Q2 2019 Earnings Call
<unk>, including desert sunlight to 50, which is contracted with southern California Edison, We're not distributed as a result of events of default under the financings that arose due to p. genies bankruptcy filing.
PGT continues to make payments under all of our contracts for post petition energy deliveries and we continue to evaluate all options to protect our interests.
Nextera energy partners expects to achieve its 2019 growth objectives, assuming no cash is available from PGT related projects.
Excluding all contributions from the PGT related projects Nextera Energy partners continues to expect a year end 2019 run rate for Kathy a $410 million to $480 million, reflecting the calendar year 2020 expectations for the forecasted portfolio at the end of 2019.
Year end 2019 run rate cap, the expectations would be $485 million to $555 million, assuming favorable resolution of the current events of default for our PGT related assets.
Year end 2019 run rate adjusted EBITDA expectations, which assume full contributions from projects related to PGT as revenue is expected to continue to be recognized remain unchanged at $1.2 billion to $1.375 billion.
From a base of Nextera energy partners fourth quarter 2018 distribution per common unit at an annualized rate of $1.86 per common unit.
We continue to see 12% to 15% per year growth in LP distributions as being a reasonable range of expectations through at least 2024 subject to our usual caveats.
As we previously discussed following the closing of the recent acquisition Nextera Energy partners also expects to grow the 2019 distribution at 15%, resulting in an annualized rate of the fourth quarter 2019 distribution that is payable in February 2020 to be $2.14 per common unit.
Additionally, as a result of the Nextera energy partners significant financing flexibility aside from any modest issuances under the at the market program or issuances upon conversion of Nextera energy partners convertible Securities. We continue to expect the Nextera energy partners will not need to sell common equity until 2021 at the earliest.
As we highlighted last month, the combination of Nextera energy partners successful completion of its identified growth opportunities or organic growth investments, which include the previously announced expansion at our Texas pipelines as well as the wind Repowering started discussed earlier.
Combined with the successful resolution of the PGT bankruptcy and associated future release of cash flow from the PGT related assets.
Would result in approximately 22% uplift in the run rate cash available for distribution from year end 2019 levels.
This is roughly one and a half years of current Caf de and distributions per unit growth for Nextera energy partners, highlighting the significant embedded upside that exists within the portfolio.
We continue to believe that Nextera energy partners offers a very attractive investor value proposition.
Nextera energy partners maintains clear visibility into its future growth prospects with continued flexibility to grow in three ways.
Through organic growth third party acquisitions or through acquisitions from Nextera energy resources.
With a substantial growth in fourq at the substantial forecasted growth in the renewable sector Nextera energy partners is expected to benefit from a strong growth backdrop for years to come.
Additionally, the financing transactions that closed this quarter demonstrate nextera energy partners continued ability to access low cost financing to support its growth.
With significant financing flexibility and attractive underlying portfolio, a favorable tax position and enhanced governance rights Nextera energy partners is well positioned to meet its growth objectives, and we remain focused on continuing to create value for LP unit holders going forward.
In summary, as we detailed last month at the Investor Conference. We continue to believe that both Nextera energy and an extra 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.
This concludes our prepared remarks and with that we will open up the line for questions.
Okay.
Are you done with the.
Does not seem very likely at all that then any contracts will be modified in anyway impeach any does not emerge Biden next a next summer.
Are there other approaches that you could take to potentially free up the cash I mean overtime that cash balance will be pretty significant at the projects are there sort of other options on the table beyond simply the you know the focus on ensuring people need does successfully exit.
You know well continue to talk with all of the the critical parties, including the lenders as well as the department of energy, which as you know guarantees on a couple of the projects that with some of the contracts that we have with piccinini, but as you know and I think we talked about after our December quarter call in January on after a period of time some of that cash flow starts to sweep that service. So while there is a balance of cash you know at some point the starts to get swept into what we're really focused on is really saying the longer term run rate cash flow, which is what our comments were focused on today I will certainly pursue all avenues, but really the best way to free it up for the long term is to have the resolution to the bankruptcy process.
Understood. Thank you very much.
Thank you Stephen.
We will now take our next question from Steve Fleishman of Wolfe Research. Please go ahead.
Yeah, Hey, good morning.
So.
First question just on the comments regarding some of the second half activities, you might do which sounds like you're maybe got some cushion in this year.
So I know I think you mentioned liability management I assume that's just.
You know refinancings are you where you have to expense upon premium.
For this year, but could you explain the second one the wind repowering.
A little more and what you're doing there and the impact in the second half.
