NextEra Energy, Inc.

Good morning and welcome to the NextEra Energy, Inc. and NextEra Energy Partners third quarter 2020 earnings conference 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Matt Ruscott of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, everyone, and thank you for joining our third quarter 2020 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, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, NextEraEnergy.com and NextEraEnergyPartners.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. With that, I will turn the call over to Rebecca.

Thank you, Matt, and good morning, everyone. Nectar Energy delivered strong third quarter results and continued to perform well while managing the ongoing impacts of the COVID-19 pandemic. Nexter Energy's third quarter adjusted earnings per share increased by more than 11% versus the prior year comparable quarter, reflecting strong execution at Florida Power & Light Company, Gulf Power, and Energy Resources. Year-to-date, we have grown adjusted earnings per share by over 10% relative to 2019. We continue to execute well on our major initiatives, including continuing to capitalize on the best renewables development period in our history. and we are well positioned to meet our overall objectives for 2020 and beyond. Before moving on, I would like to say a few words about Hurricanes Isaias, Laura, Sally, and Delta. As you know, residents throughout the eastern and southeastern U.S. were recently impacted by the severe effects of these dangerous and deadly storms. Our deepest sympathies are with those who have been impacted by these storms' widespread destruction. We are grateful for the support that others have given us over the years, and we were fortunate to be in a position to assist other utilities this year. As part of our assistance efforts, we sent several thousand of our employees and contractors, as well as transmission equipment to help rebuild the grid to support the restoration efforts of the impacted utilities. Gulf Power itself was impacted by Hurricane Sally, which experienced an unexpected change in intensity and path before striking the service area. Approximately 285,000 customers, or more than 60% of Gulf Power's customers, experienced outages as Sally brought heavy rain and severe flooding. Through a restoration workforce that totaled approximately 7,000 workers, including approximately 2,000 FPL employees and contractors, Gulf Power was able to restore service to essentially all impacted customers within five days. We are pleased with the efficient and safe restoration response to Hurricane Sally and which was made more challenging by the ongoing impacts of the COVID-19 pandemic. Our focus on preparation and execution, including our annual storm drills, helped ensure a timely response to the hurricane despite the pandemic. At Florida Power & Light, earnings per share increased 14 cents year over year. All of the major capital projects, including one of the largest solar expansions ever in the U.S., remain on track as we continue to advance our long-term focus on delivering outstanding customer value. FPL's typical residential bill remains 30% below the national average and the lowest among all of the Florida investor-owned utilities, all while FPL maintains best-in-class service reliability and an emissions profile that is among the cleanest in the nation. As part of our continued focus on doing what is right for our customers, last month FPL announced that, among other measures, it was offering direct relief of up to $200 per customer to those that are experiencing hardship and are significantly behind on their bills due to COVID-19. We remain committed to supporting our customers during this challenging time. Gulf Power also had a strong quarter of execution as we continue to deliver on the cost reduction initiatives and SNART capital investments that we have previously outlined. We remain focused on improving the Gulf Power customer value proposition by providing lower costs, higher reliability, outstanding customer service, and clean energy solutions. and continue to expect that this strategy will generate significant customer and shareholder value over the coming years. At Energy Resources, adjusted EPS increased by roughly 23% year over year. Building upon the success of recent quarters, our development team had the best quarter of origination in Energy Resources history, adding nearly 2,200 megawatts of signed contracts to our renewables backlog. After accounting for the removal of several projects, which I'll talk about more in a moment, Our backlog increased by approximately 1,450 megawatts and now totals more than 15,000 megawatts. To put this into perspective, our backlog, which we continue to expect to construct over the next several years, is now larger than Energy Resources' entire existing renewables portfolio, which took us more than 20 years to complete. Our engineering and construction team also continues to execute commissioning more than 800 megawatts since the last earnings call, and keeping the remainder of the more than 5,200 total megawatts of wind and solar projects that we are expecting to complete this year on track to achieve their 2020 in-service dates. Overall, with three-quarters complete in 2020, we are pleased with the progress we are making at NextEra Energy and are well-positioned to achieve the full-year financial expectations that we've previously discussed, subject to our normal caveats. Now let's look at the detailed results beginning with FPL. For the third quarter of 2020, FPL reported net income of $757 million, or $1.54 per share, an increase of $74 million and 14 cents per share, respectively, year over year. Regulatory capital employed increased by more than 11% over the same quarter last year and was the principal driver of FPL's net income growth of roughly 11%. FPL's capital expenditures were approximately $1.3 billion during the third quarter, and we expect our full-year capital investments to total between $6.5 and $6.7 billion, which, as a reminder, is higher than our expectation at the start of the year. Our reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ending September 2020, 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 $258 million of reserve amortization to achieve our target regulatory ROE, leaving FPL with a balance of $994 million. As we have previously discussed, we expect FPL and Gulf Power, operating as a single, larger Florida utility company, will create both operational and financial benefits for our customers. Earlier this month, we were pleased to receive FERC approval for an internal reorganization whereby Gulf will merge into FPL in January of 2021. Gulf Power will continue as a separate operating division during 2021, serving its customers under separate retail rates. We continue to expect the companies will file a combined rate case in the first quarter of next year for new rates effective in January of 2022. Turning to our development efforts, all of our major capital initiatives at FPL are progressing well. 