新世紀能源 (NEE) 2015 Q2 法說會逐字稿

Good day, everyone, and welcome to the NextEra Energy and NextEra Energy Partners 2015 second-quarter earnings conference call.

Today's conference is being recorded.

At this time, for opening remarks, I would like to turn the call over to Amanda Finnis.

Thank you, Noah.

Good morning, everyone, and welcome to the second-quarter 2015 combined earnings call for NextEra Energy and NextEra Energy Partners.

With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy; Moray Dewhurst, Vice Chairman and Chief Financial Officer of NextEra Energy; Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Senior 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; and John Ketchum, Senior Vice President of NextEra Energy.

Moray will provide an overview of our results and then turn the call over to Jim for closing remarks.

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 the non-GAAP measure to the closest GAAP financial measure.

With that, I will turn the call over to Moray.

Thank you, Amanda.

Good morning, everyone.

NextEra Energy delivered solid second-quarter results and continued to make excellent progress towards meeting its objectives for the year.

NextEra Energy Partners completed the acquisition of four projects from Energy Resources during the second quarter, and just recently signed an agreement to purchase a portfolio of seven natural gas pipelines located in Texas.

As a result of NextEra Energy's strong financial performance during the first half of the year as well as this NEP acquisition announcement, we are increasing our financial expectations for both businesses.

NextEra Energy's adjusted earnings per share increased $0.13 or 9%.

Growth was particularly strong at Energy Resources, driven by continued strong contributions from new wind and solar project additions.

The impact of weak wind resource was roughly offset by another period of good performance from the customer-supply business and increased contributions from the balance of the existing asset portfolio, including the absence of an outage at Seabrook in comparison to the second quarter of last year.

Energy Resources had another excellent quarter of origination activity, signing contracts for roughly 555 megawatts of new wind and solar projects since the last call, including an additional 125 megawatt solar project that is expected to be delivered late in 2016 that was not in our earlier development forecast.

Energy Resources' growth and adjusted EBITDA and operating cash flow continues to be strong year to date, reflecting the addition of new contracted renewable projects to the portfolio.

Florida Power & Light remains on track to achieve its full-year objectives.

The relatively modest growth in second-quarter earnings per share from the prior year was generally in line with our expectations and was impacted by share dilution, timing considerations, and a number of smaller items.

Regulatory capital employed, the capital on which FP&L is able to earn a return, continued to grow quarter on quarter, with a gradual increase expected throughout the year as FPL continues to make excellent progress on its major capital initiatives.

The Florida economy continues to expand at a healthy pace, leading to an increase in customer accounts and a decline in inactive meters, while a warm spring led to higher weather-related usage, increasing both revenues and our reserve-amortization balance.

FPL expects to earn in the upper half of the allowed ROE band through the remainder of the settlement period.

We continue to invest in the business with a focus on delivering value to customers, and I'm pleased to note that we received approval from the Florida Public Service Commission of a modified set of gas reserves guidelines, which we expect will allow us gradually to build a portfolio of gas-producing assets to act as a long-term hedge for our customers.

We also announced our plan to move forward with the Okeechobee Clean Energy Center to meet a capacity need in 2019.

And we entered into a settlement agreement with the Office of Public counsel, the consumer advocate in Florida, regarding our proposal to acquire the Cedar Bay generation facility.

While the Florida Public Service Commission approval is still needed, we view this as a positive development.

Overall, we are very pleased with FPL's year-to-date results.

Both FPL and Energy Resources continue to deliver excellent operating performance.

The (inaudible) and renewables generation fleets had one of their best periods ever, with E4, or the equivalent forced outage rate, at less than 1% for the first half of the year.

FPL has continued to provide excellent reliability to our customers and was recently named one of the 2015 Most Trusted Brands according to a nationwide study conducted by Market Strategies International.

NextEra Energy Partners continues to execute against its growth plans, while at the same time its sponsor, NextEra Energy Resources, further extends its industry-leading pipeline of potential drop-down assets.

In addition to closing on four project acquisitions from Energy Resources during the quarter, supporting growth in second-quarter distributions, NEP has signed an agreement to acquire NET Midstream -- a developer, owner, and operator of seven natural gas pipelines located in Texas.

NET Midstream's pipeline assets are all strategically located, serving residential, commercial, and industrial load near Houston, Texas, and in the Eagle Ford Shale area, while the largest of the pipelines interconnects at the US-Mexican border with one of Mexico's critical natural-gas pipelines, serving as a gateway to providing low-cost Eagle Ford-sourced gas to important load senders in Mexico.

These assets carry with them future growth and expansion opportunities, have an industry-leading 16-year average contract life, and are expected to provide attractive yields to NEP's investors.

In addition, the pipelines will form an excellent complement to NEP's existing portfolio by providing high quality, predictable, long-term cash flows that will reduce the resource variability in the overall NEP portfolio.

Finally, this transaction is expected to drive NEP's near-term distribution growth higher, extend NEP's growth run rate, and, at the same time, be accretive to NextEra Energy's ongoing earnings.

I will provide additional details on the acquisition later in the call along with our latest growth expectations for both NextEra Energy and NextEra Energy Partners.

In addition, the NEP Board declared a quarterly distribution of $0.235 per common unit or $0.94 per common unit on an annualized basis, up $0.12 per common unit on an annualized basis from the first quarter.

Overall, we're very pleased with the second-quarter results and are in an excellent position leading into the second half of the year.

Now let's look at the results for FPL.

