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NextEra Energy (NYSE:NEE)

Q4 2013 Earnings Call

January 28, 2014 9:00 am ET

Executives

Julie Holmes

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

Armando Pimentel - Chief Executive Officer of Nextera Energy Resources, LLC and President of Nextera Energy Resources, LLC

Analysts

Dan Eggers - Crédit Suisse AG, Research Division

Stephen Byrd - Morgan Stanley, Research Division

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Steven I. Fleishman - Wolfe Research, LLC

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

Shahriar Pourreza - Citigroup Inc, Research Division

Brian Chin - BofA Merrill Lynch, Research Division

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

Greg Gordon - ISI Group Inc., Research Division

Operator

Good day, everyone. Welcome to the NextEra Energy Fourth Quarter and Full Year 2013 Earnings Conference Call. Today's conference is being recorded. At this time for opening remarks, I would like to turn the call over to Julie Holmes. Please go ahead.

Julie Holmes

Thank you, Dana. Good morning, everyone, and thank you for joining our fourth quarter and full year 2013 earnings conference call. With me this morning are Jim Robo, Chairman and Chief Executive Officer of NextEra Energy; Moray Dewhurst, Vice Chairman and Chief Financial Officer of NextEra Energy; Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources; and Eric Silagy, President of Florida Power & Light Company. Moray will provide an overview of our results, and our executive team will then be available to answer your questions.

We will be making forward-looking statements during this call based on current expectations and assumptions which are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release and 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 duties to update any forward-looking statements.

Today's presentation also includes references to adjusted earnings which are non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's 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, and good morning, everyone. NextEra Energy delivered strong financial results in 2013 while continuing to execute on the objectives we shared with you at our investor conference in March.

At FPL, we continue to execute on our large construction projects, focused on productivity and cost effectiveness and identified and made substantial progress on our incremental capital investment opportunities. Achieving these objectives will help us to continue to deliver the best customer value in the state and one of the best in the nation.

Also at FPL, the Florida Public Service Commission gave its approval for the natural gas transportation capacity contracts that will provide a commercial basis for a new third pipeline into the state, which ultimately will benefit all Floridians. This is an essential first step to enable Sabal Trail Transmission and Florida Southeast Connection pipeline projects to move towards construction.

At Energy Resources, we continue to execute on our backlog in U.S. and Canadian wind projects and met our milestones for the development of our U.S. solar portfolio. We also remain focused on further developing our U.S. wind portfolio and securing incremental solar opportunities.

In our Transmission business, we commissioned the Lone Star Transmission line during the first quarter on time and under budget. As we discussed last quarter, we were awarded development rights by the Ontario Energy Board to develop the East-West Tie Line Transmission Project with our partners Enbridge and Borealis, and we continue to pursue a number of other transmission opportunities in North America. Overall, 2013 was a very strong year that positions us well for 2014 and beyond.

At FPL, our strategy is founded on offering the best customer value in the state and on finding ways to improve our value delivery over time. Consistent with our strategy, we continue to deploy capital that improves productivity and leads to cost savings that will benefit our customers and help keep rates low for the long term. In 2013, we invested approximately $2.9 billion at FPL, with approximately $700 million of this associated with our pre-modernizations. Our Cape Canaveral modernization entered service in April ahead of schedule and more than $100 million under budget. The Riviera Beach modernization is on budget and slightly ahead of schedule, and we expect this new efficient plant to enter service in the second quarter. We continue to expect to bring a modernized Port Everglades plant into service in mid-2016.

As a reminder, FPL settlement agreement provides the base rate increases to recover the capital and operating costs in the modernizations at Cape Canaveral, Riviera Beach and Port Everglades as the plants enter service. Together, we estimate that the 3 modernized plants will provide customer benefits and more than $1 billion over their operational lifetimes.

Early in the year, we successfully completed the extended power upgrades at our 4 nuclear units which added more than 500 megawatts of clean emissions free energy to our fleet. We also completed the installation of approximately 4.5 million smart meters in our service territory, which is part of our Energy Smart Florida program and began to realize benefits from the more reliable and efficient infrastructure that the program helps enable. Our day-to-day system reliability remains in the top quartile nationwide, and our customer satisfaction scores increased in 2013.

At Energy Resources, we continue to execute on our backlog and pursue additional contracted renewable development opportunities. As we noted during the fourth quarter earnings call last year, we anticipated 2013 would be a down year for new wind installations compared to our record year in 2012, but we remain encouraged as we move into 2014 and 2015.

In addition to the 1,175 megawatts of new wind projects that we had previously announced, we signed contracts of 250 megawatts of projects since our last earnings call, bringing our total U.S. wind development program for 2013 through 2015 to 1,425 megawatts. Of this total, we commissioned 250 megawatts during 2013 all in the fourth quarter. Based on everything we see at the moment, we believe our total of 2013 to 2015 U.S. wind program could be 2,000 to 2,500 megawatts.

In Canada, we brought roughly 125 megawatts into service during 2013 and expect the remaining 466 megawatts in our backlog to enter service by the end of 2015, with the majority expected to come into service in 2014.

You may recall that as of the March investor conference last year, our backlog of contracted U.S. solar projects consisted of roughly 800 megawatts. Of that backlog, both Genesis and Desert Sunlight were partially commissioned during the fourth quarter with 280 megawatts entering service between the 2 projects. We also completed our 20-megawatt Mountain View project earlier this month. The remaining 245 megawatts in Genesis and Desert Sunlight are expected to enter service in 2014, and our 250 megawatts McCoy project is progressing on schedule and is expected to come into service in 2015 and 2016.

