Business context and reporting period
NextEra Energy Partners, LP (NEP; NYSE: NEP) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2023. NEP owns contracted renewable generation, battery storage and natural gas pipeline assets. At quarter-end, it held a 48.6% limited partner interest in NEP OpCo; NextEra Energy Equity held the remaining 51.4% noncontrolling interest. The filing identifies the registrant as NextEra Energy Partners, LP.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $350 million | $362 million | $650 million | $643 million |
| Operating income | $64 million | $133 million | $67 million | $167 million |
| Net income (loss) | $89 million | $538 million | $(62) million | $870 million |
| Net income attributable to NEP | $49 million | $219 million | $34 million | $363 million |
| EPS attributable to NEP | $0.53 | $2.61 | $0.38 | $4.33 |
| Operating margin (calculated) | 18.3% | 36.7% | 10.3% | 26.0% |
Q2 renewable energy sales were $293 million and Texas pipeline service revenue was $57 million. For the first half, those amounts were $537 million and $113 million, respectively. The filing does not present a standalone cash-flow or profit margin measure beyond the reported financial statements.
Cash flow, balance sheet and liquidity
- First-half operating cash flow was $296 million, down from $409 million. Investing cash outflow was $430 million, versus $302 million; financing provided $478 million, versus a $1 million outflow.
- At June 30, cash and cash equivalents were $587 million, total assets $23.6 billion, and total debt including current maturities $6.491 billion, compared with $5.288 billion at December 31, 2022. Current debt maturities were $573 million.
- Reported liquidity was $2.645 billion, including cash, $2.5 billion of revolving credit facilities (less borrowings and letters of credit), $43 million due under the CSCS agreement and $178 million of expected NEP Renewables IV final funding. Management said liquidity and operating cash flows were expected to cover operating needs, maintenance capital expenditures, distributions and liquidity commitments.
- Approximately 88% of long-term debt was fixed-rate or financially hedged. NEP reported compliance with financial debt covenants at quarter-end.
Material changes and unusual items
- Q2 revenue fell $12 million year over year, mainly from approximately $52 million of unfavorable renewable resource conditions, partly offset by revenue from projects acquired in 2022. First-half revenue rose $7 million, as acquisition-related revenue and market prices partly offset approximately $69 million of lower revenue primarily from unfavorable resource.
- Operating income declined in both comparisons. Depreciation and amortization increased $30 million in Q2 and $60 million in the first half, primarily due to acquired projects. First-half O&M expense also increased, although lower corporate costs and IDR fees partly offset higher project costs.
- Reported interest expense is highly affected by derivative fair-value changes: Q2 included $38 million of gains in 2023 versus $461 million of gains in 2022; first-half 2023 included $123 million of losses versus $790 million of gains in 2022. These mark-to-market swings drove much of the reported earnings comparison.
- NEP acquired interests in approximately 688 MW of wind and solar facilities in June for total consideration of $598 million, including assumed debt and noncontrolling interests. It also spent $666 million net to acquire subsidiary interests during the first half and $807 million on capital expenditures and other investments.
- NEP issued approximately 5.1 million units through its ATM program for $314 million net proceeds in the first half and issued about 1.7 million units in an exchange with NEE Equity. It bought out 50% of the originally issued Class B interests in STX Midstream for approximately $390 million.
- The MSA was amended to suspend IDR fee payments for calendar quarters beginning January 1, 2023 through December 31, 2026. The board authorized a $0.8540 per-unit distribution payable August 14, 2023; $0.8425 per unit was paid during Q2.
Outlook, risks and contingencies
NEP announced a plan to sell its natural gas pipeline assets, with expected sales of the Texas pipeline assets in late 2023 and its Meade ownership interest in 2025. The filing states that the plan may not succeed on adequate terms; proceeds and timing are not guaranteed. A subsidiary also had an approximately $90 million funding commitment for a pipeline project expected to begin operations in Q4 2023 and included in assets expected to be sold.
Key risks include variable wind and solar resources, severe weather and operational interruptions; reliance on a limited number of customers and contract renewals; substantial debt, refinancing and access-to-capital risks; restrictions on subsidiary distributions; interest-rate and derivative volatility; and dependence on NEE-related credit support and services. At June 30, approximately $43 million of cash-sweep funds were held by NEE affiliates and included in amounts due from related parties. NEECH or NEER guaranteed, indemnified or supported approximately $3.8 billion of obligations. NEP reported no material changes to previously disclosed risk factors and no legal proceedings in the filing.
Important facts for investors to verify
- Progress, expected timing, sale proceeds and any conditions for the planned Texas pipeline and Meade divestitures.
- Whether cash flow, available liquidity and financing access can support debt service, distributions, acquisitions and planned capital needs.
- How resource conditions and derivative mark-to-market changes affect recurring earnings and cash generation.
- Acquisition integration, remaining construction costs and NEER reimbursements, including related-party balances and cash sweeps.
- Debt maturities, variable-rate exposure, covenant headroom and the impact of unit issuance on per-unit distributions and ownership.