Nextera Energy Inc

NYSE:NEE

Earnings Call Transcript 2021-Q3

[Operator]

Good morning, everyone and welcome to the NextEra Energy and NextEra Energy Partners Q3 2021 Earnings Call. [Operator Instructions] Please also note today's event is being recorded. At this time, I'd like to turn the conference call over to Jessica Aldridge, Director of Investor Relations. Ma'am, please go ahead.

[Jessica Aldridge, Director of Investor Relations of NextEra Energy]

Thank you, Jamie. Good morning, everyone. And thank you for joining our Third Quarter 2021 Combined Earnings Conference Call for NextEra Energy and NextEra Energy Partners. With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy. Rebecca Kujawa, Executive Vice President and Chief Financial Officer of NextEra Energy, John Ketchum, 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, President and Chief Executive Officer of Florida Power and Light Company.

Rebecca will provide an overview of our results and our executive team will then be available to answer your questions. We will be making forward-looking statements during this call based on current expectations and assumptions which are subject to risks and uncertainties. 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 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. As a reminder, Gulf Power legally merged into Florida Power & Light Company effective on January 1st, 2021. Gulf Power will continue as a separate reportable segment within Florida Power & Light and NextEra Energy through 2021, serving its existing customers under separate retail rates. Throughout today's presentation, when we refer to FPL, we're referring to Florida Power & Light, excluding Gulf Power, unless otherwise noted or when using the term combined. With that, I will turn the call over to Rebecca.

[Rebecca Kujawa]

Thank you, Jessica. And good morning, everyone. NextEra Energy delivered strong third-quarter results with adjusted earnings per share increasing by approximately 12% year-over-year. Both the principal businesses executed well on major initiatives and we continue to advance our opportunity set for new renewables and storage. Building upon solid progress made in the first half of the year, NextEra Energy is well-positioned to meet its overall objectives for 2021 and beyond. Earlier this month, we were honored to be named on Fortune's 2021 Change the World list. The only electric utility in the world to be recognized. This recognition is a testament to NextEra Energy's best-in-class position in the renewable energy sector, and our continued commitment to the customers and communities that we serve.

At FPL, net income increased approximately 10% versus the prior-year comparable period, reflecting contributions from continued investment in the business. Most notably, during the quarter, we reached what we believe is a fair and constructive long-term settlement agreement with a number of interveners in our rate case, continuing a long history of negotiated outcomes that benefit both customers and shareholders. We believe the agreement, if approved, should enable us to continue to focus on operating the business efficiently while investing in the future to ensure resilience, reliability, affordability, and clean energy for generations to come in Florida, we expect the Florida Public Service Commission to vote on our agreement at its agenda conference on October 26.

And I will provide more details on the proposed agreement in a few minutes. FPL's major capital initiatives continue to progress well, including what will be the world's largest integrated solar power battery system, that 409-megawatt FPL Manatee Energy Storage Center that is now 75% complete and on track to begin serving customers later this year. Gulf Power also had a great quarter of execution and its strong year-to-date financial performance is attributable to continued successful implementation of the cost reduction initiatives and smart capital investments that we previously outlined.

Gulf Power's year-to-date net income contribution increased approximately 14% versus the prior year comparable period and we remain focused on improving Gulf Power value proposition by providing lower costs, higher reliability, outstanding customer service, and clean energy solutions for the benefit of our customers. At Energy Resources, adjusted earnings for the quarter increased by approximately 12% year-over-year. Our development team had another terrific quarter of new renewables and storage origination, adding approximately 2,160 megawatts to our backlog since the last earnings call, marking the best quarter of overall origination and the best quarter of new wind additions in energy resources history.

These backlog additions include approximately 225 megawatts of combined solar and storage projects, and a 500-megawatt wind projects that's intended to power an adjacent new green hydrogen facility, which I will provide some additional details on in just a few minutes. We continue to expect that our competitive advantages will drive meaningful growth in renewables and various forms of energy storage at Energy Resources in the coming years as the trend towards broad decarbonization across many facets of the U.S. economy takes hold. Overall, with 3 strong quarters complete in 2021, we are pleased with the progress we're making at NextEra Energy. And 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 third quarter of 2021, FPL reported net income of $836 million or $0.42 per share, which is an increase of $79 million and $0.04 per share respectively year-over-year. Regulatory capital employed increased by approximately 10.5% over the same quarter last year and was the principal driver of FPL's year-over-year net income growth of approximately 10%. FPL's capital expenditures were approximately $1.5 billion in the third quarter. And we expect its full-year capital investments to total between $6.6 billion and $6.8 billion. Our reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended September 2021.