Yeah, when we probably should be certain it would be similar to the other type of restructuring you just mentioned in terms of financing taking advantage of a pre paying today to you had the longer term lower interest rates over the long term, but specific okay. Excuse me some of the Repowering. Some of those have financings in place whether there are tax equity structures or project finance that over time as we've executed the Repowering program. Some of those we need to terminate early some of them. It's just simply you essentially making a make whole of whatever the interim interest rate wise and whatever the prevailing interest rates are sometimes there are some penalties and make wholes for peak on the tax equity structures to makes it <unk> tax equity partners coal Ah so to the extent, we have to accelerate those and realize and there may be a negative net income impact, which we're expecting for a couple of the financings between any p. and energy resources in the latter part of this year, but again from a net present value.
Standpoint for investors. These are home runs because they enable a attractive repowering opportunities and at the same time, you know entering into long term financing at these really really low interest rate environment.
Okay.
Good and then just a quick question on MVP I think since your analyst day. The Supreme Court filings were made on a CP in the solicitor General filing there was some comments on the land swap.
Issue in there.
Could you just give some color on that and how.
How you looked at those comments.
Sure as we talked about in the prepared remarks. There. We continue to believe that NBP is progressing fine were going to resume construction activities and try to be a 90% complete by year end and what we commented on is the in service date of in 2020, and there's a number of past, including down the Supreme Court, a path as well as the land exchange in certain other options that we have and we're going to continue pursuing all those different path I don't want to comment specifically on the solicitor General comments I'm. Obviously this is a is going to be a process. We have some certain views on on on whether or not we've got opportunities to go down the Atlantic change path, but I don't want to make any specific comments.
Okay, and then one last quick one just the any p. convert which which convert was.
This is the preferred that was issued in 2017, and we had the right [laughter] excuse me to convert a third of that so long as it met the minimum price and volume thresholds, which we achieved you know a couple of weeks ago, and we did convert them into equity another third of the of the preferred of preferred security will be available for conversion later this year.
Okay. Thank you very much.
We will now take our next question from Julien Dumoulin Smith with Bank of America Merrill Lynch. Please go ahead.
Yes.
Well now take her next question from sharper Red So with <unk> Guggenheim Partners. Please go ahead.
Hey come on you guys.
Good morning.
Just to run golf power, just maybe quick update on sort of how the accretion gidus tracking and how the integration is going but more importantly broke it seems like you guys are looking a file a G.R.C. sooner than later, despite you know having material amount of efficiency is on the fuel and non fuel side that should theoretically be able to subsidize spending opportunities for at least a few years.
So you know what's the thought process. There is it solely because you guys are looking at the merger are you looking to true up rates closer to F.D.L., what's driving the the the the Ray case to come sooner than you know previously planned.
Okay, I'll take them in in successive excessive water as as far as how integration efforts are going they're going very well and Marlene had a you know a full set of comments about that last month and things have continued to <expletive> lasswell and and you know it and now intervening months. Since then we've all the cost opportunities cost saving initiatives that we thought were there are certainly there and we're starting to execute on it as we talked about in the prepared remarks were already starting to implement the capital investment program, including the completion at the plant I Smith up <unk> combustion turban upgrades that we just completed a in the period. So we're very optimistic and excited about it we have had a couple of pennies accretion on a net basis between the operating results that you saw golf power as well as the offsetting interest expense, which as I reminded everybody today showing up in the corporate and other segment, but is is essentially in line with with our expectations and we continue to remain confident about the accretion target.
As we reiterated today 15 cents and 20 cents next year and 2021, respectively.
With respect to a general rate case, as we highlighted last month and we talked about again today, our best estimate based on everything that we see including the ability to take out costing the business as well as invest significant amounts of capital in golf power to realize all of these <unk> customer benefits that we've talked about would result in a rape case filing in 2021 for new rates 2022.
Got it and then just is there anything you can disclose as far as how we should think about the true up of of the of the cap structure and and and the bands.
Not at this point, we are such at the early stages of all of those types of thought process again, you know at first reason why we started going down this path and thinking about the operational benefits and certainly the financial benefits of leveraging the scale between the two entities, but there's a lot of work to be done to think through what this would look like too early early stages.
Got it and then just lost me on Senate Bill 796, right with the proposed decision as you kind of highlighted in your prepared remarks sometime this year. When do you sort of expect to follow your plan in the house and and sort of how should we think about this in the context of golf versus you know a service tours, where do you sort of see more of that capital being deployed.
In terms of the process. The first next step before we can file any plan is for the rule to actually be proposed at the Florida Public Service Commission goes through the rule development process and then once there is a final rule then we would file a plan and evaluate the plan and then ultimately start investing and and seeking recovery of those investments.
