Nextera Energy Inc

NYSE:NEE

Earnings Call Transcript 2022-Q2

[Operator]

Good morning and welcome to the NextEra Energy and NextEra Energy Partners Q2 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator instructions] 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, Director of Investor Relations]

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. 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 and the comments made during this conference call, in the risk factor 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.

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 1st, 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]

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. 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 megawatts to Energy Resources backlog since the last call. Included in these backlog additions is approximately 1,200 net megawatts of solar projects, which is the second largest quarter of solar origination in our history.

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. 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.

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 megawatt 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 Waterdale [ph] plant. Longer term, we expect to convert approximately 16 gigawatts 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. 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 is 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.

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. The difference between Energy Resources second quarter GAAP and adjusted earnings results is primarily the effect of the mark-to-market on nonqualifying 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.

As I mentioned earlier, Energy Resources had another strong quarter of origination, adding approximately 2,035 net megawatts 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 megawatts of new wind, 1,200 megawatts of solar and 20 net megawatts 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 megawatts 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. From 2022 through the end of 2025, Energy Resources expects to build roughly 28 to 37 gigawatts 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 time frame 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. 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 Energy 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. Additionally, last week, NextEra Energy 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 expand 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. 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 & 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. 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 to $2.90. For 2023 and 2024, NextEra Energy expects adjusted earnings per share to be in the ranges of $2.98 to $3.13 and $3.23 to $3.43, respectively. For 2025, we expect to grow 6% to 8% off the 2024 adjusted earnings per share range, which translates to a range of $3.45 to $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 expectation ranges in 2022, 2023, 2024 and 2025, while at the same time maintaining our strong balance sheet and credit ratings.

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 to $95 billion into new investments from 2022 through 2025.

In addition, from 2021 to 2025, we continue to expect that our average annual growth and 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. 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 countercyclical. Renewable 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.

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.

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' unitholders 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 Nexera Energy Partners.

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.

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% to 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.

S&P also affirmed all of its ratings for Nexera Energy Partners and lowered his 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 a 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 megawatts 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. 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.

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 to $1.985 billion and $685 million to $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 caveats and include the impact of anticipated IDR fees as we treat fees 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% to 15% growth per year and LP distributions per unit as being a reasonable range of expectations through at least 2025. 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 to $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 [ph] 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. 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.

At 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. And 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 Energy Resources and from third parties.

That concludes our prepared remarks. And with that, we will open the line for questions.

[Operator]

Ladies and gentlemen, at this time we’ll begin the question-and-answer session. [Operator Instructions] And our first question today comes from Steve Fleishman from Wolfe Research. Please go ahead with your question.

[Steve Fleishman, Wolfe Research]

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

[Kirk Crews]

Sure. Good morning, Steve. Thank you. Thank you for the question. So 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, 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 executive actions and/or through the EPA?

[John Ketchum, President & Chief Executive Officer]

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. So if it happens, great. But 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, which is what we primarily compete against for new renewables, on the other hand, continues to get more expensive. And we laid that case out, I think in detail at the June investor conference. And 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, 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 with limit gas demand during scarcity events.

So I think for all those reasons, we're going to continue to see upward pressure on gas prices. And that, when I look at our success this quarter at over 2 gigawatts, 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. And so that is creating a ton of demand for renewables. And like I said, I don't see that really changing over time. I think we're going to 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, I think reconciliation is somewhat unlikely, obviously, given the positions that have been taken over the last week or so. So our focus really is on extenders and more importantly, on executive actions. So let me take those in order.

The first on extenders. Extenders could happen. But there are things on both sides of the aisle that they will want at the end of the year. I mean, 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 all 2025 or 2026 extenders hinge on the full R&D expense deduction, that is going to be something that's going to 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. So they want to see that extended.

We have the interest-deductibility limitation, which converts from EBITDA to EBIT. And at the end of 2022, bonus depreciation starts to scale down. Those are all things that could really drive economic growth. And I think we'll be high on the list and things that we may be able to trade for an extension on renewable credits. So while we're not counting on it, 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. And 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, Wolfe Research]

Okay, great. I’ll let other ask questions. Thank you.

[John Ketchum, President & Chief Executive Officer]

Thank you.

[Operator]

Our next question comes from Julien Dumoulin-Smith from Bank of America.

