NextEra Energy Partners, LP (NYSE:NEP) Q3 2024 Earnings Call Transcript

NextEra Energy Partners, LP (NYSE:NEP) Q3 2024 Earnings Call Transcript October 23, 2024

NextEra Energy Partners, LP misses on earnings expectations. Reported EPS is $-0.4385 EPS, expectations were $0.51.

Operator: Good day, and welcome to the NextEra Energy Inc. and NextEra Energy Partners LP Third Quarter 2024 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. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mark Edelman, Director of Investor Relations. Please go ahead.

Mark Edelman : Thank you, Dave. Good morning, everyone, and thank you for joining our third quarter 2024 combined financial results 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; Brian Bolster, 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. John will start with opening remarks and then Brian will provide an overview of our results.

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 and the Risk Factors section of the accompanying presentation or in our latest report and filings with the Securities and Exchange Commission, each of which can be found on our website, 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’ll turn the call over to John.

John Ketchum : Thank you, Mark, and good morning, everyone. NextEra Energy delivered strong third quarter results and remains well positioned to meet its overall objectives for the year. Adjusted earnings per share for the third quarter increased approximately 10% year-over-year, reflecting continued solid financial and operating — operational performance at both FPL and Energy Resources. As a sign of the robust underlying demand for new renewables generation and storage, we are pleased to announce that for the second quarter in a row, we have added approximately 3 gigawatts to our backlog, bringing our running four quarter total to approximately 11 gigawatts. We are also pleased to announce incremental framework agreements with two Fortune 50 customers for the potential development of renewables and storage projects, totaling up to 10.5 gigawatts between now and 2030, none of which is in our backlog today.

When combined with our Entergy joint development agreement from last quarter, our recent announced framework agreements now totaled up to a potential 15 gigawatts, demonstrating our unique position in the market and our customers’ confidence in our ability to help meet the nation’s need for power. Before I turn it over to Brian to take you through the detailed results, I want to spend a moment on FPL and Hurricanes Helene and Milton. I then will discuss our view of the industry at this transformative time. I would like to extend our deepest sympathies to all those who have been affected by the widespread destruction caused by these two hurricanes over the last month. Hurricane Helene was one of the most destructive hurricanes to ever make landfall in the continental United States.

The powerful and destructive storm hit Florida as a high end Category 4 hurricane, with devastating storm surges and sustained winds of approximately 140 miles per hour, causing approximately 680,000 FPL customers to lose power. Hurricane Milton made landfall in Florida as a high end Category 3 hurricane, with sustained winds of approximately 120 miles per hour, producing numerous tornadoes, widespread flooding, and causing approximately 2 million FPL customers to lose power. Hurricane Milton made landfall on the West Coast of Florida in FPL service territory in Sarasota County and exited on the East Coast of Florida in FPL service territory in Brevard County. In preparation for the hurricanes, FPL assembled a combined restoration workforce of more than 30,000 workers across these two storms.

This preparation and coordinated response enabled FPL to restore service to roughly 95 affected customers after the second full day of restoration following Hurricane Helene’s landfall and 95% of affected customers after the fourth full day of restoration following Hurricane Milton’s landfall. I would like to thank all of our employees who made personal sacrifices leaving their own homes to serve our customers, our communities and our state. It was because of their training, their preparation, their dedication and their commitment that we were able to restore power to our customers so quickly. I would also like to thank other members of the restoration team, including the contractors, vendors and first responders that supported our efforts for their dedicated assistance during this critical time.

Finally, I would like to express our sincere gratitude to Governor DeSantis for his unwavering leadership and support during these devastating hurricanes. We’re also deeply grateful for the resources provided by our industry partners, who came from 41 different states in Canada to help support our customers during Hurricane Helene and Milton. Mutual aid in times of disaster was one of the hallmarks of our industry and we were proud to be able to assist other utilities to help rebuild some of the damaged southeastern power grid that saw significant impacts from Hurricane Helene in Georgia and the Carolinas. For nearly two decades, FPL has invested significantly in building a stronger, smarter and more storm resilient grid. The performance of our system demonstrates that FPL’s hardening, undergrounding, automation and smart grid investments are providing significant benefits to our customers.

During sustained winds of approximately 140 miles per hour during Hurricane Helene and 120 miles per hour during Hurricane Milton, our smart grid technology investments avoided 185,000 outages during Hurricane Helene and avoided 554,000 outages during Hurricane Milton. Additionally, initial performance data shows that FPL’s underground distribution power lines perform more than 6x better in terms of outage rates than existing overhead distribution power lines in Florida. We are proud to report that our generation fleet, including our solar sites, sustained no significant damage. Despite 66 of FPL’s 88 existing solar sites or approximately 16 million panels being exposed to storm conditions during Hurricanes Helene and Milton, less than 0.05% of our solar panels were affected.

