NextEra Energy Q3 2021 Earnings Call Transcript

Quartr
Provided by Quartr
October 19, 2021

There are 11 speakers on the call.

Operator

Morning, everyone, and welcome to the NextEra Energy and NextEra Energy Partners Q3 2021 Earnings Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jessica Aldridge, Director of Investor Relations.

Operator

Ma'am, please go ahead.

Speaker 1

Thank you, Jamie. Good morning, everyone, and thank you for joining our Q3 2021 combined earnings conference call for NextEra Energy and NextEra Energy Partners. With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy Rebecca Kiava, Executive Vice President and Chief Financial Officer of NextEra Energy John Ketchum, President and Chief Executive Officer of NextEra Energy Resources and Mark Hixson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners as well as Eric Silagy, President and Chief Executive Officer of Florida Power and Light Company. Rebecca will provide an overview of our results and our executive team will then be available to answer your questions. We will be making forward looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties.

Speaker 1

Actual results could differ materially from our forward looking statements If any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release, in the comments made during this conference call, In the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, nexteraenergy.comandnexteraenergypartners.com. We do not undertake any duty to update any forward looking statements. Today's presentation also includes references to non GAAP financial measures. You should refer to the information contained in the slides Accompanying today's presentation for definitional information and reconciliations of historical non GAAP measures to the closest GAAP financial measure. As a reminder, Gulf Power legally merged into Florida Power and Light Company effective on January 1, 2021.

Speaker 1

Gulf Power will continue as a separate reportable segment within Florida Power and Light and NextEra Energy through 2021, Serving its existing customers under separate retail rates. Throughout today's presentation, when we refer to FPL, we are referring to Florida Power and Light, excluding Gulf power, unless otherwise noted or when using the term combined. With that, I will turn the call over to Rebecca.

Speaker 2

Thank you, Jessica, and good morning, everyone. NextEra Energy delivered strong 3rd quarter results with adjusted earnings per share increasing by approximately 12% year over year. Both the principal businesses executed well on major initiatives and we continue to advance our opportunity set for new renewables and storage. Building upon solid progress made in the first half of the year, NextEra Energy is well positioned to meet its overall objectives for 2021 and beyond. Earlier this month, we were honored to be named on Fortune's 2021 Change the World list, the only electric utility in the world to be recognized.

Speaker 2

This recognition is a testament to Nexstar Energy's best in class position in the renewable energy sector and our continued commitment to the customers and communities that we serve. At FPL, net income increased approximately 10% versus the prior year comparable period, reflecting contributions from continued investment in the business. Most notably, during the quarter we reached what we believe is a fair and constructive long term settlement agreement with a number of interveners in our rate case, Continuing a long history of negotiated outcomes that benefit both customers and shareholders. We believe the agreement, if approved, should enable us to continue to focus on operating the business efficiently, while investing in the future to ensure resilience, Reliability, affordability and clean energy for generations to come in Florida. We expect the Florida Public Service Commission to vote on our agreement at its agenda conference on October 26, and I'll provide more details on the proposed agreement in a few minutes.

Speaker 2

FPL's major capital initiatives continue to progress well, Including what will be the world's largest integrated solar power battery system, the 409 Megawatt FPL Manatee Energy Storage Center that is now 75% complete and on track to begin serving customers later this year. Gulf Power also had a great quarter of execution And its strong year to date financial performance is attributable to continued successful implementation of the cost reduction initiatives And smart capital investments that we previously outlined. Gulf Power's year to date net income contribution increased approximately 14% versus the prior year comparable period, and we remain focused on improving Gulf Power value proposition by providing lower costs, Higher reliability, outstanding customer service and clean energy solutions for the benefit of our customers. At Energy Resources, adjusted earnings for the quarter increased by approximately 12% year over year. Our development team Had another terrific quarter of new renewables and storage origination, adding approximately 2,160 megawatts to our backlog since the last earnings call, marking the best quarter of overall origination and the best quarter of new wind additions in Energy Resources history.

Speaker 2

These backlog additions include approximately 2 25 megawatts of combined solar and storage projects and a 500 megawatt wind project It is intended to power an adjacent new green hydrogen facility, which I'll provide some additional details on in just a few minutes. We continue to expect that our competitive advantages will drive meaningful growth in renewables and various forms of energy storage at Energy Resources in the coming years, As the trend towards broad decarbonization across many facets of the U. S. Economy takes hold. Overall, with 3 strong quarters complete in 2021, we are pleased with the progress we are making at NextEra Energy and we are well positioned to achieve the full year financial That we have previously discussed subject to our usual caveats.

Speaker 2

Now let's look at the detailed results, beginning with FPL. For the Q3 of 2021, FPL reported net income of $836,000,000 or $0.42 per share, which is an increase of $79,000,000 and $0.04 per share respectively year over year. Regulatory capital employed Increased by approximately 10.5% over the same quarter last year and was the principal driver of FPL's year over year net income growth of approximately 10%. FPL's capital expenditures were approximately $1,500,000,000 in the 3rd quarter and we expect its full year capital investments to total between 6.6 And $6,800,000,000 Our reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended September 2021. During the quarter, we restored $124,000,000 of reserve amortization, leaving FPL with a balance of $597,000,000 As you know, much of the East Coast of the U.