During the quarter, we restored a $124 million of reserve amortization, leaving FPL with a balance of $597 million, as you know, much of the East Coast of US was recently impacted by Hurricane Ida, which made landfall in the Gulf Coast as a category for hurricane, and also caused catastrophic flooding across the Northeastern U.S. Our deepest sympathies are with those that have been impacted by Ida's widespread disruption. We value deeply the industry's commitment to mutual assistance. And we were fortunate to be in a position to assist other utilities this year. As part of our systems efforts, we sent more than 1250 of our employees and contractors, as well as transmission equipment and other supplies to help rebuild the grid to support the restoration efforts of the impact of utilities.

Let me now turn to Gulf Power, which reported third quarter 2021 net income of $91 million or $0.05 per share. Gulf Power's third-quarter EPS contribution was flat versus the prior year comparable quarter. As a reminder, the third quarter of 2020 benefited from the reversal of COVID-19 related expenses that had occurred earlier in that year. During the quarter, Gulf Power's Regulatory Capital [Indiscernible] grew by approximately 13% year-over-year. Gulf Power's capital expenditures were approximately $200 million dollars during the third quarter, and we expected full-year capital investments to be roughly $800 million dollars. For the full-year of 2021 we continue to expect Gulf Power's regulatory ROE to be in upper half of the allowed band of 9.25 to 11.25%.

All of our major capital initiatives that Gulf Power are progressing well. Gulf Power anticipates bringing approximately 150 megawatts of cost-effective zero-emission solar capacity online within the next six months. The North Florida Resiliency Connection, which among other things, will allow customers to benefit from greater diversity in solar output across the two different time zones, is expected to be in service in mid-2022. These continued smart capital investments in renewables and core infrastructure are expected to drive customer benefits for many years to come. During the quarter, gulf Power was impacted by Tropical Storm Fred, which experienced an unexpected change in past before striking service territory. Through a restoration workforce of a roughly 1,700 personnel, Gulf Power was able to restore service to essentially all of the approximately 20,000 customers impacted by Fred in Northwest Florida and less than 24 hours.

Moreover, the average customer outage was restored in less than two hours. Our culture of preparation, including our annual storm drills, and the teams focused execution, helped ensure an efficient, timely, and safe response to the tropical storm. The economy in Florida continues to grow at a healthy pace and remains among the strongest in the nation. Florida's labor force participation rate has recovered to its highest level in nearly 18 months, reflecting the ongoing recovery following the onset of the COVID-19 pandemic last year. The real estate sector in Florida also continues to grow, with a three-month average new housing starts up over 40% year-over-year.

In August alone there were twice as many new housings starts in Florida than in the average over the last ten years. Florida building permits, a leading indicator of residential new service accounts are up 47% year-over-year and have outpaced the nation's quarterly growth by 32%. As another indicator of Florida's economic health, Florida as retail sales index is up nearly 60% versus the prior year. During the quarter, FPL's average number of customers increased by approximately 77,500 or 1.5% from the comparable year prior quarter, driven by continued solid underlying population growth. FPL's third quarter retail sales decrease 1.4% from the prior year comparable period.

A decline in weather-related usage per customer of approximately 2.7% offset the benefits of customer growth. On a weather-normalized basis, third quarter sales increased 1.3% with continued strong underlying usage contributing favorably. For Gulf Power, the average number of customers grew 1.6% versus the comparable prior year quarter. And Gulf Power's third quarter retail sales increased 0.6% year-over-year with strong usage from increased customer growth contributing favorably. As a reminder, on March 12th, we initiated floor [Indiscernible] lights 2021 base rate proceeding for rate relief beginning in January of 2022. After months of negotiation, we reached a proposed settlement agreement in early August with a number of [Indiscernible] in the preceding; The Office of Public Counsel, the Florida Retail Federation, The Florida Industrial Power Users Group, The Southern Alliance for Clean Energy, Vote Solar, The Cleo Institute, and the Federal Executive Agencies all joined the agreement, reflecting a broad set of constituents across our customer base.

The four-year proposed agreement, which begins on January 2022, provides for retail base revenue adjustments as shown on the acCompanying slide, and allowed regulatory Return on equity of 10.6% with a range of 9.7% to 11.7% and no change to FPL's equity ratio from investor sources for the combined system to the average 30-year U.S. treasury yields be 2.49% or greater over any consecutive 6 months period during the term of the agreement. Florida Power and Light allowed regulatory ROE would increase to 10.8% with a range of 9.8% to 11.8%. Additionally, if federal or state permanent corporate income tax changes become effective during the term of the proposed agreement, Florida Power & Light would be able to prospectively adjust base rates after a review of the impact on base revenue requirements. The proposed agreement also includes flexibility over the four-year term to amortize up to $1.45 billion of depreciation reserve surplus.

