Clearway Energy, Inc. (then NRG Yield, Inc.) — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed February 28, 2017. The supplied filing identifies the registrant as NRG Yield, Inc., not Clearway Energy, Inc.
Business context
The company owned contracted renewable and conventional generation assets and thermal infrastructure in the U.S. Its contracted generation portfolio was reported at 4,563 net MW, with about 16 years of weighted-average remaining offtake contract duration based on CAFD. Thermal assets had 1,319 net MWt of steam and chilled-water capacity and 123 net MW of electric generation capacity. NRG retained control, holding 55.1% of voting power; public Class A and C holders held 44.9%.
Financial performance and position
| Metric (US$ millions, except per-share amounts) | 2016 | 2015 |
|---|---|---|
| Revenue | 1,021 | 953 |
| Operating income | 218 | 320 |
| Net income (loss), consolidated | (15) | 65 |
| Net income attributable to NRG Yield, Inc. | 57 | 33 |
| EPS, basic and diluted | $0.58 | $0.40 |
| Net cash from operating activities | 560 | 405 |
| Cash and cash equivalents at year-end | 317 | 111 |
| Total assets | 8,383 | 8,689 |
| Total debt, including current maturities | 5,770 | 5,656 |
- Operating margin was approximately 21.4% in 2016 versus 33.6% in 2015, reflecting the impairment charge. Economic gross margin, a non-GAAP measure, increased to $1,028 million from $938 million.
- Operating cash flow rose $155 million; investing cash outflow was $161 million and financing cash outflow was $193 million. Capital expenditures were $20 million, including $16 million of maintenance capital expenditures.
- Year-end liquidity was approximately $916 million, including cash, restricted cash and revolver availability. Restricted cash was $164 million; there were no revolver borrowings and $60 million of letters of credit outstanding.
- The company reported $5,770 million of total consolidated debt, including $4,314 million at non-guarantor subsidiaries. It also reported a $453 million pro-rata share of unconsolidated affiliates’ debt. Credit ratings were BB from S&P and Ba2 from Moody’s, with stable outlooks.
Material changes versus 2015
- Revenue increased $68 million, primarily from higher renewable generation and contract pricing. Renewable generation/sales rose to 7.236 million MWh from 6.412 million MWh; conventional generation fell to 1.697 million MWh from 2.487 million MWh.
- Operating income declined $102 million, and consolidated net income moved from $65 million to a $15 million loss. The principal unusual item was $183 million of wind-asset impairment losses: Elbow Creek $117 million, Goat Wind $60 million and Forward $6 million.
- Net income attributable to NRG Yield increased to $57 million from $33 million, despite the consolidated loss, reflecting allocation of results to noncontrolling interests, including tax-equity investors.
- Operating cash flow increased to $560 million from $405 million. Cash used in investing narrowed substantially from $1,108 million, as 2015 included larger acquisition and investment outlays.
- Debt increased by $114 million. Issuances included $350 million of 5.00% senior notes due 2026, $200 million of CVSR secured notes due 2037, and $125 million of Minneapolis thermal notes due 2031. The company also acquired the remaining 51.05% of CVSR for $78.5 million and assumed additional debt.
Outlook, risks and unusual items
- Management expected comparable cash dividends to continue “in the foreseeable future,” subject to available capital, market conditions, legal requirements and debt restrictions. The company declared a $0.26-per-share quarterly dividend in February 2017, up from $0.25 in Q4 2016; this is not a guarantee of future payments.
- On February 24, 2017, the company agreed to acquire a 16% interest in Agua Caliente and NRG’s 50% interests in seven Utah solar farms. Expected cash consideration was $130 million, subject to working-capital adjustments; the company also expected to assume or consolidate project debt. Completion and final terms remained outstanding.
- Management cited capital-market access and variable wind and solar resources as factors affecting acquisition capacity and results. Principal risks include substantial debt and restrictive covenants, dependence on NRG for control and services, customer concentration, operating outages, weather, transmission constraints, regulatory and environmental change, and the availability of renewable incentives.
- SCE and PG&E accounted for approximately 42% and 23% of consolidated revenue, respectively. Separately, the filing reports them as 45% and 25% of net electric generation capacity; the measures use different bases.
- Walnut Creek experienced two 2016 forced outages; El Segundo units 5 and 6 were out of service in early 2017 and returned February 24. Insurance and warranty recoveries were under review. The filing also describes two putative class actions; management said outcomes and potential costs could not be reasonably estimated.
- The $183 million impairments followed lower projected post-contract merchant power prices. Management warned further declines in long-term power-price assumptions could trigger additional impairment. The 2016 statements also reflect retrospective combination of certain NRG drop-down assets under common-control accounting, which affects period comparisons.
Important facts for investors to verify
- Reconcile the reported 4,563 net MW contracted portfolio with the properties table’s 4,686 net MW generation-capacity figure and the differing definitions or scope.
- Review CAFD, distribution coverage, project-level debt covenants and restrictions on subsidiary distributions; the filing emphasizes that dividends depend on cash available, not accounting earnings alone.
- Assess the impairment valuation assumptions for Elbow Creek, Goat Wind and Forward, particularly post-contract power prices and discount rates.
- Confirm closing, final consideration, debt treatment and expected cash contribution from the proposed Agua Caliente and Utah solar acquisitions.
- Monitor exposure to SCE and PG&E, NRG-related-party arrangements, outage recoveries, and the status of the disclosed litigation.
- Distinguish consolidated net loss of $15 million from $57 million of income attributable to NRG Yield, Inc.; also note the filing’s presentation of restricted cash and affiliate debt when assessing liquidity and leverage.