For the second quarter of 2015, FPL reported net income of $435 million or $0.97 per share, up $0.01 per share year over year.

Continued investment in the business was the principal driver of modest year-over-year growth, offset primarily by the impact of share dilution.

During the second quarter, average regulatory capital employed -- the capital on which FPL is able to earn a return -- increased 5.6% from the prior-year comparable quarter, with gradual increases expected in each of the third and fourth quarters as FPL completes its full-year capital investment program.

Results through the second quarter are generally in line with our expectations, and we continue to expect the bulk of this year's earnings growth for FPL to be in the fourth quarter as the business remains on track for the year to deliver financial results consistent with our expectations.

Our reported ROE for regulatory purposes will be approximately 11.5% for the 12 months ending June 2015.

And this remains our target for the full year.

As a reminder, under the current rate agreement, we record reserve amortization entries to achieve a predetermined regulatory ROE for each trailing 12-month period.

We ended 2015 with a reserve amortization balance of $278 million and finished the first quarter with a balance of $179 million to be utilized for the remainder of 2015 and 2016.

Due to higher revenues driven by weather-related usage and customer growth, supported by a strong Florida economy, during the second quarter, we reversed $66 million of reserve amortization, leaving us with a balance of $245 million at the end of June, which can be utilized in the remainder of 2015 and 2016.

Looking beyond 2015, we continue to expect that the balance of the reserve amortization, coupled with current CapEx and O&M expectations, will allow us to support a regulatory ROE in the upper half of the allowed band of 9.5% to 11.5% through the end of our current rate agreement in 2016.

As always, our expectations assume normal weather and operating conditions.

Let me now take a moment to discuss updates since the last call on key capital initiatives.

We're very pleased that we received approval from the Florida Public Service Commission on a set of gas-reserves guidelines that will allow FPL to invest up to $500 million per year in future natural gas projects.

Although the amount we invest in each year will depend on the opportunity set at that time, we view this as an important step in what we hope to be a larger program to provide long-term hedges against potential volatility in the market price of natural gas for the benefit of customers.

Additionally, since the last call, we've announced our plans to move forward with the 1,622-megawatt Okeechobee Clean Energy Center to fulfill a need for additional generation capacity in 2019, as Florida continues to grow.

With a projected cost of approximately $670 per kilowatt, we expect this to be the most cost-effective combined-cycle unit built to date in our fleet.

We intend to file for regulatory approval in the coming months and expect a comprehensive process of review over a 14- to 16-month time frame.

Contingent upon receiving all needed approvals, we expect to be in construction in 2017 with commercial operations mid-2019.

In a positive step forward on our proposal to purchase the Cedar Bay generation facility, we have reached a settlement agreement with the Office of Public Council to support the transaction.

We expect a decision from the PSC on the settlement agreement later this month.

All other major capital initiatives, including the Port Everglades modernization, infrastructure improvements to our transmission and distribution system, the addition of roughly 223 megawatts of cost-effective solar PV to our generation portfolio, and the implementation of an upgrade solution to our peaker fleet remain on schedule and on budget.

The economy in Florida continues to grow at a healthy pace.

During the quarter, the state passed another milestone by regaining all the jobs lost during the Great Recession.

And in June, reached 39 months of consistently outpacing the nation's rate of annualized job growth.

Strong jobs growth has also been reflected in the state's increased levels of personal income and consistently low rates of seasonally adjusted unemployment, which are now around levels last seen in mid-2008.

Leading indicators in the real estate sector have also maintained a stable pace, reflecting the continued strength of the Florida housing market.

Finally, despite declining slightly from March, the June reading of Florida's consumer sentiment remained close to the post-recession highs.

Turning now to our customer and usage metrics, second-quarter retail sales were up 7.6%, with warm weather driving very strong cooling demand as the primary driver of overall growth.

We estimate that approximately 6.1% of the total 7.6% growth in retail sales can be attributed to weather-related usage per customer.

After adjusting for the effects of weather, second-quarter retail sales increased 1.5%, of which customer growth exceeded expectations by accounting for approximately 1.7%, with weather-normalized usage per customer declining by approximately 0.2%.

As we discussed in the first quarter, it can be difficult to know how much to attribute to weather, particularly in periods with relatively strong weather comparisons.

Looking ahead, we expect year-over-year weather-normalized usage per customer to be close to flat after taking into account the impact of efficiency and conservation programs.

We do not expect modest changes in usage per customer to have a material effect on our earnings.

As a reminder, for this year and next, any effects of weather-normalized usage are expected to be offset by the utilization of our reserve amortization, and after the expiration of our current settlement agreement, will be taken into account in our regulatory planning.

A number of low-usage customers and inactive accounts continued to decline.

The 12-month average of low-usage customers fell to approximately 7.9%, while the average number of inactive accounts for the quarter declined to levels not seen since before 2000.

Let me now turn to Energy Resources, which reported second-quarter 2015 GAAP earnings of $273 million or $0.61 per share.

Adjusted earnings for the second quarter were $251 million or $0.57 per share.

Energy Resources adjusted EPS increased by $0.09 per share, year over year.

The core business results were driven by continued strong contributions from growth in our contracted renewables business.

New wind and solar projects placed into service during or after the second quarter of 2014 added $0.10 per share.

Although the impact of all other affects was relatively minor, there were a number of individually significant items.

Of particular note, the year-over-year results from our existing generating assets was significantly affected by generally weak wind results, which accounted for negative $0.14 per share versus the comparable quarter.

