NextEra Energy, Inc. (NEE) Earnings Call Transcript & Summary

Good morning. Thank you for joining us today. I'm Ross Fowler, North America power and utilities analyst at UBS. And today, I'm pleased to be joined by Rebecca Kujawa, who is CFO and EVP of Finance at NextEra Energy for a fireside chat. Rebecca, thanks for joining us today. I'm going to pass it off to you for some opening comments given you released some news last night. You raised earnings estimates and reestablished your growth rate off the 2021 numbers. So if you want to talk about that in sort of the context of near- and long-term goals for the company, that would be great. I think you're still muted, Rebecca. I can't hear you.

Can you hear me?

I can hear you now.

Okay. Perfect. I wasn't on mute. So I don't know what magical buttons I pushed that were effective, but glad it worked. But thank you, Ross, and I appreciate the opportunity this morning. Thank you, UBS. It's terrific to be with all of you that are here on the webcast this morning. And as, Ross, you highlighted, we did have some announcements after the close, but let me give you some context and then I'll get into some of the details. For those of you on the call that know us well, you know that we are a large-cap energy company largely comprised of 2 major businesses, the regulated utilities predominantly here in Florida, which is Florida Power & Light Company and Gulf Power, serving about 5.5 million customers between the 2 of them here in the state of Florida. And we believe that this is one of the best utility franchises in the U.S., if not the world and I would argue in many respects it is the best both in terms of its leadership on cost, its overall performance and reliability, safety, customer service and, of course, clean energy solutions, which is a hallmark of our entire company. The other major business, of course, is NextEra Energy Resources, which is the largest producer of power produced from the sun and from the wind. And our leadership in the renewable sector has grown from being one of the earliest movers to now being the preeminent player particularly here in North America, but our deployment of renewables rank very well across the world. And in running both of these major businesses, one of the benefits of having them under a similar umbrella is that we get to leverage all of the knowledge and investments that we make in the business across both of these companies. And so it's a powerful combination that has served us quite well both in the size of our business as well as the strategies we've employed in order to grow these businesses. And these strategies have produced terrific results for our shareholders as well as our broader stakeholders and the communities in which we serve, including having top shareholder returns on any number of years that you look at, whether it's a 1-, 3-, 5- or 10-year basis comparing us not only to the utilities here in North America but even broader market indices. So Ross, as you highlighted, we had some announcements after the close, first, that we raised our expectations for 2021 by $0.20, and we rebased our growth rate of 6% to -- targeting 6% to 8% off of that new base, effectively raising our 2022 expectations by a little bit more than $0.20 as well as the introduction of 2023 expectations, which we had previously not provided to the financial community. And then on top of that is reflecting the health of the overall business but most importantly trying to improve liquidity and attractiveness of our stock to a broader base of investors. We announced a 4-for-1 stock split. So that will be effective in October and trade post the split in late October. So the practical implications of that is that we will report third quarter earnings with our current share count. And then of course, fourth quarter and full year results and beyond will reflect our new share count. Talking a little bit about why do we feel comfortable about these expectations and what's driving it. As we've been now talking about for quite -- actually several years, this is the best renewables development environment we've ever been in. And we've been saying it for a long time not by drawing out the time frame to which we're referring, but it continues to get better. We and others questioned at the start of this pandemic whether or not something had changed and whether or not the disruption that the pandemic was going to bring and now has brought would derail that. And we haven't seen it. We've seen the strength of our Energy Resources business continue to be quite robust. And FPL, we continue to identify the opportunities, as we've noted in our most recent 10-year site plan, our integrated resource plan, about the opportunity to deploy solar here in Florida. And then the -- so the strength of the renewables development opportunity is a huge part of the driver of the expectations adjustment. And it's also the overall execution on -- across all of our businesses. And again, that's a focus on cost. It's a focus on reliability, overall performance and focusing on what creates value for our customers so that they want to buy the products that we have to offer. So we're in a terrific position. We're really excited about what the future holds, and we are acutely and consistently focused on execution.

That's a wonderful summary, Rebecca. Thank you. I'm going to get into my own couple of questions here. [Operator Instructions] So Rebecca, maybe the first thing we can talk about is it's been quite a challenging year in 2020. I don't think any of us expected to be here if we go back to January. And I'm thinking specifically of maybe 3 challenges in your business: first, supply chain and potential issues or lack thereof there; the variability of sales volumes and just that sort of overall uncertainty; and then third, really workforce safety and sort of execution of the capital plan at the regulated utilities and the development projects in sort of a timely manner. So if you could kind of walk through each of those risks and concerns and how you've addressed them and how you've seen them play out this year.

