Good morning and welcome to the NextEra Energy, Inc. and NextEra Energy Partners Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Roskot of Investor Relations. Please go ahead.

Thank you, Andrea. Good morning, everyone, and thank you for joining our third quarter 2020 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 will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today’s earnings news release and the comments made during this conference call, in the Risk Factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, 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 third quarter results and continue to perform well on managing the ongoing impacts of the COVID-19 pandemic. NextEra Energy’s third quarter adjusted earnings per share increased by more than 11% versus the prior-year comparable quarter, reflecting strong execution at Florida Power & Light Company, Gulf Power and Energy Resources. Year-to-date, we have grown adjusted earnings per share by over 10% relative to 2019. We continue to execute well on our major initiatives, including continuing to capitalize on the best renewables development period in our history and we are well positioned to meet our overall objectives for 2020 and beyond. Before moving on, I would like to say a few words about hurricanes Isaias, Laura, Sally and Delta. As you know, residents throughout the eastern and southeastern U.S. were recently impacted by the severe effects of these dangerous and deadly storms. Our deepest sympathies are with those, who have been impacted by these storms widespread destruction. We are grateful for the support that others have given us over the years and we were fortunate to be in a position to assist other utilities this year. As part of our assistance efforts, we sent several thousand of our employees and contractors as well as transmission equipment to help rebuild the grid to support the restoration efforts of the impacted utilities. Gulf Power itself was impacted by Hurricane Sally, which experienced an unexpected change in intensity and path before striking the service area. Approximately, 285,000 customers or more than 60% of Gulf Power’s customers experienced outages as Sally brought heavy rain and severe flooding. Through a restoration workforce that totaled approximately 7,000 workers, including approximately 2,000 FPL employees and contractors. Gulf Power was able to restore service to essentially all impacted customers…

[Operator Instructions] And our first question will come from Steve Fleishman of Wolfe Research. Please go ahead.

Hello. Thank you. I guess, two questions; first of all, the – does the backlog increase that you announced today include the NiSource NIPSCO projects that were just announced this morning or would those be additive?

Steve, this is John Ketchum. Yes, it does include the NiSource projects.

Okay. And then second question would just be this will probably be the last time we hear from you before the election results. So just maybe, one more time. Could you just talk about in the event that Biden wins the election, thoughts on what that could mean for renewables opportunity? And also thoughts on how NextEra is positioned for any tax reform changes. Thanks.

Thanks, Steve. As you well know and kind of consistent with our history, we focus on analyzing a variety of impacts and one of our key focus for going into the election is to ensure that we’re well positioned to be successful regardless of the outcome. And looking back in the last couple of years, obviously, we’ve done quite well across all of our businesses in the environment that we’ve been in. So, should Trump win a second term, we would expect to continue our strong momentum and continued focus on our strategies and execution on them. If Biden is the new President, he has clearly made clear across this platform, across the Democratic platform that they had strong support for renewables. To date, their plan is more focused on broad goals as opposed to specific plans for how they would get there, but we could easily see, whether it’s extension of incentives, focus on storage, potentially focus on hydrogen, et cetera, to further accelerate the expansion of renewables across the U.S. beyond the already strong demand that we’re seeing, that’s clearly based on the economic value of renewables relative to the alternatives. As it relates to tax reform, obviously, that’s part of some of the things that Biden has been talking about. It certainly could be on the agenda. I think there’s a question as to whether or not it would be one of the first things that a new administration would want to focus on, particularly as we will likely find ourselves still in recovery mode from the pandemic and we will evaluate, as there’s – if there are more details and as there are more details, we’ll evaluate the overall impacts. If you look at the prior tax reform as an example, clearly, a change in the tax rate, an increase in the tax rate, as Biden has talked about, would have some negative adjusted earnings impacts, positive cash impacts, all else being equal. But we need to think about, one, the details of any policies that they put forward; but two, together with the other things that would come along with the new Biden administration, including the strong demand for renewables that we would expect. So more to come as we learn more and, obviously, the results from the actual election unfold.

Great. Thank you.

Thanks, Steve.