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. This significant solar expansion, combined with the low-cost battery storage solutions, such as Manatee Energy Storage Center that remains on track to be complete next year, represent the next phase of FPL's generation modernization efforts. Beyond solar, construction of the highly efficient, roughly 1,200 megawatt Dania Beach Clean Energy Center remain on schedule and on budget as it continues to advance towards its projected commercial operations date in 2022. During the quarter, we were pleased that the Florida Public Service Commission approved FPL's Storm Protection Plan Settlement Agreement that allows for clause recovery of storm-hardening investments, including undergrounding. The agreement supports the continued hardening of SPL's already storm-resilient energy grid in a programmatic manner through the deployment of billions of dollars of incremental capital for the benefit of customers. Let me now turn to Gulf Power, which reported third quarter 2020 gap earnings of $91 million, or 18 cents per share, an increase of 2 cents per share relative to Gulf Power's adjusted earnings per share in the prior year period. Gulf Power's reported ROE for regulatory purposes will be approximately 10.5% for the 12 months ending September 2020. For the full year 2020, 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 $350 million, and we expect our full-year capital investments to total between $1 and $1.1 billion. All of Gulf Power's major smart capital investments continue to progress well. The plant-crest coal-to-natural gas conversion and associated natural gas lateral are expected to be complete later this year, supporting Nextdoor Energy's coal phase-out strategy and commitment to remain a clean energy leader. Although Gulf Power has not completed the final accounting, our preliminary estimate of the Hurricane Sally recoverable storm restoration cost is roughly $200 million. The storm restoration costs have been deferred and recorded as a regulatory asset on Gulf Power's balance sheet. Under the terms of Gulf Power's current rate agreement, beginning 60 days following the filing of a cost recovery petition with the Florida Public Service Commission, and subject to review and prudence determination of our final storm costs, Gulf Power is authorized to recover storm restoration costs on an interim basis from customers through a surcharge. Similar to FPL, Gulf Power's Storm Protection Plan settlement agreement was also approved during the quarter. We expect that these future hardening investments will lead to a stronger and more storm resilient grid at Gulf Power and support an even more rapid recovery from storms in the future. Similar to other parts in the country, the Florida economy continues to recover from the impacts of the ongoing COVID-19 pandemic. Recent economic data reflects an improvement in the Florida unemployment rate since the start of the pandemic, and an increase in consumer confidence that are roughly in line with the changes to the national averages of each metric. 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 as we move beyond the pandemic. 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 customer growth was particularly strong, increasing by nearly 80,000 from the comparable prior year quarter. FPL's third quarter retail sales increased 2.8% year-over-year, as customer growth, weather, and underlying usage per customer all contributed favorably. For Gulf Power, the average number of customers increased approximately 1.1% versus the comparable prior year quarter. Gulf Power's third quarter retail sales declined 6.7% year over year, primarily as a result of unfavorable weather comparison relative to the particularly strong third quarter last year, and a decline in underlying usage, primarily associated with Hurricane Sally. At both FPL and Gulf Power, third quarter weather normalized retail sales were roughly in line with our expectations at the start of the year, and we do not believe that the pandemic had much of an overall impact on underlying usage. At FPL, we continue to expect the flexibility provided by our reserve amortization mechanism will offset any fluctuation in retail sales or bad debt expense and support a regulatory ROE at the upper end of the allowed band of 9.6% to 11.6% under our current rate agreement. Let me now turn to Energy Resources, which reported third quarter 2020 gap earnings of $376 million, or $0.76 per share, and adjusted earnings of $551 million, or $1.12 per share. This is an increase in adjusted earnings per share of $0.21, or approximately 23% from last year's comparable quarter results, which have been restated to reflect the results of our next-year energy transmission business, formerly reported in Corporate and Other. New investments contributed six cents per share, primarily reflecting continued growth in our contracted renewables program. The contribution from existing generation assets was flat year over year, as the decline in wind resource and costs associated with the retirement of our Duane Arnold nuclear facility were roughly offset by increased PTC volume from our repowered wind projects, as well as the lack of an unfavorable state tax item, which impacted last year's third quarter results. Contributions from both Nexter Energy Transmission and our customer supply and trading business increased by one cent year over year. All other impacts increased results by 13 cents per share, driven primarily by the absence of the write-off of development costs that negatively impacted 2019 results. The Energy Resources Development Team continued to capitalize on what we believe is the best renewables development environment in our history during the quarter. with the team originating a record of nearly 2,200 megawatts. Since our last earnings call, we have added 580 megawatts of new wind, 911 megawatts of solar, 594 megawatts of battery storage, and 86 megawatts of wind repowering. The significant additions include a new 325 megawatt four-hour battery storage system. This project, which is the largest standalone storage project in the world, is expected to support California's aggressive clean energy goals and help improve reliability across the regional electric grid when it comes online in 2023. We also executed a 180 megawatt solar build-on transfer agreement during the quarter, which is not included in our backlog additions. Partially offsetting this quarter's strong origination success was the removal of several projects we had previously included in our backlog. The majority of the reductions are the result of an unfavorable ruling from the Alabama Public Service Commission related to several solar plus storage projects. We expect the customer to hold a future procurement for this generation capacity and are hopeful that the projects may receive new contracts during that process. After accounting for these projects' removals, the energy resources backlog had a net increase of 1,446 megawatts during the quarter. reflective of our customer demand for low-cost wind, solar, and battery storage projects that is stronger than ever. The repowering projects added this quarter include our first project for beyond 2020 and adds to the recent significant increase to our 2021 new wind and repowering backlog, which now totals roughly 2,000 megawatts. With the addition of the 2021 repowering project, we are now introducing repowering expectations for 2021 and 2022 period of 200 to 700 megawatts. Continued cost and technology improvements have supported an expanding opportunity set for both new wind and repowering over time. As a result, we are beginning