NEXTERA ENERGY PARTNERS, LP - Quarter Report: 2021 June (Form 10-Q)
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number | Exact name of registrant as specified in its charter, address of principal executive offices and registrant's telephone number | IRS Employer Identification Number | ||||||||||||
| 1-36518 | NEXTERA ENERGY PARTNERS, LP | 30-0818558 | ||||||||||||
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
State or other jurisdiction of incorporation or organization: Delaware
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered | ||||||||||||
| Common units | NEP | New York Stock Exchange | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
Large Accelerated Filer þ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☑
Number of NextEra Energy Partners, LP common units outstanding at June 30, 2021: 76,619,403
DEFINITIONS
Acronyms and defined terms used in the text include the following:
| Term | Meaning | ||||
| 2017 convertible notes | senior unsecured convertible notes issued in 2017 | ||||
| 2020 convertible notes | senior unsecured convertible notes issued in 2020 | ||||
| 2021 convertible notes | senior unsecured convertible notes issued in 2021 | ||||
| 2020 Form 10-K | NEP's Annual Report on Form 10-K for the year ended December 31, 2020 | ||||
| AOCI | accumulated other comprehensive income (loss) | ||||
| ASA | administrative services agreement | ||||
| BLM | U.S. Bureau of Land Management | ||||
| CSCS agreement | amended and restated cash sweep and credit support agreement | ||||
| Genesis Holdings | Genesis Solar Holdings, LLC | ||||
| IDR fee | certain payments from NEP OpCo to NEE Management as a component of the MSA which are based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders | ||||
| IPP | independent power producer | ||||
limited partner interest in NEP OpCo | limited partner interest in NEP OpCo's common units | ||||
| Management's Discussion | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
| Meade | Meade Pipeline Co LLC | ||||
| Meade purchaser | Meade Pipeline Investment, LLC | ||||
| MSA | amended and restated management services agreement among NEP, NEE Management, NEP OpCo and NEP OpCo GP | ||||
| MW | megawatt(s) | ||||
| NEE | NextEra Energy, Inc. | ||||
| NEECH | NextEra Energy Capital Holdings, Inc. | ||||
| NEE Equity | NextEra Energy Equity Partners, LP | ||||
| NEE Management | NextEra Energy Management Partners, LP | ||||
| NEER | NextEra Energy Resources, LLC | ||||
| NEP | NextEra Energy Partners, LP | ||||
| NEP GP | NextEra Energy Partners GP, Inc. | ||||
| NEP OpCo | NextEra Energy Operating Partners, LP | ||||
| NEP Pipelines | NextEra Energy Partners Pipelines, LLC | ||||
| NEP Renewables | NEP Renewables, LLC | ||||
| NEP Renewables II | NEP Renewables II, LLC | ||||
| NOLs | net operating losses | ||||
| Note __ | Note __ to condensed consolidated financial statements | ||||
| O&M | operations and maintenance | ||||
Pemex | Petróleos Mexicanos | ||||
| PPA | power purchase agreement | ||||
| preferred units | Series A convertible preferred units representing limited partner interests in NEP | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Silver State | Silver State South Solar, LLC | ||||
| STX Midstream | South Texas Midstream, LLC | ||||
| Texas pipelines | natural gas pipeline assets located in Texas | ||||
| Texas pipeline entities | the subsidiaries of NEP that directly own the Texas pipelines | ||||
| U.S. | United States of America | ||||
| VIE | variable interest entity | ||||
Each of NEP and NEP OpCo has subsidiaries and affiliates with names that may include NextEra Energy, NextEra Energy Partners and similar references. For convenience and simplicity, in this report, the terms NEP and NEP OpCo are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context. Discussions of NEP's ownership of subsidiaries and projects refers to its controlling interest in the general partner of NEP OpCo and NEP's indirect interest in and control over the subsidiaries of NEP OpCo. See Note 6 for a description of NEE Equity's noncontrolling interest in NEP OpCo. References to NEP's projects and NEP's pipelines generally include NEP's consolidated subsidiaries and the projects and pipelines in which NEP has equity method investments.
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TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the federal securities laws. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as result, are expected to, will continue, is anticipated, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on NEP's operations and financial results, and could cause NEP's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEP in this Form 10-Q, in presentations, on its website, in response to questions or otherwise.
Operational Risks
•NEP's ability to make cash distributions to its unitholders is affected by wind and solar conditions at its renewable energy projects.
•Operation and maintenance of renewable energy projects and pipelines involve significant risks that could result in unplanned power outages, reduced output, personal injury or loss of life.
•NEP's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather.
•NEP depends on certain of the renewable energy projects and pipelines in its portfolio for a substantial portion of its anticipated cash flows.
•NEP is pursuing the repowering of wind projects and the expansion of natural gas pipelines that will require up-front capital expenditures and expose NEP to project development risks.
•Terrorist acts, cyberattacks or other similar events could impact NEP's projects, pipelines or surrounding areas and adversely affect its business.
•The ability of NEP to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers. NEP's insurance coverage does not provide protection against all significant losses.
•NEP relies on interconnection, transmission and other pipeline facilities of third parties to deliver energy from its renewable energy projects and to transport natural gas to and from its pipelines. If these facilities become unavailable, NEP's projects and pipelines may not be able to operate or deliver energy or may become partially or fully unavailable to transport natural gas.
•NEP's business is subject to liabilities and operating restrictions arising from environmental, health and safety laws and regulations, compliance with which may require significant capital expenditures, increase NEP's cost of operations and affect or limit its business plans.
•NEP's renewable energy projects or pipelines may be adversely affected by legislative changes or a failure to comply with applicable energy and pipeline regulations.
•Pemex may claim certain immunities under the Foreign Sovereign Immunities Act and Mexican law, and the Texas pipeline entities' ability to sue or recover from Pemex for breach of contract may be limited and may be exacerbated if there is a deterioration in the economic relationship between the U.S. and Mexico.
•NEP does not own all of the land on which the projects in its portfolio are located and its use and enjoyment of the property may be adversely affected to the extent that there are any lienholders or land rights holders that have rights that are superior to NEP's rights or the BLM suspends its federal rights-of-way grants.
•NEP is subject to risks associated with litigation or administrative proceedings that could materially impact its operations, including, but not limited to, proceedings related to projects it acquires in the future.
•NEP's cross-border operations require NEP to comply with anti-corruption laws and regulations of the U.S. government and Mexico.
•NEP is subject to risks associated with its ownership of interests in projects or pipelines that are under construction, which could result in its inability to complete construction projects on time or at all, and make projects too expensive to complete or cause the return on an investment to be less than expected.
Contract Risks
•NEP relies on a limited number of customers and is exposed to the risk that they may be unwilling or unable to fulfill their contractual obligations to NEP or that they otherwise terminate their agreements with NEP.
•NEP may not be able to extend, renew or replace expiring or terminated PPAs, natural gas transportation agreements or other customer contracts at favorable rates or on a long-term basis.
•If the energy production by or availability of NEP's renewable energy projects is less than expected, they may not be able to satisfy minimum production or availability obligations under their PPAs.
Risks Related to NEP's Acquisition Strategy and Future Growth
•NEP's growth strategy depends on locating and acquiring interests in additional projects consistent with its business strategy at favorable prices.
•Reductions in demand for natural gas in the United States or Mexico and low market prices of natural gas could materially adversely affect the NEP pipeline operations and cash flows.
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•Government laws, regulations and policies providing incentives and subsidies for clean energy could be changed, reduced or eliminated at any time and such changes may negatively impact NEP's growth strategy.
•NEP's growth strategy depends on the acquisition of projects developed by NEE and third parties, which face risks related to project siting, financing, construction, permitting, the environment, governmental approvals and the negotiation of project development agreements.
•Acquisitions of existing clean energy projects involve numerous risks.
•NEP may continue to acquire other sources of clean energy and may expand to include other types of assets. Any further acquisition of non-renewable energy projects may present unforeseen challenges and result in a competitive disadvantage relative to NEP's more-established competitors.
•NEP faces substantial competition primarily from regulated utilities, developers, IPPs, pension funds and private equity funds for opportunities in North America.
•The natural gas pipeline industry is highly competitive, and increased competitive pressure could adversely affect NEP's business.
Risks Related to NEP's Financial Activities
•NEP may not be able to access sources of capital on commercially reasonable terms, which would have a material adverse effect on its ability to consummate future acquisitions and pursue other growth opportunities.
•Restrictions in NEP and its subsidiaries' financing agreements could adversely affect NEP's business, financial condition, results of operations and ability to make cash distributions to its unitholders.
•NEP's cash distributions to its unitholders may be reduced as a result of restrictions on NEP's subsidiaries’ cash distributions to NEP under the terms of their indebtedness or other financing agreements.
•NEP's subsidiaries’ substantial amount of indebtedness may adversely affect NEP's ability to operate its business, and its failure to comply with the terms of its subsidiaries' indebtedness could have a material adverse effect on NEP's financial condition.
•NEP is exposed to risks inherent in its use of interest rate swaps.
Risks Related to NEP's Relationship with NEE
•NEE has influence over NEP.
•Under the CSCS agreement, NEP receives credit support from NEE and its affiliates. NEP's subsidiaries may default under contracts or become subject to cash sweeps if credit support is terminated, if NEE or its affiliates fail to honor their obligations under credit support arrangements, or if NEE or another credit support provider ceases to satisfy creditworthiness requirements, and NEP will be required in certain circumstances to reimburse NEE for draws that are made on credit support.
•NEER or one of its affiliates is permitted to borrow funds received by NEP's subsidiaries and is obligated to return these funds only as needed to cover project costs and distributions or as demanded by NEP OpCo. NEP's financial condition and ability to make distributions to its unitholders, as well as its ability to grow distributions in the future, is highly dependent on NEER’s performance of its obligations to return all or a portion of these funds.
•NEER's right of first refusal may adversely affect NEP's ability to consummate future sales or to obtain favorable sale terms.
•NEP GP and its affiliates may have conflicts of interest with NEP and have limited duties to NEP and its unitholders.
•NEP GP and its affiliates and the directors and officers of NEP are not restricted in their ability to compete with NEP, whose business is subject to certain restrictions.
•NEP may only terminate the MSA under certain limited circumstances.
•If the agreements with NEE Management or NEER are terminated, NEP may be unable to contract with a substitute service provider on similar terms.