We had a successful year meeting our objectives for new U.S. solar development and signed contracts for 290 megawatts of projects, which are expected to come into service by the end of 2016. The balance of our contracted U.S. solar backlog is now 785 megawatts.

Let me now walk through our results for the quarter and the full year. We will begin with results at FPL and then discuss Energy Resources and the consolidated numbers.

For the fourth quarter of 2013, FPL reported net income of $248 million or $0.57 per share, down $0.04 per share year-over-year. For the full year, FPL reported net income of $1.35 billion or $3.16 per share, up $0.20 per share versus 2012. As a reminder, our results include the transition costs associated with Project Momentum that I spoke about last quarter. This includes the negative impact of roughly $0.03 in the quarter and approximately $0.07 for the full year.

2013 marked another year of continued investment in infrastructure projects, which helped improve our overall customer value proposition and was also the largest driver of our growth in contribution to earnings per share. We saw a decline in clause contribution to earnings per share as the completed nuclear upgrade projects were moved from clause to base rates with only a minor impact on net income. As I noted earlier, FPL's capital expenditures were approximately $2.9 billion. And as a result, our regulatory capital employed grew 10.4% year-over-year, and this translated to net income growth of 8.8%.

Our reported ROE for regulatory purposes was 10.96%. This includes the impact of the Project Momentum transition costs. Absent these costs, regulatory ROE for the year would have been 11.25%.

As we noted last quarter, under the current rate agreement, we record reserved amortization entries to achieve a predetermined 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 $54 million of reserve amortization recorded earlier in the year in order to achieve this predetermined ROE. For the full year, we amortized $155 million and have roughly $245 million remaining. This leaves us in a slightly better position than we had anticipated at the beginning of the year. You will recall that we had always expected 2013 to require the use of more reserve amortization than any of the remaining years of the agreement.

The Florida economy continues to strengthen and most of the indicators we track are improving. Florida's seasonally adjusted unemployment rate in December was 6.2%, which was down once again versus the prior month, down 1.7 percentage points since December 2012 and down 5.2 percentage points from the all-time high of 11.4% at nearly 4 years ago. This is now the state's lowest unemployment rate since June 2008. The number of jobs in Florida was up 192,000 compared to a year earlier, and December was the 41st consecutive month with positive job growth in Florida following more than 3 years of job losses. Florida's private sector continues to drive the state's job growth, and more than 462,000 private sector jobs have been added since December 2010.

The housing market in Florida also continues to show signs of resiliency. Housing permits in Florida jumped 25% over last November versus a U.S. gain of 8%, and mortgage delinquency rates and the inventory of existing homes in Florida continue to decline. The Case-Shiller Index for South Florida shows home prices up 16% from the prior year.

Other data released in 2013 suggest that Florida once again has a very attractive business climate compared to many other states. The U.S. Census Bureau now estimates that Florida's population increased by more than 230,000 people over the 12-month period that ended July 1 of last year, and many analysts now project that Florida will pass New York as America's third largest state sometime in 2014. Overall, Florida's economy is progressing well and is poised for further growth.

As we discussed throughout the year, we continue to see our customer metrics at FPL improve moderately. Underlying usage per customer increased 1.0% compared to the same quarter last year. For the full year, underlying usage per customer grew 0.4% compared to 2012. We expect long-term usage growth of approximately 0.5% net of the impacted efficiency and conservation programs through the period of the rate agreement.

Another encouraging development during the quarter was a decrease in the percentage of low usage customers, the 12-month average of the low-usage percentage has fallen to 8.2%, its lowest level since December 2007. The number of inactive accounts has also continued to decline, reaching its lowest level since 2005.

During the fourth quarter, we also saw the largest increase in customers since late 2007, with approximately 80,000 more customers than in the comparable quarter of 2012, representing an increase of 1.7%. While this is clearly positive, roughly half of the increase can be attributable to the roll out of our remote connect and disconnect capability enabled by our smart meter program that we highlighted on our third quarter call. These new customers, which are disproportionately low-usage and residential, have a lower impact on our sales. We estimate that customer growth accounted for about 0.8% increase in sales in the fourth quarter and 0.6% for the full year.

Overall, we are seeing continued improvement in our customer data, and we continue to believe that Florida will experience above-average growth over the long term.

Turning to our incremental development efforts. We have several updates to share regarding our progress. FPL's storm hardening plan was approved by the Florida Public Service Commission in November, and the incremental reliability investments we are making to strengthen the system remain on track. Excluding our major generation capital projects, we plan to invest approximately $7.8 billion to $8.3 billion over the 2013 to 2016 period in our hardening and reliability efforts, as well as all our other infrastructure investments. This also includes fuel for our 4 Florida nuclear units.

During the quarter and following further discussion with the Florida Department of Environmental Protection, FPL withdrew its petition for the peaker upgrade project. We are currently working with the Florida Department of Environmental Protection to perform additional emissions monitoring to measure our existing peakers impact on local air quality. We expect to file a new petition and supporting testimony once we have a clearer idea of the scope of upgrades that will be required. The monitoring could extend up to 1 year, and while it is too early to comment on the scope or timing of the project, we believe the ultimate solution may require us to deploy less capital than we had originally anticipated.

