NextEra Energy, Inc.

Good morning, everyone, and welcome to the NextEra Energy and NextEra Energy Partners Q2 2021 earnings call. All participants will be in a listen-only mode. Should you need assistance, you should know 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 using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. And at this time, I'd like to turn the conference call over to Jessica Aldridge, Director of Investor Relations. Ma'am, please go ahead.

Thank you, Jamie. Good morning, everyone. And thank you for joining our second quarter 2021 combined earnings conference call for Nexera Energy and Nexera 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 in the comments made during this conference call in the risk factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, NextEraEnergy.com and NextEraEnergyPartners.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. As a reminder, Gulf Power legally merged into Florida Power & Light Company effective on January 1, 2021. Gulf Power will continue as a separate reporting segment within Florida Power & Light and NextEra Energy through 2021 serving its existing customers under separate retail rates. Throughout today's presentation, when we refer to FPL, we are referring to Florida Power & Light excluding Gulf Power, unless otherwise noted or when using the term combined. With that, I will turn the call over to Rebecca.

Thank you, Jessica, and good morning, everyone. NextEra Energy delivered strong second quarter results and is well positioned to meet its overall objectives for the year. Adjusted earnings per share increased more than 9% year-over-year, reflecting continued strong financial and operational performance across all of the businesses. FPL increased earnings per share by 4 cents year-over-year, driven by continued investments in the business. FPL's major capital initiatives remain on track, and FPL's focus continues to be on identifying smart capital investments to lower costs, improve reliability, and provide clean energy solutions for the benefit of our customers. In June, FPL demolished its last coal-fired plant in Florida with plans to replace it with more clean, emissions-free solar energy facilities. During the quarter, FPL also successfully commissioned approximately 373 megawatts of new solar, including the FPL Discovery Solar Energy Center at Kennedy Space Center. With these new additions, FPL surpassed 40 percent completion of its groundbreaking 30-by-30 plant to install 30 million solar panels by 2030. FPL expects to have installed more than 15 million panels by early 2022, which would put the company more than 50% on the way towards completing its 30 by 30 plan in just over three years since the initial announcement. To support its solar build-out, FPL recently began installing the first components of the world's largest integrated solar-powered battery system, the 409-megawatt FPL Manatee Energy Storage Center, which is expected to begin serving customers later this year. Gulf Power also continued to execute on its growth initiatives during the quarter, with its strong financial performance driven primarily by continued investment in the business and further improvements in operational cost effectiveness. Excluding the COVID-19 related expenses, which were subsequently reversed and booked into a regulatory asset in the third quarter of 2020, Gulf Power's year-to-date O&M costs declined by approximately 9% versus the prior year comparable period, and have now declined by approximately 31% relative to 2018. Gulf Power's operational performance metrics also continue to improve, with the reliability of the generation fleet that we operate and service reliability improving by 71% and 63%, respectively, year-to-date versus the first half of 2018. We continue to expect that the cost reduction initiatives and smart capital investments that we've previously outlined will generate significant customer and shareholder value in the coming years. At Energy Resources, adjusted earnings per share increased by more than 7% year-over-year. The Energy Resources team continues to capitalize on the terrific market opportunity for low-cost renewables and storage, adding approximately 1,840 megawatts to its backlog since the last earnings call. This continued origination success is a testament to Energy Resources' significant competitive advantages. including our large pipeline of sites and interconnection queue positions, strong customer relationships, purchasing power and supply chain execution, best in class construction expertise, resource assessment capabilities, cost of capital advantages, and world class operations capability. Moreover, energy resources, advanced data analytics, and machine learning capabilities allow us to utilize the nearly 40 billion operating data points our fleet provides every single day for predictive modeling, further extending our best-in-class O&M and development capabilities. We continue to believe that no company is better positioned than Energy Resources to capitalize on the best renewables development period in our history. We are pleased with the progress we've made at NextEra Energy so far in 2021, and headed into the second half of the year, we are well-positioned to achieve the full-year financial expectations that we've previously discussed, subject to our usual caveats. Now let's look at the detailed results, beginning with FPL. For the second quarter of 2021, FPL reported net income of $819 million, or 42 cents per share, which is an increase of $70 million and 4 cents per share, respectively, year over year. Regulatory capital employed increased by approximately 10.7% over the same quarter last year and was the principal driver of FPL's net income growth of more than 9%. FPL's capital expenditures were approximately $1.6 billion in the second quarter, and we expect our full-year capital investments to total between $6.6 and $6.8 billion. Our reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ended June 2021. During the quarter, we utilized $100 million of reserve amortization to achieve our target regulatory ROE, leaving FPL with a balance of $473 million. As a reminder, rather than seek recovery from customers of the approximately $240 million in Hurricane Dorian storm restoration costs, In 2019, FPL utilized its available reserve amortization to offset nearly all of the expense associated with the write-off of the regulatory assets related to Dorian cost recovery. Earlier in the year, FPL and the Office of Public Counsel entered into a settlement regarding the prudence of FPL's Hurricane Dorian storm restoration costs and activities, which was approved by the Florida