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

Next up, we've got NextEra. CEO, John Ketchum. John's got some comments and slides. He's kind enough to let me eat some lunch and watch him. And then we'll have...

Unfair, Steve. Unfair.

Don't go too fast. And then we'll have a discussion after. So John, I'll turn it to you.

Okay. Terrific. Hey, great to be here, Steve. Thank you again for inviting us. Just a terrific conference you put on every year. Typical cautionaries, you are all familiar with. I won't spend a lot of time with that. One of the things I want to talk about, and I'm sure Steve and I will spend a lot of time on this today is, if we all go back to December, you -- in really October when I was up here last year, I said 2026 would be the year of execution for NextEra. And it has been. I'm proud to say we've really delivered against it. I'm going to talk a little bit about the 12 ways to grow that we put up at this conference last year, we talked a lot about in December. But this slide really just deals with what we've been able to accomplish in the last 60 days. This is 60 days of performance. So since the Q2 call, we have 16 gigawatts now of Federal Hubs opportunities, right? 10 gigawatts with the Japanese fund, and we already have $3.3 billion of capital in the door on those first 10 gigawatts. That's since the Q2 call. We just announced yesterday, I was up in Washington, the Oval Office with the President and his Cabinet, we announced a 6.5 gigawatt opportunity that we're calling Project Star, the first project done with Korea and with the Department of Commerce. So that brings us to 16 gigawatts. I'm going to talk more about the Federal Hubs in a minute and I think some of the misconceptions that I see out there in the marketplace. We also, since the Q2 call, announced 4.6 gigawatts at Paducah with the Department of Energy. So that puts us at 20.5 gigawatts. Half of that Paducah opportunity is gas and the other half is storage. So if you put -- add up the tally on the gas build, 18 gigawatts, right? To put that in perspective, the installed gas build at FPL today, which has the largest gas-fired generation in the United States, is 24 gigawatts, right? So in 60 days, we put up 18 gigawatts of gas opportunities with the federal government. Obviously, we have a very large pipeline behind that, 40 gigawatts of -- I mean, 40 data center hubs, which we'll talk more about later. We also were able to recontract Point Beach, and a very attractive contract for us there. You can see the EPS contribution, which is very strong. Obtained a $2 billion loan from the Department of Energy for the recommissioning of Duane Arnold, which is going very well. I'm sure we'll talk more about that today as well. As you all know, we're recommissioning that plant. Google is the offtaker there on that facility. They will pay for 100% of the power generation. And we also announced a 49% interest in a gas pipeline that's being built in Florida by Chesapeake. So that's just 60 days of hard work by the NextEra team. And this is really tying out some of the accomplishments that we've seen since December. When you look at over the last 9 months, in addition to what I just mentioned, Florida Power & Light is executing on all cylinders. We had a very favorable rate settlement agreement that came out at the end of last year. We've had 9.3% regulatory capital employed growth at FPL. We've taken the large load growth estimate up at -- in Florida from 6 gigawatts to 8 gigawatts. We continue to say that we'd be disappointed not to be announcing a large load deal in Florida by the end of the year. We've had a lot of success too on the linear infrastructure program. So I mentioned the gas pipeline opportunity, but we've also brought forward 2 major transmission projects. So the CAGR that we had on the linear infrastructure, whether it's electric transmission or gas-fired -- or the gas pipeline business, was a 20% CAGR year. Just in the first 9 months, we are already at a 25% CAGR for that business. The renewable business continues to perform very well. We've already had roughly 7.5 gigawatts for renewables and storage. The demand we see in the market extremely strong going forward. We've been able to recontract roughly 2 gigawatts of PPAs. We have an 8 gigawatt target as we look through 2032, making excellent progress there, being able to recontract into a much higher priced market across the board. And the customer supply business continues to execute well through our acquisition of Symmetry. We're now the third largest gas marketer in the United States, third largest power marketer in the U.S. Those are skill sets that are really, really important when we think about meeting the demands of hyperscalers. And we've had tremendous success on the artificial or super intelligence front across the board, and an extremely successful effort that we just had on our Rewire initiative on how to leverage technology in a way unlike any company in this sector and to continue to design products that can be used by the utility industry across the board through