The Florida pipeline, which includes NextEra Energy's minority interest in the Sabal Trail Transmission joint venture and our wholly owned subsidiary, Florida Southeast Connection, continues to move through the regulatory process. The PSC's approval of the contract is now final. FERC approval is expected sometime in 2015, and construction is anticipated to be completed in mid-2017. Looking forward, financial results from the pipeline projects will be reported as part of our Corporate & Other business segment, and so in future earnings releases, we will discuss developments in the Corporate & Other section.

Let me turn now to Energy Resources, which reported fourth quarter 2013 GAAP earnings of $85 million or $0.20 per share. Adjusted earnings for the fourth quarter were $173 million or $0.40 per share. Energy Resources contribution to adjusted earnings in the fourth quarter decreased $0.02 from last year, with greater contributions from new investments in gas infrastructure being slightly more than offset by corporate G&A and existing assets. All other effects were minor.

For the full year 2013, Energy Resources reported GAAP earnings of $556 million or $1.30 per share. Adjusted earnings were $780 million or $1.83 per share, up $0.17 or 10% from the prior year. As we discussed on our fourth quarter 2012 call, we expected to see growth return in 2013 as some of the headwinds experienced in 2012 subsided and our new investments contributed meaningfully to earnings and so it proved.

For the full year 2013, the $0.17 increase in adjusted EPS was driven by several factors. Contributions from our new investments added $0.31, with $0.04 coming from an increase in CITCs. We elected CITCs for roughly 280 megawatts of solar projects in 2013 compared to approximately 455 megawatts of wind projects in 2012. The greater capital cost of solar projects accounts for the increase from 2012 to 2013.

Contribution from gas infrastructure increased $0.04 over the prior year, primarily as a result of additional production. These positives were offset by increased corporate G&A and other costs of $0.12, of which $0.03 for transition costs associated with Project Momentum. Lower contributions from existing investments in 2013 negatively affected the comparison to last year by $0.03. All other effects were minor.

Looking forward, we expect to elect CITCs on roughly 265 megawatts of new solar generation in 2014. As we did last year, we have included a summary in the appendix of the presentation that compares our realized equivalent EBITDA to the ranges we provided in the third quarter of 2012. Generally speaking, we came in within the ranges we had anticipated.

During the year, we placed approximately 375 megawatts of wind into service. We also reached production levels of nearly 30 million megawatt hours during 2013, the highest level in company history. We estimate that overall wind resource was a couple of points below the long-term average.

Of the roughly 30 million megawatt hours of production, approximately 60% were eligible for PTCs. The remainder represents output from projects on which we had elected CITCs, projects that have passed their 10-year window of eligibility for PTCs or Canadian projects. Nearly 50% of the PTCs generated were allocated to investors under the differential membership interest of tax equity partnerships we have entered into that allow us to monetize the tax benefits from our renewables projects more efficiently.

As shown on the accompanying slide, the percentage of PTCs allocated to investors grew in 2013, and we expect that proportion to continue to grow to between 55% and 60% in 2014, as we see the full year impact of our 2013 tax equity partnerships flow through.

Looking at the company on a consolidated basis. For the fourth quarter of 2013, NextEra Energy's GAAP net income was $327 million or $0.75 per share. NextEra Energy's 2013 fourth quarter adjusted earnings and adjusted EPS were $414 million and $0.95, respectively. For the full year 2013, the company's GAAP net income was $1.9 billion or $4.47 per share. Adjusted earnings were approximately $2.1 billion or $4.97 per share.

The Corporate & Other segment improved slightly relative to 2012, as earnings from our Lone Star business increased, but were offset by residual interest in taxes. For the full year 2013, on an adjusted basis, the Corporate & Other segment was up $0.03 from 2012, driven by growth in the regulated transmission segment. In 2014, we expect annual contribution to earnings from this segment to improve modestly.

2013 marked another year of significant capital investment for both FPL and Energy Resources, exceeding our internally generated cash flows by about $1 billion. Our treasury team executed on approximately $7 billion worth of financing transactions across a wide range of capital sources, including refinancing and various capital optimization opportunities. These were designed to meet our capital needs, while also supporting our balance sheet and credit strength, which are central to our business strategies.

In addition to a variety of conventional debt issuances, we continue to make use of project debt to support growth at Energy Resources and we also sold additional differential membership interests to efficiently utilize tax credits generated by new wind projects. We also issued $500 million of equity units to ensure we have the equity support needed during this transitional period of high capital expenditures. These will convert to straight common equity in 2016, at which time they will be integrated into our ongoing financing program.

As we indicated on our third quarter earnings call, our equity needs are dependent on our success in firming up incremental investment opportunities that we outlined at our March investor conference. We expected to need to issue at least $1 billion in equity before the end of 2014 to achieve our target credit metrics.

During the quarter, we entered into transactions to issue approximately $1 billion in equity. And when considering our current capital expenditure program, our target credit metrics remain on track. As a reminder, our growth in cash flow naturally picks up as our large construction projects enter service, so additional equity needs from hereon will primarily depend on whether or not we see additional incremental capital expenditures that affect 2014 meaningfully.

In light of the progress made against our execution objectives, we continue to be comfortable with the 2014 adjusted EPS expectations we shared with you last spring at $5.05 to $5.45 per share. 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 a 2012 base.

As always, our expectations are subject to the usual caveats we provide, including normal weather and operating conditions. In the appendix, we've provided a number of sensitivities around our 2014 expectations.

We expect the majority of the adjusted EPS growth in 2014 to come in the second half of the year and the fourth quarter comparison should be particularly strong, given the impact of Project Momentum transition costs in the fourth quarter of 2013. While we have already begun to see significant benefits from Project Momentum, we expect these to continue to increase as we go through the year, making for stronger growth comparisons in the second half of the year.

