NextEra Energy, Inc.

Good morning, everyone, and welcome to the NextEra Energy Inc. and NextEra Energy Partners conference call. All participants will be in a listen-only mode. If you need assistance, please email a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and then one. To withdraw your questions, you may press star and two. Please note today's event is being recorded. At this time, I'd like to turn the conference call over to Matt Roscott, Director of Investor Relations. Sir, please go ahead.

Thank you, Jamie. Good morning, everyone, and thank you for joining our second quarter 2020 Combined Earnings Conference Call for Nexar Energy and Nexar Energy Partners. With me this morning are Jim Robo, Chairman and Chief Executive Officer of Nexar Energy, Rebecca Chiappa, Executive Vice President and Chief Financial Officer of Nexar Energy, John Ketchum, President and Chief Executive Officer of Nexar 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, 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 website, 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 Rebecca.

Thank you, Matt, and good morning, everyone. NextEra Energy delivered strong second quarter results and continued to perform well both financially and operationally while managing the ongoing impacts of the COVID-19 pandemic. As part of our core goal of safely delivering affordable and reliable power to our customers, we continue to operate under our pandemic plan that we activated last quarter. Despite the challenges created by the pandemic, NextEra Energy's second quarter adjusted earnings per share increased by more than 11% versus the prior year comparable quarter, and we are well positioned to meet our overall objectives for the year. FPL increased earnings per share by 15 cents year over year, and its strong execution continues across the board. During the quarter, FPL set a new system peak load of more than 24,500 megawatts. FPL's transmission and distribution systems continue to operate in line with our high reliability standards, and our highly efficient generating facilities remain available to serve our customers. FPL's continued strong execution is a result of the smart capital investments that we have made over the past several decades. to enhance our customer value proposition of low bills, high reliability, outstanding customer service, and clean energy solutions. Consistent with enhancing its best-in-class customer value proposition, last month FPL announced plans to retire Share 4, its last remaining coal unit. Together with our joint interest owner, JEA, and subject to certain approvals from the Florida Public Service Commission, FPL intends to retire the 847-megawatt coal-fired plant in early 2022. The retirement of Share 4 is projected to generate hundreds of millions of dollars in savings for FPL customers and prevent roughly 4 million tons of carbon dioxide emissions annually from this unit. Share 4's retirement is the final step of the coal phase-out strategy that FPL launched in 2015. and that will complete the closure of approximately 2,700 megawatts of coal capacity, including the highest greenhouse-emitting gas power plants in Florida. These transactions, which will make FPL one of the first utilities to eliminate all of the coal from its generation portfolio, demonstrate FPL's continued commitment and position as a clean energy leader. We remain proud of our environmental track record, particularly the CO2 emissions reductions that we have delivered throughout Florida and across the country. And we continue to remain focused on building a sustainable energy era that is both clean and affordable. Gulf Power also had a strong quarter of execution. The focus on operational cost effectiveness at Gulf continues to progress well, with year-to-date O&M costs excluding specific COVID-19-related expenses, that declining by nearly 10% versus the prior year comparable period, and by approximately 25% relative to 2018. GulfPower also delivered further improvements in service reliability and continued its significant improvement in employee safety with no OSHA recordables year-to-date through the end of June. We remain committed to delivering on the objectives that we previously outlined at GulfPower and continue to expect to generate significant customer and shareholder value over the coming years. During the quarter, we completed our annual storm drills for FPL and Gulf Power to prepare for the unprecedented situation of restoring power after a hurricane in the midst of the COVID-19 pandemic. We spent two weeks drilling and challenging our teams to find ways to efficiently restore service to our customers without sacrificing safety. The drills provided a number of lessons, including how to leverage technology to quickly and safely screen personnel at various staging sites to help offset some of the challenges that will inevitably occur when performing storm restoration in the midst of a pandemic. While we hope that our service territories will avoid the impacts of hurricanes this year, consistent with our culture that is focused on preparedness and execution, we continue to do everything we can to ensure that we will be there for our customers when they need us most. At Energy Resources, adjusted EPS increased by 13 cents year-over-year. The Energy Resources team continued to capitalize on the terrific market opportunity for low-cost renewables, adding 1,730 megawatts to our backlog since the last earnings call. This continued origination success through the ongoing pandemic is a testament to the energy resources' significant competitive advantages, including our best-in-class renewables development skills. Our engineering and construction team also continues to execute, commissioning roughly 650 megawatts during the quarter, and keeping the remaining approximately 4,400 megawatts of wind and solar projects that we expect to complete this year on track, despite the significant supply chain challenges that are occurring both globally and locally. While we are monitoring the situation closely, we continue to expect that all of our planned 2020 renewables projects will achieve their in-service dates this year. In response to increased investor focus on environmental, social, and governance issues, or ESG, Next week, we expect to publish NextEra Energy's updated ESG report, which includes reporting under the Sustainability Accounting Standards Board, or SASB, disclosures. Our company has been focused on all of the elements of ESG for more than 25 years. NextEra Energy's approach to governance and risk oversight, combined with the way that we treat our people, our customers, our communities, and the environment, are proof that a company can be both sustainable and and financially successful at the same time. The new report highlights this alignment of our corporate strategy with the key tenets of ESG, includes a robust discussion of risk oversight, and incorporates new disclosures such as diversity and inclusion metrics. Diversity and inclusion matter deeply to us as a company, both because we believe they are the right thing to do, but also because diverse and inclusive teams deliver better business results for the diverse communities that we serve. Our commitment to having a diverse workforce and inclusive culture is not new, and our diversity metrics are better than many of the companies in our industry. However, consistent with our focus on continuous improvement, we are not satisfied and will continue our efforts to build an even more diverse and inclusive team going forward. Overall, we're pleased with the progress we've made in Extra Energy so far in 2020. Headed into the second half of the year, we believe we are well positioned to achieve the full year expectations that we have previously discussed, even when accounting for a reasonable range of impacts and outcomes that may result from the current pandemic. Now let's turn to the detailed results, beginning with FPL. For the second quarter of 2020, FPL reported