Clearway Energy, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless otherwise noted. Amounts are in millions of dollars except per-share data and operating measures. Clearway owns contracted wind, solar, natural-gas generation and thermal infrastructure assets; substantially all generation output is sold under long-term arrangements, averaging approximately 13 years of remaining contract duration.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Operating revenue | $258 | $217 |
| Operating income | $52 | $41 |
| Operating margin | 20.2% | 18.9% |
| Net loss | $(107) | $(47) |
| Net loss attributable to Clearway, Inc. | $(29) | $(20) |
| Loss per weighted-average Class A and C share | $(0.26) | $(0.18) |
| Cash provided by operating activities | $84 | $61 |
| Cash used in investing activities | $(17) | $(26) |
| Cash used in financing activities | $(104) | $(320) |
| Economic gross margin (non-GAAP) | $268 | $222 |
Revenue increased 19%, while operating income rose 27%. Revenue growth reflected higher conventional-generation revenue, including the Carlsbad acquisition, and greater renewable production. Despite improved operating performance, the consolidated net loss more than doubled, principally because interest expense rose $66 million and equity-method results declined by $16 million. Interest expense included a substantial adverse change in the fair value of interest-rate swaps. The filing reports no consolidated gross-margin percentage; economic gross margin is a non-GAAP measure.
Balance sheet, debt and liquidity
- At March 31, 2020, total debt was $6.634 billion, versus $6.858 billion at year-end 2019; $1.480 billion was classified as current. Total liabilities were $7.291 billion and total assets were $9.555 billion.
- Cash and cash equivalents were $110 million and restricted cash was $270 million. Reported total liquidity was $633 million, including cash, restricted cash and revolving-facility availability. Much of restricted cash is subject to project-level restrictions.
- The company had $180 million drawn on its revolving credit facility and $62 million of letters of credit outstanding. The liquidity table gives facility availability of $253 million, while another MD&A passage says $246 million; the filing does not reconcile these figures.
- PG&E-related project debt of approximately $1.19 billion was classified as current following bankruptcy-related defaults under PPAs and financing agreements. Distributions from affected projects are restricted; $68 million in distribution reserves related to these subsidiaries may not be distributed during the bankruptcy.
- Operating cash flow increased $23 million year over year. Capital expenditures were $40 million, including $32 million of growth expenditures. Management estimated 2020 maintenance expenditures at $32 million, subject to review.
Material changes and notable items
- Renewables generation sold rose to 1.676 million MWh from 1.449 million; conventional generation rose to 177,000 MWh from 111,000 MWh. Thermal sales declined to 605,000 MWt from 644,000 MWt. Conventional equivalent availability remained 89%.
- The company redeemed the remaining $88 million of 2024 Senior Notes in January, recording a $3 million extinguishment loss. It repaid $260 million of Repowering construction debt in February, funded with tax-equity proceeds and company contributions.
- Tax-equity contributions, primarily related to Wildorado, contributed to $154 million of net contributions from noncontrolling interests. The company issued 478,384 Class C shares through its ATM program for net proceeds of about $10 million; approximately $26 million remained available under the program.
- In March, the company sold its interests in Energy Center Dover and Energy Center Smyrna. On April 17, 2020, it agreed to invest approximately $241 million in a CEG-related portfolio of wind and repowering projects, subject to closing conditions and adjustments.
- Class A and Class C dividends were $0.21 per share for Q1. On April 30, the company declared another $0.21 quarterly dividend, payable June 15. Management said comparable dividends were expected to continue based on current circumstances, while noting capital, market, contractual and PG&E-related constraints.
Outlook, risks and contingencies
- PG&E bankruptcy: PG&E’s proposed reorganization plan provided for assumption of Clearway’s PPAs but remained subject to creditor, court and regulatory approvals. As of May 7, contracts were operating normally and management expected them to continue; forbearance agreements had been obtained for some affected financings, with others still being sought. The bankruptcy hearing was then expected May 27, 2020.
- COVID-19: As of the filing date, Clearway reported no material financial or operational impact and all facilities remained operational. It cautioned that the pandemic could disrupt employees, suppliers, projects, counterparties, capital access, cash flows and future dividends; impacts were not yet predictable.
- Legal matters: A federal court granted summary judgment for the company’s Laredo Ridge wind project and permanently enjoined NPPD from terminating its PPA based on the alleged default; appeal remained possible and related state-court litigation was stayed. Georgetown’s Buckthorn Solar PPA litigation remained pending, with the company denying the claims and pursuing counterclaims.
- Other risks include power and fuel prices, weather and generation availability, counterparty performance, interest rates, regulation and environmental requirements, project-level debt restrictions, and the ability to maintain or grow dividends and access capital. Management reported compliance with required debt covenants other than matters affected by PG&E.
- No formal earnings or CAFD guidance is provided in the filing text. Management stated liquidity, operating cash flows and revolver access were expected to be adequate for commitments, debt service, capital needs and dividends. Disclosure controls were judged effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Progress and final outcome of PG&E’s reorganization, PPA assumption, lender forbearance, debt classification and release of restricted project cash.
- Reconciliation of reported revolver availability ($253 million in the liquidity table versus $246 million elsewhere) and the practical availability of restricted cash.
- Whether operating cash flow and project distributions support debt service, the planned $32 million maintenance spending and continued $0.21 quarterly dividends.
- Closing conditions, final cost and expected cash contribution for the announced approximately $241 million CEG-related transactions.
- Developments in COVID-19 impacts, Georgetown litigation, any appeal of the NPPD decision, and derivative-related interest expense and valuation changes.