Q3 2020 Nextera Energy Inc and Nextera Energy Partners LP Earnings Call
[music].
Good morning, and welcome to the Nextera energy Inc. and Nextera Energy partners third quarter 2020 earnings Conference call.
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Thank you Andrew Good morning, everyone and thank you for joining our third quarter 2020, combined earnings conference call for Nextera energy and Nextera Energy partners that's more.
This morning, or Jim Herbert Chairman, and Chief Executive Officer of Nextera Energy, Rebecca Chialva 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 that works a lot.
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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 pick them up we're looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release and the comments made during this conference call and the risk factor section of the company presentation or in our latest reports and filings with the Securities and Exchange Commission each of which can be found on our web sites like start.
Energy Dot Com Nextera energy partners Dotcom.
We do not undertake any duty to update any forward looking statements today.
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 Definitionally information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure with that I will turn the call over to Rebecca.
Thank you, Matt and good morning, everyone Nextera energy delivered strong third quarter results and continued to perform well on managing the ongoing impacts of the COVID-19 pandemic.
Nextera Energy's third quarter adjusted earnings per share increased by more than 11% versus the prior year comparable quarter, reflecting strong execution at Florida power <unk> Light company Gulf power and energy resources.
To date, we have grown adjusted earnings per share by over 10% relative to 2019.
We continue to execute well on a major initiatives, including continuing to capitalize on the best renewables development period in our history, and we are well positioned to meet our overall objectives for 2020 and beyond.
Before moving on I'd like to say a few words about hurricanes Ittai, yes, Laura Sally and Delta.
As you know resonates throughout the eastern and South Eastern U.S. were recently impacted by the severe effects of these dangerous and deadly storms.
Our deepest sympathies are with those have been impacted by these storms widespread destruction.
We are grateful for the support that others have given us over the years and we were fortunate to be in a position to assist other utilities this year.
As part of our assistance efforts, we sent several thousand of our employees and contractors as well as transmission equipment to help rebuild the grid to support the restoration efforts of the impacted utilities.
Well power itself was impacted by Hurricane Sally, which experienced an unexpected change in intensity and path before striking the surface area.
Approximately 285000 customers a more than 60% of golf powers customers experienced outages as Sallie brought heavy rain and severe flooding.
Your restoration work force that totaled approximately 7000 workers, including approximately 2000, FPL employees and contractors Gulf power was able to restore service to essentially all impacted customers within five days.
We are pleased to be with the efficient and safe restoration response to hurricane Sally which was made more challenging by the ongoing impacts of the COVID-19 pandemic.
Our focus on preparation and execution, including our annual storm drills helped ensure a timely response to the hurricane despite the pandemic.
At Florida power and light earnings per share increased 14 cents year over year.
All of the major capital projects, including one of the largest solar expansion ever in the U.S. remain on track as we continue to advance our long term focus on delivering outstanding customer value.
Feels typical residential bill remains 30% below the national average and the lowest among all the Florida investor owned utilities all.
Although FPL maintain best in class service reliability, and an emissions profile that is among the cleanest in the nation.
As part of our continued focus on doing what is right for our customers last month FPL announced that among other measures. It was offering direct relief of up to $200 per customer.
To those that are experiencing hardship and are significantly behind on their bills do the COVID-19, we were.
We remain committed to supporting our customers during this challenging time.
Gulf Power also had a strong quarter of execution as we continued to deliver on the cost reduction initiatives and smart capital investments that we've previously outlined we remain.
We remain focused on improving the Gulf power customer value proposition by providing lower costs higher reliability outstanding customer service and clean energy solutions and continue to expect that this strategy will generate significant customer and shareholder value over the coming years.
At energy resources, adjusted EPS increased by roughly 23% year over year.
Building upon the success of recent quarters, our development team had the best quarter of origination in energy resources history.
Adding nearly 2200 megawatts of signed contracts to our renewables backlog.
After accounting for the removal of several projects, which I'll talk about more in a moment our backlog increased by approximately 1450 megawatts and now totals more than 15000 megawatts. They put this into perspective, our backlog, which we continue to expect and can you expect to construct over the next several years is now large.
Other than energy resources entire existing renewables portfolio, which took us more than 20 years to complete.
Our engineering and construction team also continues to execute commissioning more than 800 megawatts since last earnings call and keeping the remainder of the more than 5200 total megawatts of wind and solar projects that we are expecting to complete this year on track to achieve their 2020 in service dates.
Overall with three quarters complete in 2020, we are pleased with the progress we're making at Nextera energy and are well positioned to achieve the full year financial expectations that we have previously discussed subject to our normal caveats.
Now, let's look at the detailed results beginning with FPL.
For the third quarter of 2020, FPL reported net income of $757 million or $1.54 per share an increase of $74 million.14 per share respectively year over year.
Regulatory capital employed increased by more than 11% over the same quarter last year and was the principal driver of FPL is net income growth of roughly 11%.
I feels capital expenditures were approximately $1.3 billion during the third quarter and we expect our full year capital investments to total between 6.5 and $6.7 billion, which as a reminder is higher than our expectations at the start of the year.
Our reported our OEE for regulatory purposes will be approximately 11.6% for the 12 months ending September 2020, which is at the upper end of the allowed band of 9.6% to 11.6% under our current rate agreement.
During the quarter, we restored $258 million of reserve amortization to achieve our target regulatory our OE, leaving FPL with a balance of $994 million.