•NEP's arrangements with NEE limit NEE's potential liability, and NEP has agreed to indemnify NEE against claims that it may face in connection with such arrangements, which may lead NEE to assume greater risks when making decisions relating to NEP than it otherwise would if acting solely for its own account.
Risks Related to Ownership of NEP's Units
•NEP's ability to make distributions to its unitholders depends on the ability of NEP OpCo to make cash distributions to its limited partners.
•If NEP incurs material tax liabilities, NEP's distributions to its unitholders may be reduced, without any corresponding reduction in the amount of the IDR fee.
•Holders of NEP's units may be subject to voting restrictions.
•NEP's partnership agreement replaces the fiduciary duties that NEP GP and NEP's directors and officers might have to holders of its common units with contractual standards governing their duties and the New York Stock Exchange does not require a publicly traded limited partnership like NEP to comply with certain of its corporate governance requirements.
•NEP's partnership agreement restricts the remedies available to holders of NEP's common units for actions taken by NEP's directors or NEP GP that might otherwise constitute breaches of fiduciary duties.
•Certain of NEP's actions require the consent of NEP GP.
•Holders of NEP's common units currently cannot remove NEP GP without NEE's consent and provisions in NEP's partnership agreement may discourage or delay an acquisition of NEP that NEP unitholders may consider favorable.
•NEE's interest in NEP GP and the control of NEP GP may be transferred to a third party without unitholder consent.
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•NEP may issue additional units without unitholder approval, which would dilute unitholder interests.
•Reimbursements and fees owed to NEP GP and its affiliates for services provided to NEP or on NEP's behalf will reduce cash distributions from NEP OpCo and from NEP to NEP's unitholders, and there are no limits on the amount that NEP OpCo may be required to pay.
•Increases in interest rates could adversely impact the price of NEP's common units, NEP's ability to issue equity or incur debt for acquisitions or other purposes and NEP's ability to make cash distributions to its unitholders.
•The liability of holders of NEP's units, which represent limited partnership interests in NEP, may not be limited if a court finds that unitholder action constitutes control of NEP's business.
•Unitholders may have liability to repay distributions that were wrongfully distributed to them.
•The issuance of securities convertible into, or settleable with, common units may affect the market price for NEP's common units, will dilute common unitholders’ ownership in NEP and may decrease the amount of cash available for distribution for each common unit.
Taxation Risks
•NEP's future tax liability may be greater than expected if NEP does not generate NOLs sufficient to offset taxable income or if tax authorities challenge certain of NEP's tax positions.
•NEP's ability to use NOLs to offset future income may be limited.
•NEP will not have complete control over NEP's tax decisions.
•Distributions to unitholders may be taxable as dividends.
Coronavirus Pandemic Risks
•The coronavirus pandemic may have a material adverse impact on NEP's business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders.
These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in the 2020 Form 10-K and investors should refer to that section of the 2020 Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and NEP undertakes no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.
Website Access to U.S. Securities and Exchange Commission (SEC) Filings. NEP makes its SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEP's internet website, www.nexteraenergypartners.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC. The information and materials available on NEP's website are not incorporated by reference into this Form 10-Q.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(millions, except per unit amounts)
(unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
Renewable energy sales | $ | 194 | $ | 203 | $ | 349 | $ | 360 | |||||||||||||||
Texas pipelines service revenues | 59 | 50 | 150 | 105 | |||||||||||||||||||
Total operating revenues(a) | 253 | 253 | 499 | 465 | |||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
Operations and maintenance(b) | 101 | 89 | 192 | 180 | |||||||||||||||||||
Depreciation and amortization | 69 | 66 | 136 | 133 | |||||||||||||||||||
Taxes other than income taxes and other | 13 | 9 | 24 | 14 | |||||||||||||||||||
| Total operating expenses – net | 183 | 164 | 352 | 327 | |||||||||||||||||||
| OPERATING INCOME | 70 | 89 | 147 | 138 | |||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | |||||||||||||||||||||||
Interest expense | (336) | 16 | 169 | (823) | |||||||||||||||||||
Equity in earnings of equity method investees | 42 | 29 | 84 | 46 | |||||||||||||||||||
Equity in earnings (losses) of non-economic ownership interests | — | 5 | 14 | (18) | |||||||||||||||||||
| Other – net | — | 1 | 3 | 2 | |||||||||||||||||||
| Total other income (deductions) – net | (294) | 51 | 270 | (793) | |||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (224) | 140 | 417 | (655) | |||||||||||||||||||
| INCOME TAX EXPENSE (BENEFIT) | (22) | 13 | 48 | (62) | |||||||||||||||||||
NET INCOME (LOSS)(c) | (202) | 127 | 369 | (593) | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO PREFERRED DISTRIBUTIONS | — | (2) | — | (4) | |||||||||||||||||||
| NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 128 | (78) | (241) | 421 | |||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP | $ | (74) | $ | 47 | $ | 128 | $ | (176) | |||||||||||||||
| Earnings (loss) per common unit attributable to NextEra Energy Partners, LP – basic | $ | (0.96) | $ | 0.71 | $ | 1.68 | $ | (2.68) | |||||||||||||||
| Earnings (loss) per common unit attributable to NextEra Energy Partners, LP – assuming dilution | $ | (0.96) | $ | 0.69 | $ | 1.68 | $ | (2.68) | |||||||||||||||
____________________
(a) Includes related party revenues of $5 million and $7 million for the three months ended June 30, 2021 and 2020, respectively, and $39 million and $11 million for the six months ended June 30, 2021 and 2020, respectively.
(b) Includes O&M expenses related to renewable energy projects of $49 million and $48 million for the three months ended June 30, 2021 and 2020, respectively, and $92 million and $99 million for the six months ended June 30, 2021 and 2020, respectively. Includes O&M expenses related to the Texas pipelines of $11 million and $11 million for the three months ended June 30, 2021 and 2020, respectively, and $24 million and $22 million for the six months ended June 30, 2021 and 2020, respectively. Total O&M expenses presented include related party amounts of $53 million and $34 million for the three months ended June 30, 2021 and 2020, respectively, and $98 million and $66 million for the six months ended June 30, 2021 and 2020, respectively.
(c) For the three and six month periods ending June 30, 2021 and 2020, NEP recognized approximately $1 million of other comprehensive income related to equity method investees, which was primarily attributable to noncontrolling interests.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.
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NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(unaudited)
| June 30, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 113 | $ | 108 | |||||||
| Accounts receivable | 98 | 83 | |||||||||
| Other receivables | 102 | 155 | |||||||||
| Due from related parties | 1,116 | 28 | |||||||||
| Inventory | 28 | 24 | |||||||||
| Other | 12 | 16 | |||||||||
| Total current assets | 1,469 | 414 | |||||||||
| Other assets: | |||||||||||
| Property, plant and equipment – net | 7,027 | 7,163 | |||||||||
| Intangible assets – PPAs – net | 1,515 | 1,572 | |||||||||
| Intangible assets – customer relationships – net | 602 | 610 | |||||||||
| Goodwill | 609 | 609 | |||||||||
| Investments in equity method investees | 1,839 | 1,814 | |||||||||
| Deferred income taxes | 221 | 249 | |||||||||
| Other | 279 | 131 | |||||||||
| Total other assets | 12,092 | 12,148 | |||||||||
| TOTAL ASSETS | $ | 13,561 | $ | 12,562 | |||||||
| LIABILITIES AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | 87 | $ | 143 | |||||||
| Due to related parties | 61 | 66 | |||||||||
| Current portion of long-term debt | 13 | 12 | |||||||||
| Accrued interest | 26 | 25 | |||||||||
| Derivatives | 22 | 20 | |||||||||
| Accrued property taxes | 18 | 22 | |||||||||
| Other | 44 | 62 | |||||||||
| Total current liabilities | 271 | 350 | |||||||||
| Other liabilities and deferred credits: | |||||||||||
| Long-term debt | 3,961 | 3,376 | |||||||||
| Asset retirement obligation | 142 | 144 | |||||||||
| Derivatives | 541 | 782 | |||||||||
| Due to related parties | 34 | 33 | |||||||||
| Other | 157 | 170 | |||||||||
| Total other liabilities and deferred credits | 4,835 | 4,505 | |||||||||
| TOTAL LIABILITIES | 5,106 | 4,855 | |||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| EQUITY | |||||||||||
Common units (76.6 and 75.9 units issued and outstanding, respectively) | 2,363 | 2,362 | |||||||||
| Accumulated other comprehensive loss | (8) | (8) | |||||||||
| Noncontrolling interests | 6,100 | 5,353 | |||||||||
| TOTAL EQUITY | 8,455 | 7,707 | |||||||||
| TOTAL LIABILITIES AND EQUITY | $ | 13,561 | $ | 12,562 | |||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.
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NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
| Six Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income (loss) | $ | 369 | $ | (593) | |||||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 136 | 133 | |||||||||
| Intangible amortization – PPAs | 52 | 51 | |||||||||
Change in value of derivative contracts | (239) | 736 | |||||||||
Deferred income taxes | 47 | (62) | |||||||||
Equity in earnings of equity method investees, net of distributions received | — | 3 | |||||||||
| Equity in losses (earnings) of non-economic ownership interests | (14) | 18 | |||||||||
Other – net | 9 | 10 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Current assets | (32) | (22) | |||||||||
Noncurrent assets | (10) | 1 | |||||||||
Current liabilities | (10) | (15) | |||||||||
Noncurrent liabilities | — | (1) | |||||||||
Net cash provided by operating activities | 308 | 259 | |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Capital expenditures and other investments | (64) | (121) | |||||||||
| Payments to related parties under CSCS agreement – net | (1,085) | (46) | |||||||||
Distributions from equity method investee | 1 | 8 | |||||||||
| Other | 24 | 10 | |||||||||
| Net cash used in investing activities | (1,124) | (149) | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of common units – net | 50 | 2 | |||||||||
Issuances of long-term debt | 615 | 61 | |||||||||
Retirements of long-term debt | (95) | (15) | |||||||||
| Debt issuance costs | (3) | (1) | |||||||||
Capped call transaction | (31) | — | |||||||||
Partner contributions | — | 6 | |||||||||
Partner distributions | (243) | (201) | |||||||||
Preferred unit distributions | — | (4) | |||||||||
| Proceeds on sale of differential membership interests | 48 | — | |||||||||
Proceeds from differential membership investors | 41 | 47 | |||||||||
Payments to differential membership investors | (18) | (15) | |||||||||
Proceeds on sale of Class B noncontrolling interests – net | 493 | — | |||||||||
| Payments to Class B noncontrolling interest investors | (35) | (21) | |||||||||
Change in amounts due to related parties | (1) | (1) | |||||||||
| Other | (1) | — | |||||||||
| Net cash provided by (used in) financing activities | 820 | (142) | |||||||||
| NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | 4 | (32) | |||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – BEGINNING OF PERIOD | 112 | 132 | |||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – END OF PERIOD | $ | 116 | $ | 100 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
Change in noncash investments in equity method investees – net | $ | (124) | $ | — | |||||||
| Accrued property and other additions | $ | 10 | $ | 30 | |||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.
