NextEra Energy, Inc.

Q2 2023 Earnings Conference Call

7/25/2023

spk09: Good morning and welcome to the NextEra Energy and NextEra Energy Partners Q2 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw from the question queue, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Kristen Rose, Director of Investor Relations. Please go ahead.
spk01: Thank you, Anthony. Good morning, everyone, and thank you for joining our second quarter 2023 Combined Earnings Conference call for NextEra Energy and NextEra Energy partners. With me this morning are John Ketchum, Chairman, President, and Chief Executive Officer of NextEra Energy, Kirk Cruz, Executive Vice President and Chief Financial Officer of NextEra Energy, Rebecca Chiava, 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 Armando Pimentel, President and Chief Executive Officer of Florida Power & Light Company. Kirk 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 the 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 the websites www.nexteraenergy.com and www.nextairenergypartners.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 Kirk.
spk07: Thanks, Kristen, and good morning. NextEra Energy continued its track record of solid execution as reflected in our second quarter results. Adjusted earnings per share grew by approximately 8.6% as we deployed capital for the benefit of FPL customers and leveraged our competitive advantages to extend energy resources' renewable leadership position. As the fastest-growing state in the U.S., Florida has underlying population growth in an economy that continues to drive clear investment needs. For years, FPL's strategy has been simple. Keep bills affordable, the grid reliable, and our customer service exceptional. With our most recent settlement agreement, FPL has a well-established capital plan with clear visibility through 2025 to deliver on this strategy. This quarter, we executed our capital plan with new solar and transmission and distribution infrastructure investments, which led to a greater than 12% increase in regulatory capital employed versus the same quarter last year. As a result, FPL's earnings per share increased by 7 cents year over year. We progressed these capital initiatives while keeping customer bills affordable. We continue to run the business efficiently, with multiple opportunities to reduce and manage costs. We deploy smart capital that reduces O&M and fuel costs, we embrace innovation and new technologies, and we identify cost savings through our various initiatives. Customers benefit from these actions, including bills that are among the lowest in Florida and well below the national average. FPL is uniquely positioned to extend its best-in-class customer value proposition and deliver long-term growth. Energy Resources' more-than-two-decade track record of originating, developing, constructing, and operating renewables remains as strong as ever. This quarter, on the strength of new investments, Energy Resources grew adjusted earnings by over 14% year-over-year, We continue to see solid renewables and storage demand. Since our first quarter call, Energy Resources placed over 1,800 megawatts into commercial operations and has added approximately 1,665 megawatts of new renewables and storage projects to our backlog, which now stands at roughly 20 gigawatts, keeping us on track to achieve our renewable development expectations through 2026. Given all of our competitive advantages, Energy Resources is uniquely positioned to continue to lead the decarbonization of the U.S. economy and be the renewables partner of choice, supporting power, commercial and industrial, and eventually hydrogen customers. We are pleased with the progress we have made at Nexera Energy so far in 2023. For over 18 months, we have operated in a challenging macroeconomic environment with various headwinds, and yet we have leveraged our competitive advantages to serve customers and deliver on our financial expectations. Through the first half of the year, both businesses have executed well, delivering adjusted EPS growth of approximately 11%. With FPL comprising more than two-thirds of Nextera Energy's business, Our well-established capital plan through 2025 provides investors with long-term growth visibility. At Energy Resources, we are leveraging our competitive advantages to continue adding new renewables and storage to our backlog, providing clear visibility to our future earnings growth through 2026. Combined, we believe we are well-positioned with strong visibility to deliver on our expectations and create long-term value for shareholders. With that, let's turn to the detailed results beginning with FPL. For the second quarter of 2023, FPL reported net income of approximately $1.152 billion, or 57 cents per share, an increase of 7 cents year over year. The principal driver of this performance was FPL's regulatory capital employed growth of approximately 12.1% year over year. We continue to expect FPL to realize roughly 9% average annual growth in regulatory capital employed over our current settlement agreements four-year term, which runs through 2025. FPL's capital expenditures were approximately $2.5 billion for the quarter, and we now expect FPL's full-year 2023 capital investments to be between $8.5 and $9.5 billion. For the 12 months ending June 2023, FPL's reported ROE for regulatory purposes will be approximately 11.8%. During the quarter, we used approximately $78 million of reserve amortization, leaving FPL with a balance of approximately $1 billion. Our capital projects continue to progress well. As we indicated in our recent 10-year site plan, solar continues to be the lowest cost alternative for our customers. FPL placed into service roughly 225 megawatts of cost-effective solar in the quarter, bringing the total year-to-date solar additions to nearly 1,200 megawatts. Over the last two years, FPL has commissioned over 1,600 megawatts of new solar generation. With two and a