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NextEra Energy, Inc. (NYSE: NEP ) Q3 2015 Earnings Conference Call October 28, 2015 9:00 AM ET Executives Amanda Finnis – Director of Investor Relations Jim Robo – Chairman and Chief Executive Officer Armando Pimentel – President and Chief Executive Officer, NextEra Energy Resources LLC Mark Hickson – Senior Vice President of NextEra Energy Eric Silagy – President and Chief Executive Officer, Florida Power & Light Co. John Ketchum – Senior Vice President of NextEra Energy Analysts Dan Eggers – Credit Suisse Stephen Byrd – Morgan Stanley Julien Dumoulin Smith – UBS Steve Fleishman – Wolfe Research Paul Ridzon – KeyBanc Capital Markets Jonathan Arnold – Deutsche Bank Michael Lapides – Goldman Sachs Brian Chin – Bank of America Merrill Lynch Operator Good day, everyone. And welcome to the NextEra Energy and NextEra Energy Partners 2015 Third Quarter Earnings Conference Call. Today’s conference is being recorded. At this time, for opening remarks, I would like to turn the call over to Amanda Finnis. Amanda Finnis Thank you, Leo. Good morning, everyone. And welcome to the third quarter 2015 combined earnings conference call for NextEra Energy and for NextEra Energy Partners. With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy; Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources; and Mark Hickson, Senior Vice President of NextEra Energy, all of whom are also officers of NextEra Energy Partners; as well as Eric Silagy, President and Chief Executive Officer of Florida Power & Light Company; and John Ketchum, Senior Vice President of NextEra Energy. John will provide an overview of our results and then turn the call over to Jim for closing remarks. Our executive team will then be available to answer your questions. We will be making forward-looking statements during this call based on current expectations and assumptions, which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today’s earnings news release, in the comments made during this conference call, in the Risk Factor 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, www.nexteraenergy.com and www.nexteraenergypartners.com. We do not undertake any duty to update any forward-looking statements. Today’s presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today’s presentation for definitional information and reconciliations of certain non-GAAP measure to the closest GAAP financial measure. With that, I will turn the call over to John. John Ketchum Thank you, Amanda. And good morning, everyone. NextEra Energy delivered solid third quarter results driven by new investments of both FPL and Energy Resources. Adjusted earnings per share increased 3%, or $0.05 per share against the prior year quarter. Along with our strong performance in the first and second quarters and excellent progress against our objectives for the full year, NextEra Energy is well positioned to close out 2015 in the upper half of our $5.40 to $5.70 range of adjusted EPS expectations subject our usual caveats. At Florida Power & Light, earnings per share increased $0.02 from the prior year comparable quarter. It was a warm summer season with above normal weather related usage increasing both retail base revenues and our reserve amortization balance while allowing us to continue to earn at the upper end of our approved ROE range. We remained focused on delivering customer value through best in class daily operations and execution against our initiatives to drive down cost, reduce fuel expenses and improve reliability. During the quarter FPL file to lower electric rates again by about $2.50 a month on average in 2016 compared with current rates. We are very pleased to be able to deliver award winning customer service with monthly bills for typical residential customer lower than $100 and lower than they were a decade ago. We continue to have an outstanding opportunity set ahead of us, and all of our major capital projects are on track. At Energy Resources, our results were in line with our financial expectations for the quarter and Energy Resources is well positioned to attain the full year expectations. Adjusted EPS at Energy Resources declined by $0.04 against the comparable prior year quarter. The core energy resource story is unchanged as we continue to benefit from growth in our contracted renewable portfolio. In addition, our renewable origination results remain very strong. The team signed contracts for approximately 725 megawatts of new wind and solar projects since the last call, including approximately 600 megawatts of wind for 2016 delivery. Based on everything we see now, we are on track to exceed the high end of our previously announced 2015 to 2016 wind build range. We continue to believe that the fundamentals for renewable business have never been stronger. NEP remains on track to be as distribution per unit expectations of $1.23 on an annualized basis by year end subject to our usual caveat. Since the last call, the financing and acquisitions of any NET midstream and the Jericho wind project were completed. Third quarter adjusted EBITDA and CAFD which did not include contributions from either of these acquisitions, were slightly below our expectations due to lower wind resource. Wind resource was 93% in the long-term average for the NEP portfolio, while a long-term average for the Energy Resources portfolio was slightly higher at 97% for the quarter. The NEP Board declared an increased quarterly distribution of $0.27 per common unit, or $1.08 per common unit on annualized basis. Not only do we expect to deliver on our financial expectations for 2015, but we also are well positioned against our 2016 financial plan. At FPL, we expect to earn in the upper half of the allowed ROE band and as we’ve done this year, we expect continued strong executions against our capital deployment program for the benefit of Florida customers. For Energy Resources, we expect increased contributions from new renewables to drive adjusted earnings growth. Overall, we remain very comfortable with the 2016 adjusted EPS expectations, we communicated in the second quarter earnings call. Let me now take you through the details of our third quarter results beginning with FPL. For the third quarter of 2015, FPL reported net income of $489 million, or $1.07 per share, up $0.02 per share year-over-year. Regulatory capital employed increased by 7.8% over the same quarter last year and was the principal driver for FPL’s net income growth. This rate of growth in regulatory capital employed was higher than comparable measures in the