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NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(millions)
(unaudited)
| Common Units | |||||||||||||||||||||||||||||
| Three Months Ended June 30, 2021 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| Balances, March 31, 2021 | 75.9 | $ | 2,460 | $ | (8) | $ | 5,669 | $ | 8,121 | ||||||||||||||||||||
Issuance of common units – net(a) | 0.7 | 56 | — | — | 56 | ||||||||||||||||||||||||
| Net loss | — | (74) | — | (128) | (202) | ||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 1 | 1 | ||||||||||||||||||||||||
| Related party note receivable | — | — | — | 1 | 1 | ||||||||||||||||||||||||
| Related party distributions | — | — | — | (77) | (77) | ||||||||||||||||||||||||
| Changes in non-economic ownership interests | — | — | — | 127 | 127 | ||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | (12) | (12) | ||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | (21) | (21) | ||||||||||||||||||||||||
Distributions to unitholders(b) | — | (49) | — | — | (49) | ||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net | — | (1) | — | 493 | 492 | ||||||||||||||||||||||||
| Sale of differential membership interest | — | — | — | 48 | 48 | ||||||||||||||||||||||||
| Capped call transaction | — | (31) | — | — | (31) | ||||||||||||||||||||||||
| Other | — | 2 | — | (1) | 1 | ||||||||||||||||||||||||
| Balances, June 30, 2021 | 76.6 | $ | 2,363 | $ | (8) | $ | 6,100 | $ | 8,455 | ||||||||||||||||||||
_________________________
(a) See Note 8 - ATM Program for further discussion. Includes deferred tax impact of approximately $6 million.
(b) Distributions per common unit of $0.6375 were paid during the three months ended June 30, 2021.
| Common Units | |||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| Balances, December 31, 2020 | 75.9 | $ | 2,362 | $ | (8) | $ | 5,353 | $ | 7,707 | ||||||||||||||||||||
Issuance of common units – net(a) | 0.7 | 56 | — | — | 56 | ||||||||||||||||||||||||
| Net income | — | 128 | — | 241 | 369 | ||||||||||||||||||||||||
| Other comprehensive income | — | — | — | 1 | 1 | ||||||||||||||||||||||||
| Related party note receivable | — | — | — | 1 | 1 | ||||||||||||||||||||||||
| Related party distributions | — | — | — | (149) | (149) | ||||||||||||||||||||||||
| Changes in non-economic ownership interests | — | — | — | 124 | 124 | ||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | 23 | 23 | ||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | (35) | (35) | ||||||||||||||||||||||||
Distributions to unitholders(b) | — | (95) | — | — | (95) | ||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net | — | — | — | 493 | 493 | ||||||||||||||||||||||||
| Sale of differential membership interest | — | — | — | 48 | 48 | ||||||||||||||||||||||||
Adoption of accounting standards update(c) | — | (57) | — | 1 | (56) | ||||||||||||||||||||||||
| Capped call transaction | — | (31) | — | — | (31) | ||||||||||||||||||||||||
| Other | — | — | — | (1) | (1) | ||||||||||||||||||||||||
| Balances, June 30, 2021 | 76.6 | $ | 2,363 | $ | (8) | $ | 6,100 | $ | 8,455 | ||||||||||||||||||||
_________________________
(a) See Note 8 - ATM Program for further discussion. Includes deferred tax impact of approximately $6 million.
(b) Distributions per common unit of $1.2525 were paid during the six months ended June 30, 2021.
(c) See Note 7 for further discussion. Includes deferred tax impact of approximately $7 million.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.
10
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(millions)
(unaudited)
| Preferred Units | Common Units | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2020 | Units | Amount | Units | Amount | Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | 4.7 | $ | 183 | 65.5 | $ | 1,750 | $ | (8) | $ | 4,354 | $ | 6,279 | |||||||||||||||||||||||||||||
| Net income | — | 2 | — | 47 | — | 78 | 127 | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Related party note receivable | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Related party contributions | — | — | — | — | — | 2 | 2 | ||||||||||||||||||||||||||||||||||
| Related party distributions | — | — | — | — | — | (69) | (69) | ||||||||||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | — | — | (8) | (8) | ||||||||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | — | — | (11) | (11) | ||||||||||||||||||||||||||||||||||
Distributions to unitholders(a) | — | (2) | — | (36) | — | — | (38) | ||||||||||||||||||||||||||||||||||
| Other | — | — | — | (2) | — | 1 | (1) | ||||||||||||||||||||||||||||||||||
| Balances, June 30, 2020 | 4.7 | $ | 183 | 65.5 | $ | 1,759 | $ | (8) | $ | 4,349 | $ | 6,283 | |||||||||||||||||||||||||||||
_____________________________
(a) Distributions per common unit of $0.5550 were paid during the three months ended June 30, 2020.
| Preferred Units | Common Units | Accumulated Other | |||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2020 | Units | Amount | Units | Amount | Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | 4.7 | $ | 183 | 65.5 | $ | 2,008 | $ | (8) | $ | 4,883 | $ | 7,066 | |||||||||||||||||||||||||||||
| Net income (loss) | — | 4 | — | (176) | — | (421) | (593) | ||||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Related party note receivable | — | — | — | — | — | 1 | 1 | ||||||||||||||||||||||||||||||||||
| Related party contributions | — | — | — | — | — | 5 | 5 | ||||||||||||||||||||||||||||||||||
| Related party distributions | — | — | — | — | — | (131) | (131) | ||||||||||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | — | — | 32 | 32 | ||||||||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | — | — | (21) | (21) | ||||||||||||||||||||||||||||||||||
Distributions to unitholders(a) | — | (4) | — | (71) | — | — | (75) | ||||||||||||||||||||||||||||||||||
| Other | — | — | — | (2) | — | — | (2) | ||||||||||||||||||||||||||||||||||
| Balances, June 30, 2020 | 4.7 | $ | 183 | 65.5 | $ | 1,759 | $ | (8) | $ | 4,349 | $ | 6,283 | |||||||||||||||||||||||||||||
_____________________________
(a) Distributions per common unit of $1.0900 were paid during the six months ended June 30, 2020.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.
11
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2020 Form 10-K. In the opinion of NEP management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
1. Acquisitions
In December 2020, a subsidiary of NEP completed the acquisition from NEER (2020 acquisition) of 100% of the membership interests in Wilmot Energy Center, LLC (Wilmot) and 100% of the Class C membership interests in Pine Brooke Class A Holdings, LLC (Pine Brooke Holdings). Wilmot is an approximately 100 MW solar generation facility and 30 MW battery storage facility located in Arizona which entered service in the second quarter of 2021. The Class C membership interests in Pine Brooke Holdings represent an indirect 40% noncontrolling ownership interest in each of:
•Soldier Creek Wind, LLC, a project company that owns an approximately 300 MW wind generation facility located in Kansas;
•Ponderosa Wind, LLC, a project company that owns an approximately 200 MW wind generation facility located in Oklahoma;
•Blue Summit III Wind, LLC, a project company that owns an approximately 200 MW wind generation facility located in Texas;
•Saint Solar, LLC, a project company that owns an approximately 100 MW solar generation facility located in Arizona;
•Taylor Creek Solar, LLC, a project company that owns an approximately 75 MW solar generation facility located in Florida;
•Harmony Florida Solar, LLC, a project company that owns an approximately 75 MW solar generation facility located in Florida; and
•Sanford Airport Solar, LLC, a project company that owns an approximately 49 MW solar generation facility located in Maine.
NEP's ownership interest in Pine Brooke Holdings is reflected as investments in equity method investees.
In April 2021, an indirect subsidiary of NEP entered into multiple purchase and sale agreements to acquire 100% of the ownership interests in each of:
•Highview Power Holdings, LLC, which indirectly owns a 150 MW wind generation facility (Alta Wind VIII) located in California;
•Brookfield Windstar Holding, LLC, which indirectly owns a 120 MW wind generation facility (Windstar) located in California;
•Brookfield Coram Wind Development, LLC, which indirectly owns a 22 MW wind generation facility (Coram) located in California; and
•BAIF Granite Holdings, LLC, which indirectly owns a 99 MW wind generation facility (Granite) located in New Hampshire.
NEP expects to complete this acquisition in the third quarter of 2021, subject to customary closing conditions and the receipt of certain regulatory approvals, for a base purchase price of approximately $733 million, subject to closing adjustments.
In July 2021, an indirect subsidiary of NEP entered into an agreement with an indirect subsidiary of NEER to acquire ownership interests in a portfolio of wind and solar generation facilities with a combined net generating capacity totaling approximately 589 MW. NEP expects to complete the acquisition by the end of 2021, subject to customary closing conditions and the receipt of certain regulatory approvals, for approximately $563 million, subject to closing adjustments. NEP's share of the entities' debt and noncontrolling interests related to differential membership investors is estimated to be approximately $270 million at the time of closing. See Part II – Item 5 for further discussion.
2. Revenue
Revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. NEP's operating revenues are generated primarily from various non-affiliated parties under PPAs and natural gas transportation agreements. NEP's operating revenues from contracts with customers are partly offset by the amortization of intangible assets - PPAs. Revenue is recognized as energy and any related renewable energy attributes are delivered, based on rates stipulated in the respective PPAs, or natural gas transportation services are performed. NEP believes that the obligation to deliver energy and provide the natural gas transportation services is satisfied over time as the customer simultaneously receives and consumes benefits provided by NEP. In addition, NEP believes that the obligation to deliver renewable energy attributes is satisfied at multiple points in time, with the
12
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
control of the renewable energy attribute being transferred at the same time the related energy is delivered. Included in NEP’s operating revenues for the three months ended June 30, 2021 is $191 million and $59 million, for the six months ended June 30, 2021 is $340 million and $119 million, for the three months ended June 30, 2020 is $198 million and $50 million, and for the six months ended June 30, 2020 is $349 million and $104 million of revenue from contracts with customers for renewable energy sales and natural gas transportation services, respectively. NEP's accounts receivable are primarily associated with revenues earned from contracts with customers. Receivables represent unconditional rights to consideration and reflect the differences in timing of revenue recognition and cash collections. For substantially all of NEP's receivables, regardless of the type of revenue transaction from which the receivable originated, customer and counterparty credit risk is managed in the same manner and the terms and conditions of payment are similar.
