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MarketScreener Homepage  >  Equities  >  Nyse  >  Clearway Energy, Inc.    CWEN.A


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CLEARWAY ENERGY : Management's Discussion and Analysis of Financial Condition and the Results of Operations (form 10-Q)

08/06/2020 | 03:00pm EST
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 six months ended June 30, 2020 and 2019. Also refer to the
Company's 2019 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;
•Known trends that may affect the Company's results of operations and financial
condition in the future;
•Results of operations, including an explanation of significant differences
between the periods in the specific line items of the consolidated statements of
•Financial condition addressing liquidity position, sources and uses of cash,
capital resources and requirements, commitments, and off-balance sheet
arrangements; 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.


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 across North America. The
Company is indirectly owned by Global Infrastructure Partners III. Global
Infrastructure Management, LLC is an independent fund manager of funds that
invests in infrastructure assets in the energy and transport sectors, and Global
Infrastructure Partners III is its third equity fund. The Company is sponsored
by GIP through GIP's portfolio company, CEG.
The Company's environmentally-sound asset portfolio includes over 5,991 MW of
wind, solar and natural gas-fired power generation facilities, as well as
district energy systems. Through this diversified and 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
Company also owns thermal infrastructure assets with an aggregate steam and
chilled water capacity of 1,453 net MWt and electric generation capacity of 36
net MW. These thermal infrastructure assets provide steam, hot and/or chilled
water, and, in some instances, electricity to commercial businesses,
universities, hospitals and governmental units in multiple locations,
principally through long-term contracts or pursuant to rates regulated by state
utility commissions. The weighted average remaining contract duration of these
offtake agreements was approximately 13 years as of June 30, 2020 based on CAFD.
As of June 30, 2020, the Company's operating assets are comprised of the
following projects:
                                                  Percentage            Net Capacity
Projects                                           Ownership               (MW)(a)                    Offtake Counterparty                  Expiration
Carlsbad                                                  100  %                527                 San Diego Gas & Electric                   2038
El Segundo                                                100  %                550                Southern California Edison                  2023
GenConn Devon                                              50  %                 95                Connecticut Light & Power                   2040
GenConn Middletown                                         50  %                 95                Connecticut Light & Power                   2041
Marsh Landing                                             100  %                720                 Pacific Gas and Electric                   2023
Walnut Creek                                              100  %                485                Southern California Edison                  2023
Utility Scale Solar
Agua Caliente                                              16  %                 46                 Pacific Gas and Electric                   2039
Alpine                                                    100  %                 66                 Pacific Gas and Electric                   2033
Avenal                                                     50  %                 23                 Pacific Gas and Electric                   2031
Avra Valley                                               100  %                 26                  Tucson Electric Power                     2032
Blythe                                                    100  %                 21                Southern California Edison                  2029
Borrego                                                   100  %                 26                San Diego Gas and Electric                  2038
Buckthorn Solar (b)                                       100  %                154                  City of Georgetown, TX                    2043
CVSR                                                      100  %                250                 Pacific Gas and Electric                   2038
Desert Sunlight 250                                        25  %                 63                Southern California Edison                  2034
Desert Sunlight 300                                        25  %                 75                 Pacific Gas and Electric                   2039
Kansas South                                              100  %                 20                 Pacific Gas and Electric                   2033
Kawailoa (b)                                               48  %                 24                Hawaiian Electric Company                   2041
Oahu Solar Projects (b)                                    95  %                 58                Hawaiian Electric Company                   2041
Roadrunner                                                100  %                 20                     El Paso Electric                       2031
TA High Desert                                            100  %                 20                Southern California Edison                  2033
Utah Solar Portfolio (b) (e)                               50  %                265                        PacifiCorp                          2036
Distributed Solar
Apple I LLC Projects                                      100  %                  3                         Various                            2032
AZ DG Solar Projects                                      100  %                  5                         Various                         2025 - 2033
Clearway Chestnut Projects(b)                              99  %                 59                         Various                          2032-2034
Renew Solar CS4 Projects(b)                                99  %                 54                         Various                          2029-2044
SPP Projects                                              100  %                 25                         Various                         2026 - 2037
Other DG Projects                                         100  %                 13                         Various                         2023 - 2039

