NextEra Energy, Inc.

and welcome to the NextEra Energy Inc. and NextEra Energy Partners LPQ2 2019 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Matthew Roscott. Please go ahead, sir.

Thank you, Jen. Good morning, everyone, and thank you for joining our second quarter 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 Chiava, 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 Szilagyi, President and Chief Executive Officer of Florida Power & 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 are 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. Be sure to 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 Rebecca.

Thank you, Matt, and good morning, everyone. Nexter Energy delivered strong second quarter results and is well positioned to meet its overall objectives for the year. Adjusted earnings per share increased nearly 13 percent versus the prior year comparable quarter, reflecting successful performance across all of the businesses. FPL increased earnings per share by five cents year over year. Average regulatory capital employed increased by more than 8% versus the same quarter last year. And all of our major capital initiatives, including the continuation of one of the largest solar expansions ever in the U.S., remain on track. With residential bills nearly 30% below the national average and the lowest among all of the Florida investor-owned utilities, FPL's focus continues to be on identifying smart capital investments to lower costs, improve reliability, and provide clean energy solutions for the benefit of our customers. The execution of the NextEra Energy Playbook at Gulf Power, which is focused on reducing costs and using those savings to help fund smart capital investments for the benefit of customers, also continues to progress well. We have made terrific progress on our operational cost effectiveness initiatives, and I am also pleased to announce that earlier this month we completed our first major capital project at Gulf Power, the PlantSmith combustion turbine upgrades on schedule and on budget. Through improved efficiency and reliability, these upgrades are expected to generate approximately $40 million of net customer savings over their lifetime. At Energy Resources, adjusted EPS increased by 10 cents year-over-year, primarily reflecting contributions from new investments. We continue to capitalize on one of the best environments for renewables development in our history, with our backlog increasing by more than 1,850 megawatts since our first quarter call, including more than 400 megawatts since our investor conference in June. As we highlighted last month, with continued cost and efficiency improvements, we expect new near-firm wind and solar to be cheaper than the operating costs of coal, nuclear, and less efficient oil and gas fire generation units, even after the tax credits phase down early in the next decade. The combination of low-cost renewables plus storage is expected to be increasingly disruptive to the nation's generation fleet, providing significant growth opportunities well into the next decade. By leveraging energy resources' significant competitive advantages, we expect to continue to capture a meaningful share of this opportunity set going forward. We are pleased with the progress we have made at NextEra Energy so far in 2019. and headed into the second half of the year, we are well positioned to achieve the full year financial expectations that we have previously discussed, subject to our normal caveats. Now let's look at the detailed results, beginning with FPL. For the second quarter of 2019, FPL reported net income of $663 million, or $1.37 per share, which is an increase of $37 million and 5 cents per share, respectively, year over year. Regulatory capital employed increased by approximately 8% over the same quarter last year and was the principal driver of FPL's net income growth of nearly 6%. FPL's capital expenditures were approximately $1.2 billion in the second quarter, and we expect our full-year capital investments to total between $5.7 and $6.1 billion. A reported ROE for regulatory purposes will be approximately 11.6 for the 12 months ending June 2019, which is at the upper end of the allowed band of 9.6 to 11.6% under our current rate agreement. During the quarter, we restored $222 million of reserve amortization to achieve our target regulatory ROE, leaving FPL with a balance of $607 million. As a reminder, rather than seek recovery from customers of the approximately $1.3 billion in Hurricane Irma storm restoration costs, in 2017, FPL utilized its remaining available reserve amortization to offset nearly all of the expense associated with the write-off of the regulatory asset related to Irma cost recovery. During the second quarter, the Florida Public Service Commission ruled that FPL's actions were permitted under the terms of the current base rate settlement agreement, that FPL is able to credit the reserve amount with tax savings resulting from tax reform, and that FPL's rates remain just and reasonable. On July 10th, the Office of Public Counsel filed a notice of appeal of this decision with the Florida Supreme Court. Separately, FPL and the Office of Public Counsel and other interveners entered into a settlement regarding the prudence of FPL's Hurricane Irma storm restoration costs and activities, which was approved by the Commission earlier this month. We believe the agreement fairly and reasonably balances the interests of FPL and its customers and should create further customer benefits through enhanced storm recovery processes in the future. As we discussed at the investor conference last month, We expect that FPL will file a base rate case in the first quarter of 2021 for new rates that are effective in January of 2022, one year later than would have been necessary in the absence of the Commission's ruling related to reserve amortization and tax reform. This one-year delay in the need for a base rate increase creates significant customer value. Turning to our development efforts, all of our major capital initiatives at FPL are progressing well. During the quarter, construction commenced at 10 solar sites across FPL service territory. The new plants, which will comprise a total of nearly 750 megawatts of combined capacity, are all on track and on budget to begin providing cost-effective energy to FPL customers by early 2020. Late last month, Governor DeSantis signed legislation into law that allows for recovery of storm-hardening investments, including undergrounding. This new law will allow FPL to pursue these storm-hardening investments in a programmatic basis over the course of decades for the benefit of customers through improved reliability and reduced storm restoration times. The Florida Public Service Commission is in the early stages of the rule development process, which we expect will result in a proposed rule later this year. Let me now turn to Gulf Power, which reported second quarter 2019 gap earnings of $45 million, or $0.09 per share, and adjusted earnings of $58 million, or $0.12 per share. As a reminder, during the first 12 months following the closing of the Gulf Power acquisition, we intend to exclude one-time acquisition costs from adjusted earnings. Additionally, interest expense to finance the acquisition is reflected