新世紀能源 (NEE) 2017 Q1 法說會逐字稿

Good day, everyone, and welcome to the NextEra Energy and NextEra Energy Partners Conference Call.

Today's conference is being recorded.

At this time, for opening remarks, I would like to turn the call over to Mr. Matt Roskot.

Please go ahead, sir.

Thank you, Gina.

Good morning, everyone, and thank you for joining our first quarter 2017 combined earnings conference call for NextEra Energy and NextEra Energy Partners.

With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy; John Ketchum, Executive Vice President and Chief Financial Officer of NextEra Energy; Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners; as well as Eric Silagy, President and Chief Executive Officer of Florida Power & Light Company.

John will provide an overview of our results, and our executive team will then be available to answer your questions.

We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties.

Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release, in the comments made during this conference call, in the Risk Factors section of the accompanying presentation, on our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites, nexteraenergy.com and nexteraenergypartners.com.

We do not undertake any duty to update any forward-looking statements.

Today's presentation also includes references to non-GAAP financial measures.

You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of certain non-GAAP measures to the closest GAAP financial measure.

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

Thank you, Matt, and good morning, everyone.

NextEra Energy and NextEra Energy Partners delivered solid first quarter results and are off to a strong start towards meeting their respective objectives for the year.

NextEra Energy's first quarter adjusted earnings per share increased 10.1% against the prior year comparable quarter, reflecting strong performance at both Florida Power & Light and Energy Resources.

Over the same period, NextEra Energy Partners grew per unit distributions by roughly 15% versus the prior year comparable period.

Adding to the solid run rate with which NEP entered the year, we're pleased to announce the acquisition of an additional asset from Energy Resources, which I will discuss in more detail later in the call.

At FPL, earnings per share increased $0.10 from the prior year comparable quarter.

Continued investment in the business was the primary deliver -- driver of growth as regulatory capital employed grew 9.7% year-over-year.

With residential bills significantly lower than the national and Florida averages, FPL's focus continues to be on finding smart investments to lower cost, improve reliability and provide clean energy solutions for the benefit of our customers.

In addition to the approximately 1,750-megawatt Okeechobee Clean Energy Center, which remains on track and under budget, FPL continues to make excellent progress towards its recently announced solar development initiatives.

Earlier this month, we filed FPL's 10-year site plan with the Public Service Commission and announced that we expect to add a total of nearly 2,100 megawatts of solar across Florida over the next several years.

We have already secured sites that will potentially support more than 3 gigawatts of FPL's continued solar growth.

We also remain excited about our 50-megawatt battery storage pilot program that was approved as part of the 2016 base rate settlement agreement, which is expected to complement our solar development efforts.

In addition to solar, as part of FPL's 10-year site plan, we announced our intention to modernize one of FPL's oldest power plant in Dania Beach, Florida with a new approximately 1,200-megawatt high-efficiency natural gas plant and to pursue the early phase-out of an additional coal fire plant that we co-own with JEA.

FPL was recognized in 2016 for the second consecutive year as being the most reliable electric utility in the nation as well as for its response to Hurricane Matthew and Hermine.

We remain committed to continuously improving our customer value proposition by continuously making investments to harden and automate our existing transmission and distribution system.

Not only does FPL offer what we believe is a total customer value proposition that is second to none, but as a result of these initiatives, we also expect to continue deliver shareholder value as regulatory capital employed is expected to grow at a compound annual growth rate of roughly 8% per year over the 4-year term of January 2017 through December 2020.

At Energy Resources, adjusted EPS increased by $0.10 per share against the comparable prior year quarter as contributions from new investments continued to drive growth.

It was another outstanding period for renewables origination with the addition of 413 megawatts of wind and 208 megawatts of solar PPAs added to backlog this quarter.

We also entered into agreements to sell over 1,000 megawatts of wind development rights and new wind projects to one of our largest customers, which we have not previously announced and are not included in our backlog.

I'll provide more details on our continued origination success later in the call.

During the quarter, Energy Resources successfully commissioned the first 114 megawatts of its wind repowering program and continues to make solid progress on the remaining sites.

As a reminder, we have tax equity financing commitments in place for the approximately 1,600 megawatts of repowering projects that we have previously announced.

These projects represent around half of the total $2 billion to $2.5 billion of capital deployment that we expect for repowering through 2020.

We continue to actively pursue additional repowering opportunities for our existing contracted portfolio, which will largely comprise the balance of the repowering opportunity in 2018, 2019 and 2020.

Beyond renewables, we continue to make good progress on development and construction activities related to our 3 natural gas pipeline projects, and our development team continues to seek new pipeline opportunities going forward.

At next NextEra Energy Partners, the assets operated well and delivered financial results in line with our expectations.

Yesterday, the NEP board declared a quarterly distribution of $0.365 per common unit or $1.46 per common unit on an annualized basis, continuing our distribution growth at the top end of our range.

Inclusive of this increase, NEP has grown its distribution per unit by 95% since the IPO in July 2014.

Further building upon that strength, today, we are announcing that NEP has reached an agreement to acquire the approximately 250-megawatt Golden West Wind Energy Center from Energy Resources.