NEP recognizes revenues as energy and any related renewable energy attributes are delivered or natural gas transportation services are performed, consistent with the amounts billed to customers based on rates stipulated in the respective PPAs. NEP considers the amount billed to represent the value of energy delivered or services provided to the customer. NEP’s customers typically receive bills monthly with payment due within 30 days.
The contracts with customers related to pipeline service revenues contain a fixed price related to firm natural gas transportation capacity with maturity dates ranging from 2021 to 2035. At June 30, 2021, NEP expects to record approximately $1.9 billion of revenues over the remaining terms of the related contracts as the capacity is provided. Revenues yet to be earned under contracts with customers to deliver energy and any related energy attributes, which have maturity dates ranging from 2026 to 2046, will vary based on the volume of energy delivered. At June 30, 2021, NEP expects to record approximately $196 million of revenues related to the fixed price components of one PPA through 2039 as the energy is delivered.
3. Derivative Instruments and Hedging Activity
NEP uses derivative instruments (primarily interest rate swaps) to manage the interest rate cash flow risk associated with outstanding and expected future debt issuances and borrowings. NEP records all derivative instruments that are required to be marked to market as either assets or liabilities on its condensed consolidated balance sheets and measures them at fair value each reporting period. NEP does not utilize hedge accounting for its derivative instruments. All changes in the derivatives' fair value are recognized in interest expense in the condensed consolidated statements of income (loss). At June 30, 2021 and December 31, 2020, the net notional amounts of the interest rate contracts were approximately $7,099 million and $7,088 million, respectively.
At June 30, 2021, NEP's AOCI does not include any amounts related to cash flow hedges. Cash flows from the interest rate contracts are reported in cash flows from operating activities in the condensed consolidated statements of cash flows.
Fair Value Measurement of Derivative Instruments - The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available. NEP uses several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. Certain financial instruments may be valued using multiple inputs including discount rates, counterparty credit ratings and credit enhancements. NEP’s assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the placement of those assets and liabilities within the fair value hierarchy levels. Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value. Transfers between fair value hierarchy levels occur at the beginning of the period in which the transfer occurred.
NEP estimates the fair value of its derivative instruments using an income approach based on a discounted cash flows valuation technique utilizing the net amount of estimated future cash inflows and outflows related to the agreements. The primary inputs used in the fair value measurements include the contractual terms of the derivative agreements, current interest rates and credit profiles. The significant inputs for the resulting fair value measurement are market-observable inputs and the measurements are reported as Level 2 in the fair value hierarchy.
13
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The tables below present NEP's gross derivative positions, based on the total fair value of each derivative instrument, at June 30, 2021 and December 31, 2020, as required by disclosure rules, as well as the location of the net derivative positions, based on the expected timing of future payments, on NEP's condensed consolidated balance sheets.
| June 30, 2021 | ||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 34 | $ | — | $ | (34) | $ | — | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 597 | $ | — | $ | (34) | $ | 563 | ||||||||||||||||||||||
| Net fair value by balance sheet line item: | ||||||||||||||||||||||||||||||||
| Current derivative liabilities | $ | 22 | ||||||||||||||||||||||||||||||
| Noncurrent derivative liabilities | 541 | |||||||||||||||||||||||||||||||
| Total derivative liabilities | $ | 563 | ||||||||||||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 47 | $ | — | $ | (47) | $ | — | ||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 849 | $ | — | $ | (47) | $ | 802 | ||||||||||||||||||||||
| Net fair value by balance sheet line item: | ||||||||||||||||||||||||||||||||
| Current derivative liabilities | $ | 20 | ||||||||||||||||||||||||||||||
| Noncurrent derivative liabilities | 782 | |||||||||||||||||||||||||||||||
| Total derivative liabilities | $ | 802 | ||||||||||||||||||||||||||||||
____________________
(a) Includes the effect of the contractual ability to settle contracts under master netting arrangements.
Financial Statement Impact of Derivative Instruments - Gains (losses) related to NEP's interest rate contracts are recorded in the condensed consolidated financial statements as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
Interest rate contracts: | |||||||||||||||||||||||
| Gains (losses) recognized in interest expense | $ | (306) | $ | 56 | (a) | $ | 229 | $ | (739) | ||||||||||||||
————————————
(a)The valuation of certain interest rate swap transactions entered into during the fourth quarter of 2019 was corrected during the three months ended June 30, 2020, which resulted in a one-time gain of approximately $19 million.
Credit-Risk-Related Contingent Features - Certain of NEP's derivative instruments contain credit-related cross-default and material adverse change triggers, none of which contain requirements to maintain certain credit ratings or financial ratios. At June 30, 2021 and December 31, 2020, the aggregate fair value of NEP's derivative instruments with contingent risk features that were in a liability position was approximately $560 million and $769 million, respectively.
4. Non-Derivative Fair Value Measurements
Non-derivative fair value measurements consist of NEP's cash equivalents. The fair value of these financial assets is determined using the valuation techniques and inputs as described in Note 3 - Fair Value Measurement of Derivative Instruments. The fair value of money market funds that are included in cash and cash equivalents, current other assets and noncurrent other assets on NEP's condensed consolidated balance sheets is estimated using a market approach based on current observable market prices.
14
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Recurring Non-Derivative Fair Value Measurements - NEP’s financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||
Cash equivalents | $ | 2 | $ | — | $ | 2 | $ | 2 | $ | — | $ | 2 | |||||||||||||||||||||||
Total assets | $ | 2 | $ | — | $ | 2 | $ | 2 | $ | — | $ | 2 | |||||||||||||||||||||||
Financial Instruments Recorded at Other than Fair Value - The carrying amounts and estimated fair values of other financial instruments recorded at other than fair value are as follows:
| June 30, 2021 | December 31, 2020 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
(millions) | |||||||||||||||||||||||
Long-term debt, including current maturities(a) | $ | 3,974 | $ | 4,137 | $ | 3,388 | $ | 3,529 | |||||||||||||||
____________________
(a) At June 30, 2021 and December 31, 2020, approximately $4,113 million and $3,503 million, respectively, of the fair value is estimated using a market approach based on quoted market prices for the same or similar issues (Level 2); the balance is estimated using an income approach utilizing a discounted cash flow valuation technique, considering the current credit profile of the debtor (Level 3). At June 30, 2021, approximately $1,136 million of the fair value relates to the 2020 convertible notes and the 2021 convertible notes and is estimated using Level 2.
5. Income Taxes
Income taxes are calculated for NEP as a single taxpaying corporation for U.S. federal and state income taxes (based on NEP's election to be taxed as a corporation). NEP recognizes in income its applicable ownership share of U.S. income taxes due to the disregarded tax status of substantially all of the U.S. projects under NEP OpCo. Net income or loss attributable to noncontrolling interests includes minimal U.S. taxes.
The effective tax rates for the three and six months ended June 30, 2021 were approximately 10% and 12%, respectively, and for the three and six months ended June 30, 2020 were approximately 9% and 9%, respectively. The effective tax rates were below the U.S. statutory rate of 21% primarily due to tax expense (benefit) attributable to noncontrolling interests of approximately $27 million and $(50) million for the three and six months ended June 30, 2021, respectively, and $(16) million and $89 million for the three and six months ended June 30, 2020, respectively.
6. Variable Interest Entities
NEP has identified NEP OpCo, a limited partnership with a general partner and limited partners, as a VIE. NEP has consolidated the results of NEP OpCo and its subsidiaries because of its controlling interest in the general partner of NEP OpCo. At June 30, 2021, NEP owned an approximately 43.0% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 57.0% limited partner interest in NEP OpCo (NEE's noncontrolling interest). The assets and liabilities of NEP OpCo as well as the operations of NEP OpCo represent substantially all of NEP's assets and liabilities and its operations.
At June 30, 2021, NEP OpCo consolidated 13 VIEs related to certain subsidiaries which have sold differential membership interests in entities which own and operate 23 wind generation facilities as well as one solar facility. These entities are considered VIEs because the holders of the differential membership interests do not have substantive rights over the significant activities of these entities. The assets, primarily property, plant and equipment - net, and liabilities, primarily asset retirement obligation and noncurrent due to related parties, of the VIEs, totaled approximately $5,214 million and $134 million, respectively, at June 30, 2021 and $5,299 million and $224 million, respectively, at December 31, 2020.
At June 30, 2021, NEP OpCo also consolidated five VIEs related to the sales of noncontrolling Class B interests in certain subsidiaries (see Note 10 - Noncontrolling Interests) which have ownership interests in and operate wind and solar facilities with a combined net generating capacity of approximately 3,704 MW as well as ownership interests in eight natural gas pipeline assets. These entities are considered VIEs because the holders of the noncontrolling Class B interests do not have substantive rights over the significant activities of these entities. The assets, primarily property, plant and equipment - net and intangible assets - PPAs, and the liabilities, primarily long-term debt, other long-term liabilities and asset retirement obligation, of the VIEs totaled approximately $9,271 million and $1,331 million, respectively, at June 30, 2021 and $9,410 million and $1,502 million, respectively, at December 31, 2020. Certain of these VIEs include four other VIEs related to NEP's ownership interests in Rosmar, Silver State, Meade and Pine Brooke Holdings (see Note 1). In addition, certain of these VIEs contain entities which have sold differential membership interests and approximately $2,644 million and $2,694 million of assets and $66 million and
15
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
$153 million of liabilities are also included in the disclosure of the VIEs related to differential membership interests at June 30, 2021 and December 31, 2020, respectively.