[Julien Dumoulin-Smith, Bank of America]

Hey good morning team. Thanks for the time. Maybe just a follow-up from Steve's last question. Focus here on origination, new 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 in gear to make moves? And 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]

Julien, it's Rebecca. I'll take that question. The team is doing a terrific job with ongoing conversations with customers. But as we've highlighted, really since 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, 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.

And then on top of they have various commitments that they've talked to, to their own stakeholders about deploying renewables and reducing carbon in their portfolio. So, 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. So, I would say, the fundamentals are terrific.

And as you can see from our origination, I always caution you all not to look at a single quarter in isolation to 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.

So, 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, Bank of America]

Yes, it sounds more consistent, as you say. And then just -- this might seem more of a check the box, but just to clarify this, I mean, we've seen some concerns out there on core site of late and just USLPA, 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 concerned for you guys, at least per your own contracting activities in a way.

[Rebecca Kujawa]

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 Weaker Force Labor Protection Act, obviously, we have for WRO some history already under our belt for us and for the industry and for the flip implementing regulations.

We now have some time in place for those and our conversations with our suppliers remain really constructive. So, we're going to constantly be vigilant as our suppliers, but we continue to see a constructive path forward on being able to put projects in service over time.

[John Ketchum, President & Chief Executive Officer]

Yes. And the only thing that I would add to what Rebecca just said, Julien, is none of our suppliers are on the import panelist. 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. And there will be a little bit of due diligence on, hey, where do these panels come from? What's the traceability, just like we've seen with WRO? But we believe it's all very manageable.

[Julien Dumoulin-Smith, Bank of America]

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

[Operator]

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

[Shar Pourreza, Guggenheim Partners]

Hey, good morning guys.

[John Ketchum, President & Chief Executive Officer]

Good morning Shar.

[Shar Pourreza, Guggenheim Partners]

Just what's the threshold for removing the language around the 2 gigawatts 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? And just given that you've been in discussions for some time, where are you sort of trending as we're thinking about the 1 to 2 gigawatt cancellation range that you sort of highlighted at the Analyst Day. I mean, could we end up with no cancellations. I guess when can we get an update there?

[Rebecca Kujawa]

Hey Shar, so it's Rebecca, I'll take that question as well. Our conversations, I would say are across the board very constructive and I think throughout this process, we've been very transparent, obviously, with you all and 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. And 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 flip as well as understanding our customers' requirements for what is most important to them in terms of of timing and getting their projects in service.

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, there's still a path where there is little to no cancellations across the board. We're not there yet. There's still some ongoing dialogue that we need to have. But 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 those ranges that we've provided to you and, of course, gave you again today, remain very much in reach. And our origination for this quarter speaks for itself of being able to continue meaningful progress towards winning those up and creating terrific visibility to where we just need to execute.

[Shar Pourreza, Guggenheim Partners]

Got it. Got it. So just -- sorry, if I could just, it sounds like the way the discussions are going, there could be a situation where you see no cancellations.

[Rebecca Kujawa]

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

[Shar Pourreza, Guggenheim Partners]

Got it. Got it. And 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 net or third parties? And how do you see the interest rates impacting sort of the economics of the project, the development margins, the IRRs? So is there sort of pricing flexibility to pass those costs without seeing sort of that elasticity in demand?

[John Ketchum, President & Chief Executive Officer]

So Shar, let me start with, as we've often talked about, we have a number of competitive advantages when it comes to financing the projects. But I think you also need to consider the environment in which we are contracting renewable projects right now. And as John talked about, what the alternative is for the customer. So given the high gas price environment, it certainly provides room for us to have a higher PPA price. And that gives us the ability to offset 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. We've demonstrated over the years, ways to finance the growth in a very cost-efficient way. And 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, 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, 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. But maybe just a two-part question there. One, can you talk about your outlook there? Obviously, the Texas deal is now closed and you made a key announcement where 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. And 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]

Yes. Thanks for the question. I'll take that. It's obviously, Rebecca. 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.

And of course, we find regulated earnings and cash flows very attractive. So 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 work done in both Texas and Pennsylvania. And 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.

And I think it's key to think about some of the value this brings. There are local utilities 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. So, I think it's terrific. I do want to caveat that relative to the size of our overall business and the capital investments that we're making, it's relatively small.