Speaker 2

S. Was recently impacted by Hurricane Ida, which made landfall on the Gulf Coast as a Category 4 hurricane and also caused catastrophic flooding across the Northeastern U. S. Our deepest sympathies are with those that have been impacted by Ida's widespread destruction. We value deeply the industry's commitment to mutual assistance And we were fortunate to be in a position to assist other utilities this year.

Speaker 2

As part of our assistance efforts, we sent more than 12.50 of our employees and contractors, as well as transmission equipment and other supplies to help rebuild the grid to support the restoration efforts of the impacted utilities. Let me now turn to Gulf Power, which reported Q3 2021 net income of $91,000,000 or $0.05 per share. Gulf Power's 3rd quarter EPS contribution was flat versus the prior year comparable quarter. As a reminder, the Q3 of 2020 benefited from the reversal of COVID-nineteen related expenses that had occurred earlier in that year. During the quarter, Gulf Power's regulatory capital employed Grew by approximately 13% year over year.

Speaker 2

Gulf Power's capital expenditures were approximately $200,000,000 during the Q3 And we expect its full year capital investments to be roughly $800,000,000 For the full year 2021, we continue to expect Gulf Power's regulatory ROE to be in upper half of the allowed band of 9.25% to 11.25%. All of our major capital initiatives at Gulf Power are progressing well. Gulf Power anticipates bringing approximately 150 megawatts of cost effective 0 emission solar capacity online within the next 6 months. The North Florida resiliency connection, which among other things We'll allow customers to benefit from greater diversity in solar output across the 2 different time zones, is expected to be in service in mid-twenty 22. These continued smart capital investments in renewables and core infrastructure are expected to drive customer benefits for many years to come.

Speaker 2

During the quarter, Gulf Power was impacted by tropical storm Fred, which experienced an unexpected change in path before striking the service territory. Through a restoration workforce of roughly 1700 personnel, Gulf Power was able to restore service to essentially all of the Approximately 20,000 customers impacted by Fred in Northwest Florida in less than 24 hours. Moreover, the average customer outage was restored in less than 2 hours. Our culture of preparation, including our annual storm drills and the team's focused execution Helped ensure an efficient, timely and safe response to the tropical storm. The economy in Florida continues to grow at a healthy pace And remains among the strongest in the nation.

Speaker 2

Florida's labor force participation rate has recovered to its highest level in nearly 18 months, reflecting the ongoing recovery following the onset of the COVID-nineteen pandemic last year. The real estate sector in Florida also continues to grow with a 3 month average new housing starts up over 40% year over year. In August alone, there were twice as many new housing starts in Florida than in the average over the last 10 years. Florida building permits, a leading indicator of residential new service accounts, are up 47% year over year and have outpaced the nation's quarterly growth by 32%. As another indicator of Florida's economic health, Florida's retail sales index is up nearly 60% versus the prior year.

Speaker 2

During the quarter, FPL's average number of customers increased by approximately 77,500 or 1.5% from the comparable year prior quarter, driven by continued solid underlying population growth. FPL's 3rd quarter retail sales decreased 1.4% from the prior year comparable period. A decline in weather related usage per customer of approximately 2.7% offset the benefits of customer growth. On a weather normalized basis, 3rd quarter sales increased 1.3% with continued strong underlying usage contributing favorably. For Gulf Power, the average number of customers grew 1.6% versus the comparable prior year quarter.

Speaker 2

And Gulf Power's 3rd quarter retail sales increased point 6 percent year over year with strong usage from increased customer growth contributing favorably. As a reminder, on March 12, we initiated Fluoropower and Light's 2021 base rate proceeding for rate relief beginning in January of 2022. After months of negotiation, we reached a proposed settlement agreement in early August with a number of interveners in the proceeding. The Office of Public Counsel, the Florida Retail Federation, the Florida Industrial Power Users Group, the Southern Alliance For Clean Energy, Vogt Solar, the Clio Institute and the Federal Executive Agencies all joined the agreement, reflecting a broad set of constituents across our customer base. The 4 year proposed agreement, which begins on January 2022, provides for retail base revenue adjustments as shown on the accompanying slide And allowed regulatory return on equity of 10.6 percent with a range of 9.7% to 11.7% And no change to FPL's equity ratio from investor sources for the combined system.

Speaker 2

Should the average 30 year U. S. Treasury yields The 2.49% or greater over any consecutive 6 month period during the term of the agreement, Florida Power and Light's allowed regulatory ROE would increase to 10.8 percent with a range of 9.8% to 11.8%. Additionally, If federal or state permanent corporate income tax changes become effective during the term of the proposed agreement, Florida Power and Light would be able to prospectively adjust base rates after review of the impacts on base revenue requirements. The proposed agreement also includes flexibility over the 4 year term To amortize up to $1,450,000,000 of depreciation reserve surplus.