net income of $749 million, or $1.52 per share, which is an increase of $86 million and 15 cents per share, respectively, year over year. Regulatory capital employed increased by more than 10% over the same quarter last year, and was the principal driver of FPL's net income growth of approximately 13%. FPL's capital expenditures were approximately $1.8 billion in the second quarter, and we now expect our full-year capital investments to total between $6.5 billion and $6.7 billion. Our reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended June 2020. which is at the upper end of the allowed band of 9.6 to 11.6% allowed under our current rate agreement. During the quarter, we utilized $7 million of reserve amortization to achieve our target regulatory ROE, leaving FPL with a balance of $736 million. We continue to expect that FPL will end 2020 with a sufficient amount of surplus to continue operating under the current base rate settlement agreement during 2021. As we previously discussed, we expect that FPL and Gulf will operate as a single larger Florida utility company, which will create both operational and financial benefits for our customers. As a result, in May, the companies filed an application with FERC for an approval of an internal reorganization, whereby Gulf would merge into FPL. Subject to FERC approval, the companies will merge in January of 2021. However, during 2021, Gulf Power will continue to operate as a separate operating division, serving its existing customers under separate retail rates. We continue to expect the companies to file a combined rate case in the first quarter of next year for new rates effective in January 2022. Turning to our development efforts, all of our major capital initiatives at FPL remain on track and on budget. During the quarter, the final 300 megawatts of solar being built under the solar base rate adjustment, or SOBR mechanism, of FPL's base rate settlement agreement were placed into service. The 1,200 megawatts of cost-effective solar constructed under the SOBR mechanism are expected to generate significant customer benefits and represent the early stages of FPL's rapid solar expansion and the next phase of its generation modernization efforts. The next six Solar Together projects, totaling approximately 450 megawatts, remain on track to be placed in service later this year. The final 600 megawatts of the roughly 1,500 megawatt community solar program are expected to be placed in service next year. Beyond solar, construction on the highly efficient, roughly 1,200 megawatt Dania Beach Clean Energy Center remains on schedule and on budget as it continues to advance towards its projected commercial operation date in 2022. Additionally, the 409-megawatt Manatee Storage Facility, which will be one of the world's largest battery storage plants, is on track and on budget to be complete next year. Based on our ongoing analysis of the long-term potential of low-cost renewables, we remain confident as ever that wind, solar, and battery storage will be hugely disruptive to the country's existing generation fleet. While reducing costs for customers and helping to achieve future CO2 emissions reductions, However, to achieve an emissions-free future, we believe that other technologies will be necessary, and we are particularly excited about the long-term potential of hydrogen. Consistent with the tow-in-the-water approach we've previously utilized with solar and battery storage, we are planning to propose a hydrogen pilot project at FPL. This approximately $65 million pilot project, which, subject to Florida Public Service Commission approval, is expected to be in service in 2023, will utilize solar energy that would have otherwise been clipped to produce 100% green hydrogen through a roughly 20 megawatt electrolysis system. The hydrogen will be used to replace a portion of the natural gas that is consumed by one of the three gas turbines at the Okeechobee Clean Energy Center. We believe that the project is a complement to our ongoing solar and battery storage development efforts and highlights FPL's continued innovative approach to further enhance the diversity of the clean energy solutions available for its customers. We continue to evaluate other potential hydrogen opportunities across our businesses, and while our near-term investments are expected to be small in context of our overall capital program, we are excited about the technology's long-term potential, which should further support future demand for low-cost renewables, as well as accelerate the decarbonization of transportation fuel and industrial feedstocks. We continue to expect that FPL's ongoing smart investment opportunities will support a compound annual growth rate in the 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 second quarter 2020 gap earnings of $55 million, or 11 cents per share, a decline of 1 cent per share relative to Gulf Power's adjusted earnings per share in the prior year period. This quarter results include the impact of roughly $5 million of after-tax COVID-19-related expenses, primarily reflecting the expected incremental bad debt expense as a result of the pandemic. Earlier this month, the Florida Public Service Commission approved Gulf Power's request to record costs attributable to COVID-19, including bad debt expense, as a regulatory asset on its balance sheet. As a result, the costs recorded during the second quarter are expected to be reversed during the third quarter as the regulatory asset is recorded. Gulf Power's reported ROE for regulatory purposes will be approximately 10.4% for the 12 months ending June 2020. For the full year 2020, we are targeting 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 $170 million, and we now expect our full-year capital investments to total between $1.0 and $1.1 billion. All of Gulf's major smart capital investments, including the North Florida Resiliency Connection and the PlantCRIST coal-to-natural gas conversion, continue to progress well. Similar to other parts of the country, the Florida economy is being impacted by the ongoing COVID-19 pandemic. Recent economic data reflects an increase in Florida unemployment rates and a decline in consumer confidence that are roughly in line with the changes to the national averages of each metric. While it is still unclear at this point how severely the economy will ultimately be impacted, we continue to believe that the financial strength and structural advantages with which Florida entered the crisis and the continued attraction of the state to both new residents and new businesses will support a rebound once the worst of the pandemic is behind us. We remain deeply engaged in helping Florida return from this stronger than ever. We will continue to do our part to support that outcome, including pursuing our Smart Capital Investment Program and economic development efforts, which help create jobs, provide investment in local communities, and further enhance our best-in-class customer value proposition. During the quarter, FPL's average number of customers continued its recent trend of strong underlying growth, increasing by approximately 75,000 from the comparable prior year quarter. FPL's second quarter retail sales decreased by 0.8% year over year, as customer growth and favorable weather were more than offset by a decline in underlying usage per customer. Based on our analysis, the overall effects of the pandemic on underlying usage during the second quarter were relatively muted. FPL benefits from having its retail sales being heavily weighted towards residential customers, and approximately 40% of its load is cooling-related, and therefore important for both comfort and building maintenance. During April, when stay-at-home orders were broadly in effect, FPL's weather-normalized retail sales were down approximately 4% relative to our expectations. As the economy began reopening in early May, weather-normalized retail sales improved and were above our expectations in June. While the