Yes. What a challenging year, no doubt for all of you both personally but of course professionally as well. And it's a -- I saw -- I've got young kids that see a lot of Internet memes. And one of them, I found funny. And I'm going to be dating myself with this one. It's Back to the Future. There's a picture of Michael J. Fox sitting with the professor and their -- with a backdrop of the DeLorean, and he said, "No matter what you do, don't go to 2020," which I thought was pretty funny given the circumstances of what we've all endured this year. It's been a challenging year. There's no question about it. And I think you -- one of your questions is about the health and safety of employees. One of the things that was driven home for us early on in this is how critical a resource electricity is. And we had a really somewhat frivolous debate about what's the most critical resource that you have. But if you don't have reliable electricity, you don't have water, you don't have health care, you don't have the systems that -- and infrastructure you need for all of the other fundamental emergency services and fundamental resources that you need in order to run an economy. So it was -- really struck us how important it was that we, one, deliver reliably for our customers; but two, we absolutely have, top of mind, the safety of our employees every day because we are asking them to go out into the field and engage in order to ensure that we can provide that supply. We have a remarkable pandemic team. We actually had a pandemic plan, which fortunately was pretty well thought out. It's been iterated on substantially throughout the pandemic and evolved as the circumstances have changed, but it gave us a running head start, which was helpful. It really gave us the building blocks of things that we need to think about, whether it was testing, other health and safety measures, PP&E provisions to ensure that as we ask our teammates to continue to conduct business that we can do so safely. So testing has been a huge part of that, temperature checks, enforcing masks, providing marketing materials about encouraging customers to provide a safe social distance when workers are out in the field. I would say that it's gone pretty well. What we have been most concerned about is what we're in the midst of right now this hurricane season because the thought of doing a major restoration in the midst of the pandemic is certainly daunting. And we certainly are worried that it would extend the time frame for restoring service for our customers. So we've done a lot of planning. We've had a couple of -- we'll call them wet runs at this point, so a threat of hurricanes that fortunately have not been significant. And then we've provided resources to other communities, other states and jurisdictions that they've had impacts related to hurricanes and brought some of these best practices. So I think that covers kind of the health and safety side of it, which is -- remains very much top of mind for us. I would say on the customer side, obviously, you have to think about the fact that quite a number of customers are facing financial hardship as a result of the pandemic, and I credit our team with doing a couple of things really well, one of which is extensive outreach to our customers. For those that have been having difficulty paying their bill, we've touched them multiple ways, 9-plus times, whether it's e-mail communications, phone outreach, text messages, communication via their app, to help them understand that there are resources available to them to help them pay their bills and deliver valuable service to them. We continue to have a suspension of disconnects. We're evolving the policy now to start bringing back a time frame in which we will resume them, but in whichever way we end up doing that, it will be a very measured approach with bringing some of the resources to bear that we can to help make that easier for customers. And then 3 sources both from an FPL perspective as well as the external resources, things like light, heat, that was an extension as part of -- one of the first COVID Acts that came out of Congress. From a renewable development perspective, it has -- we all worried that as people went home that we would not be able to continue to conduct business, sign new contracts, move forward the commissioning and final development activities that you need to finish for what is an enormous renewables build year this year for us. And we've done a good job of keeping all of that on track. From a development perspective, ironically, our developers say that it's actually been easier to get ahold of our customers because they're taking phone calls as opposed to stuck in meetings, like many of us often are. And processes that were in motion stayed in motion. And there have been new processes that have started, both bilateral discussions, which is a key part of our development activity as well as RFPs, the request for proposals, that ultimately result in a lot of opportunities for us as well. On the supply chain side, I hate to say that it's less disrupted now than it was, but it is. And I think, again, it's still evolving and things can change. But the disruption was really most significant around that March and April time frame when there were multiple stay-at-home orders, the communication channels within various communities and many of these jurisdictions around foreign countries that don't have significant infrastructure. And as those built, it has become easier to handle some of the disruptions and work with our suppliers to solve those problems. I think in the March, April time frame, it was really apparent to us, one of the advantages that we often talk about with the investment community, how important that advantage is, the scale, size, how big we are and how important we are to many of our suppliers. It is unusual for us, for a major supplier, someone that we think is critical to us, that we're not their top customer, certainly in the top 5 and rarely are we not at least in their top 10 in terms of customer base. That helped in -- as part of this disruption because our suppliers picked up the phone when we called and, in many cases, helped to resolve supply issues for us. Before, they may have perhaps solved them for other folks, other customers of theirs that were not of significant size as we are. The advantages that we have that we talk about are really real both from a leverage and getting good deals upfront but also being able to make sure that we get what we've ordered from these suppliers. So it's -- again, it's an evolving situation. We are by no means done. We're looking well out into 2021 when we think, based on conventional wisdom, of when a vaccine might be available. So we're in this for the long haul in terms of what we need to focus on in order to execute, but at this point, we feel like we're very well positioned.