in the corporate and other segment, and this expense offsets the majority of the second quarter Gulf Power adjusted earnings contribution. Gulf Power's reported ROE for regulatory purposes will be approximately 9.9% for the 12 months ending June 2019. For the full year 2019, we continue to target a regulatory ROE in the upper half of the allowed band of 9.25 to 11.25%. During the quarter, Gulf Power's capital expenditures were roughly $150 million, and we expect the full year capital investments to total between $700 million and $800 million. all of the major Gulf Power capital projects are continuing to progress well. During the quarter, the Florida Public Service Commission approved Gulf Power's cost recovery petition for the approximately $350 million in Hurricane Michael restoration costs. Subject to a review and prudence determination of the final storm costs, at the beginning of July, Gulf instituted a surcharge equivalent to $8 per month on a 1,000-kilowatt-hour residential bill until the storm costs are fully recovered, which is expected to occur after approximately 60 months. As we announced last month, similar to FPL, our current best estimate is that Gulf Power will file a rate case in the first quarter of 2021 for new rates effective in January of 22. In addition, we are in the midst of reviewing the potential benefits from merging the two Florida operating utilities into a single larger Florida utility company. While no decision regarding a potential merger has been made at this time, we are actively evaluating it and looking at both the operational and financial benefits for our customers. We will provide an update on our plans as we get closer to the expected filing of the future rate case. The economy in Florida continues to grow at a healthy pace and remains among the strongest in the nation. The current unemployment rate of 3.4% is near the lowest levels in a decade and remains below the national average. The real estate sector continues to grow with ongoing growth in building permits and a year-over-year increase in the Case-Shiller Index for South Florida of 4%. At the same time, the June reading of Florida's consumer sentiment remains strong. 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. FBL's second quarter retail sales increased approximately 6.5% from the prior year comparable period, and we estimate that approximately 5.3% can be attributed to weather-related usage per customer. On a weather-normalized basis, second quarter sales increased 1.2% as continued customer growth and weather-normalized usage per customer both contributed favorably. For Gulf Power, the average number of customers was roughly flat to the comparable prior year quarter, as the recovery from Hurricane Michael continues to progress slowly. Gulf's second quarter retail sales increased 2.3% year-over-year, primarily due to favorable weather. Let me now turn to Energy Resources, which reported second quarter 2019 GAAP earnings of $661 million, or $1.37 per share, and adjusted earnings of $448 million, or $0.93 per share. This is an increase in adjusted earnings per share of $0.10, or approximately 12%, from last year's comparable quarter results, which have been restated lower by $12 million, or $0.03 per share, to reflect the adoption of new lease accounting standards during the fourth quarter of 2018. New investments added $0.09 per share, reflecting continued growth in our contracted renewables program. Weaker wind resource during the second quarter was the primary driver of the six-cent decline in contributions from existing generation assets. Second quarter fleet-wide wind resource was the second worst for the energy resources portfolio over the last 30 years at 93% of the long-term average versus 101% during the second quarter of 2018. Contributions from our gas infrastructure business, including the existing pipelines, increased by two cents year over year. Our customer supply and trading business contributed a positive $0.06 per share, and all other impacts decreased results by $0.01 versus 2018. As I mentioned earlier, Energy Resources Development Team had another excellent quarter of origination success, adding more than 1,850 megawatts to our backlog. Since our last earnings call, we have added 94 megawatts of new wind projects, 828 megawatts of wind repowering projects, and 744 megawatts of new solar projects to our renewables backlog. One of these solar projects will be paired with a 200 megawatt four-hour battery storage system, continuing our success as we further advance the next phase of renewables deployment that pairs low-cost wind and solar energy with a low-cost battery storage solution to provide a product that can be dispatched with enough certainty to meet customer needs for a nearly firm generation resource. We also executed build-owned transfer agreements for a 99 megawatt wind project and a 75 megawatt solar project, which are not included in our backlog additions. Our current backlog of more than 11,700 megawatts is the largest we have ever had in our nearly 20-year development history. Of this total, we currently have over 7,600 megawatts that we expect to place into service in 2019 and 2020. which is above the midpoint of our expectations range for this period. Only halfway through 2019, we are pleased to have already signed nearly 4,100 megawatts of contracts for delivery beyond 2020, including roughly 900 megawatts for delivery in 2023, which is a reflection of the continued strong economic demand for wind, solar, and battery storage, combined with our competitive advantages in renewables developments. Beyond renewables, we have ramped up construction activities for MVP and expect to be approximately 90% complete by the end of this year as the project continues to advance towards ultimate completion. We continue to work with our project partners to resolve the outstanding permit issues required for the pipeline's construction, including pursuing multiple alternatives to address the Appalachian Trail crossing issue. As we announced last month, we are now targeting a full in-service date for the pipeline during 2020, with a revised overall project cost estimate of approximately $5 billion. As a reminder, we do not expect any material adjusted earnings impacts, nor any change to NextEra Energy's financial expectations, regardless of the outcome of the ongoing challenges related to MVP. Turning now to consolidated results for NextEra Energy. For the second quarter of 2019, GAAP net income attributable to NextEra Energy was $1.234 billion, or $2.56 per share. NextEra Energy's 2019 second quarter adjusted earnings and adjusted EPS were $1.133 billion and $2.35 per share, respectively. Adjusted earnings from the corporate and other segment were flat year-over-year as higher interest expense related to the Gulf Power acquisition financing. was roughly offset by the absence of the unfavorable tax ruling-related charge that negatively affected 2018 results. Earlier this month, following the approval from the California Public Utilities Commission, Nexter Energy Transmission acquired Transbay Cable, a 53-mile rate-regulated high-voltage direct current underwater transmission cable system, which provides approximately 40% of San Francisco's daily electrical power needs. We are pleased to close the