But 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. So terrific synergies. I'm really excited about the outlook. We continue to be much more of a renewable company than necessarily a straight water company, but I'm really happy with the progress we've made so far.

[Durgesh Chopra, 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, JPMorgan]

Hi, good morning.

[John Ketchum, President & Chief Executive Officer]

Hi, good morning, Jeremy.

[Jeremy Tonet, JPMorgan]

Just wanted to pick up maybe with M&A a little bit here. And how does the recently instated real zero goal impact your prospects around M&A going forward? And when you're looking at assets, is there more of an interest on water, as you talked about here? Or how is the appetite varied between water, electric gas?

[John Ketchum, President & Chief Executive Officer]

Sure. So look, I think we've -- as we've discussed before on M&A, we are really excited about the organic growth opportunities we have at both FPL and Energy Resources. At FPL, it is a growing population here in the state, at Energy Resources, it's a fantastic renewable environment. So, as we think about M&A, we will always look, we're always interested, but we're really focused on the organic growth opportunities.

And I think Rebecca shared with you sort of the thinking we have around water and whether or not there are opportunities there in water that we can help local municipalities. But in the context of the overall business and the organic growth that we have at both FPL and Energy Resources, it's still a small opportunity set.

[Jeremy Tonet, JPMorgan]

Got it. Thanks for that. And then maybe just coming back to supply chain a little bit more at high-level question. What do you think about the prospects regarding domestic manufacturing? What are your expectations for US market share multiple years down the road? What percentage of panels do you think could be domestically sourced today versus five years in the future?

[John Ketchum, President & Chief Executive Officer]

This is John. I'll go ahead and take that. I mean, what you're going to continue to see is, I think, really more of an intense focus on what's possible in the US. I mean, I think you've certainly seen our company 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 going to be important that we have a diverse approach that looks hard at domestic production opportunities and supporting domestic production opportunities going forward. It's hard to really give you a percentage, but I think you're going to 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 US and we will continue to focus 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, JPMorgan]

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, Morgan Stanley]

Hi. It's Dave Arcaro on for Stephen. Thanks so much for taking my question. So I was wondering, just looking at the Energy Resources development outlook, 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]

Dave, its Rebecca. I'll take that. One, 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 at 2022, 2023 time frame and 2024, 2025 time frame of in-service.

But 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 going to think long and hard about how do you optimize that growth.

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? It's -- in our industry, as you all 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. So 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. But, of course, as you highlighted, we'll look at every possible way to optimize that.

[Dave Arcaro, Morgan Stanley]

Okay. Got it. Thanks. That's helpful. And 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 builds this year? Anything new in the works or creative ways to help spread that cost out or that bill inflation now?

[Eric Silagy]

Hi Dave, this is Eric Silagy. I'll take that. So look, first off, we continue to be focused on being as efficient as possible. One of the advantages that we have is we have the most fuel-efficient fleet in Florida as well as among the country. But also our solar focus and our big solar build help as well because, frankly, we just burn left gas.

So when you look at how much electricity megawatt hours we actually produce every day and look at the non-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 save customers over the years by simply not charging them for fuel that we simply didn't have to buy.

So 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. We have the lowest O&M per kilowatt hour of any utility in America, and we're not satisfied with that. So we're going to continue to do that. So 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.

[Dave Arcaro, Morgan Stanley]

Got it. Thanks so much.

[Operator]

And our next question comes from James Thalacker from BMO Capital Markets. Please go ahead with your question.

[James Thalacker, BMO Capital Markets]

Good morning, everybody. Thanks for taking my call.

[John Ketchum, President & Chief Executive Officer]

Good morning.

[James Thalacker, BMO Capital Markets]

Just a real quick question. Obviously, existing generation of storage and customer supply had a good quarter, quarter-over-quarter. I know obviously some of that was related to the above average wind resource, which rebounded quite a bit. But just wondering, post-Uri, a lot of the generators had 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 flowing through through the rest of the year?

[John Ketchum, President & Chief Executive Officer]

Yes, sure. So 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 learn some information in terms of the way to position their books. And we certainly have positioned our book to help better manage extreme conditions, both in the winter and the summer, but we did not have any significant changes to the way that we run the business in Texas as a result.

[James Thalacker, BMO Capital Markets]

Okay, great. Thanks so much.

[Operator]

And 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.