Good day, and welcome to the NextEra Energy and NextEra Energy Partners' First Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that, this event is being recorded.

I would now like to turn the conference over to Kristen Rose [ph] , Director of Investor Relations. Please go ahead. .

Thank you, Vishnavi. Good morning, everyone, and thank you for joining our first 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 Crews, Executive Vice President and Chief Financial Officer of NextEra Energy; Rebecca Kujawa, 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 and the comments made during this conference call in the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission.

Each of which can be found on our websites www.nexteraenergy.com and www.nexteraenergypartners.com. We do not undertake any duty to update any forward-looking statements. Today's presentation also includes references to non-GAAP financial measures.

You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. With that I will turn the call over to Kirk. .

acquiring assets from Energy Resources, growing organically and buying assets from other third parties.

With significant tailwinds from the IRA, Energy Resources' operating portfolio, combined with its backlog of projects and development expectations through 2026, total approximately 58 gigawatts, providing terrific visibility for NextEra Energy Partners and Energy Resources is continuing to grow in innovative ways, adding new technologies and clean energy assets to its portfolio, such as RNG and hydrogen.

In addition to acquiring assets from Energy Resources, NextEra Energy Partners also has the ability to repower its existing assets, with approximately 1,300 megawatts of potential wind repowerings, already identified, and many more opportunities expected to come, as well as potential to locate storage at its existing renewable assets, given the new stand-alone storage ITC.

Finally, there are significant acquisition opportunities with renewable portfolios, continuously being brought to market. NextEra Energy Partners also has numerous ways that can finance this growth and we believe, it can do so efficiently, given its ample liquidity and access to capital.

At the end of the first quarter, NextEra Energy Partners had $2.8 billion of liquidity and approximately $6 billion of interest rate swaps to manage future interest rate volatility on debt maturities through 2026.

With regard to convertible equity portfolio financing, we can fund equity buyouts by delivering common units or utilizing our at-the-market or ATM program or a combination of both and we believe we have ample liquidity to fund cash payments.

Importantly, we have flexibility and we expect to leverage this flexibility to manage future buyouts to select the most efficient option.

Using this flexibility, NextEra Energy Partners has now bought out 50% of the STX Midstream convertible equity portfolio financing through funds generated from a combination of the ATM program, where NextEra Energy Partners was able to be opportunistic and cash from a subsidiary's revolving credit facility.

With the buyouts of the 2018 convertible equity portfolio financing and 50% of the STX Midstream convertible equity portfolio financing complete, we estimate that the convertible equity portfolio financing structure has resulted in approximately 55% and 64% respectively or 16 million fewer units being issued, compared to raising capital with underwritten block equity, all for the benefit of unitholders.

For the balance of the year, files are now expected to be limited to the remaining 50% of the STX Midstream convertible equity [ph] portfolio financing and 15% of the net renewables to convertible equity portfolio financing with the equity portion of these buyouts requiring common units of approximately $280 million and $130 million respectively.

Over the next eight months, we have flexibility and time to opportunistically manage these buyouts in the most efficient way. For each buyout, we have the flexibility to deliver common units to the convertible equity portfolio financing investor, utilize the ATM program or some combination of the two.

Ultimately, we will select the most efficient option. In any event, the potential unit issuance from these buyouts are not expected to exceed an average of three days of total trading volume per quarter, which we expect will make them quite manageable.

Most importantly, NextEra Energy Partners' growth expectations through 2026 already factor in its financing plan, including convertible equity portfolio financing buyouts at current trading yields. Turning to distribution growth.

Yesterday the NextEra Energy Partners Board declared a quarterly distribution of $0.8425 per common unit or $3.37 per common unit on an annualized basis, up approximately 15% from a year earlier. Inclusive of this quarter, NextEra Energy Partners has grown its LP distribution per unit up nearly 350% since the IPO.

Today we are pleased to announce that NextEra Energy Partners has entered into an agreement with Energy Resources to acquire an approximately 690-megawatt portfolio of long-term contracted operating wind and solar projects and attractive cash available for distribution yield.