half years remaining under the current settlement agreement, FPL expects to add roughly 3,100 megawatts of incremental solar through 2025. FPL's solar investments allow us to serve strong customer growth while providing clean, affordable generation and avoiding volatile fuel purchases. Over the current four-year settlement agreement, we continue to expect FPL to make capital investments of between $32 to $34 billion. Of that total, we anticipate investing approximately $10 billion in new solar generation and approximately $14 to $16 billion in transmission and distribution infrastructure. We remain confident in our total capital plan through 2025 as our cumulative capital investments of approximately $14 billion through June of 2023 are a little ahead of our original timeline. Our capital investment plan is well established, and by executing on solar deployment and transmission and distribution investments, we are enhancing what we believe is one of the best customer value propositions in the industry. I'll turn now to the Florida economy, which continues to demonstrate strong growth. Over the past year, Florida has created roughly 412,000 new private sector jobs, and its unemployment rate continues to decline, currently standing at approximately 2.6%, which is nearly 30% below the U.S. average. Florida consumer sentiment improved roughly 14% compared to the prior year and remains above the U.S. average, while mortgage delinquency rates declined by 55 basis points compared to the prior year. Florida's GDP continues to trend upward and increased over 9% versus a year ago. During the quarter, FPL had solid customer growth, with the average number of customers increasing by more than 66,000, from the comparable prior year period. FPL's second quarter retail sales increased by approximately 0.3% year-over-year. We estimate that weather had a slightly negative impact on usage per customer of approximately 0.3% on a year-over-year basis. After taking these factors into account, second quarter retail sales increased roughly 0.6% on a weather normalized basis from the comparable prior year period. driven primarily by continued solid underlying population growth. Now let's turn to energy resources, where second quarter 2023 gap earnings were approximately $1.462 billion, or 72 cents per share. Adjusted earnings for the second quarter were approximately $781 million, or 39 cents per share, which is an increase in adjusted earnings per share of 4 cents year over year. Contributions from new investments increased 10 cents per share year-over-year. Contributions from our existing clean energy portfolio declined 6 cents per share. This decline was mostly due to a large swing in year-over-year wind resource. This quarter was the lowest second quarter of wind resource on record over the past 30 years, while last year was the highest. The contribution from our customer supply and trading business increased by 9 cents per share, primarily due to higher margins in our customer-facing businesses compared to a relatively weak contribution in the prior year quarter. All other impacts reduce earnings by $0.09 per share. This decline reflects higher interest costs of $0.06 per share, half of which is driven by new borrowing costs to support new investments, and half of which is due to higher interest rates. The remaining impact is due to a combination of other factors, including additional costs to support early-stage renewable development investments as we plan for growth in the latter part of the decade. Energy resources had a solid quarter of new renewables and storage origination, adding approximately 1,665 megawatts to the backlog. With these additions, our backlog now totals roughly 20 gigawatts after taking into account over 1,800 megawatts of new projects placed into service since our first quarter call, which keeps us on track to achieve our renewable development expectations through 2026. Having shared our new expectations just six months ago, we are already within the 2023 to 2024 development expectations range and only need roughly 15 gigawatts over the next three and one-half years to achieve the midpoint, of the 2023 to 2026 development expectations range. As part of our backlog additions, this quarter we signed our first contract for a standalone battery storage project co-located with an existing wind facility. This 65 megawatt storage project is expected to serve our customers' growing capacity needs in the Southwest Power Pool and be available to monetize pricing arbitrage opportunities in this renewable rich area of the country. As we have highlighted, we believe there are many more opportunities to monetize the value of our existing 29 gigawatt operating renewables portfolio, including deploying co-located storage like we did here. We are excited to bring this facility into commercial operation. During the quarter, we continue to see solid demand for renewables and storage across power and commercial and industrial customers. After a period of underlying commodity price inflation, supply chain disruption, and trade policy risk premiums, we are finally seeing signs of stability, which will be helpful in our customer conversations. We believe renewables remain economically attractive to alternative forms of generation and have positioned ourselves to meet long-term customer demand by expanding our significant pipeline of renewable projects. Today, we have a pipeline of roughly 250 gigawatts of renewables and storage projects in various stages of development. This includes projects in early-stage diligence in our current backlog and is supported by roughly 145 gigawatts of interconnection queue positions. When you combine our significant competitive advantages with our renewable pipelines, We believe Energy Resources is well positioned for growth in our renewables business for years to come. We also remain excited about the opportunity to serve hydrogen customers by leveraging our best-in-class