                                               Percentage            Net Capacity
Projects                                        Ownership               (MW)(a)                Offtake Counterparty              Expiration
Alta I                                                 100  %                150            Southern California Edison              2035
Alta II                                                100  %                150            Southern California Edison              2035
Alta III                                               100  %                150            Southern California Edison              2035
Alta IV                                                100  %                102            Southern California Edison              2035
Alta V                                                 100  %                168            Southern California Edison              2035
Alta X (b)                                             100  %                137            Southern California Edison              2038
Alta XI (b)                                            100  %                 90            Southern California Edison              2038
                                                                                             Western Farmers Electric
Buffalo Bear                                           100  %                 19                   Co-operative                     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
                                                                                            Interstate Power and Light
Hardin                                                  99  %                 15                     Company                        2027
Laredo Ridge                                           100  %                 80          Nebraska Public Power District            2031
                                                                                            Southern Maryland Electric
Lookout                                                100  %                 38                   Cooperative                      2030
Odin                                                  99.9  %                 20          Missouri River Energy Services            2028
                                                                                          Maryland Department of General
                                                                                          Services and University System
Pinnacle                                               100  %                 55                   of Maryland                      2031
                                                                                           Southwestern Public Service
San Juan Mesa                                           75  %                 90                     Company                        2025
                                                                                            Public Service Company of
Sleeping Bear                                          100  %                 95                     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
                                                                                           Southwestern Public Service
Wildorado (b)                                          100  %                161                     Company                        2027

Thermal Generation .                                   100  %                 36                     Various                       Various

Total net generation capacity (c)                                          


Thermal equivalent MWt(d)                             92.9  %              1,453                     Various                       Various

(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
June 30, 2020.
(b) Projects are part of tax equity arrangements, as further described in Item 1
- Note 2, Summary of Significant Accounting Policies.
(c) Clearway Energy, Inc.'s total generation capacity is net of 6 MWs for
noncontrolling interest for Spring Canyon II and III. Clearway Energy, Inc.'s
generation capacity including this noncontrolling interest was 6,033 MWs.
(d) For thermal energy, net capacity represents MWt for steam or chilled water
and excludes 19 MWt available under the right-to-use provisions contained in
agreements between one of the Company's thermal facilities and certain of its
(e) Represents interests in Four Brothers Solar, LLC, Granite Mountain Holdings,
LLC, and Iron Springs Holdings, LLC, all acquired as part
of the March 2017 Drop Down Assets (ownership percentage is based upon cash to
be distributed).
Additionally, the Company is party to partnerships the purpose of which is to
own or purchase solar power generation projects, as well as other ancillary
related assets from a related party via intermediate funds.  The Company does
not consolidate these partnerships and accounts for them as equity method
investments. The Company's net interest in these projects is 165 MW based on
cash to be distributed pursuant to the partnership agreements as of June 30,
2020. For further discussions, see Item 1- Note 4, Investments Accounted for by
the Equity Method and Variable Interest Entities of this Form 10-Q and Item 15 -
Note 5, Investments Accounted for by the Equity Method and Variable Interest
Entities to the consolidated financial statements included in the Company's 2019
Form 10-K.


