NextEra Energy Q2 2022 Earnings Call Transcript

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Provided by Quartr
July 21, 2022

Key Takeaways

  • NextEra Energy achieved ~14% YoY growth in Q2 adjusted EPS, with FPL’s earnings rising by $0.05 to $0.50 per share, driven by an 11% increase in regulatory capital and the on-time, on-budget commissioning of the 1.2 GW Dania Beach Clean Energy Center.
  • FPL plans to convert 16 GW of its gas fleet to green hydrogen by 2045 and filed a $1 B Storm Protection Plan to harden its grid, supporting its goal of real zero carbon emissions and enhanced resilience for 5.8 M customer accounts.
  • NextEra Energy Resources increased adjusted EPS by $0.06 to $0.35, added ~2,035 MW to its renewables and storage backlog (including 1,200 MW of solar), and now targets building 28–37 GW of renewables and storage projects from 2022–2025.
  • NextEra Energy Partners delivered a 43% YoY jump in adjusted EBITDA and 37% growth in cash available for distribution, raised its quarterly distribution 15% to $0.765, and restructured IDRs to cap fees at $157 M per year.
  • NextEra Energy reaffirmed its 2022–2025 adjusted EPS outlook (2022: $2.80–$2.90; 2023: $2.98–$3.13; 2024: $3.23–$3.43; 2025: ~6–8% growth) plans $85–$95 B of new capital investments, and aims for a 10% average annual dividend growth rate through 2024.
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Earnings Conference Call
NextEra Energy Q2 2022
00:00 / 00:00

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Operator

Good morning everyone, and welcome to the NextEra Energy and NextEra Energy Partners Q2 2022 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that today's event is being recorded. At this time, I'd like to turn the conference call over to Jessica Geoffroy, Director of Investor Relations. Ma'am, please go ahead.

Jessica Geoffroy
Jessica Geoffroy
Director of Investor Relations at NextEra Energy

Thank you, Jamie. Good morning, everyone, and thank you for joining our second quarter 2022 combined earnings conference call for NextEra Energy and NextEra Energy Partners. With me this morning are John Ketchum, President and Chief Executive Officer of NextEra Energy, Kirk Crews, Executive Vice President and Chief Financial Officer of NextEra Energy, Rebecca Kujawa, President and Chief Executive Officer of NextEra Energy Resources, and Mark Hickson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners, as well as Eric Silagy, Chairman, President, and Chief Executive Officer of Florida Power & Light Company. Kirk 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.

Jessica Geoffroy
Jessica Geoffroy
Director of Investor Relations at NextEra Energy

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.com and nexteraenergypartners.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.

Jessica Geoffroy
Jessica Geoffroy
Director of Investor Relations at NextEra Energy

As a reminder, Florida Power & Light completed the regulatory integration of Gulf Power under its 2021 base rate settlement agreement and began serving customers under unified rates on January 1, 2022. As a result, Gulf Power will no longer continue as a separate reporting segment within Florida Power & Light and NextEra Energy. For 2022 and beyond, FPL has one reporting segment and therefore 2021 financial results and other operational metrics have been restated for comparative purposes. With that, I will turn the call over to Kirk.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Thank you, Jessica, and good morning, everyone. NextEra Energy delivered strong second quarter results and is well-positioned to meet its overall objectives for the year. Adjusted earnings per share increased approximately 14% year-over-year, reflecting continued strong financial and operational performance at both FPL and Energy Resources. FPL increased earnings per share by $0.05 year-over-year. Average regulatory capital employed increased by more than 11% versus the same quarter last year. With residential bills well below the national average and the lowest among all of the Florida investor-owned utilities, FPL's focus continues to be on identifying smart capital investments, such as our planned solar expansion and T&D hardening and undergrounding projects to lower costs, improve reliability, and provide clean energy for the benefit of our customers.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Having saved customers more than $12 billion in fuel costs since 2001, and with the largest owned and operated solar portfolio of any utility in the country, FPL is well-positioned to execute on its goal of achieving Real Zero carbon emissions by no later than 2045, which we announced last month at our investor conference, while continuing to deliver its best-in-class customer value proposition. At Energy Resources, adjusted earnings per share increased by $0.06 year-over-year. We continue to capitalize on a strong environment for renewables development, adding approximately 2,035 net MW to Energy Resources backlog since the last call. Included in these backlog additions is approximately 1,200 net MW of solar projects, which is the second-largest quarter of solar origination in our history.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

As we highlighted at our investor conference last month, we believe that a number of powerful tailwinds support continued strong renewables demand, particularly in the context of high power prices and high gas prices that are helping to make renewables the most economic form of generation. We expect these economic value drivers for new renewables, coupled with Energy Resources' significant competitive advantages, to translate into a tremendous opportunity set as we deliver clean energy solutions to our customers seeking to both lower their energy bills and reduce their carbon emissions. We are pleased with the progress we have made at NextEra Energy so far in 2022 and heading into the second half of the year. We are well positioned to achieve the full year financial expectations that we have previously discussed, subject to our usual caveats. Now, let's look at the detailed results, beginning with FPL.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