acquisition and further expand our rate-regulated and long-term contract business operations as we advance our goal of creating America's leading competitive transmission company. The financial expectations, which we have extended through 2022 last month, remain unchanged. For 2019, we would be disappointed if we do not realize adjusted EPS growth at the top end of our 6% to 8% growth rate. off of a 2018 base of $7.70 per share, which, if achieved, would result in adjusted EPS of $8.32 per share. While we are pleased with our year-to-date results, which have exceeded the top end of our growth rate expectations, we expect the second half growth rate to be lower due to a number of factors. These factors include a number of liability management activities we are currently reviewing to take advantage of the low interest rate environment. as well as the financing breakage impacts associated with several wind repowerings. Both of these initiatives would generate modest net income impacts in 2019 before translating to favorable net income contributions in future years and an overall improvement in net present value for our shareholders. We will update you on the status of these initiatives as they progress during the year. Looking further ahead, we continue to expect NextEra Energy's adjusted EPS compound annual growth rate range to be in a range of 6% to 8% through 2021, off of our 2018 adjusted EPS of $7.70 per share, plus the accretion of the 15 and 20 cents in 2020 and 2021, respectively, from the Florida acquisitions. As we announced last month, for 2022, we expect to grow adjusted EPS in a range of 6% to 8% off of 2021 adjusted EPS, translating to a range of $10 to $10.75 per share. Based upon the clear visibility into the meaningful growth prospects across all of our businesses, we will be disappointed if we are not able to deliver growth at or near the top end of our 6% to 8% compound annual growth rate range through 2022, plus the specified accretion from the Florida acquisitions in the relevant years. From 2018 to 2022, we expect that operating cash flow will grow roughly in line with our adjusted EPS compound annual growth rate range. We continue to expect to grow our dividends per share 12% to 14% per year through at least 2020 off of a 2017 base of dividends per share of $3.93. As we noted during the investor conference last month, we will be discussing our dividend policy with the Board of Directors in early 2020. We continue to believe that our relatively conservative dividend payout ratio versus peers in our industry and our strong adjusted EPS and cash flow generation growth profile position us well to continue to deliver attractive dividend growth. As always, all of our expectations are subject to the usual caveats, including but not limited to normal weather and operating conditions. In summary, we continue to believe that NextEra Energy offers one of the best value propositions in the industry. We have a long-term track record of delivering results for shareholders and remain intensely focused on continuing to achieve our strategic and growth initiatives going forward. NextEra Energy maintains one of the strongest credit ratings and balance sheets in the sector, backed by a largely rate-regulated and long-term contracted asset portfolio. With a strong pipeline of attractive investment opportunities across all of our businesses, We believe NextEra Energy is as well positioned as ever it has ever been to deliver on our financial expectations over the next four years. Let me now turn to NextEra Energy Partners. Yesterday, the NextEra Energy Partners Board declared a quarterly distribution of 50.25 cents per common unit or $2.01 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 rate range. As we highlighted at the investor conference, NextEra Energy Partners is well positioned to benefit from significant wind and solar growth that is expected in the U.S. over the coming years. With the economic advantages of wind and solar versus traditional generation resources, even after the tax credits phase down, we expect renewables to grow at a rate that provides a meaningful tailwind to NextEra Energy Partners' growth well into the next decade. With its cost and access to capital advantages, operating cost advantages, and with a better than 15-year corporate tax yield, NextEra Energy Partners is as well positioned as ever to capture these growth opportunities. During the quarter, NextEra Energy Partners executed on its plan to continue to expand its portfolio by closing on the previously announced acquisition of approximately 600 megawatts of geographically diverse wind and solar projects from energy resources, combined with an associated recapitalization of existing NextEra Energy Partners assets. The transaction was financed with a $900 million convertible equity portfolio financing, as well as existing NextEra Energy Partners debt capacity. As part of our ongoing efforts to mitigate the impact of PG&E bankruptcy, Late in the second quarter, we launched a tender offer to purchase 100% of the outstanding holding company notes at our Genesis project that had an interest rate of 5.6%. Our interest in buying the Holco notes reflects our confidence that our existing contracts with PG&E will ultimately be upheld in the bankruptcy process. As we announced earlier this month, we were successful in acquiring approximately $171 million of the $240 million of outstanding principal during the tender process. We were pleased to see the California wildfire legislation passed earlier this month and believe that this was an important step to healthier, more creditworthy California utilities going forward. In particular, we note that the new law provides that if PG&E wants to participate in the wildfire fund, it must emerge from bankruptcy by June 30, 2020. In addition, the California Public Utilities Commission must approve PG&E's reorganization plan resolving the bankruptcy and confirm that the plan is consistent with California's climate goals pursuant to the state's Renewable Portfolio Standard Program and related procurement requirements. Separately, we note that a plan of reorganization recently put forward by a group of senior unsecured note holders proposes, among other things, the continuation of PG&E's current renewables contracts without disruption or modification. These recent developments are incrementally positive in our view, and we remain confident that PG&E's bankruptcy will be resolved favorably as it relates to our project's contracts. In addition to closing our second low-cost convertible equity portfolio financing, NextEra Energy Partners demonstrated its ability to access additional low-cost sources of capital with the June issuance of $700 million of five-year senior unsecured notes at an attractive 4.25% yield. the lowest ever coupon for a five-year high-yield issuance in the power sector. We believe the strong demand for the offering is indicative of NextEra Energy Partners' superior value proposition, supported by diversified cash flows from long-term contracts with strong creditworthy counterparties. NextEra Energy Partners used the proceeds to pay off the outstanding balance of $450 million under its revolving credit facility and to purchase the Genesis holding company notes that were tendered as well as for