NEP has an indirect equity method investment in three NEER solar projects with a total generating capacity of 277 MW. Through a series of transactions, a subsidiary of NEP issued 1,000,000 NEP OpCo Class B Units, Series 1 and 1,000,000 NEP OpCo Class B Units, Series 2, to NEER for approximately 50% of the ownership interests in the three solar projects (non-economic ownership interests). NEER, as holder of the NEP OpCo Class B Units, will retain 100% of the economic rights in the projects to which the respective Class B Units relate, including the right to all distributions paid by the project subsidiaries that own the projects to NEP OpCo. NEER has agreed to indemnify NEP against all risks relating to NEP’s ownership of the projects until NEER offers to sell economic interests to NEP and NEP accepts such offer, if NEP chooses to do so. NEER has also agreed to continue to manage the operation of the projects at its own cost, and to contribute to the projects any capital necessary for the operation of the projects, until NEER offers to sell economic interests to NEP and NEP accepts such offer. At June 30, 2021 and December 31, 2020, NEP's equity method investment related to the non-economic ownership interests of approximately $126 million and $10 million, respectively, is reflected as noncurrent other assets and, at December 31, 2020, $21 million is reflected as noncurrent other liabilities on the condensed consolidated balance sheets. During the three months ended June 30, 2021, a subsidiary of NEER contributed certain assets to one of the three NEER solar projects discussed above which resulted in an increase in noncurrent other assets and a corresponding increase in noncontrolling interests on NEP's condensed consolidated balance sheets at June 30, 2021. All equity in earnings of the non-economic ownership interests is allocated to net income attributable to noncontrolling interests. NEP is not the primary beneficiary and therefore does not consolidate these entities because it does not control any of the ongoing activities of these entities, was not involved in the initial design of these entities and does not have a controlling interest in these entities.
7. Debt
Significant long-term debt issuances and borrowings by subsidiaries of NEP during the six months ended June 30, 2021 were as follows:
Date Issued/Borrowed | Debt Issuances/Borrowings | Interest Rate | Principal Amount | Maturity Date | ||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||
| February 2021 | NEP OpCo senior secured revolving credit facility | Variable(a) | $ | 90 | (b) | 2026 | ||||||||||||||||||||
| January 2021 - June 2021 | Senior secured limited-recourse debt | Variable(a) | $ | 25 | (c) | 2026 | ||||||||||||||||||||
| June 2021 | Senior unsecured convertible notes | 0% | $ | 500 | (d) | 2024 | ||||||||||||||||||||
————————————
(a)Variable rate is based on an underlying index plus a margin.
(b)During the six months ended June 30, 2021, all of the outstanding borrowings under the NEP OpCo credit facility were repaid. At June 30, 2021, approximately $116 million of letters of credit were issued under the NEP OpCo credit facility.
(c)At June 30, 2021, approximately $861 million of borrowings were outstanding under the existing credit agreement of the Meade purchaser and Pipeline Investment Holdings, LLC (Meade credit agreement).
(d)See additional discussion of the 2021 convertible notes below.
In February 2021, NEP OpCo and its direct subsidiary entered into an amendment of their existing revolving credit facility. The amendments to the revolving credit facility include, among other things, an extension of the maturity from February 2025 to February 2026 for essentially all of the NEP OpCo credit facility.
In June 2021, NEP issued $500 million principal amount of senior unsecured convertible notes (2021 convertible notes). The 2021 convertible notes are unsecured obligations of NEP and are absolutely and unconditionally guaranteed, on a senior unsecured basis, by NEP OpCo. A holder may convert all or a portion of its 2021 convertible notes in accordance with the related indenture. Upon conversion of the 2021 convertible notes, NEP will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, NEP common units or a combination of cash and common units, at NEP's election, in respect of the remainder, if any, of NEP's conversion obligation in excess of the aggregate principal amount of the notes being converted. At June 30, 2021, the initial conversion rate, which is subject to certain adjustments, was 11.0492 NEP common units per $1,000 of the 2021 convertible notes, which is equivalent to an initial conversion price of approximately $90.5043 per NEP common unit. The conversion rate is subject to adjustment in certain circumstances, as set forth in the related indenture. Upon the occurrence of a fundamental change (as defined in the related indenture), holders of the 2021 convertible notes may require NEP to repurchase all or a portion of their convertible notes for cash in an amount equal to the principal amount of the 2021 convertible notes to be repurchased, plus accrued and unpaid special interest, if any. The 2021 convertible notes are not redeemable at NEP’s option prior to maturity. In connection with the issuance of the 2021 convertible notes, NEP entered into a registration rights agreement pursuant to which, among other things, NEP has agreed to file a shelf registration statement with the SEC and use its commercially reasonable efforts to cause such registration statement to become effective on or prior to June 17, 2022, covering resales of NEP common units, if any, issuable upon a conversion of the 2021 convertible notes.
16
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NEP entered into capped call transactions (2021 capped call) in connection with the issuance of the 2021 convertible notes. Under the 2021 capped call, NEP purchased capped call options with an initial strike price of $90.5043 and an initial cap price of $113.1300. The 2021 capped call was purchased for approximately $31 million, which was recorded as a reduction to common units equity on NEP's condensed consolidated balance sheets. If, upon conversion of the 2021 convertible notes, the price per NEP common unit during the relevant valuation period is above the strike price, there would generally be a payment to NEP (if NEP elects to cash settle) or an offset of potential dilution to NEP's common units up to the cap price (if NEP elects to settle in NEP common units).
NEP OpCo and its subsidiaries' secured long-term debt agreements are secured by liens on certain assets and contain provisions which, under certain conditions, could restrict the payment of distributions or related party fee payments. At June 30, 2021, NEP and its subsidiaries were in compliance with all financial debt covenants under their financings.
On January 1, 2021, NEP adopted an accounting standards update which updated the accounting guidance for financial instruments with the characteristics of liabilities and equity, including debt with conversion options and other equity-linked instruments such as the $600 million in principal amount of senior unsecured convertible notes issued in December 2020 (2020 convertible notes). NEP adopted the standards update by applying it retrospectively with the cumulative effect recognized as of January 1, 2021 (modified retrospective approach). Upon adoption, NEP reclassified approximately $64 million related to the embedded conversion feature for the 2020 convertible notes from common units equity to long-term debt.
8. Equity
Distributions - On July 22, 2021, the board of directors of NEP authorized a distribution of $0.6625 per common unit payable on August 13, 2021 to its common unitholders of record on August 5, 2021.
Earnings (Loss) Per Unit - Diluted earnings (loss) per unit is based on the weighted-average number of common units and potential common units outstanding during the period, including the dilutive effect of convertible notes and preferred units. The dilutive effect of the 2021 convertible notes, the 2020 convertible notes, and for the prior year periods, the 2017 convertible notes and the preferred units, is computed using the if-converted method.
The reconciliation of NEP's basic and diluted earnings (loss) per unit for the three and six months ended June 30, 2021 and 2020 is as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (millions, except per unit amounts) | |||||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income (loss) attributable to NEP – basic | $ | (74) | $ | 47 | $ | 128 | $ | (176) | |||||||||||||||
Adjustments for 2017 convertible notes and preferred units(a) | — | 5 | — | — | |||||||||||||||||||
| Net income (loss) attributable to NEP used to compute diluted earnings (loss) per unit | $ | (74) | $ | 52 | $ | 128 | $ | (176) | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average number of common units outstanding – basic | 76.3 | 65.5 | 76.1 | 65.5 | |||||||||||||||||||
Effect of dilutive convertible notes and preferred units(a) | — | 10.3 | — | — | |||||||||||||||||||
| Weighted-average number of common units outstanding and assumed conversions | 76.3 | 75.8 | 76.1 | 65.5 | |||||||||||||||||||
| Earnings (loss) per unit attributable to NEP: | |||||||||||||||||||||||
| Basic | $ | (0.96) | $ | 0.71 | $ | 1.68 | $ | (2.68) | |||||||||||||||
| Assuming dilution | $ | (0.96) | $ | 0.69 | $ | 1.68 | $ | (2.68) | |||||||||||||||
————————————
(a)Due to the net losses incurred during the six months ended June 30, 2020, the weighted-average number of common units issuable pursuant to the 2017 convertible notes and preferred units totaling approximately 10.3 million were not included in the calculation of diluted loss per unit due to their antidilutive effect.
ATM Program - During the three and six months ended June 30, 2021, NEP issued approximately 0.7 million common units under its at-the-market equity issuance program (ATM program), which expired in July 2021, for gross proceeds of approximately $50 million. During the three and six months ended June 30, 2020, NEP did not issue any common units under the ATM program. Fees related to the ATM program totaled less than $1 million during the three and six months ended June 30, 2021.
17
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Class B Noncontrolling Interests - In May 2021, NEP and two of its indirect subsidiaries, Genesis Solar Holdings, LLC (Genesis Holdings) and Genesis Solar Funding, LLC (Genesis Funding), entered into an amendment of the existing membership interest purchase agreement (as amended, membership purchase agreement) with certain investors. The amendments to the membership purchase agreement included, among other things, an increase in the aggregate Class B purchase price to be paid by the investors from approximately $1,095 million to $1,243 million, with the incremental amount entitled to earn the same pre-tax annual return as the existing amounts. In June 2021, the remaining Class B membership interests were sold to the investors in connection with their additional funding of approximately $493 million of the Class B purchase price (final funding).
In connection with the amendments to the membership purchase agreement, an amendment to the third amended and restated limited liability company agreement of Genesis Holdings (as amended, the LLC agreement) was also entered into in May 2021 between Genesis Holdings and the investors, amending certain provisions of the LLC agreement. Under the LLC agreement, NEP, through its indirect ownership of Genesis Funding, generally receives 75% of Genesis Holdings’ cash distributions for the first ten years after the initial funding in December 2020 (initial funding), and the investors receive 25%, subject to certain adjustments, except that, until the final funding, NEP received approximately 83% of Genesis Holdings’ cash distributions and the investors received 17%. From the fifth to the tenth anniversary of the initial funding, NEP has the option (the buyout right), subject to certain limitations, to periodically purchase the Class B membership interests in Genesis Holdings at a buyout price that implies a fixed pre-tax annual return of approximately 6.76% to the investors (inclusive of all prior distributions). If exercised, NEP has the right to pay a maximum of 100% of the buyout price in NEP non-voting common units, issued at the then-current market price of NEP common units or cash (or any combination thereof), subject to conditions and limitations set forth in the LLC agreement. Under the LLC agreement, for all distribution dates after the tenth anniversary of the initial funding, or if certain minimum purchases under the buyout right have not occurred by any distribution date following June 18, 2026, then, in any such case, the investors' allocation of Genesis Holdings’ cash distributions payable with respect to Class B membership interests that the investors still own will increase to 99%, subject to certain adjustments.