As we've previously discussed we expect FPL and Gulf power operating as a single larger Florida utility company will create both operational and financial benefits for our customers.
Earlier. This month, we were pleased to receive FERC approval for an internal reorganization whereby golf will merge into S.P.L. in January of 2021.
Both power will continue as a separate operating division during 2021, serving its customers under separate retail rates we can.
We continue to expect the companies will file a combined rate case in the first quarter of next year for new rates effective in January of 2022.
Turning to our development efforts all of our major capital initiatives at FPL are progressing well. The next six solar together projects totaling approximately 450 megawatts remain on track to be placed in service later this year.
The final 600 megawatts of the roughly 1500 megawatt community solar program are expected to be placed in service next year.
This significant solar expansion combined with low cost battery storage solutions, such as Manatee energy storage center that remains on track to be complete next year.
Represent the next phase of FPL generation modernization efforts.
Beyond solar construction of the highly efficient roughly 1200 megawatt Dania Beach clean energy center remain on schedule and on budget as it continues to advance towards its commercial projected commercial operations date in 2022.
During the quarter. We are pleased that the Florida Public Service Commission approved FPL Storm protection plan settlement agreement that allows for clause recovery of storm hardening investments, including Undergrounding.
The agreement supports the continued hardening of Spls already storm resilient energy grid in a programmatic manner through the deployment of billions of dollars of incremental capital for the benefit of customers.
Let me now turn to Gulf power, which reported third quarter 2020, GAAP earnings of $91 million or 18 cents per share an increase of two cents per share relative to Gulf powers adjusted earnings per share in the prior year period.
Both powers reported our OE for regulatory purposes will be approximately 10.5% for the 12 months ending September 2020.
For the full year 2020, we continue to target a regulatory ROE V and the upper half of the allowed band of 9.25% to 11.25%.
During the quarter golf powers capital expenditures were roughly $350 million and we expect our full year capital investments to total between one and one point billion $1.1 billion.
All of those powers major smart capital investments continued to progress well the plant crust coal to natural gas conversion and associated natural gas lateral are expected to be complete later this year supporting Nextera energys coal phase out strategy and commitment to remain a clean energy leader.
Although Gulf power has not completed the final accounting our preliminary estimate of the Hurricane Sally recoverable storm restoration costs is roughly $200 million.
The storm restoration costs have been deferred and recorded as a regulatory asset on Gulf tower's balance sheet.
Under the terms of the Gulf powers current rate agreement beginning 60 days following the filing of a cost recovery petition with the Florida Public Service Commission and subject to review and Prudence determination of our final storm costs.
Power's authorized to recover storm restoration costs on an interim basis from customers through a surcharge.
Similar to FPL Gulf Powers Storm Protection plan settlement agreement was also improved during the quarter.
We expect that these future hardening investments will lead to a stronger and more storm resilient grid, a gulf power and support and even more rapid recovery from storms in the future.
Similar to other parts of the country. The Florida economy continues to recover from the impacts of the ongoing COVID-19 pandemic.
Recent economic data reflects an improvement in the Florida unemployment rate since the start of the pandemic and an increase in consumer confidence that are roughly in line with the changes to the national averages of each metric.
We continue to believe that the financial strength and structural advantages with which Florida entered the crisis and the continued traction of the state to both new residents and new businesses.
To support a rebound as we move beyond the pandemic we.
We will continue to do our part to support that outcome, including pursuing or smart capital investment program and economic development efforts, which help create jobs provide investment in local communities and further enhance our best in class customer value proposition.
During the quarter Appeals average customer growth was particularly strong increasing by nearly 80000 from the comparable prior year quarter.
I feel third quarter retail sales increased 2.8% year over year as customer growth weather and underlying usage per customer all contributed favorably.
Our Gulf power the average number of customers increased approximately 1.1% versus the comparable prior year quarter.
Both powers third quarter retail sales declined 6.7% year over year, primarily as a result of unfavorable weather comparison relative to the particularly strong third quarter last year and a decline in underlying usage, primarily associated with hurricane Sally.
At both FPL and Gulf power third quarter weather normalized retail sales were roughly in line with our expectations at the start of the year and we do not believe that the pandemic had much of an overall impact on underlying usage.
At FPL, we continue to expect the flexibility provided by our reserve amortization mechanism will offset any fluctuation in retail sales or bad debt expense and support a regulatory or are we at the upper end of the allowed band of 9.6% to 11.6% under our current rate agreement.
Let me now turn to energy resources, which reported third quarter 2020, GAAP earnings of $376 million or 76 cents per share and adjusted earnings of $551 million or $1.12 per share. This is.
This is an increase in adjusted earnings per share of 21 cents or approximately 23% from last year's comparable quarter results, which have been restated to reflect the results of our Nextera energy transmission business, formerly reported in corporate and other.
New investments contributed six cents per share primarily reflecting continued growth in our contracted renewables program there.
The contribution from existing generation assets was flat year over year as the decline in wind resource and costs associated with the retirement of our Duane Arnold nuclear facility, we're roughly offset by increased PTC volume from our re powered wind projects.
As well as the lack of an unfavorable state tax item, which impacted last years third quarter results.
Contributions from both Nextera energy transmission, and our customer supply and trading business increased by 1% year over year.
Although there are impacts it increase results by 13 cents per share driven primarily by the absence of the write off of development costs that negatively impacted 2019 results.
The energy resources development team continued to capitalize on what we believe is the best renewables development environment in our history during the quarter with a team originating a record of nearly 2200 megawatts.