Significant Events
Pacific Gas and Electric Company Bankruptcy Update
•During 2019, PG&E, one of the Company's largest customers, filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S.
Bankruptcy Court for the Northern District of California, or the Bankruptcy
Court. The PG&E Bankruptcy triggered defaults under the PPAs with PG&E and such
related financing agreements. As a result, the Company had previously recorded
approximately $1.19 billion of principal, net of the related unamortized debt
issuance costs, as short-term debt. On July 1, 2020, PG&E emerged from
bankruptcy and assumed the Company's contracts without modification. In
addition, PG&E paid to the Company's applicable projects the portion of the
invoices corresponding to the electricity delivered between January 1 and
January 28, 2019. These invoices related to the pre-petition period services and
any payment therefore required the approval of the Bankruptcy Court. The Company
has reclassified the related debt to non-current based on its original maturity
as of June 30, 2020.
Financing Activities
•On May 21, 2020, Clearway Energy Operating LLC completed the sale of an
additional $250 million aggregate principal amount of the 2028 Senior Notes. The
2028 Senior Notes bear interest at 4.75% and mature on March 15, 2028. Interest
on the 2028 Senior Notes is payable semi-annually on March 15 and September 15
of each year, and interest payments will commence on September 15, 2020. The
2028 Senior Notes are unsecured obligations of Clearway Energy Operating LLC and
are guaranteed by Clearway Energy LLC and by certain of Clearway Energy
Operating LLC's wholly owned current and future subsidiaries. The proceeds from
the additional 2028 Senior Notes were used to repay the $45 million outstanding
principal amount of the Company's 2020 Convertible Notes on June 1, 2020, as
well as to fund the repayment of outstanding borrowings under the Company's
revolving credit facility and for general corporate purposes.
Drop Down Transactions
•On August 3, 2020, the Company entered into an agreement with CEG to acquire an
interest in Mesquite Star Pledgor LLC, which owns the Mesquite Star wind
project, a 419 MW utility scale wind project located in Fisher County, Texas for
approximately $79 million. The acquisition is expected to close during the third
quarter of 2020 and will be funded with existing liquidity.
•On August 3, 2020, CEG offered the Company the opportunity to purchase (i)
residual interests in the Kawailoa and Oahu Solar Partnerships and (ii) 100% of
its interests in Langford Holding, LLC, which owns the Langford wind project.
The transaction is subject to negotiation and approval by the Company's
Independent Directors.
•On April 17, 2020, the Company entered into binding agreements related to the
previously announced drop-down offer from CEG to enable the Company to acquire
and invest in a portfolio of renewable energy projects. The following projects
are included in the drop-down: (i) 100% of the equity interests in Rattlesnake
Flat, LLC, which owns the Rattlesnake Wind Project, a 144 net MW wind facility
located in Adams County, WA; (ii) CEG's interest in Repowering Partnership II
LLC (Repowering 1.0), which the Company acquired on May 11, 2020; and (iii) a
new partnership with CEG to repower the Pinnacle Wind Project, a 55 net MW wind
facility located in Mineral County, WV. The Company expects to invest
approximately $241 million in corporate capital subject to closing adjustments
for the above mentioned transactions. Closing is subject to the timing of
projects achieving commercial operations. The investment at commercial
operations excludes, subject to closing adjustments, an additional $27 million
payment in 2031 at the Pinnacle Wind Repowering Partnership.
•On May 11, 2020, the Company acquired CEG's interest in Repowering Partnership
II LLC for cash consideration of $70 million. Repowering Partnership II LLC is
no longer a VIE and subsequent to the acquisition, is a wholly-owned subsidiary
of the Company.


Sale of Interest in RPV Holdco 1

•On May 14, 2020, the Company sold its interests in RPV Holdco 1 LLC, or RPV
Holdco, to a third party for net proceeds of approximately $75 million. The
Company previously accounted for its interest in RPV Holdco as an equity method
investment. The sale of the investment resulted in a gain of approximately
$49 million.
Consolidation of DGPV Holdco 3
•On May 29, 2020, the final construction projects owned by DGPV Holdco 3 were
placed in service which resulted in a reconsideration event. The Company
determined that it will consolidate DGPV Holdco 3 effective on May 29, 2020 and
show the interest owned by CEG as noncontrolling interest as of that date. This
resulted in the consolidation of assets of $400 million and liabilities of $290
million as of May 29, 2020. The impact to the results of operations for the
period from May 30, 2020 to June 30, 2020 was not material.
Black Start Services at Marsh Landing
•As of July 2020, all necessary regulatory approvals were obtained with respect
to the Company's Marsh Landing project to provide black start capability in the
greater San Francisco Bay area, which would restart Marsh Landing in the event
of a blackout, under a five-year contract with the California Independent System
Operator to support their emergency restoration of the electrical grid. The
project has commenced construction and is expected to achieve commercial
operations in 2021.
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.
A number of regulations that may affect the Company are under review, including
the publishing of the Affordable Clean Energy (ACE) rule, state solar
photovoltaic module (solar panel) disposal and recycling regulations, and
proposed federal MBTA incidental take legislation and regulations. The Company
will evaluate the impact of the legislation and regulations as they are revised
but cannot fully predict the impact of each until anticipated revisions and
legal challenges are resolved. To the extent the proposed legislation and
regulations restrict or otherwise impact the Company's operations, the proposed
legislation and regulations could have a negative impact on the Company's
financial performance.
Affordable Clean Energy Rule - The attention in recent years on GHG emissions
has resulted in federal regulations and state legislative and regulatory action.
In 2015, the EPA finalized the Clean Power Plan, or the CPP, which addressed GHG
emissions from existing electric utility steam generating units. The CPP was
challenged in court and in 2016 the U.S. Supreme Court stayed the CPP. In 2018,
the EPA published the proposed ACE rule to replace the CPP. The ACE rule
establishes emission guidelines for states to develop plans to address
greenhouse gas emissions from existing power plants. The ACE rule also
reinforces the states' broad discretion in establishing and applying emissions
standards to new emission sources. The ACE rule is currently being litigated in
the D.C. Circuit.
Proposed State Solar Photovoltaic Module Disposal and Recycling Regulations - On
October 1, 2015, California enacted SB 489, which authorized California'sDepartment of Toxic Substances Control to adopt regulations to designate
discarded photovoltaic modules, which are classified as hazardous waste, as
universal waste subject to universal waste management. On April 19, 2019, the
department proposed regulations that would allow discarded photovoltaic modules
to be managed as universal waste. Comments on the proposed rule were due by June
10, 2019, but the date was extended to January 8, 2020, as a result of text
modifications. The final rule has not yet been published.
Proposed Federal MBTA Incidental Take Legislation and Regulations - On January
15, 2020, the House Natural Resources Committee voted to advance a bill that
would reinstate the interpretation that incidental take is prohibited under the
MBTA, overriding the recent Trump-administration Solicitor's Opinion M-37050
that held the MBTA only applies to intentional takings. The bill also develops a
general permitting program that covers incidental take of migratory birds. To
the extent that electric generation takes migratory birds, it typically is
incidental to its operations.