Accumulated Other Comprehensive Income (Loss) - During the three and six months ended June 30, 2021 and 2020, NEP recognized approximately $1 million of other comprehensive income related to equity method investees. At June 30, 2021 and 2020, NEP's accumulated other comprehensive loss totaled approximately $19 million and $21 million, respectively, of which $11 million and $13 million, respectively, was attributable to noncontrolling interest and $8 million and $8 million, respectively, was attributable to NEP.
9. Related Party Transactions
Each project entered into O&M agreements and ASAs with subsidiaries of NEER whereby the projects pay a certain annual fee plus actual costs incurred in connection with certain O&M and administrative services performed under these agreements. These services are reflected as operations and maintenance in the condensed consolidated statements of income (loss). Additionally, certain NEP subsidiaries pay affiliates for transmission and retail power services which are reflected as operations and maintenance in the condensed consolidated statements of income (loss). Certain projects have also entered into various types of agreements including those related to shared facilities and transmission lines, transmission line easements, technical support and construction coordination with subsidiaries of NEER whereby certain fees or cost reimbursements are paid to, or received by, certain subsidiaries of NEER.
Management Services Agreement - Under the MSA, an indirect wholly owned subsidiary of NEE provides operational, management and administrative services to NEP, including managing NEP’s day-to-day affairs and providing individuals to act as NEP’s executive officers and directors, in addition to those services that are provided under the existing O&M agreements and ASAs described above between NEER subsidiaries and NEP subsidiaries. NEP OpCo pays NEE an annual management fee equal to the greater of 1% of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the most recently ended fiscal year and $4 million (as adjusted for inflation beginning in 2016), which is paid in quarterly installments with an additional payment each January to the extent 1% of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the preceding fiscal year exceeds $4 million (as adjusted for inflation beginning in 2016). NEP OpCo also makes certain payments to NEE based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders. NEP’s O&M expenses for the three and six months ended June 30, 2021 include approximately $34 million and $66 million, respectively, and for the three and six months ended June 30, 2020 include $27 million and $53 million, respectively, related to the MSA.
Cash Sweep and Credit Support Agreement - NEP OpCo is a party to the CSCS agreement with NEER under which NEER and certain of its affiliates provide credit support in the form of letters of credit and guarantees to satisfy NEP’s subsidiaries’ contractual obligations. NEP OpCo pays NEER an annual credit support fee based on the level and cost of the credit support provided, payable in quarterly installments. NEP’s O&M expenses for the three and six months ended June 30, 2021 include approximately $1 million and $3 million, respectively, and for the three and six months ended June 30, 2020 include $1 million and $3 million, respectively, related to the CSCS agreement.
18
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NEER and certain of its affiliates may withdraw funds (Project Sweeps) from NEP OpCo under the CSCS agreement, or its subsidiaries in connection with certain long-term debt agreements, and hold those funds in accounts belonging to NEER or its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by NEP's subsidiaries. NEER and its affiliates may keep the funds 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 or NEP OpCo otherwise demands the return of such funds. If NEER or its affiliates fail 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 or its affiliates 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. At June 30, 2021 and December 31, 2020, the cash sweep amounts held in accounts belonging to NEER or its affiliates were approximately $1,095 million and $10 million, respectively, and are included in due from related parties on the condensed consolidated balance sheets.
Guarantees and Letters of Credit Entered into by Related Parties - Certain PPAs include requirements of the project entities to meet certain performance obligations. NEECH or NEER has provided letters of credit or guarantees for certain of these performance obligations and payment of any obligations from the transactions contemplated by the PPAs. In addition, certain financing agreements require cash and cash equivalents to be reserved for various purposes. In accordance with the terms of these financing agreements, guarantees from NEECH have been substituted in place of these cash and cash equivalents reserve requirements. Also, under certain financing agreements, indemnifications have been provided by NEECH. In addition, certain interconnection agreements and site certificates require letters of credit or a surety bond to secure certain payment or restoration obligations related to those agreements. NEECH also guarantees the Project Sweep amounts held in accounts belonging to NEER, as described above. At June 30, 2021, NEECH or NEER guaranteed or provided indemnifications, letters of credit or surety bonds totaling approximately $564 million related to these obligations.
Due to Related Parties - Noncurrent amounts due to related parties on the condensed consolidated balance sheets primarily represent amounts owed by certain of NEP's wind projects to NEER to refund NEER for certain transmission costs paid on behalf of the wind projects. Amounts will be paid to NEER as the wind projects receive payments from third parties for related notes receivable recorded in noncurrent other assets on the condensed consolidated balance sheets.
Transportation and Fuel Management Agreements - A subsidiary of NEP assigned to a subsidiary of NEER certain gas commodity agreements in exchange for entering into transportation agreements and a fuel management agreement whereby the benefits of the gas commodity agreements (net of transportation paid to the NEP subsidiary) are passed back to the NEP subsidiary. NEP recognized revenues related to the transportation and fuel management agreements of approximately $2 million and $35 million during the three and six months ended June 30, 2021, respectively, and $6 million and $10 million during the three and six months ended June 30, 2020, respectively. The increase in the recognized revenues for the six months ended June 30, 2021 primarily relates to higher demand and the related impact on natural gas prices during extreme winter weather experienced primarily in Texas during February 2021 (February weather event). At June 30, 2021, current due from related parties on the condensed consolidated balance sheets includes approximately $13 million related to the benefits of the gas commodity agreements.
10. Summary of Significant Accounting and Reporting Policies
Restricted Cash - At June 30, 2021 and December 31, 2020, NEP had approximately $3 million and $4 million, respectively, of restricted cash included in current other assets on NEP's condensed consolidated balance sheets. Restricted cash at June 30, 2021 and December 31, 2020 is primarily related to collateral deposits from a counterparty. Restricted cash reported as current assets are recorded as such based on the anticipated use of these funds.
Property, Plant and Equipment - Property, plant and equipment consists of the following:
| June 30, 2021 | December 31, 2020 | ||||||||||
| (millions) | |||||||||||
| Property, plant and equipment, gross | $ | 8,594 | $ | 8,606 | |||||||
| Accumulated depreciation | (1,567) | (1,443) | |||||||||
| Property, plant and equipment - net | $ | 7,027 | $ | 7,163 | |||||||
19
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Noncontrolling Interests - At June 30, 2021, the Class B noncontrolling ownership interests (the Class B noncontrolling ownership interests in NEP Renewables, NEP Renewables II, NEP Pipelines, STX Midstream and Genesis Holdings owned by third parties), the differential membership interests, NEE's approximately 57.0% noncontrolling limited partner interest in NEP OpCo and NEER's approximately 50% noncontrolling ownership interest in Silver State, as well as a third party's 10% interest in one of the Texas pipelines and the non-economic ownership interests are reflected as noncontrolling interests on the condensed consolidated balance sheets. The impact of the net income (loss) attributable to the differential membership interests and the Class B noncontrolling ownership interests are allocated to NEE Equity's noncontrolling ownership interest and the net income attributable to NEP based on the respective ownership percentage of NEP OpCo. Details of the activity in noncontrolling interests are below:
Class B Noncontrolling Ownership Interests | Differential Membership Interests | Noncontrolling Ownership Interests in NEP OpCo and Silver State | Other Noncontrolling Ownership Interests | Total Noncontrolling Interests | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Three months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | 3,605 | $ | 1,715 | $ | 279 | $ | 70 | $ | 5,669 | ||||||||||||||||||||||
| Sale of Class B noncontrolling interest - net | 493 | — | — | — | 493 | |||||||||||||||||||||||||||
| Related party note receivable | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 71 | (76) | (125) | 2 | (128) | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Related party distributions | — | — | (75) | (2) | (77) | |||||||||||||||||||||||||||
Changes in non-economic ownership interests | — | — | — | 127 | 127 | |||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | (12) | — | — | (12) | |||||||||||||||||||||||||||
Payments to Class B noncontrolling interest investors | (21) | — | — | — | (21) | |||||||||||||||||||||||||||
| Sale of differential membership interest | — | 48 | — | — | 48 | |||||||||||||||||||||||||||
Other | (1) | — | — | — | (1) | |||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | 4,147 | $ | 1,675 | $ | 81 | $ | 197 | $ | 6,100 | ||||||||||||||||||||||
| Six months ended June 30, 2021 | ||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | 3,550 | $ | 1,759 | $ | (14) | $ | 58 | $ | 5,353 | ||||||||||||||||||||||
| Sale of Class B noncontrolling interest - net | 493 | — | — | — | 493 | |||||||||||||||||||||||||||
| Related party note receivable | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 138 | (153) | 238 | 18 | 241 | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Related party distributions | — | — | (146) | (3) | (149) | |||||||||||||||||||||||||||
Changes in non-economic ownership interests | — | — | — | 124 | 124 | |||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | 23 | — | — | 23 | |||||||||||||||||||||||||||
Payments to Class B noncontrolling interest investors | (35) | — | — | — | (35) | |||||||||||||||||||||||||||
| Sale of differential membership interest | — | 48 | — | — | 48 | |||||||||||||||||||||||||||
| Other | 1 | (2) | 1 | — | — | |||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | 4,147 | $ | 1,675 | $ | 81 | $ | 197 | $ | 6,100 | ||||||||||||||||||||||
20
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| Class B Noncontrolling Ownership Interests | Differential Membership Interests | Noncontrolling Ownership Interests in NEP OpCo and Silver State | Other Noncontrolling Ownership Interests | Total Noncontrolling Interests | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Three months ended June 30, 2020 | ||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | $ | 2,670 | $ | 1,767 | $ | (130) | $ | 47 | $ | 4,354 | ||||||||||||||||||||||
| Related party note receivable | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 53 | (78) | 97 | 6 | 78 | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Related party contributions | — | — | — | 2 | 2 | |||||||||||||||||||||||||||
| Related party distributions | — | — | (67) | (2) | (69) | |||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | (8) | — | — | (8) | |||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | (11) | — | — | — | (11) | |||||||||||||||||||||||||||
| Other | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Balances, June 30, 2020 | $ | 2,712 | $ | 1,681 | $ | (97) | $ | 53 | $ | 4,349 | ||||||||||||||||||||||
| Six months ended June 30, 2020 | ||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | $ | 2,628 | $ | 1,798 | $ | 389 | $ | 68 | $ | 4,883 | ||||||||||||||||||||||
| Related party note receivable | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | 105 | (149) | (361) | (16) | (421) | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | 1 | — | 1 | |||||||||||||||||||||||||||
| Related party contributions | — | — | — | 5 | 5 | |||||||||||||||||||||||||||
| Related party distributions | — | — | (127) | (4) | (131) | |||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | 32 | — | — | 32 | |||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | (21) | — | — | — | (21) | |||||||||||||||||||||||||||
| Balances, June 30, 2020 | $ | 2,712 | $ | 1,681 | $ | (97) | $ | 53 | $ | 4,349 | ||||||||||||||||||||||
Leases - During the three months ended June 30, 2021, a power sales agreement, accounted for as a sales-type lease, commenced related to the Wilmot battery storage facility that sells its electric output to a third party under the power sales agreement which provides the customer with the ability to dispatch the facility. For sales-type leases, the book value of the leased asset is removed from the balance sheet and a net investment in sales-type lease is recognized based on fixed payments under the contract and the residual value of the asset being leased. Interest income associated with the sales-type lease is included in operating revenues in NEP’s condensed consolidated statements of income (loss). At June 30, 2021, the net investment in the sales-type lease was approximately $17 million and is included in current and noncurrent other assets on NEP’s condensed consolidated balance sheets. At June 30, 2021, the power sales agreement has an expiration date of 2041 and NEP expects to receive approximately $29 million of lease payments over the remaining term of the power sales agreement with no one year being material.