The high-quality portfolio has a cash available for distribution, weighted average remaining contract life of approximately 16 years, an average customer credit rating of BBB at S&P and Baa2 at Moody's Investors Service.

NextEra Energy Partners is expected to acquire the portfolio for approximately $708 million, subject to closing adjustments and is inclusive of the portfolio's existing project debt and interest rate swaps which are estimated to be approximately $142 million.

In addition to the approximately $708 million purchase price, NextEra Energy Partners is also expected to assume the portfolio's existing tax equity financing balance. The remaining purchase price is expected to be funded by a combination of new project finance debt and the corporate revolving credit facility.

The portfolio of assets is expected to contribute adjusted EBITDA of approximately $110 million to $130 million and cash available for distribution prior to the existing project debt service of approximately $62 million to $72 million, each on a five-year average annual run rate basis, beginning December 31 2023.

The transaction is expected to close in the second quarter of this year. Additional details on the portfolio of assets to be acquired by NextEnergy Partners can be found in the appendix of today's presentation. Next Energy Partners will remain opportunistic pursuing acquisitions in 2023.

And with the closing of the transaction announced today, NextEnergy Partners expects to be well positioned to meet its year-end 2023 adjusted EBITDA and cash available for distribution run rate expectations. Turning to the detailed results.

NextEra Energy Partners delivered first quarter adjusted EBITDA and cash available for distribution results in line with management's expectations. Adjusted EBITDA of $447 million increased by $35 million versus the prior year, driven primarily by favorable contributions from the approximately 1,200 net megawatts of new projects acquired in 2022.

Both adjusted EBITDA and cash available for distributions were negatively affected by lower resource from existing projects. Additionally, cash available from distribution was lower versus the prior year comparable period due to incremental debt service and timing of payable payments.

Looking forward in the second half of 2023, we expect strong double-digit growth in adjusted EBITDA and cash available for distribution to support NextEra Energy Partners, distribution per unit growth expectation range of 12% to 15% for the full year 2023. Additional details are shown on the accompanying slide.

NextEra Energy Partners continues to expect run rate contributions for adjusted EBITDA and cash available for distributions from its forecasted portfolio at December 31, 2023, to be in the ranges of $2.22 billion to $2.42 billion and $770 million to $860 million respectively.

As a reminder, year-end 2023 run rate projections reflect calendar year 2024 contribution from the forecasted portfolio at year-end 2023 and include the impact of IDR fees, which we treat as an operating expense. As always, our expectations are subject to our usual caveats including normal weather and operating conditions.

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 as being a reasonable range of expectations through at least 2026. We continue to remain comfortable with these growth expectations.

And in fact even at the current trade yield, Energy Resources portfolio alone is just one way NextEra Energy Partners believes it can meet its growth expectations through 2026. For 2023, we expect the annualized rate of the fourth quarter 2023 distribution that is payable in February 2024 to be in a range of $3.64 to $3.74 per common unit.

We also continue to expect to achieve our 2023 distribution growth of 12% to 15%. In summary, we continue to believe that both NextEra Energy and NextEra Energy Partners are well-positioned to continue delivering on their long-term growth prospects.

At FPL that means executing on smart capital investments to deliver on its customer value proposition of low bills, high reliability and outstanding customer service.

At Energy Resources that means leading the decarbonization of both the power sector and non-power sector and leveraging its competitive advantages to capitalize on low-cost renewals and new emerging technologies like green hydrogen.

In NextEra Eneregy Partners, we expect to capitalize on its unmatched growth visibility to further expand its best-in-class clean energy portfolio to provide long-term distribution growth for unit holders. With that, we are happy to address your questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Steve Fleishman with Wolfe Research. Please go ahead..

Yeah. Thank you. Good morning. So first a couple of questions on the NEP drop. So just -- should -- I think you're looking at the CAFD yield is the midpoint of the CAFD range over the $708 million, which I guess would be about 9.5%.

If you were to over time exclude the project debt and exclude the project debt from the base and exclude the payments of the project debt how does that compare to the 9.5% yield?.