For the second quarter of 2022, FPL reported net income of $989 million or $0.50 per share, which is an increase of $107 million and $0.05 per share, respectively, year-over-year. Regulatory capital employed increased by approximately 11.4% over the same quarter last year and was a principal driver of FPL's net income growth of approximately 12%. FPL's capital expenditures were approximately $1.9 billion in the second quarter, and we expect our full year capital investments to total roughly $8.5 billion. FPL's reported ROE for regulatory purposes is expected to be approximately 11.6% for the 12 months ended June 2022.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Largely as a result of warm weather during the second quarter, we reversed roughly $44 million of reserve amortization recorded earlier in the year, leaving FPL with a balance of approximately $1.37 billion to use over the term of the current settlement agreement. During the quarter, FPL successfully commissioned the highly efficient, roughly 1,200 MW Dania Beach Clean Energy Center. The approximately $900 million project, which was completed on time and on budget, is expected to generate nearly $350 million in net cost savings for FPL customers while reducing carbon emissions by roughly 70% compared to the previous Lauderdale plant.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Longer term, we expect to convert approximately 16 GW of our highly efficient gas fleet to run on green hydrogen, which will play an important role in the decarbonization of FPL's generation fleet as part of our goal to achieve Real Zero carbon emissions by no later than 2045. Last week, FPL also placed in service the North Florida Resiliency Connection transmission line, which physically connects the FPL grid and the Legacy Gulf Power grid. The new transmission line is expected to generate operational efficiencies and allow customers to benefit from both enhanced reliability and additional low-cost solar generation. FPL also filed its updated Storm Protection Plan, which is filed every three years. The plan provides details on the billions of dollars of capital investment anticipated over the next 10 years to continue hardening FPL's energy grid for the benefit of customers.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

These hardening programs, several of which have been in progress since 2007, collectively provide increased resiliency and faster restoration times for FPL's approximately 5.8 million customer accounts when severe weather, including hurricanes, inevitably affects our service territory. The Florida economy remains strong. Florida's unemployment rate of approximately 3% remains below the national average, and its labor force participation rate remains strong. The three-month moving average for new housing permits is up nearly 9% year-over-year, outpacing the national rate by roughly 7%. FPL's new service accounts increased more than 15% year-over-year, demonstrating continued strong growth in Florida's economy.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

FPL's average number of customers increased by more than 87,000 or 1.5% versus the comparable prior year quarter, driven by continued strong underlying population growth as Florida's population continues to increase at one of the fastest rates in the nation. FPL's second quarter retail sales increased 3.2% from the prior year comparable period, driven primarily by a favorable weather comparison. On a weather-normalized basis, second quarter retail sales increased 1.3%, with strong continued customer growth contributing favorably. Energy Resources reported second quarter 2022 GAAP earnings of $133 million, or $0.07 per share. Adjusted earnings for the second quarter were $683 million or $0.35 per share.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

The difference between Energy Resources' second quarter GAAP and adjusted earnings results is primarily the effect of the mark-to-market on non-qualifying hedges, which is excluded from adjusted earnings. Contributions from new investments were roughly flat versus the prior year, driven by the timing of new solar and storage project additions. For the full year 2022, we anticipate the majority of our growth in new investments to occur in the fourth quarter. Our existing generation and storage assets added $0.03 per share, primarily due to favorable wind resource during the second quarter. The second quarter adjusted earnings contributions from our customer supply and trading business increased by $0.02 year-over-year, driven primarily by the absence of Winter Storm Uri impacts that negatively impacted adjusted earnings in the second quarter of last year. All other impacts increased results by $0.01 versus 2021.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

As I mentioned earlier, Energy Resources had another strong quarter of origination, adding approximately 2,035 net MW of renewables and storage projects to our backlog, which is the third-largest quarter of renewables and storage origination in our history. Since our last earnings call, we have added approximately 815 net MW of new wind, 1,200 net MW of solar, and 20 net MW of battery storage to our backlog. With these additions, net of projects placed in service, our renewables and storage backlog now stands at approximately 19,600 MW and provides terrific visibility into the strong growth that is expected at Energy Resources over the next few years. We remain confident in our long-term development expectations at Energy Resources, which we increased and extended last month.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

From 2022 through the end of 2025, Energy Resources expects to build roughly 28 GW-37 GW of renewables and storage projects. To put these numbers in context, this expected renewables and storage build at the midpoint is approximately 30% larger than the entire renewables operating portfolio at Energy Resources today. We were pleased that the Biden administration made the decision last month to direct the Department of Commerce to waive additional duties for two years on solar panels imported from Malaysia, Thailand, Cambodia, and Vietnam. The 24-month timeframe is particularly important, as by the end of that period, we expect our suppliers to be making ingots and wafers outside of China. As a reminder, the Department of Commerce staff already publicly stated that panels with wafers made outside of China are not subject to its investigation.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

