NextEra Energy Partners(NEP) - 2019 Q3 - Quarterly Report

Forward-Looking Statements This report contains forward-looking statements involving estimates and uncertainties, outlining factors that could cause different results Forward-Looking Statements The company outlines numerous operational, financial, and other risks that could cause actual results to differ from projections - The company identifies several categories of risks that could impact its operations and financial results, qualifying all forward-looking statements[11] - Key operational risks include project performance, weather conditions, reliance on specific projects, and regulatory changes[12][13] - Contract risks are highlighted, particularly the exposure to PG&E's Chapter 11 bankruptcy and expiring agreements[14][15] - Risks related to financial activities include access to capital, debt restrictions, and exposure to interest rate swaps[16] - The relationship with NextEra Energy, Inc (NEE) presents risks, including NEE's significant influence and potential conflicts of interest[17][18] - Ownership and taxation risks include potential dilution from new unit issuances and the possibility of future tax liabilities[19][20] PART I - FINANCIAL INFORMATION Financial Statements The statements show a Q3 2019 net loss of $72 million versus a Q3 2018 net income of $33 million, driven by derivative losses Condensed Consolidated Statements of Income (Loss) Q3 2019 revenues grew to $253 million, but a large interest expense from derivatives led to a net loss attributable to NEP of $72 million Selected Income Statement Data (in millions, except per unit) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $253 | $178 | $649 | $615 | | Operating Income | $88 | $59 | $190 | $411 | | Interest Expense | ($372) | $31 | ($735) | ($93) | | Net Income (Loss) | ($243) | $110 | ($488) | $383 | | Net Income (Loss) Attributable to NEP | ($72) | $33 | ($122) | $189 | | EPS - basic | ($1.21) | $0.60 | ($2.12) | $3.47 | Condensed Consolidated Balance Sheets Total assets grew to $11.6 billion and total liabilities rose to $5.4 billion, primarily due to acquisitions and related financing Selected Balance Sheet Data (in millions) | Metric | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Current Assets | $1,032 | $340 | | Property, Plant and Equipment - net | $6,982 | $6,770 | | Total Assets | $11,595 | $9,405 | | Total Current Liabilities | $645 | $859 | | Long-Term Debt | $3,719 | $2,728 | | Total Liabilities | $5,419 | $3,867 | | Total Equity | $6,176 | $5,538 | Condensed Consolidated Statements of Cash Flows Operating cash flow remained stable, while investing cash outflow surged to $1.5 billion for acquisitions, funded by new financing Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $252 | $269 | | Net Cash Used in Investing Activities | ($1,519) | ($213) | | Net Cash Provided by (Used in) Financing Activities | $1,311 | ($142) | | Net Increase (Decrease) in Cash | $44 | ($88) | Notes to Condensed Consolidated Financial Statements Notes detail significant acquisitions, related debt financing, and the ongoing impact of the PG&E bankruptcy on project cash flows - In June 2019, NEP acquired a portfolio of wind and solar assets from NEER for approximately $1.02 billion in cash[48][49][50] - In September 2019, NEP entered an agreement to acquire Meade Pipeline Co LLC for approximately $1.28 billion in cash[53] - NEP issued $700 million of 4.25% senior notes and $500 million of 3.875% senior notes, and upsized its credit facility to $1.25 billion[80][82][84] - The PG&E bankruptcy caused events of default on project financings, restricting approximately $79 million in cash distributions[118][121][124] Management's Discussion and Analysis of Financial Condition and Results of Operations Acquisitions drove revenue growth while derivative mark-to-market losses caused a net loss; liquidity remains strong at over $2.1 billion Results of Operations Acquisitions drove a $75 million YoY revenue increase in Q3, while a $382 million unfavorable derivative swing caused a net loss - Q3 2019 renewable energy sales increased by $77 million YoY, with $65 million from recent acquisitions[132] - Q3 2019 O&M expenses increased by $25 million YoY, primarily due to $16 million from newly acquired projects[133] - Q3 2019 interest expense increased by $403 million YoY, mainly due to $382 million in unfavorable mark-to-market activity[136] - For the nine months ended Sep 30, 2019, increased investing cash use was driven by the $1.028 billion June 2019 acquisition[174] Liquidity and Capital Resources Total liquidity increased to $2.1 billion, bolstered by new debt and equity financing to fund the company's acquisition strategy Liquidity Position (in millions) | Component | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $195 | $147 | | Amounts due under the CSCS agreement | $525 | $66 | | Available under revolving credit facilities | $1,400 | $900 | | Available under letter of credit facilities | $14 | $14 | | Total Liquidity | $2,134 | $1,127 | - In 2019, NEP increased its revolving credit facility to $1.25 billion, issued $1.2 billion in senior notes, and raised $900 million from a noncontrolling interest sale[161][164][166] - On October 21, 2019, the board authorized a quarterly distribution of $0.5175 per common unit[89][171] Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate and counterparty credit risk, managed through derivatives and diversification - NEP is exposed to interest rate risk on its $4.1 billion in long-term debt; a 10% rate decrease would increase its fair value by $118 million[177][178] - A hypothetical 10% decrease in rates would increase net derivative liabilities by $305 million on a net notional amount of $6.8 billion[179] - NEP faces counterparty credit risk, managed through credit policies, with a specific mention of risks related to PG&E's bankruptcy[180] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls - Management, including the CEO and CFO, concluded that NEP's disclosure controls and procedures were effective as of September 30, 2019[182] - No material changes to the company's internal control over financial reporting occurred during the most recent fiscal quarter[183] PART II - OTHER INFORMATION Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's annual and quarterly reports - There have been no material changes from the risk factors disclosed in the 2018 Form 10-K and the March 2019 Form 10-Q[186] Exhibits This section lists filed exhibits, including acquisition agreements, notes offering documents, and required officer certifications - Exhibits filed include agreements for the Meade pipeline acquisition, documents for the 3.875% Senior Notes, and required CEO/CFO certifications[187]