In addition, we expect the first quarter for Energy Resources to be challenged by the difficult market conditions we're seeing so far this year in the mid-Atlantic region caused by extremely cold weather and limitations on natural gas supply. This will likely have a negative impact on any business, including our full requirements portfolio in the Northeast with fixed price load obligations. While some elements of our portfolio have benefited from these conditions, we expect the full requirements business in the Northeast to underperform under these extreme conditions.

For the full year 2014 at Energy Resources, we expect somewhat lower growth in adjusted earnings than we enjoyed in 2013. While we expect continued strong contributions from new contracted renewables projects, both solar and wind, we expect the existing portfolio will be down year-over-year as we have 4 nuclear refueling outages scheduled, as well as the ongoing impact of PTC roll-offs. In addition, we expect interest expense to be higher, not only because of a larger capital base but also because of the impact of higher rates.

Finally, at FPL, growth in the wholesale segment should be an important driver of growth overall in 2014, but variability around wholesale load will consequently become a source of variability for FPL earnings as well.

With regard to the longer-term outlook, we continue to see the 5% to 7% range through 2016 translating to an expected adjusted earnings per share range of $5.50 to $6 as reasonable. However, 2016 is still a long way off and many factors could change our expectations.

Since the investor conference last March, we've seen many favorable developments, some of which have clearly moved our 2016 expectations up within the broad range we have outlined. On the other hand, we're also seeing some negative developments, such as rising interest rates, which must temper our expectations. And many of the projects on which we have made progress will drive earnings in 2017 and beyond more than 2016. Overall, we continue to believe the $5.50 to $6 range is reasonable given all the data we have at the moment, and we are working hard to ensure we are as high as possible within that range.

Over the past months, we have continued our evaluation of ways to efficiently recycle capital invested in Energy Resources projects, including so-called yieldco structures. While we are not yet at a point of making a decision, we can share with you a few thoughts. Many of you who have volunteered your thoughts on the impact that forming a yieldco might have on NextEra, and we thank you for your input which we consider seriously. We've also explored further a range of possible private transactions, including structures analogous to a public yieldco. As a result, there are 5 general points which we can emphasize.

First, we are committed to the general policy of recycling capital, both to promote efficient capital utilization and to maintain an appropriate portfolio balance. We expect to concentrate on deploying capital where we believe we have the potential to create value, typically, though not necessarily, in the earliest stages of project development and operations. And we expect to reduce capital investment in areas where we believe we have optimized project structure and operations and/or where others may have lower capital costs. Typically, though not necessarily, projects that are more mature in their operations and life cycle position.

Second, in executing this policy of recycling capital, we will continue to be opportunistic, trying to find what we believe are the best structure and the best markets for each situation as it emerges. Even if we pursue a more general structure such as a yieldco, we expect there will continue to be individual transactions outside this framework, such as individual or small portfolio sales to specific investors, as well as project financings and tax equity partnerships.

Third, our continuing assessment over the past few weeks suggest to us that the public form of yieldco has some clear advantages over the private forms we have also been considering. In particular, we have come to believe that valuation levels are likely to be lower for the private format, at least in today's economic environment, and that there is less likelihood that those valuation levels will be reflected back on the stock of sponsor, the so-called readthrough effect. Of course, these are our considered judgments for there is no analytical way to be sure and there could be no guarantee that we are right. Based on these and other considerations, however, we think it is unlikely that we will pursue a private version.

Fourth, as we have previously said, our focus is on sustained value creation for our shareholders. The mere fact that public yieldco vehicles may trade well in today's environment is not in itself a sufficient argument to go forward with one. We recognize that the question of value creation is ultimately one of judgment, but we want to be sure that when we reach a judgment, it is based on a best information available.

Fifth, as we have also previously stated, were we to pursue a public yieldco, we would want to be sure that it was structured so it not negatively to impact our corporate credit position, which we continue to view as an important element in our competitive strategy at Energy Resources. Again, however, I need to emphasize that we have made no decision one way or the other. We continue to examine a wide range of practical issues, including structuring, tax, governance, portfolio composition, interaction with existing financing arrangements and ongoing reporting and compliance issues.

Finally, while we will continue to take a deliberate approach to resolving the questions we have and reaching a considered judgment, we hope to be in a position to give you a clearer assessment before the end of the second quarter.

Before taking your questions, let me conclude with a summary of our key areas of focus for 2014. At FPL, our focus will continue to be on excellence in execution. We will strive to deliver the best value in the state to our customers and we will continue with the execution of our major capital initiatives, including the 2 remaining modernizations, our storm hardening program and our system reliability initiatives. We will also seek to finalize our determination of the upgrades that will be needed for our peaking facilities to meet future environmental standards.

Supporting our strategy at FPL, we will be pursuing the successful development of the Florida Southeast Connection and Sabal Trail pipeline projects, with emphasis on being in a position for timely receipt of all necessary regulatory approvals.

At Energy Resources, we will continue to focus on excellence in day-to-day operations and we will continue to advance the development of our industry-leading portfolio of contracted renewables projects. In particular, we will be looking to extend our strong backlog of projects into 2015 and beyond.

And at NextEra Energy Transmission, we will be focused on reliable operations and successful development of new project opportunities. Across all our businesses, we will have a special focus on implementing the many initiatives that emerged from Project Momentum, a competitively strong cost position continues to be an underpinning of our strategies across all businesses.

