NextEra Energy Unveils Plans to Shrink Fuel Costs - Analyst Blog

NextEra Energy Inc.'s NEE core business arm, Florida Power & Light Company (FPL) unveiled its long-term plan to invest in natural gas supplies to lower its fuel cost and save customers money.

To accelerate the plan, NextEra Energy has announced that it will enter into a joint venture with PetroQuest Energy Inc. PQ to develop 38 gas production wells in the Woodford Shale region located in southeast Oklahoma. PetroQuest, an oil and gas player, will supervise and operate the wells while NextEra Energy will receive a portion of the output produced from each well.

NextEra Energy, in general, purchases nearly 2 billion cubic feet of gas per day for its gas-fired power plants at prices that are subject to market volatilities. Currently, the company cushions its customers from price variations by hedging a portion of its fuel through a FPSC-regulated program. This program, however, offers benefits to consumers only for short-run agreements.

So, NextEra Energy will invest in natural gas production at the source, which will enable the company to obtain gas at a comparatively lower cost. The wells typically have a life-cycle of around more than 30 years. By directly investing at the source, NextEra Energy estimates to save approximately $107 million for customers over the life of the first project.  

NextEra Energy has been aggressively investing to expand its generation and transmission operations. The latest initiative is a big leap for the company and will prove beneficial in the coming years.

Natural gas is fast becoming a popular energy source for power generation among utility producers thanks to its abundance availability in the U.S. The pro-environment policies adopted by the U.S. government are also acting as a stimulant for companies undertaking natural gas expansion initiatives like NextEra Energy.

The increasing usage of natural gas a fuel source in electric generation in the U.S. will help gas to overtake coal in the long term. Per a report from Energy Information Administration, by 2035, natural gas will have the largest share in power production in U.S., dislodging coal from the top.

FPL's generation mix is ruled by natural gas, which accounts for 67% in 2013,  makes the company poised for stable growth. In addition, the new plan will make gas prices more competitive, which in turn will lead to customer retention and add to NextEra Energy's revenue stream.

Currently, NextEra Energy carries a Zacks Rank #3 (Hold). Some better-ranked utility stocks that warrant a look include Black Hills Corp. BKH and NRG Energy Inc. NRG These stocks sport a Zacks Rank #1 (Strong Buy).

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