image
Utilities - Renewable Utilities - NYSE - US
$ 16.43
-3.24 %
$ 1.54 B
Market Cap
26.93
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2019 - Q1
image
Operator

Good morning and welcome to the NextEra Energy, Inc., and NextEra Energy Partners, LP Q1 2019 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded.

I would now like to turn the conference over to Matt Roskot, Director of Investor Relations. Please go ahead, sir..

Matt Roskot

Thank you, Dory. Good morning, everyone, and thank you for joining our first quarter 2019 combined earnings conference call for NextEra Energy and NextEra Energy Partners.

With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy; Rebecca Kujawa, Executive Vice President and Chief Financial Official 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 as Eric Silagy, President and Chief Executive Officer of Florida Power & Light Company.

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 from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today’s earnings news release, in the comments made during 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, nexteraenergy.com and 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 Rebecca..

Rebecca Kujawa

through organic growth, third-party acquisitions, or through acquisitions from NextEra Energy Resources, providing clear visibility into its future growth prospects.

Energy Resources currently has nearly 21 gigawatts of projects it could sell to NEP including its existing operating renewable assets and its backlog of projects it intends to build over the coming years.

Additionally, despite the recent challenges related to PG&E, during the quarter, NEP demonstrated its ability to access extremely low-cost financing to support its growth.

With continued financing flexibility, a strong base of underlying assets, a favorable tax position and enhanced governance rights, NEP is well positioned to meet its growth expectations. We remain focused on continuing to execute and creating value for LP unit holders going forward.

In summary, both NextEra Energy and NextEra Energy Partners are benefiting from our history of strong execution that has positioned us well to capitalize on the terrific growth opportunities available to us across our businesses. We look forward to share in more detail with you at our Investor Conference on June 20th.

That concludes our prepared remarks. And with that, we will open up the line for questions..

Operator

We will now begin the question-and-answer session. [Operator Instructions] And we will take our first question from Stephen Byrd at Morgan Stanley. Please go ahead..

Stephen Byrd

Hi. Good morning..

Rebecca Kujawa

Good morning, Stephen..

Stephen Byrd

I wanted to talk about Resources. You continued to put up impressive growth numbers there. I noticed BOT, build-own-transfer, continues to show up.

Would you mind just talking at a high level in terms of trends with respect to BOT? Do you see a trend in that direction? Is this more just what you expected it’s going to be a part of the mix, but not a growing trend? What are you seeing in terms of the BOT side of the market?.

Rebecca Kujawa

Stephen, as you know, we’ve seen the tremendous growth in our renewables opportunities across the board, and we have historically benefited from sales to IOU customers, munis and co-ops, as well as a growing demand from C&I customers.

Two of those groups, the munis and co-ops, as well as the C&I customers, generally are not that interested in build-own-transfers or owning the renewable assets.

They are very happy to take advantage of all of the advantages that we bring to the table, including of our cost of capital, our scale, our ability to construct and deliver these projects, and ultimately operate them over the long-term at a low price.

Our IOU customers are increasingly building renewables and wanting to procure and incorporate more into their portfolios.

So, as the pie has gotten bigger, there is probably a nominal number of megawatts that are increasing in terms of build-own-transfers, and our team has been able to successfully offer to our customers a multitude of benefits to them of bringing a very -- all of the advantages that we bring to them and sell, part of it is build-own-transfer, and typically part of it is a PPA to them, bringing a total package that is very valuable to our customers.

So, it’s increasing, but very positive addition to our portfolio. John might add some more..

John Ketchum

Yes. Stephen, this is John. What I would add to that is the way I look at BOT is it enables more contracts. So, the BOT that you saw this quarter was the Portland General transaction where we had a trifecta of wind and solar with battery storage.

And BOT was part of the wind facility that we actually ended up building, but we got a contract back for the other piece of it. And that’s typically the type of BOT transaction that you’ll see us enter into. But, it is a part of the business and it’s an enablement for more contracted origination around the renewable portfolio..

Stephen Byrd

Understood. So, it’s a tool and toolkit, you earned good returns on and it’s part of the solution you offered to some customers. So, understood..

John Ketchum

Exactly..

Stephen Byrd

Great. I wanted to shift over to solar together, this is really interesting model, and Rebecca you mentioned briefly the savings to customers. Would you mind just speaking a little bit to this. It does seem like a nice model to offer solar to your customers.