Speaker 2

Consistent with the rate plan filed in March, The proposed settlement agreement would unify the rates and tariffs of FPL and Gulf Power by implementing a 5 year transition rider and credit mechanism to address the initial differences in cost of serving the existing FPL and Gulf Power customers. Additionally, the proposed settlement agreement also provides 4 solar based rate adjustments or SOBRA upon reaching commercial operations of up 28.94 Megawatts annually of new solar generation in each of 2024 2025, subject to a cost cap of $12.50 per meg per kilowatt and showing an overall cost effectiveness for FPL's customers. FPL would also be authorized to expand its SolarTogether voluntary community solar program by constructing an additional 1788 megawatts Solar generation through 2025, which would more than double the size of our current SolarTogether program and is expected to save our customers 1,000,000 of dollars over the lifetime of the assets. In addition to solar energy, the settlement agreement would support FPL's green hydrogen pilot project in Okeechobee County. This innovative technology could one day unlock 100% carbon free electricity that's available 24 hours a day.

Speaker 2

The proposed settlement agreement also introduces several electric vehicle programs and pilots designed to accelerate the growth of electric vehicle adoption And charging infrastructure investment across Florida with a total capital investment of more than $200,000,000 Under the proposed agreement, FPL would continue to recover prudently incurred storm costs consistent with the framework in the current settlement agreement. Future storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, But capped at an amount that could produce a surcharge of no more than $4 for every 1,000 kilowatt hour of usage on residential bills during the 1st 12 months Any additional costs would be eligible for recovery in subsequent years. If storm restoration costs were to exceed 800,000,000 In any given calendar year, FPL could request an increase to the $4 surcharge. We believe the proposed settlement is fair, balanced And constructive and supports our continued ability to provide highly reliable, low cost service for our customers through the end of the decade. FPL's typical residential bill is lower today than it was 15 years ago and is well below the national average.

Speaker 2

The proposed agreement would keep Typical residential bills well below the national average and among the lowest in Florida through 2025. Let me now turn to Energy Resources, which reported Q3 2021 GAAP losses of $428,000,000 or $0.22 per share. Adjusted earnings for the Q3 were $619,000,000 or $0.31 per share, which is an increase of $68,000,000 $0.03 per share, respectively year over year. The effect of mark to market on non qualifying hedges, which is excluded from adjusted earnings, was the primary driver of the difference between Resources' 3rd quarter GAAP and adjusted earnings results. Contributions from new investments added $0.03 per share relative to the prior year comparable quarter, Primarily reflecting continued growth in our contracted renewables and battery storage program.

Speaker 2

The contribution from existing generation assets increased $0.01 per share year over year. Our customer supply and trading business contribution was $0.02 higher year over year due to favorable market conditions in our retail supply and power marketing businesses. All other impacts decreased results by $0.03 per share versus 2020, driven primarily by miscellaneous tax items. As I mentioned earlier, Energy Resources Development team had a record quarter of origination success, adding approximately 2,160 megawatts to our backlog. Since our last earnings call, we have added approximately 12.40 megawatts of new wind projects, 5 15 Megawatts of new solar projects and 3 45 Megawatts of new storage assets to our renewables and storage backlog.

Speaker 2

In addition, our backlog increased by Energy Resources' share of NextEnergies Partners' planned acquisition of an approximately 100 Megawatt operating wind project that the partnership is announcing today. Through the 3 For the quarter of 2021, we have added more than 5,700 megawatts to our renewables and storage backlog. Energy Resources backlog of signed contracts Now stands at approximately 18,100 megawatts. At this early stage, we have made terrific progress towards our long term development expectations, with more than 7,600 megawatts of projects already in our post-twenty 22 backlog. Our backlog additions for the Q3 include a 500 Megawatt wind project, the majority of which is contracted with a hydrogen fuel cell company.

Speaker 2

The project's customer intends to construct a nearby hydrogen electrolyzer facility that will use the wind energy production to supply up to 100 percent of the facility's load requirements. The hydrogen manufactured by the facility would enable commercial and industrial end users to replace their current gray hydrogen and fossil fuel purchases with emissions free green hydrogen, further accelerating the decarbonization of the industrial and Energy Resources also add nearly 300 megawatts of battery storage projects in California, And we continue to experience significant demand from California based utilities and commercial and industrial customers for reliable energy storage solutions. We are currently developing nearly 2,400 megawatts of additional co located and standalone battery storage projects in California, With the potential to be deployed in 2023 2024 to enhance reliability and help meet the state's energy storage capacity requirements and ambitious clean energy goals. More than 30 years, we have been investing in clean energy in California and are proud to help the state lead the country to a carbon free sustainable future. Consistent with our focus on growing our rate regulated and long term During the Q3, Energy Resources entered into an agreement to acquire a portfolio of rate regulated water and wastewater utility assets in 8 counties near Houston, Texas.

Speaker 2

The proposed acquisition expands our regulated utility business in an attractive market with significant expected customer growth And furthers our strategy to build a world class water utility in the coming years. Subject to regulatory approvals, the acquisition is expected to close In 2022. Energy Resources is also currently in construction on an innovative water reuse and reclamation project that would help our customer achieve significant savings on its water supply needs and make its operations more efficient and sustainable,

Speaker 3

while

Speaker 2

at the same time delivering attractive returns to Energy Resources. While the roughly $45,000,000 total equity investment These transactions is small in context of our overall capital program. We are optimistic about the strong growth anticipated in this new market And the potential for clean water solutions to generate additional contracted renewables opportunities going forward. Turning now to the consolidated results for NextEra Energy. For the Q3 of 2021, GAAP net income attributable to NextEra Energy was $447,000,000 or $0.23 per share.

