Clearway Energy, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in millions of dollars unless noted. Clearway owns contracted renewable generation and natural-gas generation assets. On June 30, it reported 7,710 net MW of generation capacity, including 5,000+ net MW of wind and solar. The Thermal Business was sold on May 1.
Financial performance and position
- Q2 revenue: $368, down $12 (3%) from $380 a year earlier. Six-month revenue was $582, down $35 (6%) from $617. Six-month renewable generation and sales rose to 7.735 million MWh from 5.900 million MWh.
- Q2 earnings: Operating income was $1,406 versus $133, and net income attributable to Clearway was $570 versus $35. These results included a $1,291 gain on the Thermal sale; the filing does not provide a normalized earnings figure excluding the gain. Q2 diluted EPS was $4.89 versus $0.30.
- Six-month earnings: Operating income was $1,353 versus $119; net income attributable to Clearway was $538 versus $38; diluted EPS was $4.62 versus $0.32. The $1,291 sale gain was the principal unusual item. Six-month income tax expense was $224, compared with a $13 tax benefit in 2021.
- Cash flow: Operating cash flow was $279 for the first half, versus $241. Investing cash flow was positive $1,331, including $1,457 of Thermal sale proceeds; financing cash flow was negative $976. Cash, cash equivalents and restricted cash totaled $1,288 at June 30, versus $654 at year-end 2021.
- Debt and liquidity: Total debt was $7,127, including $457 current and $6,605 long-term debt net of issuance costs and premiums. The company had $1,696 of stated liquidity, including $1,288 cash and restricted cash and $408 of revolver availability; $333 of cash was restricted. No revolver borrowings were outstanding, with $87 of letters of credit. The company repaid its $335 bridge loan and $305 of revolver borrowings using sale proceeds.
- Margins: The filing does not provide a clear standalone margin measure. Results are affected by the sale gain, non-cash derivative mark-to-market changes, and the Thermal Business sale during the quarter.
Material changes and outlook
- The Thermal sale generated approximately $1.46 billion net proceeds before approximately $18 million of transaction expenses and a $1.29 billion gain. Remaining proceeds were held in cash and cash equivalents after debt repayment.
- Revenue comparisons reflect higher renewable generation and acquired assets, offset by the Thermal sale and increased unrealized commodity-hedge losses. Six-month revenue also compares against a $50 million loss in February 2021 associated with Texas extreme-weather obligations.
- Management said liquidity, operating cash flows and revolver availability should be adequate for commitments, debt service, capital spending, acquisitions and dividends. It expects comparable cash dividends to continue in the foreseeable future, subject to capital, market and legal constraints. The August 1 declared dividend was $0.3604 per Class A and Class C share, payable September 15.
- No full-year earnings or CAFD guidance is stated in the provided filing text. The company estimated $30 million of 2022 maintenance capital expenditures; actual spending may vary.
- A binding agreement to acquire the 413 MW Capistrano wind portfolio was signed in June. After assumed non-recourse debt, a $10 million development-rights fee and expected adjustments, Clearway estimated its corporate capital commitment at $110–$130 million, funded from cash; closing was expected in the second half of 2022, subject to approvals.
- TotalEnergies agreed to acquire 50% of GIP’s interest in CEG; closing was expected in the second half of 2022, subject to customary conditions and regulatory approvals.
Risks, contingencies and unusual items
- Commodity-contract derivative liabilities were $353; total derivative liabilities were $355 and assets $44. Fair-value changes can materially affect reported revenue and earnings. The filing estimates a $7 change in net power-derivative value for a $0.50/MWh price move across contract terms.
- Variable-rate debt exposes the company to interest-rate risk; a 100-basis-point move was estimated to change rolling 12-month market interest expense by approximately $1. Fair value of debt was $6.62 billion versus $7.13 billion carrying value.
- Georgetown, Texas, is litigating over the Buckthorn Solar PPA, alleging fraud and breach and seeking cancellation and damages. Buckthorn denies the allegations and is pursuing counterclaims; trial was expected in June 2023. The company says it cannot predict the outcome or reasonably estimate potential liability.
- PG&E, a significant PPA counterparty, was rated below investment grade. Other disclosed risks include generation outages, weather and resource variability, counterparty performance, regulation, access to capital and substantial indebtedness. The company reported compliance with debt covenants and no material change to previously disclosed risk factors.
- The company estimated it would use $840 million of federal NOL carryforwards from the sale and did not expect material federal income-tax payments through 2027; it expected state income-tax payments of approximately $12 million before year-end 2022 and $16 million by April 15, 2023.
Important facts for investors to verify
- How much recurring earnings and CAFD the remaining portfolio generates after the Thermal sale, separate from sale gains and derivative mark-to-market effects.
- Use of sale proceeds, cash availability after restricted balances, and progress in reducing debt and meeting project-level obligations.
- Completion, funding and expected returns for the Capistrano acquisition and Mililani I project, including repayment of Mililani’s tax-equity bridge loan.
- Whether contracted cash flows and operating performance support the dividend, particularly as contracts expire and market, weather and counterparty risks evolve.
- Developments in the Georgetown litigation and the TotalEnergies–GIP transaction.