At the Corporate level, we will seek to finance our activities in a way that supports our strong credit position and ensures that our credit metrics continue to improve on the part we have laid out for you.

And with that, we will now open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Dan Eggers at Crédit Suisse.

Dan Eggers - Crédit Suisse AG, Research Division

Before we get run over on the yieldco conversation, I guess if you could just talk a little bit about the wind portfolio and the difference between expected generation additions and what you have under contract, and when do you think those 2 numbers merge into a final decided number for '14, '15?

Moray P. Dewhurst

Well, if we go back to the investor conference last year. That time, we were talking about expectations for U.S. wind program for 2013 and 2014 with a range of 500 to 1,500. So what's happened since then really is, in particular with the IRS clarification of some of the language around eligibility for that PTC, we can clearly see a path to extend that program from 2013, 2014 to 2013 through 2015. So based on that and what we're seeing in the marketplace, we've revised upwards our view of the total portfolio opportunities, so that's the 2,000 to 2,500. And as you can see from the numbers, we're close to 1,500 already in the backlog, so that means we see the potential for another 500 to 1,000 of projects that could be contracted from here on. The timing of that will play out over the course of the year since, at this point, we're really thinking of it as a program through 2015. Anything that's going to come in service before the end of 2015, we really are going to have to have the contracting piece wrapped up by close to the end of this year. So we should know a lot more about where we are by the end of this year.

Dan Eggers - Crédit Suisse AG, Research Division

And I guess just kind of on the yieldco, thanks for giving more detail on the thought process. But when you look at some of the decision points you have setting out there, what do you need to get comfortable with the impact on the credit ratings for the corporate? Is that an agency's conversation and a modeling conversation on your side? And then I guess, when you think about sustained value creation in a public equity, what do you need to see to get comfortable whether that's a durable opportunity or not?

Moray P. Dewhurst

All right. Well, I guess, first, I just kind of repeat the list in the prepared remarks. I mean, we're still working through a lot of the practical issues, structuring, tax, governance, composition of portfolio, all of those kinds of things. Certainly, the credit impact is very important to us. That's a function both of modeling and obviously of conversations and feedback with the agencies. I'm sure many of you are aware that Moody's put out a general piece on the subject of yieldco, which essentially says that the impact on credit depends, and so we want to push further to make sure we understand exactly what that dependence looks like, so it's going to be a variety of things like that. On the question of the sustained value creation, again, as I mentioned in the prepared remarks, ultimately, that comes down to a judgment call. I think we clearly have some evidence just through the passage of time that helps provide us some input on that. But that's just something that we're going to have to reach a point of comfort with on a judgmental basis, and we're not at that point yet.

Dan Eggers - Crédit Suisse AG, Research Division

And I guess the last one. As you guys think about NextEra as a whole, how comfortable is the board with the idea of perspectively changing the rate of growth for the consolidated company from 5% to 7% to something else if you were to allocate more growth to the yieldco design?

Moray P. Dewhurst

Well, I think that, that really, the answer to that has really subsumed in the overall question of, is there a value creation opportunity for NextEra Energy shareholders if the trade up in growth that you're talking about ultimately run the results in greater value for our shareholders, and I think that's clearly a very positive factor.

Operator

We'll go next to Stephen Byrd with Morgan Stanley.

Stephen Byrd - Morgan Stanley, Research Division

I wondered if you could just talk broadly about renewable economics that you're seeing in terms of improvements in the technology kind of the PPA levels in general that you're seeing. If you could just talk sort of holistically about the competitive dynamic for renewables as you're seeing, do you see the technology improvements helping to extend that market? How are the competitive dynamics out there?

Moray P. Dewhurst

A couple of general comments, and I'll ask Armando to expand. But just as a reminder for folks, we've seen very substantial improvements in wind economics driven by technology, larger machines, taller towers, longer blades, to the point where, as I think most people know, in a strong wind regime, it's possible to sign a long-term PPA with prices in with a 2 panels on them and still get acceptable returns. So in many parts of the country today, including the impact of the PTC, wind is the most economic form of new energy generation. We've also seen significant improvement on the solar side to PV with panel prices coming down, but solar is a much more limited market focused on primarily the Desert Southwest and a few other areas. So that's been the general trend. Relative to that general trend, I wouldn't say that in the last 6 to 9 months, there's been any major departure. But let me ask Armando now to comment on how that's playing out in market dynamics.

Armando Pimentel

Yes, I'd agree obviously with all of that. The couple points I would add is, interestingly enough, I think we've talked about this before, in some areas of the country, we are seeing where solar is crowding out wind. The economics of solar have clearly improved across the board. It's not just the overall cost of the panel or the balance of the plant, but it's also small changes in efficiency. So although wind economics have clearly improved in some areas of the countries, primarily the west and the southwest, it's clear that solar is a better alternative. That's the first point I'd make. The second point I'd make is, a couple of years ago, we've talked about seeing more RFPs on the solar side, which we thought was a clear positive. We continue to see that. We continue to see that even in states that don't have requirements -- renewable portfolio standards for solar. So we were encouraged by that. We're seeing them all the way up through the Canada border and all the way down to Mexico. So I think that's a real positive for solar that we will continue to see.

Stephen Byrd - Morgan Stanley, Research Division

Well, that's helpful. Then just as a follow-up on the yieldco. For a public option, I know one of your objectives has been to think about aligning incentives, ensuring that there is an alignment there. When you think about aligning incentives, would -- an approach where there are incentive payments along the lines what we see in the world of MLPs be something that could be a tool to achieve that?

