CLEARWAY ENERGY, INC. The following discussion analyzes the Company's historical financial condition and results of operations.
As you read this discussion and analysis, refer to the Company's consolidated financial statements to this Form 10-Q, which present the results of operations for the three and nine months endedSeptember 30, 2022 and 2021. Also refer to the Company's 2021 Form 10-K, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition.
The discussion and analysis below has been organized as follows:
•Executive Summary, including a description of the business and significant events that are important to understanding the results of operations and financial condition;
•Results of operations, including an explanation of significant differences between the periods in the specific line items of the consolidated statements of income;
•Financial condition addressing liquidity position, sources and uses of cash, capital resources and requirements, commitments and off-balance sheet arrangements;
•Known trends that may affect the Company's results of operations and financial condition in the future; and
•Critical accounting policies which are most important to both the portrayal of
the Company's financial condition and results of operations, and which require
management's most difficult, subjective or complex judgment.
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--------------------------------------------------------------------------------Executive Summary
Introduction and Overview
Clearway Energy, Inc. , together with its consolidated subsidiaries, or the Company, is a publicly-traded energy infrastructure investor in and owner of modern, sustainable and long-term contracted assets acrossNorth America . The Company is sponsored by GIP and TotalEnergies through the portfolio company,Clearway Energy Group LLC , or CEG, which became equally owned by GIP and TotalEnergies as ofSeptember 12, 2022 , when TotalEnergies acquired, through its investment in an intermediate holding company, 50% of GIP's interest in CEG. GIP is an independent infrastructure fund manager that makes equity and debt investments in infrastructure assets and businesses. TotalEnergies is a global multi-energy company. The Company is one of the largest renewable energy owners in theU.S. with over 5,500 net MW of installed wind and solar generation projects. The Company's over 8,000 net MW of assets also includes approximately 2,500 net MW of environmentally-sound, highly efficient natural gas-fired generation facilities. Through this environmentally-sound, diversified and primarily contracted portfolio, the Company endeavors to provide its investors with stable and growing dividend income. Substantially all of the Company's generation assets are under long-term contractual arrangements for the output or capacity from these assets. The weighted average remaining contract duration of these offtake agreements was approximately 11 years as ofSeptember 30, 2022 based on CAFD. OnMay 1, 2022 , the Company completed the sale of 100% of its interests in the Thermal Business to KKR. For further details of the Thermal Disposition, refer to Note 3, Acquisitions and Dispositions. As ofSeptember 30, 2022 , the Company's operating assets are comprised of the following projects: Percentage Projects Ownership Net Capacity (MW) (a) Counterparty Expiration Conventional Carlsbad 100 % 527 San Diego Gas & Electric 2038 El Segundo 100 % 550 SCE 2023 - 2026 GenConn Devon 50 % 95 Connecticut Light & Power 2040 GenConn Middletown 50 % 95 Connecticut Light & Power 2041 Marsh Landing 100 % 720 Various 2023 - 2030 Walnut Creek 100 % 485 SCE 2023 - 2026 Total Conventional 2,472 Utility Scale Solar Agua Caliente 51 % 148 PG&E 2039 Alpine 100 % 66 PG&E 2033 Avenal 50 % 23 PG&E 2031 Avra Valley 100 % 27 Tucson Electric Power 2032 Blythe 100 % 21 SCE 2029 Borrego 100 % 26 San Diego Gas and Electric 2038 Buckthorn Solar (b) 100 % 154 City of Georgetown, TX 2043 CVSR 100 % 250 PG&E 2038 Desert Sunlight 250 25 % 63 SCE 2034 Desert Sunlight 300 25 % 75 PG&E 2039 Kansas South 100 % 20 PG&E 2033 Mililani I (b) (c) 50 % 20 Hawaiian Electric Company 2042 Oahu Solar Projects (b) 100 % 62 Hawaiian Electric Company 2041 Roadrunner 100 % 20 El Paso Electric 2031 Rosamond Central (b) 50 % 96 Various 2035 - 2047 TA High Desert 100 % 20 SCE 2033 Utah Solar Portfolio 100 % 530 PacifiCorp 2036 Total Utility Scale Solar 1,621 Distributed Solar DGPV Fund Projects (b) 100 % 286 Various 2030 - 2044 Solar Power Partners (SPP) Projects 100 % 25 Various 2026 - 2037 37
