Filing summary
Entity and period: The supplied 10-Q is for NextEra Energy Partners, LP (NEP), for the quarter and six months ended June 30, 2020. The request identifies XPLR Infrastructure, LP, but that is not the registrant named in this filing.
Business context and results
NEP owns contracted wind and solar generation projects and natural gas pipeline interests. It consolidates NEP OpCo, in which it held an approximately 39.2% limited partner interest; NEE Equity held the remaining 60.8% noncontrolling interest. Financial figures below are in millions except per-unit amounts.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $253 | $219 | $465 | $397 |
| Operating income | $89 | $67 | $138 | $103 |
| Net income (loss) | $127 | $(124) | $(593) | $(244) |
| Net income (loss) attributable to NEP | $47 | $(28) | $(176) | $(49) |
| Basic earnings (loss) per common unit | $0.71 | $(0.49) | $(2.68) | $(0.88) |
- Q2 operating margin was approximately 35.2%, versus 30.6% a year earlier; six-month margin was approximately 29.7%, versus 25.9%.
- Six-month operating cash flow was $259, versus $130. Investing cash outflow was $149, compared with $1,701; financing cash flow was an outflow of $142, compared with an inflow of $1,583. Cash, cash equivalents and restricted cash ended the period at $100.
- At June 30, cash and cash equivalents were $96. Long-term debt, including current maturities, had a carrying value of $4,195. Total liabilities were $6,002; total equity was $6,283.
- Reported liquidity was $737, including $96 cash, $58 due under the CSCS agreement, and $583 of available revolving capacity after borrowings and letters of credit.
Material changes and drivers
- Revenue increased 16% in Q2 and 17% for the first half. Management attributed the growth to the June 2019 project acquisitions and, additionally, higher wind and solar resources. The 2019 acquisition added about 611 MW of net generation capacity; Meade pipeline interests were acquired in November 2019.
- Operating income rose in both comparative periods despite higher O&M and depreciation. First-half O&M increased $23, primarily from higher distribution-linked IDR fees, the acquired projects, and other project operating costs.
- Interest expense included substantial derivative mark-to-market effects. Q2 2020 included a $56 gain in interest expense, including a one-time $19 gain from correction of a prior swap valuation; Q2 2019 included a $160 loss. For the first half, 2020 included a $739 loss versus a $278 loss in 2019. Management attributed the year-over-year first-half increase in interest expense to $461 of unfavorable mark-to-market activity.
- First-half net loss was driven principally by derivative valuation changes, not by a comparable decline in operating income. The cash flow statement added back a $736 change in derivative-contract value.
Liquidity, outlook, risks and unusual items
- Management said liquidity and operating cash flows were expected to cover operating and maintenance needs, maintenance capital expenditures, distributions and liquidity commitments. Future acquisitions, expansions and distribution growth remain dependent on access to capital on acceptable terms. The filing does not provide a quantified earnings or distribution-growth forecast.
- Planned capital spending included approximately $128 for a Texas pipeline expansion expected in service in Q4 2020, $90 for a Central Penn Line expansion scheduled for mid-2022, and $200 for repowering two wind facilities expected to be completed in 2020. Remaining commitments under construction-related contracts were approximately $205 at June 30.
- The board authorized a common-unit distribution of $0.5775, payable August 14, 2020. NEP paid $0.5550 per unit in Q2, compared with $0.4825 in Q2 2019.
- PG&E emerged from bankruptcy on July 1, 2020, curing related financing defaults that had blocked project cash distributions. NEP received approximately $65 from Desert Sunlight on July 23. About $19 of first-half NEP-attributable net income related to PPAs with PG&E.
- NEP reported no material COVID-19 impact to operations, financial performance or liquidity to date, but stated the duration and ultimate effects were uncertain. It highlighted weather and resource variability, project and pipeline operations, counterparty performance, financing access, interest-rate exposure, and reliance on NEE affiliates and related-party arrangements as risks.
- Net interest-rate derivative liabilities were $1,154 at June 30, up from $418 at year-end 2019; the net notional amount of interest-rate contracts was approximately $7.1 billion. A hypothetical 10% decrease in rates was estimated to increase net derivative liabilities by about $71.
Important facts for investors to verify
- Confirm the intended issuer: this document names NextEra Energy Partners, LP, not XPLR Infrastructure, LP.
- Assess how much reported earnings volatility reflects derivative mark-to-market movements and distinguish those effects from operating cash generation.
- Review the availability and terms of revolving capacity, CSCS-related amounts, and NEER’s obligations to return cash-sweep funds; $58 was due under the CSCS agreement at quarter-end.
- Track execution, final costs and funding for pipeline expansions and wind repowering, alongside the $205 of remaining construction commitments.
- Confirm the effect of PG&E’s emergence and the subsequent $65 distribution on project-level cash availability and financing compliance.
- Evaluate the sustainability of distributions against operating cash flows, capital spending, debt service, and restrictions in subsidiary financing agreements.