NextEra Energy Management Discusses Q3 2013 Results - Earnings Call Transcript

Nov. 1.13 | About: NextEra Energy, (NEE)

NextEra Energy (NYSE:NEE)

Q3 2013 Earnings Call

November 01, 2013 9:00 am ET

Executives

Julie Holmes

Moray P. Dewhurst - Vice Chairman, Chief Financial Officer and Executive Vice President - Finance

James L. Robo - Chief Executive Officer, President, Chief Operating Officer, Director and Member of Executive Committee

Analysts

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Paul Patterson - Glenrock Associates LLC

Greg Gordon - ISI Group Inc., Research Division

Stephen Byrd - Morgan Stanley, Research Division

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Brian Chin - BofA Merrill Lynch, Research Division

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Angie Storozynski - Macquarie Research

Operator

Good day, everyone, and welcome to the NextEra Energy Third Quarter 2013 Earnings Conference Call. Today's conference is being recorded. And at this time, for opening remarks and introductions, I would like to turn the call over to Julie Holmes, Director of Investor Relations.

Julie Holmes

Thank you, Lisa. Good morning, everyone, and thank you for joining our third quarter 2013 earnings conference call. Joining us this morning are Jim Robo, NextEra Energy President and Chief Executive Officer; Moray Dewhurst, Vice Chairman and Chief Financial Officer of NextEra Energy; Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources; and Eric Silangy, President of Florida Power & Light. Moray will provide an overview of our results during the quarter and our executive team will then be available to answer your questions.

We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that 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 factors section of the accompanying presentation or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found in the Investor Relations section of our website, nexteraenergy.com. We do not undertake any duty to update any forward-looking statements.

Please also note that today's presentation includes references to adjusted earnings, which are non-GAAP financial measures. You should refer to the information contained in the slides accompanying this presentation for definitional information and reconciliations of the non-GAAP measure to the closest GAAP financial measure.

With that, I will turn the call over to Moray.

Moray P. Dewhurst

Thank you, Julie, good morning, everyone. NextEra Energy delivered a strong third quarter results and continued to make progress on the initiatives laid out in the March investor conference. Our earnings growth in the quarter was driven primarily by continued investment at FPL and the addition of new contracted renewables projects at Energy Resources. With 3 quarters of good performance behind us, we are well-positioned to close up a year above the midpoint of the range of adjusted EPS expectations that we shared with you in January subject to our usual caveats.

At the same time, we continued to execute on our existing backlog of development and construction projects and we have made further progress in firming up some of our incremental investment opportunities.

At FPL, net income growth was driven by investment in projects that are designed to further improve an already strong customer value proposition. We remain very focused on execution and all of our major capital projects are on track with the Riviera Beach and Port Everglades modernizations, both running on time and on budget.

We have filed for the necessary regulatory approvals for the new gas pipeline and the peaker upgrade project and we have made good progress in defining apart towards our goal of keeping nonfuel O&M to roughly flat in nominal terms through the period of the current rate agreement.

At Energy Resources, adjusted earnings growth was driven primarily by new investment in our contracted renewables project. In the third quarter, we brought into service roughly 125 megawatts of wind in Canada but is contracted under the Ontario feed-in tariff program. We continue to execute on our backlog of approximately 800 megawatts of contracted U.S. solar projects, of which about 300 megawatts are expected into come into service in 2013, with the balance expected to come into service by the end of 2016.

We have also been successful in adding to our pipeline of contracted renewables development opportunities and I will provide some additional details later in the call.

During the quarter, we move forward with our company-wide initiative to improve productivity, which we refer to as Project Momentum. After careful evaluation, we have identified and are moving ahead with a number of ideas that we expect to yield in total somewhere between $200 million and $250 million in annual cost savings. The transition cost associated with this initiative negatively impacted adjusted earnings in the third quarter by $0.05 and we expect the full year impact to be roughly $0.09 or $0.10. We will provide more detail on the impact of both FPL and Energy Resources when we walk through their quarterly results.

With the progress we've made year-to-date, we continue to see a long-term adjusted earnings per share of compounded annual growth rate of 5% to 7% through 2016 off the 2012 base. Our expectations are subject to the usual caveats we provide, including normal weather and operating conditions.

Let me now walk through our results for the third quarter of 2013. I'll begin with the result of FPL before moving on to Energy Resources and then the consolidated numbers.