Speaker 2

NextEra Energy's 2021 Q3 adjusted earnings and adjusted EPS were 1.48 $1,000,000,000 $0.75 per share respectively. Adjusted results from Corporate and Other segment increased by $0.01 year over year. Our long term financial expectations through 2023 remain unchanged. For 2021, NextEra Energy expects Adjusted earnings per share to be in a range of $2.40 to $2.54 and we would be disappointed not to be at or near the high end of this range. While we are pleased with our year to date results, which have exceeded the top end of our growth rate expectations so far for the year, We expect the 4th quarter results to include impacts from certain liability management activities that we are currently reviewing to take advantage of the low interest rate environment.

Speaker 2

These initiatives could generate negative adjusted EPS impacts of as much as $0.08 to $0.10 in the 4th quarter before translating to favorable net income contributions in future years and an overall improvement in net present value for our shareholders. Looking further ahead for 20222023, NextEra Energy expects to grow 6% to 8% off of the expected 2021 adjusted earnings per share and we would be disappointed if we are not able to deliver financial results at or near The top end of these ranges in 20222023. Our earnings expectations are supported by what we believe is the most attractive organic investment opportunity set in our industry. From 2018 to 2023, we continue to expect That operating cash flow will grow roughly in line with our adjusted EPS compound annual growth rate range. We also continue to expect to grow our dividends per share at roughly 10% rate per year through at least 2022 off of a 2020 base.

Speaker 2

As always, Our expectations assume normal weather and operating conditions. Let me now turn to NextEra Energy Partners, which performed well And delivered 3rd quarter results generally in line with our expectations. Yesterday, the NextEra Energy Partners Board declared a quarterly distribution of $0.685 per common unit or $2.74 per common unit on an annualized basis, continuing our track record of growing distributions at the top end of our 12% to 15% per year growth range. Inclusive of this increase, NextEra Energy Partners has now grown its distribution per unit by more than 2 65% since the IPO. Nexa Energy Partners continues to execute against its growth initiatives during the quarter.

Speaker 2

Since the last earnings call, Nexa Energy Partners closed On its previously announced acquisitions of approximately 400 megawatts of operating wind projects from a third party and approximately 5.90 net megawatts of approximately 100 Megawatt operating wind asset in California from a third party to further expand NextEra Energy Partners portfolio And enhance its long term growth visibility. The project is located in a strategic market with strong expected growth in renewables demand, And it also offers significant optionality to NextEra Energy Partners in terms of operational savings and long term value creation. NextEra Energy Partners intends to purchase the asset for a total consideration of approximately $280,000,000 subject to closing adjustments, Which includes the assumption of approximately $150,000,000 in existing project finance debt estimated at the time of closing. NextEra Energy Partners expects to recapitalize this project finance debt in 2022 as it executes on its overall financing plan for the year. We expect to fund the approximately $130,000,000 balance at the purchase price using existing debt capacity.

Speaker 2

Subject to regulatory approvals, the acquisition is expected to close later this year or in 2022. Following the project debt pay down next year, the asset is expected to contribute adjusted EBITDA and unlevered cash available for distribution of approximately $22,000,000 to $27,000,000 each on a 5 year average run rate annual run rate basis beginning December 31, 2022. NextEra Energy Partners continues to leverage its competitive advantages to be successful in 3rd party M and A and extend its long runway of growth. Consistent with our long term growth prospects, today we are also introducing year end 2022 run rate expectations, which are built upon its strong existing portfolio cash generation and continued ability to access low cost capital to acquire accretive renewable energy projects. Overall, we are pleased with year to date execution at NextEnergy Partners, and we believe we are well positioned to continue delivering LP unitholder value going forward.

Speaker 2

Now let's look at the detailed results. 3rd quarter adjusted EBITDA was $334,000,000 up approximately 7% from the prior year comparable quarter due to growth in the underlying portfolio. New projects, Which primarily reflect the asset acquisitions that closed at the end of 2020 and the recently closed acquisition of 3 91 Megawatts of operating Wind assets from a 3rd party contributed $23,000,000 Existing assets contributed $7,000,000 primarily driven by the wind repowerings that occurred in the Q4 of last year and an improvement in wind resource. Wind resource for the Q3 was 101 percent of the long term average versus 96% in the Q3 of 2020. These favorable impacts were partially offset by lower solar resource in the Q3 of this year.

Speaker 2

Cash available for distribution of $158,000,000 for 3rd quarter declined by $4,000,000 versus the prior year, primarily as a result of lower year over year PAYGO payments after a weaker wind resource in the Q2 of this year. As a reminder, NextEra Energy Partners recapitalized its Genesis solar project and other existing assets at the end of last year And the impact of this new project level financing cost versus the prior year was offset by an associated reduction and corporate level interest expense as reflected in our other category. Additional details of our 3rd quarter results are shown on the accompanying slide. On a year to date basis versus 2020, adjusted EBITDA and cash available for distribution have increased by roughly 9% 6%, respectively. And NextEra Energy Partners remains well positioned to continue to deliver on its outstanding growth objectives.

