Nextera Energy Inc

NYSE:NEE

Earnings Call Transcript 2019-Q4

[Operator]

Good morning everyone and welcome to the NextEra Energy and NextEra Energy Partners conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note today’s event is being recorded.

At this time, I’d like to turn the conference call over to Mr. Matt Roskot, Director of Investor Relations. Sir, please go ahead.

[Matt Roskot, Director, Investor Relations]

Thank you Jamie. Good morning everyone and thank you for joining our fourth quarter and full year 2019 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 & Light Company.

Jim will provide some opening remarks and will then turn the call over to Rebecca for a review of our fourth quarter and full year results. 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, in the comments made during this conference call, in the Risk Factors section of the accompanying presentation, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, nexteraenergy.com and nexteraenergypartners.com. We do not undertake any duty to update any forward-looking statements.

Today’s presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today’s presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure.

With that, I will turn the call over to Jim.

[James Robo, Chairman, Chief Executive Officer]

Thank you Matt, and good morning everyone. 2019 was a terrific year for both NextEra Energy and NextEra Energy Partners. NextEra Energy’s performance was strong both financially and operationally, and we had outstanding execution on our initiatives to continue to drive future growth across the company.

By successfully executing on our plans, NextEra Energy extended its long track record of delivering value for shareholders with adjusted earnings per share of $8.37, up 8.7% from 2018. Over the past 15 years, we’ve now delivered compound annual growth and adjusted EPS of nearly 8.5%, which is the highest among all top 10 power companies who have achieved on average compound annual growth of less than 4% over the same period.

Amidst this significant growth, the company has maintained one of the strongest balance sheets and credit positions in the industry. In 2019, we delivered a total shareholder return of approximately 43%, significantly outperforming both the S&P 500 and the S&P 500 Utilities Index, and continuing to outperform both indices in terms of total shareholder return on a one, three, five, seven, and 10-year basis.

Over the past 15 years, we have outperformed all of the other companies in the S&P Utilities Index and 85% of the companies in the S&P 500 while more than tripling the total shareholder return of both indices. Although we are proud of our long-term track record of creating shareholder value, we remain utterly focused on the future and committed to continuing that track record going forward.

During 2019, FPL successfully executed on its ongoing capital plan, including placing the highly efficient Okeechobee Clean Energy Center and an additional 300 megawatts of cost effective solar in service on time and on budget. Smart capital investments such as these help FPL improve its already best-in-class customer value proposition despite customer bills that were already nearly 30% below the national average and among the lowest of all 54 electric providers in the State of Florida. Earlier this month, the typical FPL residential customer bill decreased by nearly $4 or roughly 4%.

FPL had continued success with its cost savings initiatives, reducing its already best-in-class dollar per retail megawatt hour non-fuel O&M costs by more than 5% year-over-year. These ongoing cost savings combined with the flexibility afforded by FPL’s current settlement agreement enabled FPL to avoid a customer surcharge for the roughly $260 million of storm restoration costs related to Hurricane Dorian.

In addition to low bills, FPL delivered its best-ever service reliability performance in 2019 and was recognized for the fourth time in five years as being the most reliable electric utility in the nation.

Finally, last quarter we were pleased that following an extensive and thorough 18-month review, the Nuclear Regulatory Commission granted Turkey Point Units 3 and 4 their second 20-year license extensions. These units are the first nuclear power plants in the United States to achieve this milestone, and this decision supports the continued production of clean, zero emission, reliable, and affordable nuclear power in Florida for many years to come.

Beyond executing on its strategic initiatives, during 2019 FPL positioned itself well for continued long term growth. Early in the year, FPL announced its groundbreaking 30 by 30 plan, which is one of the world’s largest solar expansions and will result in roughly 10,000 megawatts of incremental solar capacity on FPL’s system. This solar expansion combined with low cost battery storage solutions, such as the Manatee Energy Storage Center that was announced during 2019 represent the next phase of FPL’s generation modernization efforts and are expected to further reduce FPL’s CO2 emissions rates, which is already among the lowest in the nation and has declined more than 30% since 2005.

In addition to the terrific progress in generation, during the year, Florida passed the Public Utility Storm Protection Plans law that allows for clause recovery of storm hardening investments, including undergrounding. This new law supports continued hardening of FPL’s already storm-resilient energy grid and allows FPL to pursue these investments in a programmatic manner over the course of decades while deploying billions of dollars of incremental capital for the benefit of customers. We expect the final rules related to the new law to take effect later this quarter and that FPL will seek to begin clause recovery of its storm hardening investments beginning in 2021.

With terrific visibility into significant investment programs such as these, we remain as confident as ever about FPL’s ability to sustain its long-term growth trajectory while further improving our customers’ value proposition.

The Energy Resources team also continued its long track record of strong execution in 2019. The renewables origination success remained particularly strong with the team adding more than 5,800 megawatts to our backlog over the past year as we continue operating in what we believe to be the best renewables development environment in our history. Our ongoing renewables origination success results from our ability to leverage Energy Resources’ competitive advantages, including our best-in-class development skills, large pipeline of sites and interconnection queue positions, strong customer relationships, purchasing power, best-in-class construction expertise, resource assessment capabilities, strong access to and cost of capital advantages, and world-class operations capability. More than 50% of the solar megawatts that were added to our backlog in 2019 included a battery storage component, and the current backlog has more than 2,000 megawatts of trifecta projects that combined wind, solar, and battery storage together.

We also increasingly see storage as an important standalone business in its own right as we were reviewing a number of opportunities to add storage to our existing solar sites to take advantage of the ITC and enhance the value of our existing projects for customers. This highlights the rapid transition to the next phase of renewables development that pairs low-cost wind and solar energy with a low-cost battery storage solution as well as Energy Resources’ unique skills to combine the three technologies into integrated, near firm, low cost products.

