Good day and welcome to the NextEra Energy, Inc. and NextEra Energy Partners, LP, Q2 2019 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Matt Roskot. Please go ahead, sir.

Thank you, Jen. Good morning, everyone, and thank you for joining our second 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 Officer of NextEra Energy; John Ketchum, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners; as well 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’ll 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 on 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.

Thank you, Matt, and good morning, everyone. NextEra Energy delivered strong second quarter results and is well positioned to meet its overall objectives for the year. Adjusted earnings per share increased nearly 13% versus the prior year comparable quarter, reflecting successful performance across all of the businesses. FPL increased earnings per share by $0.05 year-over-year. Average regulatory capital employed increased by more than 8% versus the same quarter last year, and all of our major capital initiatives, including the continuation of one of the largest solar expansions ever in the U.S. remain on track. With residential bills nearly 30% below the national average and the lowest among all of the Florida investor-owned utilities, FPL’s focus continues to be on identifying smart capital investments to lower costs, improve reliability and provide clean energy solutions for the benefit of our customers. The execution of the NextEra Energy playbook at Gulf Power, which is focused on reducing cost and using those savings to help fund smart capital investments for the benefit of customers, also continues to progress well. We have made terrific progress on our operational cost effectiveness initiatives, and I’m also pleased to announce that earlier this month, we completed our first major capital project at Gulf Power, the Plant Smith combustion turbine upgrades on schedule and on budget. Through improved efficiency and reliability, these upgrades are expected to generate approximately $40 million of net customer savings over their lifetime. At Energy Resources, adjusted EPS increased by $0.10 year-over-year, primarily reflecting contributions from new investments. We continue to capitalize on one of the best environments for renewables development in our history with our backlog increasing by more than 1,850 megawatts since our first quarter call, including more than 400 megawatts since our investor conference in June. As we highlighted last month, with…

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

Good morning. Congratulations on the good results. I wanted to just circle back to the point you had raised about assessing the benefits of merging the utility businesses. I know it’s premature to talk in detail, but could you just describe at a high-level the types of finance and operational benefits you’re considering, some of the key sort of elements that we should be at least thinking about there?

Hi Stephen, so we talked very briefly about this, both Eric and Marlene did last month at the investor conference, and it really is – the timing is aligned with when we might – based on the best information we have now when we might file for rate cases both at Gulf Power and FPL. And as part of that, we will consider whether or not it makes sense to merging these two entities together. It very much is in the early stages of that evaluation, but because we’re starting to think about it and some of the investments that we make or planning to make in the next couple of years certainly would facilitate that. When we’ll be talking to different stakeholders about it, we thought it prudent to talk to investors about it, but we are very much at the early stages. We expect that there are certain operational benefits and certainly some potential financial benefits from leveraging the scale and scope of both companies together. But as far as details, that – all of that analysis is still to be done.

Understood. Just wanted to shift over to the update you gave on PG&E. We agree that does not seem very likely at all that then any contracts will be modified in any way. If PG&E does not emerge by next summer, are there other approaches that you could take to potentially free up the cash? I mean over time that cash balance will be pretty significant at the projects. Are there sort of other options on the table beyond simply the focus on ensuring PG&E does successfully exit?

We’ll continue to talk with all of the critical parties, including the lenders as well as the Department of Energy, which is guarantees a couple of the projects’ debt with some of the contracts that we have with PG&E. But as you know, and I think we talked about after our December quarter call in January, after a period of time, some of that cash flow starts to sweep debt service. So while there is a balance of cash, at some point, it starts to get swept. And so what we’re really focused on is releasing the longer-term run rate cash flow, which is what our comments were focused on today. We certainly pursue all avenues, but really the best way to free it up for the long term is to have the resolution to the bankruptcy process.

Understood. Thank you very much.

Thank you, Stephen.

We will now take our next question from Steve Fleishman with Wolfe Research. Please go ahead.

Yes, good morning. So first question just on the comments regarding some of the second half activities you might do which sounds like you may be got some cushion in this year. So I think you mentioned liability management. I assume that’s just refinancings you will have to expense upon premium for this year. But could you explain the second one, the wind repowerings, a little more and what you’re doing there and the impact in the second half?