For the third quarter of 2013, FPL reported net income of $422 million or $0.99 per share, up $0.06 per share year-over-year. As you evaluate the numbers, you may wish to keep in mind that they include the transition costs associated with Project Momentum that I spoke about a moment ago. This includes the negative impact of roughly $0.04 in the quarter and we expect the full year impact to be approximately $0.07 or $0.08. The principal driver of FPL's earnings growth in the quarter was continued investment in the business. We invested roughly $700 million in the quarter and expect our full year capital investments to be on the order of $3 billion. Regulatory capital employs growth of 9.3% over the same quarter last year with the main driver of net income growth. Our reported ROE for regulatory purposes was 11.07%. This includes the impact of the Project Momentum transition costs, absent these costs the regulatory ROE would have been 11.25%. Under the current rate agreement we record reserve amortization entries to achieve a predetermine regulatory ROE for each period, in this case the 11.25%, that I just mentioned excluding special charges such as the Project Momentum transition costs. During the quarter we reversed 10 million of reserve amortization recorded earlier in the year in order to achieve this predetermined ROE. Looking forward we expect to maintain a regulatory ROE of 11.25%, excluding Momentum transition costs for the balance for the year, which will likely mean we will use between $170 million and $180 million of reserved amortization in 2013.And we'll end with the reserve amortization balance of approximately $220 million to $230 million, assuming normal weather for the remainder of the year. Looking beyond this year, we believe that our expected end of year reserve balance, when combined with our weather normalized sales growth forecast at 1.5% to 2% per year and our current O&M expectations, as well as the commitment of a 4-year total of roughly $7 billion in infrastructure CapEx, will allow us to support regulatory ROEs in the upper half of the allowed band of 9.5% to 11.5% for the remaining period of the current rate agreement.

Furthermore, we expect that we can do this while keeping typical residential customer bills the lowest in the state and among the lowest in the country, and improving on our already excellent reliability in customer service records.

If we are successful in meeting our expectations, by 2016, we will have further improved our already outstanding customer value proposition and we will be well-positioned for whatever proceedings are required to determine rates for 2017 and beyond.

Turning to our development efforts. All of our major capital projects at FPL are progressing well and in October, we received approval from the FPSC for 2014 nuclear clause recovery of our full request, which includes recovery of extended power upgrade investment completed earlier this year.

FPL's nuclear plant upgrades with the largest in recent U.S. history and added more than 500 megawatts of zero-emission capacity to our system. In addition to helping improve our fleet's overall fuel diversity, these upgrades are already delivering millions in fossil fuel savings for FPL customers.

Our Riviera Beach and Port Everglades modernization are both running on time and on budget. Riviera Beach is about 90% complete and is expected to come into service by mid-2014. Site clearance at Port Everglades is underway and construction is slated to begin in the spring of next year with an expected in-service date by mid-2016.

We are also moving through the regulatory process on a number of our growth initiatives. Last week, the commission voted unanimously to approve FPL's natural gas transportation capacity contracts that support a new pipeline into the state. While this decision is still subject to appeal, it is an essential first step to enable the stable trail transmission and Florida Southeast connection pipeline projects to move towards construction.

Additionally, our Commission decision on our accelerated storm hardening program is expected in the coming weeks and hearings on our request to upgrade pigging capacity included in our environmental cost recovery close filing earlier this year are currently scheduled for December, with the Commission decision expected in January.

The programs we have laid out to accelerate and expand reliability investments to improve our system infrastructure are also progressing well. During the quarter, we activated more of the functionality of our smart meters, including remote connect and disconnect. We also continued our deployment of automated feeder switches and fault current indicators. Year-to-date, we have avoided almost 300,000 customer interruptions due to this technology.

We also have commissioned a new substation relay system designed to help reduce outage exposure and outage time and it will be rolled out to many of our substations over the coming years. We continue to make good progress on hardening our feeders, replacing wood transmission structures with steel or concrete, as well as our other storm hardening efforts.

Recall, the general infrastructure and storm hardening investments do not have separate cost recovery mechanisms. Costs incurred as part of these programs will be absorbed in our current rate structure for the next 4 years.

Let me now spend a few minutes on the Florida economy. Overall, Florida's economy continues to improve. Most of indicators we track have improved relative to a year ago and the economy continues to expand at a moderate pace. Unemployment ticked down again in August at 7%, rolling from over 11% in August 2010. The number of jobs in the state is up 1.8% compared with the year ago, outpacing the average of the rest of the country. However, we are seeing some signs that the rate of growth maybe moderating. Consumer confidence is diminished a bit in recent months and there are signs that the strong growth in retail sales may be tapering off. As the accompanying chart shows, new building permits have dropped from their recent peak, although they remain at a healthy level.

As you all know, events in Washington in recent months have not been supportive of consumer confidence and some of what we're seeing here in Florida maybe just a temporary pause. Nevertheless, as we have noted before, we believe that full recovery in Florida will depend in part on continued improvement in other parts of the country. The fundamental attractiveness of our state remains strong and a number of studies suggest that Florida has improved its economic competitiveness relative to most other states over the past few years.

Learning from the general Florida metrics to our own, Florida's customer count averaged approximately 53,000 or 1.2% higher than in the comparable quarter in 2012. This is a significantly higher growth rate than we expected or than we have been running recently. However, a significant portion of this, probably about 1/4, can be attributed to the rollout of our remote connect and disconnect capability enabled by our Smart Meter program.

This ability to more efficiently and inexpensively manage the connect and disconnect processes, has in turn, led to a sharp drop in our number of inactive accounts, that is meters installed for which we have no customer account. While a sharp increase in customers in the corresponding decline in inactive meters is an excellent development, it does complicate our analysis of growth. Not surprisingly, the larger number of customer accounts being activated are disproportionately residential and therefore, have lower usage in our average retail accounts. Thus, the impact on volume growth for new customers is much less than 1.2%.

In the accompanying chart in the top left, we've attempted to adjust for this effect. We estimate that customer growth of 1.2% drove volume growth of 0.5%, while weather driven usage was negative 0.7% and underlying usage per customer was down slightly.