ultimate impacts of the pandemic on underlying usage remain unknown at this time, we continue to expect the flexibility provided by our reserve amortization mechanism to offset any fluctuation in retail sales or bad debt expense and support regulatory ROE at the upper end of the allowed band of 9.6% to 11.6% under our current rate agreement. For Gulf Power, the average number of customers increased approximately 1.3% versus the comparable prior year quarter. Gulf Power's second quarter retail sales declined by roughly 6.2% year-over-year, as a result of the unfavorable weather comparison and a decline in underlying usage per customer. Over the second quarter, Gulf Power experienced a more significant decline in underlying usage per customer than FPL, but also experienced an improvement as the economy began reopening in May and June. As a reminder, unlike FPL, Gulf Power does not have a reserve amortization mechanism under its settlement agreement to offset fluctuations in revenue or costs. so any variability would therefore have more impact to Gulf's earnings in ROE than at FPL. As a reminder, as we've often discussed, weather normalization is imprecise, particularly when evaluating short periods of time. Additional details on retail sales at FPL and Gulf Power are included in the appendix of today's presentation. Let me now turn to energy resources, which reported second quarter 2020 gap earnings of $481 million, or 97 cents per share, and adjusted earnings of $531 million, or $1.08 per share. This is an increase in adjusted earnings per share of 13 cents, or approximately 14% from last year's comparable quarter results, which have been restated to reflect the results of our NextEra Energy transmission business, formerly reported in Corporate & Other. New investments added 8 cents per share. Contributions from existing generation assets increased 5 cents per share as improved wind resource and increased PTC volume from our repower wind projects were partially offset by the refueling outage at the Seabrook Nuclear Facility. Second quarter fleet-wide wind resource was 99% of the long-term average versus 93% during the second quarter of 2019. Also contributing favorably was NextRNG transmission, where contributions increased by 3 cents versus 2019. Contributions from our gas infrastructure business, including existing pipelines, were flat year over year, These favorable contributions were partially offset by lower contributions from our customer supply and trading business, which declined 4 cents versus the particularly strong second quarter last year. All other impacts increased results by 1 cent per share. As I mentioned earlier, Energy Resources Development Team had another excellent quarter of origination success, adding 1,730 megawatts to our backlog. Since our last earnings call, we have added 708 megawatts of wind 844 megawatts of solar, and 178 megawatts of battery storage to our renewables backlog. We also executed a build-own-transfer agreement for a 200 megawatt solar project, which is not included in our backlog additions. All of the battery storage projects will be paired with either new or existing solar projects to take advantage of the ITC and provide a more firm renewable product for our customers. The continued strong demand for battery storage projects 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. We continue to expect that by the middle of this decade, without incentives, new near-firm wind and new near-firm solar will be cheaper than the operating costs of most existing coal and nuclear facilities, and less fuel-efficient oil and gas fire generation units, producing significant long-term renewables demand. Our current backlog now totals approximately 14,400 megawatts and is the largest we have ever had in our roughly 20-year development history. To put our backlog into context, it is larger than the current operating and wind solar portfolios of all but two other companies in the world as of year-end 2019. highlighting that next-door energy continues to be at the forefront of disruption that is occurring within the energy sector. Only halfway through 2020, we are pleased to have already signed nearly 3,500 megawatts of contracts for delivery beyond 2022, which is a reflection of the continued strong economic demand for wind, solar, and battery storage. To ensure that we can take advantage of this significant demand in the coming years, We now have more than $2 billion of safe harbor wind and solar equipment, which could support as much as $40 billion of wind, solar, and battery storage investments across all of our businesses from 2021 to 2024. These purchases highlight the benefits of scale and the strength of our balance sheet that we leverage as a key competitive advantage in renewables development and position us well for continued long-term growth. The safe harbor equipment also supports additional repowering opportunities, including several hundred megawatts of potential 2021 repowering projects, which we are currently evaluating. As I discussed earlier, all of the 2020 renewables projects remain on track to achieve their targeted in-service dates this year. As a result, we do not expect these projects to rely on the updated Treasury start of construction guidance that was released during the quarter. Beyond renewables, we continue to make progress with Mountain Valley Pipeline and work with our project partners to resolve the outstanding permit issues required for the pipeline's construction. We were pleased with the Supreme Court's ruling regarding Appalachian Trail Crossing Authorization Authority, which resolved similar issues for MVP. We were similarly pleased that the Supreme Court partially stayed the Montana Federal Court's decision related to the Nationwide 12 Permit Program, and are working with the Army Corps of Engineers on its reissuance of the project's permit. Following comprehensive restudy by the relevant agencies, we expect issuance of MVPs for revised biological opinion shortly. Assuming timely resolution of the outstanding permitting issues, we are now targeting a full in-service date for the pipeline during early 2021 and expect an overall project estimate in the range of $5.4 to $5.7 billion. Turning now to the consolidated results for NextEra Energy for the second quarter of 2020, GAAP net income attributable to NextEra Energy was $1.275 billion, or $2.59 per share. NextEra Energy's 2020 second quarter adjusted earnings and adjusted EPS were $1.286 billion and $2.61 per share, respectively. Adjusted earnings from corporate and other declined by one cent year over year, primarily as a result of higher interest expense NextEra Energy also delivered strong year-to-date operating cash flow growth and, for the full year 2020, expects to generate roughly $8.5 billion in operating cash flow to help support its strong financial position. NextEra Energy maintains approximately $13 billion in liquidity to support the largest capital investment program in our history. Since last quarter's call, we've completed roughly $3 billion in long-term financings, including a $2.2 billion in capital holdings to ventures. Over the course of the last few months, we repaid nearly all of the term loans that we issued during March and April and converted these commitments to bilateral revolving credit facilities. Included in these facilities is a total of more than $1 billion in six-month storm facilities at FPL and Gulf Power, which, similar to previous years, we put in place to ensure sufficient liquidity in the event of a hurricane. Energy Resources also closed two tax equity financings, including its first-ever combined wind and solar portfolio financing, and we expect to close on the balance of our tax equity financings as the renewable projects are placed in service later this year. Our year-to-date financing activities are evidence of the great financial partnerships we have built over time, which help provide ample liquidity and continued access to capital to support our outstanding