NEXTERA ENERGY PARTNERS, LP Overview
NEP is a growth-oriented limited partnership formed to acquire, manage and own contracted clean energy projects with stable long-term cash flows. NEP consolidates the results of NEP OpCo and its subsidiaries through its controlling interest in the general partner of NEP OpCo. AtMarch 31, 2020 , NEP owned an approximately 39.2% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 60.8% limited partner interest in NEP OpCo. Through NEP OpCo, NEP has ownership interests in a portfolio of contracted renewable generation assets consisting of wind and solar projects and a portfolio of contracted natural gas pipeline assets. NEP's financial results are shown on a consolidated basis with financial results attributable to NEE Equity reflected in noncontrolling interests. This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 2019 Form 10-K. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussions, all comparisons are with the corresponding items in the prior year period. InJune 2019 , an indirect subsidiary of NEP completed the acquisition from NEER of indirect membership interests in three wind and three solar generation facilities with a combined net generating capacity of approximately 611 MW. InNovember 2019 , an indirect subsidiary of NEP acquired all of the ownership interests in Meade, which owns interests in a natural gas pipeline. See Note 1. InJanuary 2019 , PG&E, a significant customer of NEP, filed a voluntary petition for reorganization under Chapter 11 of theU.S. Bankruptcy Code. See Note 11 - PG&E Bankruptcy. NEP is closely monitoring the global outbreak of COVID-19 and is taking steps intended to mitigate the potential risks to NEP posed by COVID-19. See Note 11 - Coronavirus Pandemic. Results of Operations Three Months Ended March 31, 2020 2019 (millions) Statement of Income (Loss) Data: OPERATING REVENUES Renewable energy sales$ 157 $ 123 Texas pipelines service revenues 55 54 Total operating revenues 212 177 OPERATING EXPENSES Operations and maintenance 92 76 Depreciation and amortization 66 61 Taxes other than income taxes and other 5 6 Total operating expenses - net 163 143 OPERATING INCOME 49 34 OTHER INCOME (DEDUCTIONS) Interest expense (839) (155) Equity in earnings of equity method investees 18 - Equity in losses of non-economic ownership interests (23) (7) Total other deductions - net (844) (162) LOSS BEFORE INCOME TAXES (795) (128) INCOME TAX BENEFIT (75) (7) NET LOSS (720) (121) Net income attributable to preferred distributions (2) (6) Net loss attributable to noncontrolling interests 500 105 NET LOSS ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP$ (222) $ (22)
Three Months Ended
Operating Revenues
Renewable energy sales increased approximately
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increased approximately
Operating Expenses
Operations and Maintenance O&M expenses increased approximately$16 million during the three months endedMarch 31, 2020 primarily due to increases of$5 million related to the projects acquired inJune 2019 ,$6 million in higher other corporate expenses, including higher IDR fees related to growth in NEP's distributions to its common unitholders, and$5 million in other project operating expenses. Depreciation and Amortization Depreciation and amortization expense increased approximately$5 million during the three months endedMarch 31, 2020 primarily as a result of$4 million of depreciation related to the projects acquired inJune 2019 .
Other Income (Deductions)
Interest Expense Interest expense increased approximately$684 million during the three months endedMarch 31, 2020 primarily due to$677 million of unfavorable mark-to-market activity and a net increase in interest costs primarily related to higher long-term debt balances as a result of financing activities in 2019 to support growth in the business. Equity in Earnings of Equity Method Investees Equity in earnings of equity method investees increased by approximately$18 million during the three months endedMarch 31, 2020 primarily due to earnings related to the ownership interest in Meade acquired inNovember 2019 (see Note 1).
Equity in Losses of Non-Economic Ownership Interests
The losses related to non-economic ownership interests increased by
approximately
Income Taxes
For the three months endedMarch 31, 2020 , NEP recorded an income tax benefit of approximately$75 million on loss before income taxes of$795 million , resulting in an effective tax rate of 9%. The tax benefit is comprised primarily of income tax benefit of approximately$167 million at the statutory rate of 21% and state tax benefit of$12 million , partly offset by$105 million of income tax attributable to noncontrolling interests. Despite NEP's loss before income taxes, primarily driven by unfavorable mark-to-market activity related to its derivative contracts, NEP currently estimates that it will be able to realize its deferred tax assets. The assumptions used in NEP's evaluation require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates NEP is using to manage the underlying businesses. For the three months endedMarch 31, 2019 , NEP recorded income tax benefit of approximately$7 million on loss before income taxes of$128 million , resulting in an effective tax rate of 5%. The tax benefit is comprised primarily of income tax benefit of approximately$27 million at the statutory rate of 21%, partially offset by$21 million of income tax attributable to noncontrolling interests.
Net Loss Attributable to Noncontrolling Interests
For the three months endedMarch 31, 2020 and 2019, net loss attributable to noncontrolling interests reflects the net income or loss attributable to NEE's noncontrolling interest in NEP OpCo, a non-affiliated party's 10% interest in one of theTexas pipelines, the loss allocated to differential membership interest investors and the income allocated to the Class B noncontrolling interests in NEP Renewables sold in 2018. Additionally, for the three months endedMarch 31, 2020 , net loss attributable to noncontrolling interests reflects the income allocated to the Class B noncontrolling interests in NEP Renewables II, NEP Pipelines and STX Midstream sold in 2019, as well as the approximately 50% noncontrolling interest in Silver State. See Note 10 - Noncontrolling Interests.