Regardless of the exact contributions from customer growth and usage impacts, it is clear that overall weather adjusted volume was up only slightly compared with the third quarter of last year. While a single quarter of weak growth should not be a cause of concern, we will obviously be watching closely to see if there's any structural change going on or if we are just seeing a temporary effect.

Let me now turn to Energy Resources, which reported third quarter 2013 GAAP earnings of $281 million or $0.66 per share. Adjusted earnings for the third quarter were $190 million or $0.45 per share. Adjusted earnings exclude the mark-to-market effects of nonqualifying hedges and the net effect of other than temporary impairments or OTTI on certain investments.

Beginning in the third quarter, adjusted earnings also exclude after-tax operating results associated with the Spain solar projects. Energy Resources had a good quarter, with contribution to adjusted EPS increasing $0.07 versus the prior year comparable quarter, despite the impact of the transition costs associated with Project Momentum, that I spoke about earlier on the call. These transition costs negatively impacted the quarter by roughly $0.01 and we expect the full year impact to Energy Resources to be approximately $0.02 or $0.03.

Contributions from new investments with the primary driver of adjusted earnings growth for the quarter and generated roughly $0.08 up the year-over-year increase. The gas infrastructure business contributed $0.02 to growth due to additional production over the prior year, offsetting these gains were lower contributions from our customer supply and trading businesses, which declined $0.03 versus the third quarter last year, due in large part to lower margins in our full requirements business. All other effects in the quarter were minor.

The Energy Resources team continues to drive execution on our growth plans. As mentioned earlier in the call, during the quarter, we brought into service a Canadian wind project with a capacity of roughly 125 megawatts. As a reminder, we have approximately 475 megawatts of additional Canadian wind capacity, which we expect will enter service in 2014 and 2015. We continue to expect to bring approximately 300 megawatts of contracted solar projects into service this year or early next year with the addition of our 20-megawatt Mountain View project and a partial commissioning of our Genesis and Desert Sunlight projects. The balance of Genesis and Desert Sunlight, as well as our 250-megawatt Macquarie project are expected to come into service by the end of 2016.

Turning to our U.S. wind program. The team recently signed a PPA for a 200-megawatt project, which is expected to come into service in late 2014 or 2015, bringing our total new contracted U.S. wind development portfolio to approximately 1,175 megawatts. The IRS recently provided additional clarity around the requirements for projects to qualify for the PTC under the Safe Harbor provisions that were included in the January PTC extension.

The new IRS guidance essentially provides that U.S. wind projects satisfying the Safe Harbor provisions that are placed in service by year-end 2015, will be eligible for the PTC. While we have yet to determine the impact that this guidance could have on our projections, the new wind projects in the 2014 to 2015 timeframe, we consider this a positive development for our U.S. wind program and we will continue to provide updates in our expectations as we move forward.

We are also working to continue to build our solar business. We previously discussed the potential for adding 1 or possibly 2 more large scale solar projects before the end of 2016 and I'm pleased to note that we have recently entered into an agreement to purchase a development projects for the First Solar who will complete the development process and also provide EPC services for us. While there are a number of additional milestones to be achieved before we can consider this transaction complete, this is an important step for our solar portfolio.

This project will have a capacity of approximately 250 megawatts and operate under a 20-year PPA. Total capital cost is estimated at $1.1 billion. Together with the 40-megawatt projects that we announced earlier this year, this project would bring the portfolio of incremental solar to about 290 megawatts, near the top end of the expected range of 0 to 300 megawatts that we discussed at our investor conference. We now have nearly 1,100 megawatts of U.S. contracted solar projects in our development portfolio.

As we do each year in the third quarter, we have updated our accrued in gross margin hedge slides and included an additional year forward. The portfolio of financial information for 2014 and 2015 can be found in the appendix to the presentation. For 2014, old projects which are expected to be in service by the end of 2013, have been moved to their respective categories, which in this case, include both contracted wind for the wind projects and contracted other for our solar additions. For 2015, projects expected to come into service in both 2014 and 2015 are included in the new investment line.

I would like to emphasize that this includes only contributions from projects for which we have assigned PPA. I would also like to remind everyone that these charts use a metric that we call equivalent EBITDA in order to put all our businesses on a comparable basis for the purpose of analyzing our exposure to first order changes in future commodity prices, primarily movements in forward prices for natural gas, power and spark spreads. Equivalent EBITDA is not a GAAP measure and should not be thought of as a surrogate for or constituent of cash flows.

Looking at the company on a consolidated basis. For the third quarter of 2013, NextEra Energy's GAAP net income was $698 million or $1.64 per share. NextEra Energy's 2013 third quarter adjusted earnings in adjusted EPS was $607 million and $1.43, respectively.

The Corporate and other segment was up $0.04 versus the prior year, primarily because last year's Q3 results included a small asset impairment charge of $0.03. We continue to expect the full year contributions from this segment to improve modestly related to 2012, in part due to increased contributions from our Lone Star Transmission line, which went into service in the spring of this year.