general partnership purposes. Earlier this month, following the achievement of certain Next Energy partners' trading thresholds, we converted one-third, or approximately $183 million, of the convertible preferred securities that were issued in 2017 into roughly 4.7 million Next Energy partners' common units. The conversion of the first tranche of these securities helps achieve NextEra Energy Partners' goal of using low-cost financing products to layer in equity over time and further supports NextEra Energy Partners' credit metrics. Finally, at the investor conference, NextEra Energy Partners announced agreements to repower two wind facilities, totaling approximately 275 megawatts. Repowerings are expected to be completed in 2020 and provide a number of benefits, including increased generation and longer-lived assets with lower maintenance costs. The repowerings have a total capital commitment of approximately $200 million and are expected to generate attractive CAFTI yields in excess of 10%. As the NextGen Energy Partners portfolio continues to further expand, we expect to execute on additional attractive organic growth opportunities. Let me now review the detailed results for NextGen Energy Partners, which were generally in line with our expectations after accounting for the below average wind resource. Second quarter adjusted EBITDA was $284 million, up 12% from the prior year comparable quarter due to the growth in the underlying portfolio. New projects, which primarily reflect the asset acquisitions that closed at the end of 2018, contributed $83 million. The benefit from new projects was partially offset by the absence of the Canadian assets, which were sold at the end of the second quarter last year, as well as a decline in the contribution from existing assets of $18 million. This decline is almost entirely the result of lower wind resource, which was 94% of the long-term average, the fourth-worst second-quarter resource for the NextEra Energy Partners portfolio over the last 30 years, versus 102% in the second quarter of 2018. In spite of the strong adjusted EBITDA growth year-over-year, cash available for distribution declined 2% versus the prior year-comparable quarter, driven primarily by the structural timing of PAYGO tax equity payments. For the acquisition that closed in 2018, all of the PAYGO payments are received in the first and third quarters of the year, which limited the CAFTI contributions from new projects in the second quarter, but is expected to help contribute to very strong CAFTI growth in the third quarter, assuming normal resource and operating conditions. As a reminder, these results include the impact of IDR fees, which we treat as an operating expense. Additional details of our second quarter results are shown on the accompanying slide. At the end of the second quarter, approximately $45 million of cumulative cash distributions from PG&E-related projects, including Desert Sunlight 250, which is contracted with Southern California Edison, were not distributed as a result of events of default under the financings that arose due to PG&E's bankruptcy filing. PG&E continues to make payments under all of our contracts for post-petition energy deliveries, and we continue to evaluate all options to protect our interests. NextEra Energy Partners expects to achieve its 2019 growth objectives, assuming no cash is available from PG&E-related projects. Excluding all contributions from the PG&E-related projects, NextEra Energy Partners continues to expect a year-end 2019 run rate for CAFTI of $410 million to $480 million, reflecting the calendar year 2020 expectations for the forecasted portfolio at the end of 2019. Year-end 2019 run rate CAFTE expectations would be $485 million to $555 million, assuming favorable resolution of the current events of default for our PG&E-related assets. Year-end 2019 run rate adjusted EBITDA expectations, which assume full contributions from projects related to PG&E as revenue is expected to continue to be recognized, remain unchanged at $1.2 billion to $1.375 billion. From a base of NextEra Energy Partners' fourth quarter 2018 distribution per common unit at an annualized rate of $1.86 per common unit, we continue to see 12% to 15% per year growth in LP distributions as being a reasonable range of expectations through at least 2024, subject to our usual caveats. As we've previously discussed, following the closing of the recent acquisition, NextEra Energy Partners also expects to grow the 2019 distribution at 15%. resulting in the annualized rate of the fourth quarter 2019 distribution that is payable in February 2020 to be $2.14 per common unit. Additionally, as a result of the Nexter Energy Partners' significant financing flexibility, aside from any modest issuances under the at-the-market program or issuances upon conversion of Nexter Energy Partners' convertible securities, We continue to expect that Next Energy Partners will not need to sell common equity until 2021 at the earliest. As we highlighted last month, the combination of Next Energy Partners' successful completion of its identified organic growth investments, which include the previously announced expansion at our Texas pipelines, as well as the wind repowerings that I discussed earlier, combined with a successful resolution of the PG&E bankruptcy and an associated future release of cash flow from the PG&E-related assets, would result in approximately 22% uplift in the run rate cash available for distribution from year-end 2019 levels. This is roughly one and a half years of current CAFTI and distributions per unit growth for NextEra Energy Partners, highlighting the significant embedded upside that exists within the portfolio. We continue to believe that NextEra Energy Partners offers a very attractive investor value proposition. NextEra Energy Partners maintains clear visibility into its future growth prospects, with continued flexibility to grow in three ways, through organic growth, third-party acquisitions, or through acquisitions from NextEra Energy Resources. With a substantial forecast of growth in the renewable sector, NextEra Energy Partners is expected to benefit from a strong growth backdrop for years to come. Additionally, the financing transactions that close this quarter demonstrate NextEra Energy Partners' continued ability to access low-cost financing to support its growth. With significant financing flexibility, an attractive underlying portfolio, a favorable tax position, and enhanced governance rights, NextEra Energy Partners is well positioned to meet its growth objectives, and we remain focused on continuing to create value for LP unit holders going forward. In summary, as we detailed last month at the investor conference, we continue to believe that both NextEra Energy and NextEra Energy partners have some of the best opportunity sets and execution track records in the industry, and we remain as enthusiastic as ever about our future prospects. This concludes our prepared remarks, and with that, we will open up the line for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then 2. At this time, we will pause momentarily to ask number or roster. Again, if you have a question, please press star, then 1. We will take our first question from Steven Berg with Morgan Stanley. Please go ahead.