Consistent with the rate plan filed in March, the proposed settlement agreement would unify the rates and tariffs of FPL and Gulf Power by implementing a five-year transition rider and credit mechanism to address the initial differences in cost of serving the existing FPL and Gulf Power customers. Additionally, the proposed settlement agreement also provides for solar base rate adjustments or SoBRA upon reaching commercial operations of up to 894 megawatts annually of new solar generation in each of 2024 and 2025, subject to a cost cap of $1250 per kilowatt and showing an overall cost-effectiveness for FPL's customers. FPL would also be authorized to expand its solar together, Voluntary Community Solar Program by constructing an additional 1788 megawatts of solar generation through 2025. Which would more than double the size of our current Solar Together program, and is expected to save our customers millions of dollars over the lifetime of the assets.

In addition to solar energy, the settlement agreement with Support FPL's green hydrogen pilot project in Okeechobee County. This innovative technology could one day unlock 100% carbon free electricity that's available 24 hours a day. The proposed settlement agreement also introduces several electric vehicle programs and pilots designed to accelerate the growth of electric vehicle adoption and charging infrastructure investment across Florida with a total capital investment of more than $200 million. Under the proposed agreement, FPL would continue to recover prudently incurred storm costs consistent with the framework in the current settlement agreement. Future storm restoration costs would be recoverable on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that can produce a surcharge of no more than $4 for every 1,000-kilowatt hour of usage on residential bills in the first 12 months of cost recovery.

Any additional costs would be eligible for recovery in subsequent years. A storm restoration costs were to exceed $800 million in any given calendar year. FPL could request an increase to the $4 surcharge. We believe the proposed settlement is fair, balanced and constructive, and supports our continued ability to provide highly reliable, low-cost service for our customers through the end of the decade. FPL's typical residential bill is lower today than it was 15 years ago and is well below the national average. The proposed agreement would keep typical residential bills well below the national average. And among the lowest in Florida through 2025. Let me now turn to Energy Resources, which reported third quarter 2021 GAAP losses of $428 million dollars or $0.22 per share.

Adjusted earnings for the third quarter were $619 million dollars or $0.31 per share, which is an increase of $68 million and $0.03 cents per share, respectively, year-over-year. The effect of mark-to-market on non-qualifying hedges, which is excluded from adjusted earnings, was the primary driver of the difference between Energy Resources' third quarter GAAP, and adjusted earnings results. Contributions from new investments added $0.03 cents per share relative to the prior year comparable quarter, primarily reflecting continued growth in our contracted renewables and battery storage program. The contribution from existing generation assets increased $0.01 per share year-over-year.

Our customer supply and trading business contribution was $0.02 higher year-over-year due to favorable market conditions in our retail supply and power marketing businesses. All other impacts decreased results by $0.03 per share versus 2020, driven primarily by miscellaneous tax items. As I mentioned earlier, Energy Resources Development team had a record quarter of origination success, adding approximately 2,160 megawatts to our backlog. Since our last earnings call, we have added approximately 1,240 megawatts of new wind projects, 515 megawatts of new solar projects, and 345 megawatts of new storage assets to our renewables and storage backlog. In addition, our backlog increased by Energy Resources share of NextEra Energy Partners planned acquisition of an approximately 100-megawatt operating wind project that the partnership is announcing today.

Through the first three quarters of 2021, we have added more than 5,700 megawatts to our renewables and storage backlog. Energy Resources backlog of signed contracts now stands at approximately 18,100 megawatts. At this early stage, we have made terrific progress towards our long-term development expectations with more than 7,600 megawatts of projects already in our post-2020 to backlog. Our backlog additions for the third quarter include a 500-megawatt wind project, the majority of which is contracted with a hydrogen fuel cell Company. The project's customer intends to construct a nearby hydrogen electrolyzer facility that will use the wind energy production to supply up to 100% of the facility's load requirements. The hydrogen manufactured by the facility would enable commercial and industrial end-users to replace their current gray hydrogen and fossil fuel purchases with emissions-free green hydrogen, further accelerating the decarbonization of the industrial and transportation sectors.

Energy Resources also had nearly 300 megawatts of battery storage projects in California. And we continue to experience significant demand from California-based utilities and commercial and industrial customers for reliable energy storage solutions. We're currently developing nearly 2400 megawatts of additional co-located and standalone battery storage projects in California with a potential to be deployed in 2023 and 2024 to enhance reliability and help meet the state's energy storage capacity requirements and ambitious clean energy goals. More than 30 years, we have been investing in clean energy in California at our proud to help the state led the country to a carbon-free, sustainable future.