We believe these investments, together with our preparation and coordinated response have improved FPL’s overall reliability and resiliency, providing significant value to our customers. The recent storms underscore the importance of a reliable and resilient power grid and this need will only intensify, as we face a period of unprecedented growth in power demand. Over the last 80 years, our sector has experienced many demand cycles from growth emerging out of the World War 2 and the Industrial Revolution to multiple decades of essentially little to flat demand. That’s all changed. Today, there are forecasts for an approximate 6x increase in power demand growth in the next 20 years versus the prior 20. That significant projected shift in fundamental demand is across industries, driven in large part by 7/24 loads from data centers, reshoring to manufacturing and electrification of industry, including oil and gas and chemicals to name a few.

U.S. data center power demand alone is expected to increase substantially, adding approximately 460 terawatt hours of new electricity demand at a compound annual growth rate of 22% from 2023 to 2030, which could potentially enable 150 gigawatts of new renewables and storage demand over the same period. With all of that demand — with all of that power demand, it’s important to consider what it will take to meet that demand, what type of generation will be required over the next decade or so, and importantly, when can it practically be brought to market? If that demand is not met in a smart prudent way, power prices could escalate over time and affordability could become an increasing concern, driving inflation and making U.S. industry uncompetitive on a global scale.

Fortunately, at FPL, we have a playbook in place. We have been addressing the benefits and challenges of fundamental growth for years now, while continuing to deliver on our strong customer value proposition, which is anchored in bills that are nearly 40% below the national average and maintaining top decile reliability. We are making smart capital investments in low cost solar generation and battery storage, which are continuing to reduce our overall fuel cost and when combined with generation modernizations, have saved customers nearly $16 billion since 2001. We are delivering best-in-class non-fuel O&M, where we’re 70% better than the national average, saving our customers $3 billion every year compared to the average utility. Our experience at FPL puts Energy Resources in a unique position to help our customers meet their power demands.

We know what it is going to take to successfully meet the challenge that is in front of our industry. We need low cost reliable energy that can also deliver the capacity needed to support grid and we need it now. Cost, capacity and speed are the three big issues that need to be addressed in meeting power demand. And as we have demonstrated in Florida, a mix of new renewable storage and gas generation is the solution. When it comes to economics, renewables and storage are the lowest cost generation and capacity resource for customers in many parts of the U.S. We believe new wind is up to 60% cheaper and new solar up to 40% cheaper than new gas power generation, and that’s on a nearly firm basis when paired with a 4 hour battery. Incentives for wind, solar, and storage flow directly to customers in the form of lower bills.

Over the past several years, we have seen the customer benefits of low cost solar and storage at FPL, where the two combined resources are currently the lowest cost option for customers, beating out new build gas and combined cycle units in our 10 year site plan. As a result, FPL now has the largest utility owned solar portfolio in the country. What FPL is seeing in Florida is also playing out across the rest of the country, whether with investor owned utilities, municipalities, cooperatives or commercial and industrial customers. And when it comes to speed to market, no technology is quicker to deploy than renewables and storage. Wind, solar and storage not only can be built quicker, but they’re already in the interconnection queue. But don’t just take our word for it, look at our backlog.

We’ve added another approximately 3 gigawatts of renewables and storage this quarter, our second quarter in a row. As a top operator of all forms of power generation, we often get asked about nuclear and gas. Let me start with nuclear. Nuclear will play a role, but there are some practical limitations. Remember, on a national level, we expect we are going to need to add 900 gigawatts of new generation to the grid by 2040. There are only a few nuclear plants that can be recommissioned in an economic way. We are currently evaluating the recommissioning of our Duane Arnold nuclear plant in Iowa as one example. But even with a 100% success rate on those recommissionings, we would still only meet less than 1% of that demand. Existing merchant nuclear generation is also limited in its ability to meet that demand, given there are only approximately 20 merchant nuclear plants in this country.

That nuclear capacity is also not evenly spread across the U.S. And is not in many places. We know hyperscalers are looking to develop data centers or manufacturing — manufacturers are looking to expand their footprint. For example, there are only two merchant nuclear plants west of the Mississippi. Nuclear plants across the country are already serving existing demand. So even if they are contracted by specific customers, new resources need to be built to meet new demand. And alternatives such as new utility scale nuclear and SMRs are unproven, expensive and again, not expected to be commercially viable at scale until the latter part of the next decade. Turning to gas, when it comes to gas power generation, nobody has built more over the last two decades in NextEra Energy.