All right. Good morning. Congratulations on the good results.

Good morning, Stephen.

I wanted to just circle back to the point you had raised about assessing the benefits of merging the utility businesses. I know it's premature to talk in detail, but could you just describe at a high level the types of financial and operational benefits you're considering, some of the key sort of elements that we should be at least thinking about there?

Hi, Stephen. So we talked very briefly about this, both Eric and Marlene did last month at the investor conference. And it really is, you know, the timing is aligned with when we might, based on the best information we have now, when we might file for rate cases, both at Gulf Power and FPL. And as part of that, we will consider whether or not it makes sense to merging these two entities together. It very much is in the early stages of that evaluation, but because we're starting to think about it and some of the investments that we make or planning to make in the next couple of years certainly would facilitate that. When we'd be talking to different stakeholders about it, we thought it prudent to talk to investors about it, but we are very much at the early stages. We expect that there are certain operational benefits and certainly some potential financial benefits from leveraging the scale of and scope of both companies together. But as far as details, you know, all of that analysis is still to be done.

Understood. And I just wanted to shift over to the update you gave on PG&E. We agree that it does not seem very likely at all that any contracts will be modified in any way. If PG&E does not emerge by next summer, Are there other approaches that you could take to potentially free up the cash? I mean, over time, that cash balance will be pretty significant at the projects. Are there sort of other options on the table beyond simply the focus on ensuring PG&E does successfully exit?

You know, we'll continue to talk with all of the critical parties, including the lenders, as well as the Department of Energy, which, as you know, guarantees a couple of the projects' debts. with some of the contracts that we have with PG&E. But as you know, and I think we talked about after our December quarter call in January, after a period of time, some of that cash flow starts to sweep debt service. So while there is a balance of cash, at some point it starts to get swept, and so what we're really focused on is releasing the longer-term run rate cash flow, which is what our comments were focused on today. We'll certainly pursue all avenues, but really the best way to free it up for the long term is to have the resolution to the bankruptcy process.