to evaluate incremental repowering opportunities for beyond 2022. Through the first three quarters of 2020, we have added nearly 4,800 megawatts to our renewables backlog, which now totals more than 15,000 megawatts and is the largest in our history. To reflect the current backlog and strong origination success, we are raising the low end of our 2019 through 2022 development expectations to 15,500 megawatts, which is above the midpoint of our original range. And we are increasing the top end of the expectations to reflect the incremental repowering expectations that we added this quarter. Additionally, with more than 4,000 megawatts of renewables projects already in our backlog for post 2022, we are well positioned to execute on our long-term growth objectives. We continue to believe that by leveraging energy resources' competitive advantages, we can further capitalize on the best renewables development environment in our history going forward. As we've previously discussed, we are optimistic about the potential for green hydrogen to support an emissions-free future. Consistent with our toe-in-the-water approach to new opportunities, Energy Resources has developed a pipeline of approximately 50 potential green hydrogen projects spanning the power, transportation, and industrial sectors. These projects serve a variety of end uses, and similar to the strategy employed in wind, solar, battery storage, and other areas, provide the opportunity to develop early learnings with relatively small investments to set the stage for much larger capital deployment as cost declines and technology improvements are realized. Over the next several quarters, we expect to add to this pipeline while advancing select projects as we position ourselves to continue to be a leader in the decarbonization of the energy sector. We remain excited about hydrogen's long-term potential to further support future demand for low-cost renewables, as well as accelerate the decarbonization of transportation fuel and industrial feedstocks. Beyond renewables, we are pleased with the recent progress to resolve the outstanding permit issues required for Mountain Valley Pipeline's construction. Among other progress, since the last earning call, MVP has received its revised biological opinion, approval of the project's nationwide 12 permit by the Army Corps of Engineers, and a recent order by FERC authorizing forward construction to resume along the majority of the project route. Following receipt of this approval, MVP resumed construction work across West Virginia and Virginia. Despite the recent progress, we were disappointed with the Fourth Circuit's court's decisions to administratively stay MVP's nationwide 12 permit. We disagree with the court's decision and continue to work with our partners to move the project forward. Depending on the outcome of these issues, we continue to target an in-service date of the pipeline for during 2021. Consistent with our focus on growing our rate-regulated long-term contracted business operations, During the third quarter, NextEra Energy Transmission announced an agreement to acquire GridLiance, which owns three FERC-regulated transmission utilities spanning six states. Subject to regulatory approvals, the approximately $660 million acquisition, including the assumption of debt, is expected to close in 2021 and to be immediately accretive to earnings. The proposed acquisition has strong expansion potential in attractive markets with significant expected renewables growth. and furthers our goal of growing America's leading competitive transmission company. Turning now to the consolidated results for Nexstra Energy. For the third quarter of 2020, GAAP net income attributable to Nexstra Energy was $1.229 billion, or $2.50 per share. Nexstra Energy's 2020 third quarter adjusted earnings and adjusted EPS were $1.311 billion and $2.66 per share, respectively. Adjusted earnings from corporate and other segments declined 10 cents year over year, primarily due to other corporate expenses, which includes interest. During the quarter, NextEra Energy issued $2 billion of equity units as we continue to focus on opportunistic and prudent capital management to enhance the strength of our balance sheet. The equity units will convert to common equity in 2023, and the proceeds are expected to be primarily used to redeem a portion of NextEra Energy's outstanding hybrid securities, and to finance the acquisition of GridLiance and NextEra Energy's continued renewables expansion. In addition to the redemption of hybrid securities in the fourth quarter, we are also considering several other potential refinancing activities to take advantage of the low interest rate environment. In total, these initiatives could generate negative adjusted EPS impacts of roughly 20 cents in the fourth quarter before translating to favorable net income contributions in future years and an overall improvement in net present value for our shareholders. Consistent with our efforts to position NextGen Energy well for long-term growth and take advantage of the low interest rate environment, during the quarter we entered into $2 billion in forward-starting interest rate swaps to further support future debt issuances. Finally, in July, as part of its 2020 annual review, Moody's reduced NextGen Energy's CFO pre-working capital to debt downgrade threshold from 18% to 17%. The favorable adjustment was based on recognition of Nexter Energy's leading position in the utility and renewable energy sectors and stable cash flow generation profile. As we announced last month, based on the ongoing strength of the renewables development environment and continued execution across all of our businesses, we increased Nexter Energy's financial expectations for 2021 and 2022 and extended our long-term growth outlook to 2023. For 2021, NextEra Energy's adjusted EPS expectation ranges increased by 20 cents, and we now expect adjusted earnings per share to be in the range of $9.60 to $10.15. For 2022 and 2023, we expect to grow 6% to 8% off of the expected increased 2021 adjusted earnings per share. The increased adjusted earnings expectations are supported by what we believe is the most attractive organic investment opportunity set in our industry. Largely as a result of the significant renewables investment opportunities that we expect to capitalize on, we now expect our total capital expenditures from 2019 to 2022 to total roughly $60 billion, an increase from the $50 to $55 billion range we introduced at the investor conference last year. During the quarter, the board of NextEra Energy approved a four for one common stock split, which is intended to make stock ownership more accessible to a broader base of investors. Trading will begin on a stock split adjusted basis on October 27th. And our fourth quarter and full year 2020 financial results will reflect the post split share count. As a result of the stock split, NextEra Energy updated its adjusted EPS ranges to reflect the increase in outstanding shares. In 2020, the company now expects adjusted earnings per share to be in the range of $2.18 to $2.30. The adjusted EPS ranges for 2021 and beyond are included on the accompanying slide. From 2018 to 2023, we 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. As always, our expectations assume normal weather and operating conditions. In summary, despite the challenges created by COVID-19 pandemic, NextEra Energy has continued to deliver terrific operational and financial results through the first three quarters of 2020. 