growth prospects. NextEra Energy's financial expectations 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. For 2022, we expect to grow adjusted EPS in the range of 6% to 8% off of the 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. We also continue to expect to grow our dividends per share at roughly 10% per year through at least 2022 off of a 2020 base. While our expectations always assume normal weather and operating conditions, as we consider a reasonable range of impacts related to the current pandemic, we continue to feel comfortable with the expectations that we have outlined. In summary, to cite the challenges created by the COVID-19 pandemic, all of our businesses continue to perform well and maintain their excellent prospects for growth going forward. We have a long-term track record of delivering results for our customers and shareholders, and we remain intensely focused on continuing that track record. Based on the resiliency of our underlying businesses and their strong growth prospects, we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectation ranges in 2020, 2021, and 2022, while at the same time maintaining our strong credit metrics. We continue to remain enthusiastic about our future and believe that NextEra Energy is well positioned to drive long-term shareholder value over the coming years. Let me now turn to NextEra Energy Partners, which continued its strong start to 2020 and with growth in adjusted EBITDA and cash available for distribution of approximately 23% and 46%, respectively, from the prior year comparable quarter. On a year-to-date basis, adjusted EBITDA and cash available for distribution have increased by 26% and 86%, respectively, versus 2019. The strong operational and financial performance that highlights the Next Energy Partners remains well-positioned to continue to deliver on its outstanding growth objectives. Yesterday, the Next Energy Partners Board declared a quarterly distribution of 57.75 cents per common unit, or $2.31 per common unit on an annualized basis, continuing our track record of growing distributions at the top end of our 12% to 15% per year growth range. We were pleased to see PG&E's emergence from bankruptcy earlier this month. As expected, all of our existing contracts were assumed without modification. Following PG&E's emergence from bankruptcy, Next Energy Partners received a cash distribution of approximately $65 million from our Desert Sunlight 250 and 300 projects, which represent current distributions and those previously withheld as a result of the bankruptcy. The release of the Desert Sunlight trap cache supplements Next Energy Partners' liquidity, which was approximately $650 million, including cash on hand, at the end of the second quarter. The organic growth investments at Next Energy Partners continue to progress well. The approximately 275 megawatts of wind repowering and the Texas pipeline's expansion both remain on track to be in service later this year. We continue to expect to execute on additional attractive growth opportunities as Next Energy Partners' portfolio further expands. Let me now review the detailed results for Next Energy Partners. Second quarter adjusted EBITDA was $349 million, and cash available for distribution was $166 million, up 23% and 46%, respectively, against the prior year comparable quarter. Now that the PG&E bankruptcy has been favorably resolved and distributions from our Desert Sunlight projects have resumed, Cash available for distribution includes all contributions from PG&E-related projects. New projects added $51 million in adjusted EBITDA and $36 million of cash available for distribution. Existing projects also contributed favorably to the significant year-over-year growth in adjusted EBITDA and cash available for distribution, as resource was favorable across the portfolio. For the second quarter, wind resource was 100% of the long-term average versus 94% in the prior year comparable quarter. Cash available for distribution also benefited from a reduction in project-level debt service, primarily as a result of the early debt retirement to facilitate the wind repowerings. The reduction in project-level debt service was partially offset by higher corporate-level interest expense. As a reminder, these results are net of IDR fees since we treat these as an operating expense. Additional details are shown on the accompanying slide. Let me now turn to Next Energy Partners' expectations, which remain unchanged. Next Energy Partners continues to expect December 31st, 2020 run rate for adjusted EBITDA to be in a range of $1.225 billion to $1.4 billion, and cash available for distribution in the range of $560 million to $640 million, reflecting calendar year 2021 expectations for the portfolio at the end of 2020. Now that the PG&E bankruptcy has been favorably resolved, we will no longer provide CAFD expectations, excluding the contributions from the Desert Sunlight projects. As a reminder, these expectations include the impact of anticipated IDR fees as we treat these as an operating expense. From the 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 the annualized rate of the fourth quarter 2020 distribution that is payable in February of 2021 to be in a range of $2.40 to $2.46 per common unit. Similar to NextGen Energy, while our expectations always assume normal weather and operating conditions, as we consider a reasonable range of impacts related to the current pandemic, we continue to feel comfortable with our overall expectations. With the resumption of cash distributions from the Desert Summit projects, we now expect to achieve Next Energy Partners' 2020 distribution growth objectives while maintaining a trailing 12-month payout ratio of approximately 70%, highlighting the significant flexibility we believe Next Energy Partners has going forward. As we've previously discussed, while we will continue to be opportunistic, Next Energy Partners' favorable positioning should give it flexibility to achieve its long-term distribution growth objectives without the need to make any acquisitions until 2022. We are pleased with Next Energy Partners' year-to-date performance in 2020 and believe it continues to offer a best-in-class value proposition for investors. The diversity and long-term contracted nature of Next Energy Partners' clean energy portfolio helps insulate it from the broader economic conditions, including impacts related to the COVID-19 pandemic. With a flexibility to grow in three ways, acquiring assets from energy resources organically or acquiring assets from third parties, Next Energy Partners has clear visibility into its growth going forward. Following another strong quarter of origination, Energy Resources' portfolio of renewable projects now totals more than 27 gigawatts, including the signed backlog of projects that Energy Resources plans to build in the coming years. When combined with the prospects for future renewables development, Next Energy Partners' long-term growth visibility remains as strong as ever. Next Energy Partners' cost of capital and access to capital advantages, including significant demand from various low-cost private infrastructure capital, provide flexibility to finance this growth over the long term. These strengths, together with Next Energy Partners' favorable tax position and enhanced governance rights, leave NextEra Energy Partners uniquely positioned to continue to deliver on its objectives going forward. In closing, we believe that the fundamental value proposition of NextEra Energy and NextEra Energy Partners remains as robust as ever. Both companies remain resilient and well-positioned to deliver on their commitments. We continue to remain enthusiastic about our future and are focused on delivering smart capital investments that enhance value for both customers and shareholders, and expand our position as the world's leading clean energy provider. That concludes our prepared remarks, and with that, we will open up the line for questions.