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

Good morning to you. Thanks for the time. Appreciate it. If I can follow-up on a couple of things here. First, transmission, you guys did this interesting announcement in the quarter. How does that enable a further expansion of potentially larger-scale projects? And how does that complement essentially larger-scale renewable ambitions you might have across the core Midwest territories that they serve today?

Yes, Julien. thanks for the question. We are thrilled with the acquisition, of course, subject to approvals of GridLiance, and it is the three different transmission companies across six states, where their existing assets are located. First, there are investment opportunities in those existing investments that we have – that we would have in GridLiance. But it also positions us to have a seat at the table in these regional ISOs as they contemplate new transmission projects. And obviously, GridLiance would seek to compete effectively for those opportunities. The comment around renewables is that as we think about a broad and substantial expansion of renewables across the U.S., it becomes important and increasingly so over time, to continue to invest in the transmission grid across the U.S. So, we want to be a part of that solution and capitalize on those investment opportunities via our competitive transmission business, but also, we’ll depend on that in order to realize the significant expansion of renewables over time. So, it’s both an enabler and an investment opportunity from our perspective.

Thank you. Perhaps, if I can pivot over to the more strategic side of the equation here and perhaps I’ll frame it this way. So, you all have recently received greater latitude when it comes to your debt metrics on an FFO to debt basis from the agencies. Can you talk about how you might receive yet further latitude as you think about the percent regulated the business needs to get to, to unlock yet for lower metrics, if that makes sense? And perhaps in tandem with that, might you espouse your latest thought process on strategic thinking from here beyond, perhaps some of the comments you previously provided to the extent relevant.

Yes, of course. So, a strong balance sheet is incredibly important to us. And one of the things that we spend a lot of time talking with the agencies about is how strong a cash flow generation profile all of the businesses have, how diverse in a variety of metrics, including geography, technology, customers, et cetera, and how that profile compares very favorably to other peers in the industry and their own respective cash profiles. So, we did realize the improvement in downgrade thresholds, specifically at Moody’s this period that 18% to 17% downgrade threshold improvement and we’ll continue discussing with the agencies about the high-quality characteristics of our cash flows and seek improvements in additional flexibility as appropriate. There is the opportunity to have extensive dialogues with the agencies around potential regulated M&A. So any time, we do contemplate transactions we have those conversations to evaluate whether or not the profile of the cash flow generation changes such that it would move those metrics. And as we have those dialogues and have those conversations with respect to potential M&A, we factor those in to any deal transaction economics. It remains incredibly important to us to be able to maintain consistency with our objectives around M&A, which is that they’re value accretive from an earnings perspective. They also are in strong regulatory environments and create opportunities for us to invest capital. But being accretive is incredibly important to us. As you know, when we think about metrics, there are quite a number of ways to think about the balance of our business between the competitive generation business and regulated. And one of the key ways that we continue to maintain that balance is through capital recycling. And that’s one of the reasons why NextEra Energy finds value in its long-term relationship with NextEra Energy Partners, is the clear ability to recycle capital in a very efficient way with NextEra Energy Partners.

Got it. But there’s no specific percent regulated that you want to achieve to get that number down to 16% or 15%, right?

No. We’re not prescriptive about a specific balance. We think about a variety of factors when we think about what’s the optimal balance of our business and there’s not one answer at a given point in time. And certainly, that can be influenced over time as things change and our perspective and the agency’s perspective changes.

Excellent. Thank you, all. Best of luck.

Thank, Julien.

Our next question comes from Shar Pourreza of Guggenheim Partners. Please go ahead.

Hi, good morning, guys.

Good morning.

Just a quick follow-up on Julien’s question. And it’s really bent on sort of that mix. Obviously, FPL and Gulf are posting very solid regulatory capital deployment, but the NEER development platform keeps signing contracts. And as you guys sort of highlighted that the backlog is now larger than the existing portfolio. So, curious on how we should sort of think about the growth trajectory of NEER as we’re sort of thinking about a mix. I mean, is 70%/30%, Rebecca, no longer relevant on what you sort of target there? Have you sort of sanitized the additional growth opportunities with NEER with the rating agencies? And then how do you sort of stay within a potential mix? Obviously, recycling capital into NEP is an option, but that has a lot of constraints and limits. Slowing down NEER likely isn’t an option. So really is the path of least resistance, more regulated acquisitions. So maybe, if you could just drill down a little bit further into the prior question?

