Good day, and welcome to the NextEra Energy Conference Call. All participants will be in listen only mode. After today's presentation, mode. Please note this event is being recorded. I would now like to turn the conference over to Matt Roskoff, Director of Investor Relations.
Please go ahead.
Thank you, Brandon. Good morning, and welcome to this NextEra Energy conference call. As a reminder, today's call is being recorded and a copy of the slide presentation is available on the Investor Relations section of nexteraenergy.com. An audio archive of this call will be available shortly after the call has concluded. The remarks today will include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended.
Any forward looking statements are based upon historical performance and current plans, estimates and expectations. There may be forward looking statements about, among other matters, future financial and operating results, objectives, expectations and intentions and other statements that are not historical facts. Inclusion of this forward looking information should not be regarded as representation that future plans, estimates or expectations will be achieved. Such forward looking statements are subject to various risks and uncertainties and assumptions. A number of important factors could cause actual results or performance to differ materially from those indicated by such forward looking statements.
There is no obligation to update any forward looking statement to reflect events or circumstances after the date on which the statement is made or to reflect occurrence of unanticipated events. Investors are cautioned not to place undue reliance on any of these forward looking statements. Please refer to the most recent annual reports, quarterly reports and current reports filed with the SEC as well as the forward looking statements legend appearing on Slide 2 of today's presentation. For a more extensive list of factors that could affect results, these documents can be found at nexteirenergy.com. Participating on the call today are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy John Ketchum, Executive Vice President and Chief Financial Officer of NextEra Energy Mark Hixson, Executive Vice President of NextEra Energy and Eric Silagy, President and Chief Executive Officer of Florida Power and Light Company.
Jim will begin with prepared remarks, and we will then open the line for questions. With that, I will turn the call over to Jim.
Thanks, Matt, and good morning, everyone. I'd like to thank you all for joining us. As you know, earlier this morning, NextEra Energy and Southern Company announced definitive agreements under which NextEra has agreed to acquire Gulf Power, Florida City Gas and ownership stakes in the Oleander and Stanton natural gas power plants. The transactions, which are expected to provide substantial benefits to both customers and shareholders, are valued at approximately $6,475,000,000 including the assumption of roughly $1,400,000,000 of Gulf Power debt. Transactions expand NextEra Energy's regulated business operations through the addition of attractive electric and natural gas franchises that are an excellent complement to our existing operations within the state of Florida.
Over time, the transactions will allow NextEra to extend best in class value proposition of low bills, clean energy, high reliability and outstanding customer service to the roughly 600,000 combined customers of Gulf Power and Florida City Gas. Similar to the long term strategy we pursued at FPL, we look forward to investing in a stronger and smarter grid, modernizing generation and making other smart investments for the benefit of our customers, our shareholders and the Florida economy. We expect the approximately $5,100,000,000 cash purchase price to be financed through the issuance of new debt, and we anticipate executing interest rate hedges for the full amount of the debt very shortly. We expect to make smart investments in the new businesses, which will lead to enhanced operations and reliability and resulting earnings growth in the acquired regulated companies at twice the rate we've outlined for NextEra Energy's adjusted earnings per share range through 2021. As a result, on a valuation basis, we believe we're acquiring the regulated assets at a market price to earnings multiple based on projected 2021 earnings.
For NextEra Energy shareholders upon closing, the transactions are expected to be $0.15 to $0.20 accretive to adjusted EPS expectations in 2020 and 2021 respectively. Consistent with the expectations we've previously shared, we anticipate that S and P and Moody's will make further favorable adjustments to our credit metric thresholds as a result of the expansion of the company's regulated operations. At the new thresholds, we expect to continue to maintain our $5,000,000,000 to $7,000,000,000 of excess balance sheet capacity following the financing of the transactions, while preserving NextEra Energy's strong current credit ratings going forward. A key element of the rationale for the transactions is the excellent complementary geographic and strategic fit of both Gulf Power and Florida City Gas with FPL. Gulf Power provides electric service to approximately 450,000 retail customers in Northwest Florida.
In addition to roughly 9,500 miles of transmission and distribution lines, Gulf Power also owns a portfolio of nearly 2,300 megawatts of generation assets. Florida City Gas provides natural gas distribution to its approximately 110,000 customers through 3,700 miles of pipelines in the Southeast Florida region that largely overlaps with FPL service territory. Both Gulf Power and Florida City Gas are regulated by the Florida Public Service Commission, who we have often said is one of the most constructive progressive and forward thinking regulators in the country. By working constructively with the Fpsc and other key stakeholders in the state, FBL has been able to reach fair and balanced long term settlement agreements for the benefit of customers, shareholders and the state. With the stability and predictability that these settlement agreements provide, we've been able to focus on efficiently running the business and smartly investing capital to reduce costs, improve reliability and provide low bills and outstanding service for our customers.