Ladies and gentlemen, at this time, if you would like to ask a question, please press star and then one using a touch-down telephone. To withdraw your questions, you may press star and two. If you are using a speakerphone, we do ask that you please pick up the handset before pressing the numbers to ensure the best sound quality. Once again, that is star and then one to ask a question. We'll pause momentarily to assemble the roster. And our first question today comes from Julian Smith from Bank of America. Please go ahead with your question.

Hey, good morning. This is actually Richie here for Julian. Just had a question around the CapEx raise at FTL and Gulf. What was driving that? Is that more around undergrounding, grid hardening, or is that more on the solar side? And how should we think about the CapEx trajectory from 21 and beyond? Is that more in line with what you disclosed at your analyst day, or should we expect it to be at more of these robust levels going forward?

Richie, good morning, and thanks for the question. I think it really reflects consistency with what we've been talking about for a long time, which is we keep finding terrific projects for our customers and investment opportunities, and we're starting to put those in place. As I highlighted in the prepared remarks, we do have consistent expectations for the growth rate between 2018 and 2022 of a 9% compound annual growth rate. So some projects move from one year to another. But at the heart of it, it is terrific investments for the benefit of our customers. As far as beyond 2022, similar to comments that we've made in the past, the growth opportunities that we see across all of our businesses, but specific at FPL and Gulf Power, include the modernization efforts, including the large deployment of solar over time, as well as investments in grid hardening and undergrounding, as highlighted by the storm protection plan that we're in the process of going through approvals and initial investments for that program. So we're super excited about the opportunities for investing and, again, stay very focused on ensuring that these are good projects for the benefit of our customers.