I just want to make sure I understood the -- what you had mentioned, I think, on the $1.8 billion cost, I think, you mentioned $139 million of savings.

Could you just talk through that a little bit more in terms of the benefits to customers from solar together?.

Rebecca Kujawa

Yes. So, as you might expect, we’ve long been excited about deploying more solar in Florida. It is the Sunshine State, and solar has gotten to be more cost effective. We’re very excited about bringing it to -- across our entire portfolio.

And there are certain amount of interest from our C&I customers, who don’t necessarily want to take on the ownership in construction responsibility, particularly when it’s not at scale and not as cost competitive as what we can build.

And so, when we went out and offered up this idea of a community solar program, we got a significant amount of interest from our large C&I customers, which is primarily the group that we went out to talk to. And that was the 1,100 megawatts of initial demand for this preregistration period that we offered up.

And since then, we sized our program to be around 1,500 megawatts. So, in the layout of the program, customers that sign up for this, their voluntary participation will pay a certain amount on their bill in the near-term, and over the long-term will receive credits against their bill.

But about 25% -- 20% to 25% of the savings, the net savings to the overall system are actually going to be retained by the nonparticipating customers. So, FPL’s existing customers will get a benefit from this program as well..

Operator

And we’ll take our next question from Steve Fleishman at Wolfe Research. Please go ahead..

Steve Fleishman

So, could you maybe give a little more color on the MVP comments with respect to just more color and also what would be driving an update soon as opposed to like now or the Analyst Day?.

Rebecca Kujawa

So, as I mentioned in the prepared remarks, we along with everybody else were certainly disappointed by the Circuit Court not taking up the en banc review.

And as soon as the initial adverse decision was made, we started working closely with our partners in a variety of different options, whether it’s legislative administrative, et cetera, to resolve the issues, so that we can continue to build and ultimately bring online MVP.

And we remain confident that one of those many options will ultimately come together, so that we can put MVP into service which at this point we think will be even more valuable than what we originally thought just because of the challenges that building pipelines in this area has proven to be.

But at this point, looking at what we previously targeted for our in-service date of year-end 2019, that’s challenging. So, we’re still working on what exactly the path forward is and the timing for COD.

We are going to resume construction, as you know we temporarily pause construction during -- kind of turned down construction during the winter period, just for the overall conditions as we’re starting to get to the spring, so we will resume construction where we can.

And then as we firm up plans, it’s clear which of these options will come to fruition. We’ll give you more specifications on terms of timing and ultimate cost..

Jim Robo

Steve, this is Jim. We certainly have both at date and at cost for you at the Analyst Day..

Steve Fleishman

Okay.

And then also could you talk a little bit more about the undergrounding legislation and just what the investment opportunity and customer benefit is there?.

Rebecca Kujawa

Sure. I’ll start, and I’ll probably hand it over to Eric to add some more details. As everyone is well aware, after the devastating impacts in our service territory from Irma and then broader in Florida from Michael and other hurricanes.

It became clear to a lot of critical stakeholders about how important it is to have continuous service for our customers. As you probably know, Florida is now $1 trillion annual economy. I think it’s something like the 16th largest economy in the world, if we were -- our own economy. So, every day that we’re offline is a significant harm to our state.

And so there is an appreciation from critical stakeholders in the legislature and other communities about the value of resiliency in our grid and one of the ways that we can improve the resiliency is through some undergrounding.

So there is some legislation going through the current session in Florida for the possibility of setting up a separate clause that ultimately we could recover investments and on a return on for underground in our service territory through a clause mechanism..

Eric Silagy

Hey, Steve. This is Eric Silagy. I guess, the only thing I would add on this is the legislation has progressed through both the Senate and the House pretty well. It’s gone through six different committees, three in House, there in the Senate. It has passed sort of all those committees unanimously.

So to date, there hasn’t been a single no vote against it in either body. There are some slight differences in the versions, so those have to be reconciled.

It’s not really subservience, it’s more of verbiage, but we expected to be taken up by the full House, the full Senate in the coming next week or so, two weeks the most because that’s the end of session.

And if it passes, then indications are that the governor will be supportive as well, and then there is a huge focus on resiliency of the state as Rebecca talked about.

