UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x☒ | | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2022
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| ☐ | | |
| | For the Quarterly Period Ended: September 30, 2017 |
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o | | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Commission File Number: 001-36002
NRG Yield,Clearway Energy, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
| Delaware | | 46-1777204 |
(State or other jurisdiction
of incorporation or organization) | | (I.R.S. Employer
Identification No.) |
| | |
Delaware
(State or other jurisdiction
of incorporation or organization)
| | 46-1777204
(I.R.S. Employer
Identification No.)
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| 300 Carnegie Center, Suite 300 | Princeton | New Jersey | 08540 |
804 Carnegie Center, Princeton, New Jersey
(Address of principal executive offices) | | 08540
(Zip Code) |
(609) 524-4500608-1525
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | |
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Class A Common Stock, par value $0.01 | CWEN.A | New York Stock Exchange |
| Class C Common Stock, par value $0.01 | CWEN | 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yesx☒Noo ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesx☒Noo ☐
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. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filerx | ☒ | Accelerated filero | ☐ |
Non-accelerated filer o | ☐ | Smaller reporting companyo | ☐ |
| | Emerging growth companyo |
| | | | (Do not check if a smaller reporting 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 Exchange Act. o☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yeso☐Nox☒
As of October 31, 2017,April 29, 2022, there were 34,586,25034,599,645 shares of Class A common stock outstanding, par value $0.01 per share, 42,738,750 shares of Class B common stock outstanding, par value $0.01 per share, 64,717,08781,944,239 shares of Class C common stock outstanding, par value $0.01 per share, and 42,738,750 shares of Class D common stock outstanding, par value $0.01 per share.
TABLE OF CONTENTS
Index
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This Quarterly Report on Form 10-Q of NRG Yield,Clearway Energy, Inc., together with its consolidated subsidiaries, or the Company, includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The words "believes," "projects," "anticipates," "plans," "expects," "intends," "estimates" and similar expressions are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the Company's actual results, performance and achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These factors, risks and uncertainties include the factors described under Item 1A — Risk Factors in Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2016, and under Item 1A - Risk Factors in Part II on the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2017,2021, as well as the following:
•The Company's ability to maintain and grow its quarterly dividend;
•Potential risks related to COVID-19 (including any variant of the virus) or any other pandemic;
•Potential risks related to the Company as a result of the NRG Transformation Plan;Company's relationships with GIP and CEG;
•The Company's ability to successfully identify, evaluate and consummate acquisitions from, and dispositions to, third parties;
•The Company's ability to acquire assets from NRG;GIP or CEG;
•The Company's ability to raise additional capital due to its indebtedness, corporate structure, market conditions or otherwise;
•Changes in law, including judicial decisions;
•Hazards customary to the power production industry and power generation operations such as fuel and electricity price volatility, unusual weather conditions (including wind and solar conditions), catastrophic weather-related or other damage to facilities, unscheduled generation outages, maintenance or repairs, unanticipated changes to fuel supply costs or availability due to higher demand, shortages, transportation problems or other developments, environmental incidents, or electric transmission or gas pipeline system constraints and the possibility that the Company may not have adequate insurance to cover losses as a result of such hazards;
•The Company's ability to operate its businesses efficiently, manage maintenance capital expenditures and costs effectively, and generate earnings and cash flows from its asset-based businesses in relation to its debt and other obligations;
•The willingness and ability of counterparties to the Company's offtake agreements to fulfill their obligations under such agreements;
•The Company's ability to enter into contracts to sell power and procure fuel on acceptable terms and prices as current offtake agreements expire;
•Government regulation, including compliance with regulatory requirements and changes in market rules, rates, tariffs and environmental laws;
Changes in law, including judicial decisions;
•Operating and financial restrictions placed on the Company that are contained in the project-level debt facilities and other agreements of certain subsidiaries and project-level subsidiaries generally, in the NRG YieldClearway Energy Operating LLC amended and restated revolving credit facility and in the indentures governing the Senior Notes and in the indentures governing the Company's convertible notes;Notes;
•Cyber terrorism and inadequate cybersecurity, or the occurrence of a catastrophic loss and the possibility that the Company may not have adequate insurance to cover losses resulting from such hazards or the inability of the Company's insurers to provide coverage; and
The Company's ability to engage in successful mergers and acquisitions activity; and
•The Company's ability to borrow additional funds and access capital markets, as well as the Company's substantial indebtedness and the possibility that the Company may incur additional indebtedness going forward.
Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors that could cause the Company's actual results to differ materially from those contemplated in any forward-looking statements included in this Quarterly Report on Form 10-Q should not be construed as exhaustive.
