Can This Utility Go From Good to Great?

NextEra Energy Inc. has more than doubled the returns of its competitors over the last five years. But what makes a utility good doesn't always make it great, so here are three ways NextEra Energy can reach the next level.

1. Expanding rooftop solar energy partnerships

Source: NextEra Energy, via Hawaiian Electric.

NextEra Energy is the undisputed leader in renewable energy, but its green investments aren't as diversified as they could be. The company's main claim to environmental fame is its more than 100 wind farms spread across 19 states. Collectively, their power generationcapacity is nearly 11,300 megawatts.

Compare that to solar, and NextEra has some work to do. Its six facilities across four states amount to just 785 MW of utility-scale solar. But NextEra Energy'srecent Hawaii partnership with SolarCity Corp.could change all that.

In December 2014, NextEra Energy announced it would acquire Hawaiian Electric Industries, the utility for all but 5% of Hawaiians. To combat out-of-control imported energy prices for the island state, NextEra and SolarCity are offering rooftop solar panel kits to help triple Hawaii's solar power. With just 48,000 customers already served and almost 500,000 Hawaiian households, solar in this state could go a long way to diversifying NextEra's renewable energy assets.

2. Utilizing that yieldco

Source: NextEra Energy Partners LP.

NextEra Energy Partners LP is NextEra Energy's new stock sidekick. In the utilities business, it's not enough to play the right power cards -- you have to organize them, too. NextEra Energy rearranged its finances to spin off NextEra Energy Partners LP last summer. This new unit, known in energy investor circles as a "yieldco," is essentially a tax-free financial machine for some of NextEra's steadier assets. If you've heard of master limited partnerships, this is the same thing minus the fossil fuel fetish.

For investors, this means more of NextEra Energy's earnings make their way to shareholders on a tax-free basis. The yieldco currently has 1,240 MW of contracted wind and solar projects under its auspices; according to CFO Moray Dewhurst, it should expand further thanks to the extension of the wind production tax credit program and the EPA's new Clean Power Plan.

3. Good growthNextEra Energy is expanding fast. As one of the few utilities interested in serious growth, it's necessarily looking across the nation (and perhaps beyond) for opportunities.

But as NextEra Energy considers its next acquisition or its newest generation site, it must also think critically about the regulatory environments where it's headed.

NextEra Energy's renewable energy investments aren't equally accepted across the United States. A combination of state politics, the composition of regulatory bodies, and the looming push-and-pull of the EPA's Clean Power Plan could and should affect where NextEra goes next. The company is in an exciting stage, but it shouldn't sacrifice steady and predictable growth for eager expansion. Its 2.9% dividend yield is well below the industry's 3.3% average, and NextEra shouldn't be afraid to bump up distributions or buy back shares if smart opportunities don't present themselves.

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Justin Loiseau has no position in any stocks mentioned, but he does use electricity. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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