Business context and reporting period
NextEra Energy Partners, LP (the registrant named in this filing; now identified in the request as XPLR Infrastructure, LP) filed this unaudited Form 10-Q for the quarter ended June 30, 2019. The partnership owns contracted renewable energy projects and natural gas pipeline assets. Results include major portfolio changes: the June 2019 acquisition of interests in wind and solar facilities with approximately 611 MW of combined net capacity, following its December 2018 acquisition of NEP Renewables; Canadian Holdings was sold in June 2018.
Financial and operating performance
| Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 |
|---|---|---|---|---|
| Operating revenue | $219 million | $225 million | $397 million | $437 million |
| Operating income | $67 million | $261 million | $103 million | $352 million |
| Net income (loss) | $(124) million | $292 million | $(244) million | $272 million |
| Net income (loss) attributable to NEP | $(28) million | $82 million | $(49) million | $157 million |
| Basic earnings (loss) per common unit | $(0.49) | $1.51 | $(0.88) | $2.88 |
Quarterly revenue comprised $170 million from renewable energy sales and $49 million from Texas pipeline services. Operating margin, calculated as operating income divided by revenue, was approximately 31% in Q2 2019 versus 116% in Q2 2018; the comparison is heavily affected by the prior-year Canadian Holdings disposal gain. Six-month operating margin was approximately 26% versus 81% for the same reason.
For the six months, operating cash flow was $130 million, down from $183 million. Investing cash flow was $(1.701) billion, including $1.028 billion for acquisitions and $671 million of net payments under the cash sweep and credit support agreement. Financing cash flow was $1.583 billion, including debt issuance and $893 million in net proceeds from the Class B interest sale. The filing does not provide quarterly cash flow figures in the supplied text.
At June 30, cash and cash equivalents were $163 million; total current assets were $1.199 billion and current liabilities were $872 million. Total debt, including current maturities, was approximately $4.275 billion, compared with $3.435 billion at year-end 2018. Total liabilities were $5.268 billion and total equity was $6.500 billion. Reported liquidity was $1.864 billion, including $737 million due under the related-party cash sweep arrangement and available revolving and letter-of-credit facilities; it is not equivalent to cash on hand.
Material changes versus the prior comparable period
- Q2 operating revenue decreased $6 million; six-month revenue decreased $40 million. Acquired assets added revenue, but this was offset by the Canadian sale, lower wind resource and reduced Texas pipeline service revenue.
- Operating and maintenance expense rose $19 million in Q2 and $32 million in the first half, principally due to acquired projects and higher corporate expenses, including IDR fees. Depreciation and amortization also increased with the acquired assets.
- Interest expense increased $186 million in Q2 and $238 million in the first half. Unfavorable mark-to-market movements in interest rate contracts were the main driver: losses recognized in interest expense were $160 million for Q2 and $278 million for the first half.
- Q2 2018 and first-half 2018 results included a $153 million pre-tax gain on the sale of Canadian Holdings. This and the 2019 derivative losses materially affect year-over-year earnings comparisons.
- In June, NEP acquired project interests for approximately $1.032 billion and sold a Class B noncontrolling interest in NEP Renewables II for approximately $900 million. NEP issued $700 million of 4.25% senior notes due 2024 and increased its revolving credit facility size to $1.25 billion. The $450 million drawn on the facility at quarter-end was repaid in July.
Outlook, commentary, risks and unusual items
Management said liquidity and operating cash flows were expected to meet operating costs, maintenance capital expenditures, distributions and liquidity commitments. Future acquisitions, project expansions and distribution growth depend in part on access to capital on acceptable terms. No numerical earnings or distribution-growth guidance is provided in the supplied filing text. The board declared a common-unit distribution of $0.5025, payable August 14, 2019.
- PG&E bankruptcy: PG&E’s Chapter 11 filing triggered financing defaults for the Genesis and Shafter solar projects and blocked distributions from affected projects. At June 30, $586 million of Genesis debt was classified as current; cumulative project cash distributions of approximately $45 million were trapped. NEP reported no impairment at quarter-end, based on estimated future cash flows, and said it would continue monitoring the investments. PG&E could seek to reject PPAs.
- Interest-rate derivatives: Derivatives were a net liability of approximately $374 million at June 30 on a net basis ($379 million gross liabilities less $5 million gross assets). A hypothetical 10% fall in interest rates was estimated to increase net derivative liabilities by approximately $269 million.
- Related-party cash and support: Approximately $737 million was held by NEER or affiliates under the cash sweep arrangements and recorded as due from related parties. Return of these funds and credit support from NEE affiliates are important to liquidity and project obligations.
- Concentration and execution risks: The filing highlights reliance on a limited number of customers, weather and project performance, pipeline operations and expansion, financing access, and potential changes to clean-energy incentives. Management reported no material change in previously disclosed risk factors.
- Potential investment spending: NEP described a potential $128 million Texas pipeline expansion expected to enter service in Q4 2020, subject to regulatory approvals, and approximately $200 million of potential wind repowering investments expected in 2020.
Important facts for investors to verify
- Progress in PG&E’s bankruptcy, the status of the affected PPAs and project financing defaults, and whether trapped cash is released or debt is accelerated.
- The scale and cash impact of derivative fair-value movements, alongside the underlying interest-rate exposure and cash interest costs.
- Availability and timely return of the $737 million cash sweep balance, and the terms and capacity of committed liquidity after the July revolver repayment.
- Acquisition performance and integration, the economics and distribution allocation of the NEP Renewables II Class B interest, and any future buyout funding or dilution.
- Whether operating cash generation supports debt service and distributions, given lower first-half operating cash flow and the partnership’s acquisition and capital-spending plans.