Yes. Wind repowerings will be similar to the other type of restructurings you just mentioned in terms of financing taking advantage of prepaying today to have the longer-term lower interest rates over the long term. But specific to – excuse me, some of the repowerings, some of those have financings in place whether they’re tax equity structures or project finance that over time as we’ve executed the repowering program, some of those we needed to terminate early. Some of them it’s just simply essentially making the make-whole of whatever the interest rate was and whatever the prevailing interest rates are. Sometimes there are some penalties in make-wholes for – particularly on the tax equity structures to make tax equity partners whole. So to the extent that we have to accelerate those and realize them, there may be a negative net income impact, which we’re expecting for a couple of the financings between NEP and Energy Resources in the latter part of this year. But again from a net present value standpoint, for investors, these are home runs because they enable attractive repowering opportunities and at the same time entering into the long-term financing to use really, really low interest rate environments.

Okay. Good. And then just a quick question on MVP. I think since your Analyst Day, the Supreme Court filings were made on ACP. And in the Solicitor General filing, there was some comments on the land swap issue in there. Could you just give some color on that? And how you looked at those comments?

Sure. As we talked about in the prepared remarks, we continue to believe that MVP is progressing fine. We’re going to resume construction activities and try to be 90% complete by year-end. And what we commented on is the in-service date of in 2020, and there is a number of paths, including down the Supreme Court path as well as the land exchange and certain other options that we have, and we’re going to continue pursuing all of those different paths. I don’t want to comment specifically on the Solicitor General’s comments. Obviously, this is a – this is going to be a process. We have certain views on whether or not we’ve got opportunities to go down the land exchange path, but I don’t want to make any specific comments.

Okay. And then one last quick one, just the NEP convert, which convert was…

This is the preferred that was issued in 2017, and we have the right to convert one-third of that as long as it met the minimum price and volume thresholds, which we achieved couple of weeks ago, and we did convert them into equity. Another one-third of the preferred security will be available for conversion later this year.

Okay. Thank you very much.

We will now take our next question from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Please go ahead.

Good morning, Julien, are you there? Okay, we should take the next question.

We’ll now take our next question from Shar Pourreza with Guggenheim Partners. Please go ahead.

Good morning, guys. Just around Gulf Power, just maybe a quick update on sort of how the accretion guide is tracking and how the integration is going? But more importantly, Rebecca, it seems like you guys are looking to file a GRC sooner than later despite having material amount of efficiencies on the fuel and non-fuel side that should theoretically be able to subsidize spending opportunities for at least a few years. So what’s the thought process there? Is it solely because you guys are looking at the merger? Are you looking at true-up rates closer to FPL? What’s driving the rate case to come sooner than previously planned?

Okay. I’ll take them in successive order. As far as how integration efforts are going, they are going very well. And Marlene had a full set of comments about that last month and things have continued to progress well and now intervening months since then. All of the cost opportunities, cost-saving initiatives that we sought were there or certainly there and we’re starting to execute on it. As we talked about in the prepared remarks, we’re already starting to implement the capital investment program, including the completion of the Plant Smith combustion turbine upgrades that we just completed in the period. So we’re very optimistic and excited about it. We have had a couple of pennies of accretion on a net basis between the operating results that you saw at Gulf Power as well as the offsetting interest expense, which, as I reminded everybody today, is showing up in the Corporate and Other segment. But this is essentially in line with our expectations, and we continue to remain confident about the accretion targets as we reiterated today of $0.15 and $0.20 next year and 2021, respectively. With respect to general rate case, as we highlighted last month and we talked about it again today, our best estimate based on everything that we see, including the ability to take out cost in the business as well as invest significant amounts of capital in Gulf Power to realize all of these net customer benefits that we’ve talked about would result in a rate case filing in 2021 for new rates 2022.

Got it. And then just – is there anything you can disclose as far as how we should think about the true-up of the cap structure and the bands?

Not at this point. We are such at the early stages of all of those types of thought process. Again, first reason why we started going down this path of thinking about the operational benefits and certainly the financial benefits of leveraging the scale between the two entities, but there is a lot of work to be done to think through what this would look like. So early, early stages.

Got it. And then just lastly on Senate Bill 796, right, with the proposed decision as you kind of highlighted in your prepared remarks sometime this year, when do you sort of expect to file your plan? And sort of how should we think about this in the context of Gulf versus FP&L service stories? Where do you start to see more of that capital being deployed?

In terms of the process, the first next step before we can file any plan is for the rule to actually be proposed at the Florida Public Service Commission, go through the rule development process. And then once there is a final rule, then we would file a plan and evaluate the plan and then ultimately start investing and seeking recovery of those investments. But the plan that we talked about last month, both for Florida Power & Light Company and Gulf Power, anticipated making some of these investments in both undergrounding and storm hardening and is included in our capital investment forecast plans for both companies going forward. And really the way you should be thinking about this is this is a – increases our visibility from a – to a multi-decade investment opportunity.