Yeah. So good morning, Steve. Thank you for the question. So you're right the math you're doing is correct. So you're taking the -- on an unlevered basis, it is 9.5% CAFD yield. So the -- at the midpoint of the CAFD that we provided is a 9.5% CAFD yield.

And the reason for that Steve is because the debt that is included is going to be paid off in about three years. And so we felt like that was the appropriate way to present the CAFD yield. If you included the debt it would actually be a much higher CAFD yield. It would be 10.4% CAFD yields.

And so -- but as you're probably aware, we've typically provided that figure as an unlevered number..

Okay. Great. That's helpful. And then the amount of tax equity just to kind of round this out. .

Sure. Sure. Yeah the amount of tax equity is $165 million and that will be disclosed in the 10-Q that we'll be filing either later today or tomorrow. .

Okay. And Kirk, I think you said something about the growth through 2026 could just come from the I don't know if that was from the NEP portfolio or I guess maybe from the near portfolio.

Could you just clarify what you said there?.

Sure. Yeah. Yeah happy to do that Steve. So look as I shared in our prepared remarks we have Energy partners the growth visibility that NextEra Energy Partners has is never been better.

And when you think about the visibility that has been enhanced really with the passage of the IRA and just take through the three steps that we go through the three ways that NextEra Energy Partners can grow and Energy Resources and you look at the existing portfolio that exists today at Energy Resources and then you combine that with the current backlog which today is 20.4 gigawatts and then you combine that with the development expectations as we disclosed that's 58 gigawatts.

And then you also consider the organic growth opportunities that NextEra Energy Partners has. And the passage of the IRA has really unlocked optionality that exists in the portfolio at NextEra Energy Partners. And so we now have tremendous opportunity to grow organically through re-powerings.

And as we said we're pursuing 1.3 gigawatts of repowerings now. And we also have the ability to look at co-locating storage within the footprint as well. And then obviously as you see there's just a tremendous number of renewable portfolios coming to the market.

And NextEra Energy Partners has had a history of being able to execute on those opportunities those third-party opportunities because of many of the advantages that we have in terms of being able to operate and cost of capital advantages. So NextEra Energy Partners has tremendous growth visibilities.

But with respect to your question the statement we made is when you're looking -- when we look at the ability to achieve the 12% to 15% LP distribution growth we believe we can achieve that just looking at Energy Resources portfolio alone.

And that space at the current trading yield as well and includes our current financing plan that assumes the buyout of all the convertible equity portfolio financing as well. .

Okay. That's helpful. I'm sure others will have questions on that topic. But one other thing I guess just on the overall renewable development environment. Maybe Rebecca you could just talk to what the -- we've now seen I think some stabilization and a lot of the pressures last year, but we've also seen lower gas prices.

Just when you look at the overall environment, could you give us some kind of color on what you're seeing and conviction on hitting the development targets that you have out there or maybe hopefully better? Thanks..

Steve, good morning. So we continue to see a very strong renewables development environment.

And I think the 2 gigawatts that we added to the backlog is a great sign of that, and it's a mix of wind solar and battery storage in that portfolio and the conversations that we continue to have both with customers in the power sector as well as customers outside of the power sector remain quite robust.

And if anything I'm concerned about whether or not we have -- we and everybody else have enough renewables in order to support the demand in short. And of course longer-term, we are planning accordingly to make sure that we have all the projects available for our customers.

I'd say if there is one thing that I've seen change over the last year in our discussions with our customers, it's really an increased emphasis on partners that have the ability to execute.

It's not lost on anybody inside the power sector or outside the power sector that the demand for renewables is really strong and there are challenges to building projects successfully and ultimately operating them long-term for the benefit of customers. And our conversations with customers now reflect that I think appropriately.

And we've had some terrific engagements with customers across the board about making sure that we are building what they need for the long-term and their needs are quite significant.

The other thing I would highlight that's been very significant development over the last year and really in the last nine months since the passage of the Inflation Reduction Act is really around hydrogen. And I know we've talked about it lot. And today we wanted to give you some additional color on what we're seeing.