Public Service Commission in May. We are pleased by the Commission's determination that all of FPL's Hurricane Dorian restoration costs were prudently incurred, and we believe the settlement agreement fairly and reasonably balances the interests of FPL and its customers. Earlier this month, FPL responded to Tropical Storm Elsa with a restoration workforce of approximately 7,000 FPL employees and contractors. FPL safely and quickly restored power to nearly 100,000 customers who were impacted by Elsa as the hardening and automation investments that FPL has made since 2006 to build a stronger, smarter, and more storm-resilient energy grid continue to benefit customers. ELSA was the earliest that a fifth named storm has formed in the Atlantic Basin, and we remain prepared in advance of what is forecasted to be another active hurricane season in 2021. Let me now turn to Gulf Power, which reported second quarter 2021 net income of $63 million, or 3 cents per share. During the quarter, Gulf Power's capital expenditures were approximately $150 million, and we expect its full-year capital investments to be between $800 and $900 million. All of the major Gulf Power capital projects, including the North Florida Resiliency Connection that is expected to be in service in mid-2022, continue to progress well, and Gulf Power's regulatory capital employed grew by approximately 17% year-over-year as a result of these smart capital investments for the benefit of customers. Gulf Power's reported ROE for regulatory purposes will be approximately 10.3% for the 12 months ended June 2021. For the full year 2021, we continue to target a regulatory ROE in the upper half of the allowed band of 9.25 to 11.25%. Earlier this month, Florida Public Service Commission also approved a settlement agreement between Gulf Power and the Office of Public Counsel for cost recovery of the approximately $13 million in COVID-19 related expenses, primarily reflected in incremental bad debt and safety expenses as a result of the pandemic. We are pleased with this outcome and believe it demonstrates the continued constructive regulatory environment in the state of Florida as we work to improve Gulf Power's customer value proposition of low cost, high reliability, excellent customer service, and clean energy for our customers. As we anticipated, Florida's economic activity has rebounded since the onset of the COVID-19 pandemic last year, as reflected by a wide range of positive economic indicators. Florida's current unemployment rate is 5%, which remains well below the national average. Rolling three month average of new building permits are up approximately 46% year over year, which is the highest growth rate in nearly eight years and are the second highest new building permits in the nation. As another indicator of health in Florida's economy, Florida's retail sales index was up over 40% versus the prior year. The Case-Shiller seasonally adjusted index for South Florida home prices is up over 14% on an annual basis. Recent population growth estimates indicate that Florida remains one of the top destinations for relocating Americans, with Florida adding nearly 330,000 new residents between April of 2020 and April of 2021. We expect this trend to continue, with Florida's population projected to grow at an average annual rate of 1% through 2023. And FPL, including Gulf Power, forecasts adding almost 500,000 new customer accounts from 2018 through 2025. During the quarter, FPL's average number of customers increased by approximately 70,400 from the comparable prior year quarter, driven by continued solid underlying population growth. FPL's Second quarter retail sales increased 0.1% from the prior year comparable period. Partially offsetting customer growth was a decline in weather-related usage per customer of approximately 2.8%. On a weather-normalized basis, second quarter sales increased 2.9%, with continued strong underlying usage contributing favorably. For Gulf Power, the average number of customers grew roughly 1.5% versus the comparable prior year quarter, and Gulf Power's A SECOND QUARTER RETAIL SALES DECREASED 1% YEAR-OVER-YEAR. A STRONG CUSTOMER GROWTH WAS MORE THAN OFFSET BY AN UNFAVORABLE WEATHER COMPARISON RELATIVE TO 2020. AS WE PREVIOUSLY STATED, ON MARCH 12TH, WE INITIATED FLORIDA POWER AND LIGHTS 2021 BASE RATE PROCEEDING. THE FOUR-YEAR BASE RATE PLAN WE HAVE PROPOSED HAS BEEN DESIGNED TO SUPPORT CONTINUED INVESTMENTS IN CLEAN ENERGY GENERATION, LONG-TERM INFRASTRUCTURE, AND ADVANCED TECHNOLOGY, WHICH IMPROVES RELIABILITY AND KEEPS CUSTOMER BILLS LOW. Today, FPL's typical residential bills remain well below the national average and the lowest among the top 20 investor-owned utilities in the nation. With the proposed base rate adjustments and current projections for fuel and other costs, FPL's typical residential bill is expected to be approximately 20% below the projected national average, and typical Gulf Power residential bills are projected to decrease approximately 1% over the four-year rate plan. As always, we are open to the possibility of resolving our rate request through a fair settlement agreement, and our core focus remains on pursuing a fair and objective review of our case that supports continued execution of our successful strategy for customers. Energy Resources reported second quarter 2021 GAAP losses of $315 million, or 16 cents per share. Adjusted earnings for the second quarter were $574 million, or 29 cents per share. Energy resources adjusted earnings per share in the second quarter increased more than 7% versus the prior year comparable period. The effect of mark-to-market on non-qualifying hedges, which is excluded from adjusted earnings, was the primary driver of the difference between energy resources second quarter gap and adjusted earnings results. Contributions from new investments added $0.04 per share versus the prior year and primarily reflects growth in our contracted renewables and battery storage program. Adjusted earnings per share contributions from existing generation and storage assets increased $0.01 year over year, which includes the impact of unfavorable wind resource during the second quarter. And Next Energy Transmission's adjusted earnings per share contribution also increased $0.01 year over year. Our customer supply and trading business contribution was 3 cents lower year over year, primarily due to unfavorable market conditions. All other impacts decreased results by 1 cent per share versus 2020. The Energy Resources Development Team continues to capitalize on what we believe is the best renewables development environment in our history during the second quarter, with the team