renewables development expertise and early stage development position. Throughout the quarter, we continue to advocate for smart hydrogen policy that we believe would help the U.S. establish a robust green hydrogen market. and drive increased renewables penetration. We also progressed our pipeline of potential green hydrogen opportunities by executing an additional memorandum of understanding to explore developing green hydrogen and related facilities that would integrate into our customers' operations and serve their energy needs. Hydrogen should be thought of as simply another renewables customer class and as all our hydrogen-related projects could potentially translate into additional new renewables, and with the appropriate regulations, begin to contribute to energy resources growth later this decade. Turning now to our consolidated results. For the second quarter of 2023, GAAP earnings attributed to NextEra Energy were approximately $2.795 billion, or $1.38 per share. NextEra Energy recorded approximately $1.777 billion of adjusted earnings and $0.88 of adjusted EPS in the second quarter. Adjusted earnings from the corporate and other segment decreased results by $0.04 per share year over year, primarily driven by higher interest costs. We continue to proactively manage interest rates in multiple ways. First, NextEra Energy has $16 billion of various interest rate swaps, to help mitigate the impact of future increases in rates. Second, FPL has features in its settlement agreement to offset higher interest rates, such as reserve amortization and the ROE adjustment mechanism, which became effective on September 1, 2022, due to a sustained rise in the 30-year U.S. Treasury yield. Finally, our focus on continuous improvement through our annual Velocity Productivity Initiative has yielded over $725 million in annual run rate savings ideas over the last two years, creating cost savings opportunities to help offset higher interest costs. As always, the current interest rate environment is taken into account in our financial expectations. Our long-term financial expectations remain unchanged, and we will be disappointed if we're not able to deliver financial results at or near the top end of our adjusted EPS expectation ranges. in each year from 2023 to 2026, while at the same time maintaining our strong balance sheet and credit ratings. From 2021 to 2026, we continue to expect that our average annual growth and operating cash flow will be at or above our adjusted EPS compound annual growth rate range. And we continue to expect to grow our dividends per share at roughly 10% per year through at least 2024 off a 2022 base. As always, our expectations assume our usual caveats, including normal weather and operating conditions. Now I'd like to turn to NextEra Energy partners. Second quarter adjusted EBITDA and cash available for distribution were $486 million and $200 million, respectively, reflecting weaker wind resource. Nexera Energy Partners remains well positioned to deliver on its 2023 run rate expectations for adjusted EBITDA and cash available for distribution. Yesterday, Nexera Energy Partners Board declared a quarterly distribution of 0.854 cents per share per common unit or 3.42 per common unit on an annualized basis, up approximately 12% from a year earlier. Inclusive of this quarter, NextEra Energy Partners has grown its LP distribution per unit over 355% since the IPO. Since our last earnings call, NextEra Energy Partners completed its previously announced acquisition of approximately 690 megawatts of wind and solar assets. With this acquisition, NextEra Energy Partners' renewable portfolio is over 10,000 megawatts. further strengthening its position as the world's seventh largest producer of electricity from the wind and sun. The partnership is well positioned to execute on its simplification plans to become a 100% renewables-focused company. Regarding these simplification plans, in May, we launched the sales process for the Texas Natural Gas Pipeline portfolio and are pleased with our progress as we remain on track to sell the assets by later this year. Nexera Energy Partners expects to use the proceeds from the planned Texas Pipeline portfolio sale together with the Mead Natural Gas Pipeline sale in 2025 to eliminate the equity buyouts on the three near-term convertible equity portfolio financings, STX Midstream, NEP Renewables II, and 2019 NEP Pipeline. Upon successful execution, of the Texas Pipeline portfolio sale, the partnership does not expect to require equity through 2024 other than opportunistic equity issuances under our at-the-market equity program to fund future growth beyond 2024. Now to the detailed results. Nexera Energy Partners delivered second quarter adjusted EBITDA and cash available for distribution of $486 million and $200 million respectively reflecting the adverse impacts of weaker wind resource. The adjusted EBITDA and cash available for distribution contribution from existing projects declined by approximately $99 million and $39 million, respectively, primarily driven by a large swing in year-over-year wind resource. This quarter was the lowest second quarter of wind resource on record over the past 30 years, while last year was the highest. New projects contributed approximately $49 million of adjusted EBITDA and $5 million of cash available for distribution. Second quarter results for adjusted EBITDA and cash available for distribution were positively impacted by the incentive distribution rights fee suspension and provided approximately $38 million of benefit this quarter, partially offsetting the impact of poor wind resource performance. As we previously shared, we expect strong double-digit growth in the second half of the year in adjusted EBITDA and cash available for distribution to support Nexera Energy Partners LP distribution per unit growth expectations range for the full year 2023. Additional details are shown on the accompanying slide. From