first and second quarters this year. And we expect another increase in the fourth quarter. As we discussed in the last call, we continue to expect the bulk of this year’s earnings growth for FPL to be in the fourth quarter. Our reported ROE for regulatory purposes will be approximately 11.5% for the 12 months ended September 2015. And this remains our target for the full year. For 2016, we continue to target a regulatory ROE in the upper half of the allowed band of 9.5% to 11.5%. As always, our expectations assume among other things normal weather and operating conditions. As a reminder, under the current rate agreement we record reserve amortization entries to achieve a predetermined regulatory ROE for each trailing 12 months period. During the third quarter, due to higher retail base revenues driven by weather related usage and customer growth, we reversed $150 million of reserved amortization. As part of the Cedar Bay settlement agreement with the office of public council, we agreed to reduce the total available reserved amortization balance by $30 million leaving us within available reserved amortization balance of approximately $330 million at the end of the third quarter which could be utilized in the remainder of 2015 and 2016. We continue to execute on our overall customer value proposition by delivering clean energy, low bills and higher reliability for Florida customers. Each of our capital deployment initiatives to provide low cost, clean energy continues to progress on accordance with our development plans. Our generation modernization project at Fort Everglades is on schedule to come online in mid 2016 and remains on track to meet its budget. Development of three new large scale solar project remains on schedule with each of these roughly 74 megawatt projects expected to be completed in 2016. These projects once complete will roughly triple the solar capacity on our system and add the overall fuel diversity of our fleet which is important for FPL and its customers. As a reminder, consistent with our focus on delivering cost effective renewable for our customers, these projects reflects specific opportunities that take advantage of the remaining 30% ITC window while leveraging existing infrastructure in prior development work. Aside from these specific projects, utility scale solar which is by far the most cost efficient form of providing renewable energy in our service territory, particularly as compared to residential roof top applications is becoming more cost effective across our entire service territory. We continue to expect that there will be additional opportunities for utility sale scale solar on FPL system by the end of the decade. During the quarter, the Florida Public Service Commission issued its final order on its approval of modified natural gas reserve guidelines for up to $500 million per year in potential additional investments, which we continue to view as an important step and what we hope, will be a larger program. The development team is actively evaluating new investment opportunities to lock-in historically low natural gas prices for the benefit of Florida customers. Also during the quarter, we closed on our acquisition of Cedar Bay and filed a termination of need for the approximately 1,600 megawatts, $1.2 billion Okeechobee clean energy center to be placed in the service in mid-2019. FPL also continues to execute on its investments to improve reliability for Florida customers by upgrading its transmission and distribution network. We expect to invest approximately $3 billion to $4 billion in infrastructure improvements through 2018 with roughly $900 million of this amount being deployed this year. I am pleased to report that on year-to-date basis FPL has achieved its best ever period of system reliability and is on track to deliver its best ever reliability performance on a full year basis. Last week FPL won multiple national awards including being recognized as the most reliable electric utility in nation. Looking ahead in 2016, we expect to deploy approximately 28,000 smart grid devices across our system as we continue to execute on a program to further improve system reliability. All of these initiatives are focused on delivering superior customer value. Our residential bills are 30% below the national average, the lowest among reporting utilities in the State and lower than bills paid by FPL customers 10 years ago. Overall, we are extremely pleased with the execution at FPL and our relentless focus to deliver low bills, high reliability, clean emissions and excellent customer service. The Florida economy continues to improve. The state seasonally adjusted on employment rate in September with 5.2%, down 0.6 percentage point from a year ago and a lowest since early 2008. Over the same time period, Florida’s job growth was 3%, a continuation of a five year trend and positive job growth with close to 1 million jobs gain since the low in December 2009. Along with the strong growth and jobs, retail activity has increased markedly since the trough in mid-2009 and July retail activity grew 8.6% since last year. At the same time, the September reading of Florida’s consumer sentiment remain close to the pre recession highs. With the Florida Housing sector the Case-Shiller Index for South Florida shows home prices up, 7.5% from the prior year and mortgage delinquency rates continue to decline. As an indicator of new construction, new building permits remain in healthy levels. Third quarter retail sales were up 2.6% from the prior year comparable quarter and we estimate that approximately 1.4% of this amount could be attributed to weather related usage per customer. Our weather related retail sales increased 1.2% comprised of continued customer growth of approximately 1.6% reflecting the growing population of our service territory, offset by decline in weather normalized usage per customer of approximately 0.4%. The measure may reflect the residual from our estimation of the impact of weather. This is particularly challenging in periods with relatively strong weather comparisons such as we’ve had in the first three quarters of the year. However, based on the average of negative 0.3% for this reading over the last 12 months, we’ve reduced our outlook for weather normalized usage per customer. Looking ahead, we expect year-over-year weather normalized usage per customer to be between flat and negative 0.5% per year primarily reflecting the impact of efficiency and conservation program. As we’ve discussed last quarter, we do not expect modest changes in usage per customer