Got it, extensive run way. Okay, thanks so much, Rebecca

We’ll now take our next question from Michael Lapides with Goldman Sachs. Please go ahead.

Hey, guys. Can you talk a little bit about wind and solar development in the U.S. in terms of just where you’re seeing changes to geographically, meaning across the country in the opportunity set for wind versus solar versus where your historical development occurred?

Michael, as costs have come down, I would say, the biggest change in the dynamic is that for wind, you’ve seen the expansion of where it’s very economic out from the middle part of the U.S. further both to the east and to the west. And for solar, an expansion of where it’s economic from the south moving northwards, but that’s a very general broad trend. Overall, what we’ve seen is very positive reception from our customers, and that what is truly the lowest cost generation opportunity for them in many of their jurisdictions. In some cases, it’s going to be wind; in some cases, it’s going to be solar. But as you can see from our backlog, we’ve got enormous opportunities from both wind and solar. And the way that we run our Energy Resources development business is make sure that we have offerings for whatever our customer ultimately wants to buy.

Got it. And there’s been some discussion, especially among some of the big kind of largely capitalized European integrated oil companies about their entering into the – or gaining a bigger presence in the U.S. renewables market place. Can you talk about how you think that impacts the competitive dynamic going forward for you guys?

Competitors have come in and out of this market many times over our multi-decade exposure to developing wind and now solar generation resources. And if you look at history of market penetration, PPA is both for wind and solar, you will see that there are couple of big players and then a ton of players that get 100, 200 megawatts any given year. So if you talk to our development organization, they will see people a lot of what our Head of Development calls two guys in an Avis car having an opportunity or an edge in a particular area win a contract or two here or there. This business is always been competitive. And where we focused our efforts is ensuring that we maintain or further enhance our competitive advantages. That certainly starts with scale. It expands to our capital advantages the fact that when we buy from our suppliers were often their top customer and if not the top, certainly in the top 10, which gives us some advantages. And as you guys well know, all of our investments in enhanced digital capabilities, which enable us to identify sites better, build things more efficiently and then over a long period of time operate them more efficiently. So as long as we can maintain competitive advantages, we’ll maintain our ability to win our fair share of the market as it continues to grow in a rapid pace.

Got it. Thank you guys, much appreciate it.

We will now take our next question from Julien Dumoulin-Smith with Bank of America. Please go ahead.

Hey, can you hear me now?

We can hear you, Julien.

All right. Great. Let’s do it again. So perhaps just firstly, let me start with a little more strategic question here with respect to some of the peers in the states. There seems to be some headlines with respect to decisions for privatization. Just curious if there’s any statement or thought process on that front, given some of the prior comments you’ve made around looking at municipalizations going private?

Okay. Is this – are you talking about the new regulation initiative?

JEA, I suppose.

Obviously, we think we could bring a lot to the table with any utility in Florida. We think – obviously, we run the best utility in the world we think. And so we think we would bring a lot to the customers of those utilities in Florida who would be interested in selling. And obviously, we serve very close to that area – very close to JEA’s area. We’ve had a terrific relationship with JEA over a long period of time. We’ve been partners with them. And so we’re going to follow it closely and try to be as constructive as possible.

Got it. Excellent. And if I can go back to one of the last questions, just to be exceptionally clear about this. I know that you added a line here on your slides with respect to not being disappointed to be at the top end of the 6% to 8%, which would – if achieved, would result in adjusted EPS of $8.32 versus the 2019 range of $8 to $8.50. Just want to be exceptionally clear on what you’re saying there.

Yes. So we continue to focus on – from a long-term standpoint of growing our adjusted EPS to 6% to 8% and, of course, adding the accretion from the Florida acquisitions in those relevant years that we’ve called out. Every year, there is variability in operations and performance, and so we provide a range around that, given a lot of different factors. We commented also that, of course, if you look at the numbers year-to-date, we have a growth that very much exceeds the 8% run rate, which we’re thrilled about and reflect strength in each part of our business, which obviously positions us well to continue executing on our long-term growth targets. As opportunities present themselves, as we comment on today, if you looked back a year ago, we would not have forecasted that interest rates would be at this environment. And there are certain things that we can take advantage of that create shareholder value for the long term and take advantage of the low interest rate environment, and there also some of the investments that we plan to make for repowering that create certain one-time negative events in 2019 in order to enable those repowerings that create substantial shareholder value that will certainly weigh on the growth rate relative to the first half in the second half. So we’re targeting the 6% to 8% growth rate long term, as you well know. 8% of the last year would result in $8.32 per share.