a base of our fourth quarter 2022 distribution per common unit at an annualized rate of $3.25, we continue to see 12 to 15% growth per year in LP distributions per unit as being a reasonable range of expectations through at least 2026. However, as we've previously shared with you, we expect to grow at or near the bottom end of that range. For 2023, we expect the annualized rate of the fourth quarter 2023 distribution that is payable in February of 2024 to be in a range of $3.64 to $3.74 per common unit. NextEra Energy Partners continues to expect run rate contributions for adjusted EBITDA and cash available for distribution from its forecasted portfolio at December 31, 2023 to be in the ranges of $2.2 to $2.42 billion and $770 to $860 million respectively. As a reminder, Year-end 2023 run rate projections reflect calendar year 2024 contributions from the forecasted portfolio at year-end 2023. As always, our expectations are subject to our usual caveats, including normal weather and operating conditions. In summary, we believe that Nextera Energy and Nextera Energy Partners are well-positioned to continue delivering long-term value for shareholders and unit holders. At Nextera Energy, the plan is simple. Our two businesses are deploying capital in renewables and transmission for the benefit of customers, providing visible growth opportunities for shareholders. At FPL, we're executing on our well-established capital investment plan, which allows us to extend our customer value proposition. Florida's strong population growth drives smart capital investment, and running the business efficiently allows us to manage costs for the benefit of both customers and shareholders. FPL comprises more than two-thirds of NextEra Energy's business and provides a significant amount of visibility into capital deployment and earnings growth. At Energy Resources, we're leveraging our more than 20 years of experience and competitive advantages to grow our market share and add to our now roughly 20 gigawatt backlog, providing terrific growth visibility through 2026. We believe these competitive advantages will enable Energy Resources to serve power, commercial and industrial, and eventually hydrogen customers. With an opportunity set of $20 billion of capital investment requiring more than 15 gigawatts of new renewables, Energy Resources is well-positioned to be the green hydrogen partner of choice, potentially creating new opportunities toward the end of the decade. At Next Energy Partners, we're executing on our plans to sell our natural gas pipelines and simplify the business. We continue to add to our renewables and storage portfolio, which now stands at over 10,000 megawatts. With the sale of the Texas natural gas pipeline portfolio expected to be completed by the end of the year, Nexera Energy Partners remains on track to transition to a 100% pure play renewables company while continuing to deliver LP distribution per unit growth for unit holders. With that, we're happy to answer your questions.
spk09: We will now begin the question and answer session. To ask a question, press star then 1 on your touch tone phone. If using a speaker phone, please pick up your hands up before pressing the keys. To withdraw from the question queue, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question will come from Steve Felishman with Wolf Res. You may now go ahead.
spk04: Yeah, hey, good morning. Thanks. Hope you're all well. So couple first just on the quarter, the customer supply trading business continues to do well. And you mentioned higher margins. I think constellations been talking about that too. Could you just talk more about what what you think is driving that in the supply business?
spk08: Yeah, sure, Steve. This is John Ketchum, and good morning to you as well. In the customer supply and trading business, we've just seen a lot less competition, number one. And number two, remember, most of the business activity that we do in that group is customer-facing business, our full requirements business, for example, where we're working with municipalities and cooperatives to help provide their power needs and arrange the capacity and ancillaries and other regulatory requirements they need to manage their business, particularly up in the Northeast. That business, because it's had a lot less competition, has benefited from significant margins. And one of the points I want to make is these companies arrangements that we enter into in the full requirements business are, you know, typically two or three years, and we're immediately going back to back hedging those positions. So feel great about the risk profile. And again, terrific margins that really match up well with our skill sets, our competitive advantages, and our core operations. So that's really the main driver. And I also want to remind folks that when you think about our customer and supply business, we run it at a very, very low VAR. For example, the last quarter we ran that business roughly at a 2% VAR. So it's very, very small business risk exposure overall for PMI. Okay. Steve, one other point I want to make, too, on the customer supply business is that that business historically, you can go back 10 years, and the customer supply and trading business, including this year, has never contributed more than 10% of NextEra Energy's net income. And I think that's important to keep in mind as well. We have a lot of complimentary businesses. Obviously, FPL has done well. We have other complimentary businesses that energy resources on top of our renewable business, but that business has always stayed under 10%, and that's one of the commitments that we make to the rating agencies, and that's true this year as well.
spk04: Okay, great. Just maybe just the latest you're hearing on the hydrogen, green hydrogen rules from Treasury, both kind of timing and any color of where they are on some of the key, you know, issues like matching and additionality. Thanks.