That's a wonderful summary, Rebecca. I guess -- and I have some questions coming over e-mail. I'm going to kind of group them all together because they're all kind of about the same thing. So if we move to the utility side of the equation, you kind of talked about the Gulf integration so far and then talked about the rate case next year and sort of what the strategy is there. And then with such a major rate case hanging out there in 2021, how did you think about that in context of the 2021 guidance raise?

In terms of the -- let me start -- take them roughly in the order that you brought up those questions. In terms of the Gulf integration, we are thrilled with having brought Gulf into our family and very proud of what the team has accomplished over the last now 1.5 years, coming on 2 years. Even after the course of 1 year, the team took out about 20% of the cost in the business and improved reliability notably, meaningfully improved safety, which again, is a customer metric but we think it's a critical one -- excuse me, is an employee metric. We think it's a critical one because it reflects focusing on the right things from an operational perspective. And we're also in process of notably improving the emissions profile. We're ultimately going to take out 40% of the cost, improve reliability 30-plus percent, improve safety huge -- in a huge manner, and of course, improve emissions notably as we move away from coal from the -- both of the FPL and Gulf perspective. And as we think about what that means from going in for a rate case, not only do we have the excellent execution story at FPL. We have among the lowest bills in the state, top reliability, excellent customer service scores, clean energy profile. And we keep getting better even though we're already excellent and best-in-class in many respects. And so that's terrific. And we have historically asked for and we probably will this time ask for a performance incentive, saying that if you deliver execution that looks like this, you should be rewarded with an incentive so that you can continue to deliver those benefits for customers. That's our foundation of where we walk into the commission. And this time, we obviously have the big ask of bringing FPL and Gulf together for unified rates and basically interacting as a company with regulators and with stakeholders. And so on top of talking about the great execution in FPL, we can also talk about the power of the strategy and the ability to execute on it has delivered meaningful results for our Gulf customers in just what will be then 2 years down the road. And we think that that's important. You can -- potentially have dismissed FPL's excellent performance of -- they were given a -- dealt a great card -- a hand of cards. But it's not just that. It is -- we took an otherwise performing utility in the state of Florida and meaningfully improved it in 2 years. This is what good execution looks like. Don't you want to continue to incentivize that? The other factor that I think is important that has been appreciated by the broader stakeholders in Florida is the investment dollars that we bring to the state, one that are delivering value for those that live and work in the state and businesses that move to the state. But capital investment alone stimulates economic activity, whether it's the construction jobs, the folks that -- the property taxes that we pay, the folks that come to work at these plants that move their families here in order to be able to live and work here. There's a lot of economic activity that's brought forward in addition to continuing to improve the value proposition for our customers. Going into a rate case, you have to appreciate that it's a lot of work. We honestly did start preparing for this rate case the minute that the last rate case was approved because we think that the decisions that we make should stand up to regulator scrutiny, and we feel very confident that they will and comfortable with the decisions that we've made. There's a lot of stability in both the political and regulatory environment today. There's no gubernatorial -- there's no governor's election here in Florida this year. And the commissioners now will -- one new commissioner was just nominated to the commission. And otherwise, the other 4 commissioners are consistent with the ones that have been there for a couple of years. We will never get everything we ask for from the commission, but we do expect it will be treated fairly. And I think we're positioned to be treated fairly in this particular case.

Thanks, Rebecca. That's a really good summary. I think based on the questions I'm getting on e-mail, I think -- you mentioned the election. So we'll jump to that next. Obviously, it's coming up here in the U.S. in November. How do you see sort of the renewables business under sort of the status quo versus a potential change in administration. And then one other piece of uncertainty that's up there with the change in administration would be if the tax rate were to go up, which obviously the pass-through on the regulated side but would impact sort of earnings power in the year. And how do you fit that into how you think about the guidance raise as well?