Excellent. I think I get you. All right, I’ll leave it there.

Julien, this is Jim. The important number is $10.75 in 2022.

Absolutely. Thank you all.

We will now take our next question from Michael Weinstein with Credit Suisse. Please go ahead.

This is Maheep Mandloi on behalf of Michael Weinstein. One question on the undergrounding legislation. And how do you expect the underground legislation impacting the utility rate base growth in the near and long term? And how does that play in relation to the 6% to 8% growth rate?

As we talked about last month at the investor conference, we were certainly very pleased with the legislation because, I think, it reflects at least as much as anything else that critical stakeholders across Florida appreciate the value of the resilience and a fast restoration process in Florida when we inevitably have hurricane or significant storm activity. We certainly were aware of the legislation, and we talked about that at our investor conference last month and incorporated continuing to make investments in storm hardening and storm undergrounding over a long period of time in those capital plans that we laid out last month. So really, I think, the focus from investor standpoint should really take some incremental confidence in that long-term program – long-term visibility again multi-decade visibility that we have to investing in the grid to improve – further improve the resilience and hardening to weather storms effectively.

Got that. And then just pivoting to renewables, could you just remind us again if you would be willing to explore the residential rooftop solar market in the near future? Or any thoughts on either the residential or the distributed generation commercial business out there?

As you would expect from an Energy Resources’ standpoint, we look at all sorts of development opportunities, particularly in the renewable sector across any sort of the customer base. We do have a distributed generation business. They predominantly focused on C&I investment opportunities, but they occasional look at residential. We just probably don’t talk about it as much as other might because we’re deploying $50 billion to $55 billion of capital over the next four years. And so if you think about DG opportunities, it’s a little bit smaller than some of the scale we may talk about more frequently.

And that’s a great point that Rebecca just made. We are the largest C&I distributed generation developer in the country. We never talk about it. It’s not supergiant capital for us because of the context of the $55 billion, but we’re the biggest in the country in that business.

All right. Thanks for taking my question.

[Operator Instructions] We will take our next question from Colin Rusch with Oppenheimer. Please go ahead.

Thanks so much. With SEIA’s launch of the campaign to extend the ITC, could you guys talk a little bit about your expectations for prospects on that? Any sort of behavior changes that you’re seeing from the supply chain at this point?

Are you talking about the investment tax credit?

Correct. Yes.

Yes. I see. Sorry, I thought perhaps you’re talking about something else. So yes, from investment tax credit and production tax credit standpoint, we have benefited from the last couple of years of some of the like most significant visibility to long-term incentives as the industry has ever had, and we can remain focused on executing against those opportunities with the ITC being at full value assuming you execute on an effective safe harbor strategy through 2023, we’ve got a lot of visibility to execute against our development plans. As you know, when the tax credits were last extended and implemented, the phase down that’s now currently in place, we are very supportive of that as an industry and our company specifically because we believe the things that we have talked to you about over time, including everything we laid out last month investor conference, that without incentives or with ITC being down to 10%, you have wind and solar generation being the most effective from a cost-effective standpoint generation in the U.S. compared to coal and nuclear facilities that are – just have their operating costs. So we’re excited about our development program. If something changed in the incentives more favorably, that would potentially create additional tailwind for us and the overall growth of the industry, but we’re focused on execution.

Okay. Great. And then just shifting gears back to the distributed generation development program. There’s actually been an awful lot of maturation of micro grid technology in the last, call it, 12 to 24 months. And I’m curious how aggressive you think you might move into the point some of those technologies as we see battery costs really get down to a level where – primarily within the integration technologies getting mature enough to actually handle the functionality. How do you see that playing out over the next few years?

Well, as Jim highlighted and I talked about as well, from a development standpoint, we’ll continue to pursue opportunities and we’ll stay involved in those markets in order to make sure that we’re aware of the trends and where things are becoming more cost effective and there may be opportunities for us in the future to invest more heavily. But at this stage, it’s pretty early and the investment opportunity is relatively small compared to some of the other things that we’re focused on and that we talk about more frequently.

Great. Thank you so much.

This is John. I mean, one thing to add to that is, as part of our DG efforts, we certainly do focus on behind the meter and demand response solutions. It’s a fully integrated solution that we’re bringing to our customers.

There are no further questions at this time, and this concludes the conference. Thank you for attending today’s presentation.