Energy Resources’ significant competitive advantages position it well to capitalize on the enormous disruption that is occurring to the nation’s generation fleet. We continue to expect that by the middle of this decade, without incentives, new near firm wind is going to be a $20 to $30 per megawatt hour product, and new near firm solar is going to be a $30 to $40 per megawatt hour product. At these prices, new near firm renewables will be cheaper than the operating costs of most existing coal, nuclear, and less efficient oil and gas-fired generation units. We were pleased by the 60% PTC extension that was passed in 2019, and we expect that it will support incremental wind demand in 2023 and 2024.

Our confidence in renewables being the low-cost generation alternative in the middle of this decade remains stronger than ever. We expect the disruptive nature of renewables to be terrific for customers, terrific for the environment, and terrific for shareholders by helping to drive tremendous growth for this company over the next decade.

Let me now turn to Gulf Power and highlight how we executed in 2019 against some of the long term objectives that we outlined last year. As we’ve often discussed, two of the key hallmarks of the NextEra Energy playbook are reduced operating costs and using those savings to fund smart capital investments for our customers. After one year of ownership, we are well on our way to executing this strategy at Gulf Power. In 2019, we reduced Gulf Power’s O&M costs by approximately 20% year-over-year. In addition to lowering costs, we’ve also identified smart investment opportunities to benefit customers. In 2019, Gulf Power invested approximately $730 million, or roughly 2.5 times Gulf Power’s average capital investment amount over the past five years, and was able to regulatory capital employed at roughly 11% year-over-year.

Beyond realizing operating efficiencies and deploying smart capital, in the past year Gulf Power was able to meaningfully improve its customer value proposition. Gulf Power achieved its best ever service reliability year, which was approximately 20% better than its 2018 results. Customer service was also better with notable improvements in speed of answer and Florida Public Service Commission complaints.

There is nothing more important in our company than the safety of our employees. We made significant improvements in this area in 2019 as well with an approximately 40% reduction in our OSHA rate at Gulf Power versus 2018.

As the major capital investments that we advanced during 2019 come into service in 2020 and beyond, they will help achieve the other key objectives that we have outlined at Gulf Power, such as meaningful emissions reductions and, perhaps most importantly, a significant reduction in customer bills in real terms.

In addition to creating tremendous customer value, we expect that execution of the plans we’ve laid out at Gulf Power will also generate great outcomes for our shareholders as well. In our first year of ownership, Gulf Power’s adjusted earnings increase by 25% year-over-year. This outcome was even better than our plan at the start of the year and positions us well to deliver on the financial growth objectives that we outlined when we announced the acquisition. This high level performance across the board would not have been possible without the hard work and commitment of all Gulf Power employees.

While we are pleased with the results that we’ve achieved at Gulf Power during 2019, we remain focused on the significant execution ahead of us here to deliver even greater value to our customers and our shareholders.

Finally, we were once again honored to be named for the 13th time in 14 years number one in the electric and gas utilities industry on Fortune’s list of Most Admired Companies, as well as ranked among the top ten companies worldwide across all industries for social responsibility. During 2019 alone, NextEra Energy made approximately $13 billion in capital investments in American energy infrastructure, making us one of the top capital investors in the U.S. in any industry.

None of these recognitions nor our track record of success would be possible without the hard work and commitment to excellence of our people, who live our core value of doing the right thing every day. In the last year, there has been an increasing focus on ESG on the part of many of our stakeholders. The fact is our company has been focused on all of the elements of ESG for more than 25 years. We are proud of our track record here, but there is still so much more to do in this country to decarbonizes the electric transportation and industrial sectors. NextEra Energy is living proof that you can be clean and low cost and financially successful all at the same time.

We will be at the vanguard of building a sustainable energy era that is both clean and affordable, and we are driving very hard to continue to be at the forefront of the disruption that is occurring within the energy sector. We expect that the execution of our strategy will drive meaningful CO2 emissions reductions across the country while simultaneously lowering generation costs for customers, and our continued investments in clean energy will help advance NextEra Energy towards its goal of reducing its CO2 emissions rate by 67% by 2025 from a 2005 baseline.

In summary, I continue to remain as enthusiastic as ever about NextEra Energy’s long term growth prospects. In 2019, we extended our long term track record of executing for the benefit of customers and shareholders and further developed our best-in-class organic growth prospects. Based on the strength and diversity of our underlying businesses, I 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 2020, 2021 and 2022 while at the same time maintaining our strong credit ratings. We remain intensely focused on execution and continuing to drive shareholder value over the coming years.

Let me now turn to NextEra Energy Partners, which also had a terrific year of execution in 2019. In the more than five years since the IPO, NextEra Energy Partners has consistently delivered on its commitments. That history of execution is supported by NextEra Energy Partners’ outstanding portfolio of clean energy assets which grew significantly and was further diversified in 2019. During the year, NextEra Energy Partners acquired a portfolio of more than 600 megawatts of wind and solar assets from Energy Resources. Additionally during the fourth quarter, NextEra Energy Partners closed on the acquisition of Meade Pipeline Company, which owns an approximately 40% aggregate interest in Central Penn Line, an interstate natural gas pipeline in Pennsylvania that is backed by a minimum 14-year contract with a high credit quality customer and no volumetric risk.

Finally, during the year NextEra Energy Partners advanced an additional organic growth opportunity, announcing the repowering of 275 megawatts of wind projects. We are proud that 2019 is the first year that NextEra Energy Partners successfully executed on all of the three ways it can grow: organically, acquiring assets from third parties, and acquiring assets from Energy Resources’ portfolio, highlighting the clear flexibility and visibility into growth going forward.

