Tuesday, September 11, 2018

The growth of NextEra Energy and Florida population growth

In one of my previous post, I triangulated the growth of Consolidated Edison with New York City, the city that it predominantly serves.

In this post, I will be adopting the same approach in my evaluation of NextEra Energy (NEE), another utility company that I have come across while prospecting for investment opportunities.

NEE might be an unfamiliar name to readers. To help readers get acquainted with the company, I shall lift the following paragraph from their 2017 annual report, "NEE is one of the largest electric power and energy infrastructure companies in North America and a leader in the renewable energy industry. NEE has two principal businesses, Florida Power & Light (FPL) and NextEra Energy Resources (NEER). FPL is the largest electric utility in the state of Florida and one of the largest electric utilities in the U.S. FPL's strategic focus is centered on investing in generation, transmission and distribution facilities to continue to deliver on its value proposition of low bills, high reliability, outstanding customer service and clean energy solutions for the benefit of its nearly five million customers. NEER is the world's largest operator of wind and solar projects. NEER's strategic focus is centered on the development, construction and operation of long-term contracted assets throughout the U.S. and Canada, including renewable generation facilities, natural gas pipelines and battery storage projects."

My focus today is not on the firm as a whole. Instead, I will be delving into FPL only. As of 31 December 2017, FPL had approximately 26,600 MW of net generating capacity, approximately 75,000 circuit miles of transmission and distribution lines and approximately 620 substations. FPL provides service to its customers through an integrated transmission and distribution system that links its generation facilities to its customers. They serve approximately ten million people through nearly five million customer accounts. Their service territory covers most of the east and lower west coasts of Florida (see image below).

NextEra Energy Florida Map

FPL's primary source of operating revenues comes from its retail customer base (see below).

FPL Revenue source breakdown

Similar to what I have shared in my article on Consolidated Edison, there is a limit to the price hikes a utility company could charge. Further growth, like what I have suggested in my previous article, could come from a growth in the Florida population, which the firm operates in.

Let us take a look at Florida's population growth trend by considering data from the Office of Economic & Demographic Research (EDR). Similar to New York City, a census is conducted once every 10 years, with the most recent one being in 2010.

At the state level, the Florida population grew from 15,982,824 to 18,801,310 from year 2000 to 2010. This is an increase of 17.6%. In the "Florida Estimates of Population 2017" report, the population was estimated to be at 20,484,142 at April 2017. This is an increase of 8.9% over the period of 7 years. Population growth has slowed down.

However, current estimates have to be revised downwards. According to the executive summary of the Demographic Estimating Conference held on 9 July 2018, the change in population was magnified due to the effects of Hurricane Maria. To flee the hurricane, people moved from Puerto Rico to Florida. For some, they eventually settled into Florida permanently. This adds another layer of perspective to my understanding of how natural disasters impact human migration and, in turn, impact the companies that operate in the particular region.

The EDR website has plenty of data visualizations that would help us better understand the Florida population. I will be highlighting a few of them here.

The following image illustrates the total population of Florida by its counties in year 2010. If you mentally superimpose the following map on the above map, you will observe that NEE serves counties that are highlighted in green, blue, and red in the map below. These are counties that contain a larger population size in relation to the total population of Florida. Miami-Dade and Broward counties are the two most populous and NEE is serving them (in 2010, at least).

Florida Total population by county

The following map shows a different look at the same data. It considers the population density of each county. Similarly, it paints NEE in a good light; the more population-dense counties were served by NEE when you superimposed the below map with the first map above (for year 2010, at least). Furthermore, quite a few of the counties are reflected in yellow and green. If there is a positive net migration, these counties could still accommodate additional numbers.

Florida population density by county

The maps also reveal that NEE has no presence in Duval, Hillsborough, and Pinellas counties. These 3 counties are reflected in blue in the second map (Total Population by County: 2010) and 2 blues and 1 red in the third map (Population Density by County: 2010), respectively.

Next, let us take a look at the population growth components. The following graph is taken from the "Demographic Overview & Population Trends" presentation, dated 6 November 2013.

Florida Growth Components

Most of the growth in the Florida population could be attributed to net migration instead of a natural increase. Though it was not specified, I infer that natural increase refers to net birth rates - death rates.

In the same presentation slides, we are also informed that Florida has an aging population (see below).

Florida Population by Age Group

Hold on to those thoughts.

In various articles, Florida occupies one of the top few spots for retirement (see here, here, and here). It is plausible that Florida's population growth could see further growth as a retirement destination; the growth components, population by age group, and retirement destination trends support it. Furthermore, it overtook New York and became the third most populous state in the US (see here and here). NextEra Energy seems poised to benefit from these trends.

Not vested in NextEra Energy. NextEra Energy is in my watchlist.