Good morning, and welcome to the NextEra Energy and NextEra Energy Partners' Q2 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, this event is being recorded.

I would now like to turn the conference over to Kristin Rose, Director of Investor Relations. Please go ahead..

Thank you, Anthony. Good morning, everyone, and thank you for joining our second quarter 2023 combined earnings conference call for NextEra Energy and NextEra Energy Partners.

With me this morning are John Ketchum, Chairman President and Chief Executive Officer of NextEra Energy; Kirk 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 the conference call in the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission.

Each of which can be found on the websites www.nexteraenergy.com and www.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..

Our two businesses are deploying capital and renewables and transmission for the benefit of customers providing visible growth opportunities for shareholders. At FPL, we're executing on our well-established capital investment plan, which allows us to extend our customer value proposition.

Florida’s strong population growth drives smart capital investment and running the business efficiently allows us to manage costs for the benefit of both customers and shareholders. FPL comprises more than two-thirds of NextEra Energy's business and provides a significant amount of visibility into capital deployment and earnings growth.

At Energy Resources, we're leveraging our more than 20 years of experience, competitive advantages to grow our market share and add to our now roughly 20 gigawatts backlog, providing terrific growth visibility through 2026.

We believe these competitive advantages will enable Energy Resources to serve power, commercial and industrial, and eventually hydrogen customers.

With an opportunity set of $20 billion of capital investment, requiring more than 15 gigawatts of new renewables, Energy Resources is well-positioned to be green hydrogen partner of choice, potentially creating new opportunities toward the end of the decade.

At NextEra Energy Partners we are executing on our plans to sell our natural gas pipelines and simplify the business. We continue to add to our renewables and storage portfolio, which now stands at over 10,000 megawatts.

With the sale of the Texas Natural Gas Pipeline portfolio expected to be completed by the end of the year, NextEra Energy Partners remains on track to transition to a 100% pure play renewables company, while continuing to deliver LP distribution per unit growth for unit holders. With that, we're happy to answer your questions. .

[Operator Instructions] Our first question will come from Steve Fleishman with Wolfe Res. You may now go ahead. .

Yeah, hey good morning, thanks. Hope you're all well. So a couple – first, just on the quarter. The customer supply trading business continues to do well and you mentioned higher margins. I think Constellation has been talking about that too.

Could you just talk more about what you think is driving that in the supply business?.

Yeah, sure Steve. This is John Ketchum and a good morning to you as well. In the customer supply and trading business, we’re just seeing a lot less competition, number one. And number two, remember, a lot of – most of the business activity that we do in that group is customer facing business.

Our full requirements business for example, where we're working with municipalities and cooperatives to help provide their power needs and arrange the capacity and ancillaries and other regulatory requirements that need to manage their business, particularly up in the North East.

That business, because it's had a lot less competition, it has benefited from significant margins. And please, you know one of the points I want to make is, these arrangements that we enter into in the full requirements business are typically two or three years and we're immediately going at them back to back, hedging those positions.

So feel great about the risk profile, and again, terrific margins that really match up well with their skill sets, our competitive advantages and our core operations. So that's really the main driver. And I also want to remind folks that when you think about our customer and supply business we run it at a very, very low bar.

For example, the last quarter we ran that business roughly at a 2% bar. So it's very, very small business, risk exposure overall for PMI. .

Okay, next question just on… [Cross Talk].

Steve, one other point I want to make too on the customer supply business is that that business, historically you can go back 10 years and the customer supply and trading business, including this year has never contributed more than 10% of NextEra Energies net income and I think that's important to keep in mind as well.

We run a – we have a lot of complementary businesses. Obviously, FPL has done well. We have other complementary businesses that Energy Resources on top of our renewable business. But that business has always stayed under 10% and that's one of the commitments that we make to the rating agencies, and that's true this year as well. .

