Good morning and welcome to the NextEra Energy and NextEra Energy Partners First Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Jessica Aldridge, Director of Investor Relations. Please go ahead.

Jessica Aldridge - Director of Investor Relations

Thank you, Anthony. Good morning everyone and thank you for joining our first quarter 2022 combined earnings conference call for NextEra Energy and NextEra Energy Partners. With me this morning are John Ketchum, President and Chief Executive Officer of NextEra Energy; Kirk Crews, Executive Vice President and Chief Financial Officer of NextEra Energy; Rebecca Kujawa, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson Executive Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners, as well as Eric Selagy, Chairman, President and Chief Executive Officer of Florida Power and Light Company. Kirk 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, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found on our websites nexteraenergy.com and nexteraenergypartners.com. We do not undertake any duty to update any forward-looking statements.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of historical non-GAAP measures to the closest GAAP financial measure. As a reminder, Florida Power and Light completed the regulatory integration of Gulf Power under the 2021 base rate settlement agreement and began serving customers under unified rates on January 1, 2022. As a result, Gulf Power will no longer continue as a separate reporting segment within Florida Power and Light and NextEra Energy. For 2022 and beyond, FPL has one reporting segment, and therefore 2021 financial results and other operational metrics have been restated for comparative purposes.

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

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Thank you, Jessica. And good morning, everyone. NextEra Energy delivered strong first-quarter results and is off to a solid start to meet its overall objectives for the year. Adjusted earnings per share increased by 10.4% year-over-year, reflecting successful performance across all of our underlying businesses. During the quarter, we were honored that NextEra Energy was again ranked number 1 in its sector of Fortune Magazine's World's Most Admired Companies list for the 15th time in 16 years. Our culture of commitment to excellence in everything we do, and our core values are what allow our team of approximately 15,000 employees to continue delivering best-in-class value to our customers and shareholders while helping build a sustainable energy era that is affordable and clean.

FPL increased net income by approximately $98 million from the prior-year comparable period, which was driven by continued investment in the business for the benefit of our customers. During the quarter, FPL successfully placed in service approximately 450 megawatts of additional cost-effective solar projects that are recovered through base rates as part of its new 4-year settlement agreement, which as a reminder, became effective on January 1st of this year. As a result, FPL has now completed on time and within budget all of its plans solar build with 2022 in service dates.

FPL now owns and operates more than 3,600 megawatts of solar, which is the largest solar portfolio of any utility in the country. FPL's modernization investments since 2001 have saved customers more than $12 billion in fuel costs and its customers have benefited from a 45% improvement in reliability over the last decade. FPL's other major capital investments are progressing well including the North Florida Resiliency Connection and the highly efficient approximately 1,200 megawatts Dania Beach Clean Energy Center, both of which are scheduled for completion later this year. By executing on smart capital investments such as these and running the business efficiently, FPL continues to deliver its best-in-class customer value proposition of clean energy, low bills, high reliability, and outstanding customer service.

At Energy Resources, adjusted earnings per share increased by nearly 7% year-over-year, primarily driven by favorable performance in our existing wind portfolio. In terms of new origination, Energy Resources had another strong quarter of renewables and storage origination, adding approximately 1,770 net megawatts to our backlog since the last call, bringing our backlog total to approximately 17,700 megawatts. Included in the additions this quarter is approximately 1,200 net megawatts of wind projects, which is the second-largest quarter of wind origination in our history.

In the midst of inflationary pressures and uncertainty in solar supply chain, which I will discuss further in a few moments, our continued origination success in this environment is a testament to the strength of Energy Resources' competitive advantages and the ongoing demand from our customers for low cost renewables and storage. At this early point in the year, we are very pleased with our team's execution and progress at both FPL and Energy Resources.

Now, let's look at the detailed results, beginning with FPL. For the first quarter of 2022, FPL reported net income of $875 million or $0.44 per share, an increase of $0.05 year-over-year. Regulatory capital employed growth of approximately 11.3% was a significant driver of FPL's EPS growth versus the prior-year comparable quarter. FPL's capital expenditures were approximately $2.2 billion for the quarter. We expect our full-year 2022 capital investments at FPL to be between $7.9 billion and $8.3 billion.

FPL's reported ROE for regulatory purposes will be approximately 11.6% for the 12 months ending March 2022. Under our rate agreement, we record reserve amortization entries to achieve a predetermined regulatory ROE for each trailing 12-month period, in this case, the 11.6% that I previously mentioned. While we initially expected to earn below our targeted ROE in the early part of 2022, a combination of warm weather operational efficiencies, and outstanding execution by the team resulted in us achieving our targeted 11.6% ROE while using a $124 million of reserve amortization available under our current settlement agreement during the first quarter.

Turning to our development and planning efforts. FPL recently filed its annual Ten-Year Site Plan that presents our recommended Generation Resource plan through 2031. The recommended Ten-Year Site Plan includes roughly 9,500 megawatts of new solar capacity across our service territory over the next 10 years, which would result in nearly 20% of FPL's forecasted energy delivery in 2031 coming from solar generation. This plan solar build-out includes nearly 1,200 megawatts of base rate solar projects inclusive of the approximately 450 megawatts placed in service during the first quarter that we plan to build over the next two years. In addition, it includes approximately 1,800, megawatts under the SoBRA mechanism of our settlement agreement, approximately 1,800 megawatts of SolarTogether community solar projects that we expect to construct over the next four years as well as roughly 4,700MW of additional solar after 2025 that is subject to approval by the Florida Public Service Commission.

