Filing summary
Entity identification: The supplied filing is for NextEra Energy Partners, LP (NYSE: NEP), not XPLR Infrastructure, LP. It reports the quarter ended March 31, 2022. Amounts are in millions except per-unit data.
Business context and key financials
NEP is a limited partnership that owns contracted renewable generation and natural gas pipeline assets. It consolidates NEP OpCo; at quarter-end NEP held a 45.3% limited partner interest in NEP OpCo, with NEE Equity holding the remaining 54.7%.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenues | $281 | $246 |
| Operating income | $34 | $78 |
| Net income | $333 | $571 |
| Net income attributable to NEP | $144 | $202 |
| Basic and diluted earnings per common unit | $1.72 | $2.66 |
| Net cash provided by operating activities | $120 | $104 |
| Cash and cash equivalents at quarter-end | $168 | $147 at Dec. 31, 2021 |
| Long-term debt, including current maturities | $5,414 | $5,327 at Dec. 31, 2021 |
Renewable energy sales rose $69 to $224, while Texas pipeline service revenues fell $34 to $57. Operating expenses increased to $247 from $168; operating margin was approximately 12% versus 32%. NEP reported $284 of interest expense, but this line includes mark-to-market gains on interest-rate contracts: gains were $320 in 2022 versus $535 in 2021. The smaller gains contributed to lower reported income versus the prior year. Net income and margins should therefore be read in light of significant derivative valuation effects.
Liquidity, cash flow and capital
- Management reported liquidity of approximately $1.204 billion, including cash, amounts due under the CSCS agreement, available revolving credit capacity and expected NEP Renewables III final funding.
- Cash from operations was $120. Investing cash outflow was $70, including $467 of capital expenditures and investments offset largely by $475 of reimbursements from related parties. Financing cash outflow was $33, including $137 of partner distributions.
- Debt was $5.414 billion including current maturities. Approximately 88% of long-term debt was fixed-rate or financially hedged. NEP reported compliance with financial debt covenants.
- NEP OpCo’s credit facility maturity was extended from February 2026 to February 2027. At quarter-end, $640 was borrowed and $117 of letters of credit had been issued under the facility.
- NEP paid a $0.7075-per-unit distribution during the quarter. On April 20, 2022, it authorized a $0.7325-per-unit distribution, payable May 12, 2022.
Material changes and notable developments
- Revenue increased 14% year over year, primarily from renewable assets acquired in 2021 and favorable renewable resource and availability. Operating income declined as operating and depreciation expenses rose, partly due to those acquisitions.
- Pipeline revenue declined mainly because Q1 2021 included higher transportation and fuel-management revenue associated with extreme February 2021 Texas weather.
- Net income attributable to NEP fell to $144 from $202; earnings per unit declined to $1.72 from $2.66. Lower derivative-contract gains were a significant factor in the reported year-over-year comparison.
- In April, NEP agreed to acquire approximately 67% of a California battery-storage facility under construction, with approximately 230 MW of storage capacity, for about $191, subject to adjustments and closing conditions. The facility must commence commercial operations; NEP estimated its share of related differential membership interests at about $80.
- In April, subsidiaries sold a Texas pipeline for approximately $203, subject to adjustments. NEP expected a second-quarter gain of about $26 before tax and $23 after tax; approximately $67 of proceeds were to be distributed to the third-party Class B owner.
Outlook, risks and contingencies
Management expected operating cash flow and available liquidity to cover operating needs, maintenance capital expenditures, distributions and liquidity commitments. Acquisitions, expansion and distribution growth depend on access to capital on acceptable terms; financing may be unavailable or may carry additional restrictions and covenants. The filing gives no specific earnings or distribution-growth guidance.
- NEP is exposed to renewable resource and weather variability, operating interruptions, customer and contract concentration, interest-rate and counterparty risks, and substantial financing needs. Its ability to distribute cash also depends on subsidiary distributions and contractual restrictions.
- NEER or affiliates may hold project funds under cash-sweep arrangements. Cash sweep amounts held by affiliates were approximately $135 at March 31, 2022; the filing describes dependence on affiliates returning funds when required.
- An April 1 agreement between a NEER subsidiary and the U.S. Department of Justice concerns accidental eagle fatalities at certain NEER-operated wind facilities, including 12 NEP facilities. It provides for an eagle management plan and pursuit of permits; NEP was not a party and stated it did not expect a material adverse impact.
- The filing highlights environmental and wildlife compliance exposure and the possibility that changes to clean-energy incentives, renewable portfolio standards or related policies could reduce project economics and acquisition opportunities.
Important facts for investors to verify
- Confirm the issuer: this filing identifies NextEra Energy Partners, LP (NEP), not XPLR Infrastructure, LP.
- Review the effect of derivative mark-to-market gains on reported interest expense, net income and year-over-year comparisons.
- Verify the availability and timing of the $408 of expected NEP Renewables III final funding included in reported liquidity.
- Track closing and operating conditions for the battery-storage acquisition and the completed Texas pipeline sale, including proceeds allocated to the Class B owner and the expected gain.
- Monitor affiliate cash-sweep balances, debt covenants, refinancing and capital-market access, and the impact of environmental permitting and clean-energy policy changes.