to have a material effect on our earnings. For this year and next year any effects of weather normalized usage are expected to be offset by the utilization of our reserved amortization and after the expiration of current settlement agreement will be taken into account in our regulatory planning. The average number of inactive accounts since September declined 16% from the prior year and the 12 months average of low usage customers fell to 7.8%, down from 8% in September of 2014. We remain encouraged by the positive economy trends in Florida and continue to expect above average growth in our service territory. Let me now turn to Energy Resources which reported third quarter 2015 GAAP earnings of $375 million, or $0.82 per share. Adjusted earnings for the third quarter were $221 million, or $0.48 per share. Energy Resources third quarter adjusted EPS decreased $0.04 per share from last year’s comparable quarter. NextEra Energy benefited from continued growth in our contract to renewables portfolio reflecting the addition of more than 1,900 megawatts of wind and solar projects during or after the third quarter of 2014 as well as positive contributions from the customer supply and trading business in the existing generation portfolio. Wind resources roughly 97% of long -term average versus 95% in the third quarter of last year. Offsetting the positives among other things were higher interest expense due to growth in the business and higher corporate expenses due largely to timing differences and increased renewables development activity in light of what we considered to be a very positive landscape for the renewables business. Results also were impacted by share dilution and lower state and federal tax incentives versus the prior year comparable quarter. Year-to-date, adjusted EBITDA increased 9% and operating cash flow was strong. We continue to expect full year cash flow from operations to grow 20% to 25% subject to our usual caveat. As I mentioned earlier, the Energy Resources development team had another very successful quarter of origination activity, adding approximately 725 megawatts to our contract and renewables backlog since the last call. Let me spend a bit of time now on where each programs stands. Since our last earnings call, we’ve added approximately 600 megawatts to our wind backlog reflecting projects for 2016 delivery. Based on the strength of our wind development pipeline, we now expect to exceed the high end of our previously announced 2015 to 2016 wind build range. The origination of new solar projects has also been strong. The team signed 125 megawatts power purchase agreement for another new solar project for post 2016 delivery since last quarter’s call, demonstrating once again continued demand for solar projects even after the anticipated expiration of the 30% ITC support. The accompanied slide update information that we provided at our Investor conference in March showing our excellent progress against our objectives for the 2015 to 2016 development program. As we discussed last quarter, we are encouraged that the center finance committee passed the task extenders package in July that include a two year extension of the production tax credit. Although this is just one step in the process, we are pleased with signs of bipartisan support for potential extension. We expect to update our 2017 and 2018 wind build estimate by our first quarter earnings call next year. Overall, we believe that the strong fundamentals for the renewables business will continue to strengthen with continued equipment cost decline, improved efficiency advancements, a potential PTC extension and the expected demand created by the EPA’s new renewables targets under the clean power plant. Let me now review the highlights for NEP. Third quarter adjusted EBITDA was approximately $99 million and cash available for distribution was $15 million. These results were slightly below our expectations for the quarter primarily due to weak wind resource. But the portfolio remains on track to achieve the distribution per unit expectations that we have shared for the fourth quarter distribution payable in February. Since last call, NEP completed the financing and acquisition of NEP mid stream in the 149 megawatt Jericho wind project. The NEP Board declared an increase quarterly distribution of $0.27 per common unit, or $1.08 per common unit on an annualized basis. Turning now to the consolidated results for NextEra Energy. For the third quarter of 2015, GAAP net income attributable NextEra Energy was $879 million, or $1.93 per share. NextEra Energy’s 2015 third quarter adjusted earnings and adjusted EPS were $730 million and $1.60 per share respectively for the adjusted EPS up 3% over the prior year comparable quarter. As we have discussed on the prior two quarterly calls, our earnings per share account per dilution associated with the settlement of our forward agreement of 6.6 million share that occurred in December of 2014 and the June settlement of approximately 7.9 million shares associated with the equity units that were issued in May 2012. In the third quarter, the settlement occurred for approximately 8.2 million shares associated with the forward contract component of the equity units that were issued in September 2012. The impact of dilution in the third quarter was approximately $0.05 per share. Adjusted earnings from the corporate and other segment increased $0.07 per share compared to the third quarter of 2014 due to consolidating tax adjustments, earnings at our pipeline and transmission business and other miscellaneous corporate items none of which were individually notable. The development above the Sable Trail Transmission pipeline in the Florida Southeast connection pipeline continue to progress well through their respective processes. We continue to expect to be in a position to receive FERC approval in early 2016 to support commercial operation by mid -2017. The Mountain Valley pipeline project concluded the scoping processes as part of the pre filing procedure and filed this application with the FERC this month. The project also added Rovno [ph] gas as a shipper and its affiliate as an equity partner. Mountain Valley is an approximately 2 Bcf per day project with 20 year firm transportation agreement providing NextEra Energy a capital investment of $1 billion to $1.3 billion. The project schedule continues to support commercial operations by year end 2018. We are very pleased with our progress so far this year at NextEra Energy. As we discussed on the last call, we are in a strong El Nino cycle that tends