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 expectations ranges in 2020, 2021, 2022, and now 2023, while at the same time maintaining our strong credit ratings. We remain intensely focused on execution and believe Nexer Energy remains well positioned to drive shareholder value in the coming years. Let me now turn to NextShare Energy Partners. The NextShare Energy Partners portfolio performed well and delivered financial results in line with our expectations. Adjusted EBITDA was down slightly compared to the third quarter of 2019, and cash available for distribution increased 10% versus the prior year comparable quarter. On a year-to-date basis, adjusted EBITDA and cash available for distribution have increased by 16% and 50% respectively versus 2019. Yesterday, the Next Energy Partners Board declared a quarterly distribution of 59.5 cents per common unit, or $2.38 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. During September, Next Energy Partners completed the successful conversion of approximately $300 million of convertible debt into roughly 5.7 million common units. This financing, combined with a related capped call the Next Energy partners entered into at the time of the debt issuance, generated significant value for LP unit holders. Following receipt of the capped call settlement, the debt had roughly $0 three-year cumulative cash cost. Relative to issuing equity at the time of the financing, 25% fewer units were issued, and Next Energy partners generated approximately $50 million in cumulative cash savings. The convertible debt financing highlights the value of Next Energy Partners utilizing low-cost financing products to support growth and efficiently issue equity over time. Overall, we are pleased with the year-to-date execution at Next Energy Partners and are well-positioned to meet our 2020 and longer-term expectations. Now let's look at the detailed results. Third quarter adjusted EBITDA was $312 million, a decline of approximately 1% year-over-year. Cash available for distribution was $162 million, up approximately 10% from the prior year comparable quarter. New projects added $24 million of adjusted EBITDA and $16 million of cash available for distribution. Adjusted EBITDA from the existing assets declined year over year as lower wind resource was partially offset by growth at the Texas pipelines as a result of the expansion project going into service. Wind resource was 96% of long-term average versus a particularly strong 107% in the third quarter of 2019. Cash available for distribution from existing projects benefited from a reduction in debt service payments, primarily as a result of the retirement of outstanding notes at our Genesis project and receipt of higher year-over-year PAYCO payments. The reduction in project-level debt service was partially offset by higher corporate-level interest expense. As a reminder, these results include the impact of IDR fees which we treat as an operating expense. The additional details are shown on the accompanying slide. We are pleased to announce that Next Energy Partners has successfully completed its first two organic growth investments ahead of schedule and on budget. The repowering of the 175 megawatt Northern Colorado wind project was recently placed into service. The repowering provides multiple benefits to Next Energy Partners, including increased production and uplift in project cash flow a longer asset life and lower O&M costs. The remaining 100 megawatts of wind repowering remains on track to be in service later this year. Additionally, during the quarter, the backup compression net capacity on the Texas pipelines also reached commercial operation. The expansion opportunity is supported by a long-term contract and is expected to deliver attractive returns to LP unit holders. The ability to complete these projects as planned, despite the challenges created by the pandemic, is a testament to the best-in-class engineering and construction team that Next Energy Partners is able to leverage to execute its organic investments. We continue to expect to execute on additional attractive organic growth opportunities as the Next Energy Partners portfolio further expands. Let me now turn to Next Energy Partners expectations, which remain unchanged. Next Energy Partners continues to expect December 31, 2020 run rate for adjusted EBITDA to be in a range of $1.225 billion to $1.4 billion, and cash available for distribution to be in a range of $560 million to $640 million, reflecting calendar year 2021 expectations for the portfolio at year-end 2020. As a reminder, our expectations include the impact of anticipated IDR fees as we treat these as an operating expense. Next Energy Partners is also considering several potential refinancing activities to take advantage of the low interest rate environment. If pursued, these initiatives could generate costs in the fourth quarter before translating to favorable cash available for distribution contributions in future years and an overall improvement in net present value for our unit holders. From a base of the Next Energy Partners fourth quarter 2019 distribution per common unit at an annualized rate of $2.14, We continue to see 12% to 15% per year growth 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, as payable in February 2021, to be in a range of $2.40 to $2.46 per common unit. We continue to expect to achieve Next Energy Partners 2020 distribution growth objectives while maintaining a 12-month payout ratio of approximately 70%, highlighting the significant flexibility we believe Next Energy Partners has going forward. As we previously discussed, while we continue to be opportunistic, Next Energy Partners' favorable position should give it flexibility to achieve its long-term distribution growth objectives without the need to make any acquisitions until 2022. As always, our expectations assume normal weather and operating conditions. We are pleased with the strong year-to-date performance at Next Energy Partners and continue to believe it offers a compelling investor value proposition going forward. With significant expected long-term renewables growth, combined with the strength of Next Energy Partners' existing portfolio and continued access to low-cost sources of capital, We believe Next Energy Partners is uniquely positioned to take advantage of the disruptive factors reshaping the energy industry. Next Energy Partners continues to maintain flexibility to grow in three ways, through organic growth, third-party acquisitions, or through acquisition from Next Energy Resources' unparalleled portfolio of renewables projects that now totals roughly 28 gigawatts, including signed backlogs. These factors provide us with as much confidence in NextEra Energy Partners' long-term future as we have ever had. We look forward to delivering on that potential in the coming years. In summary, 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. That 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 telephone keypad. If you are 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 assemble our roster. And our first question will come from Steve Fleischman of Wolf Research. Please go ahead.