But the plan that we talked about last month, both for Florida power and light company and golf power anticipated, making some of these investments in both Undergrounding and storm hardening and is included in our capital investment forecast plans for both companies going forward and the and the really the way you should be thinking about this is this is a increases our visibility from to a multi decade investment opportunity.
Got it extends the runway okay. Thanks, so much Rebecca.
Thank you.
[noise] connected question from Michael.
Goldman Sachs.
Hey, guys can you talk a little bit about wind and solar developed in the U.S. in terms of just where you're seeing changes geographically, meaning across the country in the opportunity set for wind versus solar versus where your historical development occurred.
Michael as his costs have come down I would say the biggest change and then a dynamic dynamic is that.
For when you've seen an expansion of where it's very economic out from the middle part of the U.S. you know further both to the eastern to the west and for solar and expansion of where it's economic from the south moving northwards, but that's a very general broad trend overall, what we've seen is very positive reception from our customers.
About what is truly the lowest cost generation opportunity for them in in many other jurisdictions in some cases, it's going to be when in some cases, it's going to be solar.
But as you can see from our backlog, we've got enormous opportunities from both wind and solar and the way that we run our energy resources development business is make sure that we have offerings for whatever our customer ultimately wants to buy.
[noise] got an <unk> and there's been some discussion, especially among some of the big kind of largely capitalized European integrated oil companies about they're entering into the u. or or gaining a bigger presence in the U.S. renewables marketplace can you talk about how you think that impacts the competitive dynamic going forward for you guys.
Yeah. They you know competitors have come in and out of this market. Many times over our you know multi decade exposure to developing wind and and now solar a generation resources and if you look at history of of market penetration P.P.A.'s, both for wind and solar you'll see that there are a couple of big players and then a ton of players that get 100 200 megawatts any given year.
If you talk to our development organization they'll see people.
A lot of what our head adult in the calls do you guys, a neighbor's car, having an opportunity or an edge in a particular area know when a contract or two here or there you know this business has always been competitive and where we focused our efforts is ensuring that we maintain or further enhance our competitive advantages. That's certainly starts with scale. It expands to our capital advantages. The fact that when we buy from our suppliers were often they're top cut their top customer and if not the top certainly in the top 10, which gives us some advantages.
And as you guys well no all of our investments in enhanced digital tape capabilities, which enable us to identify sites better build <unk> more efficiently and then over a long period of time operate them more efficiently. So so long as we can maintain competitive advantages will maintain our ability to to win our fair share of the market as it continues to grow in a rapid pace.
<unk>. Thank you guys much appreciated.
Thank you Michael.
We will now take her next question from Julia.
Smith.
America. Please go ahead.
Hey can you hear me now.
We can hear you Julian.
Alright, great. Let's do this again, so perhaps just firstly, let me start with a little more strategic question here with respect to some of their peers in the state there seems to be some headlines with respect to decisions for privatization.
I'm just curious if there's any statement or thought process on that front given some of the prior come if you've moved around look good looking at municipal decisions going private.
Okay is is this are you talking about the deregulation initiative.
A G.A. I suppose.
[laughter] don't where we don't really do you know if there's.
It's.
You know obviously.
We think we could bring a lot to the table with any with you know with any.
Utility in Florida, We think obviously, we run the best utility in the World. We thinking so we think we would bring a lot to the customers of.
Those utilities and for it would be interested and and and sewing and obviously, we serve very close to that are you know very close to j.'s or we've had a terrific relationship with j. over a long period of time, we <unk>.
Partners with them and.
So you know we're going to follow it closely and.
And try to be as constructive as possible.
Mm.
Okay got it excellent if I can go back to one of the last question just be like exceptionally clear about this.
I I know that you you added a line here on your slides with respect to not being disappointed to be at the top end of the 60%, which would if the cheese would result in adjusted U.P.S. of 832 versus the 19 range of eight 850, just want to be exceptionally clear on what you're saying there.
Yeah. So we continue to focus on from a long term standpoint, Oh grilling are adjusted D.P.S.. The six day percent and of course, adding the the accretion from the Florida acquisitions in those rebel relevant years that we've called out.
You know every year there is variability in operations in performance and so we provide a range or round that given a lot of different factors. We commented also that of course, if you look at the numbers year to date, we have a gross at that very much exceeds the eight per cent run rate, which were were thrilled about and reflect strengthen each part of our business, which obviously positions as well to continue executing on our long term growth targets.
[noise] as opportunities present themselves as we comment on today, if you looked back a year ago, we would not have forecasted that interest rates would be at this environment.
And there are certain things that we can take advantage of that create shareholder value for the long term and take advantage of the low interest rate environment.
And they're also some of the investments that we plan to make offer repowering that create certain you know one time negative events in 2019 in order to enable those repowering that create substantial shareholder value that will certainly way on on the growth rate relative to the first half in the second half.