Consistent with our focus on growing our rate -regulated and long-term contracted business operations, during the third quarter, Energy Resources entered into an agreement to acquire a portfolio of rate -regulated water and wastewater utility assets in 8 counties near Houston, Texas. The proposed acquisition expands our regulated utility business and an attractive market with significant expected customer growth, and furthers our strategy to build a world-class water utility in the coming years. That's just the regulatory approvals. The acquisition is expected to close in 2022.

Energy Resources is also currently in construction on an innovative water reuse and reclamation project that would help our customer achieve significant savings on its water supply needs and make its operations more efficient and sustainable. All at the same time delivering attractive returns to Energy Resources'. While the roughly $45 million total equity investment for these transactions is small in context of our overall capital program, we are optimistic about the strong growth anticipated in this new market and the potential for clean water solutions to generate additional contracted renewables opportunities going forward.

Turning now to the consolidated results for NextEra Energy for the third quarter of 2021, GAAP net income attributable to NextEra Energy was $447 million or a $0.23 per share. Extra Energy's 2021 third-quarter adjusted earnings and adjusted EPS were $1.48 billion and $0.75 per share respectively. Adjusted results from corporate and other segment increased by $0.01 year-over-year. Our long-term financial expectations through 2023 remain unchanged. For 2021, NextEra Energy expects adjusted earnings per share to be in the range of $2.40 to $2.54. And we would be disappointed not to be at or near the high end of this range, where we are pleased with our year-to-date results which have exceeded the top end of our growth rate expectations so far for the year, we expect the fourth-quarter results to include impacts from certain liability management activities that we are currently reviewing to take advantage of the low interest rate environment.

These initiatives could generate negative adjusted EPS impacts of as much as $0.08 to $0.10 in the fourth quarter before translating to favorable net income contributions in future years, and an overall improvement in net present value for our shareholders. Looking further ahead for 2022 and 2023, NextEra Energy expects to grow 68% off of the expected 2021 adjusted earnings per share. And we would be disappointed if we are not able to deliver financial results at or near the top end of these ranges in 2022 and 2023.

Our earnings expectations are supported by what we believe is the most attractive organic investment opportunity set in our industry. From 2018 to 2023, we continue to expect that operating cash flow will grow roughly in line with our adjusted EPS compound annual growth rate range. We also continue to expect to grow our dividends per share at roughly 10% rate per year through at least 2022 of the 2020 base. As always, our expectations assume normal weather and operating conditions. Let me now turn to NextEra Energy Partners, which performed well and delivered third quarter results generally in line with our expectations. Yesterday, the NextEra Energy Partners Board declared a quarterly distribution of $68.5 per common unit or $2.74 per common unit on an annualized basis.

Continuing our track record of growing distributions at the top end of our 12% to 15% per year growth range. Inclusive of this increase, NextEra Energy Partners has now grown its distribution per unit by more than 265% since the IPO. NextEra Energy Partners continues to execute against its growth [Indiscernible] during the quarter. Since the last earnings call, NextEra Energy Partners closed on its previously announced acquisitions of approximately 400 megawatts of operating wind projects from a third party and approximately 590 net megawatts of geographically diverse wind and solar projects from Energy Resources. In addition, today we're announcing an agreement to acquire an approximately 100-megawatt operating wind asset in California from a third-party to further expand NextEra Energy Partners portfolio and enhance its long-term growth visibility. The project is located in a strategic market with strong expected growth and renewables demand,

And it offers, also offer significant optionality to NextEra Energy Partners in terms of operational savings and long-term value creation. NextEra Energy Partners intends to purchase the asset for a total consideration of approximately $280 million subject to closing adjustments, which includes the assumption of approximately $150 million in existing project finance debt estimated at the time of closing. NextEra Energy partners expects to recapitalize this project finance debt in 2022 as it executes on its overall financing plan for the year. We expect to fund the approximately $130 million balance of the purchase price using existing debt capacity, subject to regulatory approvals, the acquisition is expected to close later this year or in 2022.

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

Now let's look at the detailed results. Third quarter adjusted EBITDA was $334 million dollars, up approximately 7% from the prior year comparable quarter due to growth in the underlying portfolio. New projects, which primarily reflect the asset acquisitions that closed at the end of 2020 and the recently closed acquisition of 391 megawatts of operating wind pro -- wind assets from a third-party contributed $23 million. Existing assets contributed $7 million, primarily driven by the wind re-powering that occurred in the Fourth quarter of last year. And an improvement in wind resource. Wind resource for the third quarter was 101% of the long-term average versus 96% in the third quarter of 2020. These favorable impacts were partially offset by lower solar resource in the third quarter. of this year.