Since our last earnings call. We have added 580 megawatts of new wind 911 megawatts of solar 594 megawatts of battery storage and 86 megawatts of Rindo Repowering.
The significant additions include a new 325 megawatts for our battery storage system is project, which is the largest standalone storage project in the world is expected to support California's aggressive clean energy goals and help improve reliability across the regional electric grid when it comes online in 2023.
We also executed a 180 megawatt solar build on transfer agreement during the quarter, which is not included in our backlog additions.
Partially offsetting this quarter's strong origination success was the removal of several projects. We had previously included in our backlog.
The majority of the reductions are the result of an unfavorable ruling from the Alabama Public Service Commission related to several solar plus storage projects, we expect.
We expect the customer to hold a future procurement for this generation capacity and are hopeful that the projects they received new contracts during that process.
After accounting for these projects removals, the energy Resources' backlog had a net increase of 1446 megawatts during the quarter reflective of our customer demand for low cost wind solar and battery storage projects that is stronger than ever.
Repowering projects added this quarter included our first project for beyond 2020 and adds to the recent significant increase to our 2021, new wind and Repowering backlog, which now totals roughly 2000 megawatts.
With the addition of the 2021 Repowering project, we are now introducing repowering expectations for 2021, and 2022 period of 200 to 700 megawatts.
Continued cost and technology improvements have supported an expanding opportunity set for both new wind and Repowering overtime.
As a result, we are beginning to evaluate incremental repowering opportunities for beyond 2022.
Through the first three quarters of 2020, we have added nearly 4800 megawatts to our renewables backlog, which now totals more than 15000 megawatts and is the largest in our history.
To reflect the current backlog and strong origination success, we are raising the low end of our 2019 through 2022 development expectations to 15500 megawatts, which is above the midpoint of our original range and we are increasing the top end of the expectations to reflect the incremental repowering expectations that we added this guy.
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Additionally, with more than 4000 megawatts of renewables projects already in our backlog for post 2022, we are well positioned to execute on our long term growth objectives, we can.
We continue to believe that by leveraging energy resources competitive advantages. We can further capitalize on the best renewables development environment in our history going forward.
As we've previously discussed we are optimistic about the potential for green hydrogen to support and emissions free future instead.
Consistent with our toe in the water approach to new opportunities energy resources has developed a pipeline of approximately 50 potential green hydrogen projects spanning the power transportation and industrial sectors.
These projects serve a variety of end uses and similar to the strategy employed in wind solar battery storage and other areas provide the opportunity to develop early learnings with relatively small investments to set the stage for much larger capital deployment as cost declines and technology improvements are realized.
Over the next several quarters, we expect to add to this pipeline, while advancing select projects as we position ourselves to continue to be a leader in the de carbonization of the energy sector.
We remain excited about hydrogens long term potential to further support to future demand for low cost renewables as well as accelerate the de carbonization of transportation fuel and industrial feedstocks.
Beyond renewables, we were pleased with the recent progress to resolve the outstanding permit issues required for mountain Valley pipeline construction.
Among other progress since the last earning call MVP has received its revised biological opinion approval of the projects nationwide 12 permit by the Army Corps of engineers and a recent order by FERC authorizing forward construction to resume along the majority of the project route.
Following receipt of this approval and BP resumed construction work across West, Virginia, and Virginia the supply.
Despite the recent progress we were disappointed with the fourth circuit court's decisions to administratively stay and Vps nationwide 12 permit we disagree with the court's decision and continue to work with our partners to move the project forward.
Depending on the outcome of these issues, we continue to target an in service date of the pipeline for during 2021.
Consistent with our focus on growing our rate regulated long term contracted business operations during the third quarter Nextera energy transmission announced an agreement to acquire grid lines, which owns three FERC regulated transmission utilities spanning six states.
Subject to regulatory approvals, the approximately $660 million acquisition, including the assumption of debt is expected to close in 2021 and to be immediately accretive to earnings.
Proposed acquisition has strong at expansion potential in attractive markets with significant expected renewables growth and furthers our goal of growing Americas, leading competitive transmission company.
Turning now to the consolidated results for Nextera energy for the third quarter of 2020, GAAP net income attributable to Nextera energy was 1.229 billion or $2.50 per share.
Nextera Energy's 2023rd quarter adjusted earnings and adjusted EPS were 1.311 billion and $2.66 per share respectively.
Adjusted earnings from core to corporate and other segment declined 10 cents year over year, primarily due to other corporate expenses, which includes interest.
During the quarter Nextera energy issued $2 billion of equity units as we continue to focus on opportunistic and prudent capital management to enhance the strength of our balance sheet.
Equity units will convert to common equity in 2023, and the proceeds are expected to be primarily used to redeem a portion of Nextera Energys outstanding hybrid securities and to finance the acquisition of grid Lions and Nextera Energy's continued renewables expansion.
In addition to the redemption of hybrid securities in the fourth quarter. We are also considering several other potential refinancing activities to take advantage of the low interest rate environment and.
In total these initiatives could generate negative adjusted EPS impacts of roughly 20 cents in the fourth quarter before translating to favorable net income contributions in future years, and an overall improvement in net present value for our shareholders.
Consistent with our efforts to position Nextera energy well for long term growth and take advantage of the low interest rate environment. During the quarter, we entered into $2 billion in forward starting interest rate swaps to further support future debt that debt issuances.