We understand the benefits and the challenges and we know what it all costs and how long it takes to build. The power sector is going to need to build more gas power generation and battery storage to meet growing capacity needs over the next decade. And as we build more, we also enable more renewables to come to market as the lowest cost generation source of energy. Renewables will be built for energy and battery storage and gas for capacity. That being said, while we are going to need both, storage has an advantage because it’s ready now as it can be paired with renewables at the same interconnect and there are no wait times or permitting hurdles for batteries. And renewables and storage will only get cheaper and cheaper over time, and we believe will continue to make up the lion’s share of new additions over the long haul.

To summarize, we believe power demand is at an inflection point and we expect much of that demand to be met by renewables and storage because they’re low cost, fast to deploy and in the transmission queue now. And the potential opportunity is significant. Forecasts are projecting a tripling in renewables growth over the next seven years compared to what we’ve seen over the prior seven. No one is better positioned to capitalize on that demand growth in NextEra Energy, and we have the track record to prove it. Since 2021 at Energy Resources, we have originated more than 33 gigawatts of renewables and storage, while placing nearly 18 gigawatts into commercial operation. We have advanced from originating on average 8 gigawatts per year from 2021 to 2023 to approximately 11 gigawatts over the last four quarters.

If we achieve the midpoint of our development expectations, this pace of development is expected to more than double our combined renewable generation portfolio, growing from 38 gigawatts today to potentially 81 gigawatts by the end of 2027. It’s hard to overstate the advantage this would give us as we head into the end of the decade. This potential growth in the portfolio would enable a long-term co-located storage opportunity set of more than 50 gigawatts by the end of 2027, creating a meaningful opportunity for us to win new business and continue to deliver superior returns. Our new framework agreements with Fortune 50 companies as well as our Entergy joint development agreement announced last quarter, together with our continued origination success are key examples of our leadership in power generation.

While these additions clearly demonstrate that some of the most sophisticated customers in the country understand the value proposition of renewables and storage, I want to close with a reminder of the broader economic impact to build out of renewables has had and continues to have on the U.S. economy. We have invested tens of billions of dollars in the nation’s energy infrastructure, creating tens of thousands of jobs, increased tax revenues and economic stimulus for the communities we invest in. And we are powering millions of American homes and businesses with low cost, reliable and clean electricity. The fact is that renewables are a critical part of the energy infrastructure in this country. Wind, solar and storage are not only ready now and fast to deploy, but also present a cost effective solution for meeting our country’s energy needs.

Tens of thousands of good jobs have already been created with many more yet to come over the next several years, boosting manufacturing and helping to revitalize rural communities across America. With scale, experience and technology across the energy value chain, and sites ready to develop and interconnect today, NextEra Energy was built for this moment. With that, I will turn the call over to Brian to cover the detailed results.

Brian Bolster : Thank you, John, and good morning, everyone. For the third quarter of 2024, FPL increased earnings per share by $0.05 year-over-year. The principal driver of this performance was FPL’s regulatory capital employed growth of approximately 9.5% year-over-year. We continue to expect FPL to realize roughly 10% average annual growth in regulatory capital employed over our current rate agreements four year term, which runs through 2025. FPL’s capital expenditures were approximately $2 billion for the quarter, and we expect FPL’s full year 2024 capital investment to be between $8 billion and $8.8 billion. Over the current four year settlement agreement, we expect FPL’s capital investments to exceed $34 billion. FPL’s third quarter retail sales increased 1% from the prior year comparable period.

FPL grew retail sales by roughly 1.6% on a weather normalized basis, offset by milder weather. During the quarter, FPL reversed approximately $231 million of reserve amortization and FPL ended the quarter with a balance of roughly $817 million. With regard to costs associated with storm recovery, as a reminder, we have both the storm reserve and a surcharge mechanism to the extent the reserve has been fully utilized. Following Hurricane Debby, we had depleted our storm reserve and have deferred the remaining incremental cost for Hurricanes Debby, Helene and Milton to the balance sheet. We intend to recover those deferred costs and replenish the storm reserve via storm surcharge on customers’ bills over the calendar year 2025. Although FPL has not completed the final accounting, our preliminary estimate of restoration costs that we plan to recover from customers through a surcharge is approximately $1.2 billion inclusive of $150 million, which will be utilized to replenish the storm reserve.

Of course, the restoration cost will be subject to a final review and prudence determination by the Florida Public Service Commission. For the 12 months ending September 2024, FPL’s reported ROE for regulatory purposes will be approximately 11.8%. We still expect the regulatory ROE for the 12 months ending December 2024 and 2025 to be 11.4%. Now let’s turn to Energy Resources, which reported adjusted earnings growth of approximately 11% year-over-year. At Energy Resources, adjusted earnings per share increased by $0.04 year-over-year. Contributions from new investments increased $0.15 per share year-over-year, primarily driven by continued growth in our renewables portfolio. Comparative contribution from our customer supply and trading business, which you’ll recall had strong earnings last year, decreased by $0.10 per share driven by normalization of origination activity and margins, which is consistent with our expectations.