And I think that $20 billion of pipeline projects with partners and customers that we're now working on. And honestly that's growing by day and requires just for that $20 billion worth of projects over 15 gigawatts of new renewables to be built to support them.

This is unlike any time that we've seen in our industry and of course in our customer -- in our company's history of being able to have significant visibility to tremendous growth and tremendous innovation across the board. We couldn't be more excited about with that..

Okay. Thank you..

Thanks, Steve..

The next question comes from Julien Dumoulin-Smith with Bank of America. Please go ahead..

Hi. Good morning, team. Thank you for the time here. Just first following up with the backlog. Just can you elaborate a little bit on what you're seeing here? It seems like you're adding beyond 2026.

How are you thinking about potential for acceleration here off of the numbers that you've articulated thus far in the four-year period? And then related how much of that is hydrogen in total if you can kind of give us at least some initial disclosure on that front. .

Thanks Julien. It's Rebecca. I'll take that. So we continue to feel and I didn't directly answer Steve's question, so I appreciate you giving me another shot at it. I feel very good about our development expectations across the board.

Obviously, we're now -- we're at the low end of the range for 2023 and 2024 and continue to feel very well positioned to meet the longer-term expectations across the four-year period. And with the comments I just made and Kirk made on the call, we couldn't be more excited about what's beyond the 2026 time frame.

I do think the hydrogen opportunity is probably more -- not probably, it is definitively more past 2026 than in 2026 for a lot of practical reasons, not the least of which is needing clarity on the treasury guidance, which of course affects the customer discussions that we're having today.

It also affects the way manufacturers are committing to their ramp-up of their capabilities to produce electrolyzers in particular. And, of course, as that clarity comes to fruition and hopefully in particular we realize the annual matching guidance for the hydrogen production tax credit all of that will start to accelerate.

And then on top of that, we continue to see tremendous innovation across the clean tech space. Just over the last two years I was looking at the numbers from Bloomberg New Energy Finance and its $100 billion invested in clean tech across the venture capital space.

So just tremendously exciting innovations that we're seeing and I think will really make a huge difference in the latter part of this decade..

Excellent. And just quickly going back to NEP quickly. How do you think about using ATM to buy out the remaining CPIF [ph] they come due? Further should we assume issuing new CPIF on a rolling basis as credit facilities are refinanced right again obviously right now this is temporary financing in some respects.

And then ultimately how do you think about the IDR potential holidays and other tools in the current environment?.

All right. So Julien I'll try to work off all those questions and the team will make sure I get to them all. So the first question was around the use of the ATM. So look as we shared in the prepared remarks, we have the flexibility to be opportunistic to use -- to deliver to the investor either directly units or to use the ATM on the buyouts.

And so you should expect us to use that flexibility and to be opportunistic around those options. And so if we go to the ATM, there's some value to go into the ATM at times to deliver. And there's also -- there will be times where it's just beneficial to deliver the units. So we have both those tools and we can use them.

In terms of using unit CPIF in the future. As we share today the CPIF have provided benefits for unitholders. And when you compare it to the alternative, which is doing an underwritten block equity deal when you compare those two as we presented on the slide, it has saved unitholders considerably more than 16 million units.

And when you compare those two, I think that slide is -- does a really nice job laying out the benefits. And so as we've always done, we will look at what's the best financing option when it's time to finance an acquisition. And we look at all the different financing tools that we have.

And as we shared today when we build our financing plan and when we think about delivering on our LP distribution growth, we build a financing plan into those financing expectations and that includes the conversion of the outstanding units.

And certainly, if we're going to use a new CEPF, we will build that into the financing plan and what that means in terms of being able to continue to deliver on the expectations. And I believe your third question was around what are the other -- is there going to be something around an IDR holiday or something like that.

Look, as I shared in responding to Steve's comment, we have tremendous growth opportunities and in tremendous growth visibility at NextEra Energy Partners. We have a lot of flexibility in terms of being able to finance that growth.