Other areas of our transmission business are also progressing well. We were recently designated by the Ontario Energy Board to develop the East-West Tie Line Transmission project with our partners, Enbridge and Borealis. While we still need approval to construct the line, following the development process, we certainly consider this a positive first step. We look forward to providing you with updates on this project, as well as others mentioned in our investor conference as our transmission team continues its development efforts.

Before closing, I'd like to make a few comments on our financing plans and cash flow position. We've repeatedly noted the important role of balance sheet strength and credit play in our overall competitive strategy. At our investor conference in March, we discussed our expected growth in cash flow and our focus on returning to credit metrics more consistent with our past performance no later than 2014. We indicated that dependent on our success in firming up what we call incremental investment opportunities, we expected to need to issue up to $1.5 billion in equity in 2014 in order to achieve our target credit metrics. We have also indicated we expected the majority, if not all of this, to be in the former Street common rather than equity units.

In the accompanying chart, we have shown some of the principal credit metrics that we track with our expectations for 2014 and the corresponding ranges that the rating agencies indicate for those metrics at our ratings. You will note that we expect to see our metrics return to levels fully consistent with our rating by next year.

Since the March investor conference, we have obviously enjoyed significant success in firming up many of incremental growth opportunities. While various approvals and permits are still needed, we feel very confident that we will be able to move forward with much, if not all of the incremental investment, sometime over the next 3 or 4 years. As a result, today, our best estimate is that we will need to issue at least $1 billion in incremental equity before the end of next year.

In pursuing the necessary financing to support our growth plans, including issuing new equity, we expect to be, as we have been in the past, opportunistic as to the exact timing structuring of specific transactions. We will take advantage where we can of favorable market opportunities and will not lock ourselves into a preset schedule.

As you think about our financing needs, as well as our overall value proposition, it will be important to keep in mind our cash flow position. We have previously indicated we expected to see strong growth in cash flows in 2013 with more to come in 2014 and we are on track relative to our expectations this year.

In 2012, our cash flow from operations was about $4 billion. This year, we expect it to become about $4.8 billion. And next year, we expect it to be somewhere between $5.6 billion and $5.9 billion consistent with the range we suggested back in March. This would represent growth of nearly 50% over 2 years.

The accompanying chart attempts to put this in perspective. We show on the left side of the chart a range of expected distributable cash flow for capital holdings in 2014. Capital holdings is the entity that aggregates all our non-FPL financing activities. Distributable cash flow is defined here as net of expected interest and principal repayment obligations on all limited recourse, project level debt at Energy Resources, as well as net of expected maintenance CapEx. We then compare this with total senior debt of capital holdings, as well as with the sum of senior debt and lower rated subordinated debentures.

As you will see, the coverage is strong and is of course further supported by the parent guarantee. The comparison on the right side of the slide, we have also put FPL on a roughly similar basis treating all our infrastructure capital as maintenance CapEx and comparing the resulting expected 2014 distributable cash flow with the total first-mortgage debt outstanding. While there are some differences between FPL and capital holdings not reflected in this analysis, the general comparisons maybe helpful to you.

In short, we continue to execute well and if we are successful in meeting our financial expectations for 2014, we will have a very strong and balanced cash flow position across the portfolio.

Before leaving the subject the cash flow, I feel sure that 1 or 2 if you will have questions about the status of our thinking on the so-called yield co.. First, let me be clear that we have made no firm decisions at this point. We continue to examine the concept of recycling capital by our focus on investors with the strong interest in yield oriented vehicles, supported by renewable assets, whether in a public or a private format.

During the quarter, we have observed further developments that appear to support the viability of the concept, at least under current market conditions. We've spent some time looking at the specifics of our own portfolio, and now estimate that we have perhaps 1,500 to 2,000 megawatts of operating assets that would fit the desired format with another 1,200 megawatts in the development pipeline, all of which could potentially be contributed during the 2014 to 2017 timeframe.

Longer term, additional projects might become suitable, especially as wind projects complete the 10-year period of PTC eligibility. I want to reiterate that we have made no firm decisions and continue to study various alternatives and we'll keep you up-to-date with our thinking as it evolves.

Over all, with good performance in Q3 and continued progress on our new initiatives, our financial expectations remain much the same. We continue to see our 2013 adjusted EPS in the upper half of the $4.70 to $5 range that I told you in January.

In 2014, we continue to expect earnings per share to be in the range of $5.05 to $5.45. And for the longer-term outlook, we continue to see adjusted EPS growing at a compound annual growth rate of 5% to 7% through 2016, off the 2012 base.

As always, our expectation is subject to the usual caveats we provide including normal weather and operating conditions. And in the appendix, we have provided a number of sensitivities around our 2014

expectations. And we'll now open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll take our first question from Julien Dumoulin-Smith, UBS.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

So first, just to elaborate a little bit further on yield co. and I'm sure further questions will go. Could you talk a little bit more specifically, of those operating assets, how you're thinking about the 1.5 to 2 gigs? What are those assets, if you could at least talk broadly? And then secondly, with respect to the development pipeline, are those assets that have tax attributes today or are you thinking about when you say development, those that are rolling off tax attributes?