spk08: Yeah, you know, we have been very vocal around the hydrogen regulations that need to come together. And there's been a debate. for those that are familiar with it, between whether we have hourly matching or annual matching. And for us, it's very simple. As part of a hydrogen project, you buy an expensive asset called an electrolyzer, which everyone is familiar with. And if you have hourly matching, the net capacity factor, the number of hours a day that you use that electrolyzer, are probably less than half a day in most parts of the country. If you have an annual construct, we're able to use that electrolyzer around the clock. And so it's really easy math. I mean, when you have an expensive capital asset and you can use it around the clock, the price of green hydrogen is going to be a lot lower than if you can only use it less than half the time. And so the industry has come forward with a very constructive proposal, which would have the hourly matching construct not kick in until 2028. You'd have annual until, you know, that time period. And we also have supported the fact that you have to have additionality if you're going to qualify for annual. So if you're qualifying for annual in the hours that the wind is not blowing or the sun is not shining the power, the electrolyzer behind the meter and you are buying off the grid, well, you're buying from an additional renewable asset that has been constructed and developed to provide electrons to that newly built hydrogen facility. So from an NGO perspective, you're getting additional decarbonization benefits on the grid. So we think we've been very constructive in what we have come forward with. We think it's really important because we want to send the right signal to OEMs to ramp up production on electrolyzers because electrolyzers being produced at scale is going to be quickly important to declines in green hydrogen prices over time. And so that's where we are in terms of your question around timing. We expect Treasury to probably come out with regulations now. We're hoping for August, but it's starting to sound more like September or October. But, again, you know, we have built a significant hydrogen pipeline. Parts of it, you know, work under either construct, and, you know, that pipeline is well over $20 billion, and we have the land team out, and we've had them out, you know, very aggressively lining up land positions for our hydrogen portfolio that, you know, the nice thing about that, and Kirk said it in the remarks, that pipeline can have about 250 gigawatts when you include early due diligence sites. Nobody in our industry has a pipeline like that. Nobody. And what's terrific about it is it can be used for dual purpose because hydrogen customers are just a third customer class to sell renewables to. So if it The site doesn't work for hydrogen, but it will work for our power CNI customers. So I feel like we're really well positioned, and hydrogen is one of those things that can really provide a nice boom to the development expectations that we've already laid out for you. So we're eager to see what the final regulations say. But I also want to remind folks that, Hydrogen has a long development cycle, so the contribution that we'll see from hydrogen investments you would expect over the latter part of the decade.
spk04: Okay. Last question just on the Texas sale. So I think you said you still expect to get it done by year end. When would you need to or expect to or need to kind of announce a transaction to make the year end? And just how should we think about the recent data points we've seen, like the TransCanada, the TC sell-down, Columbia sell-down, and Copoint. I know they're different assets, but just in the context of views on valuation of NET. Thank you.
spk08: Yeah, thank you, Steve. So, let me take those in order. So, in terms of timing, you know, we would hope to be in a position, you know, end of the third quarter, early fourth quarter, you know, in order to support that end-of-the-year sales timeline that we have earmarked. In terms of valuation, we view these assets as unique. You know, again, as a reminder, the Texas pipelines provide 25% of the natural gas supply to Mexico, you know, through contracts with Pemex. And the other pipeline assets that support the Texas pipeline, are fully integrated with that pipe. And they provide gas to Mexico through Agua Dolce, which is a very liquid trading point. And if you look around that area, these are very, very strategic for a number of players. So, you know, again, as you all know, it's hard to compare one pipe comp to another But, again, you know, we remain, you know, pleased with the progress that we continue to make on the sales transaction.
spk04: Okay. Great. Thank you.
spk08: Thank you, Steve. Well, and, Steve, I think I said 2% on the VAR. I meant $2 million on the VAR for PMI, just to correct that. Thank you.
spk09: Our next question will come from Char Peruzza with Guggenheim Partners. You may now go ahead.
spk06: Hey, good morning, guys. Good morning, Char. Good morning. Let me just, as we kind of look at, you know, the latest renewable portfolio transactions, the valuations have come in fairly noticeably. Do you guys see any opportunities to kind of leverage nearest platform in either picking up the existing assets or developer books? especially sort of given, you know, what seems to still be a tight financing and supply chain position for some of your competitors while you're seeing improvements with yours, right?
spk08: Yeah, we are. I mean, you know, first of all, let me just comment on the valuations that you see. I mean, I think that, look, I'm not going to be critical of some of the assets that have come to sale, but You know, if you read through the lines and into the details of the structures of those transactions, those are not what I would characterize as high-quality renewable assets. When you look back at what we have developed over the last 20 years and what we continue to develop are very high-quality renewable assets. Most of them are bus bar. They're with, you know, high prices. credit counterparty off-takers. They're well situated in areas that benefit from our data analytics around transmission congestion, wind resource, solar resource. Because we have 20 years of experience, I like to believe, and look, we're not perfect, but we don't make some of the same mistakes that you see some of the other developers make. And so I feel like we're much better positioned in our portfolio is a much better position than some of the other markers that you have seen. So I'd be very, very careful in how you assess portfolio to portfolio because they're very, very different. The second thing I would say is we look at all third-party M&A opportunities that come available and We feel like we do have all the competitive advantages, some of which you mentioned. We buy cheap, we build cheap, we operate cheap, we have a cost of capital advantage. We have a terrific team that really understands how to optimize the value of existing assets. That's the key piece. Repowering assets is something we've always had a very strong track record at. It's something that the rest of the industry has struggled with, and that gives us a real leg up in terms of being able to see value that others don't. And then, as Kirk mentioned on the call today, we have a benefit and an organic asset that nobody else has, which is the largest fleet in North America that we operate. And so we have the ability to not only repower those existing assets, but to find ways to pair them up with storage and take advantage of the standalone storage ITC. As you all know, So storage used to only be a unique opportunity to pair with solar. The rules have changed with the standalone storage ITC under IRA. So now we can pair it with wind. We can build it standalone. We're making a lot of progress in that area. We announced one project today where we're starting to see an opportunity, particularly in MISO and SPP and ERCOT, where capacity values and reliability are being improved. priced higher than we've seen them in the past, given some of the shortfalls that they have in those markets. And that just happens to coincide with where most of our wind is. And given the massive existing fleet that we have, which very importantly includes an existing interconnection agreement, our ability to go and pair those assets up with solar or to repower them is unique in this industry today. given the two-decade head start that we have. And so that's a value that we try to bring to M&A opportunities as well when we exercise our other competitive advantages, including our cost of capital advantage.