So we're we're targeting the 60% growth rate longterm as you well know 8% off the last year would result in $8.32 per share.
Excellent. Thank you guys.
Yeah.
This is Jim important number is 10 75 and 2022.
Absolutely.
[laughter].
Thank you.
We will now take our next question from Michael Weinstein with Credit Suisse. Please go ahead.
Hi, This my monthly on behalf of Michael Weinstein. Some question on the Undergrounding legislation.
And ER.
How do you expect a d. underground legislation impacting the utility rate base growth in the near and long term.
And.
How does that play and.
As in relation to the 6% to 8% growth rate.
As we talked about last month at the Investor Conference. We were certainly very pleased with the legislation because I think it reflects at least as much as anything else.
That critical stakeholders across Florida, I appreciate the value of the resilience and a fast restoration process in Florida, because when we inevitably have hurricane or significant storm activity. We certainly were aware at the legislation and we talked about at our Investor Conference last month and incorporated continuing to make investments in storm hardening and storm Undergrounding over a long period of time in those capital plans that we laid out last month. So really I think the focus from a from investor standpoint should really take some incremental confidence in that long term program long term visibility again, multi multi decade visibility that we have to investing in the grid to improve further improved the resilience and hardening to to weather storms effectively.
Got that and.
Just pivoting to renewables could you just remind us again.
Yeah. So if you would be willing to explore the residential rooftop solar market in the near future or any thoughts on you know.
Or either the residential or the distributor generation commercial business.
As you would expect from an energy resources standpoint, we look at all sorts of belt development opportunities, particularly and in the renewable sector.
Cross any sort of the customer base and we do have the distributed generation business. They predominantly focused on a c. and I investment opportunities, but they occasionally look at residential it we just probably don't talk about as much as others might because we're deploying $50 billion to $55 billion of capital over the next four years and so if you think about DG opportunities. It's it's a little bit smaller than some of the scale. We may talk about more frequently.
Don't don't and that's a great point, the Rebecca just made.
We are the largest.
The anti distributed develop a generation developer in the country, we never talk about it it's not super giant capital for us because of the context of the 55 billion but.
You know we're we're we're the biggest in the country in that business.
Alright, thanks for that on a string of the question.
Again, if you have a question. Please press Star then one.
We will take our next question from Colin Rusch. Please with Oppenheimer. Please go ahead.
Thanks, so much with fuse launch of a campaign to extend the ITC could you guys talk a little bit about your expectations for prospects on that any sort of behavior changes that you're seeing from the supply chain at this point.
The Oh, you're talking about the investment tax credit.
Correct, yes.
Yeah, if you think I'm, sorry, I thought perhaps your talk about something else and so yes from that investment tax credit and production tax credit standpoint, you know we have benefited from the last couple of years of some of them like most significant visibility to to long term incentives as the industry has ever had on and we can remain focused on executing against those opportunities with the ITC being at full value assuming you execute on a on an effective safe Harbor strategy through 2023, you know we've got a lot of visibility to execute against our development plans as you know when the tax credits were last extended and implemented the phase down. That's now currently in place we were very supportive of that as an industry and our company specifically because we believe the things that we've talked to you about over time, including everything we laid out last month investor conference that without incentives or with ITC being down to 10.
Percent.
You have wind and solar generation being the most effective it from a cost effective standpoint generation in the U.S. compared to coal and nuclear facilities that are just have their operating costs. So we're excited about our development program, if something changed in the incentives more favorably that would potentially create additional tailwind for us and the overall it grows at the industry, but we're focused on execution.
Okay, Great and then just shifting gears back to the distributed generation development program, Yeah, Theres actually been an awful lot of maturation of Microgrid technology and the last you know call. It 12 to 24 months and I'm curious how.
You know how aggressive do you think you might move into deploying some of those technologies is rishi battery costs really get down to a level, where they're compelling, but then the integration technologies getting mature enough to actually handle the functionality you know how do you see that playing out over that distributors.
Well as Jim highlighted and I talked about as well from a from a development standpoint, we'll continue to pursue opportunities and we'll stay involved in those markets in order to make sure that we're aware of the trends and where things are more but becoming more cost effective and there may be opportunities for us in the future to invest more heavily but at this stage, it's pretty early and the investment opportunity is relatively small compared to some of the other things that we're focused on and we talk about more frequently.
Correct, yes.
This this this is John I mean, one thing to add to that is.
As part of our DG efforts, we certainly do focus on behind the meter and demand response solutions. It's a fully integrated solution that we're bringing do or to our customers.
There are no further questions at this time and this concludes the conference. Thank you for attending today's presentation.
Yes.