NextEra Energy, Inc.

Please stand by. We are about to begin. Good morning and welcome to the NextEra Energy, Inc. and NextEra Energy Partners LP Q4 and full year 2018 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. Today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded, and now I would like to turn the conference over to Matt Roscott, Director of Investor Relations. Please go ahead.

Thank you, Kathy. Good morning, everyone, and thank you for joining our fourth quarter and full year 2018 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, John Ketchum, Executive Vice President and Chief Financial Officer of NextEra Energy, Armando Pimentel, 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 Szilagyi, President and Chief Executive Officer of Florida Power & Lake Company. We will provide some opening remarks and we'll then turn the call over to John for a review of our fourth quarter and full year results. 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.

Thanks, Matt, and good morning, everyone. As John will detail later in the call, 2018 was a terrific year for both NextEra Energy and NextEra Energy partners. By successfully executing on our plans at both FPL and Energy Resources, NextEra Energy was able to achieve our target 2018 adjusted EPS of $7.70, an increase of approximately 15% over our 2017 results. Dating back to 2005, we've now delivered compound annual growth and adjusted EPS of over 8.5%, which is the highest among all top 10 power companies, who have achieved on average compound annual growth of roughly 3% over the same period. We delivered a total shareholder return of over 14% in 2018, outperforming the S&P 500 by nearly 19%, and the S&P 500 Utilities Index by more than 10%. Since 2005, we've outperformed 86% of the S&P 500 and 100% of the other companies in the S&P 500 Utilities Index, while continuing to outperform both indices in terms of total shareholder return on a 1, 3, 5, 7, and 10-year basis. We are once again honored to be named for the 12th time in 13 years, number one in the electric and gas utilities industry on Fortune's list of world's most admired companies. and to be among the top 25 of Fortune's 2018 Change the World list. During 2018, FPL successfully executed on its ongoing capital plan, including a continuation of one of the largest solar expansions ever in the U.S., and achieved its O&M efficiency targets to further improve its already best-in-class customer value proposition. As a result of continued smart investments to benefit our customers, FPL's typical residential bill is more than 30% below the national average, the lowest of all 54 electric providers in the state of Florida and nearly 10% below the level it was in 2006. In addition to low bills, FPL delivered its best ever service reliability performance in 2018 and was recognized for the third time in four years as being the most reliable electric utility in the nation. Throughout the year, we were fortunate to be in a position to assist other utilities across the country in their recovery from natural disasters, and we remain grateful for the support that others have given us over the years. After a nearly 10-year process, last month FPL closed on the purchase of the City of Vero Beach's municipal electric system. We look forward to extending FPL's value proposition to Vero Beach's approximately 35,000 customers. while also generating significant long-term savings for FPL's existing customers. The benefit to both new and existing customers is reflective of FPL's collaborative efforts with city, local, and regional leaders, as well as other state authorities, to find the best outcome for all stakeholders. Earlier this month, we were pleased to close on the purchase of Gulf Power and excited to welcome our new colleagues to the NextEra Energy family. We've now successfully completed all three transactions with Southern Company that we announced in the middle of last year. The acquisitions are an excellent complement to our existing operations and further expand NextEra Energy's regulated business mix through the addition of attractive electric and natural gas franchises. By executing on the same long-term strategy that we've deployed at FPL, we expect the acquisitions to benefit customers, shareholders, and the Florida economy. The energy resources team also continued its long track record of strong execution in 2018. The renewable's origination success was particularly strong, as the team added approximately 6,500 megawatts, including storage and repowering, to our backlog over the past year. This represents the most successful origination year in our history and is nearly twice as many megawatts as we originated in 2017, our prior record year. Our ongoing renewable origination success results from operating in what we believe to be the best renewables development environment in our history and our ability to leverage energy resources competitive advantages. These competitive advantages include our best-in-class development skills, strong customer relationships, purchasing power, best-in-class construction expertise, resource assessment capabilities, strong access to and cost of capital advantages, and the ability to combine wind, solar, and battery storage into integrated, nearly firm, low-cost products. During the year, we were pleased to