The acquisition that we announced today I think is a really strong indication of how we can acquire a very attractive set of assets for unitholders. And so we feel very good about being able to acquire assets and support growth. And so we're focused on being able to tap into that growth visibility and deliver to unitholders that way..

Julien this is John. Let me just add on a little bit about the ATM and the ability to issue shares directly to CEPF investors. Our first preference I think would be to issue shares directly to CEPF investors.

This was a situation where we were able to use the ATM for the first 50% of the STX buyout very opportunistically and we could do it basically at a zero discount and it made a lot of sense to be able to do it that way. It's great to have the flexibility when you have opportunities like that that are presented by the ATM to be able to execute on them.

So it's a nice tool to have in the toolkit. But again, we have ultimate flexibility in terms of -- if opportunities present themselves that are very attractive under the ATM, we can explore those opportunities. But again, we always have the chance to just give the shares directly to the CEPF holder.

We're always going to do whatever is most efficient for unitholders. We had a slide in the deck today that I think demonstrates the value of the CEPF, the 54% savings on the BlackRock conversion back in 2018, roughly the 65% 66% savings in the 50% STX buyout that we've accomplished so far today.

But at NEP, right now we are very focused on execution for the things that Kirk has already gone through. We've got great growth visibility, attractive acquisition today at a 9.5% CAFD yield. And we have a lot of ways to finance the business going forward. There's never been more capital chasing renewables than there is today.

There are billions and billions and billions of dollars sitting on the sidelines, waiting to find a home around renewable assets. So I feel very good about the way NEP is positioned. NEP is also very important to NEE. It's a great way to recycle capital that provides tax optimization benefits.

We continue to get distributions from assets that we drop into NEP. So the relationship between the two companies is very strong and has been very successful for both. We've got a lot of levers, NEP is very well positioned..

Thank you, guys..

The next question comes from Shar Pourreza with Guggenheim Partners. Please go ahead..

Hey, guys. Good morning. Just real quick on rounding out on NEP. So I guess the latest portfolio acquisition, the midpoint CAFD yield, 9.5%. It's a bit higher than some of the prior ones. I guess, do you still see attractive economics on new acquisitions? Is it enough to balance out the dilution from the legacy CEPF conversions.

So I guess I'm kind of asking a question on accretive economics versus the cost of capital there?.

Shar, I think the answer very simply is, yes. We think there are tremendously attractive acquisitions for NEP. And as John just highlighted, Energy Resources finds itself in a position of wanting to recycle capital. So there's a lot of synergy in that.

And I think we will always continue to focus on current market conditions when we're thinking about divestitures from a year perspective and acquisitions from a net perspective.

And as Kirk highlighted and John emphasized, we factor all of that in as we think about the expectations for NEP going forward and remain very comfortable with NEP's ability to grow the 12% to 15% distributions per unit through 2026 as we reiterated.

And having a tremendous amount of both financing flexibility and visibility to that growth through all the avenues that Kirk highlighted..

Got it. And then just on NextEra in general in terms of sort of the inputs we've seen, you guys have announced several earnings accretive data points since last year, right? You've got RNG acquisition hydrogen, organic transmission growth and some incremental visibility on FPL solar deployment.

Do any of these investments kind of displace the CapEx, you guys embedded in plan at the Analyst Day? Is there any sort of headwinds we should be thinking about? And ultimately, do you anticipate this to start being accretive to your plan from let's say 2025 to 2026 time frame especially, as we're thinking about the six to eight..

So Shar, this is Kirk. Look, we are always – as you know capital is fungible. We're always looking at what all kinds of investment opportunities we have. We lay out – when we laid out the plan at the investor conference, that was certainly pre-IRA. The world has changed a little bit as a result of that.

But fundamentally, we feel very good about executing and delivering on the adjusted EPS expectations that we laid out. We obviously are before – at the time of the Investor Day, hydrogen wasn't an economic product. Green hydrogen was not an economic product. It is today because of the IRA and so we're running hard at it.