Beyond a constructive regulatory environment, both Gulf Power and Florida City Gas benefit from the strength of the Florida economy. Compared to many other regions in the U. S, an attractive and expanding underlying Florida economy should benefit Gulf Power and Florida City Gas over the long term, helping provide the opportunity for continued investment to support ongoing growth. Let me spend a brief moment discussing the Stanton and Oleander natural gas plants. We are acquiring a 65% ownership position in the Stanton Energy Center, an approximately 6 60 Megawatt combined cycle project that is contracted with Orlando Utilities Commission and Florida Municipal Power Agency.
The Oleander Natural Gas Plant, in which we are acquiring a 100 position, consists of 5 combustion turbine units totaling 7 91 Megawatts and has PPAs with FNPA and the Seminole Electric Cooperative. Both projects are attractive additions to the portfolio of contracted high credit quality assets that we pursued in our non regulated businesses. The opportunity to deploy NextEra's skills, knowledge and capabilities to provide affordable, reliable service for customers is at the heart of why we believe these transactions will benefit all stakeholders. At Florida Power and Light, we're proud to offer our customers electric service that is cleaner and more reliable than ever before. Our typical residential customer bill is approximately 20% below that of the other Florida IOUs and nearly 30% below the national average.
In addition to providing outstanding value for our customers, FPL delivered its best ever full year period of service reliability in 2017 and was recognized as being the most reliable electric utility in the Southeast. FPL also has a proven track record of making smart investments to modernize its power generation fleet, which have saved customers more than $9,000,000,000 since 2,002. NextEra Energy's culture of continuous improvement and focus on smart investments that reduce O and M expenses has helped drive significant productivity enhancements, which has resulted in FPL's industry leading cost position. For the past 4 years, FPL has had the lowest non fuel O and M cost per kilowatt hour in the country. Our performance is the direct result of our focus on operational cost effectiveness productivity and the long term investments we've made to further improve FPL's best in class customer value proposition.
Through the same unyielding focus, we believe we have the ability to bring real value to Gulf Power and Florida City Gas customers and in turn find attractive investment opportunities which benefit Florida and create long term shareholder value. I would like to briefly outline the key regulatory approvals for these transactions. All the transactions are conditioned upon among other items satisfaction of the Hart Scott Rodino antitrust requirements, while the acquisition of Gulf Power and the natural gas plants also require Federal Energy Regulatory Commission approval. Based upon these requirements, we expect the Florida City Gas transaction to close in the Q3 of this year and the Gulf Power and Natural Gas Plant acquisitions to close in the first half of twenty nineteen. We also look forward to updating the Florida Public Service Commission, the Office of Public Counsel and other key stakeholders in the state regarding the benefits of the transactions for Gulf Power and Florida City Gas customers.
For NextEra Energy shareholders, the transactions are expected to be immediately accretive to earnings, enhance our long term adjusted EPS expectations and preserve our $5,000,000,000 to $7,000,000,000 of excess balance sheet capacity while maintaining our strong current credit ratings. We expect that today's transactions will be $0.15 $0.20 accretive to our 2020 2021 adjusted EPS expectations respectively. As a result, upon closing of the transactions, we expect our 2020 adjusted EPS expectations to be in a range of $8.70 to $9.20 and our 2021 adjusted EPS expectations to be in a range of $9.40 to 9.95 We will be disappointed if we're not able to deliver financial results at or near the top end of these ranges, reflecting 2020 2021 growth at or near the top of our 6% to 8% compound annual growth rate range off our expected 2018 base of $7.70 per share, plus the expected accretion from these transactions. The financial expectations we previously communicated for 2018 2019 remain unchanged. The transactions do not impact the previously announced 2 year extension of our dividend policy that is expected to result in a growth rate in dividends per share of 12% to 14% per year through at least 2020 off a 2017 base of $3.93 per share.
With today's transactions, we expect the level of regulated contribution to NextEra Energy's business mix to increase to the roughly 70% level that the rating agencies have indicated would lead to a further reduction of our credit metric thresholds. We have reviewed the transactions with the credit rating agencies. And consistent with our indications, at the closing of the transactions, we expect Moody's to reduce NextEra Energy's CFO pre working capital to debt rating threshold from 20% to 18% and for S and P to make a similar percentage reduction to our FFO to debt rating trigger. At these revised rating agency thresholds, we expect to maintain $5,000,000,000 to $7,000,000,000 of excess balance sheet capacity through 2021, despite utilizing roughly $4,000,000,000 of debt capacity for these transactions. We will look to utilize the remaining balance sheet capacity to either buy back shares or opportunistically execute on accretive incremental capital investments or accretive acquisition opportunities, if it makes sense to do so.
