Business context and reporting period
The supplied filing is NextEra Energy Partners, LP’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021; it does not identify the registrant as XPLR Infrastructure, LP. NEP owns contracted renewable generation and natural gas pipeline interests and consolidates NEP OpCo. At quarter-end, NEP held approximately 43% of NEP OpCo’s limited partner interests; NextEra Energy Equity held the remaining 57% noncontrolling interest. Amounts below are in millions unless noted.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Operating revenues | $253 | $253 | $499 | $465 |
| Operating income | $70 | $89 | $147 | $138 |
| Operating margin | 27.7% | 35.2% | 29.5% | 29.7% |
| Net income (loss) attributable to NEP | $(74) | $47 | $128 | $(176) |
| Basic earnings (loss) per common unit | $(0.96) | $0.71 | $1.68 | $(2.68) |
Cash flow: For the first six months, operating cash flow was $308, versus $259 in 2020; investing cash outflow was $1,124, versus $149; and financing cash inflow was $820, versus a $142 outflow. Investing outflows included $1,085 of net payments under the related-party CSCS cash-sweep arrangement. Capital expenditures and other investments were $64, compared with $121.
Debt and liquidity: Long-term debt, including current maturities, was $3,974 at June 30, 2021, versus $3,388 at December 31, 2020. Cash and cash equivalents were $113. Reported liquidity was $2,342, including $1,095 due under the CSCS agreement and revolving credit availability net of $116 in letters of credit. NEP issued $500 of 0% convertible notes due 2024. Derivative liabilities were $563, down from $802 at year-end; substantially all long-term debt was fixed-rate or financially hedged. NEP reported compliance with financial debt covenants.
Material changes and notable items
- Quarterly revenue was flat: pipeline service revenue rose $9, while renewable energy sales fell $9, principally reflecting lower wind and solar resources. For the six months, revenue grew $34: pipeline revenue increased $45, including $30 related to higher transportation and fuel-management revenue during February’s extreme Texas weather and $11 from an expansion placed in service in 2020; renewable sales declined $11.
- Quarterly O&M expense increased $12, reflecting higher IDR fees and other corporate expenses. Six-month O&M also rose $12, primarily from higher IDR fees.
- Reported quarterly interest expense was $336, versus a $16 benefit in Q2 2020, largely because derivative mark-to-market losses were $306 compared with gains of $56. For the six-month period, interest expense was a $169 benefit, versus $823 expense in 2020, primarily due to the year-over-year swing in derivative marks: $229 gains versus $739 losses. These volatile marks materially affected reported earnings.
- NEP raised $493 from the final funding of Class B interests in Genesis Holdings and issued approximately 0.7 million common units for $50 net under its ATM program. The ATM program expired in July 2021.
- NEP authorized a distribution of $0.6625 per common unit, payable August 13, 2021. Distributions paid in the first half totaled $1.2525 per unit.
Outlook, risks and contingencies
Management said liquidity and operating cash flows were expected to be adequate for operating costs, maintenance capital expenditures, distributions and liquidity commitments. Acquisitions and growth investments may require additional debt, equity or other financing; the ability to make acquisitions, fund expansion or repowering, and grow distributions depends on access to capital on acceptable terms. The filing gives no specific earnings or distribution-growth forecast.
NEP expected to close an announced acquisition of four wind facilities totaling 391 MW in Q3 2021 for a base price of approximately $733, subject to adjustments, conditions and regulatory approvals. A July agreement covered a separate portfolio of approximately 589 MW for about $563, plus an estimated $270 share of debt and differential-membership interests, with closing expected by year-end, subject to conditions and approvals. A pipeline expansion had a remaining funding commitment of approximately $37; commercial operation was scheduled for mid-2022.
Key disclosed risks include variable renewable resources and severe weather; operational, construction, regulatory and environmental risks; reliance on customers and long-term contracts; substantial subsidiary debt and financing restrictions; interest-rate and counterparty risks; dependence on NEE/NEER for management, credit support and return of swept funds; and access to capital. Management reported no material COVID-19 impact on operations, financial performance or liquidity to date, but said future effects were uncertain. No material changes to the 2020 Form 10-K risk factors were reported, and the filing lists no legal proceedings.
Important facts for investors to verify
- Confirm the registrant and period: this source is NextEra Energy Partners, LP’s Q2 2021 filing, not a filing under the XPLR Infrastructure, LP name.
- Assess the effect of derivative mark-to-market volatility on reported earnings and distinguish it from operating performance.
- Review the size, terms, and availability of the $1,095 CSCS cash-sweep receivable and the related-party exposure; reported liquidity includes this amount.
- Check acquisition closing status, final consideration, assumed debt and noncontrolling interests, and regulatory conditions.
- Evaluate debt maturities, convertible-note dilution and settlement terms, financing covenants, and the sustainability of distributions amid capital needs.