Got it. Thanks. That's very helpful. And then just around your comments around hydrogen, I think you disclosed $65 million for that pilot project. What are you seeing there on that front? Is this more around transportation opportunities or is this all around like pipeline and being able to like blend with pipes?

So we're really excited about hydrogen. In particular, when we think about getting to not a net zero emissions profile, but actually a zero carbon emissions profile. And when we looked at this, let's call it five, ten years ago, and we thought about what it would take to get to true zero emissions, we were worried that it was extraordinarily expensive for customers. What makes us really excited about hydrogen, particularly in the 2030 and beyond timeframe, is that that has the potential to supplement significant deployment of renewables, including wind and solar technologies, complemented by short and I'll call it medium-term duration batteries. But then that last amount of emissions that you would take out of the system to get down to zero could be most economically served by hydrogen. So that's what makes us excited about doing a pilot project. We're very excited about the opportunity to present that to the Florida Public Service Commission as a way to further enhance FPL's ability to innovate and deliver these long-term clean energy solutions to our customers. And as part of that, we'll learn about the technologies, and we'll see what other opportunities there are potentially for the industrial and transportation sectors And for us to be able to produce the green energy to produce the green hydrogen is a potential significant opportunity for us. We think we're at the early stages, which is kind of consistent with our toe-in-the-water approach. We want to get some experience with it, obviously do a lot of research, and talk to folks in the supply chain and get better equipped to take advantage of these opportunities. But we're really excited about it.

All right, thanks a lot. That's all the questions I had.

Thank you, Richie.

Our next question comes from Char Perreza from Guggenheim Partners. Please go ahead with your question.

Hi, good morning. It's actually Constantine here for Char as well. Congratulations on a great quarter. We've definitely seen some impressive numbers with backlog additions and kind of contract increases for the 2022 timeframe. Just kind of curious on kind of your thoughts around kind of NEAR's growth trajectory and kind of contribution to the business mix. And it's kind of subsided as a conversation point from the rating agencies, but just thoughts on kind of growing contributions from NEAR versus balancing that from the regulated contributions. Are you thinking about bolt-on acquisitions or kind of any kind of drop-downs accelerated from NEAR? Just some thoughts around that.

Thanks, Constantine. We appreciate you dialing in this morning. We're really excited about pursuing opportunities for investment across the board. And, of course, at FPL and Gulf, that's focused on investments that need to create value for our customers. And at Energy Resources, it's return-focused, along with delivering things for our customers there, too. So from a corporate perspective, we don't want to limit any of our businesses when we find great investment opportunities, which Again, I can't highlight enough about how excited we are about the renewables development prospects at Energy Resources. So we're not going to constrain them in any way. We will develop those opportunities that create value for shareholders. And to the extent that we want to maintain balance over time, we've got a lot of opportunities to do that that are accretive for shareholders, including recycling of capital through Next Energy Partners, which is obviously a willing and excited acquirer of energy resources projects. but Energy Resources has the ability to recycle capital to third parties as well. So there's plenty of ways to ensure that we can create the real value of creative opportunities and still think about it from a corporate perspective in a variety of different ways.

Thanks. That's very helpful. And kind of pivoting a little bit to something a little bit longer term, I guess, Can we get some of your thoughts on the November election? The Biden campaign has put out some plans and frameworks out there, higher tax rate, clean energy support. How is NextEra positioned for potential changes at the federal level?

This is Jim. We always position our business to try to win regardless of the outcome of elections. And so, you know, we – I think you can remember back three – you know, close to four years ago now, there was some turmoil around our stock when President Trump was elected. We've managed completely fine under this administration in terms of being able to continue to grow our renewable business because, you know what, it's all about economics, right? And the time for renewables is now, and, you know, that – that kind of transcends politics, frankly, the economics and the, and the need to, you know, and the, and, and really the, the need to decarbonize, uh, not only the electric sector, but the rest of the sectors of the economy are really, you know, really frankly transcend what happens in elections. And so, uh, you know, obviously we watch them closely. We think, uh, good clean energy policies important in the right policy for, for, for America in the future. And, and, uh, you know, we continue, I think, to be positioned really well regardless of who wins in November.