As a reminder, the remaining excess balance sheet capacity serves as a cushion as its utilization is not currently assumed in our revised financial expectations. A key element of our track record and value proposition at NextEra Energy is a culture focused on delivering results for our shareholders. Dating back to 2,005, we've delivered compound annual growth and adjusted EPS of over 8%, which is the highest among all top 10 U. S. Power companies, while growing dividends per share at a nearly 9% compound annual growth rate.
We also have a long history of delivering strong total shareholder returns, outperforming both the S and P 500 and the S and P Utility Index in terms of total shareholder return on a 1 year, 3 year, 5 year, 7 year and 10 year basis. As we've often discussed, we continue to view our organic opportunity set as among the best in the industry. This has allowed us to take an opportunistic and disciplined approach to potential opportunities to acquire regulated assets. And this case is no different. The high quality assets we're acquiring in these transactions add to our growth platform, and we're confident that by leveraging our core competencies, we can create long term value for both customers and shareholders.
With the addition of Gulf Power, Florida City Gas and the gas fire generation facilities, NextEra Energy will be an even stronger company with greater scale and a more robust financial profile, better positioned than ever to generate long term shareholder value while maintaining the highest standards of customer service. NextEra Energy looks forward to advancing its strategy of making smart long term investments and leveraging our core operational capabilities for the benefit of customers in Florida. These transactions expand NextEra Energy's regulated utility operations, allowing us to maintain the $5,000,000,000 to $7,000,000,000 in excess balance sheet capacity that we previously had. Through the transactions, we see an opportunity to add a platform that new opportunities we see as a result of these transactions. We believe the transactions are beneficial for all key stakeholders, for the state of Florida, the customers of Gulf Power and Florida City Gas and for NextEra Energy shareholders as well.
With that, we'll be happy to answer any questions.
We will now begin the question and answer session. Our first question comes from Julien Dumoulin Smith with Bank of America Merrill Lynch. Please go ahead.
Hey, good morning. Congratulations. Thank you, Julian. Good morning.
Good morning. So first, just quick question on the growth trajectory of the core utilities you're acquiring here. How do you think about them perhaps initially relative to FPL? Should that be a good mile marker to be thinking about here as you think about your projections? I know obviously there's an implied trajectory within the accretion, but I just want to hear it from you guys explicitly.
Yes. So what we said, Julian, and I'll just repeat exactly what we said is that we expect that the earnings growth in the acquired regulated companies is going to be twice the rate we've outlined for NextEra Energy's adjusted earnings per share through 2021.
Got it. Excellent. And then secondly, can you comment a little bit, I know that this is way ahead of jumping ahead, but you obviously continue to have balance sheet latitude. As far as your corporate strategy is concerned for the time being, are you looking at another regulated transaction just to set the record straight?
So Julien, I think it is a little bit getting the cart ahead of the horse. We're very focused on bringing these transactions to a close. Obviously, the fact that we have that we continue to have the $5,000,000,000 to $7,000,000,000 of excess balance capacity means that we're going to be, as we always are, on the hunt for attractive opportunities, whether they're incremental capital investments in both our core businesses or potential regulated asset opportunities that we see in areas that we find attractive. So the strategy having done this transaction, the strategy hasn't changed. We continue to be focused on finding things opportunistically that makes sense for our shareholders.
Got it.
Excellent. And then last little detail, if you can comment a little bit. What's the earnings breakdown in terms of the contributions from the asset, the power assets versus the utilities? And then can you just comment a little
bit, what is the opportunity to bring those assets into
rate base or ensure
rate base or ensure they're regulated like nature into the future, if you will?
So we're not going to split out the EPS accretion between the 3, Julien. I think you should look at it as a package. We certainly looked at it as a package when we evaluated it. And we have no plans to bring those 2 assets into FPL as regulated assets right now.
Our next question comes from Steve Fleishman with Wolfe Research. Please go ahead.
Yes. Hi. Can you hear me?
We can hear you. Good morning, Steve.
Okay. Good morning. So, a couple of questions. 1st, clarifying, so there's no Florida PSC approval needed for the Gulf Steel?
That's right.
Okay.
And then just is there any issue we should be concerned about in market power when you get when you're trying to get FERC approval?
So let me speak to in particular Gulf. One of the aspects of this transaction that I think was attractive to both sides is Gulf is actually pretty physically separate electrically from FPL. First of all, a lot of folks don't know this. Gulf is not in the Florida reliability, is not in FRCC, it is in CERC. It's not even in the same reliability region as we are.