We expect the transaction, which is anticipated to be funded with available debt capacity, to yield a double-digit return to NEP's unitholders and be accretive to LP distributions.

With its extended growth runway, we believe NEP offers a superior value proposition and is better positioned than ever to deliver upon the expectations that we have outlined for our investors.

Before continuing with the discussion of our strong results for the quarter, I would like to say a few words about the Oncor transactions.

Oncor has always been an opportunistic transaction that we believe leverages our core strengths in operating rate-regulated utilities efficiently to deliver on our customer value proposition of low bills, high reliability and outstanding customer service.

We are disappointed by the recent ruling from the Public Utility Commission of Texas that our proposed transactions are not in the public interest.

We expect to file a motion for rehearing with the commission sometime in the next few weeks.

However, if we are ultimately unsuccessful with the transactions, we continue to believe that we have one of the best growth opportunity sets in our industry and we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted EPS growth range of 6% to 8% through 2020 off a 2016 base.

We remain laser-focused on continuing our long-term track record of delivering outstanding results for our shareholders.

As a reminder, through the end of 2016, we outperformed both the S&P 500 and the S&P Utility Index in terms of total shareholder return on a 1-, 3-, 5-, 7- and 10-year basis and have outperformed more than 70% of the S&P 500 over the last 10 years.

We were once again honored to be named, for the 10th time in 11 years, #1 in the electric and gas utilities industry on Fortune's 2017 list of World's Most Admired Companies and to be ranked among the top 10 companies worldwide across all industries for innovation, social responsibility and wide use of corporate assets.

While third party acknowledgments are a reflection of our past successes, we remain focused on the future.

We expect that the organic growth prospects of both FPL and Energy Resources, combined with our continued focus on running our businesses efficiently through initiatives such as our recently announced Project Accelerate, will allow us to extend our long-term track record of delivering value for our customers and providing growth for our shareholders while we continue to maintain one of the strongest balance sheets and credit positions in the industry.

Now let's look at the detailed results beginning with FPL.

For the first quarter of 2017, FPL reported net income of $445 million or $0.95 per share.

Earnings per share increased $0.10 or approximately 12% year-over-year.

The primary driver of FPL's earnings growth was continued investment in the business.

Average regulatory capital employed grew roughly 9.7% over the same quarter last year.

FPL's capital expenditures were approximately $1.7 billion for the quarter, and we expect our full year capital investments to be between $5 billion and $5.5 billion.

I will discuss FPL's capital initiatives in more detail in a moment.

Our reported ROE for regulatory purposes will be approximately 11.5% for the 12 months ending March 2017.

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

We began 2017 with a reserve amortization balance of $1.25 billion and used $211 million during the first quarter to achieve the regulatory ROE of 11.5%.

As we previously discussed, we expect to use more reserve amortization in the first half of the year, given the pattern of our underlying revenues and expenses, and we expect this year to be no different.

As you may recall, in 2016, we entered the year with a reserve amortization balance of $263 million and utilized $176 million in the first quarter, but ended the year with a balance of $250 million.

The Florida economy continues to show healthy results with recent unemployment rates near their lowest level since 2007.

Florida's consumer confidence level is at post-recession highs.

The real estate sector continues to grow with average building permits in the Case-Shiller Index for South Florida up 1.1% and 6.7%, respectively, versus the prior year.

During the quarter, FPL's average number of customers increased by approximately 65,000 or 1.3% from the comparable prior year quarter, which is generally consistent with our long-term expectations for customer growth.

Overall usage per customer decreased 1.4% compared to the prior year.

As we have previously noted, usage per customer tends to exhibit significant volatility from quarter to quarter, which is more pronounced during periods of abnormal weather conditions similar to those experienced during the first quarter.

On a 12-month rolling average, weather-normalized customer usage has declined by negative 0.5%, consistent with our long-term expectations averaging between 0 and approximately negative 0.5% per year.

However, as a reminder, for the full year 2016, we saw no negative impact from weather-normalized customer usage.

We will continue to closely monitor customer usage trends going forward.

After accounting for these effects and the impact of a leap year day in 2016, first quarter retail sales decreased 1.2% year-over-year.

Looking ahead, for 2017, we continue to expect the flexibility provided by the reserve amortization balance, coupled with our weather-normalized sales growth forecast and current CapEx and O&M expectations, to support a regulatory ROE towards the upper end of the allowed band of 9.60% to 11.60% under our new rate agreement.

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

Before moving on, let me now take a moment to update you on some of our key capital initiatives.

During the first quarter, FPL selected the sites for the initial projects being developed under the solar-based rate adjustment, or SoBRA mechanism of the base rate settlement agreement.

The approximately 600 megawatts of 2017 and 2018 solar is comprised of 8 74.5-megawatt sites, which are expected to commence construction this spring with commercial operation expected for half the sites by year-end 2017 and the remainder in the first quarter of 2018.

As a reminder, under the SoBRA, FPL was permitted to petition for recovery of up to 300 megawatts of cost-effective solar to be placed in service each year through 2020 and, if approved, immediately begin recovering the cost of these projects through rates upon commercial operation.