Speaker 2

We continue to expect NextEra Energy Partners portfolio to support an annualized rate of Q4 2021 distribution that is payable in February of 2022 to be in a range of $2.76 to $2.83 per common unit. From a base of our Q4 2020 distribution per common unit at an annualized rate of $2.46 we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024. Nexstar Energy Partners continues to expect to be in the upper end of our previously disclosed year end 2021 run rate adjusted EBITDA And cash available for distribution expectation ranges of $1,440,000,000 to 1,620,000,000 And $600,000,000 to $680,000,000 respectively. We expect to achieve our 2022 distribution growth of 12% to 15%, while maintaining a trailing 12 month payout ratio in the low 80% range. By year end 2022, we expect the run rate for adjusted EBITDA to be in a range of $1,775,000,000 to 1,975,000,000 and run rate for cash available for distribution to be in the range of 6 $75,000,000 to $765,000,000 At the midpoints, these revised expectations ranges reflect Estimated growth in adjusted EBITDA and cash available for distribution of roughly 23% 13%, respectively, from the comparable year end 2021 run rate expectations.

Speaker 2

These growth rates are supported by our strong execution Against our long term growth objectives in 2021, including opportunistic third party transactions that were not previously in our plan. As a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR fees as we treat these as an operating expense. Finally, during the quarter, S and P updated its ratings methodology for NextEra Energy Partners. And in particular, it will now evaluate NextEra Energy Partners debt metrics On a funds from operations or FFO to debt basis with a downgrade threshold of 14% instead of a debt to EBITDA basis. We believe that the combination of S and P's updated methodology, its assessment of NextEra Energy Partners' improving diversity And its use of less conservative assumptions in the portfolio's renewable generation cash flows will allow for $700,000,000 more of financing flexibility relative to our previous assumptions, providing the partnership with even greater flexibility going forward to finance accretive acquisition for the benefits of our unitholders.

Speaker 2

In summary, we continue to believe That both NextEra Energy and NextEra Energy Partners have some of the best opportunity sets and execution track records in the industry, And we remain as enthusiastic as ever about our future prospects. That concludes our prepared remarks. And with that, we will open up the line for questions.

Operator

And our first question comes from Julien Dumoulin Smith from Bank of America. Please go ahead with your question.

Speaker 4

Hey, good morning team. Thank you for the time. I appreciate it. Impressive continued results here. Just if I can ask you at the outset here, can you perhaps describe how you see the backdrop here given the litany of different policy See efforts underway.

Speaker 4

Around the availability of panel imports and just how that positions your ability to execute right now. I certainly hear it Echoing through your comments, but I just want to speak to that a little bit more specifically if we can. And then subsequently on the origination side, obviously well done again. How do you think about just the elevated energy price backdrop that we're seeing today? How quickly is that fermenting Sort of a reinvigorated demand backdrop and when could that materialize as you think about the backdrop in the 'twenty three, 'twenty four backdrop or beyond?

Speaker 2

Thank you, Julie, and appreciate the questions and good morning. As you even prefaced in your set of questions, we're pretty Excited about the opportunities for both of the major businesses, both Florida Power and Light and Energy Resources. And specifically on the renewable side and Energy Resources, the team just had an awesome origination quarter, and that's kind of on the heels of other awesome origination quarters, going back now for quite some time, setting us up for tremendous growth in the coming years. So in terms of demand backdrop, to kind of answer the second question first, it's terrific. And we're really Excited about the value proposition of renewables looking forward, both in terms of being low cost and the ability To decarbonize both the electricity sector and other sectors as we've talked about.

Speaker 2

It's been an exciting 18 months For our integrated supply chain and engineering construction teams, lots of opportunities to navigate uncertainties, The likes of which we in the industry probably haven't seen in quite some time. And it's also in the midst of enormous growth for us, A record year of renewables deployment last year and another terrific capital deployment year this year. So both growth and opportunities To show what we can do. It's good to be us. And we've highlighted that in the past in the sense of being large in this industry, Having significant capital dollars to put to work enables us to have strong relationships and extensive relationships with those in the supply chain to help navigate these uncertainties.

Speaker 2

We feel good about our ability to navigate them. The plan does get iterated from time to time as the circumstances change, but we feel good about the long term view for renewables and our ability to deliver On our expectations.

Speaker 5

Hey, Jim. Good morning, Jim. Just the only thing I'd add is, I think people don't really appreciate The 10 year strip is up a buck since January. It's hugely positive for the Renewable business, Enormously positive, right?

Operator

Our next question comes from Steve Fleissman from Wolfe Research. Please go ahead with your question.

Speaker 6

Thanks and good morning. Just could you maybe just give the name of the who the counterparty is for the green hydrogen project?

Speaker 2

Yes, prefer not to, Steve. We're obviously really excited about the opportunity to supply them and provide this energy and we think it is a great start To the hydrogen economy, but we'll leave that discussion for a later date.

Speaker 6

Okay. And then just on the A different way to ask the supply chain question. Just within your obviously, you add a lot to your backlog. If you look at the existing backlog, did anything Move around meaningfully between years? Not meaningfully.

