Business context and reporting period
NextEra Energy Partners, LP (NEP) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2017. NEP owns contracted wind and solar generation assets and natural gas pipeline assets through NEP OpCo. The filing’s comparative periods were retrospectively adjusted for common-control acquisitions. The request metadata names XPLR Infrastructure, LP, but the filing itself identifies NextEra Energy Partners, LP as the registrant.
Financial performance
Amounts below are in millions of dollars except per-unit data. Q2 means the three months ended June 30; H1 means the six months ended June 30.
| Metric | Q2 2017 | Q2 2016 | H1 2017 | H1 2016 |
|---|---|---|---|---|
| Operating revenue | $204 | $188 | $386 | $365 |
| Operating income | $88 | $82 | $164 | $156 |
| Net income | $50 | $41 | $95 | $35 |
| Net income attributable to NEP | $13 | $8 | $25 | $13 |
| Earnings per common unit | $0.24 | $0.19 | $0.46 | $0.33 |
| Distributions per common unit | $0.3650 | $0.3188 | $0.7175 | $0.6263 |
- Revenue rose about 9% in Q2 and 6% in H1 year over year. Renewable energy sales were $159 million in Q2 and $292 million in H1; Texas pipeline service revenue was $45 million and $94 million, respectively.
- Operating margin was approximately 43% in both Q2 periods and H1 periods. O&M expense increased to $61 million in Q2 and $114 million in H1, primarily reflecting higher incentive distribution rights (IDR) fees; turbine maintenance also contributed.
- Interest expense was $61 million in Q2 and $104 million in H1, down from $77 million and $162 million. Management attributed the reductions mainly to lower mark-to-market losses on interest-rate swaps.
- For H1, operating cash flow was $154 million versus $162 million; investing cash outflow was $268 million versus $880 million; financing cash inflow was $93 million versus $796 million. Cash and cash equivalents ended June at $128 million, down from $147 million at year-end 2016.
- At June 30, total debt, including current maturities, was approximately $4.015 billion, versus $3.586 billion at December 31, 2016. Total assets were $7.479 billion and total liabilities were $5.374 billion.
- Reported liquidity was $368 million, down from $484 million at year-end. It included $128 million cash, $74 million due under the CSCS agreement, available revolving and letter-of-credit capacity, net of borrowings and outstanding letters of credit. Restricted cash of $33 million was excluded.
Material changes and notable items
- On May 1, 2017, NEP acquired Golden West Wind Holdings from NEER for approximately $238 million plus $4 million of working capital, and assumed $184 million of liabilities related to differential membership interests. The asset owns an approximately 249-MW Colorado wind facility.
- NEP entered into an agreement to issue up to $550 million of Series A convertible preferred units by December 31, 2017. The units rank senior to common units and carry cumulative quarterly distributions initially set at $0.4413 per unit; distributions may be paid in cash, additional units, or both. The filing describes the commitment, not completion of the full issuance.
- NEP changed the estimated useful lives of certain wind equipment from 30 to 35 years effective January 1, 2017. This increased NEP-attributable net income by approximately $1 million in Q2 and $2 million in H1; the estimated full-year benefit was approximately $4 million.
- The approximately $200 million Texas pipeline acquisition indemnity holdback was released and paid during H1; $186 million appears as a financing cash outflow and $14 million as an operating cash outflow.
Outlook, risks and contingencies
- Management said operating cash flows and liquidity were expected to cover operating costs, capital expenditures, distributions, and liquidity commitments. Acquisitions, expansion, and distribution growth remain dependent in part on access to capital on acceptable terms. The filing provides no quantified earnings or cash-flow guidance.
- NEP authorized a $0.38-per-common-unit distribution on July 25, payable August 14, 2017 to holders of record August 7.
- Management cited favorable wind and solar resources as contributors to revenue growth. Renewable generation was 2,833 GWh in Q2 versus 2,617 GWh, and 5,564 GWh in H1 versus 5,345 GWh.
- Key risks include weather and project performance, turbine output below manufacturer estimates, pipeline integrity and operating risks, customer and contract concentration, financing and interest-rate exposure, and dependence on NEE/NEER for management and credit support. Cash sweeps can place subsidiary funds in accounts controlled by NEER affiliates; approximately $74 million was due under the CSCS arrangement at quarter-end.
- Canadian feed-in-tariff projects remain subject to audits of domestic-content compliance for up to seven years after commercial operation; failure could put contracts and revenues at risk. NEP also disclosed $405 million of minimum land-use commitments and $341 million of estimated asset-retirement obligations, largely classified as thereafter.
- NEP reported compliance with debt covenants at June 30. Its corporate credit ratings were Ba1 from Moody’s, BB from S&P, and BB+ from Fitch, each with a stable outlook. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether and when the $550 million preferred-unit issuance closes, and the resulting distribution priority, dilution, and potential conversion effects for common unitholders.
- How higher debt and variable-rate borrowings affect interest costs, covenant headroom, and cash available for distributions.
- Whether reported liquidity, including amounts due from related parties, remains accessible when needed and how CSCS cash sweeps operate in practice.
- Whether wind and solar generation, turbine performance, and pipeline contract volumes sustain the reported revenue and cash-flow trends.
- The full-year effect of the useful-life estimate change and the future accounting and income effects of the new standard for partial sales of nonfinancial assets.