By selecting optimal sites on FPL's transmission system and leveraging the company's industry-leading construction, sourcing and development capabilities, these projects are expected to produce millions of dollars in net lifetime savings for customers and will help to further diversify FPL's fuel mix.

We continue to develop sites for the approximately 600 megawatts of solar capacity planned for 2019 and 2020 under the SoBRA and will work to advance the additional 900 megawatts of solar that is included in our 10-year site plan over the next several years.

As part of the new 10-year site plan, FPL also announced its intention to further modernize the Lauderdale plant in Dania Beach, Florida with a new approximately 1,200-megawatt high-efficiency natural gas plant that would begin operation by mid-2022.

This project, the Dania Beach Clean Energy Center, will help FPL maintain its best-in-class rank among major U.S. utilities for having the lowest operating and maintenance expenses measured on a cost per kilowatt hour of retail sales.

By modernizing a plant that was last updated nearly a quarter-century ago with current state-of-the-art technology, FPL customers are expected to save hundreds of millions of dollars in reduced fuel and operating and maintenance costs over its operational life.

FPL plans to initiate the Public Service Commission approval process for the modernization in the second quarter.

Additionally, earlier this year, together with our joint interest on our JEA, we announced a preliminary agreement to decommission the St.

Johns River Power Park, a 1,252-megawatt coal-fired plant in which FPL has a 20% ownership stake.

Similar to the Cedar Bay and Indiantown transactions, the early closure of the St.

Johns plant in 2018, which we intend to see commission approval of this spring, is expected to both reduce cost for FPL customers and significantly reduce emissions.

All of our ongoing capital initiatives are aimed at enhancing our overall customer value proposition of delivering low bills, high reliability, outstanding customer service and clean energy solutions for Florida customers.

Let me now turn to Energy Resources, which reported first quarter 2017 GAAP earnings of $476 million or $1.01 per share.

Adjusted earnings for the first quarter were $357 million or $0.76 per share.

Energy Resources' contribution to first quarter adjusted earnings per share increased $0.10 or approximately 15% from the prior year comparable period.

New investments added $0.35 per share.

In 2016, we commissioned roughly 2,500 megawatts of new wind and solar projects in the U.S., which was a record year for Energy Resources.

Contributions from new investments and renewables, together with the timing of tax incentives on certain projects, added $0.31 per share, reflecting strong contributions from these new project additions.

New investments in natural gas pipelines added $0.04 per share.

Contributions from existing generation assets were essentially flat against the prior year comparable period, as was fleet-wide wind resource.

Contributions from our upstream gas infrastructure activities declined by $0.11 per share.

As a result of sustained weak commodity prices, in the first quarter of 2016, we elected not to invest capital in drilling certain wells, which resulted in liquidation of in-the-money hedges and the resulting recognition of income.

The absence of these hedge liquidations this quarter, combined with increased depreciation expense reflecting higher depletion rates, were responsible for the year-over-year decline.

Mild weather negatively affected our customer supply and trading business, where contributions declined by $0.04 per share.

All other impacts reduced results by $0.09 per share, including the effects of interest expense, reflecting continued growth from the business and share dilution.

Additional details are shown on the accompanying slide.

At Energy Resources, we continue to believe we are well positioned to capitalize on one of the best environments for renewables development in recent history.

While state renewable portfolio standards continue to provide strong support for wind and solar growth, customer origination activity continues to be largely driven by economics.

Based upon continued equipment efficiency improvements and cost declines, Energy Resources can offer wind PPAs at very competitive prices.

Similarly, solar is becoming more competitive on a levelized cost of energy basis across the country.

We anticipate that improved wind and solar economics and low natural gas prices will continue to lead to additional retirements of coal, nuclear and less fuel-efficient oil-and gas-fired generation units, creating significant opportunities for renewables growth going forward.

Additionally, over the long term, as battery costs decline and efficiencies improve, we expect batteries to further complement renewable economics, supporting additional demand as the tax credits phase down in the next decade.

As a result, we believe the size of the market potential for new renewables is larger than it has ever been, helping to drive growth well into the next decade.

I am pleased to report that since the last call, we have signed contracts for roughly 413 megawatts of new wind projects, including 368 megawatts for post-2018 delivery.

We have also signed 208 megawatts of new solar projects, including 177 megawatts for post-2018 delivery.

These contracts are a reflection of the factors I just mentioned, combined with the continued success of our origination efforts, as we capitalize our -- on our competitive advantages in both solar and wind.

In addition, one of our largest customers is purchasing over 1,000 megawatts of wind projects for self-ownership.

These projects represent a combination of development asset sales, where our customer finishes development activities and manages construction, and build-own-transfer opportunities in which Energy Resources turns the project over prior to commercial operation.

With our strong internal origination efforts and large pipeline of development projects, Energy Resources has an ability to recycle capital by sometimes selling developed sites to or building projects for others who may want to own some renewable assets outright.

These efforts allow us to optimize our development portfolio and, in most cases, are expected to help us secure additional PPAs.