Cash available for distribution of a $158 million for the third quarter declined by 4 million versus the prior year, primarily as a result of lower year-over-year PaGo payments after a weaker wind resource period in the second quarter of this year. As a reminder, NextEra Energy Partners recapitalized its Genesis Solar Project and other existing assets at the end of last year. And the impact of this new project level financing costs versus the prior year was offset by an associated reduction in corporate level interest expense as reflected in our other category. Additional details of our third quarter results are shown on the acCompanying slide. On a year-to-date basis versus 2020, adjusted EBITDA and cash available for distribution have increased by roughly 9% and 6% respectively.

And NextEra Energy Partners remains well-positioned to continue to deliver on its outstanding growth objective. We continue to expect to NextEra Energy Partners portfolio to support an annualized rate of fourth-quarter 2021 distribution that is payable in February of 2022 to be in a range of $2.76 to $2.83 per common unit from a base of our fourth-quarter 2020 distribution per common unit at an annualized rate of $2.46. We continue to see 12 to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024. NextEra Energy Partners continues to expect to be in the upper end of our previously disclosed year-end 2021 run rate adjusted EBITDA and cash available for distribution expectation ranges of 1.44 billion to 1.62 billion and $600 to $680 million respectively.

We expect to achieve our 2022 distribution growth of 12 to 15% while maintaining a trailing 12-month payout ratio in the low 80% range. By year-end 2022, we expect the run rate for adjusted EBITDA to be in a range of $1.775 billion to $1.975 billion and run rate for cash available for distribution to be in the range of $675 million to $765 million dollars. At the mid-points, these revised expectations ranges, reflect estimated growth in adjusted EBITDA and cash available for distribution of roughly 23% and 13% respectively from the comparable year-end 2021 run rate expectations. These growth rates are supported by our strong execution against our long-term growth objectives in 2021, including opportunistic third-party transactions that were not previously in our plan.

As a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR Fees as we treat these as an operating expense. Finally, during the quarter S&P updated its ratings methodology for NextEra Energy Partners, and in particular, it will now evaluate NextEra Energy Partners debt metrics on a funds from operations or FFO to debt basis with a downgrade threshold of 14% instead of debt-to-EBITDA basis. We believe that the combination with S and P's updated methodology, its assessment of NextEra Energy Partners improving diversity and its use of less conservative assumptions in the portfolios.

Renewable generation cash flows will allow for several $100 million more, a financing flexibility relative to our previous assumptions, providing this partnership with even greater flexibility going forward to finance accretive acquisition for the benefits of our unitholders. In summary, we continue to believe that both NextEra Energy and NextEra Energy Partners has some of the best opportunity sets and execution track records in the industry. And we remain as enthusiastic as ever about our future prospects. That concludes our prepared remarks. And with that, we will open up the line for questions.

[Operator]

Ladies and gentlemen, at this time, we'll begin the question-and-answer session. [Operator Instructions]. We'll pause momentarily to assemble the roster. Our first question comes from Julien Dumoulin-Smith from Bank of America. Please go ahead with your question.

[Julien Smith, Bank of America]

Hey, good morning, team. Thank you for the time. I appreciate it. And impressive continued results here. If I can ask you at the outset here, can you perhaps describe how you see the backdrop here, given the litany of different policy efforts underway around the availability of panel imports and just how that positions your ability to execute right now, I certainly hear it echoing through your comments, but I just wanted to speak to that a little bit more specifically if we can. And then subsequently on the origination side, obviously well done again, how do you think about just the elevated energy price backdrop that we're seeing today? How quickly is that financing sort of reinvigorated demand backdrop and when could that materialize as you think about the backdrop in the 23-24 backdrop or beyond?

[Rebecca Kujawa]

Thank you, Julien, appreciate the questions and good morning. As you even processed in your set of questions, we're pretty excited about the opportunities for both of the major businesses, both Florida Power & Light and Energy Resources. And specifically on the renewable side and energy resources, that the team just had an awesome origination quarter. And that's kind of on the heels of other awesome origination quarters. Going back now for quite some time, setting us up for tremendous growth in the coming years.

So, in terms of demand backdrop, it's kind of answer the second question first. It's terrific. And we're really excited about the value proposition of renewables looking forward, both in terms of being low cost and the ability to de-carbonize both the electricity sector and other sectors as we've talked about. It's been an exciting 18 months for our integrated supply change and engineering construction teams. Lots of opportunities to navigate uncertainties, likes of which we in the industry probably haven't seen in quite some time. And it's also in the midst of enormous growth for us.

A record year of renewables deployment last year and another terrific capital deployment this year. So, both growth and opportunities to show what we can do. It's good to be us and we've highlighted that in the past in the sense of being large in this industry, having significant capital dollars to put to work enables us to have strong relationships and extensive relationships with those in the supply chain to help navigate these uncertainties, we feel good about our ability to navigate them. The plan does get iterated from time-to-time as the circumstances change. But we feel good about the long-term view for renewables and our ability to deliver on our expectations.