And frankly, we’ve worked very hard over the past couple of years under -- with a couple of pilot programs to look at how do we get costs out of undergrounding, and we’ve gotten now to the point where particularly under a programmatic approach, we will be able to get the cost to be equal, if not, even a little better than some of the hardening efforts that we do above ground.

So, it’s a real win for customers both financially, as well as obviously resiliency..

Operator

[Operator Instructions] We’ll take our next question from Shahriar Pourreza at Guggenheim Partners. Please go ahead..

Shahriar Pourreza

So, let me just ask a quick question, a couple here. But around Santee Cooper, there’s obviously a lot of mixed data points we’re seeing with lawmakers, the town hall meeting seem to be a little bit noisy and we kind of still have two competing bills. And then on the other hand, the process seems to be much more competitive then we all thought.

So maybe a quick status update regarding the process, are we still expecting some sort of a closure in the decision by the June time frame?.

Rebecca Kujawa

Maybe I’ll start off with the typical caveats that I think we are appropriate response to the question and maybe Jim wanted to add something specific, I’ll talk with him. But as you know, we typically don’t comment on M&A activity other than very general comments that we look for opportunities where there is a constructive regulatory environment.

It’s accretive, and ultimately there is a good fit from our business perspective including the opportunity to deploy the Florida playbook, and being able to improve customer value proposition for our customers. And Jim, do you want to add some specific comments..

Jim Robo

So, obviously we’ve confirmed that we put a bid in for Santee, and there is a process going on. I would expect it to come to conclusion here by June, and we will see how it plays out. I think the State realizes that the Santee has upwards of $4 billion to $5 billion of debt for -- on an asset.

The nuclear plant that is never going to generate any income. And so it’s an issue for the State that they need to address, and I think the vast majority of folks in the State understand that they need to address it, and the key stakeholders are, I think, working hard to come to conclusion about how the process is going to move forward.

So, we are cautiously optimistic that they bring -- that the Legislature passes something to lay out what the process will be, and then, we’ll see.

As I said, we did confirm in the last call that we put a bid in, and you can imagine that we’ll continue to play in the process, and it’s someplace where we think we can add a lot of value and bring value to customers and bring value to economic development in the state..

Shahriar Pourreza

And just a quick update on Gulf Power. You’re sort of five months into it. Seems like you’re still kind of reiterating the $0.15 to $0.20 of accretion, despite Gulf already contributing $0.08 in the quarter.

Are you starting to see some incremental near-term opportunities to your prior stated accretion guided or is this something maybe you will update at the Analyst Day?.

Rebecca Kujawa

Well, couple of comments on Gulf. First, a high level, maybe taking more of the second part of your question first. We obviously closed at the very beginning of this year and we are as enthusiastic as ever about the opportunities with Gulf as we were prior to closing the acquisition. I personally spent time up there.

I know many of the other folks in the senior team, and obviously we have a terrific team at Gulf now executing, and that’s both taking cost out of the business as well as identifying those smart capital investments, which will ultimately deliver on the value proposition that we’ve been targeting with FPL, just low bills, high reliability, terrific customer services and clean energy.

I feel very optimistic and excited about it. More specifically to the numbers. Yes, you’re correct on the $0.08, but as you know we’re going to highlight the Gulf contributions as its own entity. And then for the financing cost, the financing cost to close the acquisition of showing up at CNL. So you might want to think about those two together.

We do have opportunities to further improve the cost position through the balance of the year. We’ll also start to ramp up the capital investments. And as I talked about, we are planning to deploy a total of $700 million for the full year at Gulf. And then obviously there is some ROE improvement that I talked about in the prepared remarks as well.

Our guidance expectations remained from the overall company perspective, as we talked about of our 6% to 8% growth from our 2018 adjusted EPS of $7.70 in 2019, and then we expect to have the incremental accretion on top of that growth rate of $0.15 in 2020 and $0.20 in 2021..

Shahriar Pourreza

And then, lastly, Rebecca just you mentioned administrative options with MVP. Can you confirm if you’re working with the ACP owners around this option? Like what stated -- obviously they are completely different projects, but what -- how much collaborating are you doing with the ACP owners like Dominion, especially....

Rebecca Kujawa

I don’t want to talk through really the details of that.

As we’ve -- as I talked about a couple of minutes ago, we worked very closely with our partners to develop different options and we do believe there are various options in order to complete it, but we don’t really think that it’s to our advantage to get through a lot of the details of that out publicly. So, we’re working on it very hard.

