Clearway Energy, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; comparisons are with the corresponding 2018 periods. Unless otherwise noted, figures are in millions of dollars. Clearway owns more than 5,272 MW of generation assets and thermal infrastructure across North America; substantially all generation output or capacity is sold under long-term contracts.
Financial performance and position
- Q2 revenue: $284, down $23 (7%) year over year. Operating income was $87 versus $144; net loss was $36 versus net income of $96; loss attributable to Clearway was $24 versus income of $79. Diluted loss per Class A and Class C share was $0.22, compared with earnings per share of $0.61 and $0.70, respectively.
- First-half revenue: $501 versus $532. Operating income was $128 versus $193; net loss was $83 versus net income of $96; loss attributable to Clearway was $44 versus income of $95. Diluted loss per share was $0.41 versus earnings per share of $0.80 for Class A and $0.89 for Class C.
- Margins: Q2 gross margin was $269 versus $290, and economic gross margin, a non-GAAP measure, was $286 versus $308. First-half gross margin was $467 versus $495; economic gross margin was $508 versus $530.
- Cash flow: First-half operating cash flow was $150 versus $181; investing cash outflow was $211 versus $166; financing cash outflow was $226 versus $62. Cash, cash equivalents and restricted cash ended the period at $296, down from $583 at year-end 2018.
- Debt and liquidity: Total debt principal was $6.184 billion; the balance sheet classified $1.914 billion as current, including approximately $1.3 billion reclassified following PG&E-related defaults. Cash and cash equivalents were $93 and restricted cash was $203. Reported liquidity was $746, including $450 of revolver availability; the revolver had no borrowings and $45 of letters of credit outstanding.
- Dividends: The company paid $0.20 per Class A and Class C share in each of Q1 and Q2. On August 1, it declared another $0.20 per share, payable September 17, 2019.
Material changes and notable items
- Lower renewable generation and resource performance were principal pressures: renewables MWh generated or sold fell to 1.948 million in Q2 from 2.308 million, and to 3.397 million in the first half from 3.924 million. Management also cited the CVSR outage and a $7 loss on an Elbow Creek power hedge in the first half.
- Interest expense rose to $130 in Q2 from $71 and to $231 in the first half from $126. Management attributed the first-half increase mainly to an $83 change in the fair value of interest-rate swaps and $17 of previously deferred hedge losses reclassified to expense.
- A $19 impairment was recorded for a Thermal-segment facility. Depreciation and amortization rose $7 in Q2 and $10 in the first half, primarily due to Buckthorn Solar reaching commercial operation in July 2018.
- Acquisitions and investments included the Duquesne University district energy system, acquired for approximately $107, and the Oahu and Kawailoa solar partnerships. The company committed an estimated $111 of net corporate capital, subject to adjustment, toward repowering the Wildorado and Elbow Creek wind facilities.
- Debt refinancings at South Trent and Tapestry extended maturities and reduced borrowing spreads; management said they are expected to produce debt-service savings.
Outlook, risks and contingencies
- PG&E bankruptcy: PG&E’s January 2019 Chapter 11 filing triggered defaults under related PPAs and project financing agreements. The affected assets include interests in six solar facilities totaling 480 MW and the 720 MW Marsh Landing plant. Approximately $1.3 billion of related debt was classified as current, and distributions from affected projects are restricted. As of August 5, the company said its PG&E contracts continued to operate normally and it expected them to continue; it had obtained some lender forbearance agreements and was seeking others. Management said liquidity, operating cash flows and revolver availability should be adequate, while noting capital allocation would be evaluated during the bankruptcy.
- CVSR fire: A June 5 fire damaged infrastructure but not solar arrays. The facility returned to full operation July 1. Management estimated approximately $9 of lost revenue for the full year and assumed insurance recovery for repair work by year-end.
- Other legal matter: Nebraska Public Power District alleged defaults under PPAs for the Laredo Ridge and Elkhorn Ridge wind projects. Courts entered interim injunctions preventing termination while litigation proceeds; Clearway said it considers the allegations meritless and will defend the PPAs.
- Growth and dividend outlook: The company seeks to grow cash available for distribution through contracted asset acquisitions and investments. It expects comparable dividends to continue in the foreseeable future, but dividends remain subject to available capital, market conditions, legal requirements and contractual restrictions.
- Additional risks: Risks include weather and resource variability, outages, counterparty performance, interest and commodity prices, substantial indebtedness, access to capital, regulatory changes, and the transition of services from NRG to Clearway Energy Group. The filing reports no material changes to the risk factors in the 2018 Form 10-K. It also says disclosure controls were effective at quarter-end.
Key investor verification points
- Track PG&E bankruptcy developments, lender forbearances, restricted project cash and the classification or repayment status of the related $1.3 billion debt.
- Assess whether operating cash flow and available liquidity—particularly unrestricted cash—can support debt service, capital commitments and dividends.
- Verify actual CVSR insurance proceeds and outage-related losses, and monitor renewable generation trends and the Elbow Creek hedge.
- Monitor the $111 repowering commitment, project completion and financing for the Oahu and Kawailoa projects, and the expected cash returns from these investments.
- Review drivers of higher interest expense and the sensitivity of variable-rate debt and hedges; the filing estimates a 1% rate change would alter rolling 12-month market interest expense by approximately $3.8.