to be correlated with below average continental wind resources and we also know that metrological expectations are for the El Nino to potentially continue through the fourth quarter and into the first quarter of 2016. Nonetheless based on the overall strength and diversity of NextEra Energy portfolio, we expect to end the year in the upper half of $5.40 to $5.70 range of adjusted EPS expectations that we share with you previously. We continue to expect NextEra Energy’s operating cash flow adjusted for the potential impact of certain FPL clause recoveries and the Cedar Bay acquisition to grow by 10% to 15% in 2015. For 2016, we expect adjusted earnings per share to be in the range of $5.85 to $6.35 and in the range of $6.60 to $7.10 for 2018, complying compound annual growth rate after 2014 base of 6% to 8%. For the reasons I mentioned earlier, we felt particularly good about the opportunities set at both FPL and Energy Resources and are well positioned going into 2016. We expect to grow our dividend per share 12% to 14% per year through at least 2018 after 2015 base of dividends per share of $3.08. As always our expectations are subject to the usual caveat including but not limited to normal weather and operating conditions. Let me now turn to NEP. We continue to expect the NEP portfolio to grow to support distribution in the annualized rate of $1.23 by the end of the year leading the fourth quarter distribution that is payable on February 2016. After 2015 we continue to see 12% to 15% per year growth in LP distribution as been being a reasonable range of expectations through 2020 subject to our usual caveats. Our expectations for 2015 adjusted EBITDA of $400 million to $440 million and CAFD of $100 million to $120 million are also unchanged subject to our usual caveat In addition, last month we introduced run rate expectations for adjusted EBITDA and CAFD. The December 31, 2015 run rate expectations for adjusted EBITDA of $540 million to $580 million and CAFD of $190 million to $220 million reflect calendar year 2016 expectations for the portfolio at year end December 31, 2015. The December 31, 2016 run rate expectations for adjusted EBITDA of $640 million to $760 million and CAFD of $210 million to $290 million reflect calendar year 2017 expectations for the forecasted portfolio at year-end December 31, 2016. These expectations are subject to normal caveats and our net of expected IDR fees, as we expect these fees to be treated as an operating expense. With that I’ll turn the call over to Jim. Jim Robo Thanks, John. And good morning, everyone. It has been a very strong first three quarters. At both NextEra Energy and NextEra Energy Partners, we’ve executed well both financially and operationally. And we had strong execution of our growth plans all across the board. At FPL the team continues to make excellent progress against our core strategy of investing to further improve our customer value proposition. FPL has typical residential bills 30% below the national average. One of the cleanest emission profiles in America and was recently recognized as the most reliable electric utility in the nation. As we prepared to file our 8-K at FPL in 2016, I’ve never felt better about the quality of FPL’s customer value proposition. Ultimately as I’ve said before, our goal at FPL is nothing less than to be the cleanest, lowest cost and most reliable utility in the nation. And we are well on our way to achieving that. At Energy Resources, we made terrific progress against our core strategy of being the world’s largest generator of wind and solar energy. The fundamentals of the renewable business have never been stronger and Energy Resources continues to build what I believe is the largest and highest quality renewables development pipeline in the space. John mentioned that Energy Resources now expects to exceed the high end of its range for 2015 to 2016 U.S. wind development that we share with you in March. Based on the future demand we expect from EPA’s clean power plant and the potential extension of the PTC, we now see opportunities to increase even further scale of our wind and solar development capabilities in order to seize and even larger share of the growing North American renewable market. We are significantly increasing our internal resource commitment to renewables development and we expect as much as double the development resources committed to these activities over the next few years. I am also very pleased with our natural gas pipeline and competitive transmission development efforts. Total expected capital deployment in our pipeline business including pipeline under development and recent acquisitions is now approaching $5 billion. In our competitive transmission business we expect to invest more than $1 billion by the end of the decade. Although competition is fierce for both of these businesses, customers value our development capabilities, our engineering construction expertise and our stakeholder relationships across North America. As with renewable energy, we expect the markets for new pipelines and new transmission will continue to grow driven in part by the emissions targets under the clean power plant. As with renewable energy, we believe NextEra Energy is well positioned to capitalize on these new opportunities. Across the board, NextEra Energy is ahead of the goal we shared with you in March. Our announcement last quarter of increased earning per share and dividends per share expectations for NextEra Energy was a reflection of this performance and we are well positioned to achieve these expectations. Not withstanding recent volatility in capital markets, we continue to have confidence that the YieldCos model can work and work well for our partnership like NEP that has the right structure and the support of a world class sponsor like Energy Resources, giving it access to the largest and strongest portfolio of potential future acquisition opportunities. While we need to position ourselves to work through a period of potential uncertainty and settling item which we have done with our modified 2015 financing plan now successfully executed. In the long run, we think the capital markets reevaluation of the YieldCos space can play to our competitive advantage both at NEP and at Energy Resources. Times of challenge are often also times of opportunity. I continue to believe that the NEP value proposition is the best in the space. NEP offers investors average annual growth expectations and LP unit distributions of 12% to 15% through the end of decade. NEP’s existing cash flows are backed by