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NextEra Energy, Inc. (NYSE: NEE ) Q3 2015 Earnings Call October 28, 2015 9:00 am ET Executives Amanda Finnis – Director-Investor Relations John W. Ketchum – Senior Vice President-Finance James L. Robo – Chairman, President & Chief Executive Officer Armando Pimentel, Jr. – President & Chief Executive Officer, NextEra Energy Resources, LLC Eric E. Silagy – President & Chief Executive Officer, Florida Power & Light Company Analysts Daniel Eggers – Credit Suisse Securities (NYSE: USA ) LLC (Broker) Stephen Calder Byrd – Morgan Stanley & Co. LLC Julien Dumoulin-Smith – UBS Securities LLC Steven Isaac Fleishman – Wolfe Research LLC Paul T. Ridzon – KeyBanc Capital Markets, Inc. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Michael J. Lapides – Goldman Sachs & Co. Brian J. 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 – Director-Investor Relations 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 measures to the closest GAAP financial measure. With that, I will turn the call over to John. John W. Ketchum – Senior Vice President-Finance Thank you, Amanda, and good morning, everyone. NextEra Energy delivered solid third quarter results driven by new investments at 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 to 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 remain focused on delivering customer value through best-in-class daily operations and execution against our initiatives to drive down costs, reduce fuel expenses, and improve reliability. During the quarter, FPL filed 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 a 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 its full-year expectations. Adjusted EPS at Energy Resources declined by $0.04 against the comparable prior-year quarter. The core Energy Resources story is unchanged as we continue to benefit from growth in our contracted renewables portfolio. In addition, our renewables 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 the renewable business have never been stronger. NEP remains on track to meet its distribution per unit expectations of $1.23 on an annualized basis by year-end, subject to our usual caveats. Since the last call, the financing and acquisitions of 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 wind resource. Wind resource was 93% of the long-term average for the NEP portfolio, while the 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 an 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 have done this year, we expect continued strong execution 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 of 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-month period. During the third quarter, due to higher retail based revenues driven by weather-related usage and customer growth, we reversed $115 million of reserve amortization. As part of the Cedar Bay settlement agreement with the Office of Public Counsel, we agreed to reduce the total available reserve amortization balance by $30 million, leaving us with an available reserve 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 high reliability for Florida customers. Each of our capital deployment initiatives to provide low-cost, clean energy continues to progress in accordance with our development plans. Our generation modernization project at Port Everglades is on schedule to come online in mid-2016 and remains on track to meet its budget. Development of our three new large-scale solar projects 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 to 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 renewables for our customers, these projects reflect specific opportunities that take advantage of the remaining 30% ITC window, while leveraging existing infrastructure and 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-scale solar on FPL’s 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 in 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 determination of need for the approximately 1600 megawatts, $1.2 billion Okeechobee Clean Energy Center to be placed into 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 a 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 the nation. Looking ahead, in 2016 we expect to deploy approximately 28,000 smart grid devices across our system as we continue to execute on our 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’s seasonally adjusted unemployment rate in September was 5.2%, down 0.6 percentage points from a year ago and the lowest since early 2008. Over the same time period, Florida’s job growth was 3%, a continuation of a five-year trend in positive job growth with close to 1 million jobs gained since the low in December 2009. Along with the strong growth in 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 remained 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 continued to decline. As an indicator of new construction, new building permits remain at 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 can 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 a decline in weather-normalized usage per customer of approximately 0.4%. This measurement reflects a residual from our estimation of the impact of weather. This is particularly challenging in periods with relatively strong weather comparisons such as we have 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 have 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 programs. As we had 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, any effects of weather-normalized usage are expected to be offset by the utilization of our reserve amortization and, after the expiration of our current settlement agreement, will be taken into account in our regulatory planning. The average number of inactive accounts in September declined 16% from the prior year and the 12-month average of