adding approximately 1,840 megawatts of renewables and storage projects to our backlog. Since our last earnings call, we've added approximately 285 megawatts of new wind and wind repowering, 1,450 megawatts of solar, and 105 megawatts of battery storage to our backlog of signed contracts. With nearly three and a half years remaining before the end of 2024, we have already signed more than 75% of the megawatts needed to realize the low end of our 2021 to 2024 development expectations range. Since the last call, we have also executed a 310 megawatt build-owned transfer agreement, which is not included in our backlog additions. Our customer intends to use this solar plus storage project to replace existing coal generation, and we are excited to be able to continue supporting the industry's transition away from old, inefficient forms of generation and into clean, reliable, and low-cost renewables and storage. Our engineering and construction team continues to perform exceptionally well, commissioning approximately 330 megawatts during the quarter, and keeping the backlog of wind, solar, and storage projects that we expect to build in 2021 and 2022 on track. We are well positioned to complete our more than $20 billion capital investment program at Energy Resources for 2021 and 2022. Last month, the IRS extended safe harbor eligibility on production tax credits and investment tax credits. providing projects that began construction between 2016 and 2019 with six years to complete construction, and projects that started construction in 2020 with five years to achieve their in-service dates and qualify for federal tax credits. We believe the extension reflects the strong support of the Biden administration for new renewables and may enable an incremental one to one and a half gigawatts of new wind and wind repowering opportunities. We now have more than $2.2 billion of safe harbor wind and solar equipment, which could support as much as $45 billion of wind, solar, and battery storage investments across all of our businesses from 2021 to 2024. Turning now to the consolidated results for NextEra Energy. For the second quarter of 2021, GAAP net income attributable to NextEra Energy was $256 million, or 13 cents per share. NextEra Energy's 2021 second quarter adjusted earnings and adjusted EPS were $1.4 billion and 71 cents per share, respectively. Adjusted earnings from corporate and other segments were roughly flat year over year. Over the past few months, NextEra Energy issued nearly $3.3 billion in new financings under its innovative new NextEra Green bond structure. Funds raised with NextEra Green bonds are designated for specific renewable energy and storage projects under development across our businesses. And if funds are not used to bring the renewable projects online within two years, there is a step up in the interest rate on the debt. Our inaugural NextEra Green issuance was four and a half times oversubscribed, priced at a premium to the market, and was well received by investors. We believe that NextEra Green will set a new standard for green issuances moving forward. NextEra Energy has raised more than $9 billion in new capital year-to-date on very favorable terms as we continue to execute on our financing plan for the year. Finally, in June, S&P affirmed all of its ratings for NextEra Energy and lowered its downgrade threshold for its Funds from Operation, or FFO, to debt metric, from the previous level of 21% to the new level of 20%. We believe this favorable adjustment reflects the strength of our business, as well as recognition of Nextra Energy's leading position in the utility and renewable energy sectors on environmental, social, and governance, or ESG, factors. We believe that this is the first time that S&P has formally recognized the benefits to business risk profile related to ESG factors by allowing more constructive financial metrics. Since it began its practice of identifying the specific ESG metrics that drive a company's overall credit position. Notably, S&P also revised NextEra Energy's management and governance assessment from satisfactory to strong to reflect its views on our comprehensive enterprise-wide risk management standards and successful track record of consistently implementing our strategic planning efforts. Our long-term financial expectations through 2023 remain unchanged. For 2021, NextEra Energy expects adjusted earnings per share to be in a range of $2.40 to $2.54. For 2022 and 2023, NextEra Energy expects to grow 6% to 8% off of the expected 2021 adjusted earnings per share. And we will be disappointed if we are not able to deliver financial results at or near the top end of these ranges in 2021, 2022, and 2023, while at the same time maintaining our strong credit ratings. From 2018 to 2023, 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% rate per year through at least 2022 off of a 2020 base. As always, our expectations assume normal weather and operating conditions. Let me now turn to Next Energy Partners. Next Energy Partners portfolio performed well and delivered financial results generally in line with our expectations after accounting for the below average renewable resource. On a year-to-date basis, adjusted EBITDA and cash available for distribution have increased by roughly 9% and 11% respectively versus 2020. This strong operational financial performance highlights that 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 66.25 cents per common unit, or $2.65 per common unit on an annualized basis, up approximately 15% from a year earlier. Inclusive of this increase, Next Energy Partners has now grown its distribution per unit by more than 250% since the IPO. Further building on that strength, today we are announcing that NextEra Energy Partners has entered into an agreement to acquire approximately 590 net megawatts of geographically diverse wind and solar projects from NextEra Energy Resources. I will provide additional details on the transaction in a few minutes. NextEra Energy Partners also completed multiple financings during the second quarter to secure funding for its recently announced 2021 acquisitions and further enhance its financing flexibility. In June, Next Energy Partners raised approximately $500 million in new 0% coupon convertible notes and concurrently entered into a capped call structure that is expected to result in Next Energy Partners retaining the upside from up to 50% appreciation in its unit price over the three years associated with the convertible notes. Next Energy Partners also drew the remaining funds from its 2020 convertible equity portfolio financing. which was upsized by approximately $150 million during the