Oh, thank you. I guess two questions. First of all, does the backlog increase that you announced today include the NYSOR, SNPSCO projects that were just announced this morning, or would those be additive?

Uh, Steve, this is John Ketchum. Yes, it does include the, the, the nice horse projects.

Okay. And then second question would just be, this will probably be the last time we hear from you before the election results. So just maybe one more time, could you just talk about in the event that Biden wins the election thoughts on what that could mean for renewables opportunity? And also thoughts on how Nextera is positioned for any tax reform changes. Thanks.

Thanks, Steve. As you well know and kind of consistent with our history, we focus on analyzing a variety of impacts. And one of our key focus for going into the election is to ensure that we're well positioned to be successful regardless of the outcome. And looking back in the last couple of years, obviously we've done quite well across all of our businesses in the environment that we've been in. So should Trump win a second term, we would expect to continue our strong momentum and continued focus on our strategies and execution on them. If Biden is the new president, he has clearly made clear across his platform, across the Democratic platform, that they have strong support for renewables. To date, their plan is more focused on broad goals as opposed to specific plans for how they would get there. But we could easily see, whether it's an extension of incentives, focus on storage, potentially focus on hydrogen, et cetera, to further accelerate the expansion of renewables across the U.S., beyond the already strong demand that we're seeing that's clearly based on the economic value of renewables relative to the alternatives. As it relates to tax reform, obviously that's part of some of the things that Biden has been talking about. It certainly could be on the agenda. I think there's a question as to whether or not it would be one of the first things that a new administration would want to focus on, particularly as we will likely find ourselves still in recovery mode from the pandemic. And we will evaluate if there are more details, and as there are more details, we'll evaluate the overall impacts. If you look at the prior tax reform as an example, clearly a change in the tax rate, an increase in the tax rate, as Biden has talked about, would have some negative adjusted earnings impacts, positive cash impacts, all else being equal. But we need to think about, one, the details of any policies that they put forward, but two, together with the other things that would come along with a new Biden administration, including the strong demand for renewables that we would expect. So more to come as we learn more, and obviously the results from the actual election unfold.

Great. Thank you.

Thanks, Steve. Our next question comes from Julian Dumoulin-Smith of Bank of America. Please go ahead.

Good morning, Steve. Thanks for the time. I appreciate it. If I can follow up on a couple things here. First, transmission, you guys did this interesting announcement in the quarter. How does that enable a further expansion of potentially larger-scale projects, and how does that complement potentially larger-scale renewable ambitions you might have across their core Midwest territories that they serve today?

Yeah, Julian, thanks for the question. We are thrilled with the acquisition, of course, subject to approvals of GridLiance. And it is the three different transmission companies across six states where their existing assets are located. First, there are investment opportunities in those existing investments that we would have in GridLiance. But it also positions us to have a seat at the table in these regional ISOs as they contemplate new transmission projects. And obviously grid lines would seek to compete effectively for those opportunities. The comment around renewables is that as we think about a broad and substantial expansion of renewables across the U.S., it becomes important and increasingly so over time to continue to invest in the transmission grid across the U.S. So we want to be a part of that solution and capitalize on those investment opportunities via our competitive transmission business. but also will depend on that in order to realize the significant expansion of renewables over time. So it's both an enabler and an investment opportunity from our perspective.