Finally in July as part of its 2020 annual review Moodys reduced Nextera Energys CFO pre working capital to debt downgrade threshold from 18% to 17% there.
The favorable adjustment was based on recognition of Nextera energys, leading position in the utility and renewable energy sectors and stable cash flow generation profile.
As we announced last month based on the ongoing strength of the renewables development environment and continued execution across all of our businesses, we increased nextera energys financial expectations for 2021, and 2022 and extended our long term growth outlook to 2023.
For 2021, Nextera Energy's adjusted EPS expectation ranges increased by 20 cents and now and we now expect adjusted earnings per share to be in the range of $9.60 to $10.15.
For 2022, and 2023, we expect to grow 6% to 8% off of the expected increased 2021 adjusted earnings per share.
The increased adjusted earnings expectations are supported by what we believe is the most attractive organic investment opportunity set in our industry.
Largely as a result of the significant renewables investment opportunities that we expect to capitalize on.
We now expect our total capital expenditures from 2019 to 2022 to total roughly $60 billion, an increase from the $50 billion to $55 billion range. We introduced at the Investor Conference last year.
During the quarter the board of Nextera energy approved a four for one common stock split which is intended to make stock ownership more accessible to a broader base of investors.
Grading will begin on a stock split adjusted basis on October 27th and our.
And our fourth quarter and full year 2020 financial results will reflect the post split share count.
As a result of the stock split Nextera energy updated its adjusted EPS ranges to reflect the increase in its in outstanding shares.
In 2020, the company now expects adjusted earnings per share to be in the range of $2, an 18 cents to $2.30 the Ajay.
The adjusted adjusted EPS ranges for 2021 and beyond are included on the accompanying slide.
From 2018 to 2023, we expect that operating cash flow will grow roughly in line with our adjusted EPS compound annual growth rate range.
We also continue to expect to grow our dividends per share at roughly 10% per year through at least 2022 off of a 2020 base.
As always our expectations assume normal weather and operating conditions.
In summary, despite the challenges created by COVID-19 pandemic Nextera energy has continued to deliver terrific operational and financial results through the first three quarters of 2020.
Based on the resiliency of under of our underlying businesses and their strong growth prospects. We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges and 2020, 2021, 2022, and now 2023, while at the same.
Same time, maintaining our strong credit ratings.
We remain intensely focused on execution.
And believe Nextera energy remains well positioned to drive shareholder value in the coming years.
Let me now turn to Nextera energy partners.
The Nextera energy partners portfolio performed well and delivered financial results in line with our expectations.
Adjusted EBITDA was down slightly compared to the third quarter of 2019 and cash available for distribution increased 10% versus the prior year comparable quarter.
On a year to date basis, adjusted EBITDA and cash available for distribution have increased by 16% and 50% respectively versus 2019.
Yesterday, the Nextera Energy partners Board declared a quarterly distribution of 59, and a half cents per common unit or $2.38 per common unit on an annualized basis.
Continuing our track record of growing distributions at the top end of our 12% to 15% per year growth range.
During September X R&D partners completed the successful conversion of approximately $300 million of convertible debt into roughly 5.7 million common units.
This financing combined with the related capped call. The next R&D partners entered into at the time of the debt issuance generated significant value for LP unit holders.
Following receipt of the capped call settlement the debt had roughly zero dollar three year cumulative cash cost.
Relative to issuing equity at the time of the financing, 25% fewer units were issued and Nextera energy partners generated approximately $50 million in cumulative cash savings.
Convertible debt financing highlights the value of Nextera energy partners, utilizing low cost financing products to support growth and efficiently issue equity over time.
Overall, we are pleased with the year to date execution at Nextera energy partners and are well positioned to meet our 2020 and longer term expectations.
Now, let's look at the detailed results third quarter, adjusted EBITDA was $312 million a decline of approximately 1% year over year.
Cash available for distribution was $162 million up approximately 10% from the prior year comparable quarter.
New projects added $24 million of adjusted EBITDA and $16 million of cash available for distribution.
Adjusted EBITDA from the existing assets declined year over year as lower wind resource was partially offset by growth at the Texas pipelines as a result of the expansion projects going into service.
Wind resource was 96% of long term average versus a particularly strong hundred and 7% in the third quarter of 2019.
Cash available for distribution from existing projects benefited from a reduction in debt service payments, primarily as a result of the retirement of outstanding notes at our Genesis project and receipt of higher year over year Paygo payments.
The reduction project level debt service was partially offset by higher corporate level interest expense as a.
As a reminder, these results include the impact of IDR fees, which we treat as an operating expense the dish.
Additional details are shown on the accompanying slide.
We are pleased to announce the next energy partners has successfully completed its first two organic growth investments ahead of schedule and on budget the rig.
The Repowering of 175 megawatt Northern Colorado Wind project was recently placed into service the repairs.
The Repowering provides multiple benefits. The next 70 partners, including increased production and uplift and project cash flow a longer asset life and lower unum costs.
The remaining 200 megawatts of wind Repowering remains on track to be in service later this year.
Additionally, during the quarter the backup compression at capacity on the Texas pipelines also reached commercial operation.
The expansion opportunity is supported by long term contract and is expected to deliver attractive returns to LP unitholders the ability to complete these projects as planned. Despite the challenges created by the pandemic is a testament to the best in class Engineering and construction team that Nextera energy partners is able to leverage to execute its organic investments.
We continue to expect to execute on additional attractive organic growth opportunities as the Nextera energy partners portfolio further expands.