[Jim Robo, CEO of NextEra Energy]

[Indiscernible]

[Julien Smith, Bank of America]

Go for it, Jim.

[Jim Robo, CEO of NextEra Energy]

The only thing I'd add is, I think people don't really appreciate the 10-year strip is up a buck since January, it's hugely positive for the renewal business. Enormously positive, right? So

[Operator]

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

[Steve Fleishman, Wolfe Research]

Thanks, and good morning. Just -- could you maybe just give the name of the -- who the counter party is for the Green Hydrogen Project.

[Rebecca Kujawa]

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

[Steve Fleishman, Wolfe Research]

And then just on the -- a different way to ask the supply chain question, just within your -- obviously you had a lot to your backlog. If you look at the existing backlog, did anything move around meaningfully between years?

[Rebecca Kujawa]

Not meaningful --

[Steve Fleishman, Wolfe Research]

In the backlog?

[Rebecca Kujawa]

I appreciate the question though nothing that I would consider to be meaningful at all. There's a couple of projects and moved out, and a couple of projects that moved in in terms of time frames, but very much consistent with our expectations. And as I highlighted at a very high level in response to Julien's question, we feel good about our plans of bringing in the projects we expect to bring into service in 2021 and have good line of sight for executing on the development plans thereafter.

[Steve Fleishman, Wolfe Research]

Okay. And then last question just -- obviously have to ask about the DC and the proposed clean energy credits in the reconciliation, et cetera, maybe just latest thoughts on what's most important to you and the likelihood and [Indiscernible] to passage, how you're feeling about it?

[Jim Robo, CEO of NextEra Energy]

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

I remain cautiously optimistic that something happens there. If something happens there, we feel good about the fact that there will be a long-term extension of the credits and that there'll be support for other types of clean energy, such as hydrogen as standalone storage ITC, et cetera. It would be very constructive for us. We think it's an important part of the de - carbonization of the US economy to accelerate that. And we've increasingly, as we think about our own strategy going forward, we are increasingly thinking about ourselves as, as the Company that's going to lead.

Not only the clean energy transformation of the electric grid, but really the clean energy transformation of the U.S. economy and the de-carbonization of the U.S. economy, because the electric grid is going to be the key to de-carbonizing the transport sector, it's going to be the key to de-carbonizing the industrial sector. And so, we're really positioning ourselves to be the leader there and I feel very good about both the policy tailwinds that we have as well as how our businesses are executing along those goals.

[Steve Fleishman, Wolfe Research]

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

[Rebecca Kujawa]

No, it's a contract with the customer irrespective than a sort of subsequent policy changes.

[Steve Fleishman, Wolfe Research]

Great. Thank you very much.

[Rebecca Kujawa]

Thank you, Steve.

[Operator]

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

[Shar Pourreza, Guggenheim Partners]

Good morning, guys.

[Rebecca Kujawa]

Good morning, Shar.

[Shar Pourreza, Guggenheim Partners]

I just wanted to drill down a little bit more on the backlog there. Can you just maybe talk a little bit about what you're seeing in terms of the higher Input costs for projects? I mean, we've seen some headwinds from developers and manufacturers recently, amount of labor, steel, transportation et cetera. What we're hearing some commercial and utility scale projects are being pushed out. What are you seeing? Are you seeing any impact the project economics, especially for the ones that are marginal? Is anyone kind of [Indiscernible] signed contracts, maybe bulking, especially if the PP&E terms are somewhat flexible as we think about one of [Indiscernible] (ph) needs to be put in the ground? So, you're not seeing it right now, but is there any inklings on potential projects potentially being shifted out as buyers wait for some input costs [Indiscernible]?

[Rebecca Kujawa]

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

[Shar Pourreza, Guggenheim Partners]

Sorry, specifically for your projects.

[Rebecca Kujawa]

We are not having anything notable from a buyer perspective, and from our customer's perspective, we have a contract and we are expecting to execute against what's laid out in those contracts. And from a supply chain standpoint, I think we're very well-positioned to navigate these uncertainties. And as I highlighted, your line of sight of bringing out the projects that we intend to bring in '21 into service and have great plans for executing against our '22 development program, and obviously beyond that. One, there is a lot still to be seen as to what those conditions will ultimately be because now, we're talking 2 plus years out.