Moray P. Dewhurst

Let me take the development side first. As you would expect, that is all renewable, because that's where our development efforts have been concentrated for some time. And a mixture of wind and solar, but excluding wind projects that would be PTC projects for reasons that we discussed before. Of the base, existing operating projects, it would be a mix of projects, heavily renewable, potentially some of our contracted fossil assets as well and the renewables being a mix of wind and solar, wind that has either completed its PTC period or on which we didn't take PTCs.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

And then maybe just more broadly here, if you will. What's the timing on making a decision. I don't want to put you in a back in a lock or anything, but just broadly speaking, what are you waiting for, perhaps the better way to ask it?

Moray P. Dewhurst

I guess the first 1 I can respond to that is we're waiting for our own analyses to be -- to reach a crystallization point. I would say at this stage, each round of review that the senior team has done has enlightened us further, but it also raises more question. So there'll be a series of rounds of those and until we're comfortable with what they've got all issues addressed, we don't feel any compulsion to take pressure to make a decision one way or the other. I think we talked that on the last call, we certainly talk to the conferences about some of the issues that we have. So I'm not going to reiterate those things. But until we're really comfortable that we've got all the pieces buttoned down, as I've said, we don't feel any compulsion to make a decision one way or the other.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

And then lastly if you will; obviously got some IRS guidance in the quarter, can you speak to how much wind you expect to have in the pipeline or qualifying for the PTC by year-end and how this sort of evolved -- how are the IRS guidance and pushing it into '15 has evolved taking it into the pipeline opportunity of the wind?

Moray P. Dewhurst

It's a good question. I think the short answer is no, I can't. Because it's still fairly recent and it has had impact already on the market. So as we discussed before, customers react to their expectations about the PTC program just as we do. So I think we're now going through sort of another round of jointly with customers and potential customers are trying to figure out how much more that may add. So the plus side is, the fundamentally good aspect is that I think it provides more opportunities. There is a little bit of a short-term negative because it takes some of the pressure off individual situations. So I think -- we should be in a better position to give you some thinking about that, probably at the next call. But right now, we're just not far off alone.

Operator

Our next question comes from Paul Ridzon from KeyBanc.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Are you looking specifically at yield co., are you looking at the general idea of an alternative structure?

James L. Robo

We are looking at the general idea of an alternative structure, but with a definite focus on trying to create a structure that's appealing to yield oriented investors with a strong interest in renewables, is probably the best way to put it. So as we discussed on the last call, we're looking at both, what I'll call the public yield co. vehicle, which there are some examples out there, as well as potential into private alternatives, private analogues, if you like.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

I guess yield co. is kind of a vague term. Okay. And then why are you not carving out Project Momentum implementation costs from your adjusted earnings?

Moray P. Dewhurst

I guess we could have, I mean our feeling is they are part of our operating results, but we wanted to call them out so you can make whatever adjustments for your modeling purposes that you should choose.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

And when do you expect that $200 million to $250 million to start hitting impact statement -- hitting the income statement?

Moray P. Dewhurst

We're already seeing some benefits this year. We'll see a lot more next year. I think the best way to think about that is an annualized run rate by 2016. So by the time we get to 2016, we should have a full value of that flowing through.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

And could you just describe, is this headcount, is this process, is it all of the above?

Moray P. Dewhurst

It is all of the above. We undertook a process that generated something like 9,000 individual ideas that various teams worked through and analyzed. And in the end, we have about 1,000 individual ideas that we're now pursuing, so they range over the map in every department or every part of the company was involved. So it's just a little bit of everything. Certainly, there are some headcount implications and the transition cost largely driven by those headcount implications, but there's a lot of changes to the way we conduct work that will allow us to see benefits over time.

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

In your resources waterfall chart, you usually have existing assets kind of broken out, I guess that didn't change. But you had a pretty [indiscernible] tough wind headwind. What does that do to earnings?

Moray P. Dewhurst

Yes. I mean, there were lots -- as you might expect, within that broad category, there were lots of ups and downs. The wind for the existing assets was actually a bit better than last year, the wind resource is about the same. We've got a little more output out of the projects. So it's just a whole series of pluses and minuses, but net the existing assets to be about the same.

Operator

Our next question comes from Paul Patterson with Glenrock Associates.

Paul Patterson - Glenrock Associates LLC

Just a sort of follow-up on the equity needs and the potential for yield co., could one assume that the equity needs would be somewhat satisfied by yield co.?

Moray P. Dewhurst

In theory, I think that's possible. In practice, I don't think it's that likely. I think the yield co. alternative needs to be thought of as sort of a restructuring of where we -- the basic financial structure. So it could be but I think, it's better to think of the equity as just separate from.

Paul Patterson - Glenrock Associates LLC

Okay. I got you. Then in terms of the equity, should we think of this as basically common or should we think of it as potentially hybrid or something else?

Moray P. Dewhurst

You should think of it as primarily, it's not 100% common. We've continued to manage with a slice of hybrids and a slice of -- let me be explicit. Hybrids for us means the deeply subordinated junior debentures. And then equity units, maybe what you're referring to when you say hybrids. But both of those have a place in the capital structure. But I think we have about the right amount of each of those right now.

Paul Patterson - Glenrock Associates LLC

Okay, great. And then back to Project Momentum, it does appear that you guys are using a more conservative approach in terms of accounting for the cost to achieve. And I was just wondering, how long would those costs to achieve, should we think is a sort of flow in terms of how they'll progress and you mentioned that the full benefit will sort of show up in 2016, but how do we think about the cost to achieve. I mean will they be sort of steadily run rate here for the next couple of years or how should we think about the cost to achieve and how they might affect your earnings going forward?