Thank you. Perhaps if I can pivot over to the more strategic side of the equation here, and perhaps I'll frame it this way. So you all have recently received greater latitude when it comes to your debt metrics on an FFO to debt basis from the agencies. Can you talk about how you might receive yet further latitude as you think about the percent regulated the business needs to get to to unlock yet for lower metrics, if that makes sense? And perhaps in tandem with that, might you espouse your latest thought process on strategic thinking from here beyond perhaps some of the comments you previously provided to the extent relevant?

Yep, of course. So a strong balance sheet is incredibly important to us, and one of the things that we spend a lot of time talking with the agencies about is how strong a cash flow generation profile all the businesses have, how diverse in a variety of metrics, including geography, technology, customers, et cetera, and how that profile compares very favorably to other peers in the industry and their own respective cash profiles. So we did realize the improvement in downgrade thresholds, specifically at Moody's this period, that 18% to 17% downgrade threshold improvement. And we'll continue discussing with the agencies about the high-quality characteristics of our cash flows and seek improvements and additional flexibility as appropriate. There is the opportunity to have extensive dialogues with the agencies around potential regulated M&As. So anytime we do contemplate transactions, we have those conversations to evaluate whether or not the profile of the cash flow generation changes such that it would move those metrics. And as we have those dialogues and have those conversations with respect to potential M&A, we factor those in to any deal transaction economics. It remains incredibly important to us to be able to maintain consistency with our objectives around M&A, which is that they're value accretive from an earnings perspective. They also are in strong regulatory environments and create opportunities for us to invest capital. But being accretive is incredibly important to us. As you know, when we think about metrics, there are quite a number of ways to think about the balance of our business between the competitive generation business and regulated. And one of the key ways that we continue to maintain that balance is through capital recycling. And that's one of the reasons why Next Energy finds value in its long-term relationship with Next Energy Partners is the clear ability to recycle capital in a very efficient way with Next Energy Partners.

Got it. But there's no specific percent regulated that you want to achieve to get that number down to 16% or 15%, right?

No, we're not prescriptive about a specific balance. We think about a variety of factors when we think about what's the optimal balance of our business. And there's not one answer at a given point in time, and certainly that can be influenced over time as things change in our perspective and the agency's perspective changes.

Excellent. Thank you all. Best of luck.

Thanks, Julian.

Our next question comes from Char Perez of Guggenheim Partners. Please go ahead.

Hey, good morning, guys. Good morning. Just a quick follow-up on Julian's question, and it's really bent on, you know, sort of that mix. You know, obviously, you know, FPL and Gulf are posting very solid regulatory, you know, capital deployment, but the near development platform keeps signing contracts and as you guys sort of highlighted, that the backlog is now larger than the existing portfolio. So curious on how we should sort of think about the growth trajectory of NEAR as we're sort of thinking about a mix. I mean, is 70%, 30%, Rebecca, no longer relevant on what you sort of target there? Have you sort of sanitized the additional growth opportunities with NEAR with the rating agencies? And how do you sort of stay within a potential mix Obviously, recycling capital into net is an option, but that has a lot of constraints and limits. Slowing down near likely isn't an option. So really, is the path of least resistance more regulated acquisition? So maybe if you could just drill down a little bit further into the prior question.

Thanks, Sharon. And I certainly appreciate the premise of the question, which is we have terrific organic growth prospects at both the regulated utilities and and in the competitive energy business. One of the things that we think is really important from the competitive side of the business is so long as we can find projects that are attractive, that have attractive returns, we don't want our teams to be capital constrained because we believe that these are very strong value-accretive project investment opportunities for our shareholders. So we set them off and hope that they can find all of the best projects and that we can secure the wins and build those projects. As you know, a significant amount of the value creation of developing renewables projects and owning and operating them long-term is in that development process, constructing them and putting them into operations. So if we can continue to do that with value-creative projects, And to the extent that we want to manage a balance of the mix of business across the different companies, we will take advantage of that capital recycling as one of the best ways and most value-accretive ways for NextEnergy shareholders to recycle capital, either to NextEnergy partners or potentially even to other third parties, depending on market characteristics at the time. So I think we've got a lot of levers here. And again, most importantly, in a terrific position of win-win of having a lot of places to place our capital. And obviously, we're pleased with raising our capital investment ranges for the four-year period.

So just to follow up, so that 70-30% regulated non-utility mix, should we sort of just move away from that sort of target that was discussed in the past?

Char, I think the key takeaway is there's not a specific number that is the right number. And we'll be, you know, we think about it in a variety of different ways over time, and there are a variety of levers that we can utilize to maintain a balance. But we're not prescriptive on a specific number that it needs to be.

Got it, got it. And then just on the battery side, you know, you obviously added 594 megawatts, which includes a single 325 four-hour project. Can you sort of just maybe talk about the economics of storage you're seeing, especially with the four-hour project, just maybe from an LCOE perspective? And with the current backlog of storage opportunities, is four hours of storage sort of that peak capability, or are you seeing some longer storage opportunities?

