Clearway Energy, Inc. quarterly report, Q3 FY2023

Clearway Energy, Inc. — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023; amounts are in millions of dollars unless stated otherwise. Clearway owns a diversified portfolio of primarily contracted energy assets, including approximately 8,140 net MW of generation capacity. Management reported an approximately 10-year weighted-average remaining offtake-contract duration, measured by CAFD.

Key financial results

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Operating revenue	$371	$340	$1,065	$922
Operating income	$94	$105	$285	$1,458
Net income	$15	$62	$59	$1,114
Net income attributable to Clearway Energy, Inc.	$4	$32	$42	$570
Basic and diluted EPS	$0.03	$0.28	$0.36	$4.89

Q3 operating margin was approximately 25% versus 31% in Q3 2022, calculated from reported revenue and operating income. Q3 revenue rose about 9%, while operating income and attributable net income declined. The nine-month comparison is heavily affected by the $1.291 billion gain on the 2022 sale of the Thermal Business; 2023 revenue also includes a material favorable year-over-year swing in mark-to-market hedge results.

Cash flow: Nine-month operating cash flow was $496, down from $607. Investing activities used $271, versus $1,100 provided in 2022, which included $1,457 of Thermal Business sale proceeds. Financing activities used $65, versus $1,205 used in 2022.
Liquidity: Reported total liquidity was $1.645 billion at September 30, 2023, including $566 cash and equivalents, $590 restricted cash, and $489 of revolver availability. Restricted cash is not generally available for unrestricted corporate use.
Debt: Balance-sheet debt was $522 current and $6.995 billion long-term. The debt table reports $7.578 billion of total debt before unamortized issuance costs and other adjustments. The $700 million revolving facility had no borrowings and $211 million of letters of credit outstanding. The company reported compliance with debt covenants; its ratings were BB (S&P) and Ba2 (Moody’s).
Dividends: Q3 dividends were $0.3891 per Class A and Class C share. On November 1, the company declared $0.3964 per share for payment in December. Dividend continuation is subject to capital availability, market conditions, and contractual and legal constraints.
Other metrics: Nine-month solar and wind generation/sales were 4.232 million and 7.262 million MWh, respectively. Conventional availability was 87.5%, versus 92.5% a year earlier. The filing text does not provide a clear period result for Adjusted EBITDA or CAFD.

Material changes and business developments

Several conventional facilities began merchant operations as PPAs expired during 2023. Higher energy revenue was partly offset by lower capacity revenue, fuel and emissions costs, and greater exposure to power-market prices.
Renewables revenue benefited from the Capistrano Wind Portfolio and solar project additions, but nine-month results were hurt by below-average wind production, weather-related lower solar generation, and extreme Texas heat that led to costly hedge-related power purchases.
Clearway acquired the Daggett 2 solar-and-storage project in August for $13 million and acquired Daggett 3 in February. Both projects have construction or tax-equity bridge financing; related bridge loans are expected to be repaid as projects reach substantial completion.
Rosie Class B received $235 million of project financing proceeds in Q3 and lent $215 million to a CEG subsidiary to fund construction of the co-located BESS project. The affiliate loan bears 9% interest and is expected to mature at project substantial completion.
After quarter-end, Clearway acquired interests in the Victory Pass and Arica projects for initial consideration of $46 million, with a further $182 million expected at substantial completion. The company also reported planned investments in Texas Solar Nova projects and Cedar Creek, and a planned Cedro Hill repowering investment.
The revolving credit facility was refinanced in March: commitments increased to $700 million, maturity extended to March 2028, and LIBOR was replaced with SOFR-based pricing.

Outlook, risks, and unusual items

Management said current liquidity, operating cash flows, and revolver availability should be adequate for financial commitments, debt service, capital spending, growth investments, and dividends. It also expects comparable cash dividends to continue in the foreseeable future; this is not a guarantee.
Management estimates 2023 maintenance capital expenditures of $35 million; estimates remain subject to review. No numerical earnings, Adjusted EBITDA, or CAFD guidance is stated in the supplied filing text.
Q3’s 79.2% effective tax rate (tax expense $57 on pretax income of $72) was attributed primarily to allocation of taxable earnings and losses and the HLBV accounting method. The filing identifies HLBV allocations as a source of significant period-to-period variability.
Market and operating risks include merchant-price exposure as contracts expire, weather and generation variability, outages and maintenance, fuel and emissions costs, counterparty performance, access to financing, and substantial indebtedness. PG&E is identified as a significant counterparty with a below-investment-grade credit rating.
Level 3 commodity derivative liabilities were $325 at quarter-end; valuation depends in part on unobservable market inputs. The company reported net derivative fair value of negative $142. A $0.50/MWh change in power prices was estimated to change the net value of power derivatives by approximately $6.
The Buckthorn Solar dispute with Georgetown remained unresolved. Trial was delayed amid settlement discussions; the company says it intends to defend the case, but cannot predict the outcome or reasonably estimate potential costs and liabilities.

Important facts for investors to verify

How merchant operations at Walnut Creek, Marsh Landing, and El Segundo affect realized margins, fuel costs, and contracted capacity as PPAs expire.
Project completion, commercial-operation, and bridge-loan repayment timing for Daggett 2, Daggett 3, Rosie BESS, Victory Pass, and Arica, including remaining company funding requirements.
Whether operating cash flow and unrestricted liquidity support planned growth spending, debt service, and dividend payments, given that a substantial portion of reported cash is restricted.
The drivers and recurrence of HLBV-related tax and noncontrolling-interest allocations, and the underlying operating performance apart from hedge mark-to-market effects.
Developments in the Georgetown litigation, counterparty credit quality, derivative valuations, and debt covenant or refinancing conditions.