More importantly, the projects sales are expected to generate a significant portion of the after tax NPV per kilowatt that we would realize over the life of a contracted wind project, roughly 20% to 25% of the NPV for a development rights sale and roughly 40% to 50% of the NPV for a build-own-transfer project.

Our core business will continue to be to provide long-term contracts to customers.

We believe the addressable long-term contract of market remained as strong as ever with cooperatives, municipalities, commercial and industrial customers and most investor-owned utilities benefiting from the scale and other competitive advantages that Energy Resources can provide.

The attached chart provides additional details on where our renewables development program now stands for 2017 and beyond.

We will give further details on our renewables development program at our Investor Conference, which we plan to hold on June 22 in New York.

The development activities for natural gas pipeline projects remain on track.

Construction on the Florida pipeline is progressing well, and we expect an in-service date in the second quarter of this year.

As a reminder, NextEra Energy's investments and Sabal Trail Transmission and Florida Southeast Connection are expected to be roughly $1.5 billion and $550 million, respectively.

The Mountain Valley Pipeline has continued to progress through the FERC process.

We continue to expect to be in a position to receive FERC notice to proceed later this year to support commercial operations by year-end 2018.

NextEra Energy's expected investment is roughly $1 billion.

Let me now review the highlights for NEP.

First quarter adjusted EBITDA was $170 million and cash available for distribution was $40 million, up $29 million and $2 million, respectively, against the prior year comparable quarter.

Overall results were consistent with our expectations.

Portfolio additions over the last year drove growth and adjusted EBITDA of approximately 21%.

Adjusted EBITDA and cash available for distribution from existing projects was roughly flat, declining by $2 million against the prior year comparable quarter, primarily as a result of lower wind and solar generation.

For the NEP portfolio, wind resource was 99% of the long-term average versus 100% in the first quarter of 2016.

Desert Sunlight, which NEP acquired a 24% interest in during the fourth quarter of 2016, provided a minimal contribution to first quarter cash available for distribution growth due to its seasonal generation profile and quarterly debt service payments.

Looking ahead, we expect substantial growth in cash available for distribution in the second and third quarters of this year as Desert Sunlight begins making meaningful contributions.

When viewed on a run rate basis, which removes the timing impact of acquisitions and their seasonal generation and debt service profiles, annual cash available for distribution grew 18% over the prior year comparable quarter, supporting the growth in LP distributions.

As a reminder, these results are net of IDR fees since we treat these as an operating expense.

The impact of other effects, including management fees and outside services, are shown on the accompanying slide.

We continue to execute on our plan to expand NEP's portfolio, and I'm pleased to announce that NEP has reached an agreement with Energy Resources to acquire the Golden West Wind Energy Center.

Golden West is an approximately 250-megawatt wind project in Colorado that entered service in October 2015 and sells 100% of its output under a 25-year PPA.

The transaction, which is expected to close in early May, represents another step toward growing LP unit distributions in a manner consistent with our previously stated expectations of 12% to 15% per year through at least 2022.

NEP expects to acquire the Golden West project for total consideration of approximately $238 million subject to working capital and other adjustments, plus the assumption of approximately $184 million in liabilities related to tax equity financing.

The acquisition is expected to contribute adjusted EBITDA of approximately $53 million to $63 million and cash available for distribution of approximately $22 million to $27 million, each on an annual run rate basis as of December 31, 2017.

The purchase price for the transaction is expected to be funded entirely through existing debt capacity, and the asset is expected to further enhance the quality and diversity of NEP's existing portfolio while being accretive to LP unit distributions.

Turning now to the consolidated results for NextEra Energy.

For the first quarter of 2017, GAAP net income attributable to NextEra Energy was $1.583 billion or $3.37 per share.

NextEra Energy's 2017 first quarter adjusted earnings and adjusted EPS were $820 million and $1.75 per share, respectively.

Adjusted earnings from the Corporate & Other Segment decreased $0.04 per share compared to the first quarter of 2016, primarily due to the absence of FiberNet and the timing of certain tax items.

The sale of FiberNet at 16.7x 2016 EBITDA generated net cash proceeds of over $1.1 billion and a net after tax gain on disposition of approximately $685 million that is excluded from NextEra Energy's first quarter adjusted earnings.

NextEra Energy's operating cash flow, adjusted for the impacts of certain FPL clause recoveries in the Indiantown acquisition, increased by over 10% year-over-year.

Based on our first quarter performance at NextEra Energy, we remain comfortable with the expectations we have previously discussed for the full year.

For 2017, we continue to expect adjusted earnings per share at NextEra Energy to be in the range of $6.35 to $6.85 and at or near the upper end of our previously disclosed 6% to 8% growth rate off a 2016 base.

As part of the financing for Oncor, NextEra entered into equity forward transactions for 12 million shares, which would provide approximately $1.5 billion in proceeds.

Given that we do not have a current need for the equity, we intend to settle the forward contracts shortly in an orderly manner.

We continue to expect adjusted earnings per share in the range of $6.80 to $7.30 for 2018 and for NextEra Energy's compound annual growth rate and adjusted EPS to be in a range of 6% to 8% through 2020 off a 2016 base while maintaining our strong credit ratings.