FPL continues to deliver what is one of the largest ever solar expansions in the U.S. Compared to current levels, the recommended plan projects an approximately 65% increase in zero-carbon-emission electricity produced by the FPL system over the next decade, largely as a result of FPL's continued rapid expansion of solar energy through the execution of its 30-by-30 plan which we now expect to complete by 2025, and the solar additions that I previously mentioned.

This projected increase in zero-carbon-emissions generation is significant for a utility system of our size, especially when considering that our total amount of Energy delivered in 2031 is expected to be nearly 10 percentage points higher through customer growth and increased adoption of electric vehicles. Our green hydrogen pilot program plans are also reiterated in the site plan. As we previously discussed, we until intend to build an approximately 25 megawatts electrolysis system at our Okeechobee Clean Energy Center that will be powered entirely by solar energy from a nearby site. The pilot is designed to test in practice the concept of replacing natural gas with green hydrogen as fuel for combined cycle unit use. The pilot project is expected to be to guide the way for future use of hydrogen as a fuel source across FPL's fleet of highly efficient combined-cycle units. Thus lowering or eliminating emissions from FPL's fleet in the future. This pilot project is projected to go into service in late 2023.

Notably, our as filed Ten-Year Site plan recommends a total expected deployment of approximately 3,200 megawatts of new battery storage capacity by 2031. Included in this total is approximately 1,400 megawatts of incremental battery storage to enhance readiness and reliability for our customers during potential extreme weather events. We also plan to make other smart capital investments for winterization efforts designed to support potential increased customer load during extreme winter temperature conditions while also providing additional day-to-day reliability benefits for customers.

A hallmark of our culture is taking every opportunity to learn from events that happen in our industry, not just those that directly affect FPL to ensure we continue to deliver the best possible value to our customers. Our plan targeted investments for winterization were identified as a result of our detailed assessment of our fleet following winter storm Uri last year that affected taxes and much of the South. We will provide additional detail on these programs and other capital initiatives at our June Investor conference.

The Florida economy remains healthy and Florida's population continues to grow at one of the fastest rates in the U.S. Florida's job market continues to show healthy results with more than 700,000 new private-sector jobs added over the last year and Florida's labor force participation rate is up nearly 2% year-over-year. Other positive economic data across the state include the continued strength of Florida's real estate market with a 3-month moving average for new housing permits up nearly 20% year-over-year.

FPL's average number of customers increased by more than 91,000 or 1.6% versus the comparable prior-year quarter, driven by continued solid underlying population growth. FPL's first-quarter retail sales increased 2.6% from the prior-year comparable period. And we estimate that approximately 0.7% of this increase can be attributed to weather-related usage per customer. On a weather-normalized basis, first-quarter retail sales increased 1.9% with strong continued customer growth contributing favorably. Energy Resources reported a first-quarter 2022 GAAP loss of approximately $1.5 billion or $0.76 per share. Adjusted earnings for the first quarter were $628 million or $0.32 per share, up $0.02 versus the prior-year comparable period.

The effect of the mark-to-market on non-qualifying hedges which is excluded from adjusted earnings was the primary driver of the difference between Energy Resources, first-quarter GAAP, and adjusted earnings results. As a reminder, this quarter's GAAP results were also impacted by the write-off of our remaining investment in Mountain Valley Pipeline, which we have excluded from adjusted earnings.

Contributions from new investments were roughly flat year-over-year, while our existing generation and storage assets added $0.05 per share due to favorable wind resource and the absence of winter storm Uri impacts. The contribution from our customer supply and trading business decreased by $0.02 per share and NextEra Energy Transmission increased results by $0.01 per share year-over-year. The comparative contribution from our gas infrastructure business decreased results by $0.02 per share following favorable performance in the first quarter of last year during winter storm Uri. All other impacts were roughly flat versus 2021.

As I mentioned earlier, Energy Resources had another strong quarter of origination which is reflective of our ability to continue leveraging our competitive advantages to deliver clean energy solutions to meet the ongoing market demand for renewables. Since the last call, we added approximately 1,200 net megawatts of wind projects for 2022, 2023, and 2024 commercial operation dates to our backlog. Our backlog additions also include approximately 440 megawatts of solar projects and approximately 130 megawatts of battery storage projects. With more than 2.5 years remaining before the end of 2024, we have now signed more than 85% of the megawatts needed to realize the midpoint of our 2021 to 2024 development expectation range.

Earlier this month, the U.S. Department of Commerce initiated a review of anti-dumping and countervailing duties circumvention claim on solar cells and panels supplied from four Southeast Asian countries, which in recent years sourced over 80% of all solar panel imports into the United States. As we recently highlighted, we are disappointed by the Commerce department's decision to conduct this investigation. We believe the Commerce Department already settled this issue when it concluded in 2012 that the process of converting solar wafers into electricity-producing solar cells is technologically sophisticated and the most capital-intensive part of the solar panel manufacturing process. And when that occurs outside of China, the sales are not subject to the 2012 anti-dumping and countervailing duties applicable to Chinese solar cell imports. The Commerce Department's later rulings in 2014, 2020, and 2021 are consistent with this and have been relied upon by the solar industry as it continues to invest billions of dollars in new solar generating facilities in the United States over this period. In light of these four prior rulings, the reliance on them by the industry, and the substantial technologically sophisticated processing that occurs in the Southeast Asian countries, we believe it will be difficult for the Commerce Department to conclude under its circumvention standards that circumvention of the 2012 tariffs is actually occurring. If the Commerce Department were to find circumvention in the current investigation, we believe it will be unwinding a decade of consistent trade practice across the past three administrations including the current administration just last year. We believe such a decision would create significant price uncertainty as additional tariffs on panels from the four Southeast Asian countries would likely remain unknown until close to 2025 as final tariff amounts are not determined for about two years after the year of importation.

