Clearway Energy, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Dollar amounts are in millions unless stated otherwise.
Business context
Clearway owns contracted energy assets across North America: approximately 8,123 net MW at quarter-end, including about 5,500 net MW of wind and solar and 2,472 net MW of conventional generation. Management reported an approximately 11-year weighted-average remaining offtake-contract duration based on CAFD. On September 12, 2022, TotalEnergies acquired half of GIP’s interest in Clearway Energy Group LLC, making GIP and TotalEnergies equal owners of CEG.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Operating revenue | $340 | $351 | $922 | $968 |
| Operating income | $105 | $89 | $1,458 | $208 |
| Net income (loss) | $62 | $25 | $1,114 | ($19) |
| Net income attributable to Clearway | $32 | $21 | $570 | $59 |
| Basic and diluted EPS | $0.28 | $0.18 | $4.89 | $0.51 |
Q3 operating margin was approximately 31% versus 25% in the prior-year quarter. Nine-month operating income and earnings were substantially boosted by the $1,291 gain on the Thermal Business sale; they are not directly indicative of recurring performance. Nine-month revenue included $195 of mark-to-market losses on economic hedges, versus $90 of losses in 2021.
Cash flow: For the nine months, operating cash flow was $607, compared with $529 in 2021. Investing cash flow was a net inflow of $1,100, largely reflecting $1,457 of Thermal sale proceeds; financing cash flow was a net outflow of $1,205. Capital expenditures were $95, including $16 of maintenance spending.
Debt and liquidity: At September 30, cash and cash equivalents were $793 and restricted cash was $363. Total liquidity, including $383 of revolver availability, was approximately $1.539 billion; restricted cash is not generally available for unrestricted corporate use. The debt note reports $7.073 billion of total debt before debt issuance costs and other balance-sheet adjustments. The company had no revolver borrowings and $112 of letters of credit outstanding. It reported compliance with required debt covenants. Debt fair value was $6.30 billion versus carrying value of $7.08 billion.
Dividends: Class A and Class C dividends were $0.3604 per share for Q3, up from $0.3345 a year earlier. On November 2, the company declared $0.3672 per share for payment in December.
Material changes and management commentary
- Thermal sale: Completed May 1 for approximately $1.46 billion net proceeds, excluding about $18 million of transaction expenses. Proceeds funded debt repayment, with the remainder held in cash and cash equivalents. The sale generated the $1.291 billion gain and contributed to $237 of nine-month income tax expense.
- Portfolio transactions: Acquired the 413-MW Capistrano Wind Portfolio in August for approximately $239 million net consideration; its PPAs had about 10 years of weighted-average remaining duration. Acquired the 39-MW Mililani I solar project in March and, after quarter-end, the 36-MW Waiawa solar project under construction.
- Operations and costs: Q3 renewable generation/sales rose to 3.367 million MWh from 2.740 million, reflecting acquisitions and higher wind realized prices. Forced outages at El Segundo and Walnut Creek reduced conventional capacity revenue; conventional equivalent availability was 93.9%, versus 99.8% a year earlier. Management cited higher renewable O&M costs from acquisitions, maintenance timing, and material costs.
- Debt actions: Thermal sale proceeds funded repayment of the $335 million bridge loan and $305 million of revolver borrowings. The company also refinanced certain project debt through a $190 million Viento term loan.
- Outlook: Management stated that current liquidity, operating cash flows, and revolver availability should be adequate for commitments, debt service, capital needs, and dividends. It expects comparable dividends to continue, subject to available capital, market conditions, and contractual and legal requirements. The filing provides no specific earnings or CAFD forecast.
- Taxes and policy: The company estimated no material federal income tax through 2027, but expected state income tax payments, including approximately $23 million by April 15, 2023. It did not anticipate a material financial-statement effect from the Inflation Reduction Act or application of its corporate minimum tax.
Risks, contingencies, and unusual items
- Commodity derivative liabilities were $370, all Level 3, and nine-month commodity mark-to-market losses were $191. The company noted valuation sensitivity to market prices and illiquid power-market inputs. A $0.50/MWh change across derivative contract terms would change net power-derivative value by approximately $7 million.
- Interest-rate exposure remains, although swaps mitigate it. A 100-basis-point rate change was estimated to alter rolling 12-month market interest expense by approximately $1 million. The company also disclosed material debt, refinancing, counterparty, weather, outage, regulatory, and capital-access risks.
- Some project PPAs are with PG&E, whose credit rating the filing describes as below investment grade. The company’s pro-rata share of non-recourse debt at unconsolidated affiliates was approximately $333 million.
- The City of Georgetown litigation concerning the Buckthorn Westex PPA remained in discovery, with trial expected in June 2023. The company said it would defend the case; it could not predict the outcome or estimate potential costs and liabilities.
- The proposed federal endangered-species reclassification of the northern long-eared bat could affect renewable facility siting and operations; the FWS decision was pending. The company reported no material COVID-19 operational or financial impact.
Important facts for investors to verify
- Recurring earnings and CAFD after excluding the one-time Thermal sale gain and volatile hedge marks; the filing text provided here does not give a clear CAFD value.
- How the sale proceeds, debt repayments, and remaining cash translate into ongoing leverage, interest costs, and distribution capacity.
- Operational recovery and capacity revenues at El Segundo and Walnut Creek, and the cost and performance contribution of recent acquisitions.
- Mililani I construction completion and repayment of its tax-equity bridge loan, along with Waiawa project construction and commercial-operation timing.
- Exposure to Level 3 commodity valuations, PG&E and other counterparties, and the resolution and potential financial effect of the Buckthorn litigation.
- Dividend sustainability given restricted cash, project-level debt limitations, and the company’s stated dependence on available capital and market conditions.