We also continue to expect to grow our dividends per share 12% to 14% per year through at least 2018 off a 2015 base of dividends per share of $3.08.

As always, our expectations discussed throughout today's call are subject to the usual caveats, including, but not limited to, normal weather and operating conditions.

Turning now to NEP.

At NEP, as I mentioned earlier, yesterday, the NEP board declared a quarterly distribution of $0.365 per common unit or $1.46 per common unit on an annualized basis, representing a 15% increase over the comparable distribution a year earlier.

Our expectations for December 31, 2017, run rate adjusted EBITDA and CAFD are unchanged at $875 million to $975 million and $310 million to $340 million, respectively.

These expectations are subject to our normal caveats and are net of expected IDR fees since we treat these as an operating expense.

From a base of our fourth quarter 2016 distribution per common unit and an annualized rate of $1.41, we continue to see 12% to 15% per year growth in LP distributions as being a reasonable range of expectation through at least 2022, subject to our usual caveats.

As a result, we expect the annualized rate of the fourth quarter 2017 distribution that is payable in February 2018 to be in a range of $1.58 to $1.62 per common unit.

We continue to expect NextEra Energy Partners to achieve its distribution growth targets without issuing common equity for 2017 and potentially 2018.

In summary, we remain as enthusiastic as ever about our future prospects.

FPL, Energy Resources and NEP all have an outstanding set of opportunities across the board, and we are off to a strong start to 2017 as we continue to execute well against all of our strategic and growth initiatives.

At FPL, we continue to focus on operational cost effectiveness, productivity and making smart, long-term investments to further improve the quality, reliability and efficiency of everything we do.

Energy Resources maintains significant competitive advantages to capitalize on the expanding market for renewables development and is continuing to make strong progress on its natural gas pipeline development and construction efforts.

For NEP, growth in the North American renewables market and the origination success at Energy Resources continue to expand the pipeline of potential drop-down assets, and its long-term growth prospects remain stronger than ever, providing benefits for both NEE and NEP.

We remain intensely focused on executing on these opportunities and extending our long-term track record of delivering value to shareholders.

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

(Operator Instructions) And we'll go first to Stephen Byrd with Morgan Stanley.

I wanted to explore the motion for rehearing in Texas.

And I wondered if you could just speak to what that process might look like and then I guess, at the core of it, what I'm thinking about are the conditions that were set out.

It seemed very challenging and probably really don't set a good precedent for our industry.

How could those potentially be addressed through this process?

Steve, I'm going to defer that question to Jim.

So Steve, just from a process standpoint, and I'll get the days pretty close, I think we have 25 days from when the final order went out to file for rehearing.

The commission then has 30 days to rule on that.

They can extend it for a bit, should they choose to.

And so that's the kind of process that you're looking at in terms of timing.

I think in terms of -- obviously, we were disappointed in the decision.

We think we would be a terrific owner of Oncor for the state and for its customers.

I think we would add enormous value to customers in Texas from how we would operate the utility.

So in terms of anything else, I think -- I guess the other 2 things I would say is, obviously, we can't pay $18.7 billion for a utility that we can't run and we can't control the board and we can't have access to dividends.

And it's just bad business to do anything other than that.

And so you can expect that we will not be accepting any conditions that would have -- that would not allow us to appoint the majority of the board or have access to the dividends.

I mean, that's just -- we've been very clear about that from the beginning on this transaction, and we continue to be very clear on it.

And so we remain very committed to trying to get it done, and as I said, we'll be filing for rehearing here shortly.

Understood.

And then if I could just shift gears over to wind.

We're certainly really encouraged by wind economics improvements.

Just looking out a bit further than maybe we typically do.

When you think about the changes to wind turbine technology, the next generation of blades and turbines, what's the approximate timing for, really, the next generation?

And how should we think about potential step changes and improvements even further in terms of wind economics and what that does to your addressable market?

Yes.

I think from a wind step change standpoint, we had commented on the last call that we expect wind to be about a $0.02 to $0.03 product without tax credits early in the next decade.

And we get comfortable with that largely because of the step change and the improved economics that we see with wind turbines.

First of all, we're expecting even a taller tower design, wider rotor diameter, towers getting about 90 meters, rotors up close to 130 meters, which could drive the NCF to right around 60%.

You combine that with what we expect to be continued progressive reductions in turbine equipment pricing, which we think will get even more aggressive as the PTC phases down, that's how we really get comfortable with that market.

And then when you think about the Production Tax Credit actually phasing down right around 2023, we continue to be optimistic about what we see on batteries.

We have 20 people dedicated to our battery development effort.

We're investing upwards of $100 million a year in batteries.

We're excited about the 50-megawatt battery storage pilot program that FPL has.

But imagine the game changer that, that would be for renewables, not only wind that blows predominately during the evening, but peak shaving economic opportunities around solar.

That could really also help to substantially drive renewable economics.

Granted, batteries still have a long ways to go.

They're still expensive, still inefficient.

But with all the investment from the automotive industry, the focus that you're seeing from the -- from our sector -- we obviously want to be a leader.