Let me now turn to next energy partners' expectations, which remain unchanged.
Actually energy partners continues to expect December 30, Onest 2020 run rate for adjusted EBITDA to be in a range of $1.225 billion to $1.4 billion and cash available for distribution to be in a range of $560 million to $640 million, reflecting calendar year 2021 expectations.
For the portfolio at year end 2020.
As a reminder, our expectations include the impact of anticipated IDR fees as we treat these at the as an operating expense.
Nextera energy partners is also considering several potential refinancing activities to take advantage of the low interest rate environment.
If pursued these initiatives could generate costs in the fourth quarter before translating to favorable cash available for distribution contributions in future years, and an overall improvement in net present value for our unitholders.
From a base of Nextera energy partners fourth quarter 2019 distribution per common unit at an annualized rate of $2.14. We continue to see 12% to 15% per year growth in LP distributions as being a reasonable range of expectations through at least 2024.
We expect the annualized rate of the fourth quarter 2020 distribution is payable in February 2021 to be in a range of $2.40 to $2.46 per common unit.
We continue to expect to achieve Nextera energy partners 2020 distribution growth objectives, while maintaining a trailing 12 month payout ratio of approximately 70%.
Highlighting the significant flexibility we believe next energy partners has going forward.
As we previously discussed while we continue to be opportunistic next energy partners favorable position.
Should give it flexibility to achieve its long term distribution growth objectives without the need to make any acquisitions until 2022.
As always our expectations assume normal weather and operating conditions.
We are pleased with the strong year to date performance at Nextera Energy partners and continue to believe it offers a compelling investor value proposition going forward.
With significant expected long term renewables growth combined with the strength of Nextera energy partners existing portfolio and continued access to low cost sources of capital. We believe next energy partners is uniquely positioned to take advantage of the disruptive factors reshaping the energy industry.
Actually our new partners continues to maintain flexibility to grow in three ways through a great organic growth.
Third party acquisitions or through acquisition from Nextera energy resources unparalleled portfolio of renewables projects that now totals roughly 28, gigawatts, including signed backlog.
These factors provide us with as much confidence in next energy partners long term future as we have ever had we look.
We look forward to delivering on that potential in the coming years.
In summary, we continue to believe that both Nextera energy and Nextera energy partners have some of the best opportunity sets and execution track records in the industry and we remain as enthusiastic as ever about our future prospects.
That concludes our prepared remarks, and with that we will open up the line for questions.
We will now begin the question and answer session.
You ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
And our first question will come from Steve Fleishman of Wolfe Research. Please go ahead.
Uh huh.
Oh, thank you.
I guess two questions first of all.
The <unk> does.
Does the backlog increase that you announced today include the.
The nice or NIPSCO projects that were just announced this morning or would those be additive.
Steve This is John Ketchum, Yes. It does include the the not the nice first projects.
Okay.
And then second question would just be this will probably be the last time we.
We hear from you before the election.
The result, so just maybe one more time could you just talk about you know the Biden guidance love your thoughts on what that.
Thoughts on what that could mean for renewables opportunity.
Yes, but then also tops on how nextera positioned for any tax reform.
Oh changes thanks.
Thanks, Steve as you know well know and kind of consistent with our history, we focus on it analyzing a variety of impacts on an a and one of our key focus for going into.
Before going into the election is to ensure that we are well positioned to be successful regardless of the outcome.
And looking back in the last couple of years, obviously, we've we've done quite well on yet it is across all of our businesses in the environment that we've been in so should ramp when a a second term we would expect to continue our strong momentum and continued focus on our strategies and execution on them if.
If biden is is the new president and CEO. He is clearly made clear across this platform across the new in the Democratic platform that they had strong support for renewables to.
To date their plan is is more focused on broad goals as opposed to specific plans for how they would get there but.
But we could easily see whether it's a extension of incentives a focus on storage potentially focus on hydrogen et cetera.
To further accelerate.
Accelerate the expansion of renewables across the U.S. beyond the already strong demand that we're seeing that's clearly based on on the economic value of renewables relative to the alternatives on as it relates to tax reform. Obviously, that's part of the you know some of the things that.
Widen has been talking about it certainly could be on the agenda I think there's a question as to whether or not it would be one of the first things that a new administration would want to focus on particularly as we will likely find ourselves still in recovery mode from that from the pandemic.
And we will evaluate neo as theirs. If there are more details and as there are more details will evaluate the overall impacts.
As you know is if you look at the prior tax reform as an example, I'm clearly a change in the tax rate to an increase in tax rate as Biden has talked about I would have some negative adjusted earnings impacts positive cash impacts all else being equal, but we need to think about one the details of any policies that they.
Put forward, but to together with the other things that would come along with a new Biden administration, including you the strong demand for renewables that we would expect so more to come as as as we learn more and obviously the results from the actual election unfold.
Great. Thank you.
Thanks, Steve.
Our next question comes from Julien Dumoulin Smith of Bank of America. Please go ahead.
Good morning, Thanks for the time appreciate it.
I can follow up on a couple of things here first the transmission you guys did this interesting announcement in the quarter, how does that enable a further expansion of potentially larger scale projects does and how does it complement essentially larger scale renewable ambitions you might have across their core Midwest territories that they serve today.
Yeah Julien. Thanks for the question, we are thrilled with the the acquisition of course subject to approvals of grid Lions and it is the the three different transmission companies across six states with their existing assets are located.