The actions by the Biden administration have provided much-needed clarity to our suppliers to resume solar module production, recommence shipping of solar panels, and for Energy Resources to restart its solar construction projects that have been halted due to the circumvention investigation. These new developments since our last call reinforce our confidence in both our near-term and long-term development expectations at Energy Resources. The accompanying slide provides additional details on where our development program at Energy Resources now stands. Beyond renewables and storage, during the quarter, NextEra Water entered into an agreement to purchase a rate-regulated Pennsylvania wastewater system for approximately $115 million. Subject to regulatory approvals and other customary closing conditions, we anticipate this transaction will close in mid-2023.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Additionally, last week, NextEra Water closed on its previously announced acquisition of a portfolio of rate-regulated water and wastewater utility assets in Texas. These strategic investments should allow us to leverage our world-class operating platform to unlock value for both customers and our shareholders as we explore potential opportunities in the regulated water utility business. At NextEra Energy Transmission, we commissioned the Empire State Transmission Line earlier this month. This project is an excellent complement to our existing operations and further expands NextEra Energy's regulated business mix through the addition of attractive rate-regulated assets to our portfolio. It is expected to improve system reliability and deliver much-needed zero carbon emissions generation to New Yorkers while supporting the state's goals to decarbonize its grid. So far in 2022, NextEra Energy Transmission has completed roughly $500 million of greenfield transmission projects.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

The addition of high-quality transmission projects, such as the East-West Tie and the Empire State Transmission Line, furthers our strategy to be North America's leading competitive transmission provider, both to accretively deploy capital as well as to enable further renewables development. Turning now to the consolidated results for NextEra Energy. For the second quarter of 2022, GAAP net income attributable to NextEra Energy was $1.3 billion, or $0.70 per share. NextEra Energy's 2022 second quarter adjusted earnings and adjusted EPS were roughly $1.6 billion and $0.81 per share, respectively. Adjusted results from the corporate and other segment decreased by $0.01 year-over-year. At our investor conference, we highlighted roughly $400 million in run-rate efficiencies identified through Project Velocity that we expect to be recognized over the next few years.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

This represents the largest identified cost savings in the history of our company-wide productivity initiatives. In connection with Project Velocity, during the second quarter, we recorded transition costs of approximately $52 million pre-tax, of which $40 million was recorded at FPL and offset with the utilization of reserve amortization. The balance was recorded at Energy Resources and reduced adjusted EPS by roughly $0.01 per share. Our long-term financial expectations through 2025, which we increased last month at our investor conference, remain unchanged. For 2022, NextEra Energy expects adjusted earnings per share to be in a range of $2.80-$2.90.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

For 2023 and 2024, NextEra Energy expects adjusted earnings per share to be in the ranges of $2.98-$3.13 and $3.23-$3.43, respectively. For 2025, we expect to grow 6%-8% off the 2024 adjusted earnings per share range, which translates to a range of $3.45-$3.70. We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges in 2022, 2023, 2024, and 2025, while at the same time maintaining our strong balance sheet and credit ratings.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Inclusive of the increases in our expectations in both January and June of this year, NextEra Energy's adjusted earnings per share expectations reflect a roughly 10% compound annual growth rate from 2021 to the high end of our range for 2025. Based upon the clear visibility into meaningful organic growth prospects across all of our businesses, we also remain confident in our near-term capital plan to deploy approximately $85 billion-$95 billion into new investments from 2022 through 2025. In addition, from 2021 to 2025, we continue to expect that our average annual growth in operating cash flow will be at or above our adjusted EPS compound annual growth rate range. We also continue to expect to grow our dividends per share at a roughly 10% rate per year through at least 2024 off a 2022 base.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

As always, our expectations assume normal weather and operating conditions. As a reminder, Energy Resources development expectations and NextEra Energy's financial expectations through 2025 do not assume any change in current tax law. We continue to see strong market demand for renewables, especially in light of the environment of high gas and power prices that we believe will persist going forward. Renewables are not just the most economic form of generation, they are deflationary and counter-cyclical. Renewables support energy independence, help stimulate economic growth, including domestic job creation. Renewables offer low-cost energy to help customers reduce their bills, and demand is being driven by a number of factors, as we discussed at our June investor conference.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

