NextEra Energy, Inc. NEE Moat

Key data

The moat

Two moats, both regulatory, and they work differently.

Florida Power and Light is a rate-of-return monopoly. It serves twelve million people, no competitor may enter, and a state commission sets the return it earns on the capital it invests. The moat is the franchise itself: the more it invests in the grid, the larger the base on which it earns an approved return.

NextEra Energy Resources is a development machine. Its advantage is not technology, since anyone can buy the same turbines, but position: interconnection queue slots, land, permits and supply contracts secured years ahead. In a market where the grid connection is the binding constraint rather than the equipment, having the queue slot is the asset.

What the second moat produces is a contracted backlog that has grown every quarter.

Widening or narrowing

Both halves are compounding and one is under legal challenge.

*Blank cells are quarters where the company did not state the comparison on this basis.*

Backlog additions accelerated to a record 4.0 gigawatts in the March quarter and the total rose five gigawatts in a year while only about one a quarter was placed in service. Florida rate base growth accelerated from $5.4B to $6.8B year over year. The regulated return sits at 11.70%, near but below the top of an approved band running from 9.95% to 11.95%.

The overrated case. Signing backlog is not the same as delivering it. Additions of three to four gigawatts a quarter against roughly one placed in service means the queue is lengthening faster than the company converts it, and every one of those contracts requires capital that has to be raised. The backlog is an obligation as much as an asset.

On profit pool, the regulated utility earns an approved return on capital it deploys, which is the most protected position in American infrastructure and also the most capped. The development business earns a spread on projects it builds and sells or holds, which is uncapped and requires continuous financing.

The moat is widening.