low-usage customers fell to 7.8%, down from 8% in September of 2014. We remain encouraged by the positive economic 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 were roughly 97% of the 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 consider 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 caveats. As I mentioned earlier, the Energy Resources’ development team had another very successful quarter of origination activity, adding approximately 725 megawatts to our contracted renewables backlog since the last call. Let me spend a bit of time now on where each program stands. Since our last earnings call, we have 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 a 125 megawatt 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 updates 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 Senate Finance Committee passed the tax extenders package in July that includes 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 a potential extension. We expect to update our 2017 and 2018 wind-build estimates 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 declines, improved efficiency advancements, a potential PTC extension, and the expected demand created by the EPA’s new renewables targets under the clean power plan. 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 the last call, NEP completed the financing and acquisitions of NET Midstream and the 149-megawatt Jericho Wind project. The NEP Board declared an increased 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 to 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, with 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 for dilution associated with the settlement of our forward agreement of 6.6 million shares 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 that are in pipeline and transmission business and other miscellaneous corporate items, none of which were individually notable. The development of both the Sabal Trail Transmission pipeline and 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 process as part of the pre-filing procedure and filed its application with the FERC this month. The project also added Roanoke 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 agreements, 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 Niño cycle that tends to be correlated with below average continental wind resource. And we also know that meteorological expectations are for the El Niño phase to potentially continue through the fourth quarter and into the first quarter of 2016. Nonetheless, based on the overall strength and diversity of the NextEra Energy portfolio, we expect to end the year in the upper half of the $5.40 to $5.70 range of adjusted EPS expectations that we shared with you previously. We continue to expect NextEra Energy’s operating cash flow adjusted for the potential impacts 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, implying a compound annual growth rate off a 2014 base of 6% to 8%. For the reasons I mentioned earlier, we feel particularly good about the opportunity 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 off a 2015 base of dividends per share of $3.08. As always, our expectations are subject to the usual caveats, 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 a distribution and the annualized rate of $1.23 by the end of the year, meaning the fourth quarter distribution that is payable in February 2016. After 2015, we continue to see 12% to 15% per year growth in LP distributions as 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 caveats. 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 our normal caveats in our net of expected IDR fees as we expect these fees to be treated as an operating expense. With that, I will turn the call over to Jim. James L. Robo – Chairman, President & Chief Executive Officer Thanks, John, and good morning, everyone. It’s 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’ve 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 prepare to file a rate case 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’re well on our way to achieving that. At Energy Resources, we’ve 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 shared with you in March. Based on the future demand we expect from the EPA’s Clean Power Plan and the potential extension of the PTC, we now see opportunities to increase even further the scale of our wind and solar development capabilities in order to seize an even larger share of the growing North American renewable market. We are significantly increasing our internal resource commitment to renewables development and we expect to as much as double the development resources committed to these activities over the next few years. I’m also very pleased with our natural gas pipeline and competitive transmission development efforts. Total expected capital deployment in our pipeline business, including pipelines underdevelopment 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 Plan. 