This price uncertainty would likely result in the unintended consequence of U.S. solar-panel supply once again being sourced significantly from China because the tariffs applicable to imports from China are more certain based on 10 years of assessed duty history. U.S. solar-panel assemblers are, for the most part, sold out of solar panels through 2024 and even at full capacity, are only capable of serving 10% to 20% of the U.S. solar-panel demand in the first place. Should also be noted that nearly all of the large domestic solar panel assemblers in the U.S., do not support the efforts behind the circumvention claim or the commerce department's decision to investigate as they also primarily rely on imported cells from Southeast Asia to produce their panels in the United States. And all of the uncertainty from the investigation is occurring at a time when natural gas, coal, and oil prices have increased dramatically, leaving solar and storage is one of the few ways to alleviate inflationary pressures on electricity prices.

For these reasons, among others, we are optimistic that the investigation will ultimately be resolved favorably and the Commerce Department will conclude not to impose additional anti-dumping and countervailing duties on sales and panel source from the Southeast Asian countries. We believe that NextEra Energy is as well-positioned as any company in the industry to manage these issues. However, given that a number of suppliers are not expected to ship panels to the U.S. until the Commerce Department makes a preliminary determination as late as August. We continue to expect some of our solar and storage projects may be adversely impacted by this delay. We are working closely with our suppliers and customers to assess the potential impacts of this investigation and are optimistic about our ability to arrive at acceptable mitigation measures. Based on what we know today, we believe that approximately 2.1 gigawatts to 2.8 gigawatts of our expected 2022 solar and storage build may shift from 2022 to 2023.

Despite the delay, given our competitive advantages, including the strength of our supplier relationships and contracts, we remain comfortable with our current development expectations for wind, solar, and storage, which are to build roughly 23 gigawatts to 30 gigawatts over the four-year period from 2021 through the end of 2024. We run a diversified business at Energy Resources that includes multiple renewable energy technologies and provides a natural hedge against temporary disruptions, like the one our industry is currently experiencing. In fact in light of the uncertainty in the solar supply chain, we believe renewable demand will likely temporarily shift in part from solar to wind, and we believe Energy Resources has terrific competitive advantages in wind development.

The accompanying slide provides additional details. Finally, during the quarter, NextEra Energy Transmission along with its partners completed the construction of the East-West Tie Transmission Line Project, the 450-kilometer, 230 kilovolts transmission line runs from Wawa to Thunder Bay, Ontario, and is expected to address long-standing regional transmission constraints, thereby increasing much-needed access to Energy to support new economic growth in the region for years to come.

Turning now to the consolidated results for NextEra Energy. For the first quarter of 2022, GAAP net loss attributable to NextEra Energy were $450 million or $0.23 per share. NextEra Energy's 2022 first-quarter adjusted earnings and adjusted EPS were approximately $1.46 billion in $0.74 per share, respectively. Adjusted earnings from the corporate and other segments were roughly flat year-over-year. Our long-term financial expectations, which we increased and extended earlier this year through 2025, remained unchanged. For 2022, NextEra Energy expects adjusted earnings per share to be in a range of $2.75 to $2.85. For 2023 through 2025, NextEra Energy expects to grow roughly 6% to 8% off the expected 2022 adjusted earnings per share range. NextEra Energy is in a strong position to meet its financial expectations through 2025 and we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings expectations ranges in each of 2022, 2023, 2024, and 2025, while at the same time maintaining our strong balance sheet and credit ratings.

A big part of NextEra Energy's culture is a focus on continuous improvement and productivity. To that end, we are currently wrapping up our company-wide productivity initiative to re-imagine everything that we do which we call Project Velocity. Project Velocity built upon the success of Project Momentum and Project Accelerate, which were launched in 2013 in 2017, respectively. The employee-generated ideas implemented through Project Momentum and Project Accelerate are projected to deliver more than $1.8 billion in average annual run-rate savings, first, our cost projections just 10 years ago. In fact, the ideas generated this year in Project Velocity alone are expected to reach roughly $400 million in additional run rate efficiencies in the next few years, representing the largest identified O&M cost savings in the history of these programs.

This result is another example of the strength of our culture and team and highlights our continued focus on productivity and our team's willingness to embrace innovation and leverage technology. From 2021 to 2025, we also continue to expect that our average annual growth and operating cash flow will be at or above our adjusted EPS compound annual growth rate range. We also continue to expect to grow our dividends per share at roughly 10% per year through at least 2024 off a 2022 base, as always, our expectations through normal weather and operating conditions.

Let me now turn to NextEra Energy Partners, which delivered solid first-quarter results with year-over-year growth and adjusted EBITDA of more than 16% driven primarily by contributions from the approximately 2,400 net megawatts of renewables and storage added during 2021. Yesterday, the NEP board declared a quarterly distribution of $0.7325 per common unit or $2.93 per common unit on an annualized basis, up approximately 15% from a year earlier. Inclusive of this increase, NextEra Energy Partners has grown its LP distributions per unit by more than 290% since the IPO. Further building upon that strength, NextEra Energy Partners today is announcing that it is entered into an agreement with Energy Resources to acquire an approximately 67% interest in an approximately 230-megawatt 4-hour battery storage facility in California that is fully contracted with an investment grade counterparty for 15 years. The acquisition will further diversify NextEra Energy Partners' existing portfolio with the addition of another battery storage project and is an excellent complement to NextEra Energy Partners' existing operation.