Liquidity and Capital Resources
NEP's ongoing operations use cash to fund O&M expenses, maintenance capital
expenditures, debt service payments and distributions to common and preferred
unitholders and holders of noncontrolling interests. NEP expects to satisfy
these requirements primarily with internally generated cash flow. In addition,
as a growth-oriented limited partnership, NEP expects from time to time to make
acquisitions and other investments. These acquisitions and investments are
expected to be funded with borrowings under credit facilities or term loans,
issuances of indebtedness, issuances of additional NEP common units or preferred
units, capital raised pursuant to other financing structures, cash on hand and
cash generated from operations.
These sources of funds are expected to be adequate to provide for NEP's
short-term and long-term liquidity and capital needs, although its ability to
make future acquisitions, fund additional expansion or repowering of existing
projects and increase its distributions to common unitholders will depend on its
ability to access capital on acceptable terms.
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As a normal part of its business, depending on market conditions, NEP expects
from time to time to consider opportunities to repay, redeem, repurchase or
refinance its indebtedness. In addition, NEP expects from time to time to
consider potential investments in new acquisitions and the expansion or
repowering of existing projects. These events may cause NEP to seek additional
debt or equity financing, which may not be available on acceptable terms or at
all. Additional debt financing, if available, could impose operating
restrictions, additional cash payment obligations and additional covenants.
NEP OpCo has agreed to allow NEER or one of its affiliates to withdraw funds
received by NEP OpCo or its subsidiaries and to hold those funds in accounts of
NEER or one of its affiliates to the extent the funds are not required to pay
project costs or otherwise required to be maintained by NEP's subsidiaries,
until the financing agreements permit distributions to be made, or, in the case
of NEP OpCo, until such funds are required to make distributions or to pay
expenses or other operating costs. NEP OpCo will have a claim for any funds that
NEER fails to return:
• when required by its subsidiaries' financings;
• when its subsidiaries' financings otherwise permit distributions to be made to
NEP OpCo;
• when funds are required to be returned to NEP OpCo; or
• when otherwise demanded by NEP OpCo.
In addition, NEER and certain of its affiliates may withdraw funds in connection
with certain long-term debt agreements and hold those funds in accounts
belonging to NEER or its affiliates and provide credit support in the amount of
such withdrawn funds. If NEER fails to return withdrawn funds when required by
NEP's subsidiaries' financing agreements, the lenders will be entitled to draw
on any credit support provided by NEER in the amount of such withdrawn funds.
If NEER or one of its affiliates realizes any earnings on the withdrawn funds prior to the return of such funds, it will be permitted to retain those earnings.
Liquidity Position
At
March 31, 2020 Maturity Date
(millions)
Cash and cash equivalents $ 115
Amounts due under the CSCS agreement 60
Revolving credit facilities(a) 1,250 2025
Less borrowings (550)
Less issued letters of credit (122)
Total(b) $ 753
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(a) Excludes certain credit facilities due to restrictions on the use of the borrowings. (b) Excludes current restricted cash of approximately$8 million atMarch 31, 2020 . See Note 10 - Restricted Cash. Management believes that NEP's liquidity position and cash flows from operations will be adequate to finance O&M, maintenance capital expenditures, distributions to its unitholders and liquidity commitments. Management continues to regularly monitor NEP's financing needs consistent with prudent balance sheet management.
Financing Arrangements
InFebruary 2020 , NEP OpCo and its direct subsidiary entered into an amendment of their existing revolving credit facility to extend the maturity date toFebruary 2025 . During the three months endedMarch 31, 2020 ,$50 million was drawn under the NEP OpCo revolving credit facility and$10 million was repaid. In addition, approximately$7 million was borrowed under a senior secured limited recourse term loan for the Meade expansion and$1 million was repaid. See Note 7 - Debt. NEP OpCo and certain indirect subsidiaries are subject to financings that contain financial covenants and distribution tests, including debt service coverage ratios. In general, these financings contain covenants customary for these types of financings, including limitations on investments and restricted payments. Certain of NEP's financings provide for interest payable at a fixed interest rate. However, certain of NEP's financings accrue interest at variable rates based on an underlying index plus a margin. Interest rate contracts were entered into for certain of these financings to hedge against interest rate movements with respect to interest payments on the related borrowings. In addition, under the project-level financings, each project will be permitted to pay distributions out of available cash so long as certain conditions are satisfied, including that reserves are funded with cash or credit support, no default or event of default under the applicable financings has occurred and is continuing at the time of such distribution or would result therefrom, and each project is otherwise in compliance with the project-level financing's covenants. For the majority of the project-level financings, minimum debt service coverage ratios must be satisfied in order to make a distribution. For one project-level financing, the project must maintain a leverage ratio and an interest coverage ratio in order to 23 -------------------------------------------------------------------------------- make a distribution. AtMarch 31, 2020 , NEP's subsidiaries were in compliance with all financial debt covenants under their financings except for events of default as discussed in Note 11 - PG&E Bankruptcy.