quarter, evidencing continued investor demand for exposure to the high-quality, long-term contracted renewables projects in the underlying portfolio of assets that was established last year. Finally, Next Energy Partners has successfully completed the sale of approximately 700,000 NEP common units year-to-date through its recently expired At the Market, or ATM, program, raising roughly $50 million in proceeds. Going forward, we will continue to seek opportunities to use the ATM program, depending on market conditions and other considerations. And in the near term, Next Energy Partners intends to renew the program for up to $300 million in issuances over the next three years to permit additional financing flexibility. As a result of these financings and the strong cash flow generation of its existing portfolio, Next Energy Partners ended the quarter with more than $2.2 billion in liquidity. which includes funds raised in second quarter financing activities and existing partnership debt capacity to support its ongoing growth initiatives, including the acquisition of the approximately 590 net megawatts of renewables from energy resources, as well as its previously announced acquisition of approximately 400 megawatts of operating wind projects, both of which are expected to close later this year. Let me now review the detailed results for Next Energy Partners. Second quarter adjusted EBITDA of $350 million was roughly flat versus the prior year comparable quarter, driven by favorable contributions from the approximately 500 megawatts of new wind and solar projects acquired in 2020. Weaker wind and solar resource in the second quarter, which reduced this quarter's adjusted EBITDA contribution from existing projects by roughly $22 million, was partially offset by positive contributions to adjusted EBITDA from last year's repowerings and the Texas pipelines. Wind resource for the quarter was 93% of the long-term average versus 100% in the second quarter of 2020. Cash available for distribution of $151 million for the second quarter was also reduced for existing projects due to the distributions for the convertible equity portfolio financing entered into late last year. As a reminder, this convertible equity portfolio financing recapitalized Next Energy Partners' existing Genesis Solar project and other assets and the proceeds were used to fund last year's acquisition from Energy Resources. Additional details of our second quarter results are shown on the accompanying slide. We remain on track for the strong full-year growth consistent with our long-term growth objectives of 12 to 15% distributions per unit growth through at least 2024. As I previously mentioned, we continue to execute on our plan to expand Next Energy Partners portfolio. with an agreement to acquire assets in a diverse portfolio of long-term contracted wind and solar projects from Energy Resources. The portfolio consists of approximately 830 megawatts of renewables, of which Next Energy Partners will be acquiring an approximately 590 megawatt net interest. Next Energy Partners' interest in the portfolio will consist of approximately 510 megawatts of universal-scale wind and solar projects, and approximately 80 megawatts of distributed solar projects, which is Next Energy Partners' first acquisition of distributed generation assets. The portfolio to be acquired by Next Energy Partners has a cash available for distribution weighted average contract life of approximately 17 years and a counterparty credit rating of BAA1 at Moody's and BBB Plus at S&P. Additional details on the portfolio of assets to be acquired by Next Energy Partners can be found in the appendix of today's presentation. Energy Resources currently owns the country's largest portfolio of distributed generation assets with commercial and industrial customers and expects to triple its capital investment in distributed generation from 2020 through 2024. Next Energy Partners expects to benefit from this expansion over the coming years through future acquisitions from Energy Resources. Next Energy Partners expects to acquire the portfolio for a total consideration of $563 million, subject to working capital and other adjustments. Next Energy Partners' share of the portfolio's debt and tax equity financings is estimated to be approximately $270 million at the time of closing. The acquisition is expected to contribute adjusted EBITDA of approximately $90 to $100 million and cash available for distribution of approximately $41 to $49 million, each on a five-year average annual run rate basis beginning on December 31, 2021. The purchase price for the transaction is expected to be funded with existing liquidity, and the transaction is expected to close prior to year-end and be immediately accretive to LP distributions. Next Energy Partners continues to expect to be in the upper end of our previously disclosed year-end 2021 run rate adjusted EBITDA and CAFTI expectation ranges of $1.44 billion to $1.62 billion and $600 million to $680 million, respectively. As a reminder, all of our expectations are subject to our normal caveats and include the impact of anticipated IDR fees as we treat these as an operating expense. From the base of our fourth quarter 2020 distribution per common unit at an annualized rate of $2.46, 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 2021 distribution that is payable in February of 2022 to be in the range of $2.76 to $2.83 per common unit. In summary, we remain as enthusiastic as ever about the long-term growth prospects for both NextEra Energy and NextEra Energy partners. At NextEra Energy, we were honored to be named on Time Magazine's first ever list of top 100 most influential companies, which highlights businesses making an extraordinary impact around the world. We are proud to be leading the clean energy transformation in our sector and remain focused on executing upon the opportunities presented by the significant growth in wind, solar, and various forms of energy storage in the U.S. over the coming decades. At FPL, including Gulf Power, that means continuing to deliver on our best-in-class customer value proposition of low bills, high reliability, and clean energy solutions. At Energy Resources, our competitive advantages position us well to capture a meaningful share of the significant and expanding market for renewables. And at NextEnergy Partners, with its continued access to low-cost capital and accretive acquisition opportunities, is well-positioned as ever to take advantage of the clean energy transformation reshaping the energy industry. That concludes our prepared remarks, and with that, we will open up the line for questions.