We remain confident in our ability to ultimately construct and bring it into service..

Operator

And we will take our next question from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead, sir..

Julien Dumoulin-Smith

So, at this point, I think perhaps a couple of clarifications.

Perhaps starting with the last question, on Gulf, just to go back to what you were saying about your expectations on earned ROEs already pretty healthy, how do you think about the timeline to go back in for a formal rate case? And then also perhaps the prospects of getting an amortization type mechanism eventually.

I mean, certainly that would be one of the multiple priorities, I would imagine in contemplating any kind of rate recovery.

But at the same time, given the ability to earn within the band, clearly the upper end already, how do you think about timeline?.

Rebecca Kujawa

So, we’re still at the early stages, Julien. We closed it a couple of months ago. And right now, the teams head is very much into identifying the cost saving opportunities, putting the dot the I’s and crossing the T’s on the capital initiatives that we can make, and we’re putting those plans together.

For now, I’d like to limit it to the comments that we made in the script and the prepared remarks that we expect to be at the upper half of the ROE band, and we expect to target the capital investment opportunities of a total of $700 million in 2019.

And then to the extent that we can put more detail around that, particularly around the capital initiatives. We’ll highlight more of those at the June Investor Conference..

Julien Dumoulin-Smith

And then secondly, if you can, just coming back to -- you started the Q&A on the backlog here, it seems like another shift in backlog seems to be longer-dated beyond the 2020 period. If you look at what was added, it seems like the bulk of it for this quarter was added and the bulk of it -- that was solar.

Can you comment a little bit about the economics of solar in the backlog as you move through time in ‘19 and ‘20 versus the ‘20 onwards type projects? And then perhaps any other nuances you might see in terms of safe harboring or otherwise in the ‘20 onwards type time frame?.

Rebecca Kujawa

There are a couple of comments in there, Julien. So you’ll have to correct me if I don’t hit all of them. But in terms of the timing of the backlog, as you know, we set out expectations at our last Investor Conference for the full -- 2017 through 2020 time frame.

We’re now healthily in those ranges, which sets us up very well to deliver on the expectations that we’ve long talked to you all about. And as we highlighted in the script today, we now have the 2,700 megawatts of projects that are beyond 2020.

I mean that’s actually building up over time and there is actually one or two projects that moved from the -- before 2021 time frame into 2021. We’re starting to see customers shift, their focus to beyond 2020.

I wouldn’t say that the team has stopped the efforts to sign contracts for 2020 COD, and in fact, I’m sure John will tell you that he is pushing his team hard, and no doubt customers continue to be interested in signing up wind projects before the end of 2020.

But, of course, with solar still having the technical benefits, tax incentives into the early ‘20s, customers are certainly focusing on that as well. To answer the return question, our returns as we long talked about has generally remained consistent on a levered basis over time. And that hasn’t changed materially in recent weeks or months..

Julien Dumoulin-Smith

Right. All right, excellent. Well, we can leave it there. Thank you very much again..

Jim Robo

Hey, Julien. This is Jim. The only other thing I would add to your -- as you can imagine, we are safe harboring for ‘21 and beyond. So we’re not taking advantage of that opportunity..

Julien Dumoulin-Smith

Right. You should assume everything safe harbored..

Jim Robo

Correct..

Operator

[Operator Instructions] And we’ll take our next question from Jonathan Arnold at Deutsche Bank. Please go ahead..

Jonathan Arnold

Could I just ask on the -- to subjective BOT and the backlog, and it just seem you’ve had situations where you are adding BOT to the backlog, and then others where you -- including last quarter where you didn’t.

What’s the trigger to determine whether BOT is shown in backlog or not?.

Rebecca Kujawa

Yes. Typically, if there are some sort of operating agreement, whether it is ongoing economic value to us, then we have decided to include it in our backlog, where the transaction is really focused more on a build, and then truly sale, and then the operations and all ongoing economics or to the customers benefit, we’ve excluded it..

Jonathan Arnold

Okay..

John Ketchum

Yes. So, Jonathan, this is John. So, the contracts that’s BOT this quarter, again is related to Portland General. So 300-megawatt wind facility, 100 megawatts BOT, 200-megawatt is the balance that we will own under a contract.

