Business context and reporting period
NextEra Energy Partners, LP (NEP; the registrant named in this 10-Q) reported the quarter and six months ended June 30, 2018. NEP owns contracted renewable generation and natural-gas pipeline assets through NEP OpCo. At quarter-end, NEP held an approximately 34.9% limited-partner interest in NEP OpCo; NEE Equity held the remaining 65.1% noncontrolling interest. Prior-year figures were retrospectively adjusted for common-control acquisitions.
Financial results and liquidity
Amounts are in millions except per-unit data. Consolidated results include noncontrolling interests; “attributable to NEP” is the amount attributable to NEP itself.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Operating revenue | $225 | $220 | $437 | $417 |
| Operating income | $265 | $92 | $354 | $172 |
| Net income | $296 | $62 | $274 | $116 |
| Net income attributable to NEP | $83 | $13 | $156 | $25 |
| Basic / diluted earnings per common unit | $1.53 / $1.43 | $0.24 / $0.24 | $2.88 / $2.67 | $0.46 / $0.46 |
| Operating cash flow | Not separately provided | Not separately provided | $183 | $190 |
Q2 renewable sales were $169 million (down $6 million year over year), while pipeline service revenue was $56 million (up $11 million). First-half renewable sales were $325 million and pipeline revenue $112 million. The filing does not provide a clear comparable consolidated margin measure; reported operating income includes the Canadian sale gain.
Q2 operating income includes a $158 million pretax gain on the sale of Canadian Holdings. The sale also contributed a tax benefit, so reported earnings should not be read as recurring operating performance. Q2 interest expense was $21 million versus $61 million; for the first half it was $124 million versus $104 million. Management attributed the quarterly decrease mainly to favorable mark-to-market activity, while first-half expense rose partly due to higher interest costs and swap losses.
At June 30, cash and cash equivalents were $654 million; total current assets were $941 million and current liabilities $205 million. Long-term debt, including current maturities, was $3.572 billion, down from $4.317 billion at year-end 2017. Reported liquidity was $1.555 billion, including cash, amounts due under the CSCS agreement, and available credit facilities net of borrowings and letters of credit. First-half investing cash flow was positive $460 million, primarily reflecting $517 million of net sale proceeds; financing cash flow was negative $151 million.
Common-unit distributions were $0.42 per unit for Q2 versus $0.365 a year earlier. The board subsequently declared $0.4375 per common unit, payable August 14, 2018. First-half common distributions were approximately $45 million; preferred distributions paid were $9 million, with a further $6 million accrued.
Material changes and unusual items
- NEP completed the sale of Canadian Holdings in June for approximately CAD $740 million (about $563 million at closing), subject to working-capital adjustments; the buyer also assumed approximately $676 million of debt. The assets comprised four wind and two solar facilities totaling approximately 396 MW. The income statement records a $158 million pretax gain; cash-flow proceeds from the sale were $517 million net.
- Adoption of accounting guidance for partial sales of nonfinancial assets reclassified the $1.442 billion differential-membership-interest liability into noncontrolling interests. First-half results also include a $231 million pretax adjustment related to the tax-rate change, allocated through noncontrolling interests. These accounting and tax items affect period-to-period comparability.
- Q2 revenue rose 2% year over year; first-half revenue rose 5%. Management cited unfavorable wind resources for the quarterly decline in renewable sales and new contracts for pipeline revenue growth.
- The filing reports no material changes to the risk factors in the 2017 Form 10-K. Disclosure controls were deemed effective, with no material change in internal control over financial reporting reported for the quarter.
Outlook, risks and contingencies
Management said operating cash flow and current liquidity were expected to cover operations, capital expenditures, debt service, distributions and liquidity commitments. Acquisitions, expansions and distribution growth remain dependent on access to capital markets on acceptable terms; no specific earnings or distribution-growth guidance is provided in the filing. NEP expected to fund routine needs primarily from internally generated cash and acquisitions through a mix of debt, equity, cash and other financing.
Key disclosed risks include variable wind and solar resources and severe weather; operating, pipeline integrity, construction and permitting risks; reliance on a limited number of customers and third-party transmission or pipeline infrastructure; counterparty and foreign-currency exposure; substantial subsidiary indebtedness and financing restrictions; and reliance on NEE/NEER for management services, credit support and return of swept funds. Approximately $137 million of cash-sweep amounts held by NEER or affiliates was included in amounts due from related parties. NEP disclosed $607 million of estimated contractual payments, $333 million of estimated asset-retirement activities, and $68 million of outstanding letters of credit at quarter-end. It also noted that access to financing may be unavailable or costly and that additional debt could impose restrictions.
Important facts for investors to verify
- How much of reported earnings and operating income is attributable to the one-time Canadian disposal gain and tax effects, versus recurring operations.
- Whether pipeline contract growth and renewable production can offset wind-resource variability and the sale of the Canadian portfolio.
- Debt maturities, interest-rate exposure, swap valuation effects, and the terms and availability of credit facilities.
- Timing and collectability of related-party amounts, including cash-sweep funds, and continuing dependence on NEE/NEER for services and credit support.
- The effects of the differential-membership accounting transition, tax reform adjustments, and noncontrolling-interest allocations on NEP-attributable earnings and cash available for distributions.