Well, let me take that last part first. I don't know that there's a constraint or a peak capability of storage. There are clearly a variety of storage solutions that could make sense in a given application. What our energy resources team is largely focused on is providing solutions that our customers want to buy that solve our customers' needs. And most recently, four-hour storage has been very attractive and particularly interesting to our customers. So we have sold quite a number of four-hour storage projects. From a return standpoint, these storage facilities are often sold together with other renewables projects, specifically other solar projects, and we found the returns to be very attractive, comparable to solar and wind project returns on an overall basis.

Yeah, and sure, this is John Ketchum. A couple of things that I would add to that are, One, remember, there are three ways that we really look to grow the storage business. One is pairing it with solar. The second are trifecta opportunities that we've advertised in the past that we've been successful executing on, combining storage with wind and with solar. If we were ever to get a standalone storage ITC, obviously that would help what is the largest wind portfolio possible. in North America, and then the standalone opportunities along the lines of what we're able to advertise today. So when you combine those three potential opportunity sets, we have a significant growth opportunity in storage. You see that in our 2021 CapEx plan. That is over a billion dollars in storage. Nobody has the existing fleet that we have. And so the opportunity to pair storage at existing solar facilities, existing wind facilities, and then look for standalone opportunities, I think, puts us in a different class just based on the existing operating fleet that we have. And then as you think about batteries going forward, four-hour duration may make sense in certain markets, two hours in others. In two to three years, we could be moving to solid-state batteries, which could also provide longer duration, more efficient at a reduced cost, and then hydrogen certainly as a long-term alternative. We mentioned the 50 pilot projects today in electricity, in transportation, in industrial applications. So we see hydrogen as really – a long-term solution, particularly if we end up in 100% decarbonized energy policy by 2035, where hydrogen could really be the solution for that last 10% to 15% where it gets very expensive to do with batteries, much cheaper and more manageable to do with hydrogen. Terrific, guys.

Thank you very much.

Thank you. Our next question comes from Michael Lapidus of Goldman Sachs. Please go ahead.

Hey, guys. Thank you for taking my questions. On the renewable front, it seems that after years of not really doing a lot, that pretty much every regulated investor-owned utility has its own renewable growth strategy and rate base. Can you talk about – now, the broader market has massive tailwinds. But can you talk about how that move by the regulated IOUs is impacting the competitive dynamic for people developing, especially all given your scale, renewables on the non-regulated side of the business? How does that just kind of flow through or impact the market dynamic?

Thanks, Michael. I appreciate the question. Well, let me highlight first, and at the risk of sounding a little too flip, We now have a backlog of over 15,000 gigawatts. And we do get a lot of questions about whether or not we're concerned about the competitive dynamic. But the team is doing pretty well in this dynamic. And keep in mind that we've got customer base that's investor-owned utilities, munis and co-ops, and CNI customers. And the dynamics of wanting to build in rate base really are predominantly focused on the investor-owned utility side. And there are opportunities even within investor-owned utilities to compete effectively for the business and partner with them in many cases, to create win-win opportunities for them, to get the best-built projects for their customers, own some of it in rate base, enable us to operate it in some cases, enable us to enter into those power purchase agreements and sell it to them over time. And then, of course, we continue to have strong opportunities to sell under contract to the munis and co-ops and CNI customers. So the outlook is very bright. Our team is doing a terrific job executing, and we're looking forward to continuing to deliver against those growth opportunities.

Yeah, and just, Michael, picking up on a couple of the comments that Rebecca made, you know, with IOUs, let's just take a look at what happened with NIPSCO this quarter. If you add on the 400 megawatts of wind that we announced last year, we're now at 2 gigawatts with just one customer, one investor-owned utility company. and Indiana and NIPSCO. So we still see significant opportunities for investor-owned utility, renewable build-out, being able to bring low-cost solutions that combine not only traditional renewables but with storage applications and then obviously around hydrogen. Munis and co-ops have always been a core part of the business. And then CNI, as Rebecca mentioned at the end, the CNI market is really accelerating. And as ESG has really come into the fold, a lot of the investor pressure that formerly non-traditional buyers of renewables are facing from their investor base has really expanded the opportunity set for us to sell many different products to those potential customers. And one of the things that we're seeing in a decarbonized U.S. economy is not only the chance to sell renewables but also to play to our other strengths. There's a lot of adjacencies, a lot of adjacencies around clean energy where we are the natural fit to be a leader in some of those specific markets. And those are some of the things that we are continuing to look at and spending a lot of time as a senior team focusing on.

Got it. And if you don't mind, a follow-up on the regulated side. In the event sometime over the next couple of years, there are higher corporate income tax rates, and we'll see. Obviously, policy changes, and it's fluid. How do you think about what that means for the customer, given the cost of service would obviously have to reflect the higher tax rates? but also the excess accumulated deferred federal income taxes that currently is being refunded by many utilities around the country. Part of that would actually potentially, I think, reverse. So it would kind of put on the backs of the customer a decent bit of a rate increase and a little vary by jurisdiction and by utility. How does that impact the dynamic over a multi-year period? Yes, it raises cash flow, but it could also raise the customer bill. And what do you think the opportunity set is for NextEra in terms of either offsetting that impact or even improving your competitive position at the utility level relative to some of your peers?