long-term contracts which at the end of the third quarter had an average contract life of approximately 90 years and strong counter party credits. NEP also has a portfolio that is largely insulated from commodity risks in a well aligned incentive structure with the sponsor owning incentive distribution right in a significant limited partnership position in the vehicle. We are also pursuing options, several options to minimize NEP’s need for significant amounts of public equity through 2016 to ensure that we have plenty of time for markets to settle down. We continue to evaluate the optimal capital structure for NEP. As it has some additional debt capacity that can help finance future transactions being mindful of course that we don’t want to over lever the vehicle. And of course in the long run, in order for NEP to serve its intended purpose, we need to be able to access the equity markets at reasonable prices. We plan to issue a modest amount of NEP public equity to finance the growth included in December 31, 2016 annual run rate. However, we will be smart, flexible and opportunistic as to how and when we access the equity markets. And to that end, I am pleased to announce that the Board of Directors of general partners has approved putting in place an up to $150 million at the market equity issuance for dribble program. At the same time, NextEra Energy has also authorized to program to purchase from time to time based on market conditions and other considerations up to $150 million of NEP’s outstanding common unit. The ATM program gives the partnership the flexibility to issue new units when the price supports new unit issuances while the unit purchase program gives NextEra Energy the ability to demonstrate its commitment to the partnership by purchasing units at time when they are undervalued. We will be patient with NEP and have taken the necessary steps to provide plenty of time for recovery of the equity markets. We remain optimistic that the NEP financing model can and will work going forward. In summary, I am 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 will continue to execute well against all of our strategic and growth initiatives. FPL continues to have an excellent story with the growing service territory and a strong customer value offering. While Energy Resources is strategically positioned to capitalize on what is expected to be one of the best environment for renewables development in recent memory. Overall, we are well positioned to leverage these great businesses to continue to build growth platforms to drive our growth in the future. With that we will now open the lines for questions. Question-and-Answer Session Operator [Operator Instructions] We will take our first question from Dan Eggers. Your line is open. Dan Eggers Hi, good morning, guys. I guess just kind of the first question Jim following up on the couple of things you made comments on today. Doubling of development resources into renewables, so lot given where your baseline is already, are you talking about operating expenses to try and find more projects or are you thinking about the idea of actually doubling the amount of renewables you are doing on an annual basis? Jim Robo Dan, we would expect that for an increase in development expenses that we would get a program that increasing in the amount of megawatts that we will be able to develop and so I said up to double, we are going to be obviously smart and opportunistic about it. I think all of the things that we’ve said about the renewable markets, the economies are getting better, the clean power plant is coming, there are continues to be good federal support and the potential or extension of the wind production tax credit. And frankly the chaos in the YieldCos space creates an opportunity for us with some of our competitors is not being as well positioned as they were four months ago for us to be able to continue to gain share in a market, last year we gained share in the wind business. We were number one player, we have been number player for many, many years and last year we gained share and that’s my goal for the team is to continue to build to gain share and to build profitable projects that make sense for our shareholders and for our customers. Dan Eggers So I guess maybe extending that conversation when you talk about the targets for NEP’s CAFD run rate for next year, does the $150 million dribble equity is that enough to get you within that band or was there an assumption that NE is going to put more equity capital into NEP to help to get into the guidance range? John Ketchum Dan, this is John. We need a minimal amount of equity for NEP next year. Obviously, 2018dribble program would be a good start to be able to build on an equity position heading into what our growth plans are for next year. But we have a lot of levers around NEP as well. You’ve seen the guidance. So we have some flexibility around the capital structure. But the ATM program would allow us to get off to a start on what we see as a minimal equity need for NEP next year. Dan Eggers And you guys still get about hitting the increase growth rate from last year even if NEP sit at the lower end of their growth range or the equity capital market so still stay for them? John Ketchum We do. Operator Our next question is from Stephen Byrd, your line is open. Stephen Byrd Good morning. Jim Robo Good morning, Stephen. Stephen Byrd I wanted to kind of at high level talk about usage of your balance sheet. You positioned the company with quite strong credit stats and at the high end of the range for many of your ratings targets, when you think about opportunities to deploy the balance sheet at the corporate level we saw just very recently a big utility buy up, small LDC so their corporate opportunities versus M&A for assets versus more organic growth and obviously it sounds like you are very bullish on more organic growth at resources. But at a high level when you think about all the opportunities for the growing your balance sheet what do you think is likely to create the most economic value for shareholders? John Ketchum Well, one there have been couple deals that have gone off they are pretty high multiples and leverage has been used to finance those transactions. From our standpoint having a strong balance sheet is key to reaching our growth objectives and we have no intention of compromising our current credit metrics. That being said, there are opportunities perhaps to optimize our existing balance sheet and so we always look at particularly projects that may not have debt financing items and