Wind resource was roughly 93% of the long-term average versus 109% in the second quarter of last year.

The fleet-wide wind resource was the fifth lowest second quarter on record over the last 37 years, with particularly poor results from the western part of the portfolio.

Unfortunately, for reasons I will discuss later, this resource weakness may continue for some time.

There were a number of offsetting effects, as shown in the accompanying slide.

Energy Resources' growth in adjusted EBITDA and cash flow has been strong year to date.

As compared to the first half of 2014, adjusted EBITDA and operating cash flow have increased 12% and 28%, respectively, although the latter number was boosted by temporary changes in working capital.

Nevertheless, we continue to see full-year cash flow from operations growing 20% to 25%, assuming no major changes in commodity prices, and assuming normal operating conditions.

From an economic perspective, NextEra Energy investors' cash flow profile benefits from the LP unit distributions received from NEP, as well as from the IDRs, which we expect to begin receiving in the third quarter this year.

The Energy Resources development team had another successful quarter of origination activity.

Since the first-quarter call, we signed power purchase agreements for 400 megawatts of wind, as well as 155 megawatts of solar, of which 125 megawatts is for 2016 delivery and 30 megawatts is for post-2016 delivery.

The 400 megawatts of wind added to backlog since the last call leaves a balance of 500 megawatts to 700 megawatts necessary to satisfy our previously announced 2016 forecast from the March investor conference.

Given the strength of our wind development pipeline, our origination run rate this quarter and last, and the historical customer push to sign power purchase agreements before the expiration of production tax credits, we expect to be able to sign another approximately 700 megawatts of wind contracts before the end of the year, which would bring us to the high end of our previously announced 2016 wind build range.

We are very pleased with our solar-development efforts for the quarter as well.

The new 125 megawatts solar project for late 2016 delivery was not included in our previous development forecast, and we have increased our expectations for new contracted renewable opportunities by this amount.

Similar to the 80-megawatt solar contract that we mentioned on last quarter's call, recent origination activity includes another 30 megawatts of solar signed for post-2016 delivery, which continues to demonstrate that there is demand for solar projects based on post-2016 economics after the anticipated expiration of the current special IDC support.

The accompanying chart updates information we provided on last quarter's call and reflects the 125 megawatts increase in our overall range of expectations for the development program that I just mentioned.

In rounded terms, we now expect to bring into service a total of approximately 4,800 to 5,200 megawatts of renewables from 2015 through 2018.

Our forecast assumes PTCs expire at the end of 2016, with a further extension representing a potential upside to these numbers.

We are encouraged that the Senate Finance Committee recently passed a tax extenders package that includes a two-year extension of the production tax credit.

While that is just one step in the process, we are pleased by continued signs of bipartisan support.

In addition, we continue to pursue development of solar, wind, and storage project in Canada, including the submission of development projects this September into the Ontario Power Authority's new RFP process, which also represents a potential upside to our current forecast.

Let me now review the highlights for NEP.

Second-quarter adjusted EBITDA was approximately $102 million, and cash available for distribution was $50 million.

These results were slightly below our expectations for the quarter, primarily due to weak wind and solar resource.

We have made excellent progress delivering future growth opportunities for NEP.

As you may recall, last year, we made a decision to undertake a near-term acceleration in NEP's 2015 growth rate in order to reach the high IDR splits by the end of the year.

We believe this offers a very attractive value proposition for both NEP and NEE investors.

Against this objective, we completed the acquisition of four projects totaling approximately 664 megawatts during the quarter, supporting growth in second-quarter distributions in line with our previously stated expectations.

The NEP Board declared an increased quarterly distribution of $0.235 per common unit or $0.94 per common unit on an annualized basis.

NextEra Energy Partners has also entered into an agreement to acquire NET Midstream, a privately held developer, owner, and operator of a portfolio of seven long-term contracted natural-gas pipeline assets located in Texas.

The NET Midstream opportunity represents the first third-party acquisition for the Partnership and establishes NEP's presence in the long-term contracted natural-gas pipeline space.

The combined portfolio includes 3.0 Bcf per day of ship-or-pay contracts with on-average investment-grade counterparty credit and a 16-year average contract life.

The acquisition is expected to provide attractive yields to our investors and complements the Partnership's existing renewables portfolio by reducing the impact of resource variability on the overall NEP portfolio.

In addition, the acquisition provides a platform for future growth and expansion opportunities associated with the NET Midstream pipeline assets for both NextEra Energy and NextEra Energy Partners.

From an NEP perspective, the portfolio has planned growth and expansion projects that are expected to provide an additional 1.0 Bcf per day of long-term contracted volumes.

$200 million of the purchase price is contingent on signing contracts representing roughly 60% of this expansion opportunity.

From a NextEra Energy perspective, the acquisition provides economies of scale in pipeline operations and a platform for future growth as we build out the Sabal Trail, Florida Southeast Connection, and Mountain Valley pipeline projects, while continuing to look for further investment opportunities in the pipeline space.

The seven natural gas pipelines in the NET Midstream portfolio serve power producers and municipalities in South Texas, processing plants and producers in the Eagle Ford shale, and residential, commercial, and industrial customers in the Houston area and provide a critical source of natural-gas transportation for low-cost, US-sourced shale gas to Mexico.

The two largest pipelines in the NET Midstream portfolio have an average age of approximately 2 years.