spk06: Got it. Perfect. And, John, it's been a little bit quiet and hasn't really been a focus for a lot of investors, but is there any sort of updates around the FEC case as of today? Any change in stances, you know, indicated by the disclosures, any opportunities to settle? Thanks.
spk08: Yeah, thank you, Char, for the question. No new developments. There's really no new news there. You know, again, we would expect just based on historical precedent with the FEC that we would, you know, hear back where they have a reasonable, you know, belief that they should investigate. Probably sometime, you know, in the first quarter of 2024. Perfect.
spk06: Thank you, guys. Appreciate it. Thanks for the time. Fantastic. Thank you, sir.
spk09: Our next question will come from Julian DeMond Smith with Bank of America. You may now go ahead. Thank you.
spk05: Hey, good morning, John. Good morning, team. Thank you guys very much. So I wanted to come back to the cadence of the backlog conditions, just looking at, you know, 23, 24 versus 25, 26 there. Can you talk a little bit about what you're seeing out there in terms of the ability to execute in kind of the newer term sense to execute against that first bucket versus the latter here? And especially give us a little bit of an update on IRS clarity and what that means for the willingness to commit to close on contracts here. especially maybe now that you have that in hand on transferability, et cetera. How do you think about maybe biasing towards the later years there, just given where we stand already?
spk08: Yeah, good question, Julian. So let me just start with, take that in chunks, because, you know, everyone knows our development expectations are 23 to 26. So let's just start with the first two years, and then we'll talk about the second two years. So for 23 through 24, We're in great shape. We're already within, you know, the range, you know, as we had expected to be. And then on 25 and 26, you know, if you go back to the beginning of 22 and you add up where we are, you know, today, we've already added 12 gigawatts, you know, just in the last six quarters. That puts us in great shape against 25 and 26 because now we have 15 gigawatts to get to the midpoint. And if you kind of work backwards from, you know, 26, that's three and a half years to get 15 gigawatts. So we feel like we are, you know, really in great position and, you know, on track on that build. And I think there's some real tailwinds that we're going to start to see come forward. And I want to explain some dynamics here. you know, just around what we've seen in the renewable industry, you know, which was part of your question, Julian. Let's just go back to 22. I mean, in 22, we saw, you know, a lot of supply chain issues that started to surface. And then we saw Yaflipo. We saw circumvention. That caused some delays. It also caused a shortage of supply because some developers were scrambling for panels that they thought they could get into the country, which you know, I think for a short period of time drove prices up. The great thing is all those 22 projects that got delayed into 23 are now starting to go into commercial operation. That's a really good news for customers because those customers that were digesting that 22 build and waiting for those projects to go COD on the 23 are now coming back to the markets. And so we're seeing really strong demand, you know, from those folks as we start to look forward. The other benefit of that is that you see Euflipa issues start to get worked through. We're not seeing the Euflipa holdbacks that we used to see. So we're making a lot of progress on that front. When you take that into account with the clarity that we're now seeing around circumvention, we finally have this bright-line rule with the six-part test, and as long as you meet four of the six and you're importing from Southeast Asia, you're okay. And so what we've seen is a relaxation in pricing as a result of that. So now the risk premium that was being charged last year by the import market is starting to come down. The other terrific phenomenon that we're seeing around solar pricing is that Southeast Asia still sets the price for panels, you know, in the U.S., but that risk price premium is starting to come down, and Southeast Asia really wants a big part of the U.S. market. Why do they want a big part of the U.S. market? They sell panels for 20 cents everywhere else, right? They've been selling panels for 40 cents roughly, you know, in the U.S., so they have a lot of room to move. And so as that risk premium comes down around Euflipa and circumvention, it's forcing prices down in the U.S. At the same time, you're seeing a lot more U.S. supply come online through new module facilities are getting announced, also through cell facilities that will come along with it. And so the bottom line is when you look at the solar picture, it's favorable from an equipment price standpoint because I think you're starting to see a lot of capacity in come online that it's going to force prices down over time, particularly as you see the U.S. market evolve. And it's no secret with some of the economic data coming out of China that, you know, some of those Southeast Asian markets are under pressure with capacity, excess capacity positions. And so they've got batteries and panels they need to find things to do with. Battery prices are coming down as well. We're finally seeing a relaxation in battery prices, really struggling to see, really struggling in the EV market in China, which has created very much an excess capacity around batteries. And so we're finally starting