Sure. So if we were talking -- having the same conversation, let's just make it super easy discussion 10 years ago but probably even 5 years ago, what administration and both the -- who's in the President's seat but also what does the makeup of Congress look like would have a very large impact on your outlook on renewables. But what's different now versus 5 and certainly 10 years ago is that renewables are driven by economics more than anything else at this point, that it is economic to retire many coal and nuclear facilities here in the U.S. and -- just because their operating costs are more expensive than the fully burdened cost of new renewables, including investments in capital and return on that capital. And so with that as a backdrop, that's a really good place to be because if you think about the last 4 years, we had a President in the White House who is not a huge fan of renewables. And there's a lot of rhetoric that he has put forward that clearly -- makes clear that he doesn't particularly love renewables as a power resource. And yet, we did really well in the last 4 years, and I think we're well positioned to do well in the next 4 years if there's another -- the second Trump term. If there is a Biden administration, it is clear from -- just from his talking points, certainly from a broad coalition within the Democratic party and I think even further stimulated with the things that are happening out in California today and other news that's in the press today that climate change is really important and it's a focal point for a Biden -- a potential Biden administration. So you could easily see a longer-term extension of -- with production tax credit for wind and investment tax credit for solar and other forms of support for renewables. Their agenda is quite robust in terms of getting to carbon-neutral in the power sector and carbon-free longer term from the 2035 to 2050 time frame. That represents a substantial amount of renewables development. There's a new slide that we included in this September presentation that starts to quantify what makes us excited about hydrogen. For us, hydrogen, at first blush, is really about taking out the last 20% of emissions in the power sector, that in our prior analysis, when you try to solve that last 20% with more and more renewables coupled with battery storage, the cost burden is quite significant for customers. But now looking at hydrogen for that last 10% or 20%, the bill impacts are substantially less than trying to solve that problem with more renewables and more batteries. So longer term, we think it is a significant supporter of getting to a fully zero-carbon power sector. So that's one part of our excitement about a huge renewables opportunity. But if you also believe that you could get green hydrogen to be competitive with other forms of hydrogen or other fossil fuels, then there's a huge -- there's a potentially capital deployment opportunity for hydrogen infrastructure, the electrolyzers, et cetera. But there is certainly a huge opportunity for the renewables to create the green hydrogen. And we took a stab at quantifying that. It's obviously early analysis and largely internal numbers, but we're talking about 3,000 gigawatts of renewables that are -- that would need to be built between now and 2050 to convert the power sector to renewables and take advantage of some of these opportunities in long-haul transportation and some of the industrial feedstocks. That's an enormous opportunity that gets us really excited about being in the position that we're in today. The Biden administration could help spur that along and enable it to happen quicker than we think might otherwise happen from an economic standpoint.

Hydrogen is certainly a longer-term opportunity with significant scale potential for not just the electricity market but all sorts of markets to decarbonize. But it's a very, very interesting topic. So I think I'd be remiss, and I'm getting a lot of e-mails on it too, if I didn't ask the obligatory strategic M&A question. So you've had such great performance at Gulf and sort of bringing that in line to the FPL model. How do you think about maybe taking that on the road somewhere else and sort of looking at consolidation of another utility franchise?

We have obviously not been quiet about our desire to do more regulated M&A. And there's huge value creators from our perspective of doing that. Some of it -- I often get asked the question. I know Jim gets asked the question. Is it driven by business mix of making sure that we can grow our regulated contributions to enable more growth on the competitive side? There's certainly an element to that, but there's multiple ways to achieve those same goals that don't require regulated M&A and still create significant value for shareholders. So the real thing that drives our excitement is exactly what you've seen us do from -- with Gulf Power, which is integrate the business, help spur the ideas of how do you invest capital, take costs out of the business, really focus on the customer value proposition at its most element form and see that come to fruition, see the value it creates and all the positive aspects that are associated with it. We're planning to grow net income at Gulf Power 16% per year from 2018 base through 2021, so outsized growth, at the same time taking costs out of the business, improving the reliability notably and obviously taking the emissions profile and making it 40% lower emissions, carbon emissions than it was in its prior state, just huge value creator. Of course, there's value for shareholders, but it's also about the broader stakeholder base. So if we could have the opportunity to do that elsewhere, we would love to do it. And we think it would be terrific for all stakeholders, including our shareholders. The challenge is we need to find the opportunities where we can deploy the playbook, where we can invest capital, take cost out of the business. And there's also an appropriate and constructive regulatory environment backdrop so that those investments and taking that cost out realizes the value for customers and for shareholders at the end of the day. So unfortunately, not every environment is conducive to doing that. And not every environment, not every commission and state, political backdrop is supportive of removing coal, for example. Even if it is very economic to do so, not everyone has accepted that, that is the right path. So we need to factor all of that in when we consider opportunities so that we ensure that any decision that we make to move forward with the acquisition and merger integration opportunity that we're able to create the value that we think is there.

That's fantastic. It's not just about making the math accretive because of your PE. There's a lot of other issues to consider and roll into how you think about that. That was a very nice summary.

It is not just a spreadsheet exercise, which sometimes as a CFO, I'd love for it to be a spreadsheet exercise but it's not that simple.

Sometimes, as a Wall Street analyst, we get too lost in our spreadsheet exercises a little bit, and we have to move back and think of the bigger picture. So I appreciate that answer.

We all do. We all do.