Clearway Energy, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; comparisons are with the corresponding 2020 periods. Amounts are in millions of dollars unless stated otherwise. Clearway owns a diversified portfolio of primarily contracted energy assets, including more than 4,700 net MW of wind and solar generation and more than 8,000 net MW of total assets. Its weighted-average remaining offtake-contract duration was approximately 13 years based on CAFD.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $351 | $332 | $968 | $919 |
| Operating income | $89 | $123 | $208 | $305 |
| Operating margin | 25.4% | 37.0% | 21.5% | 33.2% |
| Net income (loss) | $25 | $42 | $(19) | $11 |
| Net income attributable to Clearway | $21 | $32 | $59 | $50 |
| Basic and diluted EPS | $0.18 | $0.27 | $0.51 | $0.43 |
| Operating cash flow | Not separately provided | Not separately provided | $529 | $441 |
Margins: Operating margins above are calculated from reported operating income and revenue. The filing’s excerpt does not provide a clear quarter-specific operating cash flow, Adjusted EBITDA, or CAFD figure.
Cash, debt and liquidity: At September 30, cash and cash equivalents were $189, restricted cash $366, and total debt carrying value (including current maturities) approximately $7.9 billion. Total liquidity was reported as $898, including $343 of revolver availability; this includes restricted cash and should not be read as entirely unrestricted funds. Current debt maturities were $545. Stockholders’ equity was $3.0 billion. The company reported compliance with required debt covenants.
Changes versus prior comparable periods
- Q3 revenue rose $19, but operating income fell $34 and net income attributable to Clearway fell $11. For the nine months, revenue increased $49 while operating income declined $97; attributable income rose $9 despite a consolidated net loss.
- Renewables revenue growth reflected acquisitions and consolidation of projects, partly offset by $35 of Q3 and $90 of year-to-date mark-to-market economic hedge losses. Higher contract amortization, operating costs and depreciation also weighed on results.
- Operating and maintenance expense increased $18 in Q3 and $45 year to date, principally due to acquired renewable assets. Depreciation, amortization and accretion increased $29 in Q3 and $84 year to date, including accelerated depreciation associated with the Pinnacle repowering.
- Year-to-date interest expense fell $113, largely reflecting changes in the fair value of interest-rate swaps. Debt extinguishment losses increased to $42 from $9, including premiums and deferred financing cost write-offs related to the 2025 Senior Notes refinancing.
- Year-to-date operating cash flow increased $88 to $529. Investing cash outflow increased to $430 from $20, mainly reflecting acquisitions and capital expenditures. Financing cash outflow was $9, versus $301 in 2020.
Outlook, significant events and risks
- Thermal business sale: On October 22, 2021, the company agreed to sell its Thermal Business to a KKR affiliate for $1.9 billion, subject to customary adjustments and closing conditions. Management estimated net cash proceeds of approximately $1.3 billion after project debt assumption, taxes, obligations, transaction costs and required capital expenditures; closing was expected in the first half of 2022.
- Debt refinancing: In March 2021, Clearway issued $925 million of 3.75% notes due 2031 and repaid the $600 million 2025 notes for approximately $636 million. After quarter-end, it issued $350 million of 3.75% notes due 2032 and repurchased or redeemed the $350 million 2026 notes for approximately $359 million.
- Portfolio investment: During 2021 the company acquired additional interests in Agua Caliente and Rattlesnake and acquired Mt. Storm. It also signed an agreement to acquire the remaining 50% of the Utah Solar Portfolio for approximately $335 million, subject to approvals and closing conditions, expected in Q4 2021. Several development and repowering investments were also underway.
- Texas winter weather: February 2021 outages and inability of certain wind projects to produce required output led to approximately $50 million of revenue reductions for settlements, including third-party interests; estimated company cash impact was approximately $25 million.
- Dividends: Management said comparable cash dividends were expected to continue in the foreseeable future, subject to capital availability, market conditions, laws and contractual obligations. A $0.34-per-share quarterly dividend was declared after quarter-end, payable December 15, 2021.
- Risks and contingencies: Risks include weather and generation availability, commodity and interest-rate movements, counterparties, regulation, access to financing, debt restrictions and COVID-19 uncertainty. PG&E is identified as a significant counterparty with a below-investment-grade credit rating. The company reported no material COVID-19 financial or operational impact to date. A federal rule restoring the Migratory Bird Treaty Act’s prohibition on incidental take was scheduled to take effect December 3, 2021, potentially increasing compliance requirements or liability.
- Legal matters: The Eighth Circuit affirmed a decision preventing NPPD from terminating two wind-project PPAs, and rehearing was denied. Georgetown’s litigation over the Buckthorn Solar PPA remained unresolved. Management could not predict litigation outcomes or reasonably estimate associated exposure.
Investor verification points
- Track the Thermal Business sale’s closing conditions, final adjustments and actual net proceeds against the approximately $1.3 billion estimate.
- Verify completion and funding of the Utah Solar Portfolio acquisition and other announced project investments, including their effect on debt, liquidity and CAFD.
- Assess whether operating cash generation and unrestricted liquidity support debt service, capital needs and dividends; distinguish restricted cash from funds available for general use.
- Review the drivers and cash consequences of derivative mark-to-market losses, refinancing premiums and future interest-rate exposure.
- Monitor renewable production, the effects of weather events, counterparty credit quality and the outcomes of Georgetown litigation and evolving environmental rules.