Okay. That makes sense. I'll jump back in the queue. Thanks so much. Congrats.

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

Hi. Good morning, guys. Hey, on the same question, Jim, are What do you think is the most likely outcome from the Congress these days? Tax credit extensions, cash grants? Do you think a national renewable portfolio standard is a possibility? I'm just wondering, of all those different alternatives, what do you think might actually occur in the next four years?

You know, so I think it's honestly too soon to tell, Michael. I think... You know, a lot is going to depend on what happens in the election and is there continued split government or is there not split government. That will be, I think, a big driver of what policies happen. And, you know, I think all of those ideas are on the table. We've been consistent in what we've said, which is that, you know, we think it's important to have – good and fair clean energy policy going forward. We also have said that we think wind and renewables with batteries are very competitive once the PTCs and the ITCs phase out in terms of competing against conventional generation. It's just honestly really more a matter of the speed with which you want to decarbonize is what is going to ultimately drive the final I think, policy choices. And so, you know, we are, you know, obviously we're actively engaged in the discussions. And I think it's premature really to say what we think is going to happen because I think you have an election in four or five months. And as you all know, elections have consequences. And, you know, we'll see what happens post the election in terms of what's going to be the policy landscape going forward.

Great. Hey, on hydrogen, do you think – and I noticed there's a lot more emphasis on renewables rather than gas turbines in your future construction plans at FDL. And I'm just wondering if hydrogen works out, is that a method – do you think you could actually build more – put more gas turbines back into the plan if hydrogen production becomes a viable economic alternative? Or do you think other alternative technologies are better suited, such as fuel cells?

Michael, I think from a hydrogen perspective and specific to Florida Power and Light Company, we're talking about potential hydrogen opportunities really in the 2030 and beyond timeframe. And in that intervening time, we deploy a significant amount of solar technology. And if we're right and if the costs come down for hydrogen and it is the best alternative for supporting getting to a zero emissions profile, we would retrofit certain of our gas facilities to run on hydrogen or run on a portion of hydrogen. So I think for Florida Power and Light and Gulf Power, at this point, and again, we're talking about a long way into the future, you wouldn't necessarily need to build any new hydrogen-slash-gas turbines in that portfolio because we've got a tremendously efficient fleet that's already in service, and the investments we would make were really around conversion. Now, whether or not that's true elsewhere in the country, I think is, you know, it might be a little bit different, but we're talking about a long way down the road, and a lot of things need to come together to have those types of conversation. I think it's fairly preliminary.

Gotcha. And, you know, one final question. Just make a comment on M&A interest these days, what's going on with Santee Cooper, etc.? ?

So I think this won't be surprising. We remain interested in M&A. We think there's a lot that we can bring to the table. I continue to believe that there's not a utility in the country that we couldn't run more efficiently and better for customers. And I truly believe that. And so we continue to look. I think in terms of Sandy Cooper, that process has been push to next year, and we remain very interested and continue to be focused on trying to make that happen.

Hey, Jim, what regions of the country are you focused on? I'm just curious.

We continue to be focused on the Midwest and the Southeast. Gotcha. All right. Thank you very much. Plus FERC-regulated assets pretty much anywhere. Okay. Thanks a lot.

Thank you. Our next question comes from Steven Berg from Morgan Stanley. Please go with your question.

Hi, thanks. It's Dave Arcaro on for Steven. Thanks for taking my question. I had one quick follow-up just on the hydrogen topic. Wondering if you see a potential path for this to be an opportunity at NEAR, and also in terms of kind of business model, but do you think that you would envision being involved in owning the electrolysis function within the supply chain And if so, do you have kind of a vision or a view on what technology is ahead of others at this point?

Thanks, Dave. I would say at this point we're looking for opportunities across the portfolio. Obviously, we talked about the pilot project of FPL today, but we are looking at other pilot-type investment opportunities elsewhere in the portfolio, consistent with the way that we approached solar early on and, of course, batteries more recently. Okay. So I think there will be opportunities over time for those type of pilot projects. Again, where you think of it as actually being close to economic today are areas where there's already significant penetration of renewables, because as you well know, it's critical to find a low-cost electricity supply in order to make it economic or close to economic. And here in the U.S., the economics certainly have to factor in that today, There's a very low-cost supply of natural gas, making it imperative that you find a cheap electricity supply. It's early. Never say never on where we might find opportunities to invest in the business, but historically, as you know, we've not played in the space of owning, being a vertically integrated owner of technologies or projects. We've typically... taking the best of manufactured equipment from other folks, apply our scale and our ability to construct, own and operate over the long term effectively is where we create value. So, again, it's early, but at this point I wouldn't think that we would focus on vertically integrating. It's more of applying hydrogen as a technology consistent the way that we've created value in the past.