There's no there are no there's no transmission interconnection between the two assets. And so as it relates to Gulf, we evaluated that and we're confident that we're going to be able to get regulatory approval on the basis of that and the fact that they're not really connected electrically. On the 2 power plants, obviously, those 2 power plants, one of them is in the Orlando Balancing Authority, the other is in the FPL Balancing Authority, but they're contracted assets. And so the way the FERC analysis works is those contracts go to the people that are the market power analysis is goes to the folks that have contracted with the assets, not to us.
Okay. And then one last question. So just in terms of Gulf kind of having double the growth rate of NextEra. So obviously, we could assume a little bit of maybe uplift in ROE to the high end of their range, but that would obviously not do that. So I'm assuming you're going to invest a lot more capital in it over the next few years than the current plan to be able to do that?
I think we see an opportunity to essentially run the playbook that we've been running in Florida for the last 15 years, Steve. And so that would include investing smart capital that would benefit customers and will also I think benefit shareholders and we see a lot of opportunity for that.
Okay. Thank you.
Our next question comes from Michael Lapides with Goldman Sachs. Please go ahead.
Hey, Jim. Thank you for taking my question. I'll be real quick. It's actually 2. 1 is about Florida City Gas.
Do you see this, the acquisition of Florida City Gas as a bit of a platform to grow in the gas utility business in a larger scale, either within Florida or outside of Florida. So is this kind of a launching pad for that? And my second one is, would you evaluate potentially seeking strategic alternatives for the 2 gas plants other than keeping them under the NEXXA umbrella?
So as to the first question, Michael, we think Florida City Gas is very attractive because it fits in with the FPL service territory. It also is, I think, complementary to the pipeline network that we're building here in Florida. And so I don't view it necessarily as a launching pad for a big gas LDC push for us across the country as much as I view it as a very it's regulated assets in an extremely attractive and constructive regulatory environment and also in a service territory with customers that we know. And so we think there's a lot of opportunity. There's more work to do on that.
I think we like the contracted nature of them, and that certainly fits in with the strategy that we've had for a long time. They're very good. The counterparties, the customers are all So that So that's all part that was all part of our thinking around those assets.
Our next question comes from Michael Weinstein with Credit Suisse. Please go ahead.
Hi, Jim. When you say that it's going to be double the growth rate, is that double the growth rate of all of next year or is that just of FP and L? Is it comparing the utilities?
Well, FPL has been growing at about the same rate as all of NextEra has been on a net income basis over the last several years. So it's it doesn't matter which of the 2 you pick.
And the $5,000,000,000 to $7,000,000,000 that your balance sheet capacity you're maintaining, that assumes some increase as a result of the new threshold that you expect to get from Moody's and S and P, correct?
That's exactly right. That's exactly right, Michael.
Okay. So you're deploying $4,000,000,000 but you're maintaining. So that means can we assume that the you expect about an additional $4,000,000,000 of balance sheet capacity?
Yes. Here's how to think about it, Michael. First of all, we're not using all of our excess balance sheet capacity in this transaction. 2nd, this deal brings some of its own balance sheet capacity. And third, we have the improvement in our regulated business mix.
So if you put all three of those things together, that's how we maintain 5% to 7%.
Okay. And you're still interested in deploying continuing to deploy responsibly the balance sheet to invest beyond this. So I mean, are you still you said you're still on the hunt generically for more assets out there, but can we say that the situation has not changed? You're still looking for another regulated asset around the country somewhere?
You can say that our strategy is unchanged, Michael. We are continuing to look opportunistically for things that make sense.
Okay. All right. Thank you.
Our next question comes from Jonathan Arnold with Deutsche Bank. Please go ahead.
Yes. Good morning, guys. Thank you for taking my question.
Good morning, John.
Just curious, I think, Jim, I heard you say that you felt that when you look out to 2021, you're acquiring this sort of market multiple. And I just wonder if you could would you share with us what you think that the market is out in 2021? And just help us sort of get to the math of how much equity here? Are you assuming kind of the part of the consideration goes to re levering Gulf? Just need a little help with Yes.
I think, Jonathan, that's all really I'm prepared to say about what we said in the script is really all I'm prepared to say.
Okay. Thank you.
Thank you, Jonathan.
Our next question comes from Srinjoy Banjari with Barclays. Please go ahead.
Good morning, guys. Thanks for taking my question. Just in terms of the funding mix for the 5,000,000,000 dollars purchase price, is that likely to be fully sort of unsecured debt? Or could you consider a hybrid financing as well? And how should we think about the timing of that?
Thanks. It's I think the way to think about it is, it's going to be debt. It's not going to be hybrids. And it's going to be the interest rate the underlying interest rate piece of that is going
to be
hedged very shortly. And it will be unsecured debt at the niche level.
Perfect. Thank you very much.
This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.
Thanks for joining us this morning.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.