Moray P. Dewhurst

Potentially, that's certainly a whole area that we're looking at and we think it's important, that there be as close an alignment of interests as possible.

Stephen Byrd - Morgan Stanley, Research Division

Okay. So incentive payments in general, that's an area that you're focused on and thinking about that?

Moray P. Dewhurst

Yes. We're certainly studying how that has worked out in the MLP space, is there a way of incorporating some of those elements into different structures, all of those kinds of things, yes.

Operator

And we'll go next to Julien Dumoulin-Smith with UBS.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

So first -- hitting the yieldco first off. What is it about end of second quarter? Is there something you're waiting for in particular? I just wanted to get a little bit more of a sense as to data points you might be looking for the market to get -- to make this decision? And when it comes to valuation discrepancy that you commented on of late, is it something that you see in the public market or is it something in the private market that is really driving the discrepancy in the valuations in your mind? Just to make it a little clearer.

Moray P. Dewhurst

The answer to the second question is really based on the market feedback that we've been observing on both sides over the last few months. So again, I want to stress that that's a judgment call because, obviously, unless you went out with a particular structure hypothetically in two parallel universes, 1 public and 1 private, you'll never really know. But that's what we are seeing based on our reading of the market data. On the bigger question of the timing, I appreciate that we are being frustrating to a number of folks out there, there's no one particular thing in the outside world that I can point you to like this is more a function of the ongoing process that we are working through. I think I've mentioned to a number of folks that I've met with over the past 6 months, that it seems like every session we have with our team internally, they answer a series of questions that we have and that turns to [ph] more questions. So we're continuing to work methodically through questions, but I do think that we will be in a position to give you an update by the end of the second quarter.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Great. And then looking at the supply business, obviously, you tweaked '14 expectations. How do you think about that in '15 onwards? Is this kind of a one-time impact from the first quarter's event or should we kind of structurally think about revising expectations from that segment?

Moray P. Dewhurst

Well, we're going to have to see. We'll just have to see how the quarter actually plays out. I mean, there's a big difference between what's happening or what's been happening in NEPOOL versus what's been happening in PJM, obviously. And so, in part, what the future looks like depends upon how rapidly the gas transportation constraints open up in different parts of that region. So clearly, the dynamics of the business and the pricing of that business are going to change going forward, but we'll have to see. We're certainly not going to change our return expectations for that business, so we will definitely expect to see higher pricing in the future.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

Got you. And then just turning to the utility real quickly. You've talked a little bit in the past about opportunities to add E&P assets potentially within the portfolio to lock in pricing. Where are you with respect to that?

Moray P. Dewhurst

I would say that we are still in the very early days. And just as a background for everybody, after we worked through the opportunities to improve the efficiency of the generation fleet that made a huge impact on our fuel consumption and over the long term, reduces our expected fuel bill, which we passed through to the customer very substantially. What remains is still a substantial portion of the bill and it is subject to volatility, although we don't see gas prices going up to -- back up to the 2007 levels, there's clearly volatility in there. So it certainly seems to us that anything that we could do that would help lower long-term costs of that component and in particular, to reduce its volatility, will be highly valuable to our customers. So that's really the motivation for thinking about E&P reserves. So we're still in the very early stages. It's important to recognize that FPL is a very, very large consumer of natural gas. And so to have a meaningful impact that's beneficial, that the customer can really see. You've got to do a lot and we're probably not going to do anything on a large scale initially. So if we do proceed down that part, anything we do, we will start on a small scale, but I don't have any particular time frame in mind on that.

Julien Dumoulin-Smith - UBS Investment Bank, Research Division

And then just quickly, lastly, in terms of the competitive dynamic with other yieldcos out there now, are you seeing more of a cost of capital compression in some of the PPAs up there? What's the dynamic, if you will?

Moray P. Dewhurst

No, we certainly haven't seen that so far that -- maybe that's a longer-term trend. But it certainly hasn't been the case so far.

Operator

And we'll take our next question from Steven Fleishman with Wolfe Research.

Steven I. Fleishman - Wolfe Research, LLC

Could you give us a data point on what the current PTC-eligible project number ended up coming in at the end of the year in terms of meeting that 5%?

Moray P. Dewhurst

I'm not sure I'm following your question, Steve. Could you...

Dan Eggers - Crédit Suisse AG, Research Division

The kind of amount of potential assets that will be able to get the PTC that expired meeting that kind of 5% threshold?

Moray P. Dewhurst

Okay, I get where you're going. Yes, it's significantly larger than the upper end of what we believe is reasonable given actual market conditions. So we're not going to be constrained by the safe harboring issue.

Steven I. Fleishman - Wolfe Research, LLC

Okay. I guess my other question, and I apologize to beat on the yieldco, but in terms of the kind of credit analysis you're doing, could you just give us some sense of what you've heard or what the rating agencies have already said on the structure and potential impact on corporate credit?

Moray P. Dewhurst

I think at this stage, Steve, I'm sorry to say, that's been -- really, the only thing I can say is, the answer is, it depends. So we're not far enough along to know what the final structure or mix would be to make sure that it's still not negative to credit.

Operator

Now we'll go next to Michael Lapides with Goldman Sachs.

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

Guys, two questions. One on the boring side. Just looking at the quarter and even at the year at O&M at both NEER and at the Corporate level, big year-over-year uptick, so I assume NEER is tied to new projects. But just any comments you may have to add onto that.