other opportunities within the portfolio where we could optimize our current position without compromising our credit metrics. Jim Robo So, Steven, this is Jim. Just to add to what John said, I think to use your balance sheet to lever up, to acquire assets at massive premiums and transfer much of the value from that leveraging up over to someone else to shareholders. I have a hard time, I scratch my head honestly and I have a hard time understanding how that make sense for their acquire shareholders, and so that’s not something that we would be — that’s not something that we would be running up and down, jumping up and down in terms of trying to do something like that. It is — we are — I mean the other thing from an acquisition standpoint that I would say just too raw from an M&A standpoint I would say is, we have great organic growth prospects. I feel really good about our organic growth prospects. We do not have to do anything other than execute on our organic growth prospect to deliver the expectations that we laid out to you here an anything that we would ever do want M&A would have to be accretive to what we are telling you in terms of expectations going forward. Stephen Byrd Very much understood, that’s very helpful. When you think about when the growth potential obviously we may not know the PTC outcome till very late in the year. And your dialogue with states and utilities that may go out of procure more wind, how should we likely see this unfold, does this likely to involve a very quick action by states and utilities to start — I am assuming that the PTC does get extended. Do you think it’s going to be fairly rapid movement by states tries to take advantage of the PTC just given that it is always uncertain how long subsidies do last or do you think it’s more of a gradual evolution throughout 2016 and 2017? How should we think about how this might actually unfold? Armando Pimentel Steven, it is Armando. I think the first thing, let me just talk about what we are seeing right now. What we are seeing right now is really a significant amount of interest in the wind space to get projects signed up for next year. Some of the customers that we are signing up are very clearly telling us that they don’t necessarily know where the clean power plant is going to end up but they are taking steps today in order to address what they see as potential issues that they have under the clean power plant. Others are telling us that look, we would like to take advantage now while the PTC is here because with the PTC that prices that are being offered in the market are very economic to us on a very long-term basis. When we are having discussions with customers about 2017 and 2018, there is obviously some concerns as to whether the production tax credit gets extended or not in the near term. But what’s encouraging is that once you kind of get passed that it looks like there that wind has a lot of opportunities I would say through 2020 at least whether it’s early action credits under the clean power plant or whether it’s with or without PTC, what customers are seeing as a trend to go more renewables is very positive for us. So I’d say when we sit on wind 2017 and 2018, I would expect on a combined basis to be pretty good for us. Operator And we will take our next question from Julien Dumoulin. Your line is open. Julien Dumoulin Smith Hey, good morning. So let me actually start by following up on the last question a bit. When it comes to CPP I would be curious you have this dynamic around 2020 to 2021 of early action, to what extent is that creating kind of boom bust in the cycle, obviously you get a PTC extension here but are folks holding off getting project qualifying for their early action program? Armando Pimentel Yes, Julien, it is Armando again. Just to follow up on what I said before. In the near term here there are obviously some discussions with our customers about the clean power plant and they are taking advantage because they don’t know where the clean power plant is going to workout but they see that it is a huge benefit while there is a product tax credit to sign up cheaper wind. The 2017 and 2018 discussion that we have been having on wind, a lot of folks are obviously concerned about whether there is going to be production tax credit or not. But in my view whether there is a production tax credit or not, the combined 2017 and 2018 years I think will be pretty good for us. There is no production tax credit, my expectations would be that the amount of wind that you see get build in 2017 would be below, but we would otherwise have seen and what we have seen in the last couple of years but I think that’s only a temporary blip before 2018 starts to coming back. The economics for wind and honestly economics for solar from the customer standpoint are very attractive today. With the PTC and with the ITC for solar, they are very attractive without the 30% ITC when you get out to the 2018, 2019 time frame and we believe that for wind they will be very attractive even without the PTC by the end of the decade. So customers are aware of that. There is obviously some uncertainty about the clean power plant but I think that uncertainty is actually playing in our favor. People want to take action early. Julien Dumoulin Smith Great. Two further quick clarification. Your credit expectations here for S&P and Moody’s, what are your expectations for financing in 2016 here? You obviously are well within the range on both just be very clear about this. John Ketchum Yes. Julien, for financing activity in 2016 we continue to evaluate where we are from a CapEx standpoint. We still have another quarter of wind origination to go. We’ve had strong cash flow growth as well. We’ve got some other levers within the portfolio that we are looking at a couple of balance sheet optimization opportunities. Kind of long way of saying that we are still working on framing up exactly what that’s going to look like. But — Julien Dumoulin Smith Perhaps to be more specific the projections of 26% for instance for S&P did –that does not contemplate incremental equity or just — I know it is a moving target given the amount of the size of the CapEx budget but — John Ketchum Yes. We don’t know yet. There are factors that play again having the strong quarter of origination on wind at 725 megawatts looking to see how we come in the fourth quarter, looking to see how we finish up from a cash flow perspective and then looking at 2016 what the CapEx need might be and then looking at the other levers within the existing portfolio and some of the optimization