On February 3, 2020, the U.S. Fish and Wildlife Service published in the Federal
Register a notice of proposed rulemaking to solicit public comment on a proposed
regulation that would codify Solicitor's Opinion M-37050 defining the scope of
certain prohibitions under the MBTA. The proposed rule would clarify that
criminal liability for pursuing, hunting, taking, capturing, or killing or
attempting to take, capture or kill migratory birds is limited to actions
directed at migratory birds, their nests, or their eggs. The proposed rule would
have the effect of clarifying that these prohibitions do not extend to actions
that only incidentally take or kill migratory birds as a result of otherwise
lawful activities. Comments on the proposed rule were due by March 19, 2020. The
final rule has not yet been published. On June 5, 2020, the US Fish and Wildlife
Service made available the draft Environmental Impact Statement (DEIS) for the
proposed rule to define the scope of the MBTA. A 45-day comment period on the
DEIS was opened.
Regulatory Matters
The Company's regulatory matters are described in the Company's 2019 Form 10-K
in Item 1, Business - Regulatory Matters and Item 1A, Risk Factors.
Trends Affecting Results of Operations and Future Business Performance
The Company's trends are described in the Company's 2019 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
Recent Developments Affecting Industry Conditions and the Company's Business
In response to the ongoing coronavirus (COVID-19) pandemic, the Company has
implemented preventative measures and developed corporate and regional response
plans to protect the health and safety of its employees, customers and other
business counterparties, while supporting the Company's suppliers and customers'
operations to the best of its ability in the circumstances. The Company also has
modified certain business practices (including discontinuing all non-essential
business travel, implementing a temporary work-from-home policy for employees
who can execute their work remotely and encouraging employees to adhere to local
and regional social distancing, more stringent hygiene and cleaning protocols
across the Company's facilities and operations and self-quarantining
recommendations) to support efforts to reduce the spread of COVID-19 and to
conform to government restrictions and best practices encouraged by governmental
and regulatory authorities. The Company continues to evaluate these measures,
response plans and business practices in light of the evolving effects of
There is considerable uncertainty regarding the extent to which COVID-19 will
continue to spread and the extent and duration of governmental and other
measures implemented to try to slow the spread of the virus, such as large-scale
travel bans and restrictions, border closures, quarantines, shelter-in-place
orders and business and government shutdowns. Restrictions of this nature may
cause the Company, its suppliers and other business counterparties to experience
operational delays and delays in the delivery of materials and supplies and may
cause milestones or deadlines relating to various projects to be missed.
As of the date of this report, the Company has not experienced any material
financial or operational impacts related to COVID-19. All of the Company's
facilities have remained operational. The Company believes that all of its
accounts receivable balances as of June 30, 2020 are collectible. The Company
will continue to assess collectability based on any future developments.
The Company cannot predict the full impact that COVID-19 will have on the
Company's financial expectations, its financial condition, results of operations
and cash flows, its ability to make distributions to its stockholders, the
market prices of its common stock and its ability to satisfy its debt service
obligations at this time, due to numerous uncertainties. The ultimate impacts
will depend on future developments, including, among others, the ultimate
geographic spread of the virus, the consequences of governmental and other
measures designed to prevent the spread of the virus, the development of
effective treatments, the duration of the outbreak, actions taken by
governmental authorities, customers, suppliers and other third parties,
workforce availability and the timing and extent to which normal economic and
operating conditions resume. For additional discussion regarding risks
associated with the COVID-19 pandemic, see Part II, Item 1A Risk Factors of the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,


Consolidated Results of Operations
The following table provides selected financial information:

© Edgar Online, source Glimpses

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