GLOSSARY OF TERMS
When the following terms and abbreviations appear in the text of this report, they have the meanings indicated below:
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2016 Form 10-K | | NRG Yield, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2016 |
2019 Convertible2025 Senior Notes | | $345600 million aggregate principal amount of 3.50% convertible5.750% unsecured senior notes due 2019,2025, issued by NRG Yield, Inc.Clearway Energy Operating LLC, which were repurchased and redeemed in March 2021 | |
2020 Convertible2028 Senior Notes | | $287.5850 million aggregate principal amount of 3.25% convertible4.750% unsecured senior notes due 2020,2028, issued by NRG Yield, Inc.Clearway Energy Operating LLC | |
20242031 Senior Notes | | $500925 million aggregate principal amount of 5.375%3.750% unsecured senior notes due 2024,2031, issued by NRG YieldClearway Energy Operating LLC | |
20262032 Senior Notes | | $350 million aggregate principal amount of 5.00%3.750% unsecured senior notes due 2026,2032, issued by NRG YieldClearway Energy Operating LLC | |
ASCAdjusted EBITDA | A non-GAAP measure, represents earnings before interest (including loss on debt extinguishment), tax, depreciation and amortization adjusted for mark-to-market gains or losses, asset write offs and impairments; and factors which the Company does not consider indicative of future operating performance | |
| | |
| | |
| ASC | The FASB Accounting Standards Codification, which the FASB established as the source of
authoritative GAAP
| |
| ASU | | Accounting Standards Updates - updates to the ASC | |
ATM ProgramPrograms | | At-The-Market Equity Offering ProgramPrograms | |
August 2017 Drop Down AssetsBridge Loan Agreement | Senior secured bridge credit agreement entered into by Clearway Energy Operating LLC that provided a term loan facility in an aggregate principal amount of $335 million and was repaid on May 3, 2022 | The remaining 25% interest in NRG Wind TE Holdco, an 814 net MW portfolio of twelve wind projects, acquired from NRG on August 1, 2017 |
Buffalo BearCAFD | | Buffalo Bear, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Buffalo Bear project |
CAFD | | A non-GAAP measure, Cash Available Forfor Distribution which the Company definesis defined as net income before interest expense, income taxes, depreciation and amortization,of March 31, 2022 as Adjusted EBITDA plus cash distributionsdistributions/return of investment from unconsolidated affiliates, cash receipts from notes receivable, cash distributions from noncontrolling interests, adjustments to reflect sales-type lease cash payments and payments for lease expenses, less cash distributions to noncontrolling interests, maintenance capital expenditures, pro-rata Adjusted EBITDA from unconsolidated affiliates, cash interest paid, income taxes paid, principal amortization of indebtedness, and changes in prepaid and accrued capacity payments, and adjusted for development expenses | |
CompanyCEG | Clearway Energy Group LLC (formerly Zephyr Renewables LLC) | NRG Yield, |
| CEG Master Services Agreement | Master Services Agreements entered into as of August 31, 2018 between the Company, Clearway Energy LLC and Clearway Energy Operating LLC, and CEG | |
| | |
| Clearway Energy LLC | The holding company through which the projects are owned by Clearway Energy Group LLC, the holder of Class B and Class D units, and Clearway Energy, Inc., the holder of the Class A and Class C units | |
| Clearway Energy Group LLC | The holder of all of the Company's Class B and Class D common shares and Clearway Energy LLC’s Class B and Class D units and from time to time, possibly shares of the Company’s Class A and/or Class C common stock | |
| Clearway Energy Operating LLC | The holder of the project assets that are owned by Clearway Energy LLC | |
| | |
| Company | Clearway Energy, Inc. together with its consolidated subsidiaries | |
| CVSR | | California Valley Solar Ranch | |
CVSR Drop Down | | The Company's acquisition from NRG of the remaining 51.05% interest of CVSR Holdco |
CVSR Holdco | | CVSR Holdco LLC, the indirect owner of CVSR | |
DGPV Holdco 1 | | NRG DGPV Holdco 1 LLC |
DGPV Holdco 2 | | NRG DGPV Holdco 2 LLC |
DGPV Holdco 3 | | NRG DGPV Holdco 3 LLC |
| | |
| Distributed Solar | | Solar power projects, typically less than 20 MW in size (on an alternating current, or AC, basis), that primarily sell power produced to customers for usage on site, or are interconnected to sell power into the local distribution grid | |
