Business context and reporting period
This summary covers the unaudited quarter ended March 31, 2021. The filing registrant is NextEra Energy Partners, LP (NYSE: NEP); the supplied metadata identifies XPLR Infrastructure, LP. NEP owns contracted renewable energy projects and natural gas pipelines, consolidating NEP OpCo, in which it held a 42.8% limited partner interest; NEE Equity held the remaining 57.2%.
Key financial results
Amounts are in millions of dollars except per-unit data. Comparisons are with Q1 2020.
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $246 | $212 |
| Operating income | $78 | $49 |
| Net income (loss) attributable to NEP | $202 | $(222) |
| Basic and diluted EPS | $2.66 | $(3.39) |
| Net cash from operating activities | $104 | $99 |
| Net cash used in investing activities | $(107) | $(88) |
| Net cash from (used in) financing activities | $4 | $(20) |
Revenue grew 16%. Texas pipeline service revenue was $91 million, up $36 million, while renewable energy sales were $155 million, down $2 million. Operating expenses were $168 million versus $163 million. Operating margin was approximately 32% of revenue, compared with 23% in the prior-year quarter.
Reported earnings were strongly affected by interest-rate derivative fair-value movements: NEP recorded a $535 million gain in Q1 2021 versus a $795 million loss in Q1 2020, included in interest expense. This drove a $1.343 billion year-over-year improvement in the reported interest-expense line and makes the net income comparison substantially non-operational. The filing reports $43 million of equity-method earnings, compared with $18 million, and $14 million of earnings on non-economic ownership interests, versus $23 million of losses.
At March 31, 2021, cash and cash equivalents were $110 million; current assets were $529 million and current liabilities $316 million. Long-term debt was $3.541 billion and current maturities were $12 million. Total liabilities were $4.445 billion, and total equity was $8.121 billion. Derivative liabilities totaled $268 million, down from $802 million at year-end 2020. Cash flow from operations increased $5 million; management attributed the increase primarily to higher operating income, lower interest payments, and higher equity-method distributions, partly offset by working-capital timing.
Material changes and notable developments
- Texas pipeline revenue benefited from approximately $30 million of higher transportation and fuel-management agreement revenue associated with the February 2021 extreme winter weather event, and $6 million from a pipeline expansion placed in service in 2020.
- The company completed a December 2020 acquisition that included Wilmot, a solar and battery project under construction, and interests in Pine Brooke Holdings. Wilmot was expected to enter service in Q2 2021; NEER was responsible for construction costs, and NEP had a repurchase right if commercial operation was not achieved by June 30, 2021.
- In April 2021, NEP agreed to acquire four wind facilities totaling 391 MW for a base price of approximately $733 million, subject to adjustments, customary closing conditions, and regulatory approvals. Closing was expected in Q3 2021.
- NEP OpCo’s revolving-credit maturity was extended to February 2026. NEP subsidiaries borrowed $90 million under that facility in the quarter. The company reported compliance with all financial debt covenants.
- Capital expenditures and other investments were $45 million, primarily related to wind repowering and pipeline expansions. A Meade pipeline expansion commitment had approximately $48 million remaining, following $42 million invested; the expansion was scheduled for commercial operation by mid-2022.
- NEP paid $0.6150 per common unit during the quarter. On April 20, the board authorized a $0.6375 distribution per unit, payable May 14, 2021.
Liquidity, outlook, and risks
Management reported a $1.584 billion liquidity position, comprising $110 million of cash, $84 million due under the CSCS agreement, $1.250 billion of revolving facilities less $90 million drawn and $115 million of letters of credit, and $345 million of expected Genesis Holdings final funding in Q2 2021. These components include amounts due from related parties and expected funding, not solely cash on hand. Management expected liquidity and operating cash flow to cover operating costs, maintenance capital, distributions, and liquidity commitments; growth and future distribution increases depend in part on access to capital on acceptable terms.
The company reported no material COVID-19 impact on operations, financial performance, or liquidity to date, but stated the pandemic’s future effects were uncertain. It identified risks including renewable-resource variability and severe weather, dependence on key contracts and counterparties, project execution and acquisition risks, indebtedness and access to financing, interest-rate and derivative exposure, reliance on NEE affiliates for services and credit support, and restrictions that may affect subsidiary distributions. No material changes to the 2020 Form 10-K risk factors were reported. No legal proceedings were reported.
NEP had approximately $7.1 billion of interest-rate contracts by net notional amount; about 2% of long-term debt was exposed to floating-rate movements. A hypothetical 10% decrease in rates was estimated to increase net derivative liabilities by approximately $136 million. A $57 million reduction to common-unit equity was recorded upon adoption of an accounting standard in January 2021, related principally to the convertible notes’ embedded conversion feature.
Most important facts for investors to verify
- Separate recurring operating and cash performance from large derivative mark-to-market gains and losses when assessing the earnings swing.
- Track collection and timing of the $84 million CSCS-related amount and the expected $345 million Genesis funding included in reported liquidity.
- Confirm the status, closing price, approvals, and funding plan for the proposed $733 million wind-asset acquisition, and the Wilmot project’s commercial-operation status.
- Assess related-party exposure, including cash sweeps held by NEER affiliates ($84 million at quarter-end), credit support, service fees, and the return of swept funds.
- Monitor debt maturities, covenant and distribution restrictions, interest-rate exposure, and the funding needs of the Meade expansion.
- Review whether the declared distribution and future growth remain supported by recurring cash flows rather than noncash valuation changes or temporary weather-related revenue.