The Chinese have announced that they plan to take a major role in battery manufacturing, which is one of the factors that really helped to drive down the cost curve on PV panels.

Those are all things that really make us very optimistic about the prospects for renewables development as we head into the next decade.

And we'll take our next question from Steve Fleishman with Wolfe Research.

Two questions.

First, I guess, this is for Jim.

Obviously, you're pursuing rehearing on Oncor.

But assuming that, that doesn't work out and you're kind of in the stand-alone case, which it sounds like you're thinking you could hit the upper end of your growth rate, kind of how important is looking at other M&A in the future?

I have some investors who say you'll -- strategically, you guys need to do a deal.

Could you just kind of give your view on that?

Sure.

Sure, Steve.

So I think John said on the call, excluding Oncor, we'd be disappointed if we didn't earn at the top end of the 6% to 8% range through 2020 from an EPS standpoint, and we're very comfortable with that.

We're very comfortable with our organic growth prospects.

We do not have to do anything.

I love our stand-alone prospects.

I love our 2 businesses.

They have tremendous opportunity to deliver growth for shareholders and also tremendous opportunity to do good things for customers.

And so I love our 2 businesses on a stand-alone basis.

M&A is hard.

I think we've seen in the last month in our industry how hard it is.

And any -- our perspective on M&A really hasn't changed for a very long time, which is it's -- it -- that anything that we would do, if we were to do something, would have to be really compelling for shareholders.

As I said, it's very hard to do.

And we're -- as always, we're going to stay disciplined.

And let me just reinforce, again, we don't have to do anything on the M&A front because we really do love our stand-alone organic growth prospects.

Okay, good.

And then on the -- just a question on renewables.

So if you look at the -- your '17 to '18 development targets, you still have a decent amount to fill in to get to your kind of current expectations.

Could you just give color how you're feeling about getting to that?

Steve, Armando.

We feel good or we would have obviously changed the numbers.

There is -- I think we said it at the last call, that there was a lot of activity, really, through the 4 years for wind from '17 through '20.

And honestly, there's a lot of activity in the market right now for solar from '18 to '21.

So we continue to see folks that are interested in bringing renewables in, in '18.

Even if the price may be a little bit higher for them, they understand that.

But for their own reasons, whether it's commercial and industrial folks that have something internally being done or whether it's folks on the utility, broadly defined utility space, that have made commitments to regulators or others, they're interested in '18.

So I don't know ultimately how it will work out, but we looked at it again this quarter.

Based on the activity that we have in-house and what we know is coming down the pike, we continue to feel comfortable with the range.

And we'll take our next question from Greg Gordon with Evercore ISI.

Turning to the utility business.

When you talk about the 8% growth rate and using the sort of the settlement agreement as a benchmark, what's in the capital plan today and what's not?

My -- refresh my memory, but I believe the plan that was approved by the commission allowed up to 300 megawatts a year of solar, but it sounds like your opportunity set is a lot higher than that.

So what is -- what are you planning on doing?

And then some of the new initiatives you've announced, like the proposal to knock down and rebuild the gas plant.

Can you just give us what's in the baseline and what the opportunity set is?

Yes, I mean -- sure, I mean, one is the transmission and distribution, continued storm hardening, the automation effort that we have there.

We have Okeechobee Clean Energy Center opportunity as well.

We have the 1,200 megawatts of solar.

I'll get to the extra 900 megawatts in a minute that are part of the SoBRA adjustment.

We have the 50-megawatt battery storage opportunity, although we'll have to recover in rates during the next rate case on that.

We still have combustion parts improvements that we continue to make to the existing facilities, continue to complete the peaker upgrades that we had talked about previously.

And then we have all the opportunities that we laid out in the 10-year site plan, which are incremental.

First of all, the additional 900 megawatts of solar, which we have secured better than 3 gigawatts of sites in Florida for that we'd like to be able to execute on over the next several years.

Obviously, we're in a good position with our surplus amortization balance, and then the Lauderdale opportunity that we announced as well, which would be more of a 2022, I think, COD that we would pursue there.

And then obviously, the St.

Johns opportunity that I mentioned early.

We continue to find smart investment opportunities to clean up the emissions profile in Florida, continue to make NextEra Energy and FPL one of the cleanest commissions generators of all top 50 power producers in the country, and we'll continue to try to identify further opportunities going forward.

But those are the things that really drive that 8% regulatory capital employed growth.

Forgive me for following on -- up on the solar.

If you chose to go ahead and -- because you have the opportunity and the sites to go build more than what's in the current settlement plan, what's the recovery mechanism for that?

So Greg, this is Eric Silagy.

So outside of the rate agreement, if we went ahead and did solar, then we would seek to recover that during the next rate proceeding.

That would be the mechanism that we would do that.

So the -- we're looking at opportunities on identifying sites and we'll determine whether or not we want to do that before we go to the next rate proceeding or afterwards.

And Greg, this is Jim.

Just one last thing on that.

We're going to -- you can expect that in the June Investor Conference that we will lay that out with some detail, yes.

Okay.

Two more quick ones.

Just to be clear on the -- when you say you're going to settle the forward sale, I mean, you're not issuing the equity.