Moray P. Dewhurst

At this stage, I would expect that we will see the bulk of them this year. As we indicated in the prepared remarks, we've got maybe $0.10 for this year. There probably will be some in 2014, don't know how much at this stage, but not likely as much as $0.10. And then '15 and beyond, I would be surprised if we have more than a few pennies.

Paul Patterson - Glenrock Associates LLC

Okay great. And then just finally on the sales growth, you did mention that there was a little anomalies here with in terms of usage, at least of change. And we are seeing, as you know, around the country, sort of more significant pullbacks in usage -- weather normalized usage. Any sense -- I mean you did mention in the prepared remarks and everything, but any sense as to -- anything or any more color that you can give with respect to what you're seeing so far?

Moray P. Dewhurst

Well, if it's anything, I think it's most likely to have to do with general economic conditions. We don't see any signs that this is driven by what I'll call incremental efficiencies. So we bake into our expectations about a percentage point decline every year as new efficiency standards kind of roll through the capital stock. So it's hard to see that this recent phenomenon would represent any sharp change in and efficiency. So I think it's much more likely -- if it is real, to be just due to economics. So I think, the main thing there is -- that we know that several of the indicators at the general economic level seem to be kind of taking a pause and then we also see that same phenomenon in our usage. So we're just a little more cautious that we may be not slowing down, but the rate of growth may be coming down a bit.

Operator

Our next question comes from Greg Gordon with ISI Group.

Greg Gordon - ISI Group Inc., Research Division

Thanks for the incremental disclosure, very helpful. When we think about how you've contextualized the percent or the portion of your nonutility business that could potentially be eligible for the yield co. structure, how we translate that into the percentage over the $1.2 billion to $1.4 billion of distributable cash you're showing on line 13 comes from those eligible projects?

Moray P. Dewhurst

I think the short answer is, you can't right now because we haven't made the connection between those 2 because frankly, they've been independent streams of activities. So stay tuned on that.

Greg Gordon - ISI Group Inc., Research Division

Okay. And then obviously, we also have to figure out or you have to figure out how much debt goes with that to get to a bottom line yield, distributable cash number, how much is amortizing? Those are all the sort of pieces that we have to figure out, right?

Moray P. Dewhurst

Absolutely. The modeling of what it would look like has to take into account all of those things. The other thing to be noted there is just to reiterate our commitment to the strong credit position. We would have to make sure that were we to move forward with a yield co. structure, that we adjust back-up at the corporate level to make sure that we retain the appropriate financial mix and credit metrics that we're targeting there. So that's an extra layer of complexity. It's not just which assets would move down and what's the debt associated with them. But it's also the ripple effect back to the parent company to make sure that you've got everything balanced back there.

Greg Gordon - ISI Group Inc., Research Division

Otherwise, said in plain English, you just can't push a lot of assets down without also pushing the right amount of debt down so that the current credit remains strong?

Moray P. Dewhurst

Fair enough.

Greg Gordon - ISI Group Inc., Research Division

Is that right?

Moray P. Dewhurst

Yes, fair enough.

Greg Gordon - ISI Group Inc., Research Division

To circle back to Paul's question, I do think it's -- can you comment a little more on what type of metrics you use to measure customer -- underlying customer demand, as it pertains to the weather versus energy efficiency and things because in other regions like, for instance, Arizona, which is also a state recovering from a housing bust, they also saw a big pullback in what they consider to be normalized -- weather normalized demand, very similar to what you're talking about. Can talk about the type of metrics you use to try to get at that and how confident you are that they sort of capture that or what they might be missing?

Moray P. Dewhurst

Well, I'll do my best. I think the real challenge here is that we don't have any metrics that we can really look at on a short-term basis that drill in on this problem. And that's one of the reasons why we many times said in the past that any one quarter, we should expect to see weather adjusted usage per customer move around quite a bit. So even in a period, now going back several years, when on average, underlying usage was growing at about 1 percentage point per year. We would still see individual quarters where it didn't grow at all and other quarters where it grew at 1.5% or 2%. So those sort of quarter-to-quarter things, very hard for us to sort out. So to the core of the question, longer-term, you can look at -- the basic thing you have is the uses usage pattern by segments of customers. And so part of what's going on here is the customer mix is changing and the usage patterns of the customers within the different segments in that mix, also appear to be changing a little bit. In short, we have seen over the last few years much stronger recovery in residential piece and in the small end of the commercial segment and much weaker recovery, if any, in the large commercial piece. So we're really, in terms of metrics, we actually look more to the trends at the segment level.

Operator

Our next question comes from Stephen Byrd with Morgan Stanley.

Stephen Byrd - Morgan Stanley, Research Division

As you look out in the last quarter in terms of developments on yield co., I wonder if you could just talk at a high level as you think about the cost to capital of these approaches to investors that are seeking cash flow. Not in detail, but just holistically as you think about cost to capital, right investor base, et cetera, just how you think about that relative to within NextEra?