to see some relaxation there. I think there's been more of a movement around traditional lithium ion and some of the rare mineral exposure you see there, sodium and other battery forms. And so very encouraged about the landscape there. And then on the wind OEM side, you know, the wind folks are really one of the only ones that can reap the full benefit, you know, of domestic content and the full manufacturer incentive. So feel really good about, you know, where wind sits as well. So I think as you start to look forward and we started to move through the supply chain issues we saw in 22 with these projects coming to line in 23, combined with excess capacity globally around the supply chain, Feel great there. And let me talk about transferability for a second. There's been a lot of discussion and I've heard a lot of questions about folks saying, well, how's transferability, you know, going to be accounted for? And is it going to be, you know, part of the FFO and the FFO to debt metric? We feel very good and we've told investors for a long time that we feel very good that it's in accordance with GAAP, it flows through the tax line for tax credits that get transferred. to be included. We feel good about where that is heading and that we'll end up in a good place there on that FFO to deck question that has surfaced around transferability. When you put all those pieces together, as we've worked through some of these headwinds that we've had, we feel very good about where things are heading. Let's just face it. We're just getting started. Renewables are here to stay. They're not going anywhere. And so while we might, you know, the development process isn't always going to be a straight line, we're in terrific shape and feel, you know, very optimistic about the future.
spk05: All right. Thank you. And actually, John, to that point, though, a lot of the dynamics you just talked about are very, like, real-time, if you will, versus, you know, kind of trailing into the quarter itself. How do you feel about just that contracting acceleration here in the back half? I mean, a lot of the points you made would really argue that, you could see an uptick versus kind of something that was more on trend in the last quarter?
spk08: Yeah, you know, a lot of it is going to depend on, as I said before, these 22 projects continuing to come online in 2023 and those customers that had had a little bit of fatigue, so to speak, you know, around those delays coming back to market, which we're starting to see. And so that'll be the wild card. But we feel good about how the rest of the year continues to shape up. Got it.
spk05: Well, stay tuned on that front. All right. Excellent.
spk08: Thank you, sir. And, Julian, one other thing to add to that is hydrogen. We get the right rules there. And, you know, again, you know, I can't stress it enough. I mean, you know, we've always only had two customer classes for renewables. It's been power sector. It's been the CNI sector. Now, with the right rules... we have the potential to add a third customer class, which is the renewables for hydrogen customers, and that's exciting as well.
spk05: Yep. Yeah. So stay tuned maybe a quarter or two after you get those rules to really see that flow through in that third customer class.
spk08: Yeah, I think that's right. And then, you know, remember, those projects have longer lead time development cycles. So in terms of the contribution that investors should expect, it's going to come in the latter part of the decade.
spk05: Excellent. Thank you.
spk09: Our next question will come from David Alcaro with Morgan Stanley. You may now go ahead.
spk03: Oh, hey, good morning. Thanks so much for taking my question. Maybe shifting a little bit to NEP, I was wondering, you know, I know you don't, in terms of the financing outlook, you don't need equity for some time here, but I was wondering if you could just give any latest thoughts on alternative financing approaches. to hit longer-term growth projections at NEP?
spk08: Yeah, I mean, for NEP, you know, first of all, you know, the focus is on, you know, the simplification strategy, which we shared with the market back in May, you know, and we have said that, you know, our expectation as a result of that is, you know, we don't, you know, assuming a successful execution on that on that sale, that we don't expect to have equity requirements in 2024, other than opportunistic equity issuances under our ATM to help finance growth beyond 2024. But if you look, and you can see in the slides here, that we have a lot of flexibility under our current metrics with the agencies in terms of the ability to add additional what I would call traditional debt-based capital market financing, you know, mechanisms to accommodate the growth going forward. And we are very busy, you know, looking at the back end, you know, three CEPAs that we have and some ideas around, you know, how we are going to address those as well because when we move on from the simplification that's going to be the next point of focus. We're not, you know, but we're not waiting. You know, we're continuing to look at that. And look, there continues to be, you know, a strong bid for, you know, an interest in renewable interests and renewable assets long term, particularly when you think about the opportunity to do that with the world's leader in renewable development with the competitive advantages that we have. the 20-gigawatt backline log, the growth visibility that NEP has going forward, all very promising. And so, you know, we continue to engage in those discussions as well as we think about the future.
