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. AtJune 30, 2022 , NEP owned an approximately 45.3% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 54.7% limited partner interest in NEP OpCo. Through NEP OpCo, NEP has ownership interests in a portfolio of contracted renewable generation assets consisting of wind, solar and solar-plus-storage 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 2021 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. In 2021, indirect subsidiaries of NEP completed multiple acquisitions of ownership interests in wind and solar generation facilities, some of which include battery storage facilities, with a combined net generating capacity totaling approximately 2,342 MW and net storage capacity totaling 58 MW. InApril 2022 , an indirect subsidiary of NEP entered into an agreement with subsidiaries of NEER to acquire a 67% indirect controlling ownership interest in a battery storage facility under construction inCalifornia with storage capacity of 230 MW. See Note 1. InApril 2022 , indirect subsidiaries of NEP sold their ownership interests in a pipeline inTexas . See Note 10 - Disposal of Pipeline. InJune 2022 , NEP received notification from the offtaker of a 62 MW wind project of its intent to exercise an option to acquire the wind project. See Note 10 - Disposal ofWind Project . Results of Operations Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 (millions) Statement of Income (Loss) Data: OPERATING REVENUES Renewable energy sales$ 302 $ 194 $ 526 $ 349 Texas pipelines service revenues 60 59 117 150 Total operating revenues 362 253 643 499
OPERATING EXPENSES
Operations and maintenance 136 101 265 192 Depreciation and amortization 105 69 207 136 Taxes other than income taxes and other 15 8 31 19 Total operating expenses - net 256 178 503 347 GAINS (LOSSES) ON DISPOSAL OF BUSINESSES/ASSETS - NET 27 (5) 27 (5) OPERATING INCOME 133 70 167 147 OTHER INCOME (DEDUCTIONS) Interest expense 414 (336) 698 169 Equity in earnings of equity method investees 55 42 101 84 Equity in earnings of non-economic ownership interests 18 - 37 14 Other - net 1 - - 3 Total other income (deductions) - net 488 (294) 836 270 INCOME (LOSS) BEFORE INCOME TAXES 621 (224) 1,003 417 INCOME TAX EXPENSE (BENEFIT) 83 (22) 133 48 NET INCOME (LOSS) 538 (202) 870 369
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS (319)
128 (507) (241)
NET INCOME (LOSS) ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS,
LP $ 219 $ (74) $ 363 $ 128 Three Months Ended
Operating Revenues
Operating revenues increased$109 million for the three months endedJune 30, 2022 . Renewable energy sales increased$108 million during the three months endedJune 30, 2022 primarily reflecting higher revenues of approximately$79 million associated with the renewable energy projects acquired in 2021 as well as higher revenues due to favorable resource. 22 --------------------------------------------------------------------------------
Operating Expenses
Operations and Maintenance O&M expenses increased$35 million during the three months endedJune 30, 2022 primarily reflecting higher O&M expenses of approximately$23 million associated with the renewable energy projects acquired in 2021, higher net operating expenses at the existing NEP projects of$8 million and higher corporate operating expenses of$4 million primarily reflecting higher IDR fees related to growth in NEP's distributions to its common unitholders. InJune 2022 , the MSA was amended to cap the IDR fee paid by NEP at$39.25 million per quarter ($157 million per year) if quarterly distributions to NEP OpCo unitholders are at or above$0.7625 ($3.05 on an annualized basis) per NEP OpCo common unit. If quarterly distributions to NEP OpCo unitholders are less than the$0.7625 threshold, then the IDR fee structure described in Part II, Item 5 of the 2021 Form 10-K will apply. Depreciation and Amortization Depreciation and amortization expense increased$36 million during the three months endedJune 30, 2022 primarily reflecting depreciation and amortization associated with the renewable energy projects acquired in 2021.
Gains (Losses) on Disposal of Businesses/Assets - Net
The$27 million net gains on disposal of businesses/assets recognized during the three months endedJune 30, 2022 primarily reflects the gain recorded for the sale of Monument pipeline. See Note 10 - Disposal of Pipeline.
Other Income (Deductions)
Interest Expense The change in interest expense of approximately$750 million during the three months endedJune 30, 2022 primarily reflects$761 million of favorable mark-to-market activity ($455 million of gains recorded in 2022 compared to$306 million of losses in 2021).