Contributions from both NextEra Energy transmission and gas infrastructure businesses increased by $0.01 per share year-over-year. All other impacts reduced earnings by $0.03 per share. Energy Resources had another strong quarter of new renewables and storage origination, adding approximately 3 gigawatts to the backlog. With these additions, our backlog now totals over 24 gigawatts after taking into account roughly 1 gigawatt of new projects placed into service since our last earnings call, providing great visibility into Energy Resources’ ability to deliver on our development program expectations. We expect the backlog additions will go into service over the next several years. Turning now to our third quarter 2024 consolidated results, adjusted EPS was $1.03 per share.

Adjusted earnings from corporate and other were flat to last year’s comparable quarter. At NextEra Energy, our long-term financial expectations remain unchanged. We will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted EPS expectation ranges in 2024, 2025, 2026 and 2027. In 2023 to 2027, we continue to expect that our average annual growth in operating cash flow will be at or above our adjusted EPS compound annual growth rate range. And we also continue to expect to grow our dividends per share at roughly 10% per year through at least 2026 off a base — off a 2024 base. As a reminder, our expectations are subject to our caveats. Turning to NextEra Energy Partners. Yesterday, NextEra Energy Partners board declared a quarterly distribution of $0.9175 per common unit or $3.67 per common unit on an annualized basis, up nearly 6% from a year earlier.

Today, NextEra Energy Partners is pleased to announce the expected wind repowering of another approximately 225 megawatts of wind facilities, bringing its total backlog of wind repowering to approximately 1.6 gigawatts through 2026. The partnership’s organic growth opportunities have expanded and we are increasing our wind repowering target to approximately 1.9 gigawatts of wind projects owned by NextEra Energy Partners through 2026, which is up from the previous target of 1.3 gigawatts. NextEra Energy Partners owns a large portfolio of high quality long-term contracted clean energy assets and has attractive organic growth from the repowering of its existing portfolio. NextEra Energy Partners remains focused on executing additional wind repowering opportunities in the future, which we believe would provide improved operating performance and higher generation.

Let me now turn to the detailed results. Third quarter adjusted EBITDA was $453 million and cash available for distribution was $155 million. Third quarter adjusted EBITDA and cash available for distribution declined by approximately $35 million and $92 million respectively from the same period last year. Third quarter adjusted EBITDA and cash available for distribution reflect the year-over-year impact of the divestiture of the Texas Pipeline portfolio. In addition, third quarter cash available for distribution in 2024 was negatively impacted by the first interest payment on the partnership’s December 2023 HoldCo debt issuance, as well as $23 million of higher project level debt service relating in large part to the 2023 acquisition financing.

NextEra Energy Partners continue to expect the run rate contribution for adjusted EBITDA from its forecasted portfolio at December 31, 2024 to be in the range of $1.9 billion to $2.1 billion. The year end 2024 run rate projections reflect expected calendar year 2025 contributions from the forecasted portfolio at year end 2024. The partnership also continues to evaluate alternatives to address its remaining convertible equity portfolio financing obligations and its cost of capital, focusing on its capital structure and the potential for redeployment of more cash flow toward driving organic cash flow growth. Given the demand for power, NextEra Energy Partners has many ways in which it can seek to grow, which could include not only acquiring assets, but also wind repowerings and potential other organic growth opportunities.

NextEra Energy Partners plans to complete its review by no later than the fourth quarter 2024 call and intends to provide its distribution and run rate cash available for distribution expectations at that time. As a reminder, our expectations are subject to our caveats. That concludes our prepared remarks. And with that, we will open the line for questions.

Q&A Session

Operator: We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Steve Fleishman with Wolfe Research.

Steve Fleishman: Maybe if it’s possible, I would love to get more color on the framework agreements. And I think when Brookfield announced one of these with Microsoft, you kind of downplayed wanting to do things in a framework fashion just due to the fact that you wanted to maximize the value of each site. So, could you maybe talk to the change in kind of now having framework agreements?

John Ketchum : Yes, sure, Steve. This is John. First of all, the framework agreements that we have been able to strike with Entergy and with the two Fortune 50 companies that we mentioned that total over 10.5 gigawatts and 4.5 on the Entergy side, give us an enormous amount of flexibility in terms of which assets that we allocate towards those programs. And so, we’re not stuck tying up inventory. And it creates a close partnership arrangement with each of these three counterparties that gives us a huge leg up in being able to secure incremental business. And what we would look for on the Entergy side, for example, is kind of a 50-50 on BOTs and PPAs, but I would think what we’re doing with the framework agreements with the Fortune 50 customers would be more in the lines of power purchase agreements. I’ll turn it over to Rebecca to see if she has anything to add.