The largest pipeline in the portfolio, the NET-Mexico pipeline, is a 120-mile, 42-inch diameter natural gas pipeline that delivers low-cost Eagle Ford shale gas to the Mexico border under a 20-year ship-or-pay contract with a BBB+rated, wholly owned subsidiary of Pemex, a Mexican state-owned oil and gas company.

This pipeline is the largest, connecting the Eagle Ford to the Mexican border, and it has the lowest tariff.

There is a strong alignment of interest with Pemex, as it owns 10% of the NET-Mexico pipeline, which in turn interconnects at the US-Mexico border with a large strategic natural gas pipeline system, the initial part of which is jointly owned by Pemex and Sempra.

We believe this pipeline system, called the Las Ramones Pipeline System, is critical to Pemex's growth plans to ensure the adequate supply of natural gas to the three-largest-demand regions in Mexico that account for approximately 75% of Mexico's gas demand.

Natural gas demand in Mexico has been growing substantially over the last five years, while at the same time, Mexico-based natural gas supply has been declining, which we believe increases Mexico's need for US gas imports.

As a result, we believe the NET-Mexico pipeline is strategically positioned as a gateway to providing low-cost, US-sourced shale gas to meet the increasing demand of Mexico load centers and growing natural gas markets.

The second-largest natural gas pipeline in NET Midstream's portfolio, Eagle Ford Pipeline, is an approximately 158-mile, large-diameter natural gas pipeline located in the Eagle Ford shale, anchored by a long-term ship-or-pay commitment from an investment-grade producer.

The system's connection to the Agua Dulce Hub, with access to multiple pipeline interconnects as well as Mexican markets, uniquely positions the system to attract additional Eagle Ford shale volumes.

The third-largest pipeline in the portfolio, Monument Pipeline, is an approximately 156-mile, 16-inch pipeline that transports gas from the Katy Hub, the growing city gates of Houston, as well as to the Houston Ship Channel and into Galveston County.

There are also four smaller Texas pipelines in the portfolio that serve a variety of power plants and residential loads.

NextEra Energy Partners has elected not to hold the NET Midstream assets in a master-limited partnership format, since the pipeline assets are expected to create and utilize their own tax attributes to shield taxable income for a period generally consistent with that of the Partnership's renewable assets.

And as a result, our expectations regarding the overall tax yield for NextEra Energy Partners remain largely unchanged.

The transaction is valued at $2.1 billion.

The total transaction size includes initial consideration of $1.8 billion, which NEP expects will be financed in part by approximately $600 million of non-amortizing debt secured by the acquired assets.

The transaction also contemplates a future expansion investment of roughly $300 million in 2016.

This $300 million investment includes the $200 million contingent payment I mentioned earlier, payable only on upon signing the expansion projects, and is expected to be financed primarily with debt.

Overall, permanent financing is expected to consist of approximately $1.2 billion of equity and $900 million of debt.

NEP has secured a $1.0 billion bridge-loan facility that is available to draw on, subject to specified conditions to support funding requirements.

NEP expects to close the transaction within the next 75 days.

The acquisition is expected to contribute 2016 adjusted EBITDA and CAFD of roughly $145 million to $155 million, and $110 million to $120 million, respectively.

Assuming the expansion projects are completed as planned, the acquisition is expected to contribute 2018 adjusted EBITDA and CAFD of roughly $190 million to $210 million, and $135 million to $155 million, respectively.

The transaction is expected to be immediately accretive to NextEra Energy Partners' distributions per unit and NextEra Energy's earnings per share.

We believe the acquisition price is attractive, as it compares favorably against precedent transactions in the pipeline space for similar assets with similar cash-flow profiles, and is expected to provide an attractive yield to NEP investors as well.

In addition, this acquisition opportunity extends NextEra Energy Partners' run rate for future drop-downs by eliminating the need for an acquisition of certain assets from Energy Resources that would have otherwise been required to meet its growth expectations for the year.

In addition, the strong renewables origination growth at Energy Resources continues to expand the pipeline of generating and other assets potentially available for sale to NextEra Energy Partners in the future.

We continue to believe that the ability to demonstrate a strong and highly visible run rate for future growth is an important distinguishing factor for investors and a core strength of the NEP value proposition.

We are very pleased with this particular acquisition opportunity and our future prospects for growth.

Turning now to the consolidated results for NextEra Energy, for the second quarter of 2015, GAAP net income attributable to NextEra Energy was $716 million or $1.59 per share.

NextEra Energy's 2015 second-quarter adjusted earnings and adjusted EPS were $699 million and $1.56, respectively, with adjusted EPS up 9% over prior-year comparable quarter.

As we discussed on the first-quarter call, our earnings per share account for dilution associated with the settlement of our forward agreement of 6.6 million shares that occurred in December of 2014.

In June, the settlement occurred for the forward contract component of the equity units that were issued in May 2012.

The impact of dilution in the second quarter was approximately $0.03 per share.

Adjusted earnings from the corporate and other segment increased $0.03 per share compared to the second quarter of 2014, primarily due to miscellaneous corporate items, none of which was individually notable.

As a reminder, results associated with NextEra Energy transmission and gas pipelines are reported through the corporate and other segment.

During the quarter, our transmission team continued to work on the execution of awarded projects as well as our pipeline of development projects.

Additionally, our current gas pipeline initiatives continue to make solid progress.

The development of both Sabal Trail and Florida Southeast Connection continue to remain on track and we are expected to be in a position to receive FERC approval in early 2016 to support commercial operation by mid-2017.