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 goals we shared with you in March. Our announcement last quarter of increased earnings per share and dividends per share expectations for NextEra Energy was a reflection of this performance and we’re well-positioned to achieve these expectations. Notwithstanding recent volatility in capital markets, we continue to have confidence that the yieldco model can work and work well for a 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 out, 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 yieldco 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 the 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 19 years and strong counterparty credits. NEP also has a portfolio that is largely insulated from commodity risk and a well-aligned incentive structure, with the sponsor owning incentive distribution rights in a significant limited partnership position in the vehicle. We’re also pursuing 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 our 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’m pleased to announce that the board of directors of our general partner has approved putting in place an up to $150 million at-the-market equity issuance or dribble program. At the same time, NextEra Energy has also authorized a program to purchase from time to time, based on market conditions and other considerations, up to $150 million of NEP’s outstanding common units. The ATM program gives the partnership the flexibility to issue new units when the price supports new unit issuance, while the unit purchase program gives NextEra Energy the ability to demonstrate its commitment to the partnership by purchasing units at times when they’re 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 continue to execute well against all of our strategic and growth initiatives. FPL continues to have an excellent story with a 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 environments 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’ll now open the lines for questions. Question-and-Answer Session Operator We’ll take our first question from Dan Eggers. Your line is open. Daniel Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Hey, good morning, guys. I guess just kind of the first question, Jim, following up on a couple of things you made comments on today – the doubling of development resources into renewables is a 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’re doing on an annual basis? James L. Robo – Chairman, President & Chief Executive Officer So, Dan, we would expect that for an increase in development expenses that we would get a pro-rata increase in the amount of megawatts that we will be able to develop. And so I said, up to double; we’re going to be obviously smart and opportunistic about it. I think all of the things that we’ve said about the renewable markets – the economics are getting better; the Clean Power Plan is coming; there continues to be good federal support and the potential extension of the wind production tax credit. And, frankly, the chaos in the yieldco space creates an opportunity for us, with some of our competitors not being as well-positioned as they were four months ago, for us to be able to continue to gain share in a market – you know, last year, we gained share in the wind business. We were the number one player – we’ve been the number one 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. Daniel Eggers – Credit Suisse Securities ( USA ) LLC (Broker) 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 is there an assumption that NEE is going to put more equity capital into NEP to help get into that guidance range? John W. Ketchum – Senior Vice President-Finance Dan, this is John. We need a minimal amount of equity for NEP next year. Obviously, the ATM dribble 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. Daniel Eggers – Credit Suisse Securities ( USA ) LLC (Broker) And you guys feel good about hitting the increased growth rates from last year, even if NEP’s at the lower end of their growth range or the equity capital markets are still stayed tight for them? James L. Robo – Chairman, President & Chief Executive Officer We do. Daniel Eggers – Credit Suisse Securities ( USA ) LLC (Broker) Okay. Thank you, guys. Operator Our next question is from Stephen Byrd. Your line is open. Stephen Calder Byrd – Morgan Stanley & Co. LLC Good morning. James L. Robo – Chairman, President & Chief Executive Officer Good morning, Stephen. Stephen Calder Byrd – Morgan Stanley & Co. LLC I wanted to at a high level talk about usage of your balance sheet. You’ve 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 that balance sheet at the corporate level, we saw just very recently a big utility buy a small LDC, so there are corporate opportunities versus M&A for assets versus more organic growth, and obviously it sounds like you’re very bullish on more organic growth at Resources. But at a high level, when you think about all of the opportunities for deploying your balance sheet, what do you think is likely to create the most economic value for shareholders? John W. Ketchum – Senior Vice President-Finance Well, one, there have been a couple of deals that have gone off at 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 on them and other opportunities within the portfolio where we could optimize our current position without compromising our credit metrics. James L. Robo – Chairman, President & Chief Executive Officer 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’s shareholders, I have a hard time – I scratch my head, honestly, and I have a hard time understanding how that makes sense for the acquirer’s shareholders. And so, 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. The other thing from an acquisition standpoint, that I would say, just overall 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 prospects to deliver the expectations that we’ve laid out to you here, and anything that we would ever do on M&A would have to be accretive to what we’re telling you in terms of our expectations going forward. Stephen Calder Byrd – Morgan Stanley & Co. LLC Very much understood. That’s very, very helpful. When you think about wind growth potential, obviously, we may not know the PTC outcome till very late in the year. In your dialogue with states and utilities that may go out and procure more wind, how should we likely see this unfold? Is this likely to involve very quick action by states and utilities to start to – I’m assuming that the PTC does get extended – do you think it’s going to be a fairly rapid movement by states to try to take advantage of the PTC, just given that it’s 