our partnership with Google, which remains very strong, and that relationship has been terrific. I said I wanted to spend a little bit of time on Federal Hubs just to address some misconceptions out there. So the message I want you to walk away with is this. We do not have to put $0.01 into these projects, not 1 penny. These projects are owned by the federal government and the countries of Japan or the countries of Korea, right, not NextEra. But we get fee income streams back. That fee income stream is roughly 50% of the adjusted EPS that we would earn if we built the gas plant on our own balance sheet. So we don't put -- not $0.01 of equity or capital goes into these projects. We get 50% of the EPS profile that we would get if we built these on our own. So if we do the simple math on that and we say we have 16 gigawatts of Federal Hubs now secured, and we cut that in half based on the EPS contribution to 8 gigawatts, what I told you was our expectations back in December were 4 to 8 gigs of gas. We're already at the high end of that for 2032. If you add on the 2 gigawatts of gas for Paducah, that takes us to 10 gigawatts we're already chipping away at 2033. And we've done that in just a short number of months. I would expect that there could be more opportunities to follow on the Department of Commerce and Department of Energy front as we look to the future. And like I said before, we've had $3.3 billion of capital coming on the Japanese project, the first 10 gigawatts. We just got funded today, $2.4 billion, on Project Star, which we announced yesterday. So these projects are moving forward. I know there's a lot of focus from investors on, well, when are you going to get contracts on these? The way the federal government is looking at them is we're going to build these projects. The contracts will come. Project Star, one of our partners is a leading DCO in the related companies. And that project is being built on Rod Lewis' land, who has been a partner of ours on the upstream side. So it's all on private land. That's where the data center will be built. That's also where the power generation will be built, right over an existing gas field. And the Anderson Project right outside of Dallas, 5.2 gigawatts, our partners -- one of our relationships there is with Comstock, who will provide the gas supply for that facility as well. So those projects are in good hands and are moving forward as we speak. One of the things that we have not talked about, this is new news is all these Federal Hubs, so the 16 gigawatts of Federal Hubs, we have all the rights to build the battery storage capacity that will serve these 3 hubs. These are not in our financial expectations. So there's a 6 to 11-gigawatt incremental battery storage build opportunity that is an upside to the existing forecast expectations that we have laid out for investors. It's a bit of a busy slide, this is our 12 ways to grow. I've covered most of this. Your takeaway should be that we said we'd grow in 12 ways. We are growing in 12 ways, and we have made substantial progress against each of these metrics and targets that feed into our financial expectations as communicated back in December. I want to switch gears and just talk a little bit about affordability. I know affordability is top of mind across the country, and we take great pride in driving very strong affordability for our customers, which is a message that we're bringing forward as part of the Virginia, South Carolina and North Carolina messaging around the Dominion combination. So if you look at our bills in Florida, we've been accommodating growth for 20 years in the state, one of the fastest-growing states in the country, 14th largest economy in the free world if Florida were a country. Our bill today is actually 20% less than it was 20 years ago in real dollars. Our bill is 37% lower than national average. Our reliability is 60% better than national average. Our O&M on a dollar per megawatt hour base is 70% lower than the industry average. And our O&M is 50% better than second-best in the industry. And our customer service under J.D. Power's 2025 study is top decile. So we don't cut corners. We deliver on affordability. We know how to leverage scale benefits. We know how to deliver affordability and reliability to customers. But we're doing it not only in Florida. We're doing it across all 50 states. We're going to do it in Virginia. We're going to do in South Carolina. We're going to do it in North Carolina. And with the combination, I think it's just a great story, moving from 110 gigawatts to roughly 240 gigawatts by 2032 is the expectation, doubling the -- more than doubling the size of the company with regulatory capital employed growth of roughly 11%. 9% plus adjusted EPS growth going forward as filed in our S-4. So as I look back at what we said to investors in December, I fast-forward to today, we are really performing and executing across the board in the 12 ways to grow. And we've added a combination that's day 1 accretive to shareholders on top of that. And with that, Steve, I'll take your questions.