Understood. Thank you very much.

Thank you, Stephen.

We will now take our next question from Steve Flashman with Wolf Research. Please go ahead.

Yeah. Hey, good morning. So first question, just on the comments regarding some of the second half activities you might do, which sounds like you're maybe got some cushion in this year. So I think you mentioned liability management. I assume that's just refinancing where you have to expense a bond premium for this year. But could you explain the second one, the wind repowerings a little more and what you're doing there and the impact in the second half?

Yeah, wind repowerings would be similar to the other type of restrictions you just mentioned in terms of financing, taking advantage of prepaying today to have the longer-term lower interest rates over the long term. But specific to some of the repowerings, some of those have financings in place, whether they're tax equity structures or project finance, that over time as we've executed the repowering program, some of those we needed to terminate early. Some of them, it's just simply essentially making the make-hole of whatever the interest rate was and whatever the prevailing interest rates are. Sometimes there are some penalties and make-holes, particularly on the tax equity structures, to make the tax equity partners whole. So to the extent that we have to accelerate those and realize them, there may be a negative net income impact, which we're expecting for a couple of the financings between NEP and energy resources in the latter part of this year. But again, from a net present value standpoint for investors, these are home runs because they enable attractive repowering opportunities and at the same time entering into long-term financing at these really, really low interest rate environments.

Okay. Good. And then just a quick question on MVP. I think since your analyst day, the Supreme Court filings were made on ACP and In the solicitor general filing, there was some comments on the land swap issue in there. Could you just give some color on that and how you looked at those comments?

Sure. As we talked about in the prepared remarks, we continue to believe that MBP is progressing fine. We're going to resume construction activities and try to be 90% complete by year end. And what we commented on is the in-service date of in 2020. And there's a number of paths, including down the Supreme Court path, as well as the land exchange and certain other options that we have. And we're going to continue pursuing all of those different paths. I don't want to comment specifically on the Solicitor General's comments. Obviously, this is going to be a process. We have some certain views on whether or not we've got opportunities to go down the land exchange path, but I don't want to make any specific comments.

Okay. And then one last quick one, just the NEP convert, which convert was?

This is the preferred that was issued in 2017, and we had the right, excuse me, to convert a third of that so long as it met the minimum price and volume thresholds, which we achieved, you know, a couple weeks ago, and we did convert them into equity. another third of the preferred security will be available for conversion later this year. Okay.

Thank you very much.

We will now take our next question from Julian DeMoulin-Smith with Bank of America Merrill Lynch. Please go ahead.

Good morning, Julian. Are you there? Okay. Okay, we should take the next question.

We'll now take our next question from Shar Paretza with Guggenheim Partners. Please go ahead.

Hey, good morning, guys. Good morning. Just around Gulf Power, just maybe a quick update on sort of how the accretion guide is tracking and how the integration is going. But more importantly, Brooke, it seems like you guys are looking to file a GRC sooner than later despite, you know, having material amount of efficiencies on the fuel and non-fuel side that should theoretically be able to subsidize spending opportunities for at least a few years. So, you know, what's the thought process there? Is it solely because you guys are looking at the merger? Are you looking at true-up rates closer to FPL? What's driving the rate case to come sooner than, you know, previously planned?

Okay, I'll take them in successive order. As far as... how integration efforts are going, they're going very well. And Marlene had a full set of comments about that last month, and things have continued to progress well in now intervening months since then. All the cost opportunities, cost-saving initiatives that we thought were there are certainly there, and we're starting to execute on it. As we talked about in the prepared remarks, we're already starting to implement the capital investment program, including the completion of the plant, Smith combustion turbine upgrades that we just completed in the period. So we're very optimistic and excited about it. We have had a couple of pennies of accretion on a net basis between the operating results that you saw at Gulf Power as well as the offsetting interest expense, which, as I reminded everybody today, is showing up in the corporate and other segment. But this is essentially in line with our expectations, and we continue to remain confident about the accretion targets, as we reiterated today, of 15 cents and 20 cents next year and 2021, respectively. With respect to a general rate case, as we highlighted last month and we talked about again today, our best estimate, based on everything that we see, including the ability to take out costs in the business, as well as invest significant amounts of capital in Gulf Power to realize all of these net customer benefits that we've talked about, would result in a rate case filing in 2021 for new rates 2022. Got it.

And then just is there anything you can disclose as far as how we should think about the true-up of the cap structure and the bans?

Not at this point. We are such at the early stages of all of those types of thought process. Again, the first reason why we started going down this path was thinking about the operational benefits and certainly the financial benefits of leveraging the scale between the two entities. But there's a lot of work to be done to think through what this would look like to early, early stages.