Rebecca Kujawa: Sure, Steve. I think if you take a step back and you think about what’s happening in our industry, and you know as well as many of us on the call, the change in demand is significant. And it has changed rapidly over the last couple of years. And the customers that we’re referencing today as well as quite a number of others with whom we’re in discussions with have big, important and urgent energy needs that they need to have visibility to how those are going to be met. And they want to make sure that we and they are aligned, so that they have access to our substantial pipeline of projects. You know very well there is no one else out there that has a pipeline of 100 of gigawatts of projects in various stages of development.

There’s no one out there that has 150 gigawatts interconnect queue positions ready to go. And these customers want to make sure we’re focused on their business. And how do we do that? We get visibility to what their needs are so that we’re working with them collaboratively, so that ultimately we can work to put these projects into the backlog. I think the biggest takeaway that I would have if I were in your shoes is that this is a sign of how we are differentiated from others, and how we’re getting incremental visibility to the significant demand that’s related to the characteristics that we all know well. And I think it’s also a great sign of what John and Brian just went through about specifically the demand for renewables. Low cost, ready to deploy and aligned with the goals and objectives of the customers with which we’re working.

I think it’s just one more sign of the great environment in which we’re operating.

Steve Fleishman: And maybe just a follow-up or two on this still. Is there a point in time when you’ll be able to disclose who these agreements are with? And obviously, you can’t do that now, but just are — is it fair to say these are both hyperscalar tech type customers or other industries?

John Ketchum : So, I’ll take the first one, Steve. Is there a point of time where we can give names? Probably. And I think the preference of the counterparties and our preference is to go ahead and make an announcement of who they are side by side with the transaction, once we bring a deal to the table with them. And Rebecca, you want to handle the second question?

Rebecca Kujawa: Yes. I think the second part of it, and we were careful to write Fortune 50 companies. These are not technology companies. And I think that’s another great point is, yes, absolutely we’re so many of us are talking about demand from hyperscalers and colocation datacenter developers and that demand is real and significant and we’re having quite a number of conversations with all of them. But these are actually with customers that are outside of the technology industry. They are folks that are building facilities that they need to get power to. They are folks that are concerned and care about ensuring that they are low cost, ready to deploy and ideally low carbon forms of energy and capacity. So I think this is again robust sign of significant broad based demand.

John Ketchum : And one thing I’ll add to that, Steve, which I think is important color as investors think about the value proposition that we have going forward, given all of the demand that we’re seeing from data centers, it’s actually and the compression of supply and available sites ready to go. It’s creating more — even more of a premium on other industries outside of data centers to try to lock up low-cost renewable generation. And so, all ships are rising with the tide here, so to speak. So as data centers are increasing their demand, which is also increasing price, which is also increasing returns, you’re also seeing other industries that are looking to secure and hedge their power exposure because they believe that power prices, they may be facing higher power prices down the road.

And so it’s kind of an across sector phenomenon that we’re seeing, and it’s so encouraging because it’s very consistent with what we’ve been saying that this is not just the data center movement. This is a movement across industry, the electrification of industry, manufacturing, looking to decouple from China, and they’re all looking for ways to control energy prices at the lowest cost possible going forward.

Steve Fleishman: Last quick question. Just on the Duane Arnold. Is there any milestones or key steps that we should be watching out for on that opportunity?

John Ketchum : Yes. So we are very busy looking at Duane Arnold. We’re very interested in recommissioning the plant. We’re doing all the things right now that you would expect us to do. We’re doing all the assessments, which include engineering assessments, includes working with the NRC. It includes working with local stakeholders. So we are continuing to advance that project. And they’re obviously — it goes without saying there’s very strong interest from customers, really data center customers, in particular, around that site. But we will keep all of you posted as our evaluation progresses.

Operator: Next question comes from Shahriar Pourreza with Guggenheim Partners.

Shahriar Pourreza: Just on Steve’s question on Duane Arnold. I guess, John, any sort of sense on the cost to restart that plant and other structural items we should be thinking about as you approach a decision? And ultimately, if you strike a contract with a counterparty, is this an asset you’d want to own over the long-term? Or could that be a monetization opportunity as we’re thinking about your kind of ongoing balance sheet needs?