Equity in Earnings of Equity Method Investees
Equity in earnings of equity method investees increased approximately
Equity in Earnings of Non-Economic Ownership Interests
Equity in earnings of equity method investees increased approximately
Income Taxes
For the three months endedJune 30, 2022 , NEP recorded income tax expense of approximately$83 million on income before income taxes of$621 million , resulting in an effective tax rate of 13%. The tax expense is comprised primarily of income tax expense of approximately$130 million at the statutory rate of 21% and$15 million of state taxes, partly offset by$65 million of income tax benefit attributable to noncontrolling interests. For the three months endedJune 30, 2021 , NEP recorded income tax benefit of approximately$22 million on loss before income taxes of$224 million , resulting in an effective tax rate of 10%. The tax benefit is comprised primarily of income tax benefit of approximately$47 million at the statutory rate of 21%, partly offset by$27 million of income tax expense attributable to noncontrolling interests.
Net Loss (Income) Attributable to Noncontrolling Interests
For the three months endedJune 30, 2022 , the change in net income (loss) attributable to noncontrolling interests primarily reflects a higher net income allocation to NEE Equity's noncontrolling interest due to an increase in net income as compared to 2021. See Note 10 - Noncontrolling Interests.
Six Months Ended
Operating Revenues
Operating revenues increased$144 million for the six months endedJune 30, 2022 . Renewable energy sales increased$177 million during the six months endedJune 30, 2022 primarily reflecting higher revenues of approximately$126 million associated with the renewable energy projects acquired in 2021 as well as higher revenues due to favorable resource and availability.Texas pipelines service revenues decreased$33 million during the six months endedJune 30, 2022 primarily reflecting decreases of approximately$30 million related to the absence of higher revenues under transportation and fuel management agreements during theFebruary 2021 weather event (see Note 9 - Transportation and Fuel Management Agreements). 23 --------------------------------------------------------------------------------
Operating Expenses
Operations and Maintenance O&M expenses increased$73 million during the six months endedJune 30, 2022 primarily reflecting higher O&M expenses of approximately$47 million associated with the renewable energy projects acquired in 2021, higher corporate operating expenses of$13 million primarily reflecting higher IDR fees related to growth in NEP's distributions to its common unitholders and higher net operating expenses at the existing NEP projects of$13 million . Depreciation and Amortization Depreciation and amortization expense increased$71 million during the six months endedJune 30, 2022 primarily reflecting depreciation and amortization associated with the renewable energy projects acquired in 2021.
Gains (Losses) on Disposal of Businesses/Assets - Net
The$27 million net gains on disposal of businesses/assets recognized during the six months endedJune 30, 2022 primarily reflects the gain recorded for the sale of Monument pipeline. See Note 10 - Disposal of Pipeline.
Other Income (Deductions)
Interest Expense The change in interest expense of approximately$529 million during the six months endedJune 30, 2022 primarily reflects$547 million of more favorable mark-to-market activity ($776 million of gains recorded in 2022 compared to$229 million of gains in 2021). Equity in Earnings of Equity Method Investees Equity in earnings of equity method investees increased approximately$17 million during the six months endedJune 30, 2022 primarily reflecting earnings from equity method interests acquired inOctober 2021 as well as increased earnings at various existing equity method investees.
Equity in Earnings of Non-Economic Ownership Interests
Equity in earnings of equity method investees increased approximately
Income Taxes
For the six months endedJune 30, 2022 , NEP recorded income tax expense of approximately$133 million on income before income taxes of$1,003 million , resulting in an effective tax rate of 13%. The tax expense is comprised primarily of income tax expense of approximately$211 million at the statutory rate of 21% and$24 million of state taxes, partly offset by$104 million of income tax benefit attributable to noncontrolling interests.
For the six months ended
Net Loss (Income) Attributable to Noncontrolling Interests
For the six months endedJune 30, 2022 , the increase in net income attributable to noncontrolling interests primarily reflects a higher net income allocation to NEE Equity's noncontrolling interest due to an increase in net income as compared to 2021. See Note 10 - Noncontrolling Interests.
Liquidity and Capital Resources
NEP's ongoing operations use cash to fund O&M expenses, including related party
fees discussed in Note 9, maintenance capital expenditures, debt service
payments and related derivative obligations (see Note 7 and Note 3) and
distributions to common unitholders and holders of noncontrolling interests (see
Note 8 and Note 10 - 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 (see Note 1). 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
June 30, 2022 Maturity Date
(millions)
Cash and cash equivalents $ 256
Amounts due under the CSCS agreement 556
Revolving credit facilities(a) 2,500 2027
Less borrowings(b) (530)
Less issued letters of credit (117)
Total $ 2,665
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(a) Approximately $50 million of the NEP OpCo credit facility expires in 2024.