We continue to believe that NextEra Energy is better positioned than any other company in our industry to capitalize on these market conditions and deliver low-cost renewables and storage to our customers at both FPL and Energy Resources. Let me now turn to NextEra Energy Partners, which delivered outstanding operational and financial performance for the quarter. Second quarter adjusted EBITDA and cash available for distribution were up approximately 43% and 37%, respectively, against the prior year comparable quarter. Yesterday, the NextEra Energy Partners board declared a quarterly distribution of $0.7625 per common unit or $3.05 per common unit on an annualized basis, up approximately 15% from a year earlier. Inclusive of this increase, NextEra Energy Partners has now grown its distribution per unit by more than 300% since the IPO.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Last month at our investor conference, NextEra Energy Partners announced a modification to incentive distribution rights fees or IDRs with NextEra Energy. The announced modification flattens IDR payments at $157 million annually based on a minimum annualized distribution rate of $3.05 per common unit. This modified IDR structure will be effective beginning in the third quarter of this year. We expect both NextEra Energy Partners unit holders and NextEra Energy shareholders to benefit from the IDR modification. NextEra Energy Partners will need fewer asset additions to achieve its growth objectives with reduced equity needs, among other benefits. NextEra Energy expects to benefit from the potential increased value in its investment in NextEra Energy Partners, while retaining an attractive incentive distribution fee stream, as well as the ability to continue to recycle significant capital through NextEra Energy Partners.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Putting it all together, these benefits are expected to provide a longer runway of LP distribution growth and support NextEra Energy Partners' best-in-class distribution per unit growth expectations that we extended last month. NextEra Energy Partners also completed multiple financings during the second quarter to further enhance its financing flexibility. In May, NextEra Energy Partners increased the size of its revolving credit facility by approximately $1.25 billion, for a total of $2.5 billion in capacity, which is consistent with NextEra Energy Partners' growth since the facility was last upsized in 2019. The facility was approximately 1.6 times oversubscribed, which we believe demonstrates the strong credit quality of the NextEra Energy Partners portfolio, as well as the market confidence in NextEra Energy Partners' growth outlook.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Additionally, NextEra Energy Partners drew the approximately $410 million of remaining funds from its 2021 convertible equity portfolio financing. The strong demand for both the private investor and lending communities to provide NextEra Energy Partners with liquidity for growth demonstrates the partnership's continued ability to raise capital at attractive terms. With another strong origination quarter at Energy Resources, NextEra Energy Partners' growth visibility is as strong as ever, and we remain on track to deliver on our best-in-class 12%-15% annual distribution per unit growth expectations, which we extended through 2025 last month at our investor conference. Finally, last week, S&P favorably revised NextEra Energy Partners' business risk profile upward from satisfactory to strong to reflect its positive outlook on the partnership's continued growth and portfolio diversification while maintaining highly contracted revenue streams with highly rated counterparties.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

S&P also affirmed all of its ratings for NextEra Energy Partners and lowered its downgrade threshold for its funds from operations, or FFO, to debt metric from the previous level of 14% to the current level of 12%. We believe these favorable adjustments reflect the strength of NextEra Energy Partners' business and the stable cash flow generation profile of its portfolio. Turning to the detailed results, NextEra Energy Partners' second quarter adjusted EBITDA was $500 million, and cash available for distribution was $207 million. New projects, which primarily reflect contributions from the approximately 2,400 net MW of new long-term contracted renewable projects acquired in 2021, contributed approximately $106 million of adjusted EBITDA and $41 million of cash available for distribution.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Existing projects added roughly $51 million of adjusted EBITDA and $26 million of cash available for distribution in the second quarter, driven primarily by favorable wind resource. Wind resource for the second quarter of 2022 was approximately 112% of the long-term average, versus 93% in the second quarter of 2021. Additional details of our second quarter results are shown on the accompanying slide. NextEra Energy Partners' run rate adjusted EBITDA and cash available for distribution expectations for the forecasted portfolio at year-end 2022, which we increased last month at our investor conference, remain unchanged.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

NextEra Energy Partners continues to expect year-end 2022 run rate adjusted EBITDA and cash available for distribution in the ranges of $1.785 billion-$1.985 billion and $685 million-$775 million, respectively, reflecting calendar year 2023 contributions from the forecasted portfolio at the end of 2022. As a reminder, all of our expectations are subject to our normal caveat and include the impact of anticipated IDR fees as we treat these as an operating expense. From a base of our fourth quarter 2021 distribution per common unit at an annualized rate of $2.83, we continue to see 12%-15% growth per year in LP distributions per unit as being a reasonable range of expectations through at least 2025.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

We expect the annualized rate of the fourth quarter 2022 distribution that is payable in February of 2023 to be in the range of $3.17-$3.25 per common unit. Additional details of our long-term distribution per unit expectations are shown on the accompanying slide. In summary, we remain as enthusiastic as ever about the long-term growth prospects at both NextEra Energy and NextEra Energy Partners. At FPL, that means continuing to deliver our best-in-class customer value proposition of low bills, high reliability, and outstanding customer service. It also means pursuing our industry-leading Real Zero carbon emissions goal, which we detailed at our investor conference and in our Zero Carbon Blueprint to decarbonize FPL's operations by no later than 2045.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

At NextEra Energy Resources, we believe that our best-in-class development and operating platform will allow us to maintain our leadership position as we help both power and non-power sector customers save on energy costs and decarbonize operations with the adoption of new renewables and various forms of energy storage. We expect NextEra Energy Partners to benefit greatly from the significant growth in renewables deployment across the United States, which presents terrific opportunities for acquisitions, both from NextEra Energy Resources and from third parties. That concludes our prepared remarks. With that, we will open the line for questions.