Moray P. Dewhurst

Sure. I'll take a crack at that. I think I'm going end-up repeating things that we probably said on the last call, I said at one of the conferences. To me, this is a question about whether there is a segment of investors who simply value a cash flow stream with particular characteristics differently from the way that the rest of the investor base does. And here, in particular, we're talking about a cash flow stream that has high current income, relatively stable, but also with strong and visible growth. I think if you look at the yield co. structures that have been introduced so far, that element of significant predictable growth has been an important distinguisher of how they trade. So to me, that indicates that to the extent there is a discrete investor segment here it's 1 that both likes the solidity of current income, but also is willing to pay for visibility into a meaningful growth pattern. So that, I think, what you're trying to do is structure a vehicle that appeals to that particular segment and then the real core question is how big is that segment, how much more is it willing to pay for the cash flow stream than other investors and is that a transient phenomenon, or one that is going to be around for a while? So that's kind of the framework that we think about, I'm sure Jim and others have slightly different versions, but that's how I think about it.

Stephen Byrd - Morgan Stanley, Research Division

That's helpful. And within the approach to yield co., one thing that investors sometimes think about is the economic participation of the parent, that is incentive payments back to the parent as return levels are reached. I know it's a little bit more specific, but I know that goal is obviously always to maximize the value of NextEra to shareholders. As you all think about potential participation of the parents in returns at whatever yield co. could be contemplated, is that something that you are generally or positively disposed towards because you want that -- the parent growth and parent participation?

Moray P. Dewhurst

Byrd, it's certainly yet another of the things which we have to consider. I guess the main point I will make there is it does seem to be important that you -- to the extent you can, you create alignment of interests between the 2 sets of investors and one of our concerns is not getting a situation where the interests are divergent. And in that sense, the kind of incentive structures that you're talking about, I think, can play an important role if they are designed correctly. But if it's an important aspect, the specifics of how they're designed are important. But I see them as mostly about aligning interest.

Operator

Our next question comes from Michael Lapides with Goldman Sachs.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

A couple of items. One on the O&M cost reduction, the $200 million to $250 million. Is that incremental -- I assume that's the main driver for keeping nominal O&M flat and that there couldn't be kind of a potential down -- actual downward trajectory in O&M being driven off of that?

Moray P. Dewhurst

A couple of comments on that. On a number of occasions, I think at one of the conferences in September, I kind of tried to frame it on the FPL side by saying that last year, we had about $1.5 billion of non-fuel O&M. If you just extrapolated at a traditional 2.5% a year growth rate, what we have been running in the last few years, out to 2016, you would've found that to attain the goal of keeping nominal O&M flat, that would've translated to about $150 million a year run rate reduction. And so that's kind of the scope of the challenge. Now the $200 million to $250 million obviously includes Energy Resources and other parts of the business. But it's why we feel pretty comfortable that we have line of sight on the actions that will be necessary to give us a decent shot at that goal of keeping that O&M flat in nominal terms. Now indirect answer to your question, we certainly haven't -- we're not saying this is all that there is going to be. In fact, one of the important things coming out of Project Momentum is a commitment on going further searches for improvement. So this is where we are today. We've got a lot of work to do to make sure we deliver on that. But we're certainly not going to treat that as that's the only thing that it could possibly be.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Got it. And 1 or 2 other questions unrelated on the O&M side. When you commented on the 5% to 7% long-term EPS growth, are you now including items like the pipeline in that number or is that still outside of that number?

Moray P. Dewhurst

No. The 5% to 7% is adjusted EPS growth at the enterprise level. So it's inclusive of everything. And certainly when we share that range in the March investor conference, we discussed the pipeline as a potential project in the incremental investment category. So clearly, it was included in that and it certainly remains so.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

And finally, the earnings power...

James L. Robo

Michael, this is Jim. I just wanted to add to that. Given the combination of the progress we've made on Project Momentum along with the progress we've made in our development efforts on both sides of the business, I said this in September, I'll say it again now. I will be very disappointed if -- we have a lot of executions still left to do over the next 3 years, but I'll be very disappointed if we don't earn at the top end to that range through 2016, i.e. what I have the teams focused on is earning $6 in 2016.

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Got it. And on the pipeline, just I want to think about the earnings power. Do you actually accrue AFUDC during the construction of the pipeline and then that kind of converts to cash once it comes online in late 2017?

Moray P. Dewhurst

Yes. And Michael, it's possible, in response to your first question, what you may have been thinking about is where the pipeline shows up in the segment discussion in our forward-looking statements. This does get a little bit more complicated, but everything that we discussed to date has had the potential contribution from the pipeline clustered in the FPL segment. Although we have also indicated that those are not strictly FPL assets. So that may be part of the confusion.

Operator

Our next question comes from Brian Chin with Merrill Lynch.

Brian Chin - BofA Merrill Lynch, Research Division

Are there any commitments that you can make with regards to the dividend as it relates to your decision about whether to do a yield co. or not?

Moray P. Dewhurst

Well, first of all, the answer is no. Dividend obviously is a board decision. But I'm not quite sure I'm following the interrelationship between the dividend and the yield co. in your mind.