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Percentage
Projects Ownership Net Capacity (MW) (a) Counterparty Expiration
Other DG Projects 100 % 21 Various 2023 - 2039
Total Distributed Solar 332
Wind
Alta I 100 % 150 SCE 2035
Alta II 100 % 150 SCE 2035
Alta III 100 % 150 SCE 2035
Alta IV 100 % 102 SCE 2035
Alta V 100 % 168 SCE 2035
Alta X (b) 100 % 137 SCE 2038
Alta XI (b) 100 % 90 SCE 2038
Black Rock (b) 50 % 58 Toyota and AEP 2036
Buffalo Bear 100 % 19 Western Farmers Electric Co-operative 2033
Capistrano Wind Portfolio 100 % 413 Various 2030 - 2033
Crosswinds 99 % 21 Corn Belt Power Cooperative 2027
Elbow Creek (b) 100 % 122 Various 2029
Elkhorn Ridge 66.7 % 54 Nebraska Public Power District 2029
Forward 100 % 29 Constellation NewEnergy, Inc. 2022
Goat Wind 100 % 150 Dow Pipeline Company 2025
Hardin 99 % 15 Interstate Power and Light Company 2027
Langford (b) 100 % 160 Goldman Sachs 2033
Laredo Ridge 100 % 81 Nebraska Public Power District 2031
Southern Maryland Electric
Lookout (b) 100 % 38 Cooperative 2030
Mesquite Sky (b) 50 % 170 Various 2033 - 2036
Mesquite Star (b) 50 % 210 Various 2032 - 2035
Mt. Storm 100 % 264 Citigroup 2031
Ocotillo 100 % 59 N/A
Odin 99.9 % 21 Missouri River Energy Services 2028
Maryland Department of General
Services and University System of
Pinnacle (b) 100 % 54 Maryland 2031
Rattlesnake (b) (d) 100 % 160 Avista Corporation 2040
San Juan Mesa 75 % 90 Southwestern Public Service Company 2025
Sleeping Bear 100 % 95 Public Service Company of Oklahoma 2032
South Trent 100 % 101 AEP Energy Partners 2029
Spanish Fork 100 % 19 PacifiCorp 2028
Spring Canyon II (b) 90.1 % 31 Platte River Power Authority 2039
Spring Canyon III (b) 90.1 % 26 Platte River Power Authority 2039
Taloga 100 % 130 Oklahoma Gas & Electric 2031
Wildorado (b) 100 % 161 Southwestern Public Service Company 2027
Total Wind 3,698
Total net generation capacity 8,123
(a) Net capacity represents the maximum, or rated, generating capacity of the
facility multiplied by the Company's percentage ownership in the facility as of
September 30, 2022 .
(b) Projects are part of tax equity arrangements and ownership percentage is
based on cash to be distributed, as further described in Note 4, Investments
Accounted for by the Equity Method and Variable Interest Entities.
(c) Includes storage capacity that matches the facility's rated generating capacity.
(d) Rattlesnake has a deliverable capacity of 144 MW.
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--------------------------------------------------------------------------------Significant Events
Thermal Disposition
•OnMay 1, 2022 , the Company completed the sale of 100% of its interests in the Thermal Business to KKR for net proceeds of approximately$1.46 billion , inclusive of working capital adjustments, which excludes approximately$18 million in transaction expenses that were incurred in connection with the disposition. The transaction resulted in a gain on sale of business of approximately$1.29 billion , which is net of the$18 million in transaction expenses referenced above. The proceeds from the sale were utilized to repay certain borrowings outstanding, as described under "Corporate Financing Activities" below, with the remaining proceeds invested in short-term investments classified as cash and cash equivalents on the Company's consolidated balance sheet as ofSeptember 30, 2022 .
