Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NextEra Energy Inc (NEE, Financial) delivered strong second-quarter results with adjusted earnings per share increasing more than 9% year over year.
- FPL's regulatory capital employed has grown at a 12% compound annual growth rate since the beginning of 2022, surpassing the initially anticipated 9%.
- Energy Resources added over 3,000 megawatts of new renewables and storage projects to the backlog this quarter, marking the second-best origination quarter ever.
- NextEra Energy Inc (NEE) expects to continue demonstrating the benefits and protections that the reserve amortization mechanism provides customers when they file their rate case next year.
- The company has a 300-gigawatt pipeline, half of which is in the interconnection queue process or is already interconnection ready, positioning it well to meet growing power demand.
Negative Points
- FPL's reserve amortization mechanism has been utilized faster than expected due to accelerated growth, leading to a remaining balance of $586 million.
- Contributions from the gas infrastructure business decreased by $0.07 per share due to higher depletion expense, non-recurring items, and the sale of Texas pipelines.
- The partnership's payout ratio is expected to be in the mid to high 90s through 2026, indicating a high level of cash distribution relative to earnings.
- NextEra Energy Partners does not need growth equity until 2027, which may limit immediate expansion opportunities.
- The company faces challenges in managing supply chain risks and ensuring adequate security to provide incentives for performance, especially in the context of tariffs and AD/CVD risks.
Q & A Highlights
Q: Could you elaborate on the increased usage of reserve amortization and earned ROE? What has driven this increase?
A: (John Ketchum, CEO) The increase is primarily due to significant population growth in Florida, which has impacted our service territory. Our regulatory capital employed has grown around 12%, higher than the 9% initially anticipated. This growth has led to a remaining reserve amortization balance of $586 million, which we expect to support our capital investment plans and maintain an 11.4% ROE for 2024 and 2025. This has a $0.06 impact each year, already factored into our financial expectations.
Q: Can you provide details on the $900 million Blackstone financing?
A: (John Ketchum, CEO) The financing involves a 1.6 gigawatt portfolio of renewable assets. Blackstone invested capital alongside us, taking a partial interest in this portfolio. This deal highlights the strong demand for NextEra assets in the private equity market, reflecting our reputation as a top developer.
Q: How are you addressing the recent issues with GE turbines, particularly in light of the Vineyard Wind situation?
A: (John Ketchum, CEO) We have a strong partnership with GE and are recognized as a top-decile operator of wind. While wind turbines can have issues, we have always managed and addressed these problems effectively with GE, ensuring a collaborative approach to any arising issues.
Q: What are the current strategies and timelines for addressing NEP's cost of capital and convertible equity portfolio financing buyouts?
A: (Brian Bolster, CFO) We are exploring all options to improve NEP's cost of capital and address the back-end SEPFs. This includes considering private capital. We have time in 2024 to be thoughtful about our approach, with no immediate need for growth equity until 2027. We aim to identify a solution over the next few quarters.
Q: How are you managing supply chain challenges and ensuring the ability to meet the needs of large energy-intensive customers like hyperscalers?
A: (John Ketchum, CEO) Our large program size gives us leverage over suppliers. We have invested in data and analytical capabilities and have transferred risks like tariffs to our suppliers. Our strong relationships and consistent performance make us a preferred partner for suppliers, ensuring we can meet customer demands effectively.
Q: Can you discuss your approach to asset recycling, particularly in light of the recent Blackstone deal and potential future sales?
A: (John Ketchum, CEO) We feel confident about our options for capital recycling, focusing on our core business of wind, solar, battery storage, and transmission. We are also considering targeted recycling of gas infrastructure assets and bringing in partners for transmission projects to optimize returns and manage assets effectively.
Q: What are your expectations for the renewables market and PPA pricing trends?
A: (Rebecca Kujawa, CEO of NextEra Energy Resources) We continue to see strong returns and customer demand for renewables. The market dynamics are positive, with stable or slightly declining capital equipment and rate costs. Our large pipeline and competitive positioning allow us to offer attractive prices and products to our customers, ensuring continued shareholder value.
Q: How do you view the potential impact of the US election on the IRA and your renewable development plans?
A: (John Ketchum, CEO) We have a long history of working with both sides of the aisle. The incentives from the IRA favor Republican states, and many lawmakers see the positive impact on their communities. The credits are difficult to overturn and provide significant benefits like job creation, lower power prices, and energy independence. We expect the credits to remain in place, supporting our renewable development plans.
Q: Can you provide more details on your relationship with hyperscalers like Google and the types of projects involved?
A: (Rebecca Kujawa, CEO of NextEra Energy Resources) Our projects with hyperscalers include a mix of wind, solar, and battery storage, often tied to specific data center demands. These customers value our ability to deliver reliable, clean energy solutions. We focus on creating value through flexible, structured agreements that meet their long-term needs.
Q: How is the political instability around the potential repeal of the IRA affecting your ability to sign contracts?
A: (John Ketchum, CEO) Political instability is not impacting our ability to sign contracts. If anything, it would accelerate demand. Our customers remain confident in our ability to deliver and are not deterred by potential legislative changes.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