receive the IRS start of construction guidance on the solar ITC, which we believe positions us well for substantial solar and storage growth well into the next decade. In 2018, more than 40% of the solar projects that were added to our backlog included a battery storage component, highlighting the beginning of the next phase of renewables development. that pairs low-cost wind and solar energy with a low-cost battery storage solution. With continued technology improvements and cost declines, we expect that without incentives, wind is going to be a 2 to 2.5 cent per kilowatt-hour product, and solar is going to be a 2.5 to 3 cent per kilowatt-hour product early in the next decade. Combining these extremely low costs with a 1.5 to 3.25 cent adder for a four-hour storage system will create a nearly firm renewable generation resource that is cheaper than the operating cost of coal, nuclear, and less fuel-efficient oil and gas-fired generation units. We continue to believe that this will be massively disruptive to the nation's generation fleet and create significant opportunities for renewable growth well into the next decade. Consistent with our focus on growing our rate-regulated and long-term contracted business operations during the fourth quarter, NextEra Energy Transmission announced an agreement to acquire Transbay Cable, a 53-mile high-voltage direct current underwater transmission cable system with utility rates set by FERC, which provides approximately 40% of San Francisco's daily electric power needs. Subject to regulatory approvals, the approximately billion-dollar acquisition, including the assumption of debt, is expected to close later this year and to be immediately accreted to earnings. The proposed acquisition, combined with the mid-continent independent system operator selection of NextEra Energy Transmission to develop the approximately 20-mile, single-circuit, 500 kV Hartberg-Sabine junction transmission line in East Texas, furthers our goal of creating America's leading competitive transmission company. In addition to successfully growing our regulated operations, both organically and through acquisitions during 2018, We further strengthened Energy Resources' existing portfolio during the year. In December, the Connecticut Department of Energy and Environmental Protection selected approximately 20% of the Seabrook Nuclear Plant's generation and 80 megawatts of new solar projects, which are not yet included in our backlog for long-term contracts. By operating one of the top performing nuclear plants in the nation, Energy Resources expects to provide significant amounts of carbon-free energy and prices generally in line with current forward curves while generating attractive shareholder returns. As a result, Seabrook's contract pricing is expected to be roughly 50% lower than the cost of offshore wind, generating significant savings for kinetic customers over the eight-year contract term. The Seabrook Award complements energy resources exit of the merchant business, which we began back in 2011 and essentially completed in 2016 with the sale of our Forney, Lamar, and Marcus Hook natural gas generation assets. Excluding Seabrook, the remaining merchant generation assets contribute less than 1% of NextEra Energy's consolidated adjusted EBITDA. Going forward, we expect this contribution to decline as the focus remains on regulated and long-term contracted opportunities and renewables, natural gas pipelines, and regulated transmission. As always, we will continue to opportunistically evaluate recycling capital through sales of non-strategic assets in our portfolio, including the remaining fossil generation assets, to fund the additional growth of the long-term contracted businesses. As a result of increasing the expected adjusted earnings contribution from rate-regulated businesses to roughly 70% and the steps that we have taken to further de-risk the energy resources portfolio, S&P announced earlier this month that they have revised their assessment of NextEra Energy's business risk profile upward from strong to excellent. As a result of this improvement, S&P reduced NextEra Energy's FFO to debt downgrade threshold from 23% to 21%. This follows Moody's announcements last year that with the expansion of the company's regulated operations to roughly 70% following the Gulf Power transaction, NextEra Energy's CFO pre-working capital-to-debt downgrade threshold would be reduced from 20% to 18%. At these revised rating agency thresholds, and following some utilization of balance sheet capacity for the Transbay transmission acquisition, we now expect to maintain $4 to $6 billion of excess balance sheet capacity through 2021. While we have multiple alternatives for utilization, we expect to use approximately $2 billion of this capacity in the near term to support additional regulated capital investments at FPL. Consistent with the significant incremental smart investment opportunities that exist at FPL, last week we announced FPL's groundbreaking 30 by 30 plan to install more than 30 million solar panels by 2030, resulting in an incremental 10,000 megawatts of solar projects versus what is in operation at FPL today. We will give further details on these and other potential investments, which are mostly expected to help maintain our long-term adjusted EPS compound annual