The Mountain Valley Pipeline project concluded the scoping process as part of the pre-filing process, with a FERC application targeted for the second half of this year.

We continue to expect approximately 2 Bcf per day of 20-year firm capacity commitments, with an expected capital opportunity for NextEra Energy of $1.0 billion to $1.3 billion supporting commercial operations by year-end 2018.

Despite the strong performance in the first half, we continue to expect adjusted earnings per share for 2015 to be in the range of $5.40 to $5.70.

The very strong recovery of our customer supply and trading business in the first half was largely offset by poor wind resource.

Unfortunately, although we cannot draw any firm numerical conclusions, we do know that the strong El Nino cycle that we are now in tends to be correlated with below-average continental wind resource, and we also know that meteorological expectations for the El Nino phase to continue.

Nonetheless, we expect the overall strength and diversity of the NextEra Energy portfolio to enable us to meet the expectations originally established on our third-quarter 2014 call.

We also expect NextEra Energy's operating cash flow, adjusted for the potential impacts of certain FPL clause recoveries in the Cedar Bay acquisition, to grow by 10% to 11% in 2015.

Looking beyond 2015, the team has made excellent progress firming up some of the investment opportunities that we have previously discussed.

And the strength of the recent origination activity at Energy Resources has increased our expectations for growth opportunities in the years ahead.

Having completed a closer evaluation of the 2016 through 2018 time frame, combined with the anticipated contribution from the Texas pipeline acquisition we just discussed, our outlook has improved from the expectations we have previously shared.

We expect adjusted earnings per share to be in the range of $5.85 to $6.35 for 2016, and in the range of $6.60 to $7.10 for 2018, implying a compound annual growth rate of a 2014 base of 6% to 8% through 2018.

As always, our expectations are subject to the usual caveats, including, but not limited to, normal weather and operating conditions.

Turning now to NEP, the acquisition of NET Midstream increases our expectations for near-term growth.

We now expect the NEP portfolio to grow to support a distribution at an annualized rate of $1.23 by the end of the year, meaning the fourth-quarter distribution that is payable in February 2016.

Our expectations for 2015 adjusted EBITDA are $400 million to $440 million, and CAFD of $100 million to $120 million are unchanged.

After 2015, we continue to see 12% to 15% per-year growth in LP distributions as being a reasonable range of expectations through 2020.

Assuming trading levels consistent with current market conditions, this implies 2016 adjusted EBITDA of $710 million to $760 million, and 2016 CAFD of $250 million to $280 million.

These expectations are net of expected IDR fees of $30 million to $40 million for 2016, as we expect these fees to be treated as an operating expense.

With that, I will turn the call over to Jim for closing remarks.

Thanks, Moray, and good morning, everyone.

It's been a terrific first half of the year.

At both NEE and NEP, we've executed well both financially and operationally, and we've had strong execution of our growth plans all across the board.

At FPL, the team continued to make excellent progress against our core strategy of investing to further improve our customer-value proposition.

Our goal at FPL is nothing less than to be the cleanest, lowest-cost, and most reliable utility in the nation, and we are well on our way to achieving that.

At Energy Resources, we have made terrific progress against our core strategy of being the world's largest generator of wind and solar energy.

I feel better than I ever have about our renewables growth prospects and the quality of our renewables development pipeline.

In our gas pipeline business, I'm very pleased with NEP's announced acquisition of seven high-quality and long-term-contracted pipeline assets in Texas.

When combined with Sabal Trail, Florida Southeast Connection, and the Mountain Valley Pipeline, the transaction is expected to expand our scale and scope in the natural gas pipeline space, serving as a platform for future growth.

NextEra Energy and NextEra Energy Partners form an excellent strategic partnership.

I think NEE is a terrific sponsor for NEP, with an industry-leading and growing runway of potential long-term-contracted assets.

NEP offers NEE the ability to highlight the value of these assets and is a significant source of cash flow for NEE as well.

In addition, the expected growth of general partner incentive distributions from NEP to NEE will be an increasingly important source of cash and potential value to NEE shareholders.

Based on all of these factors, together with the strong growth in our underlying cash flow from operations, I'm pleased to discuss an announcement by the Board of NextEra Energy to implement a new dividend policy for NEE shareholders.

As you may recall, in 2012, the Board of NextEra Energy approved a dividend policy targeting a 55% payout ratio for 2014 that was based on an analysis of appropriate payout levels for regulated utilities, contracted assets, and other portions of our business mix.

At that time, the new policy led to 2 years of roughly 10% growth per year in dividends per share.

In thinking about longer-term dividend policy, the Board takes into account -- amongst many other factors -- the changing mix of NextEra Energy's portfolio of businesses and the ongoing levels of dividend payout generally supported -- supportable by each major segment of the portfolio.

As well as the payout ratios of competing businesses in each of those major segments.

Through the launch of NEP and other YieldCos, we believe there is new market evidence regarding payout ratios supported by a strong and balanced portfolio of contracted assets.

What has become clear is that a business-like energy resources that is largely composed of contracted generation assets and cash flows can -- and should -- support a higher dividend payout ratio.

Applying higher market-comparable payout ratios to the contracted portfolio of Energy Resources yields a higher portfolio average payout.

In addition, when looking at the payout ratios of our broader peer group of YieldCos, other infrastructure companies, and regulated utilities, targeting a higher level would more closely align NextEra Energy with its peers.