To support the ongoing growth investments and optimize the capitals structure for the benefit of LP unit holders, NextEra Energy Partners completed a number of financings and refinancings in 2019 as well. At the start of the year, NextEra Energy Partners faced headwinds related to the PG&E bankruptcy. The team immediately focused on managing and mitigating the negative impacts of this event, and we ended 2019 having favorably addressed many of the challenges. The Energy Resources portfolio acquisition and associated financing that we announced last March allowed NextEra Energy Partners to complete its original 2019 growth objectives, even after excluding PG&E related project cash flows.

During the year, NextEra Energy Partners also purchased all of the outstanding holding company and operating company notes at our Genesis project. In addition to resulting in an increase in run rate cash available for distribution through the removal of project-level debt service, as a result of the purchase of the debt NextEra Energy Partners received approximately $128 million of distributions that had been or were expected to be restricted at the project. The release of this cash was used to partially fund the debt repurchase. I remain confident about a long term favorable resolution for our PG&E related assets.

In addition to growing LP distributions by 15% year-over-year and achieving a run rate adjusted EBITDA range in excess of what was originally expected, NextEra Energy Partners’ year-end 2019 run rate cash available for distribution expectations, assuming full contributions from PG&E related projects, represents approximately 60% growth from the comparable year-end 2018 run rate range. With this strong year-over-year growth and cash available for distribution, NextEra Energy Partners expects to be able to achieve its long term distribution growth expectations without the need for additional asset acquisitions until 2021. As of year-end 2020, we expect to have achieved NextEra Energy Partners’ distribution growth objectives while maintaining a trailing 12-month payout ratio in the mid-70s range even after excluding cash distributions from our Desert Sunlight projects.

NEP delivered an attractive total unit holder return of approximately 28% in 2019, further advancing its history of value creation since the IPO. I continue to believe that the combination of NEP’s clean energy portfolio, growth visibility, and flexibility to finance that growth offer LP unit holders an attractive investor value proposition. As with NextEra Energy, we remain focused on continuing to execute in delivering that unit holder value over the coming years.

I’ll now turn the call over to Rebecca, who will review the 2019 results in more detail.

[Rebecca Kujawa]

Thank you Jim, and good morning everyone. Let’s now turn to the detailed results, beginning with FPL.

For the fourth quarter of 2019, FPL reported net income of $400 million or $0.81 per share, down $0.04 per share year over year. For the full year 2019, FPL reported net income of $2.33 billion or $4.81 per share, an increase of $0.26 per share versus 2018. Regulatory capital employed increased by approximately 8.3% for 2019 and was the principal driver of FPL’s net income growth of roughly 8% for the full year.

During the fourth quarter, growth from new investments was offset by a number of factors, including a contribution to our charitable foundation that should fund its operations for the next several years. FPL’s capital expenditures were approximately$2 billion in the fourth quarter, bringing its full-year capital investments to a total of roughly $5.8 billion.

FPL’s reported ROE for regulatory purposes was 11.6% for the 12 months ending December 31, 2019, which is at the upper end of the allowed band of 9.6% to 11.6% under our current rate agreement. During the fourth quarter, we utilized a total of $18 million of reserve amortization, including the approximately $260 million that was utilized to offset Hurricane Dorian storm restoration costs, leaving FPL with a year-end 2019 balance of $893 million.

We continue to expect that FPL will end 2020 with a sufficient amount of reserve amortization to operate under the current base rate settlement agreement for one additional year, and as a result expect to file a base rate case in the first quarter of 2021 for new rates that are effective in January of 2022. While we have not made a final decision, based on our review we expect that the merging of FPL and Gulf Power and making a single rate case filing will result in customer benefits, and we therefore see this as a likely approach for the filing at this time.

All of our major capital projects at FPL are progressing well. The 10 solar sites totaling nearly 750 megawatts of combined capacity that are currently being built across FPL’s service territory are all on track and on budget to begin providing cost effective energy to FPL customers in early 2020. To support the significant solar expansion that FPL is leading across Florida, we have secured sites that could support 10 gigawatts of future projects.

Earlier this month, the Florida Public Service Commission held hearings on FPL’s proposed Solar Together program. We continue to expect a decision about the proposed program at the end of the first quarter.

Beyond solar, construction on a highly efficient, roughly 1,200 megawatt Dania Beach clean energy centre remains on schedule and on budget as it continues to advance towards its projected commercial operations date in 2022. We continue to expect that FPL’s ongoing smart investment opportunities will support a compound annual growth rate of regulatory capital employed of approximately 9% from 2018 through 2022 while further enhancing our best-in-class customer value proposition.

Let me now turn to Gulf Power, which reported fourth quarter 2019 GAAP and adjusted earnings of $23 million and $26 million respectively, or $0.05 per share. For the full year, Gulf Power reported GAAP earnings of $180 million or $0.37 per share and adjusted earnings of $200 million or $0.41 per share. As a reminder, during the first 12 months following the closing of the acquisition, we excluded one-time acquisition integration costs from adjusted earnings. Additionally, interest expense to finance the acquisition is reflected in corporate and other.

Gulf Power’s reported ROE for regulatory purposes will be approximately 10.8% for the 12 months ending December 2019, which is in the upper half of the allowed band of 9.25% to 11.25% under its current rate agreement. For the full year 2020, we expect to target a regulatory ROE near the upper end of this allowed band, assuming normal weather and operating conditions.