spk03: Got it. Got it. Thanks for that, Collar. And then also just had a question related to the transmission constraints that we've seen in the industry, but you made the comment about a very large interconnection position, 145 gigawatts. I was just wondering if you could speak to the transmission queue challenges, and do you think that could potentially be a constraint on growth for the industry at any point, or how much visibility do you have into hitting longer-term growth targets with that massive queue that you've got in place?
spk08: Yeah, so let me take that in two pieces. I mean, one is the 145 gigawatts that you're referencing, David, around the 250 gigawatt pipeline that we have where we have with the 145 interconnection positions secured. I would challenge you to find anybody in the industry that has even close to that number of projects with interconnection capacity. And don't forget, given the demand we're seeing in the markets, If you have a site ready to go with interconnection capacity, that's the hard part. Finding the customer right now is not the hard part. And so that's why we have such a focus on making sure that our early stage development program is right on track. And I feel just terrific about where we stand there today. Let me take the second piece, though, that you have, which is just about transmission in general. We are not waiting. We are taking the transmission and interconnect issues into our own hands, and we're doing that through NextEra Energy Transmission. We are laser-focused on competitive transmission build-out around where our renewable assets are going and where they're going to be built. We announced a project last quarter, another $400 million opportunity in CalISO, I'm not going to talk about them today, but we have a number of various other transmission projects, you know, on the board right now that we are evaluating. That business is going terrific. And, again, you know, the bottom line message for investors is we're not waiting. We're taking the game. We're taking that into our own hands. That's why we bought Grid Alliance. That's why we continue to make investments in that space. And, you know, we intend to solve those problems ourselves as we go along.
spk03: Excellent. That's helpful. Thanks so much for all the color. Thanks, David.
spk09: Our next question will come from Carly Davenport with Goldman Sachs. You may now go ahead.
spk02: Hi. Good morning. Thanks for taking the questions. Just wanted to go back to the supply chain, and thanks for the commentary there in the earlier question, but Just in terms of rate of change from a supply chain perspective relative to recent quarters, are you seeing any divergence between trends in wind projects versus solar projects?
spk08: In terms of wind projects, let me just make a couple comments there. We do almost all of our businesses with GE. We've done a little bit with Siemens and You know, I know there's been some press on Siemens recently. We don't have any of the Siemens Gamesa turbots in our fleet. I just want to make that very clear. As we think about supply chain around wind versus solar, remember that, you know, wind turbines are made, you know, almost exclusively in the U.S. And so, you know, they'll be direct beneficiaries of the manufacturing incentives, and we hope domestic content. They have a couple of paperwork. things they have to work out with Treasury, which, you know, hopefully we'll get there, you know, on in terms of what kind of information they have to share with their ultimate customers and giving away the secret sauce on margins and all those things. But they continue to work through those issues. But wind just, you know, doesn't have the same exposure in issues that we've had to deal with with solar. You know, around you flip up. around circumvention. But again, you know, as I said earlier, those issues around solar, which really, you know, plagued the industry back in 22, have been things that we've been working through in 23. And now we're starting to see a lot more capacity show up, not only in the US, but in other markets as well. And so, you know, we are capitalizing, you know, on all those opportunities and leveraging our buying power, as you would expect us to do.
spk02: Great. That's helpful. And then the follow-up is just a quick one on kind of the cost environment. It seems like it's starting to improve a bit, but still challenging for many. Can you just talk about how you're managing costs in this environment and kind of what levers exist that are available to pull if needed to continue to execute at a high level from an earnings perspective?
spk08: Yes. Thanks, Carly. So, you know, We spoke on our last call about, and I know you're familiar with this, we run a cost savings initiative every year at the company. This year we called it Velocity. We ran it under the same name last year. And we challenge every one of our business units, it's a bottoms-up process to come up with cost savings ideas for how we run our company. And we've had amazing success through that program over the last 10 years. And in the last two years, in fact, if you look at it, we've been able to identify over $700 million of cost savings initiatives, both at FPL and Energy Resources. So we're constantly looking for ways to continue to take cost out of the business, whether it's O&M, whether it's G&A, and How do we leverage technology? Technology is a big piece of it as well. We recently launched a massive generative AI program that we think also leveraging all the skills that we have around technology that we've been able to build over the last 10 to 15 years to really leverage AI in a way we never have in terms of how we run the business. as well. And so all those things, I think, are going to contribute to cost declines over time for the business. But we're laser focused on cost. And then, you know, the development business, you know, when you're selling a commodity, electricity, it's a game of inches. You've got to be better than the next developer in line in terms of buying equipment cheaper, building it cheaper, operating it cheaper, financing it cheaper. And we have, you know, with the A-minus balance sheet, you know, terrific cost of capital advantage and When we put all those things together, you know, we feel great about our competitive position, our market share, and how we continue to progress our renewable development program.
spk02: Great. Thanks for that, Collar.
spk09: Our next question, pardon me, just concludes our question and answer session. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Disclaimer

This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.

-

-