Speaker 6

I

Speaker 2

appreciate the question. No, nothing that I would consider to be meaningful at all. There's a couple of projects that moved out and a couple of projects that moved in, in terms of timeframes, but very much consistent with our expectations. And as I highlighted at a very high level in response to Julian's question, we feel good about our plans Of bringing in the projects we expect to bring into service in 2021 and have good line of sight for executing on the development plans thereafter.

Speaker 6

Okay. And then last question, just obviously have to ask about the DC and the Proposed clean energy credits and the reconciliation, etcetera, maybe just latest thoughts on What's most important to you and the likelihood and pass to passage, how you're feeling about it?

Speaker 5

So Steve, it's Jim. I would say that we remain cautiously optimistic That something happens on that front. I think I said earlier, if there is a reconciliation bill, I would be shocked If there isn't a long term extension of the credits embedded in that. And I think that's reasonably high odds if the Democrats can come to terms amongst themselves around what would be in the reconciliation bill and that's not an easy As we've seen play out over the last several weeks, that's not an easy that's not easy and there's obviously within that caucus A lot of varying views across the board. But I think so I remain cautiously optimistic that something happens there.

Speaker 5

And then If something happens there, we feel good about the fact that there'll be A long term extension of the credits and that there'll be support for other types of clean energy Such as hydrogen, a standalone storage, ITC, etcetera. So it would be very constructive for us. We think it's Important part of the decarbonization of the U. S. Economy to accelerate that.

Speaker 5

And I mean, we've increasingly, As we think about our own strategy going forward, we're increasingly thinking about ourselves as the company that's going to lead Not only the clean energy transformation of the electric grid, but really the clean energy transformation of the U. S. Economy and The decarbonization of the U. S. Economy, because the electric grid is going to be the key to decarbonizing the transport sector, it's going to be the key to decarbonizing The industrial sector and so we're really positioning ourselves to be the leader there and I feel very good about So both the policy tailwinds that we have as well as how our business is executing along those goals.

Speaker 6

And I'm sorry, just one follow-up. This wind project for green hydrogen, Does it depend on the hydrogen PTC passing or is it happen either way?

Speaker 2

No, it's a contract with Irrespective of any sort of subsequent policy changes.

Speaker 6

Great. Thank you very much.

Speaker 2

Thank you, Steve.

Operator

Our next question comes from Shahriar Pourreza from Guggenheim Partners. Please go ahead with your question.

Speaker 7

Hey, good morning guys.

Speaker 2

Good morning, Shar.

Speaker 7

Look, I just wanted to maybe just drill down a little bit more on the backlog there. Can you just maybe Talk a little bit about what you're seeing in terms of the higher input costs for projects. I mean, we've seen some headwinds from developers and manufacturers Recently on the labor, steel, transportation, etcetera. What do you and we're hearing some commercial and utility steel projects are being pushed out. What are you seeing are you seeing any impact to project economics, especially for the ones that are marginal?

Speaker 7

Is anyone kind of with signed contracts maybe bulking, especially if the PPA terms are somewhat flexible as we Think about when a shovel needs to be put in the ground. So you're not seeing it right now, but is there any inklings on potential projects Potentially being shifted out as buyers wait for some input cost relief?

Speaker 2

Shar, I'm not sure I'm following completely the question. Are you Whether or not there are other projects, not our projects, but other projects that might be experiencing those or are you asking for us because I wasn't sure who the buyers were in that in your question?

Speaker 7

Sorry, specifically for your projects?

Speaker 2

We are not having any anything notable from a buyer perspective. And from our customers' perspective, we have a contract and we are expecting to execute against what's laid out in those contracts. And from a supply chain standpoint, I think we're very well positioned to navigate these uncertainties. And as I highlighted, line of sight of bringing out Projects that we intend to bring in, in 2021 into service and have great plans for executing against our 2022 development program. And obviously beyond that, one, there's a lot still to be seen as to what those conditions will ultimately be, because now we're talking 2 plus years out.

Speaker 2

But great team and great position in the industry to be able to navigate those. From a customer standpoint, we're continuing to see strong demand for new renewables. I think that's obvious from the contract signings that we were able to announce today. And John and his team have terrific new backlog beyond that of opportunities that we have yet to sign. And the team is really Excited about being out in the field and talking with our customers.

Speaker 2

It is just a terrific Time for renewables in our industry.

Speaker 7

Got it. Thank you for that. Thanks for the elaboration. Maybe just quickly shifting to the regulated utility, just wondering also how much more headroom from incremental O and M efficiencies Do you still anticipate from the legacy golf asset? And how is that sort of headroom impacted from the recent run up in commodity costs, mainly natural gas, right?

Speaker 7

A bit of an efficiency and Bill had one question embedded there.

Speaker 2

Sure, Shar. And obviously, we continue to work diligently at now what's going to be FPL going forward, particularly assuming the settlement agreement is approved next week by the commission. Gulf will be fully incorporated into the broader FPL enterprise. It largely is today, but obviously from a regulatory standpoint operates Separately at least through the end of this year. We think there are continued opportunities to focus on optimization Across the businesses, that's part of what we do as a company is look for those opportunities to Take opportunities to bring efficiencies to the business and of course invest capital to take cost out and lower fuel costs over time.