As Jim discussed, the overall execution of Gulf Power’s capital program is advancing well. Gulf Power’s first solar development project, the roughly 75 megawatt Blue Indigo solar energy center is expected to go into service later this quarter and generate significant customer savings over its lifetime. All the other major capital investments, including the North Florida Resiliency Connection and the Plant Crist coal to natural gas conversion, continue to remain on track.

The Florida economy remains healthy as Florida’s population continues to grow at one of the fastest rates in the nation. According to recent IRS data, Florida attracted a net gain of roughly $16 billion in personal taxable income in 2018, by far the highest of any state in the country and the fastest rate of growth as well, which is a reflection of the attraction of Florida’s low tax, pro-business policies. Florida’s most recent seasonally adjusted unemployment rate was 3.1%, below the national average and at the lowest level in a decade. Florida has now added nearly 2 million private sector jobs over the last 10 years.

Leading indicators in the real estate sector have remained at a stable pace, reflecting continued strength of the Florida housing market. Other positive economic data across the state include continued strength in retail taxable sales as well as the consumer confidence index, which remains near 10-year highs.

During the quarter, FPL’s average number of customers increased by approximately 100,000 from the comparable prior year quarter, driven by continued solid underlying growth and the addition of Vero Beach’s roughly 35,000 customers late last year. For 2019, FPL’s retail sales increased 1.7% from the prior year, driven primarily by a favorable weather comparison.

On a weather normalized basis, FPL’s retail sales declined by 0.6% as customer growth was more than offset by a reduction in underlying usage per customer. The decline in underlying usage was a reversal from the trend that FPL experienced in 2018 when underlying usage increased by 1.7%. As we’ve previously noted, usage per customer tends to exhibit significant volatility which can be more pronounced during periods of particularly strong weather conditions, similar to those experienced during 2019, which makes distinguishing between underlying usage changes and weather impacts challenging.

For Gulf Power, the average number of customers increased slightly versus the comparable prior year quarter as it moves beyond the impacts of Hurricane Michael in 2018. For 2019, Gulf Power’s retail sales declined slightly due to unfavorable weather and a small decline in underlying usage per customer.

Let me now turn to Energy Resources, beginning with a reporting change in our segments. Given the Trans Bay Cable acquisition during 2019, we have reevaluated our operating segments and made a change to reflect the overall scale of our competitive transmission business and the management of these projects within our company. Our reporting for Energy Resources now includes the results of our NextEra Energy Transmission projects, formerly reported in corporate and other segment. Our 2018 results have been adjusted accordingly for comparison purposes, resulting in an increase in Energy Resources’ full year 2018 adjusted EPS of $0.09 per share.

Incorporating the reporting change, Energy Resources reported fourth quarter 2019 GAAP earnings of $433 million or $0.88 per share. Adjusted earnings for the fourth quarter were $326 million or $0.66 per share. Energy Resources’ contributions to adjusted earnings per share in the fourth quarter decreased $0.01 versus the prior year comparable period as strong underlying growth from new and existing investments was more than offset by a number of items, including the negative $0.14 adjusted EPS impact of our refinancing activities which were primarily related to financing breakage costs associated with several wind repowerings as well as Energy Resources’ share of costs associated with the acquisition of the outstanding Genesis debt.

As a reminder, while these refinancing activities created a reduction in fourth quarter adjusted earnings, they are expected to translate to favorable net income contributions in future years and an overall improvement in net present value for our shareholders.

For the full year, Energy Resources reported GAAP earnings of $1.81 billion or $3.72 per share, and adjusted earnings of $1.7 billion or $3.49 per share. Energy Resources’ full year adjusted earnings per share contribution increased $0.35 or approximately 11% versus 2018. For the full year, growth was driven by continued additions to our renewables portfolio as contributions from new investments increased by $0.55 per share. Contributions from our gas infrastructure business, including existing pipelines, increased by $0.13 versus the prior year. Also contributing favorably were the customer supply and trading business, where contributions increased by $0.05 versus 2018, and NextEra Energy Transmission, which increased results $0.04 year-over-year primarily as a result of the Trans Bay Cable acquisition that closed in the middle of 2019.

These favorable results were partially offset by higher interest expense, reflecting the negative $0.14 adjusted EPS impact in the fourth quarter of refinancing activities as well as growth in the business and lower contributions from the existing generation assets.

In 2019, wind resource was 96% of the long term average, down from 97% a year earlier. Additional details are shown on the accompanying slide.

In 2019, Energy Resources continued to advance its position as the leading developer and operator of wind, solar and battery storage projects, commissioning approximately 2,700 megawatts of renewables projects in the U.S, including repowering. Since the last call, we have added 1,609 megawatts of renewables projects to our backlog, including approximately 500 megawatts of combined new wind and repowering, 700 megawatts of solar, and 340 megawatts of battery storage, all of which will be paired with new solar projects.

Energy Resources has now placed a total of approximately 3,700 megawatts of repowering projects in service since 2017, which represents approximately one-third of its operating wind portfolio as of year-end 2016. We expect that by the end of 2020, more than 60% of Energy Resources’ operating wind projects will have been originally recommissioned or repowered within the last five years, highlighting the young age of the overall fleet and the expected long date future value creation of the portfolio.

Following the terrific origination year in 2019 and with nearly three years remaining in the period, we are now within the 2019 to 2022 renewables development ranges that we introduced in the middle of last year. For the post-2022 period, our backlog is already more than 2,400 megawatts, placing us far ahead of our historical origination activity at this early stage. The accompanying slide provides additional detail on where our renewables development program now stands.