Capistrano Wind Portfolio Acquisition
•OnAugust 22, 2022 , the Company, through its wholly-owned indirect subsidiary,Capistrano Portfolio Holdco LLC , acquired the Capistrano Wind Portfolio fromCapistrano Wind Partners LLC , an indirect subsidiary of CEG, for a base purchase price of approximately$255 million less working capital adjustments in the net amount of approximately$16 million , representing total net consideration of approximately$239 million . Concurrent with the acquisition, the Company also entered into a development agreement withClearway Renew LLC , wherebyClearway Renew LLC paid$10 million to the Company at acquisition date for an exclusive right to develop, construct and repower the projects in the Capistrano Wind Portfolio, which was utilized to partially fund the acquisition of the Capistrano Wind Portfolio. The Capistrano Wind Portfolio consists of five wind projects located inTexas ,Nebraska andWyoming with a combined capacity of 413 MW that reached commercial operations between 2008 and 2012. The assets within the portfolio sell power under PPAs with investment-grade counterparties that have a weighted average remaining contract duration of approximately 10 years. The Capistrano Wind Portfolio operations are reflected in the Company's Renewables segment and the acquisition was funded with existing sources of liquidity.
Drop Down Transactions
•OnOctober 3, 2022 , the Company, through its indirect subsidiary,Lighthouse Renewable Holdco LLC , acquiredWaiawa BL Borrower Holdco LLC , the indirect owner of the Waiawa solar project, a 36 MW solar project with matching storage capacity that is currently under construction and located inHonolulu, Hawaii , fromClearway Renew LLC , a subsidiary of CEG, for cash consideration of$20 million .Lighthouse Renewable Holdco LLC is a partnership between the Company and a third-party investor. The third-party investor also contributed cash consideration of$12 million , which was utilized to acquire their portion of the acquired entity.Waiawa BL Borrower Holdco LLC consolidates, as the direct owner of the primary beneficiary, a tax equity fund,Waiawa TE Holdco LLC , which directly holds the Waiawa solar project. Waiawa has a 20-year PPA with an investment-grade utility that commences when the project reaches commercial operations, as defined in the PPA. The acquisition was funded with existing sources of liquidity. •OnMarch 25, 2022 , the Company, through its indirect subsidiary,Lighthouse Renewable Holdco LLC , acquiredMililani BL Borrower Holdco LLC , the indirect owner of the Mililani I solar project, a 39 MW solar project with matching storage capacity, located inHonolulu, Hawaii , fromClearway Renew LLC for cash consideration of$22 million .Lighthouse Renewable Holdco LLC is a partnership between the Company and a third-party investor. The third-party investor also contributed cash consideration of$14 million utilized to acquire their portion of the acquired entity.Mililani BL Borrower Holdco LLC consolidates, as the direct owner of the primary beneficiary, a tax equity fund,Mililani TE Holdco LLC , which directly holds the Mililani I solar project. Mililani I has a 20-year PPA with an investment-grade utility that commenced inJuly 2022 . The acquisition was funded with existing sources of liquidity. As part of the acquisition of Mililani I, the Company assumed the project's financing agreement, which included a$16 million construction loan that converts to a term loan upon the project reaching substantial completion,$60 million tax equity bridge loan and$27 million sponsor equity bridge loan. The sponsor equity bridge loan was repaid at acquisition date, utilizing$14 million from the cash equity investor, as well as$15 million of the Company's acquisition price, which was contributed back by CEG, and$2 million was utilized to pay associated fees. The tax equity bridge loan will be repaid with the final proceeds received from the tax equity investor upon Mililani I reaching substantial completion, which is expected to occur in the fourth quarter of 2022, along with the$18 million that was contributed into escrow by the tax equity investor at acquisition date. 39 -------------------------------------------------------------------------------- •InFebruary 2022 , in connection with the Company's 2021 acquisition of the Class B membership interests inBlack Rock Wind Holding LLC , through its indirect subsidiaryLighthouse Renewable Holding Sub LLC , fromClearway Renew LLC , the Company paid an additional$23 million as final funding after all remaining turbines of the Black Rock wind project became operational. Concurrent with the final funding, the$59 million that was contributed in 2021 by third-party investors, consisting of$36 million contributed by the cash equity investor and$23 million contributed by the tax equity investor, was released toClearway Renew LLC . Resource Adequacy Agreements
•In
•InJuly 2022 , the Company contracted with several load serving entities to sell the remaining 20% ofMarsh Landing's available capacity commencing inMay 2023 . The agreements are for approximately three and a half years.Marsh Landing's capacity is now 100% contracted for a weighted average contract tenor of approximately four years commencing inMay 2023 .