Okay, great. Just maybe just the latest year hearing on the hydrogen, green hydrogen rules from Treasury, both kind of timing in any color of where they are on some of the key issues like matching and additionality. Thanks. .

Yeah, we have been very vocal around the hydrogen regulations that need to come together and there's been a debate for those that are familiar with it, between whether we have hourly matching or annual matching.

And for us it's very simple, as part of a hydrogen project you buy an expensive asset called an electrolyzer, which everyone is familiar with. And if you have hourly matching, the net capacity factor, the number of hours a day that you use that electrolyzer are probably less than half the day in most parts of the country.

If you have an annual construct, we're able to use that electrolyzer around the clock and so it's really easy math. I mean, when you have an expensive capital asset and you can use it around the clock, the price of green hydrogen is going to be a lot lower if you can only use it less than half a time.

And so the industry has come forward with a very constructive proposal, which would have the hourly matching construct not kick in until 2028. You’d have annual until that time period and we also have supported the fact that you have to have additionality if you're going to go qualify for annuals.

So if you're qualifying for annual in the hours that the wind is not blowing or the sun is not shining the power, the electrolyzer behind the meter and you are buying off the grid. Well, you're buying from an additional renewable asset that has been constructed and developed to provide electrons to that newly built hydrogen facility.

So from an NGO perspective, you're getting additional decarbonization benefits on the grid. So we think we've been very constructive in what we have come forward with.

We think it's really important, because we want to send the right price signal to OEMs to ramp up production on electrolyzers, because electrolyzers being produced at scale is going to be critically important to declines in green hydrogen prices over time. And so that's where we are in terms of your question around timing.

We expect Treasury to probably come out with regulations now. We're hoping for August, but it's starting to sound more like September or October.

But again, we have built a significant hydrogen pipeline, parts of it work on either construct and that pipeline is well over $20 billion and we have the land team out and we've had them out, very aggressively lining up land positions for our hydrogen portfolio that the nice thing about that and which Kirk said it in the remarks, that pipeline is now about 250 gigawatts when you include early due diligence sites.

Nobody in our industry has a pipeline like that, nobody, and what's terrific about it is it can be used for dual purpose, because hydrogen customers are just a third customer class to sell renewables to. So if the site doesn't work for hydrogen, it will work for our power or C&I customers.

So I feel like we're really well positioned and hydrogen is one of those things that can really provide a nice boom to the development expectations that we've already laid out for you. So we're eager to see what the final regulations say.

But I also want to remind folks that hydrogen has a long development cycle, so the contribution that we'll see from hydrogen investments you would expect over the latter part of the decade..

Okay, last question, just on the Texas sale. So I think you said you'd still expect to get it done by year end.

When would that, when would you need or expect to or need to kind of announce transaction to make the year-end and just how should we think about the recent data points we've seen like the TransCanada, the TC sell down, Columbia sell down, and co-point. I know they're different assets, but just in the context of views on valuation of energy.

Thank you. .

Yeah, thank you Steve. So let me take those in order. So in terms of timing, we would hope to be in a position, in the end of the third quarter or early fourth quarter in order to support that end of the year sales timeline that we have earmarked. In terms of valuation, we view these assets as unique.

Again as a reminder, the Texas pipelines provide 25% of the natural gas supply to Mexico through contracts with Pemex, and the other pipeline assets that support the Texas pipeline are fully integrated with that pipe, and they provide gas to Mexico, through (inaudible), which is a very liquid trading point.

And if you look around that area, these are very, very strategic for a number of players. So again, as you all know, it's hard to compare one pipe comp to another, but again, we remain pleased with the progress that we continue to make on the sales transaction. .

Okay, great. Thank you. .

Thank you, Steve. .

Oh! And Steve. I think I said 2% on the bar, I meant $2 million on the bar for PMI, just correct that. Thank you. .

Our next question will come from Shahriar Pourreza with Guggenheim Partners. You may not go ahead. .

Hey! Good morning, guys. .