Beyond renewables, as of year-end 2019 the Mountain Valley pipeline was approximately 90% complete. We have been working with our project partners to resolve all of the outstanding permit issues for the pipeline and we continue to make good progress on these efforts. We expect that the issues related to MVP’s biological opinion and Nationwide 12 permit will be resolved in the spring, allowing construction work along much of the route to resume. We also remain hopeful that the Supreme Court will overturn the Fourth Circuit Court’s original decision on Atlantic Coast Pipeline’s case related to its Appalachian Trail Crossing authorization, resolving similar challenges for MVP. We continue to target a full in-service date for the pipeline during 2020 and an overall project cost estimate of approximately $5.4 billion.

Turning now to the consolidated results for NextEra Energy, for the fourth quarter of 2019, GAAP net income attributable to NextEra Energy was $975 million or $1.99 per share. NextEra Energy’s fourth quarter adjusted earnings and adjusted EPS were $706 million or $1.44 per share respectively. For the full year 2019, GAAP net income attributable to NextEra Energy was $3.77 billion or $7.76 per share. Adjusted earnings were $4.06 billion or $8.37 per share.

For the corporate and other segment, adjusted earnings for the full year decreased $0.35 per share compared to the 2018 prior comparable period, primarily as a result of higher interest expense related to the Gulf Power acquisition financing. NextEra Energy also delivered strong operating cash flow growth which increased at a faster rate than the adjusted EPS growth rate.

As expected, during 2019 we also maintained our strong credit position. Based on the S&P methodology, we estimate that we ended the year at a 22.5% FFO to debt level versus our current downgrade threshold of 21%. For Moody’s, we expect 2019 CFO pre-working capital to debt was 19.6% versus our current downgrade threshold of 18%. NextEra Energy’s cushion versus our credit metrics reflects the continued strength of our balance sheet and supports the record roughly $14 billion of capital investments that we expect to make in 2020.

The financial expectations that we extended last year through 2022 remain unchanged. We continue to expect that NextEra Energy’s adjusted EPS compound annual growth rate to be in a range of 6% to 8% through 2021 off of the 2018 adjusted EPS of $7.70, plus the accretion of $0.15 and $0.20 in 2020 and 2021 respectively from the Florida acquisitions. For 2020, we continue to expect our adjusted EPS to be in the range of $8.70 to $9.20, and as Jim highlighted, we will be disappointed if we are not able to deliver financial results at or near the top end of this range. This year, we do expect that our adjusted EPS growth will be more weighted towards the second half of the year.

For 2022, we expect to grow adjusted EPS in the range of 6% to 8% off 2021 adjusted EPS, translating to a range of $10 to $10.75 per share. From 2018 to 2022, we continue to expect that operating cash flow will grow roughly in line with our adjusted EPS compound annual growth rate range. As always, all of our expectations are subject to the usual caveats, including but not limited to normal weather and operating conditions.

Let me now turn to NextEra Energy Partners, which also had a strong year of operational and financial performance in 2019. Fourth quarter adjusted EBITDA was $280 million and cash available for distribution was $101 million, an increase of 70% and 130% respectively. The strong growth was driven primarily by the significant year-over-year growth in NextEra Energy Partners’ portfolio, including the 2019 acquisitions of the Energy Resources’ assets and the Meade Pipeline Company, as well as a full quarter’s contribution from the portfolio of projects that were acquired in late 2018.

For the full year 2019, adjusted EBITDA was $1.1 billion, up 25% year-over-year. Cash available for distribution, excluding all contributions from our Desert Sunlight projects, was $366 million, an increase of 8% from the prior year. Including full contributions from the Desert Sunlight projects, NextEra Energy Partners achieved CAFD growth 20% versus 2018.

Similar to the quarterly results, full-year growth in both adjusted EBITDA and CAFD was primarily driven by portfolio growth. The benefit from new projects was partially offset by the divestiture of Canadian assets during 2018. Cash available for distribution was also reduced by higher corporate level interest expense. As a reminder, these results include the impact of IDR fees, which we treat as an operating expense. Additional details are shown on the accompanying slide.

Yesterday the NextEra Energy Partners board declared a quarterly distribution of $0.535 per common unit or $2.14 per unit on an annualized basis, up 15% from the comparable quarterly distribution a year earlier and at the top end of the range we discussed going into 2019.

As Jim mentioned, during 2019 NextEra Energy Partners executed several financings for the benefit of LP unit holders. In addition to raising approximately $1.2 billion of unsecured holding company notes which priced at some of the lowest spreads ever in the sector, NextEra Energy Partners also raised $1.4 billion of low-cost project finance debt and executed a $1.3 billion revolver extension. NextEra Energy Partners also raised $1.8 billion through three convertible equity portfolio financings. With low initial coupons, the convertible equity portfolio financings provide more cash to LP unit holders, allowing NextEra Energy Partners to acquire fewer assets to achieve the same level of future distribution growth which will also, as a result, lower future financing needs.

In addition to reduced future asset and equity needs, these financings provide NextEra Energy Partners the flexibility to convert into common units at no discount over a long period of time. This should be accretive to LP unit holders who retain all of the unit price upside as NextEra Energy Partners executes on its expected distribution growth objectives. These attributes combined with the significant flexibility that NextEra Energy Partners retains with the financings, including the timing of conversion, option to convert at any price, option to pay the buyout in cash rather units, and the option to deploy the buyout amount into other assets should generate significant value to LP unit holders while also providing significant downside protection.

Finally, last quarter following the achievement of certain NextEra Energy Partners units trading thresholds, we converted the second tranche of the convertible preferred securities that we issued in 2017 into an additional roughly 4.7 million NextEra Energy Partners common units, further supporting our ongoing goal of using low-cost financing products to layer in equity over time.