John Ketchum : Yes. Sure. I’ll start with the first one and then go to the second. So I’m not going to give you a cost number yet because that’s part of the evaluation that we’re going through currently. Remember, this is a BWR, boiling water reactor. They are a lot less complex to bring back and to recommission. It’s a simpler design because they don’t have a steam generator like PWRs do. And so that gives us optimism at being able to do this at an attractive price and be able to execute it without as much risk that might be associated with recommissioning a plant that does not have a boiling water reactor, but is a PWR design. On the second question, our desires to own versus monetize. For us, look, I mean, this is be a very attractive asset to own. We would hope to be able to get an attractive PPA. And this would be a long-term asset that I think would fit nicely in our portfolio.

Shahriar Pourreza : And then, John, just on the NEP side, I mean, obviously, there’s been a subtle change in language around timing, obviously, concluding the financial review by the year-end call. I guess, what’s given the confidence this quarter to put that time line out there? Is there kind of a range of preferred outcomes that you can at least highlight to investors, especially as you’ve kind of removed the language around the distribution growth targets? I guess what should we read into that? I mean, obviously, the market is a little bit jittery around that language change. And can you at least confirm if you see yourself as remaining the owner of this entity into the future?

John Ketchum : So as we have said to investors over the last several months, we’re completing our review regarding how to address [SEPFs] and NEPs cost of capital. We’ve been exploring a number of options as part of that. And as we said today, we’re also really reflecting on the YieldCo model itself and contemplating the strategic shift in how we allocate capital. One of the things that we are evaluating is should we put — deploying more of our capital towards really growing the underlying cash flow of the business and maybe less towards distributions. And so that’s one of the things that we’re thinking about. Obviously, we have to also address the back-end convertible equity portfolio financings. But what we wanted to do is just be upfront with investors that this review is coming to a conclusion, and we’ll be prepared to provide updated feedback on our distribution policy going forward on the fourth quarter call.

Shahriar Pourreza : So just reflecting on sort of the YieldCo model, it sounds like even NextEra remaining the ultimate owner of NEP is something that’s a question mark as well too, right?

John Ketchum : Yes. Look, I think going forward our preference would be to remain the owner of NextEra Energy Partners. We’ve looked at — we consider all available options and alternatives. They don’t discount any potential options going forward, but our base case would be to remain the owner of NEP going forward. And Shar, the thing I want to add is we talked a lot about on this call about the underlying dynamics in the industry. We’re in a period of substantial power demand in this industry. And there are many things where NextEra Energy is — has a superior position in markets and there are going to be a number of potential growth opportunities that could favor not only NextEra Energy, but also potentially NextEra Energy Partners. Going forward, obviously, data centers being a big part of that as well. And so, we have a number of things that we’re looking at that could potentially lead to attractive growth opportunities for NEP going forward.

Operator: The next question comes from Julien Dumoulin-Smith with Jefferies.

Julien Dumoulin-Smith : John — I know you guys are always a step ahead of everyone else here. So I wanted to get ahead here, how do you frame the discussion on safe harboring assets heading into the election outcome, whatever it may be? How would you assess derisking your plans through ’27, as you guys have talked about or even frankly, beyond the ’27 point in terms of proactively safe harboring your outlook, whether that’s storage, solar or wind?

John Ketchum : Yes. We have fully derisked our safe harbor program. I mean, we’re bought through ’29. So those that are familiar with the safe harbor program that would — the moves that we have made and the investments that we have made have protected our development program through the 4 year safe harbor through 2029. First — so that’s the first thing that I would say. The second piece is, don’t forget, we’re always very forward-looking from a supply chain perspective. And we’ve also — we’re very long transformers, we’re very long switchgears, other electrical equipment that have caused problems for others in the industry. So we have planned ahead. We’ve taken all the necessary steps on safe harboring and we’ve also taken all the necessary steps in terms of locking up critical electric infrastructure that is leading to delays of projects by small developers, which, again, the small developers have fallen down.

I think the tolerance level of our utility customer base and our C&I customer base is weathered thin and so they’re now looking to — they have too much to lose too much on the line and they want to do business with established developers like NextEra that they know are going to get their projects built on time and that plan ahead. And don’t get caught off guard by some of these issues that have chronically impacted the small developer in the renewable space.

Julien Dumoulin-Smith : You guys are always a step ahead as you say. Quick nuance here at Seabrook. I’m just curious, we talk about Duane here, but what’s the situation there with the thoughts about New England on any further, should we say colocation or long-term off-take arrangements there with potential counterparties?

John Ketchum: Yes. So for us, I mean, we look at our entire nuclear fleet as part of our data center strategy. So we’re sort of technology agnostic as we approach it. Most of the conversations that we have with data center customers are around renewables. But obviously, we have a comprehensive expertise across the energy value chain, whether it’s wind, whether it’s solar, whether it’s battery storage, whether it’s transmission, whether it’s gas, coupled with the renewable solution and whether it’s nuclear. And I think we’re uniquely positioned in that regard because we do it all. We know what it all costs. We have the data to support it all. And what we try to do is have educated discussions with our customer base to provide them with the low-cost, most comprehensive clean energy solution that addresses the demands that they see going forward to satisfy their business needs.

