Business context and reporting period
This is NextEra Energy Partners, LP’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The filing identifies the registrant as NextEra Energy Partners, LP (NEP; NYSE: NEP), not XPLR Infrastructure, LP as stated in the request metadata.
NEP owns contracted renewable-generation and natural-gas pipeline assets. At quarter-end, it held an approximately 37.5% limited partner interest in NEP OpCo and controlled its general partner.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $253 million | $178 million | $649 million | $615 million |
| Operating income | $88 million | $59 million | $190 million | $411 million |
| Net income (loss) attributable to NEP | $(72) million | $33 million | $(122) million | $189 million |
| Basic earnings (loss) per common unit | $(1.21) | $0.60 | $(2.12) | $3.47 |
| Operating cash flow | Not separately provided | Not separately provided | $252 million | $269 million |
Q3 operating margin was approximately 34.8%, versus 33.1% a year earlier, calculated as operating income divided by revenue. The attributable net loss chiefly reflects sharply adverse interest-rate derivative mark-to-market results: interest expense was $372 million in Q3 and $735 million for the nine months, compared with $31 million and $93 million, respectively, in 2018. Management attributed the year-over-year increases primarily to unfavorable mark-to-market activity and losses associated with purchases of Genesis project debt. The filing reports interest-rate-contract losses recognized in interest expense of $311 million for Q3 and $589 million for the nine months.
At September 30, 2019, cash and cash equivalents were $195 million; total debt, including current maturities, was approximately $4.098 billion, compared with $3.435 billion at year-end 2018. Total current assets were $1.032 billion and current liabilities were $645 million. Reported liquidity was $2.134 billion, including $525 million due under the related-party cash sweep and undrawn revolving facilities; liquidity therefore includes funds held by affiliates, not only cash on hand. Operating cash flow declined $17 million year over year for the nine-month period.
Common-unit distributions paid during 2019 rose from $0.4650 per unit in Q1 to $0.5025 in Q3. After quarter-end, the board authorized a $0.5175 per-unit distribution payable in November 2019.
Material changes versus the prior comparable period
- Q3 revenue increased $75 million, mainly from assets acquired in December 2018 and June 2019 and stronger wind resource; Texas pipeline revenue declined modestly. Nine-month revenue increased $34 million, with acquired assets partly offset by the 2018 Canadian Holdings sale and lower wind resource.
- Operating expenses rose, including higher O&M and depreciation associated with acquired projects. Nine-month 2018 operating income benefited from a $153 million gain on the sale of Canadian Holdings; there was no comparable gain in 2019.
- NEP acquired interests in wind and solar facilities in June 2019 for approximately $1.032 billion, including working capital. It also sold a Class B noncontrolling interest in NEP Renewables II for approximately $900 million.
- Financing activity included $700 million of 4.25% notes due 2024 and $500 million of 3.875% notes due 2026. The revolving facility was increased to $1.25 billion and extended to February 2024; its $450 million draw during the period was repaid.
Outlook, commentary, risks and unusual items
NEP gave no quantified earnings or distribution-growth guidance in the provided filing. Management said liquidity and operating cash flows were expected to cover operating costs, maintenance capital expenditures, distributions and liquidity commitments, while future acquisitions and distribution increases depend on access to capital on acceptable terms. Planned investments included approximately $128 million for a Texas pipeline expansion expected in service in late 2020 and approximately $200 million for wind repowering expected to be completed in 2020.
- Meade pipeline transaction: NEP agreed to acquire a 39.2% interest in the Central Penn Line through Meade for initial cash consideration of $1.28 billion, plus estimated future expansion contributions of approximately $90 million. Closing was expected in Q4 2019, subject to customary conditions and regulatory approvals. The filing also describes financing and a proposed Class B interest sale for the transaction.
- PG&E bankruptcy: PG&E’s Chapter 11 filing triggered financing defaults at the Genesis and Shafter solar projects and blocked distributions from affected projects. Approximately $79 million of cumulative distributions remained undistributed at quarter-end. NEP reported no impairment at September 30, 2019, but warned that rejection or repricing of PPAs, or financing consequences, could materially affect results. NEP expected to acquire the remaining $344 million of Genesis OpCo debt before year-end.
- Interest-rate exposure: Derivative liabilities were approximately $698 million gross at quarter-end, and the balance-sheet derivatives liability was $679 million. A hypothetical 10% rate decline would increase net derivative liabilities by an estimated $305 million. Approximately 2% of long-term debt was exposed to interest-rate fluctuations, with the balance fixed-rate or financially hedged.
- Related-party cash sweeps: Approximately $525 million was held in accounts of NEER or affiliates at September 30, versus $66 million at year-end. NEP relies on affiliates to return these funds when required; affiliate credit support and the related-party relationship are material liquidity considerations.
- Other disclosed risks include weather and project performance, customer and counterparty concentration, pipeline development and regulatory risks, debt covenants, and reliance on access to capital. The filing states there were no material changes to previously reported risk factors.
Important facts for investors to verify
- Confirm the issuer and ticker: this filing is for NextEra Energy Partners, LP (NEP), notwithstanding the XPLR Infrastructure metadata.
- Track the size, timing and cash availability of PG&E-related blocked distributions, project defaults, debt purchases and any PPA developments.
- Assess whether derivative fair-value volatility could affect reported earnings, liquidity, or future financing and hedging costs.
- Verify completion terms and funding for the Meade acquisition, expansion, related Class B financing and required regulatory approvals.
- Evaluate the quality and accessibility of reported liquidity, particularly the $525 million held under related-party cash sweeps, alongside debt maturities and distribution commitments.