Good morning, Shah. .

Good morning. Let me just, as we kind of look at the latest renewable portfolio transactions, the valuations have come in fairly noticeably.

Do you guys see any opportunities to kind of leverage NextEra platform in either picking up existing assets or developer books, especially sort of given what seems to still be a type financing and supply chain position for some of your competitors, while you're seeing improvements with yours, right?.

Yeah, we are. I mean, first of all let me just comment on the valuations that you see. I mean, I think that – look, I'm not going to be critical on some of the assets that have come to sale. But, if you read through the lines and into the details of the structures of those transactions, those are not characterized as high quality renewable assets.

When you look back at what we have developed over the last 20 years and what we continue to develop are very high quality renewable assets. Most of them are bus bar. They are with high credit counterparty off-takers. They are well situated in areas that benefit from our data analytics around transmission congestion, wind resource, solar resource.

Because we have 20 years of experience, I like to believe and look, we are perfect, but we don't make some of the same mistakes that you see some of the other developers make. And so I feel like we're much better positioned. Our portfolio is in much better position than some of the other markers that you have seen.

So I'd be very, very careful on how you assess portfolio to portfolio, because they are very, very different. The second thing I would say is, we look at all third-party M&A opportunities that come available and we feel like we do have all the competitive advantages, you know some of what you mentioned.

We buy cheap, we build cheap, we operate cheap, we have a cost-capable advantage. We have a terrific team that really understands how to optimize the value of existing assets, that's the key piece. Repowering assets is something we've always had a very strong track record at.

It’s something that the rest of the industry has struggled with and that gives us a real leg up in terms of being able to see values that others don't. And then as Kirk mentioned on the call today, we have a benefit and an organic asset that nobody else has, which is the largest fleet in North America that we operate.

And so we have the ability not only to repower those existing assets, but to find ways to pair them up with storage and take advantage of the stand-alone storage ITC. As you all know, storage used to only be a unique opportunity to pair with solar. The rules of change with the stand-alone storage ITC under IRA.

So now we can pair it with wind, we can build a stand-alone. We're making a lot of progress in that area.

We announced one project today where we are starting to see an opportunity, particularly in MISO and SPP, in ERCOT, where capacity values and reliability are being priced higher than what we've seen them in the past, given some of the shortfalls that they have in those markets and that just happens to coincide with where most of our wind is.

And given the massive existing fleet that we have, which very importantly includes an existing interconnection agreement, our ability to go and pair those assets up with solar or to repower them is unique in this industry given the two-decade head start that we have.

And so that's a value that we try to bring to M&A opportunities as well when we exercise our other competitive advantages, including our cost-to-capable advantage. .

Got it. Perfect. And John, it's been a little bit quiet and it hasn't really been a focus for a lot of investors, but is there any sort of updates around the FTC case as of today? Any change in stances indicated by the disclosures? Any opportunities to settle? Thanks. .

Yeah, thank you Shah for the question. No new developments and there's really no new news there. Again, we would expect just based on historical precedent with the FTC that we would hear back where they have a reasonable belief that they should investigate, probably sometime in the first quarter of 2024. .

Perfect. Thank you, guys. I appreciate it. Thanks for the time. Fantastic. .

Thank you, Shah. .

Our next question will come from Julien Dumoulin-Smith with Bank of America. You may now go ahead..

Hey! Good morning John. Good morning Kirk. Thank you guys very much. So I wanted to come back to the decade into the cadence to the backlog conditions. Just looking at, ‘23, ‘24 versus ‘25, ‘26 there.

Can you talk a little bit about what you're seeing out there in terms of the ability to execute in kind of the nearer term sense to execute against that first bucket versus the latter here? And especially, give us a little bit of an update on IRS clarity and what that means for the willingness to commit to the close-on contracts here, especially maybe now that you have that in hand on transferability, etcetera.

How do you think about maybe biasing towards the later years there, just given where we stand already?.