Contractual Obligations
NEP's contractual obligations at
Remainder of
2020 2021 2022 2023 2024 Thereafter Total
(millions)
Debt, including interest(a) $ 426 $ 163 $ 165
36 29 14 14 139 446
Asset retirement activities(c) - - - - - 566 566
MSA and credit support(d) 6 8 8 8 8 182 220
Total $ 646 $ 207 $ 202 $ 389 $ 1,434 $ 3,492 $ 6,370
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(a) Includes principal, interest, fees on credit facilities and interest rate
contracts. Variable rate interest was computed using March 31, 2020 rates. Such
amounts reflect scheduled payments under the financing agreements for debt in
default as the lenders have not issued any acceleration notices. See Note 11 -
PG&E Bankruptcy. See Note 7 - Debt.
(b) Primarily reflects commitments related to construction activities (see Note
11 - Development, Engineering and Construction Commitments), lease payment
obligations and payments related to the acquisition of certain development
rights.
(c) Represents expected cash payments adjusted for inflation for estimated costs
to perform asset retirement activities.
(d) Represents minimum fees under the MSA and CSCS agreement. See Note 9.
Capital Expenditures
Annual capital spending plans are developed based on projected requirements for the projects. Capital expenditures primarily represent the estimated cost of capital improvements, including construction expenditures that are expected to increase NEP OpCo's operating income or operating capacity over the long term. Capital expenditures for projects that have already commenced commercial operations are generally not significant because most expenditures relate to repairs and maintenance and are expensed when incurred. For the three months endedMarch 31, 2020 and 2019, NEP had capital expenditures of approximately$52 million and$3 million , respectively. NEP expects to have capital expenditures totaling approximately$128 million related to an expansion investment at one of theTexas pipelines expected to be in-service during the fourth quarter of 2020 and$90 million of additional investment in CPL related to an expansion scheduled for commercial operation by mid-2022. In addition, NEP expects to have capital expenditures totaling approximately$200 million related to repowering investments at two wind generation facilities expected to be completed in 2020. See Note 11 - Development, Engineering and Construction Commitments. These estimates are subject to continuing review and adjustments and actual capital expenditures may vary significantly from these estimates.
Cash Distributions to Unitholders
During the three months endedMarch 31, 2020 , NEP distributed approximately$35 million to its common unitholders. OnApril 21, 2020 , the board of directors of NEP authorized a distribution of$0.555 per common unit payable onMay 15, 2020 to its common unitholders of record onMay 7, 2020 . During the three months endedMarch 31, 2020 , NEP distributed approximately$2 million to its preferred unitholders and, atMarch 31, 2020 , NEP accrued$2 million in preferred distributions to be paid inMay 2020 .
Cash Flows
Three Months Ended
The following table reflects the changes in cash flows for the comparative periods:
2020 2019 Change
(millions)
Three Months Ended March 31 ,
Net cash provided by operating activities $ 99 $ 19 $ 80
Net cash provided by (used in) investing activities $ (88) $ 21 $ (109)
Net cash used in financing activities $ (20) $ (62) Net Cash Provided by Operating Activities
The increase in net cash provided by operating activities was primarily driven by cash from operations associated with the projects acquired inJune 2019 (see Note 1) and higher wind resource, distributions received associated with the ownership interest in Meade acquired inNovember 2019 (see Note 1) and the timing of certain receivables. 24 --------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities
2020 2019
(millions)
Three Months Ended March 31 ,
Capital expenditures and other investments $ (52) $ (3)
Payments from (to) related parties under CSCS agreement - net (48) 24
Distributions from equity method investee 8
-
Other 4
-
Net cash provided by (used in) investing activities$ (88)
The change in net cash provided by (used in) investing activities was primarily driven by higher cash sweeps under the CSCS agreement in 2020 as compared to repayments in 2019 and higher capital expenditures primarily related to the pipeline expansion projects (see Capital Expenditures).
2020 2019
(millions)
Three Months Ended March 31 ,
Proceeds from issuance of common units - net $ 2 $ 3
Issuances (retirements) of long-term debt - net 46 (24)
Partner contributions 3 1
Partner distributions (97) (74)
Change in amounts due to related parties (1) 19
Proceeds related to differential membership interests - net 40
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Other (13)
(11)
Net cash used in financing activities$ (20)
The change in net cash used in financing activities primarily reflects net issuances of long-term debt in 2020 (see Note 7 - Debt) compared to net retirements of long-term debt in 2019 and higher proceeds from differential membership interests, partly offset by higher partner distributions and the absence of a related party payment that occurred in 2019.
New Accounting Rules and Interpretations
Reference Rate Reform - InMarch 2020 , the FASB issued an accounting standards update which provides certain options to apply GAAP guidance on contract modifications and hedge accounting as companies transition from LIBOR and other interbank offered rates to alternative reference rates that are yet to be determined or finalized. See Note 10 - Reference Rate Reform.
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