Operator: And the next question comes from David Arcaro with Morgan Stanley.

David Arcaro : Wondering if you could expand a little bit on your thoughts on SMRs as an asset. And in particular, if you might consider that at FPL over time within your resource mix?

John Ketchum : Yes. On SMR, so let me start with — we have a small SMR team inside the company, right? So we have been following SMRs for a very long time. We actually advised a couple of Fortune 100 companies on SMRs today. But here’s what we see. We’re very close to the SMR market. There’s really 9, 11, it depends on your count of how many OEMs there are in the SMR area. We look at them all. We know we do technology reviews around them. We do financial reviews around them. A lot of them are very strained financially. They are only a handful that really have capitalization that could actually carry them through the next several years. And so that’s one piece. The second piece is, look, you’re looking at a first-of-a-kind technology that are unproven, that comes with a ton of risk associated with that.

They’re still very expensive. I don’t see that changing. Really as things move forward. There — particularly as you see renewables getting cheaper, and I think renewables used for energy and storage and gas use for capacity I think, on an economic basis, tougher SMRs to compete. The other thing that doesn’t get a lot of attention is nuclear fuel. The nuclear fuel supply chain has a lot of repair and work that has to occur. I think most of you know, we passed sanctions against Russia on enrichment and conversion. We basically have to start enrichment and conversion industry here in the U.S. It’s going to take a lot of time to get that up and running. Some SMRs, they don’t run off of low-enriched uranium, they run off of HALEU, HALEU remains a bit unproven as well.

And so when we stack all that together, David, that’s why we’re just not bullish SMRs. We think it’s kind of next — end of the next decade alternative. But it is also something that we stay close to. And we have capacity at our existing generation facilities to be able to add SMRs. And it’s something that FPL will continue to keep a close eye on also as we move forward. But again, it’s so far out in the future from a viability standpoint at scale. It’s — we’re prioritizing other generation resources at this time and I think renewables are, as I said in my prepared remarks are here for the long haul.

David Arcaro : And then you had mentioned renewables returns earlier, just given the strong demand backdrop. Wondering if you could just give a little bit more color on what you’re seeing in terms of the trend of renewable returns for incremental projects right now?

John Ketchum : Sure. I’m going to turn that over to Rebecca.

Rebecca Kujawa : As you might expect from our comments on not only the second quarter in a row of 3 gigawatt signings and the real excitement for us on these framework agreements, not just the ones we announced, but also ones that we haven’t gotten to the point of announcing. It is clearly a change dynamic in terms of need for what we have to offer. And it’s safe to say that there are opportunities for us to improve margin and where that makes sense, we certainly are taking advantage of that. So I would say it’s much more of an upward trajectory than staying the same and certainly not going down. And you should also expect that we will continue to be very disciplined in both the capital allocation as well as being aware of where cost of capital are. So as we’ve seen changes in rates, you should also expect us to respond appropriately to that. But the market dynamic for us and our unique position in this industry is a very positive tailwind for us.

Operator: The next question comes from Jeremy Tonet with JPMorgan.

Jeremy Tonet : Just want to turn to the near backlog additions. It looks like 3 gigs has been added the past few quarters here, and it looks like about 11 over the past year. Just wondering, I guess, your expectation for run rate backlog additions over an extended period of time. Should we be thinking kind of like 12 a year roughly? Or do you see that increasing over time? And then on Slide 5, you lay out significant demand growth there for renewables. And just wondering how you think about NextEra market share going forward there?

Rebecca Kujawa : I’ll take the first stab at both of those. In terms of the run rate, just in lower gigawatt signings, I’ll say the similar comments in higher quarterly signings which is we shouldn’t expect these to be perfectly linear. And there will be changes quarter-to-quarter. So I’d be hesitant to say that 3 gigawatts is the new normal for now and forever more. But it is very clear and we made the comments for a reason that we have seen the change in demand that we’ve been talking about, and we’ve been expecting given both the color commentary in the marketplace as well as what’s actually happening in the ground for real demand of new electrons, both in the form of energy and capacity. And I’m really proud of our team.

We’ve invested a lot in our greenfield development program over years and developed a lot of technology and capability to ensure that we can scale that effectively and that is proving out to bring high-quality projects to market with teams that are working closely with our customers to ensure that we’re getting those right projects to them at the right time, the right place and in the right price for us mutually. So clearly, a positive tailwind. And at this point, I would say we continue to feel comfortable with the expectations that we laid out in greater detail at the investor conference in June, where we think our overall 4 year development expectations are in aggregate through 2027. So I think this is a great quarter on route to being in those ranges.