The NextEra Energy Partners portfolio at year-end 2019 supports the revised adjusted EBITDA and CAFD December 31, 2019 run rate expectations that we announced at the time of the Meade acquisition. Since NextEra Energy Partners long-term distribution growth expectations are supported without the need of additional asset acquisitions until 2021, the December 31, 2020 run rate expectations for adjusted EBITDA and CAFD remain unchanged, at the same levels as the year-end 2019 run rate expectations.

Including full contributions from PG&E-related projects, year-end 2020 run rate cash available for distribution is expected to be in a range of $560 million to $640 million, reflecting calendar year 2021 expectations for the forecasted portfolio at the end of 2020 and assuming normal weather and operating conditions. Excluding all contributions from the Desert Sunlight projects, NextEra Energy Partners continues to expect a year-end 2020 run rate for CAFD in the range of $505 million to $585 million.

Year-end 2020 run rate adjusted EBITDA expectations, which assume full contributions from PG&E-related projects as revenue is expected to continue to be recognized, are $1.225 billion to $1.4 billion. 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.

From an updated base of our fourth quarter 2019 distribution per common unit at an annualized rate of $2.14, we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024. We expect that the annualized rate of the fourth quarter 2020 distribution that is payable in February 2021 to be in a range of $2.40 to $2.46 per common unit.

In summary, we continue to believe that both NextEra Energy and NextEra Energy Partners have excellent prospects for growth. FPL, Gulf Power, Energy Resources and NextEra Energy Partners each have an outstanding set of opportunities across the board. The progress we made in 2019 reinforces our long term growth prospects, and while we have a lot to execute on in 2020, we believe that we have the building blocks in place for another excellent year.

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

[Operator]

[Operator instructions]

Our first question today comes from Greg Gordon from Evercore ISI. Please go ahead with your question.

[Greg Gordon, Evercore ISI]

Thanks. Congratulations on another very, very consistent year performance.

[Rebecca Kujawa]

Thanks Greg, good morning.

[Greg Gordon, Evercore ISI]

A couple questions for you. Based on my back of the envelope math, it doesn’t look like you’ve earned the maximum allowable ROE at Florida Power & Light this year. Can you tell us where you landed on a return on equity basis for fiscal year ’19?

[Rebecca Kujawa]

Yes Greg, from a reported regulatory ROE standpoint, so what ultimately goes to the Florida Public Service Commission, we did earn the 11.6% ROE as allowed under our settlement agreement. You are right - we did have some below the line expenses, which is typical, but those below the line expenses are excluded from that regulatory ROE calculation.

[Greg Gordon, Evercore ISI]

Got you, understood. And then when you point out in your slide deck that the majority of your PTCs are now being allocated through tax equity, there’s a very clear slide in the appendix on that. That means that we should be looking at NCI on the balance sheet flowing through the income statement as the way that that’s flowing through earnings now, is that correct?

[Rebecca Kujawa]

Yes, that’s correct.

[Greg Gordon, Evercore ISI]

Okay, and the average amortization of a tax equity deal for a wind project is approximately 10 years, is that right?

[Rebecca Kujawa]

Yes, the earnings recognition is roughly coincident with the 10-year PTC range for all of our wind projects that are in PTCs.

[Greg Gordon, Evercore ISI]

Right, and for a solar deal, it would be slightly faster?

[Rebecca Kujawa]

Yes, it typically relates to the recognition of the ITC period, so for many tax equity structures, that’s over five years. Certain tax equity partners prefer a seven-year structure, and so then it would be over seven years as opposed to five.

[Greg Gordon, Evercore ISI]

Right. As you guys gear up for preparing for the rate case in 2021, are there any milestones this year or will the majority of the activity be happening in early ’21?

[Rebecca Kujawa]

Well as you certainly appreciate, there’s a ton of milestones that are largely internal for our teams as they get ready for any rate proceeding, and many of those preparation efforts started well before this year and are ongoing, and we have the incremental work this year of doing all the analysis of thinking about bringing FPL and Gulf together. But as I highlighted in the prepared remarks, based on what we know today, our expectation is that we would file a rate case in early ’21 for the new rates effective in 2022, and you know the first start of that would be the filing of the test year letter, which we would expect to file in early ’21.

[Greg Gordon, Evercore ISI]

Great. My last question is the battery storage backlog is obviously continuing to ramp. Are you buying battery storage--are you buying the product from another vendor or are you buying the components from different OEMs and building your own bespoke battery storage product? In other words, are you using a vendor like Fluence or one of the other total product companies, or are you sourcing components and building your own battery units?

[Rebecca Kujawa]

It’s much more the latter, Greg. We see a tremendous amount of value and are being able to have some nimbleness in where we procure the battery packs, but then we also are procuring separately, as you suggested, things like the containers and the other equipment that you would ultimately use to assemble the battery facility. And then also we’re designing our own management systems. We ultimately believe that some of the real value add that we’re going to be able to add to customers, that will likely differentiate us from others is that battery system management because we’ve talked about with you guys and with others over time that there’s probably not one value stream that creates the value for batteries, it’s usually a couple of different applications within the same system, and that management system and optimizing that is going to be part of the secret sauce of batteries.

We’ve invested a lot of time and energy in thinking through that not only on the Energy Resources deployments but also for the deployments that we’ve had at FPL, and we’re learned a tremendous amount and we’re really excited as we highlighted in the prepared remarks about batteries as a terrific supplement to further renewable deployment certainly in the middle part of the next decade and thereafter as renewables become a significant component of the generation stack in U.S. power markets.

[Greg Gordon, Evercore ISI]

Thanks a lot.

[Rebecca Kujawa]

Thank you.

[Operator]

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

[Steve Fleishman, Wolfe Research]

Yes, hi. Good morning. Just a question first if you could update us on the Santee Cooper situation and your interest there; and then secondly, with JEA now gone and stock obviously doing very well, just kind of overall thought process on M&A strategy and opportunities right now. Thanks.