But as Rebecca also outlined, the reality is that is probably a post-2026 realization in terms of what – how it's going to translate into benefits. So there's a lot that we're running after and a lot we're looking at.

But most of this is things that we were evaluating and thinking about at the time of the investor conference or things that are going to really come to fruition post-2026 and really either part of the plans post plans but all things that are supporting ultimately the things that we laid out and feel comfortable about in terms of delivering adjusted EPS for 2026.

.

Terrific. Thank you guys. Appreciate it..

The next question comes from Jeremy Tonet with JPMorgan. Please go ahead..

Hi, good morning..

Hi, good morning..

Just wanted to touch base a little bit more on supply chain if you could. If you might be able to provide a bit more commentary on how flow panels stand today versus a few years back and also as well as bringing the supply chain onshore.

Just wondering if you could provide a little bit more color on how what time line you see that finalizing?.

Sure. So, as we shared in our prepared remarks I mean we've spent a lot of time thinking about supply chain working with suppliers. It has been a very comprehensive effort. It's been looking both globally and then obviously here domestically as well. Look there's lots of things to think through domestically. We're continuing to work through that as well.

It is about trying to evaluate where in the supply chain there might be opportunities in terms of how to participate. But the way to think about that Jeremy is our view has always been we could be supportive through an anchor order, we could help provide support through that mechanism. That continues to be our preferred approach.

And we're working with various potential partners in discussions that way and that's continued those discussions continue to occur..

Got it.

And just flow panels today, just wondering how that stacks up versus where it was a few years ago?.

Yes. This is John. So, the flow of panels is going very well. As Kirk said we've been active with Customs Border Patrol and panels are now flowing through the ports, really don’t see any material delays to any of our projects, so we feel good about that.

And as Kirk said I mean we're in active -- the great thing about a company like NextEra with the capital spend that we have and the sophistication that we have around running a global supply chain, we have a lot of options -- a lot of options, a diversified set of options globally and we're exercising those options and we're exploring new opportunities as well.

Obviously, there's a lot of interest in working directly with NextEra given the amount of buying power that we have.

We will always be the preferred customer for each of these -- just given the scale at which we purchase and that allows us to drive attractive arrangements, which we think will really help make the business even more competitive going forward.

And so, we have launched a number of those efforts, both domestically and looking at some other diversification opportunities globally that will even better position the business, than it's ever been before, going forward to really capitalize on the competitive advantage we have in terms of the buying power around the supply chain..

Got it. That’s helpful. I’ll leave it there. Thanks..

The next question comes from Durgesh Chopra with Evercore ISI. Please go ahead..

Hey good morning team. Thanks for taking my question. All my other questions have been asked and answered. Just quickly, I wanted to follow up on the 10-year pipeline.

Maybe, can you just remind us, what are sort of the key milestones for us to watch from here on from a regulatory standpoint for you to get approvals et cetera, et cetera? And then, just second, would this be the spending here you mentioned post-2025.

Would some of this spending investment be accretive to the current plan you have through 2026? Thank you..

So, it's Armando. The way to think about it is for the rest of the time under the settlement agreement that we have at FPL, so through the end of 2025, what you see in the 10-year site plan is what we have in our plan, right? There's no additional amounts that will be added to that CapEx. So it's really about '26 moving forward.

In terms of approval at the Public Service Commission, you'll see that, as we provide the information for our next rate case, most of that -- well, all of that -- all of the big generation in there is solar and there's also some storage in there.

So, there's no additional CapEx through 2025 and most of that, you will see when we update our expectations at some point beyond '26. .

Got it. So the approval -- Armando, thank you for that, I appreciate it.

The approval of this plan comes through to the rate case process?.

While the approval comes through either the rate case process, because we've got CapEx that we've invested just as general infrastructure or it will come through one of the two solar programs that we have today. So our Sombra solar program and also our SolarTogether solar program.

The Sombra and SolarTogether solar program as long as we stick within the guidelines that we reached in the last settlement, those will get approved on an annual basis..

Got it. Thanks, so much. Much appreciated. Thank you, guys..

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