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, Jr. – President & Chief Executive Officer, NextEra Energy Resources, LLC Stephen, it’s Armando. I think the first thing, let me just talk about what we’re seeing right now. What we’re 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’re signing up are very clearly telling us that they don’t necessarily know where the Clean Power Plan 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 Plan. Others are telling us that, look, we would like to take advantage now while the PTC is here because with the PTC the 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 concern 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 past that, it looks like that wind has a lot of opportunities, I would say, through 2020 at least, whether it’s early action credits under the Clean Power Plan or whether it’s, with or without PTCs, what customers are seeing as a trend to go more renewables is very positive for us. So I’d say where we sit on wind 2017 and 2018, I would expect on a combined basis to be pretty good for us. Stephen Calder Byrd – Morgan Stanley & Co. LLC That’s great. Thank you very much. Operator And we’ll take our next question from Julien Dumoulin-Smith. Your line is open. Julien Dumoulin-Smith – UBS Securities LLC Hey, good morning. James L. Robo – Chairman, President & Chief Executive Officer Good morning, Julien. Julien Dumoulin-Smith – UBS Securities LLC So let me actually start by following up on the last question a little bit. When it comes to CPP, I’d be curious, you have this dynamic around 2020 to 2021 of early action. To what extent is that creating kind of another boom/bust in the cycle? Obviously, you got a PTC extension here, but are folks holding off to get projects qualifying for their early action program? Armando Pimentel, Jr. – President & Chief Executive Officer, NextEra Energy Resources, LLC Yeah, Julien, it’s Armando again. Just to follow up on what I said before, in the near-term here there is obviously some discussion with our customers about the Clean Power Plan, and they’re taking advantage because they don’t know whether the Clean Power Plan is going to work out, but they see that it’s a huge benefit while there is a production tax credit to sign up cheaper wind. The 2017 and 2018 discussions that we’ve been having on wind – a lot of folks are obviously concerned about whether there’s going to a 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. If there is no production tax credit, my expectation would be that the amount of wind that you see get built in 2017 would be below what 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 coming back. The economics for wind and, honestly, the economics for solar from the customer standpoint are very attractive today with the PTC and with the ITC for solar. They’re very attractive without the 30% ITC when you get out to the 2018, 2019 timeframe, 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 Plan, but I think that uncertainty is actually playing in our favor. People want to take action early. Julien Dumoulin-Smith – UBS Securities LLC Great. Two further quick clarifications. 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 to be very clear about this? John W. Ketchum – Senior Vice President-Finance Yeah, 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’re looking at, a couple of balance sheet optimization opportunities. Kind of a long way of saying that we’re still working on framing up exactly what that’s going to look like. But…. Julien Dumoulin-Smith – UBS Securities LLC Perhaps to be more specific, the projections of 26%, for instance, for SMP, that does not contemplate incremental equity, or just I know it’s a moving target given the size of the CapEx budget, but… John W. Ketchum – Senior Vice President-Finance Yeah. We don’t know yet. There are factors at play, again, having the strong quarter of origination on wind at 725 megawatts, looking to see how we come in on 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 – UBS Securities LLC And last quick one. Where do you stand on merchant divestment, specifically Texas. Just curious what your thoughts are broadly about it because you seem to have commodity sensitivity, be it from wind projects or combined cycles in Texas. James L. Robo – Chairman, President & Chief Executive Officer Yeah, so Julien, I’ll start out with the general comment that you guys will ho-hum to. But I mean it’s true. I mean we look at that portfolio, our entire merchant portfolio every year and try to determine whether it still makes sense for us 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’re going through a process in Texas on Lamar and Forney. I warn 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 may be folks that are very interested in those assets; they’ve been great assets for us. We believe that there might be a 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’re going to take it, 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’re looking at. I mean, we look at all of our assets every year, and determine whether it makes sense for us to continue to hold them. Those are just, honestly, the ones that are public at this point. Julien Dumoulin-Smith – UBS Securities LLC Great. Thank you. Operator Our next question is from Steve Fleishman. Your line is open. Steven Isaac Fleishman – Wolfe Research LLC Yeah. Hi, good morning. Just on the – curious kind of the latest updates on the gas reserve additions in Florida and just with the environment continuing to maybe get more attractive to buy reserves, how you’re thinking about that potential? Eric E. Silagy – President & Chief Executive Officer, Florida Power & Light Company Yeah. Hi Steve, this is Eric Silagy. So we are – you know, with gas prices coming down, we’ll see how the market plays out, but we think there’s going to be opportunities. We’re