| Drop Down Assets | Assets under common control acquired by the Company from CEG | Collectively, the June 2014 Drop Down Assets, January 2015 Drop Down Assets, November 2015 Drop Down Assets, CVSR Drop Down, March 2017 Drop Down Assets and August 2017 Drop Down Assets |
Economic Gross Margin | | Energy and capacity revenue less cost of fuels |
El Segundo | | NRG West Holdings LLC, the subsidiary of Natural Gas Repowering LLC, which owns the El Segundo Energy Center project |
ERCOT | | Electric Reliability Council of Texas, the ISO and the regional reliability coordinator of the various electricity systems within Texas |
EWG | | Exempt Wholesale Generator |
| Exchange Act | | The Securities Exchange Act of 1934, as amended | |
| FASB | | Financial Accounting Standards Board | |
FERCGAAP | | Federal Energy Regulatory Commission |
GAAP | | Accounting principles generally accepted in the U.S. | |
| GenConn | | GenConn Energy LLC | |
HLBVGIP | Global Infrastructure Partners | |
| HLBV | Hypothetical Liquidation at Book Value | |
IASBKKR | KKR Thor Bidco, LLC, an affiliate of Kohlberg Kravis Roberts & Co. L.P. | International Accounting Standards Board |
ISO | | Independent System Operator, also referred to as RTO |
| | | | | | |
| LIBOR | London Inter-Bank Offered Rate | |
| | |
January 2015 Drop Down AssetsMesquite Star | Mesquite Star Special LLC | The Laredo Ridge, Tapestry and Walnut Creek projects, which were acquired by NRG Yield Operating LLC from NRG on January 2, 2015 |
Kansas SouthMMBtu | | NRG Solar Kansas South LLC, the operating subsidiary of NRG Solar Kansas South Holdings LLC, which owns the Kansas South project |
Laredo Ridge | | Laredo Ridge Wind, LLC, the operating subsidiary of Mission Wind Laredo, LLC, which owns the Laredo Ridge project |
LIBOR | | London Inter-Bank Offered Rate |
March 2017 Drop Down Assets | | (i) Agua Caliente Borrower 2 LLC, which owns a 16% interest (approximately 31% of NRG's 51% interest) in the Agua Caliente solar farm and (ii) NRG's 100% ownership in the Class A equity interests in the Utah Solar Portfolio (defined below), both acquired by the Company on March 27, 2017 |
Marsh Landing | | NRG Marsh Landing LLC, formerly GenOn Marsh Landing LLC |
May 9, 2017 Form 8-K | | NRG Yield, Inc.'s Current Report on Form 8-K filed with the SEC on May 9, 2017 in connection with NRG Yield Operating LLC's acquisition of the March 2017 Drop Down Assets
|
MMBtu | | Million British Thermal Units | |
MWMt. Storm | NedPower Mount Storm LLC | Megawatts |
MWhMW | Megawatt | |
| MWh | Saleable megawatt hours, net of internal/parasitic load megawatt-hours | |
| MWt | | Megawatts Thermal Equivalent | |
NERC | | North American Electric Reliability Corporation |
| Net Exposure | | Counterparty credit exposure to NRG Yield,Clearway Energy, Inc. net of collateral | |
| NOLs | | Net Operating Losses | |
November 2015 Drop Down AssetsNPNS | | 75% of the Class B interests of NRG Wind TE Holdco, which owns a portfolio of 12 wind facilities totaling 814 net MW, which was acquired by NRG Yield Operating LLC from NRG on November 3, 2015 |
November 2017 Drop Down Assets | | 38 MW portfolio of distributedNormal Purchases and small utility-scale solar assets, primarily comprised of assets from NRG's Solar Power Partners (SPP) funds, in addition to other projects developed since the acquisition of SPP by NRG, which was acquired by NRG Yield Operating LLC from NRG on November 1, 2017Normal Sales |
NRG | | NRG Energy, Inc. |
NRG Power Marketing | | NRG Power Marketing LLC |
NRG Transformation Plan | | A three-year, three-part improvement plan announced by NRG on July 12, 2017, which includes exploring strategic alternatives for NRG's renewables platform and its interest in the Company |
NRG Wind TE Holdco | | NRG Wind TE Holdco LLC |
NRG Yield LLC | | The holding company through which the projects are owned by NRG, the holder of Class B and Class D units, and NRG Yield, Inc., the holder of the Class A and Class C units |
NRG Yield Operating LLC | | The holder of the project assets that are owned by NRG Yield LLC |
OCI/OCL | | Other comprehensive income/loss |
O&M | | Operation and Maintenance |
Pinnacle | | Pinnacle Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Pinnacle project |
PPA | | Power Purchase Agreement |
PUCT | | Public Utility Commission of Texas |