That is correct.

Okay.

And then the numbers were great in the quarter, but you had that $0.11 headwind from upstream gas and you described very clearly why.

When I look in the appendix of your release and I look at the expected EBITDA and PTC contribution from upstream and midstream, which is $190 to $290 and $95 to $195, those -- that guidance is a function of your expectation that you were going to behave this way with regard to those investments.

Or should we expect that in the low end or below the low end?

Yes, and remember, Greg, we didn't add any new projects, right, that really impacted Q1 performance because of economics.

But we continue to, through our development efforts, look for further upstream opportunities that would satisfy that forecast that we have outlined in our materials.

And we'll take our next question from Paul Ridzon with KeyBanc.

As you look at investment opportunity, you've really deepened your roots across the energy platform.

Would you ever look at an LDC?

Well, a couple things I'll say about LDCs.

One is they tend to go off at very high premiums.

It's just hard to make the economics work on an LDC, and then you've got to get comfortable with the liability profile associated with an LDC as well.

They tend to be expensive, and we're only interested in doing transactions that create long-term shareholder value.

On your repowering, does the entire capital program capture 100% of the PTC or are those phased down to 80%?

I'm sorry, can you repeat the question?

Your capital program for repowering the wind turbines, will all of those projects get 100% of the PTC?

Or is the timing...

Yes.

Yes, they all get 100% of the production tax credit.

That's correct.

The test on the 80%, it's an 80-20 test in terms of determining whether or not it's a new turbine to get 100% of the PTC.

Back to M&A, are the rating agencies comfortable enough with the contractedness of Energy Resources that it's utility-like enough that you don't need to do anything to rebalance the portfolio?

Yes.

We -- just to be clear, we do not need to do an acquisition to meet the growth prospects and maintain the credit ratings that we have through our guidance period.

Just to be very clear, we will have very strong credit metrics in 2020 even with the growth that we expect out of both FPL and Energy Resources through 2020.

No need to do M&A to rebalance the balance sheet, and I know there's been a lot of investor questions about that.

Just to put that to bed, hopefully, once and for all.

And we'll take our next question from Jerimiah Booream with UBS.

I just wanted to touch on the economics of build-own-transfer and development rights on the wind side.

Obviously, you've had a couple big announcements recently.

How does that flow through the income statement?

And really, what's the kind of near-term earnings incremental opportunity that we should think about there?

Yes.

I mean, there's 2 impacts, right, there's book and cash.

We talked a little bit about cash impacts on the call.

We said out of these opportunities, that you think about them in 2 ways.

One are development right sales, which we put the NPV kilowatt hour -- on a kilowatt basis when you compare it to a long-term contracted new-build at about 20% to 25%.

And then a build-own-transfer, you look at that on an after tax NPV kilowatt basis, it's probably about 40% to 50% of the NPV of a long-term contracted basis.

So that's cash.

On the book side, obviously, you're going to generate a gain off those sales, and those gains would we don't think be material and would be reflected in our income statement.

Okay.

And then also just more specifically, on the commercial industrial opportunity.

I mean, how many of the PPAs that you're signing are really more focused on the C&I sphere going forward versus traditional PPAs?

It's Armando.

Just let me go back to the previous question just a second, and I'll get to that one, too.

So I just want to put it in context, right.

We haven't updated numbers on our pipeline for wind and solar in a while.

And I just want everybody to understand, we've got a lot of development out there.

When we talked a couple years ago about how we were essentially doubling the amount of G&A that we put into both the wind and the solar business through 2018, and we're doing that.

So today, just in terms of what I call inventory, we've got 10 to 12 gigawatts of inventory, on its way to 20 gigawatts here in the near future on wind, and we've got about 10 gigawatts of solar that's on its way to 20 here in the near future.

So we've got a lot of opportunities out there for projects.

So if once in a while someone's interested in doing some development and it makes sense for us, then we've got the inventory to be able to do that.

On the C&I side, C&I gets a lot of press and so on.

It's still not a giant portion of the market.

It's a market that we've looked at.

It's a market that we've played in.

It's a market that we've originated.

It is a market that we will probably do more of than we've done in the past in certain regions.

But it's also a market that doesn't make sense for us in certain regions where folks are looking for very short-term contracts, in places where we've got to take a significant amount of merchant risk in the term year.

So my expectation is it could be 20% of what we do on a go-forward basis.

But I think the traditional stuff that we've been doing with the IOUs, the munis, the co-ops and so on will continue to be the bulk of that business for us.

Okay, that's great.

And then just one last one for me.

On the legislation in Florida right now on gas reserves, can you just talk about any kind of stumbling blocks there and what any kind of material changes would be versus the previous program?

Yes, this is Eric.

So it's -- we're right now in the midst of a legislative session, and so there's -- there are a number of hurdles for that legislation to clear.

So it's by no means certain that gas reserves legislation would actually clear both houses.

So at this point, I think it's just speculative to try to predict what's going to happen because there's a lot of areas that need to be covered.

A lot of water needs to be covered within the legislative process at this point.