Combining these market factors with the expectation for Energy Resources' contracted EBITDA and cash flow to continue to increase through 2018 as a result of new project additions and the receipt of proceeds from NEP for asset acquisitions, Limited Partnership distributions, and incentive distribution rights fees, we feel it is warranted to highlight more directly the strong underlying cash flow productivity of the Energy Resources business.

Although the decision by the Board of Directors to pay a dividend must consider all the facts and circumstances at the time of declaration, the Board presently expects to increase our dividend payout ratio from its current level of 55% to a target dividend payout ratio of 65% by 2018.

We expect this new dividend policy, along with our expectations for growth and adjusted earnings per share, to yield dividend per-share growth of 12% to 14% per year through at least 2018 off a 2015 base of dividends per share of $3.08.

The Board of Directors of NextEra Energy declared a quarterly dividend of $0.77 per share.

Based on the timing of the increased cash flow from the year and its interrelationships with NEP that I just described, we expect the dividend to begin to increase within the framework of the new dividend policy that I just described, in 2016, in a manner designed to continue to support our target credit metrics and our strong credit position.

As a result, we do not expect this change to have any material effect on our credit ratings.

In summary, I am as enthusiastic as ever about our future prospects.

FPL, Energy Resources, and NEP continue to make excellent progress across the board against all our strategic and growth initiatives.

Today's announcements of increasing our expectations for both NEE and NEP, as well as an increased payout ratio at NEE, are reflections of that enthusiasm.

With that, we will now open the line for questions.

Thank you.

(Operator Instructions) Daniel Eggers, Credit Suisse.

On the NEP acquisition this morning, you know, you guys have been telegraphing that you wanted to do something out in the market, but kind of go in the pipeline side versus renewables side.

Can you just talk about the returns you were seeing in those different asset classes?

And then also kind of what sort of IRRs you're seeing on that project, since that's what you keep coaching us to look at for the value of these projects?

Good morning, Dan; it's Armando.

First of all, the way we looked at it is, it's pipelines, right?

So we have different metrics, different economics that we're looking at in that business than in the renewable business.

And it's not a greenfield opportunity, so the returns are certainly not what you would expect from greenfield renewable assets.

But having said that, it is based on all of the market metrics that we looked at: a very positive acquisition, both in just terms of EV to EBITDA, which is around 12, 12.5 times.

But also in terms of CAFD -- cash available for distribution.

It's important to note that we did the acquisition because it's a good acquisition economically for NEP.

This wasn't an acquisition that we did for other reasons, i.e.

IDR reasons, at NEE.

It is a very positive acquisition and we're very happy with it.

Just a bit -- explicitly you asked about the IRRs is.

Without going into the numbers, they are very consistent with other investments that we've been seeing in the pipeline space.

And significantly above the IRRs that we are seeing in the third-party acquisition market for renewable assets at the moment.

So these returns are better than what we were seeing in the renewables market?

In the third-party acquisition market, very substantially, yes.

That market has, as I think you know, become bit down -- returns have come a bit down significantly.

Okay.

And then I guess just on the increase in both the EPS growth rate and the dividend growth rate, how should we think about long-term equity financing and funding needs of the Company, as more dollars of underlying growth are going to be returned back to shareholders through the dividend?

Dan, this is John.

The change in the dividend policy was all about cash flows at Energy Resources.

You know, we've executed very well on our long-term contracted renewables plan.

We've had strong growth at NEP as well.

And then looking out at the peers, in terms of where the payout ratios are for other YieldCos and infrastructure plays, we thought that justified a higher payout ratio.

And when you look at what the financing requirements will be long term, in that -- you know, to finance the dividend -- we have a lot of underlying cash flow that's going to be available to support that.

And then we also have a lot of levers available that we can pull internally to go ahead and finance what is going to be a small cash need.

Okay.

Thank you, guys.

Dan, just to supplement that.

Remember that one of the effects of having NEP is that we really have -- are accelerating the realization of the underlying cash flows from the projects, so effective financing needs are lower than they were in a pre-NEP world.

We're ready for the next question.

Jonathan Arnold, Deutsche Bank.

Just a quick one.

Just -- I'm not sure we heard this correctly, but on the expansion at NET, is it $300 million of additional spend, but that breaks down: $200 million is consideration and only $100 million of CapEx?

Did I understand that right?

Yes, that's roughly right.

It's about $200 million in additional consideration and about $85 million in CapEx; we rounded that to about $300 million.

And so but then, $50 million of incremental EBITDA.

Can you just give us a little sense of how -- that looks like a pretty decent return on that.

Just if we ignore the consideration piece, what exactly is going on?

Well, I think what's going on there is, we wanted to make sure that for other incremental opportunities that we booked, we're not paying the same thing as we were for the opportunities that were already in the door.

So that's why you've got a roughly 6 times EBITDA -- EV to EBITDA multiple on that, and roughly about 12.5 times on the whole deal.

And the expansions, I wonder, are they contracted?

And what yet has to be done to --?

It will -- well, the contracts would have to be signed, right?

They're not signed.

If they were signed, then it would just be part of the deal.

But we feel pretty good about them, based on the details that we know about the opportunities themselves.

But we also feel like there's a good alignment of interest between the sellers and the buyers, that there's an opportunity obviously to increase the purchase price by a couple hundred million dollars.

So we feel good with the alignment of interest.

And we feel good with the underlying opportunities, which will again be long-term, contracted-type opportunities in the 20-year range.

Okay.

And did you say what sort of time frame you expect for clarifying that?