Operator

Ladies and gentlemen, at this time, we'll begin the question and answer session. To ask a question, you may press star and then one using a touch-tone telephone. If you are using a speakerphone, we do ask that you please pick up the handset prior to pressing the keys to ensure the best sound quality. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. Our first question today comes from Steve Fleishman from Wolfe Research. Please go ahead with your question.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Great, thanks. I guess a couple questions. Just a technical one on the new backlog additions. Could you give us some sense kind of what periods the 2 GW were? Is it mainly 2022, 2023, or 2024, 2025?

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Sure. Good morning, Steve. Thank you for the question. In terms of the new additions that we announced this morning, the wind is sort of split evenly between 2023 and then the 2024 and 2025 time period. For solar, the majority of that is in the 2024 and 2025 time period.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Great. Second question. I know that your plans do not include any BBB or any extension in tax credits at all, but would be curious of just your thoughts on chances for that to happen in tax extenders or kind of separately, what the Biden administration might do on renewables with respect to just the, you know, executive actions and/or through the EPA.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

Sure. Steve, this is John. I'll go ahead and take that. Like you said, it's not included in our development or financial expectations. If it happens, great. Our expectations through 2025, as Kirk said in the prepared remarks, assume current tax law. Our view is that renewables are going to continue to get cheaper and cheaper over time. Gas generation, you know, which is what we primarily compete against, for new renewables, on the other hand, continues to get more expensive. We laid that case out, I think, in detail, at the June investor conference. When I think about gas prices today, we think they're going to remain elevated over a long period of time. I just think there's a lot of headwinds that gas prices are facing today. One of them is obviously the lack of pipeline infrastructure.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

We see significant demand for LNG export in Western Europe. There really is no gas to coal switching anymore, which used to put a cap on gas prices and would limit gas demand during scarcity events. I think for all those reasons, we're gonna continue to see upward pressure on gas prices. That, you know, when I look at our success this quarter, you know, at over 2 GW, for customers, they're looking at that. They're looking at that, and they know that they have significant affordability issues that they are trying to address, and they're really trying to identify anything they can to hedge natural gas prices and natural gas price volatility in the bill. That is creating a ton of demand for renewables. Like I said, I don't see that really changing over time.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

I think we're gonna be in a long-term period of heightened natural gas prices, which is really just terrific for renewables, creates a ton of demand. On your questions on the views around what the options are for tax reform, first of all, you know, I think reconciliation is somewhat unlikely, obviously, given the positions that have been taken over the last week or so. Our focus really is on extenders and more importantly on executive actions. Let me take those in order. The first on extenders. Extenders could happen. There are things on both sides of the aisle that they will want at the end of the year.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

I mean, when you think about the things that are important to Republicans, and I think, Senator Grassley put a statement out a couple of days ago saying that you know, all 25 or 26 extenders hinge on the full R&D expense deduction. That is gonna be something that's gonna be front and center, I think, on the Republican wish list, is getting that done. Because I think as most folks know that R&D full expensing was eliminated at the end of 2021, and it gets amortized now over five years. They wanna see that extended. We have the interest deductibility limitation, which converts from EBITDA to EBIT at the end of 2022. Bonus depreciation starts to scale down.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

Those are all things that could really drive economic growth, and I think will be high on the list and things that we may be able to trade for an extension on renewable credits. While we're not counting on it, you know, we will continue to do everything we can around extenders to try to support extension of tax credits for renewables. I think executive action, particularly given the statements that were made by the president at the end of last week, there are definitely some things that we can do there. We will continue to work it. We have a number of ideas on our list that we are pursuing at different levels.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

I'd like to just leave it at that on the executive branch activity, but feel somewhat optimistic about our ability to get some exciting things done there.

Steve Fleishman
Steve Fleishman
Managing Director and Senior Analyst at Wolfe Research

Okay, great. I'll let others ask questions. Thank you.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

Thanks, Steve.

Operator

Our next question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead with your question.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Hey, good morning, team. Thanks for the time. Maybe just to follow up from Steve's last question. Focus here on origination near record in the second quarter here. How are you thinking about the back half of the year? Clearly, to a certain extent, you would think that there would be some hesitancy from customers given the uncertainty on BBB. Considering that maybe those expectations have withered at this point, does that actually mean customers are now sort of in gear to make moves? Could we actually see a further acceleration of origination in the back half of the year, if you follow what I'm saying?