First there are investment opportunities in those existing investments that we have or that we would have in grid license, but it also positions us to have a seat at the table in these regional isos as they contemplate new transmission projects and obviously grid lines would would seek to.
To compete effectively for those opportunities there.
The comment around renewables is that as we think about a broad and substantial expansion of renewables across the U.S. a it becomes important and increasingly so over time to continue to invest in the transmission grid across the U.S. So we.
So we want to be a part of that solution and create and capitalize on those investment opportunities via our competitive transmission business, but also will depend on that in order to use to realize a significant expansion of renewables overtime. So it's both.
So it's both an enabler and an investment opportunity from our perspective.
Thank you.
Perhaps if I can give it over to the more strategic side of the equation here and perhaps I'll frame. It. This way. So you all have recently received greater latitude when it comes to your debt metrics at enough voted that basis and the agencies can.
Can you talk about how you might receive yet further latitude as you think about the percent regulated on the business needs to get to to unlock yet for lower metrics, if that makes sense and perhaps in tandem with that much you espouse your latest thought process on on [noise] strategic.
Strategic thinking from here beyond perhaps some of the.
As we previously provided.
Thanks enrolling yep of course, so as strong balance sheet is incredibly important to us and one of the things that we spend a lot of time talking with the agencies about is how strong a cash flow generation profile all of the businesses have.
How diverse a in a variety of metrics, including geography technology customers et cetera, and how that profile compares very favorably.
The other peers in the industry and their own respective cash profiles. So we did realize a the improvement in downgrade threshold, specifically at Moody's This period that 18% to 17% downgrade threshold improvement and we'll continue discussing with the agencies about the high quality characteristics of our cash flows and seek new improved.
And in additional flexibility.
As as appropriate.
There is the opportunity to have extensive dialogues with the agencies around potential regulated M&A. So anytime we do contemplate it transactions, we have those conversations to evaluate whether or not the profile of the cash flow generation changes such that it would move those metrics and.
As we have those dialogues and have those conversations with respect to potential M&A, we factor those in to any deal transaction economics. It remains incredibly important to us to to be able to maintain that consistency.
Consistency with our objectives around M&A, which is that they are value accretive from a from an earnings perspective. They also are in strong regulatory environments and create opportunities for us to invest capital, but being accretive is incredibly important to us.
As you know when we think about metrics there are quite a number of ways to think about the balance of our business between the competitive generation business and regulated.
In one of the key ways.
We continue to maintain that balance is through capital recycling and that's one of the reasons why nextera energy fines.
No value in its a long term relationship with Nextera energy partners is the clear ability to recycle capital.
In a very efficient way with Nextera energy partners.
Got it but there's no specific percent regulated that you want to achieve to get that number down to 16% or 15%.
No were not prescriptive about a specific balance we think about you know a variety of factors when we think about what's the optimal balance of our business.
And you know there's not one answer at a given point in time, and certainly that can be influenced overtime as as things change and and and in our perspective and agencies perspective changes.
Excellent. Thank you all right good luck.
Thanks Julien.
Our next question comes from Shar Pourreza of Guggenheim Partners. Please go ahead.
Hey, good morning, guys.
Good morning.
Just a quick follow up on our Juliens question, it's really bent on sort of the mix, obviously, RPL and golf or posting very solid regulatory capital deployment, but the near development platform huge signing contracts and you guys sort of highlighted that the backlog is now larger than you.
Distinct portfolio. So curious on how we should be thinking about the growth trajectory of near as.
As we sort of thinking about a mix and me to 70, 30% Rebecca no longer relevant on what are you sort of target. There have you sort of Shannon as high as the additional growth opportunities with near what the rating agencies.
And how do you sort of stayed within a potential mix.
Obviously recycling capital into NEP as an option, but that has a lot of constraints limits slowing down there likely isn't an option arms. So really is the path of least resistance more regulated acquisition. So maybe if you could just drill down a little bit further into the prior question.
Thanks, Sharon and I certainly appreciate the premise of the question, which is we have terrific organic growth prospects at both the regulated utilities and and the competitive energy business.
Yeah, one of the things that we think is really important from the competitive side of the business is so long as we can find projects are attractive that have attractive returns.
We don't want our teams to be capital constrained because we believe that these are very strong value accretive project investment opportunities for our shareholders.
So we set them often and hope that they can find all of the best projects and that we can secure the wins and build those projects as you know a significant amount of the value creation of developing renewables projects and owning and operating them long term isn't that development process constructing them and beginning in putting.
Them into operations so.
So if we can continue to do that with value accretive projects and.
And to the extent that we want to manage balances of of the mix of business across the different companies we were.
We will take advantage of that capital recycling as one is the best ways. The most value accretive ways for Nextera energy shareholders.
To recycle capital either assistant to connect energy partners or potentially even the other third parties did.
Depending on on your market characteristics that at the time. So I think we've got a lot of levers a and again most importantly in to terrific position of win win of having a lot of places to place our capital and.
Obviously, we are pleased with raising our capital investment ranges for the four year period.
So just to just to follow up so that 70, 30% regulated.
Utility mix should we sort of just move away from that sort of target.
That said no discussed in the past.
Sure I think I think the key takeaway is there's not a specific number that is the right number and roll beef you know, we think about it in a variety of different ways over time and there are a variety of levers that we can utilize a to maintain a balance but were not prescriptive on a specific number that it needs to be.