We'll take our next question from Jonathan Arnold with Deutsche Bank.

Just wanted to weave together a couple of the themes you've already talked about.

So the Xcel model of BOT and some development sales is -- do you see the utility market shifting in that direction and that this might -- or is that kind of a one-off as you're looking at go forward?

No.

I -- we do not see the market shifting in that direction, and I think that's a point Armando was making just a minute ago.

I mean, we continue to see a very strong long-term contracted market made up of our typical customers, whether it's munis and co-ops, C&I, most investor-owned utilities.

It is -- with a build-own-transfer like we're able to do with Xcel, where you can see an opportunity to generate an attractive NPV off of a sale and yet get contracts back from a customer who's been one of your largest customers, those are -- those can be attractive situations.

But our core business is going to continue to be the long-term contracted business.

And when we look out, and we'll lay this out at the June Investor Conference, we really see the market continuing to stay at the levels it's been in the past on the long-term contracted opportunity set side.

So your preference is more to stay in that space.

I was just curious whether there was sort of a balance sheet angle that -- with these -- the changing NPV, but you have less balance sheet tied up.

So maybe that would reduce some of the rationale around the Oncor transaction, where you certainly portrayed it at the time as something that would give you the ability to max your development activities.

Jonathan, that market -- and I know it's gotten a lot of play here recently.

But that rate-based market, if you go back historically, year in, year out, I mean, people have been building rate base on the wind side for the last decade, and it's averaged about 15% of the market.

Could it go up a little bit?

Yes, maybe it'll go up a little bit.

But it's a small portion of the overall market.

And so we don't -- so although there were some transactions here recently, at least our view right now is that even if it goes up a little bit, it's just not a significant part of the market.

And if there are people that are interested and we can help them help us with our inventory, then we might look at the transaction.

Why not?

John mentioned some economics that are attractive.

But I wouldn't spend, honestly, that much time thinking about whether what happened during the last 3 months has turned the market around.

The rate-based market is just not that large.

Okay.

And then I just wanted to clarify one thing.

You talked about a 1,000-megawatt transaction at the beginning.

I wasn't sure if that was something -- a new one that hasn't yet been announced or were you referring to the Xcel deal?

Yes.

No, the 1,000 megawatts is with -- is the large customer transaction.

We just did not previously announce it.

The customer had made announcements about the deal.

Okay.

But we're talking about the one deal basically, this...

One deal.

That's correct, one deal.

And we'll take our next question from Michael Lapides with Goldman Sachs.

Just curious, Project Accelerate.

Is there any way to quantify what the, whether the EBITDA or EPS, benefits from it would be and which of the business is kind of more or less impacted by it?

Yes.

I mean, first of all, Project Accelerate is an initiative that we said on the last call will generate several hundred million dollars in run rate savings going forward.

We will give more details on it at the June Investor Conference, but it affects all of our businesses.

I mean, we're reimagining and -- all of the businesses, at NextEra Energy Resources, at FPL, finding smarter ways to leverage technology and other way -- other approaches to each of our individual business lines.

And we will lay that out, including EPS impacts from that, at the Investor Conference.

But when you say several hundred million dollars, meaning on a pretax income run rate eventually or on a discounted cash flow type of view.

Yes, on a pretax run rate basis going forward.

Got it.

I mean, that's pretty material on an after tax basis.

That would be a pretty material driver of an EPS uptick over time.

Yes, but remember that Project Accelerate is included in the expectations that we've provided.

And the other thing, Michael, to remember is FPL is roughly 2/3 of the company, and you cannot take the several hundred -- that 2/3 of that run rate creates surplus.

It doesn't create earnings, okay.

So you got to be very careful about how you think about it from an earnings standpoint.

Understood.

No, that benefit over time would actually accrue to the customer, once you hit the 11 5, 11 6 range.

Unrelated question.

Just curious, Jim or Armando, for your thoughts on the prospects and the economics of offshore wind in the U.S.

So Michael, we have looked at offshore winds.

We spent a -- I personally spent an enormous amount of time looking at it for a very good customer of ours back when I was running Energy Resources, and we came away from that effort not being a big fan of offshore wind for several reasons.

One is it effectively -- from a construction standpoint, very hard to get comfortable that you can ever -- it strikes me more as new nuclear than it does of onshore wind in terms of the construction risk you take, right.

It's marine construction.

The O&M associated with it is challenged.

If the seas are high, you can't -- you have to fly out to fix the turbines as opposed to getting a boat and go out there to do it.

It -- there's an enormous number of hurdles that you need to get to.

And then you get to the biggest hurdle, which is just it's bad economics for customers, right?

I mean, we've been very proud that we've done good economic renewables for customers.

And we think onshore wind and onshore solar -- and frankly, solar in New England will be probably 1/3 of the cost of offshore wind.

It is really, really not good for customers to be doing offshore wind relative to onshore solar or onshore wind.

So to say that we're not fans would be an understatement, and I don't think it's good for customers.

And frankly, I think it's -- we certainly wouldn't do it.

We think it's too risky.

And ladies and gentlemen, that will conclude today's conference.

We thank you for your participation.

You may now disconnect.