Business context and reporting period
NextEra Energy Partners, LP (the registrant in this filing; identified in the request as XPLR Infrastructure, LP) reported unaudited results for the quarter ended March 31, 2019, compared with the quarter ended March 31, 2018. Its portfolio comprises contracted wind and solar generation and natural-gas pipeline assets. The 2018 comparison reflects retrospective lease-accounting adjustments.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Operating revenue | $177 million | $212 million |
| Operating income | $34 million | $92 million |
| Operating margin | 19.2% | 43.4% |
| Net loss | $121 million | $19 million |
| Net income (loss) attributable to NEP | $(22) million | $74 million |
| Basic loss/earnings per common unit | $(0.38) | $1.36 |
| Cash from operating activities | $19 million | $53 million |
| Cash from (used in) investing activities | $21 million | $(6) million |
| Cash used in financing activities | $(62) million | $(48) million |
Interest expense was $155 million, up from $103 million; the company attributed the increase primarily to $65 million of unfavorable mark-to-market activity. Interest-rate derivative liabilities were $217 million at quarter-end, versus $104 million at December 31, 2018. Total debt, including current maturities, was $3.413 billion; $694 million was classified as current. Cash and cash equivalents were $127 million. Reported liquidity was $1.083 billion, including $900 million of undrawn revolving facilities and $42 million due under the CSCS agreement, net of outstanding letters of credit.
Material changes versus prior year
- Revenue fell $35 million. Renewable energy sales declined $33 million, mainly reflecting the 2018 Canadian asset sale and lower wind resource, partly offset by projects acquired in December 2018. Pipeline service revenue was $54 million versus $56 million.
- Operating expenses rose $23 million to $143 million, including higher O&M and depreciation following the December 2018 acquisition. Operating income declined $58 million.
- Operating cash flow decreased $34 million, primarily due to the Canadian sale and lower wind resource, partly offset by cash from acquired projects.
- NEP sold Canadian Holdings in June 2018. In December 2018, it acquired NEP Renewables, which owned projects totaling approximately 1,388 MW.
Outlook, risks and unusual items
- Management said liquidity and operating cash flows were expected to cover operating costs, capital expenditures, distributions and liquidity commitments. Future acquisitions and distribution growth depend in part on access to capital on acceptable terms; the filing provides no specific earnings or distribution-growth guidance.
- NEP agreed to acquire interests in wind and solar projects with approximately 611 MW of net capacity for approximately $1.02 billion, subject to customary conditions and regulatory approvals, with closing expected in Q2 2019.
- A third-party investor committed approximately $900 million for a noncontrolling interest in NEP Renewables II, subject to conditions. NEP described distribution-allocation and buyout terms, including a potential fixed pre-tax investor return of approximately 8.3% under the buyout mechanism.
- PG&E filed for Chapter 11 in January 2019. The filing says PG&E PPAs represented approximately 18% of 2018 consolidated revenue. Bankruptcy-related financing defaults blocked distributions from the Genesis and Shafter solar projects; approximately $38 million of project distributions were not made in Q1. $641 million of related project debt with scheduled maturities from 2033 to 2038 was reclassified as current. No impairment was recorded at March 31, 2019, but lenders could accelerate debt or foreclose, and PG&E could seek to reject or renegotiate PPAs.
- Common-unit distributions paid in Q1 were $0.465 per unit. The board authorized a $0.4825-per-unit distribution payable May 15, 2019. Preferred distributions included $6 million accrued for payment in May.
- Other principal risks include renewable-resource and weather variability, project and pipeline operating risks, counterparty credit exposure, interest-rate risk, financing restrictions, and dependence on NEE/NEER for management, credit support and return of swept funds.
Investor facts to verify
- PG&E’s treatment of NEP’s PPAs, the status of financing defaults and restrictions on project distributions, and any lender action.
- Completion, final consideration and financing of the approximately $1.02 billion project acquisition and the $900 million investor transaction.
- Cash-flow performance, available liquidity and debt maturity classification, including the ability to refinance or meet current obligations.
- Interest-rate derivative valuations and their effect on reported earnings and potential cash requirements.
- Whether management’s expected liquidity remains adequate to fund operations, distributions and planned growth.