Speaker 2

One of the great ways that, FPL and that includes Gulf as part of it, will be to continue to deploy solar over the long term. Because as you all well know, not only does it have the clean energy benefits, but it has low operating costs and no fuel costs, which will be a great Offset and diversification in the state of Florida from our existing generation set. So I think there's continued opportunities. There's Still a lot of work to be done. We focus hard on that every day and we think the team is all the cards in hand to be able to continue executing.

Speaker 7

Got it. So I guess just to not to paraphrase, but the recent jump in gas and obviously Jim highlighted the move in the forwards That shouldn't really impact sort of the bill headroom, just given the other leverage you have at the business?

Speaker 2

Yes. So Shar, I would think if you look back at where we have taken the opportunity to invest capital historically, It really is on bringing long term value to our customers. So being able to deliver lower costs over time, higher reliability, greater resilience, Greater diversification in those clean energy benefits. And it would be shortsighted to stop Investing in opportunities that are really clearly good for customers. We're very mindful of customer bills.

Speaker 2

You hear that from us From every day in all of our communications and it's what we focus on day to day is making sure we have a terrific value proposition for our customers And we will do everything we can to moderate those impacts over time.

Speaker 7

Terrific. Thank you very much. Appreciate it.

Speaker 2

Thank you.

Operator

Our next question comes from Michael Lapides from Goldman Sachs. Please go ahead with your question.

Speaker 8

I have 1 or 2 here. First of all, the water and wastewater utility system acquisitions in Texas, can you talk about just the Size and scale of the capital you're employing there for that. And then more long term kind of more strategic, how do you think about the opportunity For growth in that business, is it more organic? Is it more kind of continuing to roll up neighboring systems? Are you thinking about a national strategy here?

Speaker 2

Hey, Michael, and good morning and thanks for the question. We did include in the prepared remarks the comment about the $45,000,000 And that $45,000,000 includes both the acquisition of the regulated utility Assets as well as that innovative water reuse and reclamation project that we talked about it also at Energy Resources. So in terms of our capital program investing $15,000,000,000 a year and more over time, it's pretty small. But we referenced it for a good reason and that's because we're excited about the opportunities. I think it's a lot like transmission in the sense that it will be built Slowly over time and create opportunities for us to continue to have that regulated long term contracted base of value creation for shareholders.

Speaker 2

On the other part, the kind of innovative use And reclamation project that we talked about on the Energy Resources side. Those also bring clean energy renewable opportunities as we're able to bring this broad Suite of clean energy and ESG focused investment opportunities for our commercial and industrial customers That gives us the opportunity to have a deep relationship with them, not just bring one solution, but bring a portfolio of options to them. So we think it's a terrific opportunity for Energy Resources team To develop those meaningful relationships with our customers. So it's both an investment and a strategic opportunity from our perspective.

Speaker 8

Got it. And then one question on Seabrook. And I know in the grand scheme of NEAR's earnings power, Seabrook's, While it's a large plant, it's nowhere near the biggest contributor of that. But just curious, how should we think about how much you financially hedge Seabrook? I'm just thinking about given the move in forward power prices and Jim referenced the move in natural gas dollar increase in the strip.

Speaker 8

How we should think about whether Seabrook actually benefits from that materially or had you already significantly hedged it out prior?

Speaker 2

Yes. So we have an ongoing hedging program that we execute ratably over time executing a percentage of Seabrook's Forward generation. So I would characterize it as pretty well hedged in the next couple of years. And then as you get out into the latter Part of the 2020s and into the 2030s and beyond, less so. So obviously, it would benefit that If you mark to market that forward position, clearly there's been some upside with the increase in natural gas prices and some of the congestion you've seen in the Northeast in terms of Electricity prices.

Speaker 2

Whether that lasts in the long term, I think remains to be seen, but certainly an opportunity for Seabrook. We continue to believe Seabrook is very well placed. It is in a particularly advantageous load zone. It's obviously in a region that values Clean energy

Operator

deeply

Speaker 2

and you think about broad decarbonization in any part of the U. S, including the Northeast, Well positioned nuclear assets will be a key part of making it happen. So we very much appreciate the our nuclear team and think they do a terrific job every day And Seabrook is a key part of that.

Speaker 8

Got it. Thank you. Much appreciated.

Speaker 2

Thank you, Michael.

Operator

Our next question comes from Maheep Badri Mawr Madhavloy from Credit Suisse. Please go ahead with your question.

Speaker 3

Hey, thanks for taking my question. 2 on NEP actually. So one on the multiple for the acquisition comes out around 11 times EBITDA Was it the 9 times we saw for the prior 2 acquisitions or drop downs? Just wanted to understand, is that the new normal you're seeing For asset acquisitions or anything specific to these projects? And just second one on the 2022 CAFD walk, Just want to confirm if it includes any repayment for the 1st BlackRock CEPF closed in 2018?

Speaker 3

Thanks.

Speaker 2

So I'll come back to the second question. In terms of the transaction, as we highlighted, it was a 3rd party transaction. So it reflects a negotiated outcome. And we continue to believe that the renewable sector remains of high interest for a lot of folks And expect it to be competitive over time. But I think you can see with this transaction and with a prior third party transaction that we announced and closed earlier this year, there are some specific advantages that NextEnergies Partners has, both in its Ability to find attractive financing, but also the relationship it has with NextEra Energy Resources Of being able to add value on the operating side and bring to bear all of the scale benefits that we have.

