Clearway Energy, Inc. annual report, FY2014

Clearway Energy, Inc. — filing summary

Important filing identity note: The supplied 10-K is for NRG Yield, Inc., not Clearway Energy, Inc. It covers the fiscal year ended December 31, 2014; it is not a standalone fourth-quarter filing. Comparisons below use the filing’s recast 2013 figures where provided.

Business context and reporting period

NRG Yield owned contracted renewable and conventional generation assets and thermal infrastructure in the U.S. At year-end, its contracted generation portfolio was reported as 2,861 net MW, with an average remaining contract duration of approximately 17 years based on cash available for distribution. Thermal assets represented 1,310 net MWt of steam and chilled-water capacity plus 124 net MW of electric generation. NRG retained control, holding 55.3% of voting power and 55.3% of NRG Yield LLC; public Class A holders held the economic interest in the publicly traded shares.

Financial performance and position

Metric	FY 2014	FY 2013
Operating revenue	$583 million	$379 million
Operating income	$221 million	$167 million
Net income	$81 million	$132 million
Net income attributable to NRG Yield, Inc.	$16 million	$13 million
Operating cash flow	$223 million	$120 million
Investing cash flow	$(1,068) million	$(515) million
Financing cash flow	$1,177 million	$432 million

• Operating margin was approximately 38% in 2014 versus 44% in 2013; consolidated net margin was approximately 14% versus 35%. These comparisons reflect acquisitions and financing changes, and consolidated net income is not the same as income attributable to public shareholders.
• Revenue increased 54%, chiefly from Marsh Landing and El Segundo operating for more of the year, the Alta Wind acquisition, and thermal business growth. Operating costs rose 49% and depreciation and amortization more than doubled to $136 million.
• Interest expense increased to $166 million from $52 million, mainly reflecting acquired project debt and new corporate notes. Consequently, pretax income declined to $85 million from $140 million and consolidated net income fell to $81 million.
• Year-end cash was $391 million, restricted cash was $22 million, total assets were $5.752 billion, and total liabilities were $4.272 billion. Total debt was $4.050 billion, including $3.224 billion at non-guarantor subsidiaries. Debt fair value was $4.136 billion.
• Reported liquidity was approximately $825 million, including cash, restricted cash, and revolver availability. The $450 million revolving facility matured in April 2019; $38 million of letters of credit were issued under it at year-end. Credit ratings were BB+ from S&P and Ba1 from Moody’s.
• Class A dividends totaled $1.42 per share for 2014, rising from $0.33 in the first quarter to $0.375 in the fourth. The board declared $0.39 per share for the following quarter.

Material changes and notable events

• In August 2014, the company acquired the 947 MW Alta Wind Portfolio for $923 million in cash consideration and assumed approximately $1.6 billion of project-level debt. The purchase-price allocation remained provisional at year-end.
• In June 2014, it acquired El Segundo, TA High Desert, and RE Kansas South from NRG for $357 million plus $612 million of assumed project debt. These common-control transfers were recorded at historical cost and prior periods were recast.
• The July 2014 equity offering raised $630 million net. The company also issued $345 million of 3.50% convertible notes due 2019 and $500 million of 5.375% senior notes due 2024.
• After year-end, on January 2, 2015, it acquired Walnut Creek, Laredo Ridge, and the Tapestry wind projects for $489 million cash consideration plus $737 million of assumed project debt. It borrowed $210 million under the revolver to help fund the purchase.
• On February 26, 2015, the company agreed to acquire majority interests in two Colorado wind projects, subject to customary conditions, with closing expected in the second quarter of 2015.
• Fourth-quarter 2014 revenue was $148 million, operating income $46 million, consolidated net loss $10 million, and attributable EPS $0.02. The filing does not give a clear explanation for the quarter’s net loss in the provided quarterly summary.

Outlook, risks, contingencies, and unusual items

• Management said it expected comparable cash dividends to continue in the foreseeable future, based on current circumstances. This is not a guarantee: dividends depend on available cash, market conditions, covenants, and board discretion. The company intends to distribute substantially all cash available for distribution and expects to rely on external financing for growth.
• Key risks include substantial indebtedness and project-level distribution restrictions; dependence on NRG for management, operations, and acquisition opportunities; NRG’s voting control and related-party conflicts; and exposure to interest rates, weather, plant availability, transmission constraints, and counterparties.
• Revenue was concentrated: Southern California Edison and Pacific Gas and Electric represented approximately 32% and 26% of consolidated revenue, respectively, in 2014. The filing also identifies material dependence on long-term utility contracts.
• Some Alta X and XI output was exposed to merchant-market prices in 2015; their long-term PPAs were scheduled to begin January 1, 2016. The Dover and Paxton thermal generation assets had capacity sales through May 2018, with later capacity revenue undetermined.
• Environmental rules, renewable-energy incentives, tax-credit availability, and regulatory or court decisions affecting utility contracting could influence operations and future acquisition economics. The company reported a $6 million federal tax-grant receivable related to Borrego that was fully reserved pending further discussions with the Treasury Department.
• In January 2015, El Segundo suffered a steam-turbine water intrusion and forced outage on Units 5 and 6. Return to service was expected early in the second quarter of 2015; repair costs and lost capacity revenue not covered by warranty or insurance were under review.
• A GenConn Middletown contractor dispute remained unresolved: the company described ongoing settlement efforts and a trial date set for March 2015 if settlement was not reached. Management said ordinary-course litigation was not expected to materially affect results or financial position.
• KPMG gave an unqualified opinion on the consolidated financial statements and internal controls. However, the internal-control assessment excluded the acquired Alta Wind Portfolio, which represented 43% of year-end assets and 8% of 2014 revenue.

Most important facts for an investor to verify

• Confirm the issuer: the supplied filing is NRG Yield, Inc.’s 2014 10-K, not a Clearway Energy filing.
• Review the debt, interest burden, covenant terms, maturities, and remaining revolver capacity after the January 2015 acquisitions.
• Assess whether operating cash flow and project distributions support the dividend, particularly given debt service, acquisition funding, and seasonal cash-flow variability.
• Check the status and financial impact of the El Segundo outage, including warranty or insurance recovery and return-to-service timing.
• Verify the Alta Wind purchase-price allocation and the effect of acquired assets, financing, and noncontrolling interests on results attributable to Class A shareholders.
• Monitor the GenConn contractor litigation, grant-recovery matters, and regulatory or environmental developments that could affect costs or contracted revenues.