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Julien, it's Rebecca. I'll take that question. You know, the team is doing a terrific job with ongoing conversations with customers. But as we've highlighted, you know, really since, you know, for a very long period of time and consistently even since the start of the year when we've been talking a lot more about disruption across the industry, interest from customers remains really robust. And that was throughout even the uncertainty around circumvention at the height of it, even around solar. And it really goes back to the heart of what Kirk said in the prepared remarks and what John just commented on a minute or two ago in response to one of Steve's questions.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Our customers are acutely aware of the value of renewables in their portfolio from an economic standpoint, both in the pure sense of being low cost, but also in the sense of being a terrific offset to inflationary concerns about other forms of generation in their portfolio. Then on top of that, they have various commitments that they've talked to their own stakeholders about deploying renewables and reducing carbon in their portfolio. I think there's this underlying current of demand that has been far less affected than you might think by the headlines in our conversations about what's going on in the industry. I would say the fundamentals are terrific. As you can see from our origination, I always caution you all not to look at a single quarter in isolation.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Keep looking at multiple quarters over time, and you can see really strong demand for both wind and solar and battery storage throughout the portfolio. I'm thrilled with our conversations with our customers. I'm thrilled with the execution of the team, and remain as excited as I've ever been about the prospects for us continuing to execute and delivering new renewables.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Yeah. It sounds more consistent, as you say. And then just to, this might seem more of a check the box, but just to clarify this, I mean, we've seen some concerns out there on the cost side of late and just UFLPA, et cetera. I mean, I know there's some concerns, and perhaps this is more of a review process as a few things are held up here. But I just want to turn back to your prepared comments, et cetera. It sounds like this is not substantively a concern for you guys, at least per your own contracting activities.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

You know, Julien, we continue to work through supply chain. Of course, you know all the headlines as well as anybody on circumvention. For WRO and the Uyghur Forced Labor Prevention Act, obviously we have, for WRO, some history already under our belt for us and for the industry. For the UFLPA implementing regulations, we now have some time in place for those, and our conversations with our suppliers remain really constructive. So you know, we're gonna constantly be vigilant, as are our suppliers, but we continue to see a constructive path forward on being able to put projects in service over time.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

Yeah. The only thing that I would add to what Rebecca just said, Julian, is, you know, none of our suppliers are on the import ban list. None of our panels have been detained. I think, as Rebecca said, the process that will be followed will be much like the WRO, which our suppliers are well-versed in dealing with. There will be a little bit of due diligence on, "Hey, where did these panels come from? What's the traceability?" Just like we've seen with WRO. We believe it's all very manageable.

Julien Dumoulin-Smith
Julien Dumoulin-Smith
Senior Research Analyst at Bank of America

Okay, excellent. I'll leave it there. Thanks.

Operator

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

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Hey, good morning, guys.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Morning, Shar.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Just what's the threshold for removing the language around the 2 GW of projects that you noted in the footnotes that could still be at risk? I mean, can you maybe just elaborate on how the discussions are going with customers? Just given that you've been in discussions for some time, where are you sort of trending as we're thinking about the 1-2 gigawatt cancellation range that you sort of highlighted at the Analyst Day, and can we end up with no cancellations? I guess, when can we get an update there?

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Hey, Shar. It's Rebecca. I'll take that question as well. You know, our conversations, I would say, are across the board, very constructive. I think throughout this process, we've been very transparent, obviously with you all in our conversations that we highlighted at the investor conference. But at least as importantly and perhaps more so from my perspective, very transparent and honest with our customers. It continues to be a process, particularly for the things we just talked about, both for getting back on track from the disruption related to the circumvention investigation and also understanding the implications of WRO and UFLPA, as well as understanding our customers' requirements for what is most important to them in terms of timing and getting their projects and service.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

I would say, I'm very pleased with the progress on those conversations. I'm optimistic. I think I even said this at the investor conference. You know, there's still a path where there is little to no cancellations across the board. We're not there yet. There's still some you know, ongoing dialogue that we need to have. Irrespective of that, I feel very comfortable with the development expectations that we've laid out. That even if there's some disruption with a couple of those contracts, I feel very confident in being able to enter into other contracts and continue the development of other projects such that, you know, those ranges that we've provided to you and of course, gave you again today remain very much in reach.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Our origination for this quarter speaks for itself, of being able to continue meaningful progress towards lining those up and creating terrific visibility to where we just need to execute.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Got it. Sorry, Rebecca, it sounds like the way the discussions are going, there could be a situation where you see no cancellations.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

That's certainly possible. Again, most importantly, you know, even if there's some disruption, I also feel really good about being able to have alternatives in place. I think it's both yes and.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Got it. Just wanted to follow up on the transaction value of renewable projects, especially as you're kind of looking at the rising interest rate environment. Do sort of the rising rates present a challenge to monetize projects both through NEP or third parties? How do you see the interest rates impacting sort of the economics on the projects, the development margins, the IRRs? Is there sort of pricing flexibility to pass those costs without seeing sort of that elasticity and demand?