Got it got it and then just on the battery side, you. Obviously added 594 megawatts, which includes a shrink all 325 for project can you sort of just maybe talk about the economics of storage, you're seeing especially with the four hours project just maybe from an LCR LCR, we've respected and with the.
Current backlog of storage.
Opportunities is four hours of storage server that p. capability or are you seeing some longer storage opportunities.
Well, let me take that last part first I don't know that Theres, a constrain or a peak capability of storage it there.
There are clearly a variety of storage solutions that could make sense in a given a new application.
What our energy resources team is largely focused on is providing solutions that our customers want to buy that solve our customers' needs.
And most recently a four hour storage on it has been very attractive and particularly interesting to our customers that we have sold quite an.
Sold quite a number of us for our storage projects from a return standpoint. These storage facilities are often sold together with with other renewables projects specifically other solar projects and we found the returns to be very attractive.
Comparable to the solar and wind project.
Project returns on an overall basis.
Yeah and sure. This is this is John Ketchum a of couple John is what I would I would add to that or one remember there are three ways that we really look to grow the storage business one is apparent over solar.
The second is our trifecta opportunities are we've advertised in the past, but we've been successful executing on combining storage with wind.
Dan was solar if we were able to get ever together standalone storage. Our DC, obviously that would help what is the largest one portfolio of <unk> in North America, and then the Standalone opportunities along the lines of what we're able to advertise today.
So when you combine those three potential opportunity sets, we have a significant growth opportunity.
The store would you see that in our 2021, our Capex plan that is over a billion dollars.
In storage and nobody has the existing fleet that we have and so the opportunity to peers storage at existing solar facilities existing wind facilities, and then look for stand alone opportunities I think puts us in a different class just based on the existing operating fleet that we have in energy.
Think about batteries going forward.
For our duration may make sense in certain markets to ours and others, but yes.
In two to three years, we could be move into solid state batteries, which could also provide longer duration.
You know more efficient.
I will reduce cost and then hydrogen certainly as a long term alternative we mentioned the 50 parlow projects.
Today in electricity.
In transportation and industrial applications. So we see hydrogen as really a long term solution, particularly if we end up in 100% de carbonized or any.
Energy policy by 2035 were hydrogen could really be the solution for the last 10% to 15% were gets very expensive to do have batteries much cheaper and more manageable purview of hydrogen.
Terrific. Thank you very much.
You.
Our next question comes from Michael Laugh at Us of Goldman Sachs. Please go ahead.
Hey, guys. Thanks for taking my questions.
Although renewable product it seems that after years of not really doing a lot that pretty much every regulated investor owned utility has its own renewable growth strategy in rate base.
Can you talk about the about the broader market has massive tailwinds, but can you talk about how that moves by the regulated diode use is impacting the competitive dynamic or people developing it, especially you all given your scale renewables on the non regulated side of the business, but how does that just kinda.
Flow through or impact the market dynamics.
Thanks, Michael I appreciate the question well, let me highlight first and at the risk of sounding a little to flip a we now have a backlog of over 15000 Gigawatts on and we do get a lot of questions about whether or not we're concerned about the competitive dynamic, but the team is doing pretty well in this dynamic and don't you know.
Keep in mind that we've got customer base, that's investor owned utilities, munis and co ops and see Eni customers.
The dynamics of wanting to build and rate base really or are you predominately focused on the investor owned utility side.
And there are opportunities even within investor owned utilities to compete effectively for the business and partner with them in many cases to create win win opportunities for them to get the best built projects for their customers own some of it in rate base, you know enable us to operate it in some cases enable us to power purchase agreement on and to enter into this powerful.
Disagreements and sell it to them over time, and then of course, we continue to have strong opportunities to sell you under under contract to the munis and co ops and you'll see an i. customers. So the outlook is very bright our team is doing a terrific job executing and we're looking forward to continuing to deliver against others growth opportunities.
Yeah, and just Michael picking up on on a couple of the comments over the remainder of the Rebecca made with I O U.S, let's just take a look at what happened with NIPSCO. This quarter. If you add on the 400 megawatts a win that we announced last year.
Announced last year, we're now at two Gigawatts with was just one customer one investor owned utilities in Indiana in NIPSCO. So we still see significant opportunities for investor owned utility renewable build out being able to bring low cost solutions that combine not only through.
Additional renewables will work with storage applications, and then obviously around hydrogen munis and co ops have always been.
A core part of the business and then see an eye as Rebecca mentioned at the end of the season iron market.
Is really accelerating and as he or she has really come into the fold.
A lot of the investor pressure that formally nontraditional buyers of renewables are facing from their investor base is really expanded the.
The opportunity set for us to sell many different products to those to those potential customers and one of the things that were seen in a de carbonized U.S. economy is not only the chance to saw renewables would also played or other strange lot of adjacent sees a lot of adjacent sees around.
Clean energy, where we are the natural fit to be a leader in some of those specific markets.
And.
Those are some of the things that we are continuing to look at and spending a lot of time as well as a senior team focusing on.
Got it and if you don't mind, a a follow up on the regulated side in the event sometime over the next couple of years, there are higher corporate income tax rates.
And we'll see all basically policy changes and its fluid.
How do you think about what that means for the customer given the cost of service what would obviously have to reflect the higher tax rate, but also the excess accumulated deferred federal income taxes that currently being responded by many utilities around the country.
Part of that would actually potentially I think reverse so it.
So it it would kind of put on the backs of the customer a decent bit of a rate increase in all vary by jurisdiction and by utility.