Excludes certain credit facilities due to restrictions on the use of the
borrowings.
(b) Approximately $11 million of such borrowings have a maturity date in 2024.
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 2022 , the maturity date was extended fromFebruary 2026 toFebruary 2027 for essentially all of the NEP OpCo credit facility. During the six months endedJune 30, 2022 , approximately$86 million was drawn under the NEP OpCo credit facility. InMay 2022 , the NEP OpCo credit facility was amended to, among other things, increase the revolving credit facility size from$1.25 billion to$2.5 billion . See Note 7. 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 financing structures, each project or group of projects 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 financing has occurred and is continuing at the time of such distribution or would result therefrom, and each project or group of projects is otherwise in compliance with the related covenants. For substantially all of the project-level financing structures, 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 make a distribution. AtJune 30, 2022 , NEP's subsidiaries were in compliance with all financial debt covenants under their financings. 25 --------------------------------------------------------------------------------
Equity Arrangements
During the six months endedJune 30, 2022 , a subsidiary of NEP issued noncontrolling Class B interests in NEP Renewables III under the membership interest purchase agreement entered into in 2021. NEP has buyout rights, subject to certain limitations and/or extensions, under which NEP has the right to pay a portion of the buyout price in NEP non-voting common units, as specified in the related agreement. The Class B investors receive a specified allocation of the related subsidiaries' distributable cash, which could increase if certain minimum buyout rights are not exercised or are not exercised during a certain period. See Note 10 - Noncontrolling Interests.
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 six months endedJune 30, 2022 and 2021, NEP had capital expenditures of approximately$749 million and$64 million , respectively. The 2022 capital expenditures primarily relate to the newly constructed renewable energy and battery storage facilities, as well as the three facilities that were under construction which were acquired from NEER inDecember 2021 . Such expenditures are reimbursed by NEER as contemplated in the acquisition (see Note 1). The 2021 capital expenditures primarily reflect additional investments associated with the ownership interests in Meade related to an expansion that was completed in the fourth quarter of 2021. Estimates of planned capital expenditures are subject to continuing review and adjustments and actual capital expenditures may vary significantly from these estimates.
Cash Distributions to Unitholders
During the six months endedJune 30, 2022 , NEP distributed approximately$121 million to its common unitholders. OnJuly 21, 2022 , the board of directors of NEP authorized a distribution of$0.7625 per common unit payable onAugust 12, 2022 to its common unitholders of record onAugust 4, 2022 .
Cash Flows
Six Months Ended
The following table reflects the changes in cash flows for the comparative
periods:
2022 2021 Change
Six Months Ended June 30, (millions)
Net cash provided by operating activities $ 409 $ 308 $ 101
Net cash used in investing activities $ (302) $ (1,124) $ 822
Net cash provided by (used in) financing activities $ (1) $ 820 Net Cash Provided by Operating Activities
The increase in net cash provided by operating activities was primarily driven by higher operating income.
2022 2021
Six Months Ended June 30, (millions)
Capital expenditures and other investments $ (749) $ (64)
Proceeds from sale of a business 193 -
Payments to related parties under CSCS agreement - net (499)
(1,085)
Distributions from equity method investee -
1
Reimbursements from related parties for capital expenditures 749
9
Other 4
15
Net cash used in investing activities$ (302)
The decrease in net cash used in investing activities was primarily driven by
lower payments to NEER subsidiaries (net of amounts received) under the CSCS
agreement, as well as proceeds received from the sale of Monument pipeline. See
Note 10 - Disposal of Pipeline.
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--------------------------------------------------------------------------------Net Cash Provided by (Used in) Financing Activities
2022 2021
Six Months EndedJune 30 ,
(millions)
Proceeds from issuance of common units - net$ 2 $ 50 Issuances (retirements) of long-term debt - net (38) 520 Partner contributions 1 - Partner distributions (287) (243) Change in amounts due to related parties (2)
(1)
Proceeds related to differential membership interests - net 25
71
Proceeds related to Class B noncontrolling interests - net 305
458
Other (7)
(35)
Net cash provided by (used in) financing activities$ (1)
The change in net cash provided by (used in) financing activities primarily reflects lower net issuances of long-term debt in 2022 compared to 2021, lower proceeds related to issuance of common units - net, differential membership interests - net and Class B noncontrolling interests - net and higher partner distributions.
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