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

[Shar Pourreza, Guggenheim Partners]

Got it. Thank you for that. Thanks for the elaboration. Maybe just quickly shifting to the regulated utility. Just wondering also how much more headroom from incremental [Indiscernible] efficiencies do you still anticipate from the Legacy Gulf asset? And how is that sort of headroom impacted from the recent run-up in commodity costs mainly natural gas, right? So, a bit of an efficiency and [Indiscernible] headroom question embedded there.

[Rebecca Kujawa]

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

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

[Shar Pourreza, Guggenheim Partners]

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

[Rebecca Kujawa]

Yes. So Shar I would think if you look back at where we have taken the opportunity to invest capital historically, it really is on bringing long-term value to our customers. So being able to deliver lower costs over time, higher reliability, greater resilience, greater diversification, and those clean energy benefits. And it would be shortsighted to stop investing in opportunities that are really clearly good for customers. We're very mindful of customer bills. You hear that from us from every day and all of our communications. And it's what we focus on day-to-day is making sure we have a terrific value proposition for our customers. And we will do everything we can to moderate those impacts overtime.

[Shar Pourreza, Guggenheim Partners]

Terrific. Thank you very much. Appreciate it.

[Rebecca Kujawa]

Thank you.

[Operator]

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

[Michael Lapides, Goldman Sachs]

Hey, guys, thank you for taking my question. I have 1 or 2 here. First of all, the water and wastewater utility system acquisitions and taxes. Can you talk about just the size and scale of the capital you're employing there for that. And then more long-term kind of more strategic, how do you think about the opportunity for growth in that business? Is it more organic? Is it more continuing a roll up neighboring systems or are you thinking about a national strategy here?

[Rebecca Kujawa]

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

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

[Michael Lapides, Goldman Sachs]

Got it. And then one question on Seabrook. And I know in the grand scheme of [Indiscernible] power, Seabrook's, while it's a large plant, is nowhere near the biggest contributor to that, but just curious, how should we think about how much you financially hedged Seabrook? I'm just thinking about given the move in forward power prices and Jim referenced the move in natural gas dollar increase in the strip, how we should think about whether Seabrook actually benefits from that materially or had you already significantly hedged it out prior.

[Rebecca Kujawa]

Yeah. We have an ongoing hedging program that we execute ratably over time executing percentage of Seabrook's forward generation side. I would characterize it as pretty well hedged in the next couple of years. And then as you get out into the latter part of the 2020s and into the 2030s and beyond, less so. So, it -- obviously, would benefit that if you mark-to-market that forward position, clearly, there has been some upside with increase in natural gas prices and some of the congestion you've seen in the northeast in terms of electricity prices, whether that last than the long term, I think remains to be seen, but certainly an opportunity for Seabrook.

We continue to believe Seabrook is very well-placed. It is in a particularly advantageous load zone, it's obviously in a region that values clean energy deeply. And you think about broad de - carbonization in any part of the U.S. including the Northeast, well-positioned nuclear assets will be a key part of making it happen. So, we very much appreciate our nuclear team and I think they do a terrific job every day and Seabrook is a key part of that.

[Michael Lapides, Goldman Sachs]

Got it. Thank you, much appreciated.

[Rebecca Kujawa]

Thank you. Michael.

[Operator]

Our next question comes from Maheep Mandloi from Credit Suisse, please go with your question.

[Maheep Mandloi, Credit Suisse]

Thanks for taking my question. [Indiscernible]. Any actually, one on the multiple for the acquisition comes out to around 11 times EBITDA versus the 9 times we saw for the prior two acquisitions. [Indiscernible] just want to understand, is that the new normal you are seeing for asset acquisitions or anything specific to these projects. And just second one on the 2022 [Indiscernible] walk, I just want to confirm if it includes any repayment for the first [Indiscernible] closed in 2018.

[Rebecca Kujawa]

I'll come back to the second question. In terms of the transaction as we highlighted, it was a third-party transaction. So, it reflects a negotiated outcome and we continue to believe that the renewable sector remains of high interest for a lot of folks and expect it to be competitive over time. But I think you can see with this transaction and with a prior third-party transaction that we announced and closed earlier this year. There are some specific vantages the NextEra Energy Partners has both and its ability to find attractive financing, but also the relationship it has with NextEra Energy resources of being able to add value on the operating side and bring to bear all of the scale benefits that we have. So, in terms of the second part of the question, I think you're asking about the 2018.

[Indiscernible] and the ultimately the conversion that will happen in the very latter part of this year. And we're still -- obviously some significant part of that gets converted up to 70% of it in NEP units, and the balance is paid in cash, and we are still working through what the full impacts are and how we will finance that over time, but as we've laid out in terms of our run rate expectations, we will expect that year-end 22 to be in the ranges that we outlined today.

[Maheep Mandloi, Credit Suisse]

Thanks for answering questions.