Thanks, Shar. And then I certainly appreciate the premise of the question, which is, we have terrific organic growth prospects at both the regulated utilities and in the competitive energy business. One of the things that we think is really important from the competitive side of the business is so long as we can find projects that are attractive, that have attractive returns. We don’t want our teams to be capital constrained because we believe that these are very strong value-accretive project investment opportunities for our shareholders. So, we set them off and hope that they can find all of the best projects and that we can secure the wins and build those projects. As you know, a significant amount of the value creation of developing renewables projects and owning and operating them long-term is in that development process, constructing them and beginning and putting them into operations. So, if we can continue to do that with value-accretive projects, and to the extent that we want to manage a balance of the mix of business across the different companies. We will take advantage of that capital recycling as one of the best ways and most value-accretive ways for NextEra Energy shareholders to recycle capital either to NextEra Energy Partners or potentially even to other third parties depending on market characteristics at the time. So, I think we’ve got a lot of levers. And again, most importantly, in a terrific position of win-win of having a lot of places to place our capital and, obviously, we’re pleased with raising our capital investment ranges for the four-year period.

So just a follow-up. So that 70%/30% regulated non-utility mix, should we sort of just move away from that sort of target that we’ve discussed in the past?

Shar, I think the key takeaway is there’s not a specific number that is the right number. And we’ll be – we think about it in a variety of different ways over time. And there are a variety of levers that we can utilize to maintain a balance, but we’re not prescriptive on a specific number that it needs to be.

Got it. Got it. And then just on the battery side, you obviously added 594 megawatts, which includes a single 325, four-hour project. Can you sort of just maybe talk about the economics of storage you’re seeing, especially with the four hours project? Just maybe from an LCOE perspective, and with the current backlog of storage opportunities, is four hours of storage sort of that peak capability? Or are you seeing some longer storage opportunities?

Well, let me take that last part first. I don’t know that there’s a constraint or a peak capability of storage. There are clearly a variety of storage solutions that could make sense in a given application. What our energy resources team is largely focused on is providing solutions that our customers want to buy, that solve our customers’ needs. And most recently, four-hour storage has been very attractive and particularly interesting to our customers. So, we have sold quite a number of four-hour storage projects. From a return standpoint, these storage facilities are often sold together with other renewables projects, specifically other solar projects, and we found the returns to be very attractive, comparable to solar and wind project returns on an overall basis.

Yes. And Shar, this is John Ketchum. I have a couple of things that I would add to that are: One, remember, there are three ways that we really look to grow the storage business. One is pairing it with solar. The second are trifecta opportunities that we’ve advertised in the past that we’ve been successful executing on, combining storage with wind and with solar. If we were able to get – ever to get a stand-alone storage ITC, obviously, that would help what is the largest wind portfolio in North America. And then the stand-alone opportunities along the lines of what we’re able to advertise today. So, when you combine those three potential opportunity sets, we have a significant growth opportunity in storage. You see that in our 2021 CapEx plan, that is over $1 billion in storage. Nobody has the existing fleet that we have. And so the opportunity to pair storage at existing solar facilities, existing wind facilities and then look for stand-alone opportunities, I think, puts us in a different class, just based on the existing operating fleet that we have. And then as you think about batteries going forward, four-hour duration may make sense in certain markets, two hours in others. But in two to three years, we could be moving to solid-state batteries, which could also provide longer duration, more efficient at a reduced cost. And then hydrogen certainly is a long-term alternative. We mentioned the 50 pilot projects today in electricity, in transportation and industrial applications. So, we see hydrogen as really a long-term solution, particularly if we end up in 100% decarbonized energy policy by 2035, where hydrogen could really be the solution for that last 10% to 15% where it gets very expensive to do with batteries, much cheaper and more manageable to do with hydrogen.

Terrific guys. Thank you very much.

Thank you.

Our next question comes from Michael Lapides of Goldman Sachs. Please go ahead.

