Fitch Ratings has assigned ratings of 'AA-' to Florida Power & Light
Company's (FPL) issue of $600 million 3.125% series first mortgage bonds
due Dec. 1, 2025. FPL plans to use the net proceeds from this offering
to fund transaction costs incurred in connection with FPL's purchase of
approximately $400 million in aggregate principal of several series of
its first mortgage bonds in September 2015 and for general corporate
FPL's ratings reflect the predictable nature of cash flows from
regulated electric operations, a favorable 2012 rate order that provides
for at least 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.
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 basis
points (bps) band and automatically adjusts base rates on commercial
operations of new generation plants over 2013-2016.
Recovering Florida Economy: Florida's economy is recovering well after
the recent prolonged recession, with most key indicators such as housing
starts, employment statistics and consumer sentiment on an upward trend.
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. Fitch's
financial forecasts for FPL are based on a 1% cumulative annual growth
rate in retail sales over 2015-2018; any upside in sales growth would be
positive for FPL's credit metrics.
High Capex: FPL has identified approximately $14.6 billion in capex
through 2018. Fitch believes this target is likely to be exceeded, given
the approval by the Florida Public Service Commission (FPSC) to invest
up to $500 million annually in natural gas reserves projects. 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. FPL continues to make progress on its major capital projects.
Specifically, the generation modernization project at Port Everglades
remains on budget and scheduled to enter service in mid-2016.
Additionally, FPL's development of three new large-scale solar energy
centers remain (74-megawatts each) on schedule.
Robust Credit Metrics: FPL's forecasted funds from operations (FFO)
credit metrics are expected to weaken from their current robust levels
as benefits from bonus depreciation subside after 2015. 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 quite robust compared with the 'A' rated financial
profile for a regulated utility. As of Sept. 30, 2015, FPL's latest 12
months (LTM) total adjusted debt/operating EBITDAR and FFO adjusted
leverage were 2.1x and 2.5x respectively.
KEY RATING ASSUMPTIONS
--Annual retail sales growth of 1% over 2015-2018;
--Base rate increases in mid-2016 for Port Everglades. Additional rate
increase in 2017 to allow FPL to earn close to its current authorized
ROE of 10.5%;
--O&M and other expenses growth of 1.5% from 2015-2018;
--Capex at FPL of approximately $15 billion over 2015-2018.
Positive Rating Action: Given strong rating linkage with its parent
company, NextEra Energy, Inc. (NextEra; rated 'A-' by Fitch), future
positive rating actions appear unlikely.
Negative Rating Action: Downward rating pressure could result from
unfavorable changes in current Florida regulatory policies for timely
recovery of utility capital investments, fuel and purchased power costs,
and storm-related costs; or increasing parent risk profile from higher
debt leverage or aggressive corporate strategy. A downgrade in NextEra's
ratings would adversely affect FPL's ratings, consistent with Fitch's
parent and subsidiary rating linkage criteria.
Date of Relevant Rating Committee: April 21, 2015.
Additional information is available at 'www.fitchratings.com'.
Corporate Rating Methodology - Including Short-Term Ratings and Parent
and Subsidiary Linkage (pub. 17 Aug 2015)
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CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
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