[James Robo, Chairman, Chief Executive Officer]

Steve, this is Jim. I’ll take that. Obviously, we’re pretty limited in what we can say about the Santee Cooper situation other than what I’ve said previously, which is we remain very interested in Santee Cooper and we think South Carolina is a terrific place to do business, and that’s probably all I can say about that.

On the JEA front, I would say we’re disappointed that the sale process has been terminated. We think we could have brought enormous value to the customers and the citizens of Jacksonville, and we think it’s unfortunate that it’s been terminated, but that is what it is. In terms of future M&A activity, I will repeat what I’ve been pretty consistent in terms of what our strategy is on that front, which is in terms of what we like, we have been very focused. First of all, I don’t think there’s a utility in the country that wouldn’t benefit from the application of our playbook. That said, we have been focused on opportunities in the southeast, in the midwest, as well as FERC regulated opportunities. Those are, from a regulatory standpoint and other opportunities, what we think are the best fit for us and that remains our focus.

We continue to be very interested in trying to do something. That said, M&A is always hard and there are a lot of hurdles to get over, and we will, as always, be extraordinarily financially disciplined. You will never see us announce a deal that we say is strategic and has no accretion, so anything that we do will have significant accretion associated with it. So, I think that’s probably the sum total of what I can say on that.

[Steve Fleishman, Wolfe Research]

Okay. One quick technical question. Is there a quick and easy way you can quantify the balance sheet capacity available for these FFO to debt metrics at Moody’s and S&P in terms of dollars?

[Rebecca Kujawa]

Yes, we’re probably not going to quantify it exactly, Steve. As you’ve heard us say quite a number of times over the years, a strong balance sheet is incredibly important to us. We clearly have some room from our downgrade thresholds, which is certainly terrific and is important to us as we think about how do we make sure that we’re prepared for making investments that we want to make in the future, including especially this year, setting aside the comments that Jim just made on M&A, just for our organic growth prospects alone we have $14 billion of planned capital investment in our business, and having a strong balance sheet as we start to make those investments is incredibly important.

[Steve Fleishman, Wolfe Research]

Great, thank you.

[Operator]

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

[Julien Dumoulin-Smith]

Good morning, can you hear me?

[Rebecca Kujawa]

Good morning, we can hear you just fine.

[Julien Dumoulin-Smith]

Excellent. Thanks again for all the commentary. Perhaps kicking if off on the retiring front, would just be curious on your thoughts on the ’24 opportunity now, given the PTC extension. How does that shift your thinking and logic around incremental repowering? I know you provided already some fairly detailed remarks on repowering already, but I want to dig in on that specific opportunity especially given that that’s a year already after the timeline for the solar ITC here, if you can elaborate.

[Rebecca Kujawa]

Sure, of course. As we highlighted in our development expectations that we laid out this summer for the 2019 through 2022 time frame, you’ll note that the repowering opportunities that we saw were heavily, and at that time exclusively in the 2019 to 2020 time frame, and we’ve continued to work on opportunities to repower assets at both an 80% PTC and a 60% PTC, so first we’ll focus in the 80% before we even think about the extensions of anything that’s possible in 60%.

Remember, there’s always a trade-off in making these investment opportunities. Part of the economic value of that is getting the new set of PTCs, and so there’s a balance of the cost of the investment that you need to make in that equipment and also ensuring that you can meet the IRS test of the 80/20 valuation, and as the PTC value goes down, it gets a little bit harder to justify both of those requirements.

Again, we thought it was a terrific program, created a huge amount of shareholder value, really highlights the option value embedded in our portfolio, and we’ll continue to be creative and work towards creating more opportunities like that or things that are analogous to it in the future.

[Julien Dumoulin-Smith]

Got it, excellent. Just clarifying the last question a little bit, you mentioned FERC regulated opportunities. Jim, can you elaborate a little bit further on the thought process there? Obviously this transmission ROE question has been lingering across the sector. I just want to make sure we heard you right as to how you’re thinking about the various FERC asset classes.

[James Robo, Chairman, Chief Executive Officer]

Yes, so obviously we did the Trans Bay acquisition, that’s not in the midwest or the southeast, and we do on a long term basis like FERC regulated assets, notwithstanding the recent ROE decision on the MISO transmission owners.

Listen - I think there’s been--you know, obviously that’s an open docket at FERC right now. I probably can’t comment on what I think the outcomes are going to be there, other than to say I do believe FERC regulation will be constructive in the long term, and we think in the long term it’s a good place for us to deploy capital.

[Julien Dumoulin-Smith]

Maybe Jim, if I can, one more quickly on ESG. As you think about establishing targets and becoming, perhaps, more prescriptive and being a leader on this front, how do you think about being more specific on carbon? I know this comes up a little bit, but I’m curious on the thought process there. I know it’s also complicated, too.

[James Robo, Chairman, Chief Executive Officer]

Sure. I think we have been pretty specific about what our 2025 goal is, which is--remember, all of these discussions are about percent reductions. We started at an enormously lower level than the rest of the industry on just base CO2 emissions per megawatt hour generated, so any of the goals that we lay out, which our goal is a 67% reduction off our 2005 base by 2025, I think if you went back and you looked at the 2005 U.S. average and compared our NextEra rate in 2025 to that 2005 average, I’m going to give you a number and everyone is going to go check me on it, that would be an 85% or 90% reduction relative to the 2005 U.S. average CO2 emissions rate.

We are going to significantly decarbonize our company and our emissions, and I’m really excited about the goals we’ve set. I think they are very doable, and what I’m most excited about is the role that we can play both in Florida and in the rest of the country in terms of leading the way to decarbonize not just the electric sector but the transportation sector.