Hey, guys. Thank you for taking my questions. On the renewable front, it seems that after years of not really doing a lot, that pretty much every regulated investor-owned utility has its own renewable growth strategy and rate base. Can you talk about – now the broader market has massive tailwinds? But can you talk about how that move by the regulated IOUs is impacting the competitive dynamic for people developing, especially all given your scale, renewables on the non-regulated side of the business. Like how does that just kind of flow-through or impact the market dynamic?

Thanks, Michael. We appreciate the question. Well, let me highlight first and at the risk of sounding a little too flip. We now have a backlog of over 15,000 gigawatts, and we do get a lot of questions about whether or not we’re concerned about the competitive dynamic, but the team is doing pretty well in this dynamic. And keep in mind that we’ve got customer base that’s investor-owned utilities, munis and co-ops and C&I customers. And the dynamics of wanting to build and rate base really are predominantly focused on the investor-owned utility side. And there are opportunities even within investor-owned utilities to compete effectively for the business and partner with them in many cases to create win-win opportunities for them to get the best built projects for their customers, own some of it in rate base, enable us to operate it in some cases, enable us to power purchase agreement – enter into those power purchase agreements and sell it to them over time. And then, of course, we continue to have strong opportunities to sell under contract to the munis and co-ops and C&I customers. So the outlook is very bright. Our team is doing a terrific job executing, and we’re looking forward to continuing to deliver against those growth opportunities.

Yes. And just, Michael, picking up on a couple of the comments that Rebecca made. With IOUs, let’s just take a look at what happened with NIPSCO this quarter. If you add on the 400 megawatts of wind that we announced last year, we’re now at 2-gigawatts with just one customer, one investor-owned utility in Indiana, in NIPSCO. So, we still see significant opportunities for investor-owned utility renewable buildout, being able to bring low-cost solutions that combine not only traditional renewables, but with storage applications and then obviously around hydrogen. Munis and co-ops have always been a core part of the business. And then C&I, as Rebecca mentioned at the end, the C&I market is really accelerating. And as ESG has really come into the fold, a lot of the investor pressure that formally nontraditional buyers of renewables are facing from their investor base has really expanded the opportunity set for us to sell many different products to those potential customers. And one of the things that we’re seeing in the decarbonized U.S. economy is not only the chance to sell renewables, but also to play to our others ranks. So a lot of adjacencies, a lot of adjacencies around clean energy, where we are the natural fit to be a leader in some of those specific markets. And those are some of the things that we are continuing to look at and spending a lot of time as a senior team focusing on.

Got it. And if you don’t mind a follow-up on the regulated side. In the event sometime over the next couple of years, there are higher corporate income tax rates and we’ll see, obviously, policy changes and is fluid. How do you think about what that means for the customer, given the cost of service would obviously have to reflect the higher tax rate? But also the excess accumulated deferred federal income taxes that currently is being refunded by many utilities around the country, part of that would actually potentially, I think, reverse. So it would kind of put on the backs of the customer a decent bit of a rate increase and a little vary by jurisdiction and by utility. How does that impact the dynamic over a multiyear period? Yes, it raises cash flow, but it could also raise the customer bill. And what do you think the opportunity set is for NextEra in terms of either offsetting that impact? Or even improving your competitive position at the utility level relative to some of your peers?

Hey Michael it’s Jim. Let me take that because we’ve been doing a lot of thinking around, obviously, different scenarios around, obviously, different scenarios around what happens with taxes depending on what happens with the federal elections. Remember, what happened in 2017 around tax reform is that the industry very effectively, I think, came together, and they were really two industries that were carved out for different treatment in the 2017 tax reform scenario. One was real estate, and I’ll let you speculate as to why real estate might have gotten singled out. And the other was the utility sector and the utility sector, I think, was very effective in laying out what the impacts to customers and to balance sheets were around tax reform. I think to the extent that there is any tax discussion next year. Let’s assume for a minute that Biden wins, I think it’s very – I think it’s – we’re obviously in a scenario planning around both outcomes because I think you can’t really handicap it one way or another right now. The best thinking that we’ve had around this is that in the middle of a pandemic it’s probably not the time to have a tax increase period. And so in terms of the timing around tax reform, I’d be surprised if it was next year, honestly, even in a Biden administration. Who knows, right? I mean that’s a bit of speculation on my part. But the other thing I think we would be very effective as an industry being able to do is to lay out how any tax increase on utilities is really simply a tax increase on all customers and non- corporations but on everyday Americans. And I think that message will resonate in Washington. And so that’s a message that we, as an industry, haven’t been able to lay out yet, obviously, because it’s premature to do so. So I think a lot of the angst around tax reform, one way or another, is I think a little premature right now. And obviously, we’ll see what happens in the election. But then if Biden does win, then there’s going to be, where does it stand up in the list of policy priorities for the newer administration if there should be one.

