Clearway Energy, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; comparisons are with Q2 2020 and the six months ended June 30, 2020. Clearway owns contracted renewable, conventional generation, and thermal energy assets across North America. At quarter-end it reported 7,255 MW of net generation capacity and a weighted-average remaining offtake-contract duration of about 13 years, measured by CAFD.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenue | $380 million | $329 million | $617 million | $587 million |
| Operating income | $133 million | $130 million | $119 million | $182 million |
| Net income (loss) | $32 million | $76 million | $(44) million | $(31) million |
| Net income attributable to Clearway Energy, Inc. | $35 million | $47 million | $38 million | $18 million |
| Operating cash flow | Not separately provided | Not separately provided | $241 million | $184 million |
Q2 operating margin was approximately 35% versus 40% a year earlier; six-month operating margin was approximately 19% versus 31%. The six-month operating margin decline reflects higher operating costs and depreciation, among other factors. Adjusted Gross Margin, a non-GAAP measure, was $432 million for Q2 versus $341 million and $706 million for the six-month period versus $609 million.
At June 30, total debt was approximately $8.03 billion, compared with $7.04 billion at December 31, 2020; long-term debt, net of current maturities and specified adjustments, was $7.43 billion. Total liabilities were $8.88 billion. Cash and cash equivalents were $138 million and restricted cash was $332 million. Reported liquidity was $810 million, including restricted cash and $340 million of revolver availability; $67 million was drawn and $88 million of letters of credit were outstanding at quarter-end. The company repaid the $67 million revolver balance in July.
For the six months, investing activities used $420 million, mainly for acquisitions and capital expenditures; financing activities provided $184 million. Dividends were $0.329 per Class A and Class C share in Q2. The company declared a subsequent quarterly dividend of $0.3345 per share, payable September 15, 2021.
Material changes versus the prior comparable period
- Q2 revenue rose $51 million, primarily from higher wind production and acquired or newly consolidated renewable assets, plus higher thermal volumes and pass-through gas prices. Six-month revenue increased $30 million, partly offset by approximately $50 million of Texas winter-weather settlement obligations.
- Q2 operating income increased $3 million, while six-month operating income fell $63 million. O&M costs and depreciation increased, substantially reflecting acquired assets; 2021 also included accelerated depreciation related to Pinnacle repowering.
- Q2 net income attributable to Clearway fell $12 million. The prior-year quarter included a $49 million gain on sale of an affiliate. Six-month attributable income increased $20 million, while consolidated net loss widened to $44 million.
- Six-month interest expense was $148 million versus $260 million in 2020, primarily reflecting a $128 million favorable year-over-year change in interest-rate swap fair value. This was partly offset by higher project-level debt. The company also recorded a $42 million debt-extinguishment loss in 2021, principally from retiring the 2025 Senior Notes.
- Major asset changes included acquiring additional interests in Agua Caliente and consolidating the project, acquiring the Rattlesnake wind project and Mt. Storm, and ongoing Pinnacle wind repowering. The Agua Caliente acquisition added $716 million of project debt to the consolidated balance sheet.
Outlook, commentary, risks, and unusual items
- Management said current liquidity, operating cash flows, and revolver availability should be adequate for commitments, debt service, capital spending, growth investment, and dividends. Dividend payments remain subject to available capital, market conditions, laws, and contractual restrictions; the filing does not provide a quantified earnings or CAFD forecast.
- Management estimated 2021 maintenance capital expenditures of $28 million; $12 million had been incurred in the first half. Pinnacle repowering was expected to reach commercial operations, with corporate capital funding, in the second half of 2021. The company expected to invest approximately $142 million in 2021 for specified Lighthouse wind project interests, subject to closing adjustments and milestones.
- February 2021 extreme Texas weather prevented certain wind projects from operating. The company recorded approximately $50 million of revenue reductions for settlement obligations, including third-party investor amounts; the first-quarter cash impact after investor contributions was approximately $25 million.
- Risks include weather and generation variability, power and fuel prices, counterparties, regulation, debt and capital-market access, and the ability to maintain dividends. PG&E is a significant PPA counterparty with a below-investment-grade credit rating. The company reported no material financial or operational impact from COVID-19 as of the report date, but noted continuing uncertainty.
- Material litigation included NPPD’s challenge to the Laredo Ridge and Elkhorn Ridge PPAs; the Laredo Ridge project had a favorable district-court ruling that NPPD appealed, while the related Nebraska state-court case remained stayed. Georgetown’s suit concerning the Buckthorn Solar PPA also remained pending. The company said it could not predict outcomes or reasonably estimate potential liabilities.
- As of June 30, the company reported compliance with required debt covenants. It identified potential exposure from fair-value changes in derivatives and interest rates; a 1% market-rate change was estimated to change rolling 12-month market interest expense by approximately $2 million.
Investor verification priorities
- Reconcile reported earnings with non-GAAP measures and separate operating performance from derivative fair-value movements, tax-equity allocations, and debt-extinguishment costs.
- Verify acquisition economics, project-level debt, and expected cash contributions for Agua Caliente, Rattlesnake, Mt. Storm, Pinnacle, and Lighthouse projects.
- Assess how much reported liquidity is restricted and confirm the post-quarter revolver repayment and remaining letter-of-credit usage.
- Track Texas weather settlement consequences, wind resource variability, and progress and costs of Pinnacle repowering.
- Monitor PG&E counterparty exposure, the NPPD and Georgetown litigation, and the company’s ability to sustain dividends while funding debt service and investment.