Convertible Investment Tax Credits - At December 31, 2020, other receivables on NEP's condensed consolidated balance sheets included a convertible investment tax credit (CITC) receivable of approximately $124 million associated with one of NEP's solar projects. Additionally, at December 31, 2020, corresponding liabilities of approximately $100 million and $12 million related to the CITC payments required to be paid to the third party who constructed the project were reflected as accounts payable and accrued expenses and current other liabilities, respectively, and $12 million of CITC payments to be paid to NEER were reflected as current due to related parties on NEP's condensed consolidated balance sheets. During the three months ended June 30, 2021, a settlement agreement related to the CITC receivable was reached and the CITC receivable was collected in July 2021.
21
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(unaudited)
11. Commitments and Contingencies
Development, Engineering and Construction Commitments - At June 30, 2021, an indirect subsidiary of NEP had a funding commitment related to a pipeline expansion project. As of June 30, 2021, the NEP subsidiary had invested approximately $53 million related to the expansion project which is reflected as investments in equity method investees on the condensed consolidated balance sheets. As of June 30, 2021, the NEP subsidiary has a remaining commitment of approximately $37 million.
Coronavirus Pandemic - NEP is closely monitoring the global outbreak of the novel coronavirus (COVID-19) and is taking steps intended to mitigate the potential risks to NEP posed by COVID-19. NEP has implemented its pandemic plan, which includes various processes and procedures intended to limit the impact of COVID-19 on its business. These processes and procedures include the pandemic plan implemented by NEER related to services NEER provides to NEP. To date, there has been no material impact on NEP's operations, financial performance, or liquidity as a result of COVID-19; however, the ultimate severity or duration of the outbreak or its effects on the global, national or local economy, the capital and credit markets, the services NEER provides to NEP, or NEP's customers and suppliers is uncertain. NEP cannot predict whether COVID-19 will have a material impact on its business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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. At June 30, 2021, NEP owned an approximately 43.0% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 57.0% 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.
In December 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 in Pine Brooke Holdings. In April 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. In July 2021, an indirect subsidiary of NEP entered into an agreement with an indirect subsidiary of NEER to acquire ownership interests in a portfolio of wind and solar generation facilities with a combined net generating capacity totaling approximately 589 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 June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
(millions) | |||||||||||||||||||||||
Statement of Income (Loss) Data: | |||||||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
Renewable energy sales | $ | 194 | $ | 203 | $ | 349 | $ | 360 | |||||||||||||||
Texas pipelines service revenues | 59 | 50 | 150 | 105 | |||||||||||||||||||
| Total operating revenues | 253 | 253 | 499 | 465 | |||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Operations and maintenance | 101 | 89 | 192 | 180 | |||||||||||||||||||
Depreciation and amortization | 69 | 66 | 136 | 133 | |||||||||||||||||||
Taxes other than income taxes and other | 13 | 9 | 24 | 14 | |||||||||||||||||||
| Total operating expenses – net | 183 | 164 | 352 | 327 | |||||||||||||||||||
| OPERATING INCOME | 70 | 89 | 147 | 138 | |||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | |||||||||||||||||||||||
Interest expense | (336) | 16 | 169 | (823) | |||||||||||||||||||
Equity in earnings of equity method investees | 42 | 29 | 84 | 46 | |||||||||||||||||||
Equity in earnings (losses) of non-economic ownership interests | — | 5 | 14 | (18) | |||||||||||||||||||
| Other – net | — | 1 | 3 | 2 | |||||||||||||||||||
| Total other income (deductions) – net | (294) | 51 | 270 | (793) | |||||||||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | (224) | 140 | 417 | (655) | |||||||||||||||||||
| INCOME TAX EXPENSE (BENEFIT) | (22) | 13 | 48 | (62) | |||||||||||||||||||
| NET INCOME (LOSS) | (202) | 127 | 369 | (593) | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO PREFERRED DISTRIBUTIONS | — | (2) | — | (4) | |||||||||||||||||||
| NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS | 128 | (78) | (241) | 421 | |||||||||||||||||||
NET INCOME (LOSS) ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP | $ | (74) | $ | 47 | $ | 128 | $ | (176) | |||||||||||||||
Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020
Operating Revenues
Texas pipelines service revenues increased by approximately $9 million during the three months ended June 30, 2021 primarily
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related to higher revenues associated with a pipeline expansion project that went into service in the third quarter of 2020. This increase was offset by a decrease in renewable energy sales of approximately $9 million during the three months ended June 30, 2021 primarily reflecting lower wind and solar resource.
Operating Expenses
Operations and Maintenance
O&M expenses increased approximately $12 million during the three months ended June 30, 2021 primarily reflecting an increase of $6 million in higher IDR fees related to growth in NEP's distributions to its common unitholders and higher other corporate expenses.
Other Income (Deductions)
Interest Expense
Interest expense increased approximately $352 million during the three months ended June 30, 2021 primarily reflecting unfavorable mark-to-market activity ($306 million of losses recorded in 2021 compared to $56 million of gains in 2020), partly offset by decreased interest expense due to lower debt balances as compared to the prior year period.
Equity in Earnings of Equity Method Investees
Equity in earnings of equity method investees increased approximately $13 million during the three months ended June 30, 2021 primarily due to $7 million of earnings related to the ownership interests in Pine Brooke Holdings acquired in December 2020 (see Note 1) as well as an increase of $6 million in earnings related to the ownership interest in Desert Sunlight.
Income Taxes
For the three months ended June 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.
For the three months ended June 30, 2020, NEP recorded income tax expense of approximately $13 million on income before income taxes of $140 million, resulting in an effective tax rate of 9%. The tax expense is comprised primarily of income tax expense of approximately $29 million at the statutory rate of 21%, partly offset by $16 million of income tax benefit attributable to noncontrolling interests.
Net Loss (Income) Attributable to Noncontrolling Interests
For the three months ended June 30, 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 the Texas 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 loss attributable to noncontrolling interests in 2021 compared to net income attributable to noncontrolling interests in 2020 primarily reflects the net loss allocation to NEE Equity's noncontrolling interest compared to the allocation of income in the prior year. See Note 10 - Noncontrolling Interests.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Operating Revenues
Operating revenues increased $34 million for the six months ended June 30, 2021. Texas pipelines service revenues increased approximately $45 million during the six months ended June 30, 2021 primarily reflecting increases of $30 million related to higher revenues under transportation and fuel management agreements during the February weather event (see Note 9 - Transportation and Fuel Management Agreements) and $11 million related to higher revenues associated with a pipeline expansion project that went into service in the third quarter of 2020. Renewable energy sales decreased by approximately $11 million during the six months ended June 30, 2021 primarily reflecting lower wind and solar resource.
Operating Expenses
Operations and Maintenance
O&M expenses increased approximately $12 million during the six months ended June 30, 2021 primarily reflecting an increase of $11 million in higher IDR fees related to growth in NEP's distributions to its common unitholders.
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Other Income (Deductions)
Interest Expense
The decrease in interest expense of approximately $992 million during the six months ended June 30, 2021 primarily reflects $968 million of favorable mark-to-market activity ($229 million of gains recorded in 2021 compared to $739 million of losses in 2020) and decreased interest expense due to lower debt balances as compared to the prior year period.
Equity in Earnings of Equity Method Investees
Equity in earnings of equity method investees increased approximately $38 million during the six months ended June 30, 2021 primarily due to $25 million of earnings related to the ownership interests in Pine Brooke Holdings acquired in December 2020 as well as an increase of $13 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 six months ended June 30, 2021 compared to $18 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 six months ended June 30, 2021, NEP recorded an income tax expense of approximately $48 million on income before income taxes of $417 million, resulting in an effective tax rate of 12%. The tax expense is comprised primarily of income tax expense of approximately $88 million at the statutory rate of 21% and $12 million of state taxes, partly offset by $50 million of income tax benefit attributable to noncontrolling interests.
For the six months ended June 30, 2020, NEP recorded income tax benefit of approximately $62 million on loss before income taxes of $655 million, resulting in an effective tax rate of 9%. The tax benefit is comprised primarily of income tax benefit of approximately $138 million at the statutory rate of 21% and $10 million of state tax benefit, partly offset by $89 million of income tax attributable to noncontrolling interests.
Net Loss (Income) Attributable to Noncontrolling Interests
For the six months ended June 30, 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 the Texas 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 1 and 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.
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
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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, 2021, NEP's liquidity position was approximately $2,342 million. The table below provides the components of NEP’s liquidity position:
| June 30, 2021 | Maturity Date | ||||||||||
(millions) | |||||||||||
Cash and cash equivalents | $ | 113 | |||||||||
Amounts due under the CSCS agreement | 1,095 | ||||||||||
Revolving credit facilities(a) | 1,250 | 2026 | |||||||||
Less borrowings | — | ||||||||||
| Less issued letters of credit | (116) | ||||||||||
| Total | $ | 2,342 | |||||||||
____________________
(a) Excludes certain credit facilities due to restrictions on the use of the borrowings.