going to be very judicious in how we approach this and making sure that we’re 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’ve got origination teams that are talking to multiple counterparties on opportunities. So I think we’ll see how everything plays out in the market from a gas perspective, but right now we see this as presenting actually some potential opportunities. Steven Isaac Fleishman – Wolfe Research LLC Okay. And then, separate question. Just on NEP, maybe, Jim, is there any way to give some color on your intentions with this buyback in terms of just, you know, is this something where you’d want to be in right now doing; is this something that’s kind of there if there’s another kind of attack on yieldco, so to speak, or just how should we think about the buyback? James L. Robo – Chairman, President & Chief Executive Officer So, I think I probably should limit what I said to what I said in my remarks, Steve, but I am certainly not going to lay out prices at which we’re buying or the prices at which we’re interested in doing the ATM. You know that’s – part of the thinking behind this is to give us the flexibility to issue units when we think the price supports new issuance and the buyback gives us the opportunity to show our commitment to the partnership by buying units when we think they’re undervalued, and… Steven Isaac Fleishman – Wolfe Research LLC Okay. James L. Robo – Chairman, President & Chief Executive Officer I think it’s as simple as that, honestly. Steven Isaac Fleishman – Wolfe Research LLC So it’s kind of a buy low, sell high – kind of a new concept. Okay. Makes sense. James L. Robo – Chairman, President & Chief Executive Officer You said it, not me, Steve. Steven Isaac Fleishman – Wolfe Research LLC And then, lastly, just could you maybe give us any color or latest thoughts on the Hawaiian Electric deal? James L. Robo – Chairman, President & Chief Executive Officer Sure. So we continue to work hard to get the final hurdle, which is state regulatory approval in Hawaii. We have recently gotten a couple intervenors to either fall away or announce their support, and I was very pleased that the IBEW announced their support for the transaction last week. And we continue to work it. I think my expectation, based on timing right now, is that we’re not going to get any kind of decision from the PSC until next year, and so we’re going to continue to work it and continue to talk to the parties to try to get it across the finish line. Steven Isaac Fleishman – Wolfe Research LLC Great. Thank you. Operator We’ll take our next question from Paul Ridzon. Your line is open. Paul T. Ridzon – KeyBanc Capital Markets, Inc. One of the drivers you discussed on the reduction in years earnings was a drop-off of state tax incentives. How does that unfold over the next several quarters? And was that just a concentration risk of your adding some assets in a particular region? John W. Ketchum – Senior Vice President-Finance Yeah. 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 Oklahoma. Only had about 100 megawatts this quarter, and so, you know, Oklahoma has that state ITC, so it was really a combination of those two factors. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And then at FP&L, it looks as though we’re actually seeing some modest demand destruction. As you think about your rate case, I mean, decoupling – is that on the table? Or maybe an annual look for a true-up, and how are you thinking about that strategically? Eric E. Silagy – President & Chief Executive Officer, Florida Power & Light Company Yeah, Paul, this is Eric Silagy. No, we’re not looking at any decoupling. Again, I think you go 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 T. Ridzon – KeyBanc Capital Markets, Inc. Is that something you’ll try to put into your regulatory strategy? Eric E. Silagy – President & Chief Executive Officer, Florida Power & Light Company How we look at moving forward – our base – our rates are set on a projection of test year. And so, it will take into account that we have strong customer growth coming in as well as more modest growth from the standpoint of usage or potentially negative usage. So both of those factors get factored into looking at what our revenue requirements are. Paul T. Ridzon – KeyBanc Capital Markets, Inc. And then lastly, there was a large swing at corporate – was that just a timing issue or could you delve a little bit deeper into what drove that? John W. Ketchum – Senior Vice President-Finance Yeah. Some of that, as we mentioned in – or I mentioned in the script was the consolidating tax adjustment, and with PMI or the customer supply and trading business having a good year, the apportionment factors that are used by many states are revenue based, and so that can kind of skew results in the more favorable tax jurisdictions, and that’s really one of the main drivers there. Paul T. Ridzon – KeyBanc Capital Markets, Inc. So none of these is a marked shift, and look for improvement going forward? John W. Ketchum – Senior Vice President-Finance That’s something that’s really dependent on the business mix and kind of where our revenues are coming from, what states. So it’s not something you can necessarily count on quarter to quarter. Paul T. Ridzon – KeyBanc Capital Markets, Inc. Thank you for your help. Operator We’ll take our next question from Jonathan Arnold. Your line is open. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Hey. Good morning, guys. John W. Ketchum – Senior Vice President-Finance Good morning, Jonathan. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Quick one. So, Jim, you mentioned a couple of times, I think you called it chaos in the yieldco space, and I think you stressed that you see that helping you from a competitive positioning standpoint in the development business. My question, I guess is, do you see some M&A opportunities falling out of that situation? Or is that really less your focus here; it’s more about winning new projects yourself? James L. Robo – Chairman, President & Chief Executive Officer Well, Jonathan, we have always felt that organic development creates more value than project acquisitions do or, frankly, even overall company acquisitions unless it’s a pretty unique situation. So our focus is going to be on organic growth. We have always had project acquisitions as a part of our mix, and we will continue – I do think there will be some opportunities here. I think there’s a real question about whether folks are going to realize that when they’re selling projects that they’re not going to get the same kind of value that they perhaps would have gotten four months ago, and there is also – we’re very picky about the quality of the project, when we’re looking at it from a project acquisition standpoint. So I would expect there to be more opportunities there than there would have been a few months ago, but, honestly, our focus is really on – and I think the most high-value added opportunity for our shareholders is to be focused on growing our organic capabilities. Jonathan P. Arnold – Deutsche Bank Securities, Inc. It sounds like priorities are organic, then possibly projects and last on the list sort of whole portfolio company type things? James L. Robo – Chairman, President & Chief Executive Officer I think that’s a fair prioritization, Jon. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Okay. Thank you. And then just one other thing on Canadian Wind; anything to report on the recent Ontario RFP? And if you – what are your – line of sight on some success there, and when would we hear about it in the backlog? Armando Pimentel, Jr. – President & Chief Executive Officer, NextEra Energy Resources, LLC Jonathan, it’s Armando. I think the first – realistically, the first that we would hear about it would be very late this year. I – and that’s the very earliest. My expectations are actually that we would hear some time first quarter of next year. We feel good about the bids that we put in. I always want to put things in context, though, right, I mean Canada or Ontario was looking for, roughly, I think it’s 500 megawatts or 600 megawatts in total of renewables, right. So I mean we wouldn’t think that it – nobody should think it’s a 5,000-megawatt bid or something. I mean it’s still reasonable; it’s still chunky, but it was 500 megawatts. We have several projects that we think are very competitive in the process the way it’s laid out. And so we’re hopeful that we’re going to get some of that 500 megawatts or 600 megawatts. Jonathan P. Arnold – Deutsche Bank Securities, Inc. Okay. Thank you, Armando. Operator Our next question is from Michael Lapides. Your line is open. Michael J. Lapides – Goldman Sachs & Co. Hey Jim, coming back to M&A a little bit, but maybe a different angle. How are you looking at – you’ve grown your midstream business, meaning you’ve got Mountain Valley and Sabal 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 held midstream assets – how has that impacted the opportunity set that may be available for either NEE 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 the NEE level or down at the NEP level? James L. Robo – Chairman, President & Chief Executive Officer So, Michael I think, when I think about what we’re doing in the pipeline space, it’s really focused on very long-term contracted pipeline assets. And things that we think look a lot like our renewable business in terms of the quality of the counterparty, the consistency of the 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 in that it was a very long-term contracted set of assets. There are very few of those, really, out in the marketplace. If there was one that will become available, we would look at it. And I think, honestly, it would depend on the capital markets and where we think the most efficient financing would be, where we would put it, whether we would put it at NEE or NEP, but just again, our focus there in the pipeline space is first and foremost on organic development. Michael J. Lapides – Goldman Sachs & Co. Got it. Thanks, Jim. Much appreciated. Operator Our next question is with Brian Chin. Your line is open. Brian J. Chin – Bank of America Merrill Lynch Hi, good morning. John W. Ketchum – Senior Vice President-Finance Good morning, Brian. Brian J. Chin – Bank of America Merrill Lynch I think when you guys talked about others using the balance sheets and levering up to buy other companies and then you put that in the context of buying shares of NEP and continuing to execute on your wind resources, and your regulated opportunities, I mean you guys have made a pretty strong and consistent statement about where you think your capital deployment ought to be. I guess within that context, what I’m 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 of 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 under what conditions you might consider deploying capital towards NEE buybacks as opposed to NEP? James L. Robo – Chairman, President & Chief Executive Officer Well I said this last month, I think, Brian that I – relative to NEE, I think NEP is extremely undervalued right now. So… Brian J. Chin – Bank of America Merrill Lynch Any… James L. Robo – Chairman, President & Chief Executive Officer I think our announcements today are pretty consistent with that. Brian J. Chin – Bank of America Merrill Lynch And I agree. But just any sense of color as to how you frame it, Jim, that would be great? James L. Robo – Chairman, President & Chief Executive Officer 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. Brian J. Chin – Bank of America Merrill Lynch Okay. Thank you. 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.