NextEra Energy Partners expects to acquire the project interest for approximately $191 million subject to closing adjustments, which is expected to be funded with existing debt capacity. NextEra Energy Partners share of the assets tax equity financing is estimated to be approximately $80 million at the time of closing. The acquisition is expected to contribute adjusted EBITDA of approximately $30 million to $35 million and cash available for distribution of approximately $13 million to $18 million, each on a five-year average annual run-rate basis beginning December 31, 2022. The transaction is expected to close later this year upon the project reaching its commercial operation date and support NextEra Energy's Partners' projected adjusted EBITDA and cash available for distribution growth in 2022.

Finally, NextEra Energy Partners recently closed on a transaction to sell an approximately 156-mile gas pipeline from its existing portfolio for a total consideration of approximately $3 million to a third party. The sale price of the pipeline represents an attractive and accretive EBITDA multiple and further enhances the renewable energy profile of NextEra Energy Partners. We are pleased with this transaction and look forward to redeploying the proceeds into accretive renewable energy assets like the battery storage acquisition from Energy Resources that I just mentioned to support NextEra Energy Partners' long-term distribution growth expectations.

Turning to the detailed results. NextEra Energy Partners' first-quarter adjusted EBITDA was $412 million and cash available for distribution was $169 million. New projects, which primarily reflect the asset acquisitions that closed in the second half of 2021 contributed approximately $75 million of adjusted EBITDA and $25 million of cash available for distribution. The adjusted EBITDA and cash available for distribution contribution from existing projects declined $9 million and $29 million respectively versus the prior-year comparable quarter.

Favorable performance at existing projects drove an increase in adjusted EBITDA contributions of approximately $46 million year-over-year, which was more than offset by the absence of approximately $55 million in benefits realized during last February's winter storm Uuri. Excluding the positive impact of winter storm Uri from last year's first-quarter results, this quarter's adjusted EBITDA and cash available for distribution were up nearly 38% and 31% respectively year over year. Cash available for distribution was also impacted by the timing of payment.

Wind resource for the first quarter of 2022 was 108% of the long-term average versus 98% in the first quarter of 2021. Additional details are shown on the accompanying slide. NextEra Energy Partners continues to expect run rate contributions for adjusted EBITDA and cash available for distribution from its forecasted portfolio at December 31, 2022 to be in the ranges of $1.775 million to $1.975 million, and $675 million to $765 million respectively. As a reminder, year-end 2022 run rate projections reflect calendar year 2023 contributions from the forecasted portfolio at year-end 2022 and include the impact of IDR fees which we treat as an operating expense. As always, our expectations are subject to our usual caveats including normal weather and operating conditions.

From a base of our fourth quarter 2021 distribution per common unit at an annualized rate of $2.83 we continue to see 12% to 15% growth per year in LP distributions as being a reasonable range of expectations through at least 2024. We do not expect the recent solar supply chain disruption to impact our ability to deliver on these expectations. We expect the annualized rate of the fourth quarter 2022 distribution that is payable in February of 2023 to be in a range of $3.17 to $3.25 per common unit. We also continue to expect to achieve our 2022 distribution growth of 12% to 15%, while maintaining a trailing 12-month payout ratio in the low 80% range.

In summary, both NextEra Energy and NextEra Energy Partners are benefiting from our history of strong execution that has positioned us well to capitalize on the terrific growth opportunities available to us across our businesses. We look forward to sharing more detail with you on our growth plans for both NextEra Energy and NextEra Energy Partners at our Investor Conference in New York on June 14th.

Before taking your questions, I'd like to turn the call over to John Ketchum.

John Ketchum - President and Chief Executive Officer

Thank you, Kirk, and good morning everyone. I am excited for the opportunity to talk to you in my new role. Since we announced our planned leadership succession in January, we have heard from many of our shareholders and industry analysts. Several of you have asked whether you should expect any changes in strategy under a new CEO. The short answer is that I expect our strategy to be consistent with how we have grown the company over the past several decades but that we will continue to adapt and evolve our strategy to meet increasing customer expectations to leverage new technologies and to lead the decarbonization of the U.S. economy.

Now is the time for our company, our industry, and our country, to embrace low cost renewable energy like never before. We need to create more jobs, not less, and combat the impacts of higher inflation, higher oil and natural gas prices, and rising electricity demand by supporting not stymying solar and storage development. Our strategy going forward is to double down on our core businesses. At FPL, we expect one of the highest population growth rates of any state in the nation to continue. In fact, at our current rate of organic customer growth, FPL would add a customer base the size of Gulf Power roughly every five years. FPL's undergrounding program is just getting started, and we have visibility to billions of dollars in capital investment for the next several decades to continue hardening and strengthening the grid as we deliver industry-leading reliability to our customers and we are also just getting started at decarbonizing the generation fleet at FPL as only about 5% of our generation FPL is currently produced by renewable energy.

I believe that FPL already is the best utility in the nation, and yet we see significant cost reduction and the incremental capital investment opportunities at FPL over the next several decades that can further improve our industry-leading customer value proposition by delivering clean low cost energy solutions for Florida customers. Our strategy also entails doubling down on our core in Energy Resources. We intend to build more wind, more solar, and more battery storage than anybody else in this country year-in and year out, regardless of the headwinds or tailwinds in any given year. We believe that we have the competitive advantages to win under any market conditions and with recent technological advancements in green hydrogen and other forms of long-term storage, we see a total addressable market in this country for renewables, storage, and transmission of around $8 trillion through 2015.

We have said this before and we believe it is never more true than it is today, the opportunity set for renewable energy in this country continues to expand rapidly and we believe Energy Resources is in a terrific position for continued industry leadership and for long-term growth for shareholders. Both FPL and Energy Resources have multiple ways to grow and each business continues to push the other to be even better. As FPL grows, both businesses learn what drives customer value in Florida. As Energy Resources grows, both businesses learn what drives customer value in other markets across the country. Operational excellence is a competitive advantage for us across both businesses. So is development and construction expertise. So is supply chain management. So is financial discipline. Both businesses are constantly implementing new technologies. Both businesses are constantly finding ways to do things more efficiently and to improve our cost position.

