Clearway Energy, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. Clearway owns contracted wind, solar, natural-gas generation and thermal infrastructure assets across North America. Its generation portfolio exceeded 5,272 MW, with an approximately 14-year weighted average remaining offtake-contract duration based on CAFD.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / prior period |
|---|---|---|
| Operating revenue | $217 million | $225 million |
| Operating income | $41 million | $49 million |
| Net income (loss) attributable to Clearway Energy, Inc. | $(20) million; $(0.18) per share | $16 million; $0.16 per share |
| Operating cash flow | $61 million | $65 million |
| Economic gross margin | $222 million | $222 million |
| Cash, cash equivalents and restricted cash | $298 million | $583 million at December 31, 2018 |
| Total liquidity | $752 million, including $454 million of revolving-credit availability | $1.037 billion at December 31, 2018 |
| Total debt, before unamortized costs and discounts | $5.887 billion | $6.044 billion at December 31, 2018 |
Interest expense rose $46 million to $101 million, primarily reflecting a $44 million year-over-year adverse change in interest-rate-swap fair value and debt issued in 2018. The filing reports a 13% effective tax rate and a $7 million tax benefit. The company used $26 million in investing activities and $320 million in financing activities; financing outflows included repayment of the 2019 convertible notes and dividends.
Material changes versus Q1 2018
- Revenue fell $8 million. Renewable gross margin declined $10 million, including a $7 million mark-to-market loss on a new Elbow Creek power hedge and lower wind and solar resources; Buckthorn Solar and the UPMC Thermal Project partly offset the decrease.
- Operating income fell $8 million, while attributable results shifted from $16 million of income to a $20 million loss, chiefly reflecting higher interest expense.
- Renewables generation/sales declined to 1.449 million MWh from 1.616 million MWh. Thermal sales increased; conventional generation fell, although conventional equivalent availability improved to 89% from 85%.
- Cash and cash equivalents decreased to $117 million from $407 million at year-end. Total debt declined, including repayment of the remaining $170 million principal of the 2019 convertible notes at maturity in February.
Outlook, risks and unusual items
- PG&E bankruptcy: PG&E filed for Chapter 11 on January 29, 2019. Clearway has exposure through PPAs covering six solar facilities totaling 480 MW and Marsh Landing at 720 MW. The filing cites approximately $1.4 billion of related net property, plant and equipment, $352 million of equity investments and $1.3 billion of associated borrowings. PPA and financing-agreement defaults led to approximately $1.3 billion of debt being classified as short-term; related project distributions are restricted. Clearway was seeking lender forbearance. As of May 6, PG&E had not assumed, rejected or sought to renegotiate the contracts.
- Dividend: The quarterly dividend was reduced from $0.331 to $0.20 per Class A and Class C share amid the PG&E situation. The board declared another $0.20 dividend for Q2, and management said comparable dividends were expected in the foreseeable future based on current circumstances, while emphasizing that capital allocation would be reassessed as the bankruptcy develops.
- Liquidity and debt: Reported liquidity includes $181 million of restricted cash, including $36 million in distribution reserves tied to PG&E-affected subsidiaries. Management believed liquidity, operating cash flow and revolver availability would be adequate for commitments, debt service, capital spending and dividends. The company reported compliance with required debt covenants at quarter-end.
- Other transactions: Clearway bought out the Wind TE Holdco tax-equity interest for $19 million and began consolidating the Oahu Solar Partnership, with $4 million contributed and $16 million payable. It retained an 18-month option to acquire Carlsbad from GIP on the previously agreed economics. Subsequent to quarter-end, it acquired the Duquesne University thermal system for approximately $107 million and refinanced Tapestry debt. Estimated 2019 maintenance capital expenditures were $30 million.
- Legal and operating risks: NPPD challenged alleged defaults under PPAs for the Laredo Ridge and Elkhorn Ridge wind projects; court-approved injunctions temporarily prevented termination while litigation proceeds. Other identified risks include weather and resource variability, counterparties, interest rates, commodity prices, regulation and access to capital. No specific annual revenue, earnings or CAFD guidance is provided in the supplied filing text.
Most important facts for investors to verify
- Developments in PG&E’s bankruptcy, PPA treatment, lender forbearance and access to cash from affected projects; approximately $1.3 billion of debt was classified as short-term.
- Whether restricted cash and revolver capacity remain sufficient, and whether the $0.20 quarterly dividend can be sustained.
- Drivers and prospective effects of the $101 million quarterly interest expense, including swap valuations and variable-rate exposure.
- Resolution and potential financial impact of the NPPD PPA litigation.
- Financing, completion and expected cash contribution of the Oahu, Carlsbad and Duquesne transactions.