Business context and reporting period
NextEra Energy Partners, LP (NEP; the registrant named in this filing) filed this Form 10-K for the fiscal year ended December 31, 2018. It owns contracted wind and solar generation projects and Texas natural-gas pipelines. At year-end, its portfolio comprised approximately 4,859 MW of generation capacity, including non-economic interests, and pipeline capacity of about 3 Bcf per day. NEP owned a 35.6% limited-partner interest in NEP OpCo; NEE Equity held the remaining 64.4% limited-partner interest.
The filing is an annual report, not a standalone fourth-quarter filing. It reports fourth-quarter results separately in unaudited quarterly data. The supplied filing identifies the registrant as NextEra Energy Partners, LP, not XPLR Infrastructure, LP.
Key financial metrics
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Operating revenue | $771 million | $807 million |
| Operating income | $443 million | $312 million |
| Net income | $267 million | $114 million |
| Net income (loss) attributable to NEP | $167 million | $(64) million |
| Basic earnings (loss) per common unit | $3.05 | $(1.18) |
| Cash from operating activities | $362 million | $413 million |
| Cash used in investing activities | $(763) million | $(1,368) million |
| Cash from financing activities | $371 million | $959 million |
| Long-term debt, including current maturities | $3.435 billion | $4.317 billion |
| Cash and cash equivalents | $147 million | $154 million |
| Reported liquidity position | $1.127 billion | $1.005 billion |
| Common-unit distributions paid per unit | $1.7125 | $1.4900 |
Revenue declined about 4%. Renewable energy sales fell $62 million, mainly reflecting the Canadian asset sale; pipeline service revenue rose $26 million, primarily from new contracts. Operating income included a $153 million gain on the Canadian sale; excluding that gain, operating income was approximately $290 million. Reported net income also reflected noncontrolling interests, preferred distributions and significant accounting effects. The filing does not present a conventional consolidated gross-margin measure.
For fourth quarter 2018, revenue was $155 million versus $197 million in fourth quarter 2017; net loss was $117 million versus $56 million, and net loss attributable to NEP was $22 million versus $91 million. Fourth-quarter basic loss per unit was $0.39 versus $1.67. The filing notes quarterly results are affected by seasonality and other timing factors.
Material changes versus prior comparable period
- NEP sold Canadian Holdings in June 2018, disposing of 396 MW of generation assets for approximately $563 million in cash proceeds (before final adjustments); the buyer assumed about $676 million of debt. NEP recorded a $153 million pretax gain. The sale reduced renewable revenues, but improved cash proceeds and reduced debt.
- In December 2018, NEP acquired NEP Renewables for approximately $1.304 billion of consideration, including assumed noncontrolling interests and debt. It also sold a 100% noncontrolling Class B interest in that subsidiary for approximately $750 million.
- Cash from operations decreased $51 million. Investing cash outflow narrowed, chiefly due to Canadian sale proceeds and lower capital expenditures, partly offset by higher acquisition spending.
- Total debt declined approximately $882 million year over year. However, $641 million of project debt with scheduled maturities in 2033–2038 was classified as current following financing defaults associated with the PG&E bankruptcy.
- NEP adopted accounting guidance for partial sales of nonfinancial assets, reclassifying a $1.442 billion differential-membership-interest liability into noncontrolling interests. The filing also reports a $370 million differential-membership-interest income effect in 2018, presented through noncontrolling-interest attribution under the new accounting.
- Common-unit distributions increased from $1.49 to $1.7125 per unit for the year. Preferred distributions are cumulative and senior to common distributions.
Outlook, commentary, risks and unusual items
- Management said liquidity and operating cash flows were expected to cover operating and maintenance costs, capital expenditures, distributions and liquidity commitments. Future acquisitions, expansions and distribution growth depend in part on access to capital markets on acceptable terms. No quantified earnings or distribution-growth guidance is provided.
- NEP anticipated no significant capital expenditures in 2019–2023 apart from opportunities that arise, while identifying approximately $128 million for a potential Texas pipeline expansion expected to enter service in fourth quarter 2020, subject to regulatory approvals.
- Major near-term risk: PG&E filed for Chapter 11 on January 29, 2019. PG&E represented approximately 18% of 2018 consolidated revenue. The Genesis and Shafter project financings experienced events of default; lenders could accelerate debt or foreclose, and PG&E could seek to reject or renegotiate PPAs. No impairment was recorded at year-end based on estimated project cash flows.
- Mex Gas Supply S.L. also represented approximately 18% of 2018 consolidated revenue. The filing highlights counterparty and collection risks, including the challenges of enforcing contracts against Pemex-related counterparties.
- Other material risks include variable wind and solar resources, weather and equipment performance, pipeline supply and safety, refinancing and covenant restrictions, interest-rate exposure, regulatory or incentive changes, and reliance on NEE affiliates for management, credit support and cash-sweep arrangements.
- Interest expense increased $49 million, primarily due to unfavorable derivative mark-to-market activity. Only about 2% of debt was exposed to floating-rate movements at year-end, but derivatives had a net liability position of approximately $105 million.
- Auditors issued unqualified opinions on the financial statements and internal controls. Management and the auditor concluded internal control over financial reporting was effective as of December 31, 2018.
Important facts for investors to verify
- Confirm the issuer and period: the provided filing is NextEra Energy Partners, LP’s FY 2018 10-K, rather than a filing under the XPLR Infrastructure, LP name.
- Track PG&E’s bankruptcy outcome, the status of Genesis and Shafter financing defaults, any lender action, PPA treatment and subsequent impairment assessments.
- Review the quality and availability of the reported $1.127 billion liquidity position, including revolver capacity, related-party balances, project-level restrictions and cash-sweep arrangements.
- Assess the ability to sustain distributions after preferred-unit obligations, IDR fees, debt service, noncontrolling interests and potential future equity issuance or dilution.
- Check whether the proposed $128 million pipeline expansion receives approvals, remains within budget and secures adequate contracted capacity.
- Reconcile the 2018 earnings improvement with the Canadian-sale gain, differential-membership accounting and the effects of the governance and tax-accounting changes.