Corporate Financing Activities
•OnMay 3, 2022 , the Company repaid (i)$305 million in outstanding borrowings under the revolving credit facility and (ii)$335 million in outstanding borrowings under the Bridge Loan Agreement utilizing proceeds received from the Thermal Disposition.
Project-level Financing Activities
•OnMarch 16, 2022 , the Company, through its indirect subsidiary,Viento Funding II, LLC , entered into a financing agreement which included the issuance of a$190 million term loan as well as$35 million in letters of credit, supported by the Company's interests in theElkhorn Ridge ,Laredo Ridge , San Juan Mesa andTaloga wind projects. The proceeds from the term loan were used to pay off the existing debt in the amount of$186 million related toLaredo Ridge ,Tapestry Wind LLC andViento Funding II, LLC and to pay related financing costs.
Environmental Matters
The Company is subject to a wide range of environmental laws during the development, construction, ownership and operation of facilities. These existing and future laws generally require that governmental permits and approvals be obtained before construction and maintained during operation of facilities. The Company is obligated to comply with all environmental laws and regulations applicable within each jurisdiction and required to implement environmental programs and procedures to monitor and control risks associated with the construction, operation and decommissioning of regulated or permitted energy assets. Federal and state environmental laws have historically become more stringent over time, although this trend could change in the future. Proposed Federal Reclassification of Northern Long-Eared Bat - OnMarch 23, 2022 , theU.S. Fish and Wildlife Service (FWS) announced a proposal to reclassify the northern long-eared bat as endangered under the Endangered Species Act. The bat, currently listed as threatened, faces extinction due to the range-wide impacts of white-nose syndrome, a deadly disease affecting cave-dwelling bats across the continent. The northern long-eared bat is found in 37 states in the eastern and north centralUnited States and inCanada . The Company is working with renewable energy industry groups to provide comments on the proposed reclassification as this proposal could affect renewable energy facility siting and operations. The proposed listing was recently published by FWS in theFederal Register and the public comment period closed onMay 23, 2022 . The Company participated in this comment process through the renewable industry group. FWS has yet to release its final decision.
The Company's environmental matters are further described in the Company's 2021 Form 10-K in Item 1, Business - Environmental Matters and Item 1A, Risk Factors.
Regulatory Matters
The Company's regulatory matters are described in the Company's 2021 Form 10-K in Item 1, Business - Regulatory Matters and Item 1A, Risk Factors.
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--------------------------------------------------------------------------------Trends Affecting Results of Operations and Future Business Performance
The Company's trends are described in the Company's 2021 Form 10-K in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Trends Affecting Results of Operations and Future Business Performance.
Recent Developments Affecting Industry Conditions and the Company's Business
COVID-19 Update
As of the date of this report, the Company has not experienced any material
financial or operational impacts related to COVID-19, or variants thereof. All
of the Company's facilities have remained operational. The Company will continue
to assess any financial or operational impacts based on any future developments.
For additional discussion regarding risks associated with the COVID-19 pandemic,
see Part I, Item 1A, Risk Factors, of the Company's 2021 Form 10-K.
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