things that are on our list. Obviously, the goal is to keep any equity issuance down as low as possible if we have to do something. Julien Dumoulin Smith And last quick one. Where do you stand on merchant divestment specifically taxes? Just curious what your thoughts are broadly about how commodities activity is it from wind project or combined cycle taxes? Armando Pimentel Yes, So Julien, I will start out with the general comments you guys will ho-hum too but I mean it’s true. I mean we look at their portfolio, our entire merchant portfolio every year and try to determine whether it’s still making sense for from a shareholder perspective to retain those merchant assets based on our view which is not necessarily the market view. Based on our view of what we think those markets are. We are gone through process in Texas on the Mountain, Forney, I warned folks all the time. We’ve gone through processes before on our merchant assets. And that doesn’t necessarily mean at the end of the day that we divest those assets. We sometimes go through the process and we retain those assets. But we believe that there maybe folks that are very interested in those assets. They have been great assets for us. We believe that there might be shareholder base or other bases out there that believe those assets are worth more to them than they would be to our shareholders. So we are going to take a look at that very seriously here over the next couple of months. And if we decide that it make sense then we will likely make the decision to divest but those should not be the — I know there has been a focus on those assets; those should not be the only assets that investors and analysts believe that we are looking at. I mean we look at all of our assets every year and determine whether it make sense for us to continue to hold them. Those are just honestly the ones that are public at this point. Operator Our next question is from Steve Fleishman. Your line is open. Steve Fleishman Hi, good morning. Just on the curious kind of the latest update on the gas reserve additions in Florida and just with the environment continuing to maybe get more attractive to buy reserves. How are you thinking about that potential? Eric Silagy Yes, Steve, this is Eric Silagy. So we are with gas prices coming down we will see how the market plays out but we think there is going to be opportunities. We are going to be very judicious and how we approach this and making sure that we are locking in long term positive deals for customers. So we have a program that’s underway right now at in one play in Oklahoma and that’s going well. And we got origination teams they are talking to local counterparties on opportunities. So I think we will see how everything plays out in the market from gas perspective but right now we see this is presenting actually some potential opportunities. Steve Fleishman Okay and then separate question just on NEP, maybe Jim is there anyway to get some color on your kind of intension with this buyback in terms of just is it something where you wanted to be in right now doing, is it something that’s kind of there if there is another kind of attack on YieldCos so to speak or just how should we think about the buyback? Jim Robo So I think I probably should limit what I said to what I said in my remarks, Steve, but I am not going to lay– certainly not going to layout prices at which we are buying or prices at which we are interesting in doing the ATM. That’s part of the thinking behind this is to give us flexibility to issue units when we think the price supports new issuance and so in the buyback, if there is the opportunity to show our commitment to the partnership by buying unit when we think they are undervalued. I think it’s as simple as that. Steve Fleishman Okay. So kind of by low still high, kind of new contact, okay, make sense. And then lastly just could you maybe give us any color, latest thoughts on the Hawaiian Electric deal? Jim Robo Sure. So we continue to work hard to get the final hurdle which is state regulatory approval in Huawei. We have recently gotten couple of interveners to either fall away or announce their support. And I was very pleased that the IBW announced their support for the transaction last week. And we continue to work it. I think my expectations based on timing right now is that we are not going to get any kind of decision from the PSC until next year and so we are going to continue to work it and continue to talk to the parties to try to get it across the finish line. Operator We will take our next question from Paul Ridzon. Your line is open. Paul Ridzon One of the drivers you discussed that the reduction in year’s earnings was drop off of state tax incentives. How does that unfold over the next several quarters? And was that just a concentration risk of you adding some assets in a particular region? John Ketchum A couple things there, Paul. One was just pushing part of a CITC project out into the next year and then the second was when you look back at our Q3 results for 2014, I think we had about 500 megawatts of projects that we had built in Okalahoma, only had about 100 megawatts this quarter and so Oklahoma has that state ITC so it is really combination of those two factors. Paul Ridzon And then at FPL, it looks though we are actually seeing some modest demand destruction as you think about rate case and decoupling is on the table or maybe an annual look for true-up and how are you thinking about that strategically? Eric Silagy Paul, this is Eric Silagy. No, we are not looking any decoupling again if you look overall at both our performance as well as the fact that the state continues to grow, we feel very good about our prospects going forward. Paul Ridzon But something you are trying to put into your regulatory strategy? Eric Silagy Probably how we look at moving forward, our base– our rights are set on a projection of test year, and so it will take a do account but we have strong customer growth coming in as well as more modest growth from a standpoint of usage or potentially negative usage. So that both of those factors get factored into looking at what our revenue requirements are. Paul Ridzon Then lastly there is a large swing at corporate kind of was that just timing issue or could you delve a little bit deeper into what’s going on? John Ketchum Yes. Some of that as we had mentioned or I mentioned in the script was the consolidating tax adjustments and with PMI the customer supply in trading business. Having a good year, apportionment factors they are used by many states are revenue