In terms of I forgot the second part of your question, actually, Jeremy, did that cover the checking part too?

Jeremy Tonet : Just market share going forward.

Rebecca Kujawa : Listen, we’ve over a long period of time, had ranges in the market share, I would say, across the technologies, roughly a 20% market share has been a rough consistent performance over time. I think that is certainly achievable and potentially higher. And as you know, we’ll continue to balance both higher market share and higher margin, and they are interrelated to an extent. And we’re going to make sure that we continue to optimize that. I don’t want to build every single project that we could possibly sell to somebody. I want to build the projects that have great returns that create value for our shareholders and build incremental value for our platform over time. And that’s what we are going to continue staying focused on.

Jeremy Tonet : And just quickly, I guess, on origination opportunity set, how do you see solar versus wind stacking up at this point and also big addition in batteries there. So just wondering what you’re seeing currently on that front?

Rebecca Kujawa : I would say the trends are consistent with what we’ve talked about for the last couple of quarters and specifically in more detail at the investor conference. There’s clearly a tailwind for solar and even more so for storage, relatively speaking, over the last couple of years. For solar, I think it’s a couple of things. It’s relatively attractive to the other generation technologies and specifically attractive with the addition of the PTC relative to what it had before, which is ITC and therefore, made it more economic and more regions in the last five to seven years. On storage, it’s really about capacity value, as John outlined in our prepared remarks. It is clear that we need both energy and capacity to meet the incremental demand that utilities are seeing for the first time in decades.

And storage is ready to deploy and in the places where it is needed most. So our customers are really interested in seeing those storage projects come to market. Wind has continued to be a little bit weaker relatively speaking to how strong it was for the first couple of decades of our renewables development program. There’s still quite a number of customers that are interested in it. We have a good pipeline of projects in discussions with a variety of customers across the United States. And we see a mix of those resources being a good complement to one another to meet these 7/24 solutions. So having a pipeline of all three technologies has served us well, and we’ll continue to pursue that path.

Operator: The next question comes from Andrew Weisel with Scotiabank.

Andrew Weisel : Just a quick couple of follow-ups actually. So first on Duane Arnold, I don’t want to get too bogged down on the details, but one question I had is about transmission constraints. I know when the nuclear unit shut down, you agreed with Alliant to build a lot of solar and best storage — battery storage. Given that the new capacity addition will take up some of the preexisting transmission capacity, will you need to expand transmission opportunity there if you were to restart the [Nuke]? And if so, would that add a lot of time in addition to the cost?

John Ketchum : Yes. Andrew, this is one of the benefits of having a very large pipeline. So because we have a very large pipeline, we have the ability to convert queue positions over to different types of technologies. So not concerned about the transmission.

Andrew Weisel : Second, on the framework agreement between Entergy and the two new ones, it’s about 15 gigawatts. I understand it’s kind of the outer years. My question is, would any of that come to the roughly 40 gigawatts you’re planning to add between now and 2027? Or should we think of this as all being helping to sustain growth beyond that — the planning period?

John Ketchum : Yes. I think for now, look, we look at these opportunities as contributing to the midpoint of our expectations. Obviously, we always hope to do better and these framework agreements put us in a position to do better.

Andrew Weisel : You don’t use the word midpoint very often. Okay. Fair enough. One — sorry, go ahead.

John Ketchum : I was just going to say, midpoint is just a reference to our current development expectations. Obviously, we’re pushing the team to do far better than the midpoint. And again, the framework agreement, I think gives us opportunities that we otherwise would not have had.

Andrew Weisel : Then one subtle question about the quarterly results. Customer supply was a negative $0.10 year-over-year drag. And I know last quarter, it was minus $0.03 as well, although it was positive in the first quarter. I know it’s a bit of a more volatile business, but can you just talk a little bit about the dynamics for customer supply at near and maybe some thoughts on the outlook?

John Ketchum : Yes. I think what you’re seeing at our customer supply business. Number one is you got to remember, coming off of 2022, we had very high gas prices, which created a lot of volatility and high margins in that business, not only for us, but for others that participate in that business. Obviously, as gas prices have subsided, we’ve seen less volatility in that market. Some of the margins have come in a bit and more normalized. And I think we’ve seen that carry over to the origination activity as well. So look, that business has done great, and we expect it continue to be a solid contributor going forward, but some of what we saw coming off of ’22 has subsided and that’s really the commentary that we were trying to get across in our prepared remarks today.

Andrew Weisel : And congratulations on swift storm restoration efforts.

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