[Rebecca Kujawa]

Thank you.

[Operator]

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

[Durgesh Chopra, Evermore ISI]

Hey, good morning, Jim. Thank you for taking my question. I just wanted to go [Indiscernible] -- I just wanted to go back to the water utility acquisition strategy a bit. Obviously, this isn't Texas, but there's obviously a ton of small municipal systems across the country which are owned by small mom-and-pop type facilities. It's just -- are you going to be more aggressive [Indiscernible] the country or there's something specific about taxes, as we think about you competing for these -- [Indiscernible] small water utility systems.

[Rebecca Kujawa]

Yes, I think it's a great question as we highlighted, I highlighted it obviously in the prepared remarks and Jim highlighted elsewhere in recent months. We're really excited about building a significant presence in the water business, and we think there's a lot of skills and capabilities and of course, the broad platform we have, that where you could bring real value in these acquisitions. But as you highlighted, they tend to be very small and whether they are privately-owned, are owned by municipalities. Almost, in regardless of the ownership structure, they tend to be small. Even the one they talked about today is incorporated with something else and it totals up $45 million in context of our $15 billion capital program. So, I expect us to be active, there's probably some regions of the U.S. where the team in the near-term will be more active than others for a variety of reasons. But it's probably not exclusively taxes and it will build overtime. And we will let you know the team continues to have success.

[Durgesh Chopra, Evermore ISI]

Understood. Thank you for the time.

[Rebecca Kujawa]

Thank you.

[Operator]

Our next question comes from Jeremy Tonet from JP Morgan, please go ahead with your question.

[Jeremy Tonet, JP Morgan]

Hi. Good morning.

[Rebecca Kujawa]

Good morning.

[Jeremy Tonet, JP Morgan]

Thanks. Just want to pivot back to hydrogen for minute if we could here. And just wanted to see on what timeline do you see green hydrogen being competitive? And how much money is he currently spending on hydrogen projects and where could that ramp to over time?

[Rebecca Kujawa]

I think it's a great question. I think in the electricity sector, when it's going to be particularly relevant, is the latter part of the 2020s into 2030s and beyond. And for the key reason of -- for that being -- that you really need to have the need for long duration storage. And in [Indiscernible] particularly attractive when you have very, very low - cost energy input and particularly low-cost renewables, which will inevitably have when you have substantial renewable deployment, again, probably in the latter part of the 2020s and beyond. What may be different is in the transportation industrial sector, where there is already built-in use of gray hydrogen and other fossil fuels that could be supplanted with green hydrogen when it's competitive.

The big question mark would be whether or not there's a hydrogen production tax credit ultimately, in the final reconciliation bill. Clearly there's one anticipated today and at $3 a kilogram production tax credit, that really closes the gap between gray hydrogen and green hydrogen alternative. It says that's a terrific opportunity to see growth in the nearer term, and what that would represent is using green hydrogen alternatives to supplant gray hydrogen. From our perspective. that's opportunities clearly to build a lot of renewables.

And you saw the first step in that direction in our announcement today about a power purchase agreement that we've entered into. But there will be more -- a lot more like that in -- [Indiscernible] not just the renewable side, but also an opportunity for us to invest in the actual hydrogen production equipment such as the electrolyzer. So, we'll see, we'll know a lot more in January. Once we've seen the final package, if there is one as Jim highlighted, and it will develop over time in terms of opportunities, we think it's exceptionally likely. It's really just a matter of timing.

[Jeremy Tonet, JP Morgan]

Got it. That's very helpful. And then pivoting over really quick towards transmission, obviously to optimize and maximize renewables deployment for the country. Transmission build-out is a key ingredient there, yet. As you all know, it's difficult and timely to complete just wondering, I guess your latest thoughts on what expectations might have for transmission build-out in what role we'll need play there?

[Rebecca Kujawa]

Yeah, we're really excited about transmission opportunities. Our NextEra Energy Transmission team is -- built a terrific business over the last decade with a number of organic winds, as well as some acquisitions as we've talked about in the past of not only Transbay cable, but GridLiance more recently. And we see a ton of opportunities going forward for us to be successful in winning some of those big opportunities to invest, realizing great returns.

But also, the strategic side of it, of ensuring that it happens, so that we can continue to realize the substantial renewables build out that we already are seeing and we expect to only continue to grow in this opportunity size over time. It may not be imperative today to have new transmission, but it's really, really important to start today because it will be imperative in the next decade. And some of the policy considerations. that [Indiscernible] is undertaking today could be helpful to bringing that to reality in -- overtime.

[Jeremy Tonet, JP Morgan]

Great. Thank you so much for the color.

[Rebecca Kujawa]

Great. Thank you.

[Operator]

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