Yeah, good question, Julien. So let me just start with – take that in chunks, because everyone knows our development expectations are ‘23 to ‘26. So let's just start with the first two years and then we'll talk about the second two years. So for ‘23 through ‘24, we are in great shape. We are already within the range as we had expected to be.

And then on ‘25 and ‘26, you know if you go back to the beginning of ‘22, and you add up where we are today, we've already added 12 gigawatts just in the last six quarters.

That puts us in great shape against ‘25 and ‘26, because now we have 15 gigawatts to get to the midpoint and if you kind of work backwards from ‘26, that's 3.5 years to get 15 gigawatts. So we feel like we are really in great position and on track on that build.

And I think there's some real tailwinds that we're going to start to see come forward and I want to explain some dynamics, you know just around what we've seen in the renewable industry, which was part of your question Julien. Let's just go back to ‘22. I mean, in ‘22 we saw a lot of supply chain issues that started to surface.

And then we saw here a flip, we saw circumvention and that cost them delays. It also cost us outages supply, because some developers are scrambling for panels that they thought they could get into the country, which I think for a short period of time drove prices up.

The great thing is, all those 22 projects that got delayed in to ‘23 are now starting to go into commercial operation. That's a really good news, good news for customers, because those customers that were digesting that ‘22 build and waiting for those projects to go COD in to ‘23 are now coming back to the market.

And so we're seeing really strong demand from those folks as we start to look forward. The other benefit of that is as you see you flip up, as you start to get works work through. We're not seeing that you flip awhole back that we used to see, so we're making a lot of progress on that front.

When you take that into account with the clarity that we're now seeing around circumvention, we finally have this bright line rule with the six-part test and as long as you meet four of the six, and you're importing from Southeast Asia, you're okay. And so what we've seen is a relaxation in pricing as a result of that.

So now the risk premium that was being charged last year by the import market is starting to come down. The other terrific phenomenon that we're seeing around solar pricing is that Southeast Asia still sets the price for panels in the U.S., but as that risk price premium is starting to come down and Southeast Asia really wants a big part of the U.S.

market. Why do they want a big part of the U.S. market? They sell panels for $0.20 everywhere else, right? They've been selling panels for $0.40 roughly in the U.S. So they have a lot of room to move. And so as that risk premium comes down around, you flip in and circumvention is forcing prices down in the U.S.

At the same time you're seeing a lot more U.S. supply come online through new module facilities are getting announced, also through cell facilities that will come along with it.

And so the bottom line is when you look at the solar picture, it's favorable from an equipped price standpoint, because I think you're starting to see a lot of capacity come online that is going to force prices down over time, particularly as you see the U.S. market evolve.

And it's no secret with some of the economic data coming out of China that some of those Southeast Asian markets are under pressure with capacity, excess capacity positions, and so they've got batteries and panels they need to find things to do with. Battery prices are coming down as well. We’re finally seeing a relaxation in battery prices.

Really struggling to see – really struggling in the EV market in China, which has created very much in excess capacity around batteries and so we’re finally starting to see some relaxation there.

I think there's been more of a movement around traditional lithium ion and some of the rare mineral exposure you see there, sodium and other battery forms, and so very encouraged about the landscape there.

And then on the wind OEM side, the wind folks are really one of the only ones that can reap the full benefit of domestic content and the full manufacturer incentive. So we feel really good about where wind sits as well.

So I think as you start to look forward and we started to move through these supply chain issues you saw in ‘22 of these projects coming online in ‘23 come combined with excess capacity globally around the supply chain, we feel great there. And let me talk about transferability for a second.

There's been a lot of discussion and I've heard a lot of questions about folks saying, well, how is transferability going to be accounted for? And is it going to be part of the FFO and in the FFO-to-debt metric.

We feel very good and we've told investors for a long time that we feel very good that it's in accordance with GAAP, it flows through the tax line for tax credits that get transferred, to be included and so we feel good about where that is heading and that will end up in a good place there on that FFO-to-debt question that has surfaced around transferability.