Ladies and gentlemen, at this time, we will begin the question and answer session. Once again, to ask a question, you may press star and then 1 using a touch-tone telephone. If you are using a speaker phone, we do ask that you please pick up your handsets before pressing the keys. To withdraw your questions, you may press star and two. Once again, that is star and then one to ask a question. Our first question today comes from Char Perez from Guggenheim Partners. Please go ahead with your question.

Hey, good morning, guys. Good morning.

Good morning.

Yeah, just a question. With sort of the infrastructure discussions going on at the federal level, and obviously, Rebecca, you highlighted opportunities on the wind and solar side, does NextEra transmission sort of see any upside from policy changes? And obviously, with the prior acquisitions closed, do you feel like you have a big enough platform to grow organically, or is there an interest to roll up more standalone projects, development entities?

Thanks, Char. I appreciate the question. You know, from our perspective, and we're looking out decades and looking at the enormous renewables build opportunity across the U.S., it is clear that over time new transmission needs to be built to support some of that build out. And it's not necessarily imperative today for that transmission to be built, but it certainly is important to start today to build the type of infrastructure that's needed over time. So we're really excited about the opportunities that the NextGen Energy transmission team has. And I would expect over time that we will grow both organically and continue to look for acquisition opportunities like we have over the last couple of years to supplement and build out that portfolio. We're thrilled with the Transday cable acquisition that we closed a couple of years ago. Very excited to bring the Grid Lions team on board, and we'll continue to focus on opportunities, both organically and through acquisition over time. From a broader policy standpoint, we thought it important for FERC and the regional ISOs to continue to focus on how do you support that transmission build-out. And we certainly are happy to see that to start to be a focus at FERC this year in particular and contemplating how do they support it going forward. And I think there's a receptive audience in the Biden administration, making sure that they support laying a foundation that's supportive of renewables, not just in the next couple of years, but in the next couple of decades. So, you know, transmission moves slowly. You know that. So stay tuned. But we're optimistic both about our direct prospects in the near term as well as longer term.

Got it. And then the backlog additions look obviously more solid this quarter. Just thinking about maybe the market dynamics, there was some slowdown in early 21 with input costs and commodity inflation, right? Have you seen that or are the headwinds largely stabilized? And just as a follow-up, is energy storage still kind of a large component of the backlog and contracted additions or has there been some pricing pressure there?

Our energy resources development team clearly is evidenced by not only the signings this quarter, but looking back at quarters now, going back quite a number of them, have just had terrific origination success. And I'd encourage everybody to not just focus on an individual quarter and look at a slightly broader trend. And we're really pleased not only with what we've seen looking back and what the team's been able to execute on, but also looking forward. And that's what gave us the confidence just early this year to not only increase but expand the horizon for our development expectations, such that our four-year period starting 21 through 24 is 23 to 30 gigawatts, which is just an exceptional number and one that we're really excited and proud of the team for taking on, and we're thrilled to be at 75% already at the low end today. In terms of our customer demand remains very strong. across the board, and we're certainly excited about bringing that into more signed contracts going forward. In terms of costs, as you know, we'll continue to incorporate our latest expectations and the industry's latest expectations for costs, and we feel very comfortable with the returns that we see and excited about the opportunities going forward.

Got it. And then just lastly, Rick, on just the rate case, I mean, obviously, you're having conversations with interveners and you're building a case record there. You know, and obviously highlighted, you always prefer a settlement. Is there any moving pieces that you feel are in focus? And where do you sort of think you have some flexibility for a constructive kind of outcome versus a fully litigated case?

Char, as we've talked about with you all from an investor standpoint, we are very focused over years now leading up to the case as a matter of our strategy on making sure the best customer value proposition possible. And you can see that in our execution on O&M, on reliability, on customer service, and, of course, the continued focus on clean energy generation because that's in our control. What's also in our control is putting forward the best case possible to ensure that we're articulating that strategy, not only of what the team has accomplished, but what we plan to do in the coming four years to support continued execution. So the team is very focused on continuing to go through the process and culminating with the hearings in short order and a commission decision later this year if we go that far. But we're also always very interested in having a win-win solution with stakeholders. We certainly appreciate the history of that in Florida, not just with us, but with other utilities and broader stakeholder base. And we will continue to remain very engaged in any sort of constructive outcome that we could bring forward with stakeholders. We think that's positive for our customers and broader stakeholders if we can accomplish it. But we're focused on the task at hand, and, you know, we'll continue through the process and see where we are at the end of the year.

Terrific. Congrats, guys, on the results. Thank you very much.

Thanks, Char.

Our next question comes from Julian Emelin Smith from BOA. Please go ahead with your question.

Excellent. Good morning, team. Thanks for the time. Maybe picking up where Char left it off, Can you speak a little bit more about some of this inflation dynamic and especially some of the elevated freight logistics? I mean, it seems like, you know, your 21-22 outlook here is relatively intact. Can you speak to some of the dynamics therein and just the confidence? It seems like you guys are certainly staying on track of execution as you have historically, but also in the same vein of inflation, can you speak to what that does to your PPA offtake prices, right? I mean, how are you thinking about this being effectively passed through to your customers, if you will, whether that's as a proxy for higher gas and power prices or simply just passing through your higher cost of goods here.

