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, 2021 , NEP owned an approximately 42.8% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 57.2% 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 2020 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. InDecember 2020 , an indirect subsidiary of NEP completed the acquisition from NEER of 100% of the membership interests in Wilmot and 100% of the Class C membership interests inPine Brooke Holdings . InApril 2021 , an indirect subsidiary of NEP entered into purchase and sale agreements to acquire indirect ownership interests in four wind generation facilities with a combined generating capacity of 391 MW. See Note 1. 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, 2021 2020 (millions) Statement of Income (Loss) Data: OPERATING REVENUES Renewable energy sales$ 155 $ 157 Texas pipelines service revenues 91 55 Total operating revenues 246 212 OPERATING EXPENSES Operations and maintenance 92 92 Depreciation and amortization 67 66 Taxes other than income taxes and other 9 5 Total operating expenses - net 168 163 OPERATING INCOME 78 49 OTHER INCOME (DEDUCTIONS) Interest expense 504 (839) Equity in earnings of equity method investees 43 18 Equity in earnings (losses) of non-economic ownership interests 14 (23) Other - net 2 - Total other income (deductions) - net 563 (844) INCOME (LOSS) BEFORE INCOME TAXES 641 (795) INCOME TAX EXPENSE (BENEFIT) 70 (75) NET INCOME (LOSS) 571 (720) NET INCOME ATTRIBUTABLE TO PREFERRED DISTRIBUTIONS - (2) NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS (369) 500 NET INCOME (LOSS) ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP$ 202 $ (222)
Three Months Ended
Operating Revenues
Operating revenues increased$34 million for the three months endedMarch 31, 2021 .Texas pipelines service revenues increased approximately$36 million during the three months endedMarch 31, 2021 primarily reflecting increases of$30 million related to higher revenues under transportation and fuel management agreements during the February weather event (see 19 -------------------------------------------------------------------------------- Note 9 - Transportation and Fuel Management Agreements) and$6 million related to higher revenues associated with a pipeline expansion project that went into service in the third quarter of 2020.
Operating Expenses
Operations and Maintenance O&M expenses were flat during the three months endedMarch 31, 2021 primarily reflecting an increase of$5 million in higher IDR fees related to growth in NEP's distributions to its common unitholders, which were offset by decreases in other project operating expenses.
Other Income (Deductions)
Interest Expense The decrease in interest expense of approximately$1,343 million during the three months endedMarch 31, 2021 primarily reflects$1,330 million of favorable mark-to-market activity ($535 million of gains recorded in 2021 compared to$795 million of losses in 2020) and decreased interest expense due to lower debt balances. Equity in Earnings of Equity Method Investees Equity in earnings of equity method investees increased approximately$25 million during the three months endedMarch 31, 2021 primarily due to$18 million of earnings related to the ownership interests inPine Brooke Holdings acquired inDecember 2020 (see Note 1) as well as an increase of approximately$7 million in earnings primarily related to the ownership interest in Desert Sunlight. Equity in Earnings (Losses) of Non-Economic Ownership Interests NEP recognized approximately$14 million of equity in earnings of non-economic ownership interests during the three months endedMarch 31, 2021 compared to$23 million of losses in the prior year period. The change primarily reflects favorable mark-to-market activity in 2021 compared to unfavorable mark-to-market activity in 2020. Income Taxes For the three months endedMarch 31, 2021 , NEP recorded an income tax expense of approximately$70 million on income before income taxes of$641 million , resulting in an effective tax rate of 11%. The tax expense is comprised primarily of income tax expense of approximately$135 million at the statutory rate of 21% and$12 million of state taxes, partly offset by$78 million of income tax benefit attributable to noncontrolling interests. For the three months endedMarch 31, 2020 , NEP recorded 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$12 million of state tax benefit, partly offset by$105 million of income tax attributable to noncontrolling interests.