Moray P. Dewhurst

I'm sorry, on the FPL side, O&M actually was down year-on-year.

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

Right, NEER and Corporate.

Moray P. Dewhurst

I'm sorry, NEER and Corporate, okay. On the NEER side, it's really growth of the business. We did put a little more into development expenditures, particularly late in the year. But there's nothing unusual going on there. It's fundamentally growth in the business. It's actually less than we expected it to be at the beginning of the year because we started to see some early benefits from Project Momentum.

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

Okay. And then a solar-related question. You made a number of comments about the economics, you and Armando, about the economics of solar relative to the economics of wind. Is there any interest in NextEra in terms of the rooftop solar business? If so, what are the economics like when you look at it? How would you actually enter that business if you were to decide to do so?

Moray P. Dewhurst

Well, the short answer is yes, there's an interest, but let me be a little more clear when we say rooftop. That covers a wide range of territory. Sometime last year, possibly in 2012, we authorized the team to go ahead and do some basic exploration of the, I'll call it, the distributed solar space. The conclusion they came back with was that we don't see, at least at this time, an economic opportunity in the residential end of that space, which is often what people think of when they say rooftop. We do think there may be some opportunities in the C&I space. As you get towards particularly the largest C&I customers, those projects often tend to look not that different from a small utility scale project. So we are currently exploring that area, we acquired a small company that was already in that business and we have a little backlog of projects. But at this stage, I would say, that's definitely in the category of a toe in the water and we have to see how that goes. There's really -- at least at this stage, there's only useful markets for that in areas where rates are high. In Florida, we have a very low rate structures, so it's not such an economic incentive.

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

And finally, on the supply, the customer supply business or the retail supply business at NEER, how should we think about the worst-case scenario? I mean, we're expecting another couple of days of crazy weather here in the northeast. We've had heat rates blow out, we've had local gas prices at various northeastern gas hubs completely blow out. You've had, in prior quarters, going back to issues in Texas a year or so ago, and we've seen other companies like Reliant back in 2008 have some issues on the supply side in terms of just being caught short megawatt hours. How should investors think about what kind of the bare case outcome would that be for that business for you?

Moray P. Dewhurst

Well, first of all, just to say, inherent in that business, it obviously has a left tail, so when you have extreme conditions of high load and high prices, any portfolio like that is always going to underperform. How bad could it be, well, obviously, it depends upon how many days of extreme conditions you build into your anticipation. I think we'd been reasonably conservative in what we've -- what we're looking at so far. I don't think it's going to end up having a material impact on the year overall, but it's clearly going to weigh in on the first quarter.

Operator

We'll go next to Shar Pourreza with Citi.

Shahriar Pourreza - Citigroup Inc, Research Division

As you think about growing solar and emphasizing that part of the business more, can you maybe comment on any potential impediments or bottlenecks to the tax equity markets? Are you seeing any bottlenecks? Or a little bit of color there would be great.

Moray P. Dewhurst

On the tax equity market, I guess I would say that there is really about the same amount of capacity now than they have been for the last couple of years. Not surprisingly, we think that rates in that market are way too high and they really should come down very substantially. But there hasn't been a great deal of change the last couple of years. We also would certainly like it if there was more depth in the market. But the reality is, there's only a certain number of players. So it's perfectly adequate for the kind of scale of activity that we have and that we anticipate for the future. But like any other capital market, you'd always like that to be more depth and lower prices.

Shahriar Pourreza - Citigroup Inc, Research Division

Got you. And just one quick follow-up. As you think about potential public yieldcos, can you maybe just give us a sense on how to think about recapturing of any of kind of an ITC or PTCs for qualified assets that could drop down into a yieldco?

Moray P. Dewhurst

Well, one of the sort of criteria for thinking about asset suitability for yieldco is really whether they are in the PTC generation phase, because the way the yieldco vehicle would typically be structured, it would not be able to take advantage of PTCs and therefore, you would be better off -- in general, this is a general statement, might not always be true, but in general, retaining those at the sponsor level and utilizing PTCs in another way at that level. So it's really a matter of which project becomes suitable for a yieldco.

Shahriar Pourreza - Citigroup Inc, Research Division

Okay, got you. And then just lastly, as you think about doing a yieldco, how much of your decision-making on whether to move forward or not is predicated on whether you see any movement in the MLP parity act?

Moray P. Dewhurst

That's really an independent issue. The decision-making that we're going through is looking at the vehicle or potential vehicles as they might exist today with today's tax law.

Operator

We'll go next to Brian Chin with Merrill Lynch.

Brian Chin - BofA Merrill Lynch, Research Division

Just a quick point of clarification. So you signaled that by the end of 2Q, you will have made your decision. Should we interpret that to mean that on the 2Q earnings call is when you'll announce something, or are you retaining the flexibility going out something earlier than that? Just a little bit extra clarification on the timing.

Moray P. Dewhurst

Well, to be clear, we're not saying we will have necessarily made a decision by the end of the second quarter, but we certainly expect to be in a much better position to give you our overall assessment. So by that, I mean, by the quarterly earnings call, could there be something beforehand if we arrive at a decision? Yes, I suppose that's possible. I just -- I'm certainly not going to commit to anything here.

Operator

We'll go next to Hugh Wynne with Sanford Bernstein.