Got it. And then just lastly on Senate Bill 796, right, with a proposed decision, as you kind of highlighted in your prepared remarks sometime this year, when do you sort of expect to file your plan? And sort of how should we think about this in the context of Gulf versus FPNL service tours? Where do you sort of see more of that capital being deployed?

In terms of the process, the first next step before we can file any plan is for the rule to actually be proposed at the Florida Public Service Commission, go through the rule development process, and then once there is a final rule, then we would file a plan and evaluate the plan and then ultimately start investing and seeking recovery of those investments. But the plan that we talked about last month, both for Florida Power & Light Company and Gulf Power, anticipated making some of these investments in both undergrounding and storm hardening and is included in our capital investment forecast plans for both companies going forward. And really the way you should be thinking about this is this increases our visibility to a multi-decade investment opportunity.

Got it. Extends it one way. Okay. Thanks so much, Rebecca.

Thank you.

We will now take our next question from Michael Lapidus with Goldman Sachs. Please go ahead.

Hey, guys, can you talk a little bit about wind and solar development in the U.S. in terms of just where you're seeing changes geographically, meaning across the country, in the opportunity set for wind versus solar versus where your historical development occurred?

Michael, as costs have come down, I would say the biggest change in that dynamic is that For wind, you've seen an expansion of where it's very economic out from the middle part of the U.S., you know, further both to the east and to the west. And for solar, an expansion of where it's economic from the south moving northwards. But that's a very general broad trend. Overall, what we've seen is very positive reception from our customers about what is truly the lowest-cost generation of opportunity for them in many of their jurisdictions. In some cases it's going to be wind, in some cases it's going to be solar. But as you can see from our backlog, we've got enormous opportunities from both wind and solar. And the way that we run our energy resources development business is make sure that we have offerings for whatever our customer ultimately wants to buy.

Got it. And there's been some discussion, especially among some of the big kind of largely capitalized European integrated oil companies about their entering into or gaining a bigger presence in the U.S. renewables marketplace. Can you talk about how you think that impacts the competitive dynamic going forward for you guys?

Competitors have come in and out of this market many times over our multi-decade exposure to developing wind and now solar generation resources. And if you look at history of market penetration, PPA is both for wind and solar, you'll see that there are a couple of big players and then a ton of players that get 100, 200 megawatts any given year. So if you talk to our development organization, they'll see people, a lot of what our head of development calls two guys in a Navis car having an opportunity or an edge in a particular area, and they'll win a contract or two here or there. This business has always been competitive. And where we've focused our efforts is ensuring that we maintain or further enhance our competitive advantages. That certainly starts with scale. It expands to our capital advantages, the fact that when we buy from our suppliers, we're often their top customer, and if not the top, certainly in the top ten, which gives us some advantages. And as you guys well know, all of our investments in enhanced digital capabilities, which enable us to identify sites better and build things more efficiently, and then over a long period of time, operate them more efficiently. So long as we can maintain competitive advantages, we'll maintain our ability to win our fair share of the market as it continues to grow in a rapid pace.

Got it. Thank you, guys. Much appreciated.

Thank you, Michael.

We will now take our next question from Julian Jamoulin-Smith with Bank of America. Please go ahead.

Hey, can you hear me now? We can hear you, Julian. All right, great. Let's do this again. So perhaps just firstly, let me start with a little more strategic question here with respect to some of the peers in the state. There seems to be some headlines with respect to decisions for privatization. Just curious if there's any statement or thought process on that front, given some of the prior comments you've made around looking at municipalizations going private.

Okay. Are you talking about the deregulation initiative?

J-E-A, I suppose.

Don't worry. You know, obviously, we think we could bring a lot to the table with any utility in Florida. We think, obviously, we run the best utility in the world, we think, and so we think we would bring a lot to the customers of those utilities in Florida who'd be interested in, in, uh, in selling. And obviously we serve very close to that area, you know, very close to Jay's area. We've had a terrific relationship with JA over a long period of time. We've been partners with them. And, uh, so, you know, we're going to follow it closely and, uh, and try to be as constructive as possible.

Got it. Excellent. And if I can go back to one of the last questions, just to be like exceptionally clear about this, I know that, um, You added a line here on your slides with respect to not being disappointed to be at the top end of the 6% to 8%, which if achieved would result in adjusted EPS of 832 versus the 19 range of 8 to 850. Just want to be exceptionally clear on what you're saying there.