As Kirk mentioned, this year our employees generated about 900 individual ideas translating into roughly $400 million in additional run rate O&M savings across the enterprise through Project velocity, our best performance ever after 10 years of pursuing O&M improvement and this employee-driven annual exercise. Our strategy at NextEra Energy is to continue to do what we have done well, only better and bigger as new market opportunities present themselves.

Our strategy at NextEra Energy Partners is much the same. The partnership will double down on what we have done well since our IPO in 2014. We expect to continue delivering LP distribution growth that is already best in class. We plan to continue to pursue growth in three ways, by acquiring assets from Energy Resources, by acquiring assets from third parties, and by additional organic capital investments in the assets we own as the portfolio grows over time. Yet as at NextEra Energy, it is the future of the partnership and its long-term growth visibility that is most exciting to us. Simply put, we believe that what is good for NextEra Energy tends to be good for NextEra Energy Partners. And what is good for decarbonization of the U.S. economy is going to be terrific for shareholders of NextEra Energy as well as for unit holders of NextEra Energy Partners. We will have more to share about our long-term growth prospects at both companies at our Investor Conference in June.

I'd like to close by once again thanking our team. In addition to the 900 Project Velocity ideas I mentioned earlier, last week we held our annual team competition for the Highest Quality and Innovation Award at our company, followed by our employee expo in which 56 teams were featured. I can tell you that as impressive as our track record has been over the last 30-plus years, our future is even brighter. Our team continues to impress with their creativity, analytical abilities, innovation, customer focus, and the will to win. I truly believe that we have the best team in the industry. I believe this team can extend our long-term track record of outperformance and I believe this is the team that can and will lead the decarbonization of the entire U.S. economy.

Thank you for your continued support of our company and I now look forward to taking your questions.

Question & Answers

Operator

We will now begin the question-and-answer session. [Operator Instructions] Our first question will come from Steve Fleishman with Wolfe Research. You may now go ahead.

Steve Fleishman - Wolfe Research - Analyst

Yeah, hi. Good morning. Thank you. And John, Kirk, congrats on your new roles. So, Kirk, just the AD/CVD is obviously important issue and you made some really interesting comments here. So my question is going to focus on that. The comment about the tariffs not being known if they decided to go that route till 2025 that would seem to be incredibly disruptive to the sector. So just - could you just talk about like how that process works and why to actually set the tariffs, so better understand why it would be that long?

John Ketchum - President and Chief Executive Officer

Yeah, Steve. Let me go ahead and take that. This is John speaking. That's one of the things that we're pointing out to the Commerce Department is that when they established tariffs, say they come out with a final determination of January of 2023, their practice has always been to impose the tariff and calculate the actual amounts and release those two years later. So those tariffs would not be known until the first quarter of 2025 and so what the industry would be forced to do perversely is actually go back and buy panels from China, because the tariffs in China are known, and China is the only country in the world that would have panels available to sell because as we said in our remarks, the U.S. panel manufacturer - manufacturing industry, which is incredibly small, again, even at full capacity, it only has the ability to satisfy 10% to 20% of the entire U.S. demand. The U.S. industry is sold out untill 2025 and if you don't know what the tariff rates are in Southeast Asia, it forces you back to China where the tariffs are known and have been known for the last 10 years, which is an absolutely perverse outcome, an outrageous outcome, quite frankly, and one we intend to make sure that the Commerce Department clearly understands because that's an unintended consequence that I don't think anybody wants.

And the other point that goes along with it is we're trying to be tough on trade. We're not - China is not the one that pays the price. Who pays the price here our American companies, American workers, the American consumer that pays higher electricity costs than they ever have before in a rapidly increasing natural gas price environment. Oil prices, coal prices. Solar is actually deflationary and you actually reward the Chinese who then get the cell panels at the inflated rate. So that makes absolutely no sense at all. When you look at our company and our business, we are in, I think a different position than the rest of the industry is. While all of those things are not good for the industry, I think our company is in a position to be able to manage these risks, fortunately. We have strong contracts in place. We do have a global supply chain and sourcing capability that gives us options that others don't. But back to the strength of our contracts, I think that gives us the ability that others might not have to continue sourcing from our existing supply base, even in South Korea, without - I mean in Southeast Asia, even without those tariff amounts being fully known.

But the problem that this creates with that two-year delay in the 2025, the build back better doesn't get passed or some form of reconciliation, you're also on the ITC clock that is expiring over that same period of time. So you have to have an ability to go source those panels, find them someplace else to get your projects built. Again, we're confident in our ability to be able to do that just given the strength of our contracts, that's why - and we're also optimistic that the outcome here is so outrageous and so ludacris that the Commerce Department won't possibly, based on their four prior rulings over the last decade, 2012, 2014, 2020 and in 2021 for this exact question has been asked and answered by three separate administrations including this one. How can you possibly pull the rug out from under the industry? Makes absolutely no sense to force business back to China, which is what you are trying to prevent in the first place.

Steve Fleishman - Wolfe Research - Analyst

That's super helpful. Just a couple quick follow-ups on the same issue, which is, first, given everything you said, why did day initiate this in the first place? Did they not understand the implications? Second, are you seeing any better movement as a result of what's already happened to build back better? And then the last one, is just in that worst-case event that we have to wait till 2025 to work this out and you reiterate it back a month ago that even with this review confidence in the high end of the targets, does that include that scenario?