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Shar, let me start with as we've often talked about, and we have a number of competitive advantages when it comes to financing the projects. I think you also need to consider the environment in which we are contracting renewable projects right now. As John talked about, what the alternative is for our you know for the customer. Given the high gas price environment, it certainly provides room for us to have a higher PPA price. That gives us the ability to offset you know higher interest rate costs and still maintain our margins. With respect to NextEra Energy Partners, as we've shared before, again, a lot of financing options available at NextEra Energy Partners.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

We've demonstrated over the years ways to finance the growth in a very cost-efficient way. We continue to believe that we can utilize all the different financing options that we have to continue to support the growth at NextEra Energy Partners.

Shar Pourreza
Senior Managing Director at Guggenheim Partners

Terrific. Thanks, guys. I'll pass it to someone else. Congrats, John and team. Appreciate it.

Operator

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

Durgesh Chopra
Durgesh Chopra
Managing Director at Evercore

Hey, good morning, team. Thank you for taking my question. All my other questions have been answered. I wanted to go to sort of your water and wastewater strategy, and I appreciate it's small part of your business. Maybe just two-part question there. One, can you talk about your outlook there? Obviously, you know, the Texas deal is now closed, and you made a PA announcement or you talked about the PA wastewater system on the call today. So can you discuss your outlook there? Do you see a lot of opportunity to grow there? That's part one. Then part two, how should we think about competition? Here, I'm referring to the local water utilities as you approach these deals and what's your competitive advantage? Thank you.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Yeah, thanks for the question. I'll take that. It's obviously Rebecca. You know, we're very excited about it. As we've talked now a number of quarters, we see a lot of synergies from the competitive strengths that we bring to the table, our size, our approach to being able to focus on cost and on innovation, and all of the both supply chain and execution that we can bring to the water business. Of course, we find regulated earnings and cash flows very attractive. There's lots of both structural and strategic reasons why we're interested, and we're thrilled with the progress that we've had so far, getting some initial you know, work done in both Texas and Pennsylvania.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

I feel really energized by what the team is looking at in terms of opportunities for growth going forward and building more of a platform opportunity. I think it's key to think about some of the value this brings. You know, there are local utilities, you know, out in these communities, and we can help them solve some of the challenges that they see, both the municipals and the entities that run those businesses. I think it's terrific. I do want to caveat that, you know, relative to the size of our overall business and the capital investments that we're making, it's relatively small.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

In all of our broader conversations and investments in renewables and talking to these municipal entities around renewables, there's often opportunities to also bring value to them on the water side and other parts of infrastructure, that is meaningful to them. Terrific synergies. I'm really excited about the outlook. We'll continue to be much more of a renewables company than necessarily a straight water company. I'm really happy with the progress we've made so far.

Durgesh Chopra
Durgesh Chopra
Managing Director at Evercore

Thank you. I appreciate your time. Thanks.

Operator

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

Jeremy Tonet
Jeremy Tonet
Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co

Hi, good morning.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Hi, good morning, Jeremy.

Jeremy Tonet
Jeremy Tonet
Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co

All right. Just wanted to pick up maybe with M&A a little bit here. How does the recently instated Real Zero goal impact your prospects around M&A going forward? When you're looking at assets, is there more of an interest on water, as you've talked about here? Or how does the appetite vary between water, electric, gas?

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

Sure. Look, I think as we've discussed before on M&A, you know, we are really excited about the organic growth opportunities we have at both FPL and Energy Resources. You know, at FPL, it is a growing population here in the state. At Energy Resources, it's a fantastic renewable environment. As we think about M&A, you know, we will always look, we're always interested, but we're really focused on the organic growth opportunities. I think Rebecca shared with you sort of the thinking we have around water and whether or not there are, you know, opportunities there in water that we can, you know, help local municipalities.

Kirk Crews
Kirk Crews
EVP and CFO at NextEra Energy

In the context of the overall business and the organic growth that we have at both FPL and Energy Resources, you know, it's still a small opportunity set.

Jeremy Tonet
Jeremy Tonet
Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co

Got it. Thanks for that. Maybe just going back to the supply chain a little bit more. A high level question. What do you think about the prospects regarding domestic manufacturing? What are your expectations for U.S. market share, you know, multiple years down the road? You know, what percentage of panels do you think could be domestically sourced today versus five years in the future?

John Ketchum
John Ketchum
President and CEO at NextEra Energy

This is John. I'll go ahead and take that. I mean, what you're going to continue to see is, you know, I think really more of an intense focus on what's possible, in the U.S. I mean, I think you've certainly seen our company, you know, take a leadership position early on with what we were able to do up in Jacksonville, around a panel manufacturing facility. We will continue to look for more opportunities going forward, but I think it's gonna be important that we have, you know, a diverse approach that looks hard at domestic production opportunities and supporting domestic production opportunities going forward.

John Ketchum
John Ketchum
President and CEO at NextEra Energy

It's hard to really give you a percentage, but I think you're gonna see this industry really focused on ways that we can help create more domestic jobs here on the home front. That's one of the great things about renewables. I mean, renewables are energy independent. From a national security standpoint, they're all within the boundaries of the U.S. You know, we will continue to focus on, you know, on developing projects that are fuel independent as well, which will, as I said before, really help, I think, in taking a bite out of the bill in a high natural gas price environment.