Yeah, thanks, Julian. And I'll start with some kind of near-term thoughts and then think about the broader term second. Near term, as we talked about in the prepared remarks, we feel very comfortable with where we are with our backlog and what we plan to build in the 2021 and 2022 timeframe. And our comments reflected that in the prepared remarks. And it's a real credit to the way that we approach this business and our engineering construction and integrated supply chain teams, you know, really working through a variety of different circumstances over the last year and a half. And we've secured the equipment that we need to build out those projects and, of course, have some contractual agreements in place that help us feel comfortable about that position. From a longer-term standpoint, I think it still remains to be seen in some respects. You can see that in a broad set of discussion across the financial and broader U.S. economy areas. dialogue of whether or not this is temporary related to near-term snapbacks in demand and hurdles in the supply chain that may not persist over time, or if it is systemic and persisting. So I think that remains a little bit to be seen. One thing that's very fortunate for renewables, as you all well know, is that renewable energy projects are very much the least cost form of generation in many parts, if not most of parts of the U.S., So even if there is a change in pricing, if these cost increases are persistent and systemic over a long period of time, the value proposition is still very clear for renewables relative to alternatives. And then beyond that, we also need to think about what implications, if any, there will be from policy changes. So I think that the net takeaway is somewhat premised in your question, is that we feel comfortable with where we are. We're prepared for a variety of set of circumstances, and we're thrilled with the position of renewables and the growth opportunities, and honestly, the decades ahead.

One small add I would make, Julian, to what Rebecca just said, this is John. It's actually creating opportunities for us. Our supply chain capability and our ability to manage that supply chain, the buying power that we have, spending $11 billion in CapEx a year, it's creating opportunities for us in the renewable space because we can execute and deliver where others can't.

I mean, to that point, can you speak to how much procurement you all have done against the full kind of four-year outlook that you guys talk about here? I mean, how hedged up, for lack of a better way to describe this, are you against these eventualities? I know you all do meaningful forward planning here.

Yeah, pretty well hedged up, Julian. I mean, we've basically locked in Obviously, 21, we've locked in 22, making really good headway against 23 as well. And so that's put us in a great position when you look at where we stand against the rest of the market. And where others can't deliver, particularly around commitments in 22 or 23 or 24, because they don't have the same supply chain leverage that we do, It's really creating opportunities in those out years. And you've got to remember, the customer is a little bit concerned. So if they're dealing with smaller players that don't have the same supply chain leverage, that are having to constantly go back to them for price ups or for COD extensions, it really lowers the credibility of those types of players in the market, and it creates more opportunities that fall our way. And so that's why I say it's a real opportunity for us.

Got it. And just to clarify that even further, you're suggesting that not only could you get awarded future contracts, are you suggesting that you might be able to take over existing or perhaps defunct PPAs that have already been awarded?

You know, not take over, but if those opportunities fall away because the off-taker, the customer, can't arrange a workout with that developer, sometimes those opportunities get bid back out to RRP, or sometimes it creates a bilateral opportunity for us. Gotcha. Excellent. Well, best of luck and thank you for your time. Yeah, thanks, Julian.

Our next question comes from Steve Fleischman from Wolf Research. Please go ahead with your question.

Hey, good morning. Good morning, Steve. Can you hear me, Rebecca?

I can hear you fine.

Great. So, first a question on the on the announced backlog growth this quarter. You had a lot of solar ads, but just a little bit of storage. Are you seeing, if I recall, you've been getting kind of 50% roughly adoption of storage with solar. Is that changing? Just happened to be more just solar standalone weighted this quarter?

Yeah, Steve, I wouldn't read into it. Kind of consistent with the overall backlog additions, I think you need a little bit broader than just a three-month period to get an indication of trends. What we see is not a slowdown in storage at all. There's a lot of interest in new storage opportunities, not just with our customers, but even from a regulatory standpoint in certain jurisdictions where storage could be particularly helpful given certain dynamics in various markets. So we're very excited about the storage opportunity and don't see a change in the overall dynamics of opportunities.

Yeah, and one thing I would add to that, Steve, is with all the hot weather that you're seeing out in the West, that's only going to drive more storage opportunity, and I think we have a real competitive advantage, as you've seen in the past, in those markets.

Okay, great. And... Maybe just switching over to NEP. So this is the second drop, I think, in the last six months or so, where the CAFTE yields have been around 8%. Is that kind of the new range we should be expecting for NEP on drops of long-term contracted assets?

Or steep. Steve, as you can appreciate, we and, of course, the NET Board and Energy Resources perspective is all constantly looking at what valuations are and where third-party transactions have transacted. And we think about the valuations in those lights. And I think with where costs of capital are and demands for renewable projects, I think this transaction appropriately balances and reflects those dynamics.

Okay. And I guess last question just on any thoughts on some of the discussion in ERCOT Texas on renewables, on market structure changes, and how they're discussing kind of treatment of renewables there? I mean, is there a risk that renewables need to end up paying for ancillaries?

I would characterize it, Steve, as a work in progress. Obviously, the events that happened in February were pretty significant, and it takes time to work through and properly account for where there were sources of pressure and what the appropriate responses are, obviously from a political, but of course, most importantly, from a regulatory and a policy standpoint. And I think they're still sorting through it. Obviously, Governor Abbott has asked for certain actions to be taken from the PUC-T and ERCOT, and there's a framework that the PUC-T has started to lay out. But I think it's still time to work through what those details look like. From our perspective, you know well we've been very active in a variety of aspects in ERCOT. We know that market well. And we certainly have a strong perspective on what needs to be addressed, in particular to focus on what really went wrong in February, including a massive amount of disruption across the gas supply, not only from supply but transmission and ultimately consumption by end users. And we hope that a lot of the actions will be focused on that as opposed to things that won't necessarily help and solve the fundamental problems at hand. But I think the most important part is work in progress.

