florida's economy is recovering well with
most key indicators such as housing starts, employment statistics and
consumer sentiment on an upward trend. However, customer usage has been
volatile and below historical levels reflecting energy efficiency trends
and demand side management initiatives. Adjusted for weather, FPL's
retail kilowatt hour sales grew 1.3% in 2014, driven by 1.2% customer
growth and 0.1% usage increase. For the most recent quarter ended Sept.
30, 2015, FPL's weather adjusted retail kilowatt hour sales grew 1.2%,
driven by 1.4% customer growth and 0.4% decline in usage. Fitch's
financial forecasts for FPL are based on a 1% cumulative annual growth
rate in retail sales over 2015-2018, primarily driven by customer
growth; any upside in sales growth would be positive for FPL's credit
metrics.
High Capex: FPL has identified approximately $14 billion - $16 billion
in capex over 2015 - 2018, which includes several new generation
investments. The generation modernization project at Port Everglades
remains on budget and is scheduled to enter service in mid-2016.
Additionally, FPL's development of three new large-scale solar energy
centers (74-megawatts each for an aggregate cost of $400 million - $420
million) remains on schedule. The capex projections also include a
proposed new combined cycle plant at a cost of $1.0 billion - $1.1
billion that, if approved, is expected to enter commercial operations in
2019. Other rate base investments include up to $500 million annual
investments in natural gas reserves projects, turbine upgrades in 2016
at an estimated cost of $750 million - $800 million, and transmission
and distribution infrastructure investments of $3 billion - $4 billion
over 2015-2018 . Fitch expects FPL to finance its capex and distribution
to the parent using a mix of equity and debt so as to maintain its
regulatory capital structure.
Robust Credit Metrics: FPL's forecasted FFO credit metrics are expected
to weaken from their current robust levels as benefits from bonus
depreciation subside after 2015. Nevertheless, these remain robust
relative to FPL's rating level. Fitch expects the FFO fixed-charge
coverage to be in the 7.0x-9.0x range over the forecast period
(2015-2018). FFO-adjusted leverage and adjusted debt/EBITDAR are
expected to be 3.0x and 2.3x, respectively, by 2018. These metrics are
strong compared with the 'A' rated financial profile for a regulated
utility.
KEY ASSUMPTIONS
Fitch's key assumptions within its rating case for the issuer include:
--Annual retail sales growth of 1% over 2015-2018;
--Base rate increases in mid-2016 for Port Everglades;
--Base rate case filing in mid-2016 for new rates effective Jan. 1, 2017
that allows FPL to earn close to its currently authorized ROE;
--Moderate increase in O&M and other expenses growth;
--Capex of approximately $15 billion over 2015-2018.
RATING SENSITIVITIES
Positive Rating Action: Given the strong rating linkage with its parent
company, NextEra Energy, Inc. (NEE; rated 'A-' by Fitch), future
positive rating actions appear unlikely since Fitch deems the one-notch
IDR differential as appropriate.
Negative: Future developments that may, individually or collectively,
lead to negative rating action include:
--Unfavorable changes in current Florida regulatory policies for timely
recovery of utility capital investments, fuel and purchased power costs,
and storm-related costs;
--Increasing parent risk profile from higher debt leverage or aggressive
corporate strategy.
LIQUIDITY
Liquidity was adequate at Sept. 30, 2015 with $30 million cash on hand
and approximately $3 billion availability under revolving credit
facilities. Debt maturities are manageable over the rating horizon.
FPL independently funds its short- and long-term debt needs. The company
has its own credit facilities, separate from NEE and its other
subsidiaries, to provide liquidity backup for commercial paper funding
and variable-rate tax-exempt revenue notes, as well as for issuance of
letters of credit. FPL's long-term debt financing vehicles are primarily
taxable secured first mortgage bonds and tax-exempt revenue bonds.
Committed corporate credit facilities for the NEE group of companies
aggregate approximately $8.8 billion, excluding limited recourse or
non-recourse project financing arrangements. Included in that total is
$7.85 billion of corporate credit facility that includes $3 billion in
unsecured facilities available to FPL (entire amount available as loans
and $2.5 billion available to issue letters of credit). Out of the $3
billion credit facility, $500 million matures in May 2016, while the
rest matures in 2020. Other credit facilities available to FPL include a
$200 million revolving term loan facility that matures May 2018.
FULL LIST OF RATING ACTIONS
Fitch has affirmed the following ratings with a Stable Outlook:
Florida Power & Light Company
--Long-term IDR at 'A';
--First mortgage bonds at 'AA-';
--Unsecured pollution control revenue bonds at 'A+';
--Short-term IDR and commercial paper at 'F1'.
FPL Group Capital Trust I
--Trust preferred stock at 'BBB'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=995903
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=995903
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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