NEE Plus D: Is the Integrated Model Back?

Research evidence excerpt

NEE Plus D: Is the Integrated Model Back?

■ Is the integrated business model back? We can't help but see that this transaction would create a position of NEE with one

of the largest electric utilities in PJM plus an unregulated generation portfolio in the market set to get a lot bigger with the

announced ~4.3 GW gas development plan in western PA. Setting aside Public Service Enterprise Group (PEG, Buy, $94 PT),

which has shifted to a utility plus solely nuclear, NEE would essentially mark a shift back to the old regulated utility plusENERGY unregulated genco model in PJM. Fifteen years ago this was common but largely wound down with Exelon's (EXC, Neutral)

spin of Constellation Energy (CEG, Not Rated). NEE would be able to offer a combination of regulated distribution assets plus

potentially market-based generation to meet large load needs. We are already seeing discussions from American ElectricAND Power (AEP, Neutral), EXC, and PPL Corp (PPL, Buy, $45 PT) about looking to build rate regulated or contracted unregulated

generation in PA and MD given the perceived lack of new generation development in the market.

■ Balances NEE earnings mix. A significant rationale for NEE in past large scale M&A was the need to ensure that regulated cash

flows relative to unregulated are sufficient to preserve its A-rated credit. Resources has been growing more rapidly than FPL

and ultimately further outsized growth could end up restrained by balance sheet considerations. We do think that NEE's BYOG

long-term contracted generation strategy is somewhat different from the past strategy at Resources. However, by adding in

Dominion - which is nearly all regulated earnings apart from Millstone - NEE's earnings split in 2028 could move to ~75%