Yes, our expectation is that they would be done in 12 months.

Okay.

If just I may, just one other thing.

We noticed the typical slide on the financial outlook at the Resources business is no longer in the deck.

Has that gone permanently, or is it just while we are digesting some of these new things?

It's the latter.

The introduction of the NET-Mexico acquisition is likely to change our thinking about further acquisitions for NEP.

While we have made a rough aggregate cut at that, we haven't yet rippled all that down to the level of the individual segments that are shown in the chart that you're referring to, Jonathan.

So rather than trying to do something in haste and introduce the possibility of errors, we pulled it for this quarter, but we expect to bring it back with the third quarter.

Great.

Thank you very much.

Michael Weinstein, UBS.

Hey, good morning, it's Julien here.

Good morning.

So, perhaps just to touch base on the credit implications from this all, can you elaborate on how you're thinking about the overall consolidated NextEra balance sheet from both the EPS and the acquisitions?

And perhaps in conjunction with that, speak to a potential desire to expand the platform more towards midstream and/or perhaps maintain or -- and/or the need to maintain a regulated mix in the portfolio?

Let me ask Jim to comment on the second part, the strategy aspect.

And then John will comment on the credit metric side.

Yes, looking at it from a credit metrics standpoint, we're fine.

We're within the range that we've committed to with the agencies.

The acquisition opportunity, again, will be about $1.2 billion of equity, $900 million of debt.

I'll let Jim speak more about the strategic elements.

Good morning, Julien.

So I think we've always said that we have liked the pipeline space.

I think originally when we announced Sabal Trail and Florida Southeast Connection, we said that was not going to be a one-and-done exercise for us, that we felt like the pipeline space was both attractive -- it was long-term-contracted, typically -- and it was attractive to our overall business mix, both from a shareholder perspective as well as from a fixed-income and credit perspective.

And I continue to believe that.

And we are going to continue to be looking for opportunities to expand our presence there.

And it is a -- this acquisition we're announcing at NEP today is another piece of expanding and growing that platform.

Excellent.

And then perhaps just to follow up with an easier question here.

Heard your guidance; just to be clear about it, effectively you're keeping your guidance in place because of your expectations for continued weak weather throughout the balance of this year?

For this year, yes, that's fundamentally right.

We think there is going to be some spillover from the El Nino effect into the second half of the year, and that's likely to offset the sort of goodness that we've had so far.

Hopefully we're wrong and we get a normal weather year, but that's kind of how we're feeling right now.

Excellent.

And just -- sorry to put you on the spot a little bit on weather forecasting.

But just -- it would in theory last throughout the duration of this weather cycle?

So it's a multiyear effect, just to be clear?

And you raised your guidance despite the multiyear weather headwinds from weaker weather?

Or weaker wind, specifically?

Yes, I think we're only taking a view on the impact of the El Nino cycle on this year.

Let's see how it goes.

These correlations are not the strongest, but they are at least meaningful in the short term.

We'll see how 2016 looks later on.

Got it.

All right, well, congratulations again; thank you.

Greg Gordon, Evercore ISI.

Congratulations on a great quarter, despite the wind resource you were facing.

It's a testament to the diversification of the business.

Can you go over the timing on when this deal is going to close and when you're expecting to finance it.

As per usual in this capital market over the last few weeks, the YieldCos are responding very negatively to any financing overhang, even if it's in an accretive deal like the one you've announced.

So how do you plan on navigating that?

So we plan to close the deal some time before the middle of October.

In terms of financing the deal, we're going to look for opportunities in the market to raise that equity during that time period.

Importantly, we have -- I think Moray mentioned it, if I remember correctly, in the prepared remarks.

We already have a $1 billion credit facility that backs up the equity issuance.

It's a one-year term facility at very attractive pricing, so we have -- obviously, we want to be able to meet the financing plans and issue the equity at some point before closing.

But we're not going to do something silly, either, and that's why we have the backup credit to take down if we need it.

And just to add to that, Greg -- this is Jim.

I think it's important to understand that even with this acquisition, remember we're going to -- this acquisition replaces, in part, several assets that we would have dropped down this year anyway.

And the total equity needs at NEP, while they are little bit higher as a result of this acquisition -- because we're going to have a little bit higher distribution growth than we originally thought for this year -- aren't actually meaningfully higher than what we were going to have otherwise.

And so I think it's -- I think from a funding standpoint, you know the reality is that we have a lot of different levers there.

And as Armando said, we're going to be smart about it.

And we're in this for -- we've always said we are in NEP for the long term, and we're going to continue to do what's right for both NEP unitholders and NEE shareholders.

Thanks.

And one other question that's a little bit bigger-picture.

Obviously, we're getting the big reveal today from the Administration on the carbon rules.

The visibility you have on your backlog from 2016 is very robust, and it's a little bit less so, at least as of your last update, as we go out later in the decade.

Is it your expectation that this should galvanize counterparties to want to enter into arrangements with you for post-2016?

Or are we really waiting more for the tax situation to change, in terms of getting passage of the extension of the PTC?

So, Greg, I think it's a little bit of both.

I think in the near term, most of the drivers behind incremental renewable contracting will be driven by getting clarity on the incentives.

But there's no question that today's announcement is positive for renewables and will be positive in the long term for our renewable business at NextEra Energy Resources.

So I view it -- I view it quite positively there from that standpoint.

Michael Lapides, Goldman Sachs.

Real quick; this one may be for Eric and team.