There’s lots more to do, as I said in my prepared remarks. I think the country has a lot more to do, and the great news for the country and the economy is you can be clean and low cost at the same time, and whatever we do will be for the benefit of the customers and it will drive good economics, better GDP growth for the country, lower costs, and obviously a better environmental profile.

[Julien Dumoulin-Smith]

Thanks for the time. I appreciate it.

[Operator]

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

[Shahriar Pourreza, Guggenheim Partners]

Hey, good morning guys. Just on the near backlog, it’s obviously very strong again, so I’m just trying to get a sense, Rebecca, on how much of that backlog increase, mainly on the wind side, was attributed to a pull forward of projects with the modest PTC extension versus actual incremental opportunities you’re seeing as we think about modeling forward.

[Rebecca Kujawa]

Yes, I don’t think it’s very much. I think it’s early--obviously the PTC extension happened very, very late in 2019, so I don’t think we’ve seen any impacts from it whatsoever, coupled with the fact that it’s quite a number of years down the road. It doesn’t affect the profile of the PTC in the next three years, which is really what was driving a lot of our customers’ actions.

In terms of overall demand and how that’s reflected, as we’ve said in the past, we thought 2020 was going to be a significant development year - clearly it is for wind, and that 2021 is more likely than not to be roughly comparable with where we were in 2019, and we continue to see really strong interest from our customers about wind in the long term, as they should be. As Jim highlighted, the cost of wind and solar projects out in the mid-2020s, assuming there are not any meaningful extensions of the incentives, which is an assumption at this point that should be checked, but assuming those incentives are not extended, are very competitive versus existing coal and nuclear plants and some less efficient gas-fired plants, so economics should continue to drive decisions for our customers for many, many years to come.

[Shahriar Pourreza, Guggenheim Partners]

Got it. Then just lastly, thanks for the incremental disclosures around Gulf. Is there anything you can maybe provide directionally on the base assumptions you’re assuming in ’22 as we’re thinking about your EPS guidance, i.e. maybe from a regulatory construct or even addition to spending opportunities, like the extension of SoBRA. Is there anything you can provide directionally on how you’re thinking about this?

[Rebecca Kujawa]

Not much beyond what we’ve already talked about in terms of everything that’s built into our expectations for 2020 through 2022, and as you recall from the investor conference materials, we did lay out a lot of the details for both businesses through 2021, and of course more detail for Energy Resources out in ’22. But the fundamentals are very consistent with what we’ve been doing for a long time on the regulated businesses - again, focusing on good capital investment that adds value for our customers and taking cost out of the business to ensure that we have very thoughtful views on customer bills, and in the case of Gulf Power targeting a meaningful decline in the bills out to the mid-2020s. So keep doing what we’re doing, and we couldn’t be more excited about the growth opportunities for all of the businesses that lay out in front of us.

[Shahriar Pourreza, Guggenheim Partners]

Got it, so stay tuned around the cap structure and the reserve amortization and how you’re thinking about chewing up between the two utilities?

[Rebecca Kujawa]

Absolutely.

[Shahriar Pourreza, Guggenheim Partners]

Okay, great. Congrats guys.

[Rebecca Kujawa]

Thank you.

[Operator]

Our next question comes from Michael Weinstein from Credit Suisse. Please go ahead with your question.

[Unknown Analyst]

Hi, just [indiscernible] on behalf of Mike. Thanks for taking the questions. Just a check on the battery growth you’re talking about, can you talk about these reductions you’re seeing on the battery systems for the projects in the pipe, and would it be possible to quantify the scale of opportunity for retrofits on existing sites, either at NEER or at NEP?

[Rebecca Kujawa]

In terms of battery cost, we’ve laid out some of our thoughts and expectations, I think most recently in our EEI investor presentation. We haven’t broken out a lot of the detail between battery back and the rest of the balance of system costs, but everything that we’ve laid out in terms of where we’ve seen the market declines coming from in aggregate has really started to materialize, and whereas two years ago we were surprised at how much faster costs were coming down, we’ve gotten more aggressive with our assumptions and now they’re roughly consistent with what we were thinking.

We continue to be very optimistic longer term about batteries, and as the whole industry has talked about, it’s really not about the power sector. It’s being driven much more by the electric vehicle sector, and those drivers appear to be pretty clear for quite a number of years down the road, which is really driving the manufacturing efficiencies and scale that we’re seeing on a battery pack side. So really excited about optimistic about where that business is headed.

[Unknown Analyst]

Got it. Could you just comment on the retrofit opportunity for either NEER or NEP for batteries, and would it be possible to get the tax credits on adding storage to an existing solar project?

[Rebecca Kujawa]

You know, it could obviously be a significant opportunity coincident with the significant deployment of [indiscernible] particularly where the penetration is high, adding batteries to existing solar sites could be very advantageous. To the extent that they’ve elected the ITC and ultimately are being used to charge the battery system, yes, they would qualify for ITCs as long as we meet certain conditions. It’s a terrific opportunity for the team, but it’s really consistent with what we’ve been thinking about for the overall market opportunity and what we’ve been highlighting for quite some time now to investors.

[Unknown Analyst]

Got it. Just one last question from me, if you could talk about the impact on interest rates on NEP’s ability to execute the convertible refinancings. Thank you.

[Rebecca Kujawa]

It’s been terrific. A low interest rate environment is obviously terrific for both of our businesses. We love low cost of capital to be able to deploy these solutions as economically as possible for both our customers on the Energy Resources side, as well as regulated utilities and of course also for NextEra Energy Partners. It’s been terrific.

[Unknown Analyst]

Thanks.

[Operator]

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