Yeah, and I think, you know, what I would add to that is trying to frame the problem, right? You have an 82-gigawatt system. I mean, renewables, let's face it, were, you know, a very small part of that. On an NCF-adjusted basis during the year, you're talking about 3 gigawatts. And really the way to address the problem, if you're really going to go after the problem, you really have to focus on renewables. Gas-fired units, you have to focus on coal, you have to focus on nuclear. And you can't lose sight of the fact that the reason that ERCOT has low power prices is because of renewables. And renewables are what are really driving the efficiencies and the economics of that market. So there's a much bigger story to be told. That's what we're working through at the workshop level, as Rebecca said. this is going to take some time to play out.

Okay. Thank you.

Thanks, Steve. Our next question comes from Steven Berg from Morgan Stanley. Please go ahead with your question.

Hi. Good morning.

Good morning, Steven.

I wanted to talk about the outlook for renewable and energy storage costs, but take it from a different perspective. I know there's been a lot of attention on commodity cost dynamics. But on the more positive side, I was interested in your views on sort of innovations that could result in cost reduction breakthroughs. And, you know, there was an interesting article this week in the Wall Street Journal on storage. And, you know, we're trying to make sure we're thinking through, you know, potential areas of innovation. I was just curious at a high level, you know, are there areas of innovation, whether it be in storage or in solar, green hydrogen, just things that excite you in terms of the potential to have very significant impacts on cost or performance?

Well, you know all of us, Stephen. We love technology, we love innovation, and we certainly are excited about a lot of changes that are happening across the energy sector. I think the biggest driver dynamic in our sector today is really the cost of renewables overall, even today. and that that alone is stimulating a significant amount of change, and that adoption over time will create the need for more storage like applications, whether it's lithium ion or I think the technology you're referencing in the Wall Street Journal, of course hydrogen in the longer term, which we're also very excited about. Those are all very interesting, particularly for the latter part of the 2020s and into 2030 and beyond, which could help support the substantial buildup that we're expecting. In the short term, I think the biggest dynamic is what we see at hand, which is the economic value proposition of renewables. What we think could change that probably nearer term than even some of the innovations you're talking about is policy. You all, I know, are following just like we are and participating in a variety of discussions in Washington. But if the incentives are addressed in legislation, that could be a big driver of change in the industry as well in terms of timing.

That's very helpful. And then I wanted to go back to the drop-down that you announced. I was just curious, what was the amount of gain to NextEra from the drop-down of assets down to NAP?

I'm not sure I understand the question, Stephen. Are you talking about the proceeds?

Oh, well, the proceeds relative to the cost of developing. I was just curious sort of what degree of premium NextEra was able to achieve relative to the cost of developing those assets.

We haven't disclosed that yet, Stephen. As we go through the process, of course, we'll update the financial statements, assuming that the transaction closes. But we are very pleased from an energy resources perspective with these projects, consistent overall returns with the types of returns that we see across wind and solar and distributed generation projects. On the DG side, we continue to be very excited about the business in energy resources. The team has done a terrific job building it. And as I commented in the prepared remarks, we're expecting to triple the investment that we've made in the business, and those tend to be very attractive returns.

Understood. Thanks. I was asking in part, I was just looking at the multiple of EBITDA. I mean, as Steve Fleischman mentioned, the cash cap to yield, you know, that's You know, 8% is not surprising, but the multiple EBITDA looked relatively low, but there may be some elements there that I'm just missing.

I don't think that, you know, I wouldn't think that it was characterized in anything unusual, Stephen. We're happy with the overall returns of the project, and I do think that the CAFTA yields are reflective of, you know, market transactions that we see in the marketplace and really reflective of substantial demand for renewables. and we continue to be very excited about the prospects for NEP.

Understood. That's all I have. Thank you so much.

Our next question comes from Maheep Mandeloy from Credit Suisse. Please go ahead with your question.

Hey, thanks for taking your questions. Just following on the NEP side, despite the drop-downs, the adjusted EBITDA and CAFTI guidance, remains unchanged. Is that because of timing or something else on that side?

I'm sorry, was the guidance changed? What was the, I missed that part.

The adjusted EBITDA and CAPT guidance is the same as the last quarter. I was just wondering if the new drop-downs are a treat on 2022 levels.

I understand now. Sorry about that. From our expectations, if you look at our guidance expectations, even at the end of last year, which is when we started talking about what the expectations for run rate at the end of this year, they were for an increase. This transaction was something that we were anticipating as part of our growth expectations. We do expect to be at the high end of the ranges as we've articulated for both adjusted EBITDA and CAFTI for year end.

Got it, got it. And in terms of additional drop-downs, would this be comfortable for 2022 needs? And is it a fair statement that you might need more drop-downs for 2023 distribution growth?