So when you put all those pieces together, as we've worked through some of these headwinds that we've had, we feel very good about where things are heading and let's just face it, we're just getting started. Renewables are here to stay, they're not going anywhere.

And so while we might – you know the development process isn’t always going to be a straight line, we're in terrific shape and feel very optimistic about the future..

Right. Thank you and actually John, to that point though, a lot of the dynamics you just talked about are very like real time if you will versus kind of trailing into the quarter itself.

How do you feel about just that contracting acceleration here in the back half? I mean a lot of the points you made would really argue that you could see an uptick versus kind of something that was more on trend in the last quarter..

Yeah, a lot of it is going to depend on, as I said before, these ‘22 projects continuing to come online in 2023 and those customers that had a little bit of fatigue so to speak. We are around those delays coming back to market which we're starting to see and so that will be the wild card.

But we feel good about how the rest of the year continues to shape up..

Got it. Will stay tuned on that front. All right, excellent. Thank you sir. .

And Julien, one of the things to add to that is, it’s hydrogen. We get the right rules there and again I can't stress it enough. I mean we've always only had two customer classes for renewable. It's been power sector, it's been the C&I sector.

Now with the right rules, we have the potential to add a third customer class, which is the renewables for hydrogen customers and that's exciting as well..

Yes, so stayed tuned. Maybe a quarter or two after you get those rules that you’ll really see that flow through in that third customer class. .

Yes, I think that's right. And then remember, those projects that have longer lead time development cycles. So in terms of the contribution that investors should expect, it's going to come in the latter part of the decade..

Excellent! Thank you..

Our next question will come from David Arcaro with Morgan Stanley. You may now go ahead..

Hey! Good morning. Thanks so much for taking my question. Maybe shifting a little bit to NEP. I was wondering, you know I know you don't – in terms of the financing outlook, you don't need equity for some time here.

But I was wondering if you could just give any latest thoughts on alternative financing approaches to hit longer term growth projections at NEP. .

Yes, I mean for NEP, first of all the focus is on the simplification strategy which we shared with the market back in May and we have said that our expectation as a result of that is, we don't – you know assuming a successful execution on that sale, that we don't expect to have equity requirements in 2024, other than opportunistic equity issuances under our ATM to help finance growth beyond 2024.

But if you look, and you can see in the slides here, that we have a lot of flexibility under our current metrics with the agencies, in terms of the ability to add additional, what I would call traditional debt based capital market financing, mechanisms to accommodate the growth going forward.

And we are very busy looking at the back end, three sublets that we have and some ideas around how we are going to address those as well. Because when we move on from the simplification transaction, that's going to be the next point of focus. We are not – but we're not waiting. We are continuing to look at that.

And look, there continues to be a strong bid for an interest in renewable interest, in renewable assets long term. Particularly when you think about the opportunity to do that with the world leader in renewable development, with the competitive advantages that we have, the 20 gigawatt backline log.

The growth visibility that NEP has going forward, all very promising. And so we could continue to engage in those discussions as well as we think about the future..

Got it, got it, thanks for that color. And then also just had a question related to the transmission constraints that we've seen in the industry. But you made the comment about a very large interconnection position, 145 gigawatts.

I was just wondering if you could speak to the transmission queue challenges and do you think that could potentially be a constraint on growth for the industry or at any point or how much visibility do you have into hitting long term growth targets with that massive queue that you've gotten in place..

Yes, so let me take that in two pieces. I mean one is the 145 gigawatts that you reference and David around the 250 gigawatt pipeline that we have, already have, with the 145 interconnection position secured. I would challenge you to find anybody in the industry that has even close to that that number of projects with interconnection capacity.

And don't forget, given the demand we're seeing in the market, if you have a site ready to go with interconnection capacity, that's the hard part. Finding the customer right now is not the hard part.

