Filing summary
Registrant identification: The supplied filing is NextEra Energy Partners, LP (NEP), not XPLR Infrastructure, LP. It is NEP’s Form 10-K for the fiscal year ended December 31, 2017; the filing was signed February 20, 2018. Amounts below are in U.S. dollars unless indicated otherwise.
Business context and reporting period
NEP is a publicly traded limited partnership focused on contracted clean-energy assets. At year-end 2017, its portfolio included approximately 3,728 MW of renewable generation capacity and seven contracted Texas natural-gas pipeline assets. NEP consolidated NEP OpCo, although it held approximately 34.9% of its limited-partner interests; NEE Equity held the remaining 65.1%.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Operating revenue | $807 million | $772 million |
| Operating income | $307 million | $299 million |
| Net income | $109 million | $380 million |
| Net income (loss) attributable to NEP | ($65 million) | $82 million |
| Basic and diluted earnings (loss) per common unit | ($1.20) | $1.88 |
| Cash from operating activities | $413 million | $415 million |
| Capital expenditures in cash-flow statement | $349 million | $861 million |
| Cash and cash equivalents at year-end | $154 million | $150 million |
| Long-term debt, including current maturities | $4.317 billion | $3.586 billion |
| Total assets | $8.395 billion | $8.661 billion |
| Common-unit distributions paid per unit | $1.4900 | $1.2975 |
Revenue comprised $613 million of renewable-energy sales and $194 million of Texas pipeline service revenue. Operating margin was approximately 38.0% in 2017 versus 38.7% in 2016. The filing does not present a defined free-cash-flow measure; operating cash flow less reported capital expenditures was approximately $64 million in 2017. Total liquidity, including cash, amounts due under the cash-sweep and credit-support agreement, and available facilities, was approximately $1.005 billion, compared with $487 million in 2016.
Material changes versus the prior comparable period
- Revenue increased $35 million, primarily from higher renewable-energy sales following the start of operations at two wind facilities in late 2016, and higher pipeline service revenue.
- Operating income rose $8 million, while operating and maintenance expense increased $35 million, including higher incentive distribution rights fees and pipeline costs.
- NEP reported a $65 million attributable loss versus $82 million attributable income in 2016. The 2017 result included an approximately $101 million income-tax charge from tax reform, which reduced the value of deferred tax assets. The effective tax rate was approximately 61%, versus 13% in 2016.
- 2016 included a $189 million favorable revaluation of contingent consideration related to the Texas pipeline acquisition; there was no comparable gain in 2017.
- Interest expense increased $47 million, primarily due to mark-to-market losses and additional borrowing. NEP issued $300 million of 1.50% convertible notes and NEP OpCo issued $1.1 billion of senior notes in 2017; the filing also describes repayment of $950 million of term loans and other loans.
- NEP acquired additional wind assets and an additional interest in Desert Sunlight in 2017. Operating cash flow was nearly unchanged, while acquisition-related investing outflows remained substantial.
- Common-unit distributions paid per unit increased from $1.2975 to $1.4900. NEP also issued approximately $550 million of preferred units, carrying senior distribution rights.
Outlook, commentary, risks, and unusual items
- Management said liquidity and operating cash flows were expected to meet operating, capital, distribution, and liquidity needs. Growth, acquisitions, and distribution increases remain dependent in part on access to debt and equity markets on acceptable terms. No specific earnings or distribution-growth guidance is provided in the supplied filing text.
- NEP reported no expected significant capital expenditures for 2018–2022 apart from spending associated with potential acquisitions or expansion opportunities; estimates may change.
- Cash generation and distributions are exposed to variable wind and solar resources, weather, equipment performance, outages, pipeline volumes, contract renewals, counterparty credit, and restrictions in subsidiary financing agreements.
- Customer and geographic concentration is notable: three counterparties—Pacific Gas and Electric Company, Mex Gas Supply S.L., and the Ontario IESO—accounted for approximately 17%, 16%, and 14% of 2017 consolidated revenue, respectively. The filing also identifies Pemex-related collection and sovereign-immunity risks.
- Other principal risks include substantial debt and covenants, reliance on NEE affiliates for management, operations, credit support and cash-sweep arrangements, related-party conflicts, potential dilution, and changes to renewable-energy incentives or regulation. Project assets and pipelines are generally pledged as collateral.
- The 2017 tax-reform adjustment was described as provisional pending further analysis. Management reported no impairment charges in 2017 and no material legal proceedings; the auditor issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Confirm the issuer: this filing is for NextEra Energy Partners, LP, rather than XPLR Infrastructure, LP.
- Review the tax-reform charge, deferred-tax asset remeasurement, and any subsequent finalization of the provisional accounting.
- Assess the sustainability of distributions against cash generated by operations, debt service, subsidiary distribution restrictions, preferred-unit distributions, and incentive distribution fees.
- Examine debt maturities, variable-rate exposure, refinancing needs, and the terms and potential dilution associated with convertible notes and preferred units.
- Evaluate the effects of counterparty concentration, including exposure to Pemex and NEE-affiliate cash-sweep and credit-support arrangements.
- Consider the comparability limits from retrospective accounting for common-control acquisitions and the one-time 2016 contingent-consideration gain.