XPLR Infrastructure, LP quarterly report, Q1 FY2018

Business context and reporting period

NextEra Energy Partners, LP (NEP; the registrant named in this filing) reported unaudited results for the three months ended March 31, 2018. NEP owns contracted renewable-energy projects and natural-gas pipeline assets through NEP OpCo. Comparisons are with the three months ended March 31, 2017; prior-year figures were retrospectively adjusted for common-control acquisitions.

Financial performance and liquidity

Revenue rose 7%, with renewable-energy sales of $156 million and Texas pipeline service revenue of $56 million. Operating expenses were $122 million, including $64 million of O&M and $53 million of depreciation and amortization. Interest expense was $103 million versus $43 million, including $52 million of interest-rate swap losses recognized in expense. The reported consolidated loss differs from income attributable to NEP because of substantial noncontrolling-interest allocations, including losses allocated to differential-membership investors.

At March 31, 2018, total assets were $8.286 billion and total liabilities were $4.721 billion. Debt carrying value was $3.580 billion, excluding approximately $690 million classified with assets held for sale. NEP reported $164 million of cash and cash equivalents and $12 million of current restricted cash. Current liabilities of $992 million include $824 million associated with assets held for sale; therefore, the reported current-liability total includes sale-related balances. Cash provided by operations was $53 million; investing activities used $6 million and financing activities used $48 million. Capital expenditures were $4 million.

Material changes and unusual items

• Renewable-energy revenue increased $7 million, primarily from favorable wind resource ($4 million) and PPA price escalators ($3 million). Pipeline service revenue increased $7 million, primarily from new contracts.
• O&M expense increased $8 million, including higher IDR fees and project costs. Higher interest expense reflected approximately $53 million of additional swap mark-to-market losses and $14 million of higher interest costs, partly offset by lower costs from repaid term loans.
• NEP adopted new accounting guidance for partial sales of nonfinancial assets. This reclassified $1.442 billion from deferred differential-membership liabilities into noncontrolling interests. The quarter included a $231 million pre-tax adjustment ($211 million after tax) related to lower federal tax rates; allocations to noncontrolling interests materially affected attributable earnings.
• In March, NEP agreed to sell interests in four Ontario wind facilities and two solar facilities totaling about 396 MW. The assets and related liabilities were classified as held for sale. Closing was expected in Q2 2018, subject to regulatory approvals and customary conditions.

Outlook, risks and contingencies

The filing provides no specific earnings or cash-flow guidance. The board declared a $0.42-per-common-unit distribution payable May 15, 2018, up from $0.4050 per unit reported for Q1. Approximately $6 million of preferred distributions was accrued for payment in May. Management stated that interim results are not necessarily indicative of full-year results and that no material risk-factor changes had occurred since the 2017 Form 10-K.

Key disclosed risks include weather and resource variability, project and pipeline operating risks, customer and contract concentration, access to capital, substantial subsidiary debt, interest-rate and counterparty exposure, reliance on NEE/NEER for management and credit support, and the ability to sustain distributions. Canadian FIT contracts carry domestic-content requirements; noncompliance could jeopardize contracts. Commitments under specified contracts were estimated at $754 million, including $575 million thereafter. Approximately $68 million of letters of credit was outstanding under project facilities.

Investor facts to verify

• Whether the Ontario asset sale closed on schedule and the resulting proceeds, debt disposition, and foreign-exchange effects.
• The recurring cash cost of debt and swaps, given the large quarter-to-quarter increase in swap losses and interest expense.
• Cash available for distribution after debt service, preferred distributions, IDR fees, and related-party obligations; GAAP attributable income alone does not establish distribution coverage.
• The final tax-reform accounting and effects of the partial-sale accounting change on noncontrolling interests and reported earnings.
• Availability and return timing of related-party cash sweep balances; approximately $89 million was held in NEER or affiliate accounts at quarter-end.