Okay. Thanks, John. That was a great intro. And so maybe just with the new news on the projects, with the gas projects and scale of those projects, you could talk a little bit more about the -- so the earnings are basically kind of half of what you'd get. But is the cash flow maybe even better just because -- or is the cash flow -- because you're not adding any debt, so then cash flow to debt and just the overall balance sheet of the company in that context?

Yes. No, that's right. I mean inures to FFO, we don't have the financing cost. The resources that we put up against supporting these projects are paid for dollar for dollar under the structure of the transaction. And so from a cash flow standpoint, very strong contribution. And the way to think about it is we get development fees, milestone fees for meeting certain requirements as we build, and then 2 pieces of operating fees once we go COD, one that's fixed, one that's variable.

And just as what -- compared to building plant yourself and the like, what risk do you take on, if any, in terms of these deals?

Yes. I mean these are not our projects, right? These are projects for the federal government and for the country of Japan and Korea. So our obligation is to get them built. We put some of our fees at risk in terms of median milestones and certain operating requirements. But they're things that we're quite comfortable on our capability of achieving.

And then I'll get to it in a minute. And then how did you -- what's your sense on kind of how you got chosen to do these? Just what drove that? .

I think it's really reputational. And so when you look at the market today, I think one of the things that's really unusual about NextEra and where power demand is headed in this country is it requires more than ever a company that can participate and contribute and has experience in every part of the energy value chain, because the requirements to provide solutions for customers at scale is different by customer. It's different by location. It's different by profile of what they want to achieve. Some examples are, I mean, a lot of customers we talk to, they have a speed to power need, right? And a way to get them up and running very quickly is with solar and storage. And then once they're up and running with solar and storage, bring gas in behind it. But depending on where we're located, we might have to bring a gas pipeline and/or build new transmission. They may, if it's a toll, we may need gas marketing capability. We need to understand gas flows on where to locate. Power marketing may be required for certain hedging requirements. Battery storage optimization with the software capabilities that we have and the edge that we have developed there, really, really important. All these combinations of skills are really critical to being able to deliver cost-effective solutions for hyperscalers. And the other thing I would mention is, if you look at the FERC show cause order and you look at kind of where we are today, I think a lot of the way the market has evolved is if we look 3 or 4 years ago, there was a lot of excess capacity on the system. That's gone, right? That's been spoken for. And so now what you're seeing is with the FERC show cause order and the focus and the doubling down by ISOs is, show me if you're going to build load, pair it with generation, right? And I'll look at the SPP model, right? And those have to be 2 substations away, that's already been approved by FERC. If that's the kind of the model or some subset of that structure that moves forward, it's going to become critically important that load and generation are working together early on. The opportunity cost has never been higher on being wrong, right? So if you're a hyperscaler and you're making a $100 billion bet on chips, if you're wrong because you chose the wrong power supplier, you're wrong because you chose the wrong location to build in, you're wrong because you didn't select somebody who has the supply chain capability and the ability to execute, deliver power where and when it's needed, on time, on schedule, on budget, you're in trouble. I mean the opportunity cost is massive. And so what we're now seeing too in our dialogue with hyperscalers is, hey, on a lot of lessons learned is, look, a real willingness to work together early on. And so we have really strong relationships across the board. It's where I'm heading right after this meeting, is out to the West Coast, spend a lot of time with one of our customers out there. And it's just never been more important. And I think that's why we were picked by the government. I was there in the Oval Office with all 3 cabinet secretaries yesterday: Secretary Lutnick, Secretary Wright, Secretary Burgum. And they just all have a lot of confidence in NextEra and our capability to build and to deliver.

And then I think you kind of said there that there might be more of these? Any sense on kind of how much more there could be of these are similar-type projects?

Yes. I don't want to put a number on it, Steve, but I think, look, we need super intelligence in this country, and power is a limiting factor. We have a supply-demand imbalance. And that's what the Trump administration is trying to address, is to make sure that we have the supply to meet the demand. And so I do think there's the potential for more opportunities here to partner together. And our whole strategy, if you look back 18 or 24 months ago, was we knew this was where this was heading. Our bet was this was going to be a bring your own generation rather than a recontracting market. Because you can't recontract low-cost generation because somebody pays for that, right? And that's the residential customer. So that we didn't think that would work long term. And so our focus was bring your own generation, get land positions, get hubs up and running as quickly as we could, in the right locations where we think hyperscalers will want to be based on the artificial intelligence tools, super intelligence tools that we've developed across the board at NextEra, many of which you've all seen in practice during some of the investor events we've had on campus in Florida.

I guess last question on this topic is just there's a history of new presidents coming in, including the current one and not liking the stuff that the prior President did and was involved in administrations. Just how are you kind of dealing with the risk of that happening in the future? Because I assume these will still be getting built during that time.

These are going to be fast-moving projects that are going to get, I think, funded rather quickly. I mean you look at already on the Japan projects at almost $3.5 billion of capital. Those are just the first 2 capital [ calls], it could be more as we get through the year. So the capital is already coming in at a pretty brisk pace. We already have a 10% funding on the Korean project today that's sitting in the bank account for $2.5 billion, for us to get going on supply chain commitment. So these are moving, and they're going to move quickly. And capital is going to be committed in a way that we get these projects up and running fast. So I'm not too concerned about that.

But in the [indiscernible] question about what kind of protection for the contracts are there for that new administration?

Well, we're not at risk. I mean this isn't my project -- at the end of the day, we're taking the capital and we're buying equipment or we're going to engage in services we're not putting our balance sheet at risk for that. So the exposure that we're taking on is tied directly to the capital that flows into the door. And so we're never overextended or overcommitted to a supplier of equipment or to a supplier of services on the EPC side. We take no risk in this.

So basically our government and the other, yes, the other governments that...

Yes, they have the owner risk on this. But it's our job too to make sure that we advise them and that we make smart moves on how we structure these contracts. But this is what we do every day. This is nothing new for us. I mean we are very comfortable structuring milestone payments to equipment suppliers and to EPC contractors in a risk-mitigated way to where we never are out in front of our skis, so to speak.

And then -- actually I lied, one more question on this. The behind the meter, front of the meter, I think a lot of these start behind the meter or -- and then move front of the -- and then add front of the meter, or maybe you could just talk to ...