Brian Chin - BofA Merrill Lynch, Research Division

Well, when we think about yield co. mechanism, there's significant amount of cash that does come from NextEra Energy Resources that currently helps go towards the parent that helps go towards funding a variety of different activities within the NextEra structure. In the event that you were to drop down any of those assets into a separate yield co. Mechanism, I'm just wondering whether that might have an effect on, whether you might want to think about your dividend for NextEra shares. Is there a separation of that dividend? Or is there a commitment that you can that the yield co. would not have any impact on the dividend? Just trying to get a sense of how you think about that.

Moray P. Dewhurst

Okay. I think I would have to think a little further about the question. I guess my initial reaction is at least at this stage, I don't see the yield co. necessarily leading to any fundamental change in the dividend policy, again, the dividend policy is a matter for the board to decide and any specific implementation within that policy is also a matter for the board to decide.

Operator

Our next question comes from Hugh Wynne with Sanford Bernstein.

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

I just wanted to ask. You mentioned -- if I heard correctly, that the ability of Florida Power & Light to rely [indiscernible] ROEs through 2016 was predicated on certain assumptions regarding load growth and you gave those numbers but I'm not sure I heard them correctly, I wonder if I can ask you to repeat them and perhaps break them down into their various components.

Moray P. Dewhurst

Yes. In terms of volume growth out through the 2016 period, the average is about -- the expectations average is about 1.5% to 2%. The vast majority of which is coming from customer growth. Essentially what we do for the forecast there is take the -- I believe it's the University of Florida population projections and then factor them down to implications for customer growth. So probably 3 quarters of the growth in the base expectations is coming from customer growth, but the total volume growth expectation is about 1.5% to 2% per year. So call it 1% to 1.5% customers and maybe another 0.5% per year. And the usage side -- the usage piece, just to remind folks, is really still sort of cyclical economic recovery, i.e. getting back towards the average usage per customer level that we saw in 2007, 2008.

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

So do you happen to have symptom to have the underlying population growth assumption and the usage assumption that go into the 1.5% to 2%?

Moray P. Dewhurst

Take the population growth of, call it 1.3%, 1.4% and maybe 1.5%, so the rest is the usage piece.

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Okay. So you see usage rising sort of marginally maybe a 0.25% or 0.5% per year as it reverts in your view to the 2007 levels and then the ongoing population growth. And have you told that there were reason to modify that assumption? That just strikes to me as optimistic given trends around the country and recent experience in the service territory.

Moray P. Dewhurst

A couple of comments here. First of all, baked into that usage value is, as I think I'd indicated earlier, an assumption of about a negative 1% a year impact, the ongoing effect of efficiency standards as capital stock rolls through. In terms of the other part of your question, obviously people can judge for themselves whether it's optimistic or pessimistic. It's actually pretty consistent with what we have been running for the last year and a half or so. Actually usage growth has been little stronger than that over that period. So this quarter is a little bit of a pullback from what we have seen. And that's why I was indicating earlier that we just need to have a little more time to see whether that's the start of a new trend or whether it's just a short-term blip.

Hugh Wynne - Sanford C. Bernstein & Co., LLC., Research Division

Great. Quickly on the yield co. NRG Energy appears to have acquired some wind and gas assets from the Edison Mission Energy portfolio to contribute to its yield co. Are those assets that you looked at, and if so, can you tell us why you decided not to pursue?

Moray P. Dewhurst

I can't comment on specific assets. All I can say is as I've said in the past that we look at a lot of different things, particularly in the renewable space.

Operator

Our next question comes from Angie Storozynski with Macquarie.

Angie Storozynski - Macquarie Research

I actually hate asking questions about yield co. again, but putting it into more of a context, so you're saying that you see about 2,000 or up to 2,000 of existing assets that will qualify for a yield co. structure and about 1,200 of assets currently under development. I mean this is such a small portion of your total portfolio. I mean if this really worth pursuing a public yield co. structure given the cost associated with such a process?

Moray P. Dewhurst

Well, I think the only answer I can give you to that is we don't know. That's why we are continuing to study it. But obviously, the fact that we are continuing to study it suggests that we think it could potentially be significant. I think if you look at the potential multiple expansion on certain types of assets, depending on what you believe about how they're implicitly valued today, you can still scale that up and have a meaningful amount in terms of shareholder value creation. So certainly we're going to try and find opportunities like that but we just don't know at the moment. Jim is going to comment as well.

James L. Robo

And Angie, I think the thing to think about is that's over a period of years that we've laid out somewhere in the order through the next 3 to 4 years. Effectively, all of our renewable assets -- contractor renewable assets, ultimately would -- you could conceptually think about being able to be in the yield co. once the project financing, the tax equity and the PTC lives rolled off. So I think it's not right to think about this being all of it, it's all of it that we can think about in the period of the next 3 to 4 years.

Angie Storozynski - Macquarie Research

How about adding the gas pipeline assets to that structure, the future gas pipelines?

Moray P. Dewhurst

I don't think we really thought about that at this stage.

Operator

And that concludes the question-and-answer session. I would like to turn the conference back over to Julie Holmes for any additional or closing remarks.

Julie Holmes

Thank you for joining us and if anyone wasn't able to get through on the call, we could follow-up with you separately. Thank you.

Operator

And that concludes today's teleconference. Thank you for your participation.

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