John Ketchum - President and Chief Executive Officer

Yeah. We take those in order. So first of all, why did they take the investigation? You saw what happened in October. They had a similar filing that was made around circumvention, this - the same Department of Commerce decided not to take that up in the same year that the rule that making cells and panels outside of China was okay. Here in '22, I think they looked at it and said, okay, well, this is the second one in a row. Let's take on the investigation. We don't think the investigation itself if we just do a little bit more fact-finding will actually have an impact on the industry. They were wrong. It does. We told them it would, and you can see it in our own portfolio of 2.1 gigawatts to 2.8 gigawatts potentially being moved into 2023. Luckily, we have enough cushion and enough other things that we can do where it doesn't impact our financial expectations, that move in other companies in the industry are not that fortunate. And so our hope is that they look at the information, we don't think the information has changed and they rely on the prior four decisions from 2012, 2014, 2020, and 2021 to follow consistent trade practice rather than retroactively changing the rules for an industry that has been playing by the rules for the last decade. That would make absolutely no sense and in an environment where you have inflation, increasing commodity prices, and the only deflationary product, and source of generation that also achieves clean energy goals and creates a ton of American jobs. You're stymying rather than helping. So that's the rationale.

The second question I think you had was on where are we on BBB. So look if you're really looking at BBA - BBB in the current environment, now is the time to move forward on it like no other. Given the inflationary pressures on energy prices, now is the time to double down on our renewables. Now is the time to create real manufacturing incentives if you want to re-domesticate the supply chain to the U.S., which is really, really small right now. And if you want to create those manufacturing incentives, do it with a carrot, rather than a stick. So we can achieve our clean energy goals over time. So that gives us some optimism number one going in. Second, I think there is motivation going into the mid-terms to get our energy policy right, particularly our clean energy policy right. And I think the Democrats do need to win going into these mid-terms. The structure is much the same. So there wouldn't - we're not contemplating a large chain structured both sides are talking. I think for the first time in a while we had the Supreme Court nomination behind us. Time is something we've got to work with. The reconciliation for this year expires at the end of September. So we've really got to try to get something moving forward before the August resource - recess. But remain optimistic that we will be able to get that moving forward. And if it does, a much skinnier down package that I would expect to look like a focus really just on climate and clean energy and prescription drugs. And that would be I think a smaller package that might be able to, to move forward. But I think at the same time, there is going to have to be some open-mindedness from the progresses, which I think we are seeing our made no secret that we need pipeline infrastructure in this country projects like MVP for example and more of an all of the above approach to tackling this issue and I think there is a rational outcome there that would make sense for all parties involved.

And then I think your last question was if we have to wait until 2025, what's the impact on our long-term expectations. Again, we have strong contracts. We have a global supply chain capability. We would not, based on what we know today, expect any changes to our long-term financial expectations.

Steve Fleishman - Wolfe Research - Analyst

Thank you very much.

Operator

Our next question will come from Julien Dumoulin-Smith with Bank of America. You may now go ahead.

Julien Dumoulin-Smith - Bank of America - Analyst

Hey. Good morning, team. Thanks for the time. And congrats again on the promotions here guys.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Good morning, Julien.

Julien Dumoulin-Smith - Bank of America - Analyst

Good morning. So I just want to come back to the earnings impact on you guys. I certainly appreciate the macro that you guys have described here. But can you speak more specifically the earnings offsets not just in '22, but especially '23, and '24, given that the timing of these renewable and services tends to impact the subsequent year more so? And then if I'm hearing you right, again, I know if you're talking about Chinese imports, but is that the answer superior in lieu of having clarity effectively and this is a matter of timing and pivoting into a Chinese supply solution in some form or another or at least creating your own domestic supply rapidly? Just clearly, we're not going to sit here '25. Just want to get some understanding as to what the earnings mitigation is in the near term and what that answer is in '23, '24.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Julien, thank you for the question. In terms of the way we're thinking about being able to manage this and continue to still have the confidence to reaffirm our adjusted earnings expectations and reiterate that we would be disappointed if we were not able to deliver financial results at when you're at the high end of the range. Look we are a very large company with a diverse set of growth drivers. FPL is performing really well. We have great visibility into the next four years with the settlement agreement. We run the business with a lot of financial discipline and build a conservative financial plan. We - as we discussed today, continue to find ways to run the business more efficiently and have identified through the Project Velocity over $400 million of run-rate savings that we expect to be able to receive over the next few years. When we add all that up and particularly, think about how conservatively we are with the way we structure our plan, we feel very comfortable in being able to continue to deliver on our financial expectations.

John Ketchum - President and Chief Executive Officer

Yeah. And then I'll Julien, I'll take the last piece on the –I think what I understood your question to be on the supply chain. So that's the other reason why we don't think any action is required by the Department of Commerce today because the supply chain is already changing for the entire industry. Polysilicon is now being sourced out of Germany. It's being sourced out of the United States. Suppliers are quickly becoming more vertically integrated and moving their ingot and wafer producing capabilities outside of China where cells and modules are already made and that will be a sourcing strategy that will be followed by us and much of the industry going forward, including I think by the U.S. - the so-called U.S. panel manufacturers. One thing - because one thing I want to make sure people understand, as I said before at full capacity, the U.S. panel manufacturers can satisfy only 10% to 20% of U.S. demand, but when they make panels in the U.S., they're not really making panels in the U.S., they're importing all of the products that go into a panel from outside the U.S., mainly from the Southeast Asian countries and they have these small assembly shops in the US that employ a few hundred people that go ahead and just put it together, and then they stamp the panel made in the USA when it really isn't. And that's one of the frustrating things that we're tackling here. But we are, again, as I said, moving the supply chain outside of China, and the U.S. panel manufacturers, I assume, will be looking at some more things for their continued reliance on imports as they think about their strategy going forward as well.