And so that's why we have such a focus on making sure that our early stage development program is right on track and I feel just terrific about where we stand there today. Let me take the second piece, so that you have which is just about transmission in general. We are not waiting.

We are taking the transmission and interconnect issues in our own hands and we are doing that through NextEra Energy transmission. We are laser focused on competitive transmission build out around where our renewable assets are going and where they are going to be built. We announced a project last quarter, another $400 million opportunity in Cal ISO.

I'm not going to talk about them today, but we have a number of various other transmission projects, on the board right now that we are evaluating. That business is going terrific and again, the bottom line message for investors is we're not waiting. We're taking the game, we're taking that into our own hands, that’s why we bought GridLiance.

That's why we continue to make investments in that space and we intend to solve those problems ourselves as we go along..

Excellent! That's helpful. Thanks so much for all the color. .

Thanks David..

Our next question will come from Carly Davenport with Goldman Sachs. You may now go ahead..

Hi! Good morning. Thanks for taking the questions. Just wanted to go back to the supply chain and thanks for the commentary there in the earlier question.

But just in terms of rate of change from a supply chain perspective relative to recent quarters, are you seeing any divergence between trends and wind projects versus solar projects?.

Yes, I mean in terms of wind projects, let me just make a couple of comments there. I mean we do almost all of our businesses with GE. We have done a little bit with Siemens and I know there's been some press on Siemens recently. We don't have any of the Siemen’s Gamesa turbines in our fleet. I just want to make that very clear.

As we think about supply chain around wind versus solar, remember that wind turbines are made almost exclusively in the U.S. and so they'll be direct beneficiaries of the manufacturing incentives and we hope domestic content.

They have a couple of paperwork things they have to work out with Treasury, which you know hopefully we'll get there on in terms of what kind of information they have to share with their ultimately customers and giving away the secrets to us on margins and all those things, but they continue to work through those issues.

But wind just doesn't have the same exposure in the issues that we've had the deal with solar. Around you flip, around circumvention.

But again as I said earlier, those issues around solar which really plague the industry back in ‘22 have been things that we've been working through in ‘23 and now we're starting to see a lot more capacity show up, not only in the U.S., but in other markets as well, and so we are capitalizing on all those opportunities and leverage in our buying power as you would expect us to do.

.

Great. That's helpful. And then the follow-up is just a quick one on kind of the cost environment. It seems like it's starting to improve a bit, but still challenging for many.

Can you just talk about how your managing costs in this environment and kind of what levers exist that are available to pull if needed to continue to execute at a high level from an earnings perspective. .

Yes, thanks Carly. So, we spoke on our last call about – and I know you're from there with this. We run a cost savings initiative every year at the company. This year we called it Velocity that we ran under the same name last year and we challenge every one of our business units.

It’s a bottoms-up process to come with cost savings ideas for how we run our company. And we've had amazing success through that program over the last 10 years, and in the last two years in fact, if you look at it, we've been able to identify over $700 million of cost savings initiatives, both at FPL and Energy Resources.

So we're constantly looking for ways to continue to take cost out of the business; whether it's OEM, whether it's G&A. And how do we leverage technology? Technology is a big piece of it as well.

We recently launched a massive generative AI program that we think also leveraging all the skills that we have around technology, that we've been able to build over the last 10 to 15 years to really leverage AI in a way we never have in terms of how we run the business as well.

And so all those things I think are going to contribute to cost declines over time for the business, but we're a laser focused on cost.

And then the development business, when you're selling a commodity, electricity to gain inches, you got to be better than the next developer in line in terms of buying equipment cheaper, building it cheaper, operating cheaper, financing it cheaper. And we have with the A minus balance sheet, you know terrific cost to capital advantage.

When we put all those things together, we feel great about our competitive position, our market share and how we continue to progress our renewable development program. .

Great! Thanks for that color..

Our next question – pardon me. This concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..