Net Loss (Income) Attributable to Noncontrolling Interests
For the three months endedMarch 31, 2021 and 2020, net loss (income) attributable to noncontrolling interests reflects the net income or loss attributable to NEE Equity's noncontrolling interest in NEP OpCo, a third party's 10% interest in one of theTexas pipelines, the loss allocated to differential membership interest investors, the income allocated to the Class B noncontrolling interests and NEER's approximately 50% noncontrolling interest in Silver State. The net income attributable to noncontrolling interests in 2021 compared to net loss attributable to noncontrolling interests in 2020 primarily reflects the net income allocation to NEE Equity's noncontrolling interest compared to the allocation of losses in the prior year. 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 (see Note 7) 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 11 - Development, Engineering and Construction Commitments). 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. 20 -------------------------------------------------------------------------------- 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, 2021 Maturity Date (millions) Cash and cash equivalents $ 110 Amounts due under the CSCS agreement 84 Revolving credit facilities(a) 1,250 2026 Less borrowings (90) Less issued letters of credit (115) Genesis Holdings final funding(b) 345 Total$ 1,584
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(a) Excludes certain credit facilities due to restrictions on the use of the borrowings. (b) Expected to be received in the second quarter of 2021. 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 2021 , NEP OpCo and its direct subsidiary entered into an amendment of their existing revolving credit facility to extend the maturity date toFebruary 2026 . During the three months endedMarch 31, 2021 ,$90 million was drawn under the NEP OpCo revolving credit facility. In addition, approximately$12 million was borrowed under the Meade credit agreement for the Meade expansion and$2 million was repaid. 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 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 21 --------------------------------------------------------------------------------
make a distribution. At
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, 2021 and 2020, NEP had capital expenditures of approximately$45 million and$52 million , respectively, primarily reflecting costs associated with the repowering of certain wind facilities and expansion projects at certain pipelines. In the third and fourth quarters of 2020, an expansion investment at one of theTexas pipelines and the repowered wind generation facilities were placed in service. NEP expects to make additional investments associated with its ownership interests in Meade related to an expansion scheduled for commercial operation by mid-2022. 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, 2021 , NEP distributed approximately$47 million to its common unitholders. OnApril 20, 2021 , the board of directors of NEP authorized a distribution of$0.6375 per common unit payable onMay 14, 2021 to its common unitholders of record onMay 6, 2021 .
Cash Flows
Three Months Ended
The following table reflects the changes in cash flows for the comparative periods:
2021 2020
Change
(millions) Three Months EndedMarch 31 , Net cash provided by operating activities$ 104 $ 99 $ 5 Net cash used in investing activities$ (107) $ (88) $ (19) Net cash provided by (used in) financing activities$ 4 $ (20)
Net Cash Provided by Operating Activities
The increase in net cash provided by operating activities was primarily driven by higher operating income, lower interest payments and higher distributions from equity method investees, partly offset by working capital timing differences.
2021 2020 (millions)
Three Months Ended
Capital expenditures and other investments$ (45) $ (52)
Payments to related parties under CSCS agreement - net (74) (48)
Distributions from equity method investee - 8 Other 12 4 Net cash used in investing activities$ (107) $ (88) The increase in net cash used in investing activities was primarily driven by higher cash sweeps under the CSCS agreement in 2021, partly offset by lower capital expenditures in 2021 primarily related to the completion of one of the pipeline expansion projects and the repowering of certain wind facilities in the third and fourth quarters of 2020 (see Capital Expenditures). 22 --------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities
2021 2020 (millions) Three Months EndedMarch 31 , Proceeds from issuance of common units - net $ 3$ 2 Issuances (retirements) of long-term debt - net 100 46 Partner contributions - 3 Partner distributions (117) (97) Change in amounts due to related parties (1) (1) Proceeds related to differential membership interests - net 35 40
Proceeds (payments) related to Class B noncontrolling interests - (14)
(10)
net
Other (2) (3) Net cash provided by (used in) financing activities $
4
The change in net cash provided by (used in) financing activities primarily reflects the higher net issuances of long-term debt in 2021 (see Note 7) compared to 2020, partly offset by higher partner distributions.
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