Jeremy Tonet
Jeremy Tonet
Managing Director and Senior Equity Research Analyst at JPMorgan Chase & Co

Got it. Thank you for taking my question.

Operator

Our next question comes from Stephen Byrd from Morgan Stanley. Please go ahead with your question.

Dave Arcaro
Dave Arcaro
Executive Director of Equity Research at Morgan Stanley

It's Dave Arcaro on for Stephen Byrd. Thanks so much for taking my question. I was wondering, just looking at the Energy Resources development outlook, you know, there is a big ramp in solar from the 2022-2023 period into the 2024-2025 period. I was wondering, is there an opportunity or any effort to kind of pull forward projects from 2024-2025 into 2023? Kind of curious how generally 2023 is shaping up, in terms of industry growth that year.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Hey, Dave, it's Rebecca. I'll take that. You know, as we just think about it from our company's perspective, obviously we have financial expectations built around the ranges that we've already provided, which anticipates both that 2022 to 2023 timeframe and 2024 to 2025 timeframe of in-service. Certainly as we look out to 2025 and think about that being a substantial solar build year for us and for the industry for obvious reasons, assuming that there's no change to current tax policy. Of course, we're gonna think long and hard about how do you optimize that growth.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

We're already in conversations with our EPC contracts, our labor contracts, as well as the physical supply chain needed in order to support that build to ensure that we're on top of it and tracking it accordingly. This is kind of what we do, right? You know, it's in our industry, as you well know, there's a history of peaks as you go into a year in which the industry expects to have a change in incentives after that year. We will prepare for it. I feel very comfortable with where we are today, that we've got the right systems, thoughts, and execution in place to be successful. Of course, as you highlighted, we'll look at every possible way to optimize that.

Dave Arcaro
Dave Arcaro
Executive Director of Equity Research at Morgan Stanley

Okay, got it. Thanks. That's helpful. Then on Florida, I was wondering if you could talk about bill inflation and just approaches that you're pursuing to manage the pressure that we're seeing on customer bills this year. Anything kind of new in the works or creative ways to help spread that cost out or that bill inflation out?

Eric Silagy
Eric Silagy
Chairman, President, and CEO at Florida Power & Light Company

Hey, Dave. This is Eric Silagy. I'll take that. Look, first off, we continue to be focused on being as efficient as possible. You know, one of the advantages that we have is we have the most fuel efficient fleet.

Eric Silagy
Eric Silagy
Chairman, President, and CEO at Florida Power & Light Company

In Florida as well as across the country. Also our solar focus and our big solar build helps as well because frankly, we just burn less gas. When you look at how much electricity megawatt-hours we actually produce every day and look at the amount of fuel we burn, the efficiency is the best way for us to save customers. As Kirk said in his opening remarks, you look at how many billions of dollars that we've actually saved customers over the years by simply not charging them for fuel that we simply didn't have to buy. That remains a key focus for us along with our productivity and our O&M. I'm proud of the continued focus across the entire organization.

Eric Silagy
Eric Silagy
Chairman, President, and CEO at Florida Power & Light Company

We have the lowest O&M per kilowatt hour of any utility in America, and we're not satisfied with that, so we're gonna continue to do that. We're tightening our belts to do everything we can to make sure our customer bills remain the lowest among all the IOUs in Florida and among the lowest in the country.

Operator

Got it. Thanks so much. Our next question comes from James Thalacker from BMO Capital Markets. Please go ahead with your question.

James Thalacker
James Thalacker
Managing Director at BMO Capital Markets

Good morning, everybody. Thanks for taking my call.

Eric Silagy
Eric Silagy
Chairman, President, and CEO at Florida Power & Light Company

Morning.

James Thalacker
James Thalacker
Managing Director at BMO Capital Markets

Just real quick question. Obviously, existing generation storage and customer supply had a good quarter over quarter. I know obviously some of that was related to the above average wind resource, which rebounded quite a bit. Just wondering, you know, post Uri, a lot of the generators had sort of, you know, restructured some of their contracts. Did you guys see any benefits in 2Q from any sort of maybe changing in your hedging strategy? And could that be something we could see kind of flowing through the rest of the year?

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Yeah, sure. We did not really have any change to the way that we operated our book. Obviously, Winter Storm Uri was an event where I think everyone who operated in Texas you know learned some information in terms of the way to position their books. We certainly have positioned, you know, our book to help, you know, better manage extreme conditions both in the winter and the summer. We did not have any significant changes to the way that we run the business in Texas as a result.

James Thalacker
James Thalacker
Managing Director at BMO Capital Markets

Okay, great. Thanks so much.

Rebecca Kujawa
Rebecca Kujawa
President and CEO at NextEra Energy Resources

Yep.

Operator

Ladies and gentlemen, with that, we'll be ending today's question and answer session as well as today's conference call. We do thank everyone for joining today's presentation. You may now disconnect your lines.

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