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

Moray, I think in your conference on -- your investor conference in March, you forewarned us that NextEra could become a much more robust cash generator in the years ahead depending on the level of capital outlays. And looking at your cash flow statement for the year, that certainly seems have been the case. Now I was hoping I might get you to talk about some of the largest drivers of the changes on the cash flow statement. So for example, I'd say that cash from operations is up by over $1 billion or 25% largely on a $1 billion increase in depreciation and amortization and deferred income taxes, both of which were up by 50%. Then on the other hand, your CapEx or cash used in investment is down by almost $3 billion, which is a decline of 30%, with a net effect that your cash used in financing activities has reduced your borrowing requirement by about $3.8 billion or 75%. So those are dramatic changes, and I was just wondering if you might kind of take us through the highlights.

Moray P. Dewhurst

Sure. I guess I'll just go back to some of the things that I'm sure people have forgotten, but we've talked about in the March investor conference last year. On the growth in the operating cash flow, first, let's focus on FPL. We knew that we were entering a new rate agreement in 2013, and one of the key benefits of that was the reduction in the amount of surplus depreciation that we were going to need, really, the completion of noncash earnings into cash. So with the initial base revenue increase and then the subsequent GBRA rate increases, we're now getting real cash returns that are commensurate with the regulatory returns. Not exactly equal but commensurate. So we knew that, that was going to drive significant growth on the FPL side. On the Energy Resources side, we had -- in 2012, we had just completed the 1,500 megawatts of U.S. wind, and so we knew that, that was going to come into service and driving cash flow on that side. So those -- and that continues going forward. As the big new projects at Energy Resources come into service out of that construction phase, they start to contribute to the growth in the operating cash flow. On the CapEx side, we knew that 2012 was going to be a peak year for CapEx. We were right at the peak of the spending on the FPL side with the nuclear upgrades, modernizations and ongoing infrastructure spending. And of course, we had not only 1,500 megawatts of U.S. wind but spending on solar projects, which were not yet anywhere near coming into service, all of that concentrated in 2012. So 2013, so that start to come down to hopefully more normal levels. So those were both the principal dynamics that we have tried to focus people on last year. And I'll just say, they came in very much where we expect it. So we're pretty much about where we expected to be on the operating cash flow, pretty much where we expect it to be on the CapEx with one exception, which is we have ended up accelerating, on the Energy Resources side, some of the capital spending. We had some opportunities to negotiate some improved pricing on some equipment, which led us to accelerating some capital spending and also because the development program has gone well. So those are the main 2 dynamics. And then, as you noted, that produces a huge swing in the free cash flow. Of course, we also did the equity -- both the equity unit, but more importantly, the $1 billion equity transaction, the combination of $400 million of straight common and the $600 million of forward late last year, so that contributed significantly, too. But it's a pretty dramatic swing, and it's reflected obviously in the credit metrics from 2013 and we expect to see, not to the same extent, but a continuation of same general trends in 2014.

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

Excellent. That was just what I was hoping for. Just one quick follow-up question. Your decision to reverse a portion of the depreciation and amortization that you had taken in '13 and the fourth quarter, does that stem primarily from more rapid than expected growth in volume sales, or what was the driver of that decision?

Moray P. Dewhurst

No. To be clear, just to reiterate, it's directly driven off the policies that's maintaining a target ROE, regulatory ROE. The indirect driver that you're getting at actually was that we made quicker progress on the O&M front coming out of Project Momentum than we had originally anticipated going into the year, so -- and that's why we end up with a little bit more, $245 million leftover at the end of the year. Well, I think, at the end of last year, we're anticipating we'd be somewhere around $200 million or $220 million.

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

Got it, great.

Moray P. Dewhurst

Yes, we're feeling very good about where we are on the cost side.

Operator

And we'll take our final question today from Greg Gordon with ISI Group.

Greg Gordon - ISI Group Inc., Research Division

Two quick questions. First, Moray, you talked about the impact of the weather in the Northeast on your load-serving business. When we -- once we get through the season and you assess where you're at, are we going see that show up, if I'm looking at the equivalent EBITDA ranges that you gave for the different buckets in the year, will we see the impact of that show up in customer supply, power and gas trading, or in the spark spread and other line for the 1,000 megawatts or so you have in the Northeast?

Moray P. Dewhurst

Well, it's going to be spread across those. Obviously, it's a complex situation. The fuel requirements we book is in the customer supply line, so that will be much lower than we had originally anticipated. Some of the physical assets up there, in spark spread and other, will probably look somewhat better. How much better will remain to be seen? We'll have to see how the pure marketing and trading line looks. But there are puts and takes even within that, so there a lot of complex effects. And some parts of the portfolio have done very well, but the full requirements were clearly underperformed, and that's relatively speaking for us quite big in the northeast compared with our asset positions.

Greg Gordon - ISI Group Inc., Research Division

Great. And then the last question, of course, is on yieldco. When you gave your 5 sort of key issues that you're grappling with, 1 of them was that you wanted to retain the flexibility because you need to be opportunistic to find the best way to monetize each sort of asset in your portfolio. How do you marry that up with or balance that with the necessity for having a certain amount of sort of visible manufactured growth in the yieldco to attract a low enough yield to make it low enough cost of capital to be attractive? In other words, you have to promise people growth, but then you're saying you want to be opportunistic in the way you place your assets?

Moray P. Dewhurst

Right. And that's clearly 1 of, what I call, the pragmatic issues that we have to work through. We've got to make sure that if we were to pursue the yieldco path, we don't end up inadvertently compromising the value of some particular assets, which might have greater value realization that dealt with in a different way.

Operator

And that does conclude today's presentation. We thank you for your participation.

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