Got it. Thank you, Jim. Much appreciated.

Our next question comes from Michael Weinstein of Credit Suisse. Please go ahead.

Hi, guys. A couple of questions on the possibility of higher taxes on the other side of it, wondering if that would potentially reduce your need to use tax equity for projects going forward. And also, I understand as the largest player out there, you guys don’t really ever have a problem attracting tax equity investors. But can you just comment on the status of the tax equity market in general right now? I guess, it’s pretty tight for some of the smaller players. Is that something that could improve under a Democratic administration if the tax rates go up and tax credits are extended, et cetera?

Sure. Let me start with this year first. From a tax equity market standpoint, that was one of the things that we and everybody else in the industry, and of course, the tax equity providers were thinking about in the early stages of the pandemic. We have secured all of our tax equity commitments for this year and have already started the dialogues with tax equity partners about our pipeline of projects for next year. And we feel confident about our ability to secure tax equity. I do think as you go out a year into 2021 and maybe into 2022, it’s certainly possible that the tax equity providers are going to have more limited capacity. And that may affect others further down the chain a little bit smaller or a lot smaller than we are and could be an issue. As it relates to tax reform, it’s – without knowing the details of it and the kind of having more of the specifics, it’s hard to answer the question of whether or not the needle has moved enough to not need tax equity. It also somewhat presumes that there’s an extension of incentives because, obviously, if the incentives phase out like they are currently expected to, there’s a less need for tax equity over time. And that’s actually one of the things that we’ve highlighted in terms of our future power purchase agreement prices, is optimization around financing, so seeking lower cost source of financing other than tax equity would be a positive. So I think there’s pluses and minuses, puts and takes. What I do feel very comfortable with is the outlook and demand for renewables is really strong, and we’ve continued to realize attractive returns, and we’re excited about keeping – continuing to capitalize on these opportunities.

Great. Great. And also on the wind repowerings, is there – what’s the primary consideration that you’re looking at to increase those numbers as you look at 2021, 2022 and beyond?

Yes. I think the key focus there is really the economics of the repowering projects and ensuring that they are attractive returns and meet the requirements from a tax perspective and, obviously, are also something that our customers are interested in. So, we’ve continued those dialogues over time. And as we’ve gotten closer to the time frames in which we would do these repowerings, obviously, the rubber starts to hit the road, and we’ve been able to start to secure some of those and have increased visibility to those incremental investment opportunities, obviously, in that range that we discussed today.

Right. Would an extension of tax credits really allow you to really increase that or increase the opportunities anyway?

It’s certainly possible that it could. Again, a little bit subject to the details of what an extension of incentives looks like, and all the other factors that go into whether or not a project is attractive, but absolutely.

One last question. On FERC 2222, it improves the ability of residential solar to sell into grid services. And I’m just wondering, if the value – that value that comes from FERC 2222 makes –changes your mind at all about residential solar, is it possible investment opportunity for next year?

We’ve looked at distributed generation investments. Obviously, we have a very strong business on the – more of the commercial and industrial side. We’ve looked at residential over time. But one of the key factors for us is that we’re a significant sized company, and we like to deploy a significant amount of capital, and inevitably, these are much smaller investment opportunities. But we do look at the business over a long period of time. And obviously, we’ll enter it where we think it makes sense. But we’re really focused on kind of a little bit larger scale investment opportunities for the most part.

Okay. Thank you very much.

Thank you.

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