And so that facility is going to be -- the whole 300 megawatts is going to be operated by us, I’m sorry, got that backwards 200 megawatts is the piece, that’s the BOT, and 100 megawatt is piece that we take back..

Jonathan Arnold

Okay. So, that makes sense.

But then, for example say, the 200 megawatts BOT project that you announced on the fourth quarter call, was that something different? And then, would that -- is that we shouldn’t anticipate that would end up in backlog or should we?.

John Ketchum

No, no. That would not be in backlog. And just to clarify, we got 100 megawatts of BOT, and right with Portland General, 200 megawatts under contract..

Jonathan Arnold

Yes. This is all that Wheatridge, correct. To see that in the....

John Ketchum

That’s all Wheatridge..

Jonathan Arnold

And then, there is the solar piece as well..

John Ketchum

There is the solar piece as well and the battery storage..

Jonathan Arnold

The storage piece. Yes, okay. I got it. Thank you for that. And then just on one -- an another topic. And if we -- as we’re thinking about what to anticipate at the Analyst Day, and then we talked about at some point you might sort of start talking more around profitability metrics on backlog and as opposed to just megawatts.

Is that something that you think might be part of the update or is still work in progress?.

Rebecca Kujawa

Jonathan, it is very much a work in progress. I think the general outline should be somewhat consistent with what we’ve talked about in the past, which is overviews of our -- basically putting meat to the bone, you’re helping you understand with the growth opportunities are for each of our businesses.

Obviously for the first time at Gulf Power, we detailed plans on how we’re looking at the business and what the opportunities are.

At Energy Resources, we certainly -- it’s likely we will put together an overview of the renewables marketed as we see it today, to help you see some of the details of why our team continues to be excited about renewable economics, and ultimately demand from our customers that will enable us to continue to grow our business..

Operator

And we will take our final question from Michael Lapides at Goldman Sachs. Please go ahead..

Michael Lapides

Just curious, a lot going on in Florida these days, and this maybe one for Eric.

How are you guys thinking about a handful of items? One is the outstanding petition or complaint regarding tax reform implementation in the last FP&L kind of rate review; the other is, I think, there is still some litigation outstanding or challenge regarding implementation of the SoBRA mechanism.

And then finally, just curious, is there anything that has to happen or anything that could happen that could derail the two-year extension of the existing rate agreement you have?.

Eric Silagy

So, let me start with the tax reform docket. We recently had hearings over it and filed testimony, there’s going to be additional hearings that take place in mid-May. Look, we feel very good about our position, and how it fits within our rate agreement. Our arguments are solid and sound. It’s a proceeding, we will go through it.

But I feel very good about where we stand overall from the tax reform position. Other areas, obviously, as you know, we’ve got -- the Irma docket is still out there too, that’s going to be in mid-June. Again feel very good about that.

That was a storm that we actually restored more people faster than anybody in history, and we paid for using our tax savings to reserve amortization. So, I feel very good about our positions in Florida Public Service Commission. I can’t predict who’s going to oppose what and when they’re going to file for hearings.

But right now, the arguments have been strong and the hearings have gone well so far..

Michael Lapides

Got it. Thanks, Eric..

Rebecca Kujawa

And Michael, I shall add to Eric’s comments as you referenced to the -- you’re going in for a rate case.

As we talked about both in the script, and obviously, in prior comments, tax reform enabled us to potentially have a two-year extension of our settlement agreement, and that obviously the benefit of delaying any amount of time is further delaying the time where we’d need a base rate increase from our customers, so hopefully saving the customers some money.

But it’s up to two years, and we’ll have to go through the thought process as we typically do about when is the best time to go in and looking at all of our costs and our forecast about when do we need some incremental revenues..

Michael Lapides

Got it. But there is nothing mandating you to come in at any point in time.

It’s up to -- it’s kind of an FP&L or NextEra decision on when to come in?.

Rebecca Kujawa

Well, as you know, under the settlement agreement, we need to notify the commission in March of 2020, if we intend to come in within the next year time frame after that..

Eric Silagy

So, Michael, the settlement takes us through 2020 -- through the end of 2020, we have to notify if we choose to extend, but it is our choice to unilateral decision. And we’ll do that by March of 2020. And as Rebecca said, it could be up to two years is what we’ve been saying..

Operator

This will conclude today’s conference call. Thank you for your participation. You may now disconnect..

ALL TRANSCRIPTS
2024 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-1