Julien Dumoulin-Smith - Bank of America - Analyst

Got it. Then just on your earnings impact, it sounds like this is about accelerating velocity, basically accelerating cost savings into the near term to offset some of the impacts as well as maybe some FPL drivers rather than saying we're going to do more wind versus what the plan is kind of a near-term sense. And then actually between speak to the FPL piece just on capex changes versus 10-K, it seems like the range a little bit lower, but again, I'll let you respond holistically.

John Ketchum - President and Chief Executive Officer

Yeah. So on the first piece of your question. Cost savings is one piece of it. We have cushion in our plan. We run the business very conservatively. We have a cushion in the plan. We expect to be okay. Kirk, I'll let you take the FPL question.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Sure. Julien, I'm - as as we've thought about the CapEx plan at FPL, as we discussed on the call today, the expectation is for this year is roughly $7.9 billion to $8.3 billion of capital that we plan to deploy. We also laid out in the discussion around the Ten-Year Site Plan what we're thinking in terms of solar that we're going to add to the system. We feel very good about the capital program that we have at FPL over the next four years in not just generation, but as well as T&D infrastructure, hardening, and undergrounding. So we have a very good plan there at FPL. Also, I think it's important to keep in mind with respect to FPL as we discussed on - in the prepared remarks as well, we are continuing to see just significant growth at FPL organic growth in terms of people coming to Florida at 91,000 additional customers added. In roughly four or five years, we're going to add the size of Gulf to the system and that's going to continue to provide us with the capex opportunities as well.

Julien Dumoulin-Smith - Bank of America - Analyst

That's all, guys. Thank you.

Operator

Our next question will come from Shar Pourreza with Guggenheim Partners. You may now go ahead.

Shar Pourreza - Guggenheim Partners - Analyst

Hey, good morning guys. Good morning, Kirk, John.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Good morning.

Shar Pourreza - Guggenheim Partners - Analyst

Just on the near - the '23, '24 signed contracts. I mean, obviously, they're up 11 gigs. So you're getting close to the target range for those years, which could allude obviously you guys delivering within your '24 plan, but I just, I want to get a little bit of a sense here if the tail risks are longer-dated, could we see more projects shifts than what you kind of disclosed in the footnote maybe into '24 and beyond? And if, is there a point in time, John, you start shifting into more wind from solar and storage? I mean obviously, wind is very competitive, the returns aren't great, but I would think several players are going to follow in similar footsteps there. So I guess how to think about the profile of the backlog, if this is more longer-dated and we don't get visibility?

John Ketchum - President and Chief Executive Officer

Sure, Shar. I'll take that. So the first point that I would make is that this is good for the wind business. I think you could see that from the results of our origination activity this quarter. So even to the extent we might see some shifting solar from '22 to '23 or '23 to '24, wind is coming online even faster. And remember the development cycle for wind in the origination activity for wind is much shorter. We can originate a wind project and have it built in 10 months and so to the extent you might see some solar activity drop off and really again, I view this as of '22, and a '23 issue. The beauty of it is you have wind to step in and take its place and that's an area where we have significant competitive advantages and being able to sell 23 wind at 80% PTC, we can be extremely competitive in the pricing there, and then the offering and it provides us with I think a mitigation measure on top of the strong supplier contracts that we already have on the solar side that others in the industry don't have. It's great to have a diversified business to be able to fall back on. And that's why we feel good about our financial expectations.

Shar Pourreza - Guggenheim Partners - Analyst

Got it. And then, John, just maybe just shifting to FPL. I mean you guys put out plans for additional winterization, resiliency, 3,200 megawatts of new storage to 31. The solar programs are kind of well-defined and I know we talked about potential delays on the near side, but do you see opportunities conversely to maybe accelerate some of that solar capex on the regulated side, especially as gas costs have put a lot of pressure on affordability and certainly help from an LCOE comparability, so could we see faster maybe solar deployment on the regulated side to reduce what you're seeing in the commodity curves?

John Ketchum - President and Chief Executive Officer

Yeah, I think, first of all, I want to say the capex is actually up at FPL, just back to, I think it was Julien's earlier question, undergrounding as a piece of that. It's really important we get our undergrounding in service on time and on budget. We continue to look to ways to shift that to the left and look as we are in an increasing natural gas price environment, the right answer for Florida customers certainly is to evaluate and look at trying to get more renewables online in Florida faster. It's a hedge against rising natural gas prices in the state, and it's a hedge for the country, which is another reason why, as I've said a couple of times already, what's happening is quite silly.

Shar Pourreza - Guggenheim Partners - Analyst

Got it. So the opportunity -

Eric Silagy - Chairman, President and Chief Executive Officer

The only - this is Eric Silagy. The only thing I would add is the Ten-Year Site Plan we just filed, gives you a pretty good roadmap of the future opportunities. We are going to be adding a lot more solar into the system, pending the PAC's approval and demand for Solar together continues to remain very, very strong. And so we're going to be continuing to look at the next round for SolarTogether after the current one we just filed for. So there is going to be additional opportunities. But again, this is about smartly deploying capital and doing the right thing for customers for the long term.

Shar Pourreza - Guggenheim Partners - Analyst

Got it. And Eric, that - those opportunities could be incremental, right, to the current plan?

Eric Silagy - Chairman, President and Chief Executive Officer

Absolutely.