Hey, Michael, it's Jim. Let me take that because we've been doing a lot of thinking around, obviously, different scenarios around what happens with taxes depending on what happens with the federal elections. Remember what happened in 2017 around tax reform is that the industry very effectively, I think, came together and there were really two industries that were carved out for different treatment in the 2017 tax reform scenario. One was real estate, and I'll let you speculate as to why real estate might have gotten singled out. And the other was the utility sector. And the utility sector, I think, was very effective in laying out how, you know, what the impacts to customers and to balance sheets were around tax reform. I think in You know, to the extent that there is any tax discussion next year, let's assume for a minute that Biden wins. I think it's very, you know, I think it's, you know, we're obviously scenario planning around both outcomes because I think you can't really handicap it one way or another right now. You know, the best thinking that we've had around this is that in the middle of a pandemic is probably not the time to have a tax increase, period. And so, you know, in terms of the timing around tax reform, I'd be surprised if it was next year, honestly, even in a Biden administration. You know, who knows, right? I mean, that's a bit of speculation on my part. But the other thing I think we would be very effective as an industry being able to do is to lay out how any tax increase on utilities is really simply a tax increase on all customers and not on corporations but on everyday Americans. And I think that message will resonate in Washington, and so that's a message that we as an industry haven't been able to lay out yet, obviously, because it's premature to do so. You know, I think a lot of the, you know, a lot of the angst around tax reform one way or another is, I think, a little premature right now. And obviously, we'll see what happens in the election. But then, you know, if Biden does win, then there's going to be where does it stand up in the list of policy priorities for the new administration, if there should be one.

Got it. Thank you, Jim. Much appreciated.

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

Hi, guys. Hey, a couple of questions on the possibility of higher taxes on the other side of it. Wondering if that would potentially reduce your need to use tax equity for projects going forward and And also, I understand as the largest player out there, you guys don't really ever have a problem attracting tax equity investors. But can you just comment on the status of the tax equity market in general right now? I guess it's pretty tight for some of the smaller players. Is that something that could improve under a democratic administration if tax rates go up and tax credits are extended, et cetera?

Sure. Let me start with this year first. From a tax equity market standpoint, that was one of the things that we and everybody else in the industry and, of course, the tax equity providers were thinking about in the early stages of the pandemic. We have secured all of our tax equity commitments for this year and have already started the dialogues with tax equity partners about our pipeline of projects for next year, and we feel confident about our ability to secure tax equity. I do think as you go out a year into 2021 and maybe into 2022, it's certainly possible that the tax equity providers are going to have more limited capacity, and that may affect others further down the chain, a little bit smaller or a lot smaller than we are and could be an issue. As it relates to tax reform, it's Without knowing the details of it and kind of having more of the specifics, it's hard to answer the question of whether or not the needle is moved enough to not need tax equity. It also somewhat presumes that there's an extension of incentives, because obviously if the incentives phase out like they are currently expected to, there's less need for tax equity over time, and that's actually one of the things that we've highlighted recently. in terms of our future power purchase agreement prices is optimization around financing, so seeking lower cost source of financing other than tax equity would be a positive. So I think there's pluses and minuses, puts and takes. What I do feel very comfortable with is the outlook and demand for renewables is really strong, and we've continued to realize attractive returns, and we're excited about continuing to capitalize on these opportunities.

Great, great. And also on the wind repowerings, what's the primary consideration that you're looking at to increase those numbers as you look at 21, 22, and beyond?

Yeah, I think the key focus there is really the economics of the repowering projects and ensuring that they are attractive returns and meet the requirements from a tax perspective and obviously are also something that our customers are interested in. So if we've continued those dialogues over time, and as we've gotten closer to the timeframes in which we would do these repowerings, obviously, you know, the rubber starts to hit the road, and we've been able to start to secure some of those and have increased visibility to those incremental investment opportunities, obviously, in that range that we discussed today.

Right. Would an extension of tax credits really allow you to really increase that or increase the opportunities in any way?

It's certainly possible that it could. Again, a little bit subject to the details of what an extension of incentives looks like and all the other factors that go into whether or not a project is attractive, but absolutely.

One last question. On FERC 2222, it improves the ability of residential solar to sell into grid services, and I'm just wondering if that value that comes from FERC 2222 changes your mind at all about residential solar as a possible investment opportunity for Nectara?

We've looked at distributed generation investments. Obviously, we have a very strong business on more of the commercial industrial side. We've looked at residential over time, but one of the key factors for us is that we're a significant size company and we like to deploy a significant amount of capital and inevitably these are much smaller investment opportunities. But we do look at the business over a long period of time, and obviously we'll enter it where we think it makes sense. But we're really focused on kind of a little bit larger scale investment opportunities for the most part.

Okay. Thank you very much.

Thank you. This concludes our question and answer session. The conference has now also concluded. Thank you for attending today's presentation, and you may now disconnect.