based. And so that can kind of skew results in a more favorable tax, jurisdictions that’s probably one of the main drivers there. Paul Ridzon So now these are mark shift, look for improvement going forward? John Ketchum That’s something that’s really depended on the business mix and kind of where our revenues are coming from, what state, so it is not something you can necessarily count on quarter-to-quarter. Operator We will take our next question from Jonathan Arnold. Your line is open. Jonathan Arnold Hey, good morning, guys. Quick on so Jim you mentioned a couple of times I think you called the chaos in the YieldCos space. And I think you stressed you see that helping you from a competitive positioning standpoint in the development business. My question I guess do you see some M&A opportunities rolling out of that situation? Is that really that’s your focus here is more about winning new projects yourself. Jim Robo Jonathan, we have always felt that organic development creates more value than project acquisition do or frankly even overall company acquisition unless it’s pretty unique situation. So our focus is going to be on organic growth. We have always had project acquisitions as part of our mix and we will continue — I do think there will be some opportunities here. There is — I think there is a real question about whether folks are going to realize that when they are selling projects that they are not going to get the same kind of value that they perhaps would have gotten four months ago. And there is also we are very picky about the quality of the project when we are looking at from a project acquisition standpoint. So I would expected to be more opportunities there than it would have been a few months ago, but honestly our focus is really on the — and I think the most high value added opportunity for our shareholder is to be focused on growing our organic capabilities. Jonathan Arnold It sounds like priorities are organic then possibly projects and last on the list sort of whole portfolio company type things. Jim Robo I think that’s fair prioritization, Jon. Jonathan Arnold Okay, thank you. And then just one other thing on Canadian wind. Anything to report on the recent Ontario RFP and what are your line of side or some success there and when we would hear about it in the backlog? Armando Pimentel Jonathan, it is Armando. I think the first realistically the first that we would hear about it would be very late this year. And that’s the very earliest. My expectations are actually that we would hear sometime first quarter of next year. We feel good about the bids that we put in. I always want to put things in context all right I mean Canada or Ontario is looking for roughly I think it is 500 or 600 megawatts in total of renewables right so I mean we wouldn’t think that — nobody should think it is 5,000 megawatts bid or something, I mean it’s still reasonable, it is still chunky but with 500 or 600 megawatts we have several projects that we think are very competitive in the process the way it’s laid out. And so we are hopeful that we are going to get some of that 500 or 600 megawatts. Operator Our next question is from Michael Lapides. Your line is open. Michael Lapides Hey, Jim, coming back to M&A a little bit but maybe a different angle. How are you looking at — you have grown your midstream business mean you got Mountain Valley and Sable Trail in the development process, you did the NET midstream deal down at NEP. How has the share price reaction in the midstream market and valuations for privately midstream assets, how is that impacted the opportunity set that maybe available for either NE or NEP to add via M&A more midstream and how do you think about how you would structure that? Whether you would want it up at NE level or down at the NEP level? Jim Robo So, Michael, I think when I think about what we are doing in the pipeline space, it is really focused on very long-term contracted pipeline assets and things that we think look a lot like our renewables business in terms of the quality of the counterparty, the consistency of cash flows and the ability for us to deploy our development expertise against those things. And so we have no interest in adding any midstream assets that would have any kind of commodity risk to the portfolio. We would be focused again first and foremost on organic development of long term contracted pipeline opportunities. And that’s really what the team is focused on. I think the NET deal was a very unique deal and that it was a very long-term contract and set of assets, there are very few of those really out in the out market place if there was one that would become available we would look at it. And I think honestly would depend on the capital markets and where we think the most efficient financing would be where would be put it, whether we put it NE or NEP but just again our focus there in the pipeline space is first and foremost on organic development. Operator Our next question is with Brian Chin. Your line is open. Brian Chin Hi, good morning. I think when you guys talked about others using the balance sheet and levering up to buy other companies and then you put that in the context of buying shares at NEP and continuing to execute on your wind resources and your regulated opportunities. I mean you guys have made pretty strong and consistent statements about where you think your capital deployment ought to be. I guess within that context what I am curious about is how close are you with regards to looking at NEP versus say NextEra shares as a good place to deploy capital and execute on buybacks. Can you give us a little bit of color how you frame it and are the two relatively close in your opinion? I mean obviously you think NEP is the more interesting place at the moment but can you give us a sense of how you frame that discussion and on what conditions you might consider deploying capital towards NE buyback as opposed to NEP? Jim Robo Well, I said this last month I think Brian that I relative to any NE I think NEP is extremely undervalued right now. I think our announcements today are pretty consistent with that. Brian Chin I agree. But just any sense of color as to how you frame it Jim that would be great? Jim Robo We look at a variety of metrics and kind of the classic metrics and we think about it in terms of fundamentally in terms of future cash flows. Operator This does conclude today’s NextEra Energy and NextEra Energy Partners 2015 third quarter earnings conference call. You may all now disconnect your lines. Thank you and everyone have a great day.