Yep, so we continue to focus on, from a long-term standpoint, growing our adjusted EPS, the 6% to 8%, and, of course, adding the accretion from the Florida acquisitions in those relevant years that we've called out. You know, every year there's variability in operations and performance, and so we provide a range around that given a lot of different factors. We commented also that, of course, if you look at the numbers year-to-date, we have a growth that very much exceeds the 8% run rate. which we're thrilled about and reflect strength in each part of our business, which obviously positions us well to continue executing on our long-term growth targets. As opportunities present themselves, as we comment on today, if you looked back a year ago, we would not have forecasted that interest rates would be at this environment. And there are certain things that we can take advantage of that create shareholder value for the long term and take advantage of the low interest rate environment. And there are also some of the investments that we plan to make for repowering that create certain one-time negative events in 2019 in order to enable those repowerings that create substantial shareholder value that will certainly weigh on the growth rate relative to the first half in the second half. So we're targeting the 6% to 8% growth rate long term, as you well know. 8% off last year would result in $8.32 per share.

Excellent, I think I get you.

All right, I'll leave it there.

I'll go for it, Jim.

Julian, this is Jim. The important number is 1075 in 2022. Absolutely.

Thank you all.

We will now take our next question from Michael Weinstein with Credit Suisse. Please go ahead.

Hi, this is Maheep Mandlay on behalf of Michael Weinstein. One question on the undergrounding legislation. And how do you expect the underground legislation impacting the utility rate-based growth in the near and long term? And how does that play in relation to the 6% to 8% growth rate?

As we talked about last month at the investor conference, we certainly are very pleased with the legislation because I think it reflects at least as much as anything else, that critical stakeholders across Florida appreciate the value of the resilience and a fast restoration process in Florida when we inevitably have hurricane or significant storm activity. We certainly were aware of the legislation, and we talked about it at our investor conference last month. and incorporated continuing to make investments in storm hardening and storm undergrounding over a long period of time in those capital plans that we laid out last month. So really, I think the focus from an investor standpoint should really take some incremental confidence. in that long-term program, long-term visibility, again, multi-decade visibility that we have to investing in the grid to further improve the resilience and hardening to weather storms effectively.

Not bad. And just pivoting to renewables, could you just remind us again, if you would be willing to explore the residential rooftop solar market in the near future or any thoughts on either the residential or the distributed generation commercial business out there?

As you would expect from an energy resources standpoint, we look at all sorts of development opportunities, particularly in the renewable sector across any sort of the customer base. We do have a distributed generation business. They've predominantly focused on C&I investment opportunities, but they occasionally look at residential. We just probably don't talk about it as much as others might because we're deploying $50 to $55 billion of capital over the next four years. And so if you think about DG opportunities, it's a little bit smaller than some of the scale we may talk about more frequently.

And that's a great point that Rebecca just made, We are the largest C&I distributed generation developer in the country. We never talk about it. It's not super giant capital for us because of the context of the $55 billion, but we're the biggest in the country in that business.

All right. Thanks for that, and thanks for taking the question.

Again, if you have a question, please press star, then one. We will take our next question from Colin Roush, please, with Oppenheimer. Please go ahead.

Thanks so much. You know, with CEA's launch of the campaign to extend the ITC, could you guys talk a little bit about your expectations for prospects on that and any sort of behavior changes that you're seeing from the supply chain at this point?

You're talking about the investment tax credit?

Correct, yes.

Yeah, ITC. Sorry, I thought perhaps you were talking about something else. So, yeah, from investment tax credit and production tax credit standpoint, we have benefited from the last couple of years of some of the most significant visibility to long-term incentives as the industry has ever had. And we can remain focused on executing against those opportunities. With the ITC being at full value, assuming you execute on an effective safe harbor strategy through 2023, You know, we've got a lot of visibility to execute against our development plans. As you know, when the tax credits were last extended and implemented, the phase down that's now currently in place, we were very supportive of that as an industry and our company specifically, because we believe the things that we've talked to you about over time, including everything we laid out at last month's investor conference, that without incentives or with ITC being down to 10%, you have wind and solar generation being the most effective, from a cost-effective standpoint, generation in the U.S. compared to coal and nuclear facilities that just have their operating costs. So we're excited about our development program. If something changed in the incentives more favorably, that would potentially create additional tailwind for us and the overall growth of the industry, but we're focused on execution.

Okay, great. And then just shifting gears back to the distributed generation, development program, you know, there's actually been an awful lot of maturation of microgrid technology in the last, you know, call it 12 to 24 months. And I'm curious how, you know, how aggressive you think you might move into deploying some of those technologies as we see battery costs really get down to a level where they're compelling, but then the integration technology is getting mature enough to actually handle the functionality. You know, how do you see that playing out over the next few years?

Well, as Jim highlighted and I talked about as well, from a development standpoint, we'll continue to pursue opportunities and we'll stay involved in those markets in order to make sure that we're aware of the trends and where things are becoming more cost effective and there may be opportunities for us in the future to invest more heavily. But at this stage, it's pretty early and the investment opportunity is relatively small compared to some of the other things that we're focused on and that we talk about more frequently.

Yeah, this is John. I mean, one thing to add to that is as part of our DG efforts, we certainly do focus on behind-the-meter and demand response solutions. It's a fully integrated solution that we're bringing to our customers.

There are no further questions at this time, and this concludes the conference. Thank you for attending to this presentation.