When I go back and look at the slide deck on the FP&L in terms of expected capital spending -- the slide deck you gave at the investor day -- how has that changed?

What is your expectation now, both for 2016 and kind of the 2017-2018 average level for expected CapEx and therefore rate base at the utility?

Michael, I would say it's basically roughly the same.

I don't see any material changes.

You know, the reserves guidelines were approved; we had that also in the presentation deck.

So we're moving forward with that.

I think you'd be safe to assume that we're roughly in line with where we were.

You know, Okeechobee, we've got -- we still have to get the need for that, but the RFP process is done.

And so we're moving forward with that as well.

Okay.

And next year is a rate-case year.

I know it's probably too early to talk about the numbers side of it.

Can you talk to us just about the process and what some of the key, I don't know, the policy implications or things you might be looking for -- if any -- in terms of changes in Florida regulation as part of this process?

Yes, I'll start with the process.

So as you'll recall, Michael, it requires a -- first, a test-year letter is filed.

We would expect that to occur late fourth quarter/early first quarter, and then that kicks off formally the process of the rate case.

It's a eight- to nine-month process.

The PSC sets the schedule, ultimately, but obviously we have to have it all done with a final order in place sometime in the November time frame so we can go ahead and set rates for beginning in January of 2017.

As to the overall policy, you know, we're in a strong position, I think, from a standpoint of what we've delivered to customers.

We'll be spending a lot of time with the Commission, reviewing what we've done in the past four years during this last rate agreement.

We've maintained the lowest bills in the state and the highest reliability, and we'll be focusing on that kind of performance and how do we maintain that going forward.

Got it.

Thanks, guys; much appreciated.

Brian Chin, Bank of America-Merrill Lynch.

Question for you on the pipeline transaction.

I noticed that the debt is non-amortizing debt.

Can you just comment on thoughts around how we should think about that going forward?

Are there plans to potentially convert that to more amortizing debt down the road?

Or is that not really in the cards?

The non-amortizing debt, which comes with the deal, we're not actually adding any -- actually, we're adding a little piece of a couple -- $200 million of non-amortizing debt to the deal, or so.

We expect to potentially refinance that, but if we do refinance it, it's not -- they're not -- they are pretty decent terms on the debt.

If we do refinance it, it will likely be non-amortizing debt.

But we don't expect at this point to add significantly to the non-amortizing debt from the deal.

Brian, just to supplement.

You know, the use of non-amortizing debt is fairly common in the pipeline space.

And I think for us, one of the things that we're really starting to think about is whether non-amortizing debt has more of a role on the renewable side than it historically has for us.

You know, our historical model has not employed non-amortizing debt.

But that may be something that we want to take advantage of later on, given the longevity and the good fundamentals that we're seeing from the renewables business.

All right.

Can you just go into that, Moray, a little bit more on the general thought process of why non-amortizing debt makes more sense in renewables and how that matches up with pipelines?

It's just -- if you could expand on that a little bit more, that would be helpful.

Sure.

Historically, we've thought of individual wind contract or wind projects as largely as stand-alone entities that need to recover their costs, their capital cost through the period of the contract.

When you put them in a portfolio in a vehicle like NextEra Energy Partners, and given the long-term outlook for the need for renewable capacity in the country, I think the -- I'm certainly taking the view now that we are seeing the potential for those assets to go on for longer, in which case, it makes sense to think about increasing the cash coming off them that's available for distribution earlier than would otherwise be the case.

So that's what pushes you down the path of thinking about these non-amortizing debt.

That's really helpful; thank you very much.

I think we have time for one more.

Steve Fleischman, Wolfe Research.

Good morning and congrats.

Couple things that I guess you didn't mention.

First is: any kind of thoughts on the Hawaiian deal?

And just -- there does seem to be opposition, your ability to get that done?

Steve, this is Jim.

You know, obviously the state filed testimony 10 days ago saying that they oppose the deal in its current form.

And the governor held a press release -- a press conference, where he said he opposed the deal in its current form.

I think the key words there are in its current form.

They also -- the state also listed a few -- several conditions that would be I think just positive for them to think about changing their view.

And we are in the process of responding to that testimony.

And we think we have a very strong case to put forward to the Commission around the benefits to customers.

The benefits to customers are actually pretty compelling, and I think we're going to be able to make that case as we go forward.

So this is not necessarily -- it was not necessarily a surprise to me that the state filed the kind of testimony that they did.

And we are going to continue to move forward on laying out our arguments and we look forward to the hearings we're going to have in December to make our case.

Okay.

And my other question is just on -- there's some recent story that you might be looking to sell your Texas merchant assets.

I don't know if you could talk about that.

But maybe more, if you can at a high level, how much are you looking at maybe monetizing some assets within the near business, I guess assets that are less contracted?

So Steve, I think -- you know, we're not going to comment on any individual potential transaction that's been rumored out there.

I will say that -- and this is not a surprise -- that we've been consistently pretty bearish about the merchant markets around the country.

I think as we continue to see the technology trends in renewables, both in solar and winds, and their impacts in those markets where you see high penetration of solar and wind, we continue to be pretty bearish merchant markets around the country.

So I think if anything, our views are even more bearish than they were a year ago.

And we will -- as we always say, we always evaluate our portfolio and we're always looking for ways to optimize it.

And that hasn't changed and won't change in the future.

Okay, thank you.

Thanks, everybody.

That, I think, completes our time.

And this does conclude today's conference.

Thank you for your participation.