You know, we will continue to be opportunistic. There's a lot of flexibility within the NEP portfolio. We continue to have a pretty low out ratio. If you recall last About a year and a half ago, we took some actions to first de-lever but also supplement the portfolio during the uncertainty of the PG&E bankruptcy and continue to have a relatively low payout ratio. One of the advantages of that is Next Energy partners can be opportunistic in terms of meeting its distribution per unit growth targets of 12% to 15%, which is really the metric against where you know, really managing and measuring the business to ensure that we can meet those expectations. We provide the expectations for run rate adjusted EBITDA and CAFTI to give a sense of how we're expecting to achieve them, but there is flexibility in how we get there.

Gotcha. Thanks, Rebecca. And just maybe the last one for me, in terms of the on the NEARS development, And just given the recent cost pressures on the input size, does having that safe harbor help meet any near-term needs? Are you using some of that $2.2 billion of safe harbor equipment up front to avoid any higher cost in the near term?

There's a lot of flexibility inherent to that safe harbor portfolio, but we see it mostly as an option for to create the opportunity to realize the tax incentives. Just as we've seen over the last couple of years, there have been extensions in terms of timeframes and even extensions in terms of the available percentage of the tax credit in a given period. So maintaining flexibility and optionality is our first priority. We continue to feel very comfortable with the 2021 and 2022 build of being able to meet the equipment needs and ultimately bring them into service in timeframes that are very attractive from an energy resources perspective.

Yeah, I would think of the Safe Harbor extension as being certainly an incremental opportunity for us. One of the advantages that we have is we're always careful on how we manage our Safe Harbor vintaging, and we're fortunate because we were in good shape on our 2017 vintage portfolio. The Safe Harbor extension creates, you know, one to one and a half gigawatts of opportunity for us on the wind side. And if I could come back just for one second on Steven Berg's question on the EBITDA multiples. The EBITDA multiples on this drop-down were consistent with what we've done in the past. You've got to remember, it always gets a little bit tricky with tax credits. You also have to remember that even after the sale of the NEP, we own, you know, NE owns a good portion NEP, we get cash distributions, we get IDRs. When you take all that into account on even a multiple basis, you know, we end up with what we believe is a very competitive marker against where renewable assets trade today.

Thanks for the clarification.

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

Hey, guys, thanks for taking my question. Actually, I have a couple. First of all, just broad, big picture renewables. Do you think you're taking share? Meaning, do you think your market share of renewable capacity in the U.S. is actually growing from here? Or are you mostly benefiting from the dramatic tailwinds that's happening to the overall space? That's question one. Question two is, There are lots of new entrants. Every day, a new entrant gets announced and well-funded, whether it's by pension funds, whether it's European big oil, whether it's by some of the large, super well-capitalized and well-known alternative asset managers. We saw an announcement out of one of them yesterday or the day before about funding a solar and storage startup. What's that doing to returns? Are you seeing that kind of flow in the cash flow returns yet of new projects you're developing today versus what you may have done a year or 18 months ago?

So, Michael, I'll start with the middle of it and maybe expand to the right and the left. The middle of it is this market is absolutely growing significantly, and we expect it to continue to grow significantly for years to come. So from our perspective, the pie absolutely is getting bigger. Over a long period of time, our market share has remained very strong in the 20-ish percent range for wind and probably in the mid-teens, occasionally a little bit higher and occasionally probably in the mid-teens on solar. And storage has actually been higher than both of those as this market has grown significantly over the last couple of years. When we look out, we focus on both maintaining market share and also maintaining attractive returns. And we think our competitive advantages have enabled us to do that over time. And we think both is important and balance among them is very important. Jadon and his team are focused on getting the best of the projects that we see out in the marketplace and ultimately being very happy with the projects that we put into the portfolio. We get asked the question about new entrants a lot. You know this industry well. If you look back and you stack you know, power purchase agreement awards over many years. You'll see that, you know, very big bar to the left when we put the chart together and a couple of bars that are, you know, smaller, of course, but still decent size, and then a whole bunch of small players that get 100, a couple hundred megawatts a given year. And that dynamic continues to be consistent. That's for a green field and kind of in the more development-oriented projects. There has been more capital coming in, but that's mostly post-COD. And when we think about capturing the value of developing renewables, it really is on that twinkle in the eye of a developer to COD. It's the enormous opportunity to create value, and we continue to be very good at it and enhance those competitive advantages to maintain that position over time. So we're really excited about what we've been able to accomplish, really excited about our position, and really excited about the energy transformation overall and the opportunities that presents.

Got it. And then one quick follow-up just on NEP. You still have the IDR structure at NEP, and as NEP grows, at what point do you think that becomes – and you've made a revision to it, but it's been a while – At what point do you reevaluate the necessity of the IDR at the NEE level, and especially given the fact that kind of IDR structures have significantly gone away from some of the other industries that used to use them?

You know, Michael, obviously we've gotten that question before in the past, and, of course, from NEI's perspective, we continue to be happy with the relationship as it exists today between NEI and NEPT. and there's a lot of synergy between the two companies and value created from each of their perspectives from the structure that's in place. And that alignment of incentives remains important, we believe, to ensuring value creation from both NextEra Energies and NextEra Energy Partners' perspective. We are excited about the opportunities for both businesses, and we'll see what the future brings. But it continues to work, and we're very pleased with the alignment of interest today.

Got it. Thank you. Much appreciated.

Thank you, Michael.

And ladies and gentlemen, with that, we'll conclude today's question and answer session and conference call. We do thank you for attending today's presentation. You may now disconnect your lines.