Business context and reporting period
This Form 10-Q covers the quarter and nine months ended September 30, 2021. The filing identifies the registrant as NextEra Energy Partners, LP (NYSE: NEP); it does not identify the company as XPLR Infrastructure, LP. NEP owns contracted renewable-energy projects and natural-gas pipeline assets and consolidates NEP OpCo, in which it held a 43% limited partner interest; NextEra Energy Equity held the remaining 57%.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Operating revenue | $252 million | $240 million | $751 million | $705 million |
| Operating income | $64 million | $68 million | $212 million | $207 million |
| Net income (loss) | $94 million | $195 million | $463 million | $(398) million |
| Net income (loss) attributable to NEP | $18 million | $56 million | $146 million | $(119) million |
| Basic earnings (loss) per unit | $0.24 | $0.83 | $1.92 | $(1.80) |
| Operating cash flow | Not separately provided | Not separately provided | $492 million | $482 million |
Q3 revenue growth reflected acquisitions and higher Texas pipeline revenue, while operating income declined as operating expenses increased. Nine-month net income swung to a profit largely alongside a major favorable change in interest-rate derivative mark-to-market results; this is not a like-for-like indication of underlying operating improvement. Nine-month operating revenue rose $46 million, including $49 million higher Texas pipeline service revenue.
At September 30, 2021, cash and cash equivalents were $133 million; total assets were $13.445 billion; total liabilities were $5.040 billion; and total debt, including current maturities, was $3.983 billion carrying value ($4.135 billion estimated fair value). Net derivative liabilities were $552 million, down from $802 million at year-end 2020. NEP reported liquidity of $1.573 billion, including $306 million due under the cash sweep and credit support agreement and $1.250 billion of revolving credit facilities, less $116 million of letters of credit. The filing reports $322 million due from related parties, including cash-sweep funds held by NEER or affiliates.
Material changes versus prior comparable periods
- Q3 revenue increased $12 million, but operating income fell $4 million and income attributable to NEP fell $38 million. Higher operations and maintenance expense included $8 million of acquisition costs and $7 million of additional IDR fees.
- For nine months, Texas pipeline revenue benefited from $30 million of higher transportation and fuel-management agreement revenue during the February 2021 weather event, and $13 million associated primarily with a pipeline expansion.
- Nine-month operating cash flow rose $10 million. Investing cash outflow increased to $1.069 billion, principally reflecting the August acquisition and higher cash sweeps; financing cash flow was $602 million provided, versus $232 million used in the prior-year period.
- NEP acquired four wind facilities totaling 391 MW in August for total consideration of approximately $815 million. The acquisition included $177 million of preliminary goodwill and $432 million of PPA intangible assets.
- NEP issued $500 million of 0% convertible notes due 2024 and sold approximately 0.7 million common units under its ATM program for $50 million gross proceeds. Common units outstanding were 76.6 million at quarter-end.
Outlook, commentary, risks and unusual items
Management said liquidity and operating cash flows were expected to be adequate for operating costs, maintenance capital expenditures, distributions and liquidity commitments. Future acquisitions, growth investment and distribution increases depend in part on access to capital on acceptable terms. The filing provides no explicit earnings guidance.
The board authorized a distribution of $0.6850 per common unit, payable November 12, 2021; $0.6625 per unit had been paid during Q3. NEP was in compliance with financial debt covenants at September 30. COVID-19 had not materially affected operations, financial performance or liquidity to date, but future effects remained uncertain. No material changes to the risk factors in the 2020 Form 10-K were reported, and the filing reported no legal proceedings.
Subsequent events include an October acquisition of a 589 MW portfolio from NEER and agreements to acquire a 102 MW wind facility and a portfolio with approximately 1,260 MW of generation and 58 MW of storage. The latter transaction has a stated cash price of $849 million, plus NEP’s estimated share of differential-investor interests of approximately $866 million. Apollo agreed to pay approximately $824 million for Class B interests intended to help finance that acquisition; the closings and funding remained subject to conditions. Acquisition execution, construction, financing, and the resulting allocation of project cash flows are important uncertainties.
Key risks include variable renewable output and weather, dependence on long-term contracts and a limited customer base, subsidiary debt and distribution restrictions, interest-rate exposure, access to capital, and reliance on NEE/NEER for services, credit support and return of cash-sweep funds. The reported derivative gains and losses materially affected period comparisons. Related-party O&M expense was $102 million for the first nine months, including $4 million of CSCS fees; the filing also describes management fees and other affiliate arrangements.
Investor verification priorities
- Confirm subsequent acquisition closings, final purchase accounting, assumed debt and construction milestones, particularly for projects still under construction.
- Assess the collectability, timing and terms of the $306 million of cash-sweep funds held by NEER or affiliates, and the continued availability of related credit support.
- Separate operating performance and cash generation from derivative mark-to-market effects when evaluating earnings and distribution coverage.
- Review pro forma leverage, refinancing needs, covenant and distribution restrictions, and the cash-flow allocation and buyout terms for Class B and differential investors.
- Verify the sustainability of distributions and the capital required for acquisitions, pipeline expansion and other planned investment.