growth rate beyond 2021 at our investor conference, which we plan to hold on June 20th in New York City. Following the strong results from 2018, I continue to believe that we have one of the best organic opportunity sets and execution track records in the industry. I remain as enthusiastic as ever about our long-term prospects, and 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 6% to 8% compound annual growth rate range through 2021, plus the expected deal accretion from the Florida transactions. while at the same time maintaining our strong credit ratings. Let me now turn to NEP, which also had a terrific year of execution in 2018. As John will describe later in the call, NEP successfully delivered on its growth objectives for adjusted EBITDA, CAFD, and LP distributions. During the year, we recycled the proceeds from the sale of NEP's Canadian portfolio into a higher yielding U.S. portfolio that benefits from a more favorable tax position. As a result of this accretive transaction, NEP extended its expectations for 12% to 15% per year DPU growth by one additional year to 2023. The 1.4 gigawatt renewable portfolio that was acquired from Energy Resources further enhanced the diversity of NEP's existing portfolio and was financed through a combination of the Canadian asset sale proceeds and a $750 million convertible equity portfolio financing with BlackRock. The financing demonstrates NEP's ability to access additional low-cost sources of capital to finance its growth. And with the right to convert a minimum of 70% of the portfolio financing into NEP units issued at no discount, the transaction further reduces NEP's equity needs going forward. NEP grew the LP distribution by 15% year-over-year and delivered a total unit holder return of approximately 4% in 2018, which is on the heels of a total unit holder return of over 75% the year prior. NEP outperformed both the S&P 500 and the other yield codes by 7% on average, and its total unit holder return was more than 15% higher than the Elarian MLP index. I continue to believe that the combination of NEP's growth visibility, along with its flexibility to finance that growth, offer unit holders an attractive investor value proposition. For these reasons, NEP is well positioned to continue executing on its growth objectives and delivering strong performance going forward. Before turning the call over to John, I'd like to announce some important organizational changes. Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources, and President and a member of the Board of Directors of NextEra Energy Partners, will retire from each of his positions on March 1st of this year as part of a planned leadership succession process that began when Armando shared his plans with me more than a year ago. John Ketchum, currently Executive Vice President and Chief Financial Officer of NextEra Energy, will replace Armando as President and Chief Executive Officer at NextEra Energy Resources. As part of John's new responsibilities, he will continue to serve as a member of the board of directors of NEP and will be appointed president of NextEra Energy Partners. Rebecca Chiava, currently vice president, business management, NextEra Energy Resources, will succeed John as executive vice president and chief financial officer of NextEra Energy. Rebecca will also become a member of the board of directors of NEP. Each of these changes will become effective on March 1st of this year. Armando has been an enormous contributor to NextEra Energy's success during his more than 10 years with the company, helping to build an industry-leading business during his tenure as CEO of Energy Resources. His leadership, his commercial judgment, his financial discipline have all guided Energy Resources through a period of truly unprecedented growth and financial success. Armando's contributions set the company on a path to become what it is today. the world's leading renewable energy company. He's been a great friend, colleague, and a truly valued counselor to me personally. And it's an understatement to say I'll miss him. But I'm also excited for Armando and what will come next for him and his family in retirement. With regard to John's promotion, I've had the chance to work closely with John for more than 16 years, as he has successfully progressed through a variety of different roles in our company. We're fortunate to have a person of his capabilities, vision, and experience. He's an exceptional leader who's emerged as one of the premier CFOs in our sector, and I have tremendous faith that John is the ideal successor to lead the energy resources team into the future due to his strong financial acumen, knowledge of the sector, and passion for building a world-leading energy company. Likewise, Rebecca has distinguished herself as a well-rounded executive with a proven track record of execution, outstanding finance and commercial skills, and an unparalleled understanding of the NextEra Energy enterprise. She's been instrumental in helping Armando lead energy resources and develop our strategy for NEP over the last several years, and her innovative, analytical, and strategic mindset will serve us well in her new role. I'm very happy to have Rebecca as our new chief financial officer. I'll now turn the call over to Armando, who'd like to make some personal remarks.