Speaker 2

So in terms of the second part of the question, I think you were asking about the 2018 SEPIF And ultimately the conversion that will happen in the very latter part of this year. And we're still obviously some Significant part of that gets converted up to 70% of it in net units and the balance is paid in cash And we are still working through what the full impacts are and how we will finance that over time. But As we've laid out in terms of our run rate expectations, we will expect that year end 2022 to be in the ranges they may outline today.

Speaker 3

Got it enough. Thanks for taking the questions.

Speaker 2

Thank you.

Operator

Our next question comes from Durgesh Chopra from Evercore ISI. Please go ahead with your question.

Speaker 9

Hey, good morning team. Thank you for taking my question. I just wanted to go back to the water utility acquisition strategy a bit. Obviously, this is in Texas, but There's obviously a ton of small municipal systems across the country, which are sort of owned by small mom and pop type Facilities, just are you going to sort of be more aggressive throughout the country or there's something specific about Texas As we think about you sort of competing for these small water utility systems?

Speaker 2

Yes, I think it's a great As we've highlighted, I highlighted obviously in the prepared remarks and Jim has highlighted elsewhere in recent months, we're really excited about building A significant presence in the water business. And we think there's a lot of skills and capabilities and of course the broad platform we have That we could bring real value in these acquisitions. But as you highlighted, they tend to be very small And whether they're privately owned or owned by municipalities, almost irregardless of the ownership structure, they tend to be small. Even the one I talked about today is incorporated with something else and it totals up $45,000,000 in context of our $15,000,000,000 capital program. So I expect this to be active.

Speaker 2

There's probably some regions of the U. S. Where the team in the near term will be more active than others for a variety of reasons. But it's probably not exclusively Texas and it will build over time and we'll let you know as the team continues to have success.

Speaker 9

Understood. Thank you for the time.

Speaker 2

Thank you.

Operator

Our next question comes from Jeremy Tonet from JPMorgan. Please go ahead with your

Speaker 10

Hi, good morning. Good morning. Thanks. Just wanted to pivot back to hydrogen for a minute if we could here. And just wanted to see on what timeline do you see green hydrogen being competitive?

Speaker 10

And how much money is need currently spending on hydrogen in Hydrogen projects and where could that ramp to over time?

Speaker 2

I think it's a great question. I think in the electricity sector When it's going to be particularly relevant is the latter part of the 2020s into 2030s and beyond. And for the key reason of for that being that you really need to have the need for long duration storage And it is particularly attractive when you have very, very low cost energy input and particularly low cost renewables, which We'll inevitably have when you have substantial renewable deployment, again, probably in the latter part of the 2020s and beyond. What may be different is in the transportation and industrial sector, where there is already built in use of gray hydrogen and other fossil fuels that could Be supplanted with green hydrogen when it's competitive. The big question mark would be whether or not there's a hydrogen production Credit ultimately in the final reconciliation bill.

Speaker 2

Clearly, there's one anticipated today and at $3 a kilogram production tax Credit. That really closes the gap between gray hydrogen and green hydrogen alternatives. And so that's a terrific opportunity to see growth in the nearer term. And what that would represent is using green hydrogen alternatives To supplant gray hydrogen. From our perspective, that's opportunities clearly to build a lot of renewables.

Speaker 2

And you saw the first step In that direction in our announcement today about a power purchase agreement that we've entered into. But there would be a lot more like That and not just the renewable side, but also an opportunity for us to invest in the actual hydrogen production equipment such as the electrolyzer. So we'll see. We'll know a lot more in January once we've seen the final package, if there is one, as Jim highlighted. And it will develop over time in terms of opportunities.

Speaker 2

We think it's exceptionally likely. It's really just a matter of timing.

Speaker 10

Got it. That's very helpful. And then maybe just pivoting over real quick towards transmission, obviously, to optimize and maximize renewables deployment for the country. Transmission build out is a key ingredient there, yet it's as you well know, it's difficult and timely to complete, just wondering, I guess, your latest thoughts on what expectations you might have for transmission build out and what role MEA could play there?

Speaker 2

Yes, we're really excited about transmission opportunities. Our NextEra Energy Transmission team has built a terrific business over the last decade with The number of organic wins as well as some acquisitions as we've talked about in the past of not only Transbay Cable, but Gridlines more recently. And we see a ton of opportunities going forward for us to be successful in winning some of those big opportunities to invest, realizing great returns, But also the strategic side of it, of ensuring that it happens, so that we can continue to realize the substantial renewables build out That we already are seeing and we expect to only continue to grow in this opportunity size over time. It may not be imperative today To have new transmission, but it's really, really important to start today because it will be imperative in the next decade. And some of the policy considerations That Sark is undertaking today could be helpful to bringing that to reality over time.

Speaker 2

Great.

Speaker 10

Thank you so much for the color.

Speaker 2

Great. Thank you.

Operator

And ladies and gentlemen, that will conclude today's question and answer session as well as Today's conference call. We do thank you for attending the presentation. You may now disconnect your lines.

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Earnings Conference Call
NextEra Energy Q3 2021
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