So the only thing I would add to that, two things. One is I'd be disappointed if in John's business we don't make some kind of pilot investment in the next year. We're looking at a variety of things, and I'd be disappointed if we don't make some kind of pilot investment in the next year. Very much toe in the water like we did a decade ago in the battery storage business. Secondly, you know, clearly we're not going to backward integrate into manufacturing electrolyzers or anything like that, but I wouldn't rule out us owning them as part of an integrated system that was integrated with renewables to manufacture hydrogen. And as, you know, our view around that would be if we had a long-term contract, and obviously we have access to very efficient capital, we know how to operate equipment, we're, you know, and so a lot of that would come to our benefit. I think, our strategic advantages in terms of how we're able to create value for folks. So, you know, I think it's early. There's clearly an opportunity to, you know, five to ten years from now to displace the last 10% of the carbon emissions out of the electric sector by manufacturing hydrogen with renewables. That's clear. I think there's also clearly an opportunity to make renewables to displace diesel fuel and perhaps even other types of transportation fuel going forward. And there's also, I think, clearly an opportunity to make green hydrogen to replace other types of hydrogen and other feedstocks in industrial applications. We're looking at all of that, and we're not being all of that in the end comes back to a very important thing, which is this is going to drive gigawatts and gigawatts and gigawatts and gigawatts of renewable demand in this country. And so there is no one better position than us to take advantage of that, and we're going to be just like we were in battery storage. We're going to be at the vanguard. We're going to and this is a big strategic initiative for us, and we're going to drive it, and it's going to be very important for this company, I think, over the next decade. We won't make any money on it in the next five years, just like we didn't make any money in batteries in the first five years, and next year we're deploying a billion dollars of batteries 10 years later. And so that's the way I think about this. I think about this as help powering the long-term growth of this company into – the back half of this decade and the next decade as well.

Got it. That's really helpful. Thank you so much for those comments. I just had one other quick M&A follow-up. I was just wondering if is there any path for Texas to be a target of interest for you from an M&A perspective or what would need to change there? Thanks.

So we... We have spent a lot of time in Texas, obviously. We own assets in Texas, and so we are a great operator, and we feel like we would bring an enormous amount of the state. We own billions of dollars of assets in the state, right, and we're a great, great partner for the state. And so, you know, I would never say never, you know, obviously – We were extraordinarily disappointed in the Encore decision. We think it was a mistake and short-sighted, but that is what it is. And so it's probably going to take a bit to get past that before I'm super excited about doing things in Texas from an M&A standpoint.

Understood. Thank you very much.

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

Hi. Good morning, everybody. Thank you for taking my question. I want to turn to Florida for a second. You're supposed to file rate cases next year at both utilities, and obviously the combination of the two will be a big step. Is there any potential for being able to delay or defer the timing of the rate cases to – A, see what happens from a tax perspective in D.C., from a public policy perspective, just so you don't have to go back to the regulator two or three times over a two- or three-year period. And, B, is there any scenario where you may not even need a rate case or rate relief?

Good morning, Michael, and we appreciate the question. As I've commented, I think even in these prepared remarks, We do continue to believe that FPL and Gulf would file for a combined rate case in early 2021 for new rates effective in 2022. As you highlighted, there's some uncertainties and certain factors that could change, but that's the reality of operating any business. You know what you know those days, and you do the best you can for planning for uncertainties, and we certainly would contemplate changes that we're aware of at the time. But, you know, you've got to keep running your business. And what's most important from our perspective is continuing to have the ability to invest in Florida Power & Light and invest at Gulf Power in these great opportunities that we see for the benefit of our customers. You know, we continue to lead the industry in O&M costs. We continue to lead the industry in reliability and customer service. And the best way to keep doing that is execute. And that means occasionally having rate cases. We are excited about that prospect. We've been preparing for it for a long time. And we think we have a great story to tell. And we welcome the opportunity to talk about the things that we've been doing at FPL and Gulf. So right for now, you know, obviously things could change. But for now, we continue to have those plans to file in 21 for new rates effective 2022.

Got it. And one other question just on the Florida utilities. You have been the industry leader in terms of cost management. Do you think the pace of change in O&M cost declines will stay at this level, meaning the year-over-year change or decline rates, or do you think you're reaching a point where it will start to flatten out, where the ability to continue to take out as much cost as you've done every year will start to slow?

The surest answer to that, Michael, is we've got a very creative team, and we've got a team that is focused on continuous improvement and not afraid of that. But let me also not underestimate what that requires, and that requires the ability to identify those new technologies and take that cost out over time. So we have to work for it. And so every year we pull together and come up with our best ideas. Do we think over the long period of time that we've exhausted every opportunity? No, in part because I think technology will continue to enhance our ability to do that, but it takes time to execute those opportunities. So our discipline is there, our creativity is there, our innovation, our commitment to continuous improvement, and we're going to do the best we can to create the best value for our customers.

Got it. Thank you, Rebecca. Much appreciated.

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