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
In February 2021, NEP OpCo and its direct subsidiary entered into an amendment of their existing revolving credit facility to extend the maturity date to February 2026. During the six months ended June 30, 2021, $90 million was drawn under the NEP OpCo revolving credit facility, which was repaid in June 2021. In addition, approximately $25 million was borrowed under the Meade credit agreement for the Meade expansion and $5 million was repaid. See Note 7.
During the six months ended June 30, 2021, NEP issued $500 million in aggregate principal amount of 0% convertible senior notes due in 2024 (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 make a distribution. At June 30, 2021, NEP's subsidiaries were in compliance with all financial debt covenants under their financings.
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Equity Arrangements
During the six months ended June 30, 2021, a subsidiary of NEP issued and sold noncontrolling Class B interests in Genesis Holdings under the membership interest purchase agreement entered into in 2020 and amended in May 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 8 - Class B 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 ended June 30, 2021 and 2020, NEP had capital expenditures of approximately $64 million and $121 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 the Texas 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 six months ended June 30, 2021, NEP distributed approximately $95 million to its common unitholders. On July 22, 2021, the board of directors of NEP authorized a distribution of $0.6625 per common unit payable on August 13, 2021 to its common unitholders of record on August 5, 2021.
Cash Flows
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
The following table reflects the changes in cash flows for the comparative periods:
| 2021 | 2020 | Change | |||||||||||||||
(millions) | |||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||
Net cash provided by operating activities | $ | 308 | $ | 259 | $ | 49 | |||||||||||
| Net cash used in investing activities | $ | (1,124) | $ | (149) | $ | (975) | |||||||||||
| Net cash provided by (used in) financing activities | $ | 820 | $ | (142) | $ | 962 | |||||||||||
Net Cash Provided by Operating Activities
The increase in net cash provided by operating activities was primarily driven by higher distributions from equity method investees, lower interest payments and higher operating income.
Net Cash Used in Investing Activities
| 2021 | 2020 | ||||||||||
(millions) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| Capital expenditures and other investments | $ | (64) | $ | (121) | |||||||
| Payments to related parties under CSCS agreement – net | (1,085) | (46) | |||||||||
| Distributions from equity method investee | 1 | 8 | |||||||||
Other | 24 | 10 | |||||||||
| Net cash used in investing activities | $ | (1,124) | $ | (149) | |||||||
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).
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Net Cash Provided by (Used in) Financing Activities
| 2021 | 2020 | ||||||||||
(millions) | |||||||||||
| Six Months Ended June 30, | |||||||||||
| Proceeds from issuance of common units – net | $ | 50 | $ | 2 | |||||||
| Issuances (retirements) of long-term debt - net | 520 | 46 | |||||||||
| Partner contributions | — | 6 | |||||||||
| Partner distributions | (243) | (201) | |||||||||
| Change in amounts due to related parties | (1) | (1) | |||||||||
| Proceeds related to differential membership interests - net | 23 | 32 | |||||||||
| Proceeds (payments) related to Class B noncontrolling interests - net | 458 | (21) | |||||||||
Other | 13 | (5) | |||||||||
| Net cash provided by (used in) financing activities | $ | 820 | $ | (142) | |||||||
The change in net cash provided by (used in) financing activities primarily reflects higher net issuances of long-term debt in 2021 (see Note 7) compared to 2020, proceeds related to the sale of Class B noncontrolling interests in 2021 (see Note 8 - Class B Noncontrolling Interests) and proceeds from the sale of NEP common units under the ATM, partly offset by higher partner distributions.
Quantitative and Qualitative Disclosures about Market Risk
NEP is exposed to several market risks in its normal business activities. Market risk is the potential loss that may result from market changes associated with its business. The types of market risks include interest rate and counterparty credit risks.
Interest Rate Risk
NEP is exposed to risk resulting from changes in interest rates associated with outstanding and expected future debt issuances and borrowings. NEP manages interest rate exposure by monitoring current interest rates, entering into interest rate contracts and using a combination of fixed rate and variable rate debt. Interest rate swaps are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements (see Note 3).
NEP has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates. At June 30, 2021, substantially all of the long-term debt, including current maturities, was not exposed to fluctuations in interest expense as it was either fixed rate debt or financially hedged. At June 30, 2021, the estimated fair value of NEP's long-term debt was approximately $4.1 billion and the carrying value of the long-term debt was $4.0 billion. See Note 4 - Financial Instruments Recorded at Other than Fair Value. Based upon a hypothetical 10% decrease in interest rates, which is a reasonable near-term market change, the fair value of NEP's long-term debt would increase by approximately $33 million at June 30, 2021.
At June 30, 2021, NEP had interest rate contracts with a net notional amount of approximately $7.1 billion related to managing exposure to the variability of cash flows associated with outstanding and expected future debt issuances and borrowings. Based upon a hypothetical 10% decrease in rates, NEP’s net derivative liabilities at June 30, 2021 would increase by approximately $116 million.
Counterparty Credit Risk
Risks surrounding counterparty performance and credit risk could ultimately impact the amount and timing of expected cash flows. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties under the terms of their contractual obligations. NEP monitors and manages credit risk through credit policies that include a credit approval process and the use of credit mitigation measures such as prepayment arrangements in certain circumstances. NEP also seeks to mitigate counterparty risk by having a diversified portfolio of counterparties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion - Quantitative and Qualitative Disclosures About Market Risk.
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Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of June 30, 2021, NEP had performed an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of NEP's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the chief executive officer and the chief financial officer of NEP concluded that NEP's disclosure controls and procedures were effective as of June 30, 2021.
(b) Changes in Internal Control Over Financial Reporting
NEP is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in refinements to processes throughout NEP. However, there has been no change in NEP's internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that occurred during NEP's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NEP's internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None. With regard to environmental proceedings to which a governmental authority is a party, NEP's policy is to disclose any such proceeding if it is reasonably expected to result in monetary sanctions of greater than or equal to $1 million.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in the 2020 Form 10-K. The factors discussed in Part I, Item 1A. Risk Factors in the 2020 Form 10-K, as well as other information set forth in this report, which could materially adversely affect NEP's business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders should be carefully considered. The risks described in the 2020 Form 10-K are not the only risks facing NEP. Additional risks and uncertainties not currently known to NEP, or that are currently deemed to be immaterial, also may materially adversely affect NEP's business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders.
Item 5. Other Information
(a)On July 22, 2021, NextEra Energy Partners Acquisitions, LLC (NEP Acquisitions), an indirect subsidiary of NEP, entered into a purchase and sale agreement with NEP US SellCo, LLC (the seller) and ESI Energy, LLC, both of which are subsidiaries of NEER. Pursuant to the terms of the purchase and sale agreement, NEP Acquisitions agreed to acquire from the seller:
•100% of the membership interests in HW CA Holdings, LLC, that indirectly owns an approximately 162 MW wind generation facility (High Winds) located in California;
•100% of the membership interests in Dogwood Wind Holdings, LLC, that indirectly owns two wind generation facilities (Oliver III Wind and Osborn Wind) with a combined total generating capacity of approximately 300 MW located in North Dakota and Missouri;
•100% of the membership interests in Southwest Solar Holdings, LLC, that indirectly owns an approximately 5 MW solar generation facility (Hatch Solar) located in New Mexico;
•33.3% of the membership interests in Shaw Creek Solar Holdings, LLC, that indirectly owns an approximately 75 MW solar generation facility (Shaw Creek) located in South Carolina;
•33.3% of the membership interests in Nutmeg Solar Holdings, LLC, that indirectly owns an approximately 20 MW solar generation facility (Nutmeg Solar) located in Connecticut; and
•100% of the Class C membership interests (which represents 33.3% of the total ownership interest in the underlying projects) in Solar Holdings Portfolio 12, LLC, that has indirect ownership interests in:
◦two solar generation facilities (Westside Solar and Whitney Point Solar) with a combined total generating capacity of approximately 40 MW located in California;
◦the DG Portfolio 2019 portfolio, that indirectly owns multiple distributed solar generation facilities with a combined total generating capacity of approximately 217 MW located in various states across the U.S.; and
◦the DG Waipio portfolio, that indirectly owns multiple distributed solar generation facilities with a combined total generating capacity of approximately 13 MW located in Hawaii.
The acquisition of the foregoing membership interests is expected to close prior to December 31, 2021 for a total purchase price of approximately $563 million, subject to closing adjustments. NEP's share of the entities' debt and noncontrolling interests related to differential membership investors is estimated to be approximately $270 million at the time of closing. The transaction is subject to the satisfaction of customary closing conditions and the receipt of regulatory approvals.
The purchase and sale agreement contains customary representations, warranties and covenants by the parties. The parties are obligated, subject to certain limitations, to indemnify each other for certain customary and other specified matters, including breaches of representations and warranties, nonfulfillment or breaches of covenants and for certain liabilities and third-party claims.
The terms of the purchase and sale agreement were unanimously approved by NEP’s conflicts committee, which is comprised of the independent members of the board of directors of NEP. The conflicts committee retained independent legal and financial advisors to assist in evaluating and negotiating the acquisitions. In approving the acquisitions, the conflicts committee based its decisions, in part, on an opinion from its independent financial advisor.
The foregoing description of the purchase and sale agreement is qualified in its entirety by reference to the agreements filed as Exhibits 2.2 and 2.3 to this Quarterly Report on Form 10-Q and incorporated herein by reference.
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Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 2.1* | ||||||||
| 2.2* | ||||||||
| 2.3 | ||||||||
| 4.1* | ||||||||
| 10.1* | ||||||||
| 10.2 | ||||||||
| 31(a) | ||||||||
| 31(b) | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document - XBRL Instance Document - the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Schema Document | |||||||
| 101.PRE | XBRL Presentation Linkbase Document | |||||||
| 101.CAL | XBRL Calculation Linkbase Document | |||||||
| 101.LAB | XBRL Label Linkbase Document | |||||||
| 101.DEF | XBRL Definition Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
___________________________
* Incorporated herein by reference
NEP agrees to furnish to the SEC upon request any instrument with respect to long-term debt that NEP has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 26, 2021
NEXTERA ENERGY PARTNERS, LP | |||||
| (Registrant) | |||||
| JAMES M. MAY | |||||
James M. May Controller and Chief Accounting Officer (Principal Accounting Officer) | |||||
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