Shar Pourreza - Guggenheim Partners - Analyst

Got it. And then just really, lastly and it's unrelated to what we're talking about, but John, just on the J. A. case, the Federal case against a couple of executives. I know in NextEra and FPL were subpoenaed. Is there any details you can provide there because we do get some questions on that from time to time?

John Ketchum - President and Chief Executive Officer

Yeah, let me give - let me just give a little bit of background there. We were asked a while back to provide some documentation in connection with that matter, which we did. We cooperated in full. We were told and have been told we are not a target of the investigation. And I think the article or you're referring to, the report just got to flat out wrong. We have not been -

Shar Pourreza - Guggenheim Partners - Analyst

Perfect.

John Ketchum - President and Chief Executive Officer

- as a witness in that matter.

Shar Pourreza - Guggenheim Partners - Analyst

Okay, great. That's what I wanted to clarify. Congrats, John, and Kirk, on the promotions.

John Ketchum - President and Chief Executive Officer

Thank you.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Thanks, Shar.

Operator

Our next question will come from Durgesh Chopra with Evercore ISI. You may now go ahead.

Durgesh Chopra - Evercore ISI - Analyst

Good morning, team, and thank you for squeezing me in and taking my question here. Just maybe -

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Good morning.

Durgesh Chopra - Evercore ISI - Analyst

Good morning, Kirk. So just maybe, can I just - a little bit more granular on the - as we get towards the sort of the preliminary ruling in late August in the solar panel investigation, what are the key steps that we should be watching for and what is your and other industry sort of players involvement going to be in that process?

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

So the way to think about the process is right now the DOC has provided questionnaires to different groups. Those questionnaires are being completed. I believe they are due this week for some, I believe others had requested some extensions and maybe have been granted. Once they have all that information then the groups that are, that have standing are also allowed to weigh in on the matter. We do have standing in the case. So we will be weighing in on this as well. And then the DOC has all that information and reviews - essentially reviews the data and then reaches their preliminary determination, which is expected to happen by late August.

Durgesh Chopra - Evercore ISI - Analyst

All right. Thank you, Kirk. And then maybe just one quick one and see if you can give this information, if not that's okay because it's small, but can you maybe talk about the gas transaction, the gas pipeline sale, and what kind of multiple an EBITDA contribution? I know it's small. So I don't know if you can share that information. I'll just follow up with IR.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Yeah, we're not going to share that information at this time. Understand the reason for the question. I would just say as we included in the press release and the script, it was a very attractive and accretive EBITDA multiple.

Durgesh Chopra - Evercore ISI - Analyst

Understood.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

We are very happy with it.

Durgesh Chopra - Evercore ISI - Analyst

Perfect. Thank you so much, guys. I appreciate the time.

Kirk Crews - Executive Vice President of Finance and Chief Financial Officer

Thank you.

Operator

Our next question will come from Stephen Byrd with Morgan Stanley. You may now go ahead.

David Arcaro - Morgan Stanley - Analyst

Hi, it's Dave, David Arcaro on for Stephen. Thanks for taking my question. I was wondering if you could just talk a little bit to PPA pricing that you're seeing for new contracts I guess across wind, solar, and storage. Is there an approximate level that you would expect PPA prices to have to rise to absorb some of the inflationary pressures that we've seen? And at the end of the day, do you expect that to happen? Do you think they'll rise enough that you can protect your returns on incrementally new signed renewables contracts?

Rebecca Kujawa - President and Chief Executive Officer

Sure, this is Rebecca, and I will take that question. It's a matter of practice what we do with our customers and as we're approaching the market, its factoring whatever the current latest pricing is, which is certainly what we're doing now in terms of where we think the market is in terms of our costs, as well as what the alternatives are for our customers. So keep in mind that as we've talked about some pricing pressure, whether it's consistent with the comments that Kirk and John have talked about on the solar side or on the wind side that it's against the backdrop of costs that have gone up, other alternative costs that have also gone up, whether it's oil or natural gas overall power prices in the marketplace.

And so there is still a significant incentive for our customers to procure renewable energy. And of course, as you've seen from our signed contracts for this quarter, the demand for wind. It's been really strong, both in terms of signed contracts and also tell you in terms of our ongoing conversations with customers and customers are also still very interested in pursuing solar projects. A lot of folks were caught off guard by this decision, surprised for all the reasons that John and Kirk highlighted that the Department of Commerce would have taken the step and all of us would like to see the uncertainty resolved as quickly as possibly and as favorably as possible so that our customers can move forward with deploying solar. We'll talk more about where we see the market in terms of pricing and specifically pricing versus the alternatives at the investor conference, but again the key takeaway from my perspective is they remain very attractive for customers.

David Arcaro - Morgan Stanley - Analyst

Great, thanks. That's helpful color. And I was just wondering, just on the pace of new signings, has that slowed down significantly since this investigation started and would the preliminary determination potentially be a bit of a relief valve or could it take longer than that to start to maybe kick-start the projects earnings again?

Rebecca Kujawa - President and Chief Executive Officer

Yeah. I'm always cautious to say anything about a given quarter's signings because I think sometimes there's too much weight put on them sometimes too little. But as a kind of an obvious point, contract signings were terrific this quarter and I'm really proud of the execution of the team and it very much reflects a lot of interest from customers that has not waned at all. So we're very excited about the opportunities. Nothing has changed in terms of the long-term view, about excitement for renewables, they have remained very attractive. And as John highlighted, they should be deflationary absent this uncertainty and relative alternatives, this is a great option for customers and we couldn't be more excited about the future.

David Arcaro - Morgan Stanley - Analyst

Great. I appreciate that. Thanks so much.

Operator

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NEXTERA ENERGY INC

Q1 2022

Earnings Transcript

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