Clearway Energy, Inc. (named NRG Yield, Inc. in this filing) — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 1, 2018. This is an annual filing, not a standalone fourth-quarter report. The supplied company name differs from the registrant name used in the filing.
Business context
The company owned contracted renewable and conventional generation assets and thermal infrastructure in the U.S. It reported 5,118 net MW of contracted generation, with an approximately 15-year weighted-average remaining contract duration based on CAFD. Thermal assets had 1,319 net MWt of steam and chilled-water capacity and 123 net MW of electric capacity. Substantially all generation output was sold under long-term agreements or regulated arrangements.
Financial results and liquidity
| Metric (USD millions, except per-share data) | 2017 | 2016 |
|---|---|---|
| Operating revenue | 1,009 | 1,035 |
| Operating income | 283 | 222 |
| Net income (loss) | (23) | 2 |
| Net income (loss) attributable to NRG Yield, Inc. | (16) | 57 |
| Operating cash flow | 516 | 577 |
| Capital expenditures | 31 | 20 |
| Cash and cash equivalents at year-end | 148 | 322 |
| Total assets at year-end | 8,283 | 8,962 |
- Revenue declined 2.5%. Economic gross margin, a non-GAAP measure, was $1,015 million versus $1,043 million; GAAP gross margin was $946 million versus $968 million.
- Operating income rose $61 million, mainly because impairment losses fell to $44 million from $185 million. Net income attributable to the company declined to a $16 million loss from $57 million of income.
- Interest expense increased to $306 million from $284 million. The company recorded $72 million of income tax expense, including a $68 million charge from revaluing deferred tax assets after the Tax Act reduced the federal corporate rate.
- Operating cash flow fell $61 million, to $516 million. Investing cash use was $283 million, including acquisitions; financing cash use was $415 million. Year-end liquidity, including restricted cash and revolving-facility availability, was $682 million, down from $933 million.
- Debt was substantial: the filing reports $5,897 million of debt carrying value in its market-risk discussion and $5,914 million of total debt before debt issuance costs and discounts in the debt note. The company also reported a $777 million pro-rata share of unconsolidated affiliates’ debt. It was in compliance with debt covenants at year-end; credit ratings were BB (S&P) and Ba2 (Moody’s), with stable outlooks.
- Dividends on Class A and Class C shares totaled $1.098 per share in 2017. The company declared $0.298 per share for payment in March 2018.
Material changes versus the prior year
- Renewable generation volume declined 6% to 6.844 million MWh, primarily because of lower wind resources at Alta Wind and NRG Wind TE Holdco. Conventional generation increased to 1.809 million MWh; thermal MWt sold declined to 1.926 million.
- Operations and maintenance expense increased $21 million, mainly due to forced outages at Walnut Creek and El Segundo. The company recorded $44 million of impairment losses in 2017, versus $185 million in 2016; 2017 impairments included $26 million for Elbow Creek and $5 million for Forward, reflecting lower expected merchant power prices after contract expiry.
- Acquisitions included the remaining 25% interest in NRG Wind TE Holdco, a 38 MW distributed-solar portfolio, and interests in Agua Caliente and the Utah Solar Portfolio. These related-party transfers were recorded at historical cost and prior periods were recast.
Outlook, commentary, and risks
- On February 6, 2018, NRG agreed to sell its full ownership interest in the company and its renewable development and operations platform to Global Infrastructure Partners (GIP). Closing was expected in the second half of 2018, subject to regulatory, contractual and other conditions. GIP arranged a $1.5 billion backstop facility for potential corporate-debt change-of-control costs and committed up to $400 million of support, if needed, for the Carlsbad acquisition. The company’s consent agreement capped recurring CAFD reductions from specified change-of-control costs at $10 million annually.
- Pending acquisitions included Buckthorn Solar for $42 million, expected to close in the first quarter of 2018, and Carlsbad for $365 million, expected to close in the fourth quarter and contingent on the GIP transaction. The company estimated 2018 maintenance capital expenditures of $32 million.
- Management said liquidity, operating cash flow and revolving-credit availability were expected to cover commitments, debt service, capital spending and dividends. It expected comparable cash dividends to continue based on then-current circumstances; dividends remain discretionary and subject to cash availability, covenants and other conditions.
- Key risks include high leverage and refinancing needs (including $345 million of 2019 convertible notes), reliance on NRG for management and operating services, customer concentration, renewable resource variability, outages, merchant-price exposure after contracts expire, regulatory and environmental changes, and counterparty or transmission constraints. SCE and PG&E accounted for approximately 41% and 23% of consolidated revenue, respectively.
- The Tax Act reduced the company’s net deferred tax asset and 2017 net income by $68 million. The company reported $870 million of cumulative federal NOL carryforwards for financial-statement purposes and expected no significant federal income tax for approximately ten years, subject to limitations and realization risks.
- Unusual operating items included Walnut Creek and El Segundo forced outages. Walnut Creek’s estimated outage cost was approximately $2 million after insurance; the company also recorded a $14 million asset-disposal loss. El Segundo repair costs were reduced from $12 million to $5 million through a warranty settlement. The filing identified ongoing litigation, including the Braun securities class action; the Ahmed case was dismissed with prejudice, and a GenOn noteholders’ settlement was expected to resolve that lawsuit.
Important facts for investors to verify
- Verify the registrant identity and corporate name: the filing is for NRG Yield, Inc., while the request identifies Clearway Energy, Inc.
- Review the GIP transaction’s closing status, required consents, change-of-control costs, debt treatment and transition of NRG-provided services.
- Reconcile the filing’s debt measures—$5.897 billion carrying value versus $5.914 billion gross debt—and assess maturities, project-level restrictions and refinancing plans.
- Assess whether renewable output, merchant-price assumptions and impairment estimates support asset carrying values and future CAFD.
- Evaluate dividend coverage using CAFD and cash available at the parent level, not net income alone; confirm the effect of restricted cash and subsidiary distribution covenants.
- Check customer concentration, litigation developments, and the status and financing of the Buckthorn and Carlsbad acquisitions.