How does that impact the dynamic over a multiyear period, yes, it raises cash flow, but it could also raise the customer bill and what do you think the opportunity set is from for next year in terms of either offsetting that impact or even improving your competitive position at the.
Holding level relative to some of your peers.
Hey, Michael It's it's it's Jim Let me, let me take that because we've been doing a lot of thinking around obviously differ.
Different scenarios around what happens with taxes, depending on what happens with the federal auctions.
Remember.
What happened in 27.
17 around tax reform is is that the industry.
Very effectively I think came together and you know there were there were really two industries that were carved out for different treatment.
In the 2017 tax reform scenario, one was real estate and though what you speculate as to why real estate might have gotten singled out and the other was utility sector and utility sector. I think was very effective in weighing out how you know what the impacts to customers.
And to to balance sheets were around around tax reform.
I think in.
You know to the extent that there is any tax discussion next year, what's what's assumed for a minute. The the the Bod wins I think it's very you know I think its there were obviously.
Scenario planning around both both outcomes because I think you can't.
It really a handicap it one way or another right now.
You know the best.
So the best thinking that Weve had around this is that in the middle of a pandemic is probably not the time to have a tax increase period and.
And and so you know in terms of the timing around tax reform I'd be surprised if it was next year honestly, even even in a human antibody administration or you know who knows right I mean, that's.
You know that's that's a bit of speculation on my part, but the other thing I think we would be very effective as an industry being able to do is to lay out how any tax increase on utilities is really simply attach increase on all customers.
And not you know non corporations, but on everyday Americans.
I think that message will resonate in Washington, and so that's a message that we as an industry, we haven't been able to lay out yet obviously, because it's premature to do so but so you know I think oh.
A lot of the.
You know a lot of the anchored around tax reform, one way or another is.
Yes, I think a little premature right now and.
Obviously, we will see what happens with the election, but then.
You know if biden does win then there's going to be where does it stand up and.
In the list of policy.
Priorities for for the New administration, if there should be one.
Got it thank you Jim much appreciated.
Our next question comes from Michael Weinstein of Credit Suisse. Please go ahead.
Hi, guys.
Hey, a couple of questions on on the possibility of higher taxes on the other side of it wondering if that would potentially reduce your need to use tax equity.
For projects going forward and and.
And also you know I I understand is the largest player out there you guys don't really ever have a problem attracting tax equity investors, but can you just comment on the status of the tax equity market in general right now is it.
<unk>.
I guess, it's pretty tight for some of the smaller players is that something that could improve or under a Democratic administration, if tax rates go up and turn.
Tax credits are extended et cetera.
Sure let me start with with this year first from a tax equity.
From a tax equity market standpoint that was one of the things that we and everybody else in the industry and of course the tax equity.
Providers, we're thinking about it in the early stages. The pandemic yeah. We have secured all of our tax equity commitments for this year and have already started the dialogues with tax equity partners about our pipeline of projects for next year, and we feel confident about our ability to secure tax equity I. Do think is you go out a year here into 2021 in may.
In 2022, you know, it's certainly possible that the tax equity providers are gonna have limited more limited capacity and that may affect others further and further down the chain you a little bit smaller or a lot smaller than than we are and could be an issue as it relates to tax reform you know it's.
Not knowing the details of it and the kind of having more of the specifics it's hard to answer the question of whether or not the needle is moved enough to not need tax equity.
It also somewhat presumes that there's an extension of incentives because obviously as the incentives phase out like they are currently expected to.
There's a less need and you less need for tax equity over time, and that's actually one of the things that we've highlighted a in in terms of our future power purchase agreement prices is optimization around financings are seeking lower cost source of financing other than tax equity would be a positive. So I think there's pluses and minuses puts and takes.
Thanks, you know what I do feel very comfortable with is the outlook and demand for renewables is really strong and we've continued to realize attractive returns.
And we're excited about keeping a continuing capitalize on these opportunities.
Great Great and also on the wind Repowering. So is there what's the primary consideration that you're looking at to increase those numbers as you look at 21 22 and beyond.
Yeah. It is I think the key for us and they keep focus there is really the economics of the repowering projects and ensuring that they are attractive returns and meet the requirements.
From a from a tax perspective, and obviously also something that our customers are interested in on said Weve continue those dialogues over time and as we've gotten closer the timeframe in which we would do these repowering. Obviously you know the rubber starts to hit the road and we've been able to to start to secure some of those and have increased visibility to those incremental investment API.
Attunitys, obviously in that range that we discuss today.
All right, where they are what an extension of tax credits really allow you to add.
Larry to really increase that.
The opportunities anywhere it.
It's certainly possible that that could again, you know little bit subject to the details of what an extension of incentives looks like and and all the other factors that go into whether or not a project is attractive, but but absolutely.
One last question on for Q2, two two or is it improves the ability of residential solar to to sell into grid services and I'm. Just wondering if the value that value comes for Virtu to makes it changes your mind at all about residential solar is possible investment opportunity for sure.
You know weve looked at distributed generation investments, obviously, we have a very strong business I'm on the more of the commercial industrial side, we've looked at residential overtime, but one of the key factors for US is that you know were significant size company and we like to deploy a significant amount of capital and inevitably these.
They are much smaller investment opportunities, but we do.
But we do look at the business over over a long period of time and and and obviously, we'll enter it where we think it makes sense.
But were really focused on a kind of a little bit larger scale investment opportunities for the most part.
Thank you very much.
Thank you.
This concludes our question and answer session.
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