QF | | Qualifying Facility under the Public Utility Regulatory Policies Act of 1978 |
ROFO Agreement | | Second Amended and Restated Right of First Offer Agreement between the Company and NRG |
ROFO Assets | | Specified assets subject to sale, as described in the ROFO Agreement |
RPV Holdco | | NRG RPV Holdco 1 LLC |
RTO | | Regional Transmission Originator |
SEC | | U.S. Securities and Exchange Commission |
Senior Notes | | Collectively, the 2024 Senior Notes and the 2026 Senior Notes |
SPP | | Solar Power Partners |
|
| | |
Taloga | | Taloga Wind, LLC, the operating subsidiary of Tapestry Wind LLC, which owns the Taloga project |
TapestryOCL | Other comprehensive loss | Collection of the Pinnacle, Buffalo Bear and Taloga projects |
| O&M | Operations and Maintenance | |
| PG&E | Pacific Gas and Electric Company | |
| PPA | Power Purchase Agreement | |
| | |
| RENOM | Clearway Renewable Operation & Maintenance LLC | |
| | |
| | |
| SCE | Southern California Edison | |
| SEC | U.S. Securities and Exchange Commission | |
| Senior Notes | Collectively, the 2028 Senior Notes, the 2031 Senior Notes and the 2032 Senior Notes | |
| SOFR | Secured Overnight Financing Rate | |
| SPP | Solar Power Partners | |
| SREC | Solar Renewable Energy Credit | |
| Tax Act | Tax Cuts and Jobs Act of 2017 | |
| Thermal Business | | The Company's thermal business, which consists of thermal infrastructure assets that provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units | |
U.S.Thermal Disposition | On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR | |
| U.S. | United States of America | |
| Utah Solar Portfolio | Seven utility-scale solar farms located in Utah, representing 530 MW of capacity | Collection consists of Four Brothers Solar, LLC, Granite Mountain Holdings, LLC, and Iron Springs Holdings, LLC, which are equity investments owned by Four Brothers Capital, LLC, Granite Mountain Capital, LLC, and Iron Springs Capital, LLC, respectively, and are part of the March 2017 Drop Down Assets acquisition that closed on March 27, 2017 |
| Utility Scale Solar | | Solar power projects, typically 20 MW or greater in size (on an alternating current, or AC, basis), that are interconnected into the transmission or distribution grid to sell power at a wholesale level | |
| VaR | | Value at Risk | |
| VIE | | Variable Interest Entity |
Walnut Creek | | NRG Walnut Creek, LLC, the operating subsidiary of WCEP Holdings, LLC, which owns the Walnut Creek project |
PART I - FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
NRG YIELD,CLEARWAY ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (In millions, except per share amounts) | 2017 | | 2016 (a) | | 2017 | | 2016 (a) |
| Operating Revenues | | | | | | | |
| Total operating revenues | $ | 265 |
| | $ | 272 |
| | $ | 767 |
| | $ | 789 |
|
| Operating Costs and Expenses | | | | | | | |
| Cost of operations | 78 |
| | 76 |
| | 239 |
| | 238 |
|
| Depreciation and amortization | 88 |
| | 75 |
| | 241 |
| | 224 |
|
| General and administrative | 4 |
| | 4 |
| | 14 |
| | 10 |
|
| Acquisition-related transaction and integration costs | — |
| | — |
| | 2 |
| | — |
|
| Total operating costs and expenses | 170 |
| | 155 |
| | 496 |
| | 472 |
|
| Operating Income | 95 |
| | 117 |
| | 271 |
| | 317 |
|
| Other Income (Expense) | | | | | | | |
| Equity in earnings of unconsolidated affiliates | 28 |
| | 16 |
| | 63 |
| | 34 |
|
| Other income, net | 1 |
| | 1 |
| | 3 |
| | 3 |
|
| Interest expense | (75 | ) | | (71 | ) | | (237 | ) | | (213 | ) |
| Total other expense, net | (46 | ) | | (54 | ) | | (171 | ) | | (176 | ) |
| Income Before Income Taxes | 49 |
| | 63 |
| | 100 |
| | 141 |
|
| Income tax expense | 8 |
| | 13 |
| | 15 |
| | 25 |
|
| Net Income | 41 |
| | 50 |
| | 85 |
| | 116 |
|
| Less: Pre-acquisition net income of Drop Down Assets | 1 |
| | 11 |
| | 18 |
| | 20 |
|
| Net Income Excluding Pre-acquisition Net Income of Drop Down Assets | 40 |
| | 39 |
| | 67 |
| | 96 |
|
| Less: Net Income attributable to noncontrolling interests | 11 |
| | 6 |
| | 13 |
| | 26 |
|
| Net Income Attributable to NRG Yield, Inc. | $ | 29 |
| | $ | 33 |
| | $ | 54 |
| | $ | 70 |
|
| Earnings Per Share Attributable to NRG Yield, Inc. Class A and Class C Common Stockholders | | | | | | | |
| Weighted average number of Class A common shares outstanding - basic | 35 |
| | 35 |
| | 35 |
| | 35 |
|
| Weighted average number of Class A common shares outstanding - diluted | 49 |
| | 49 |
| | 35 |
| | 49 |
|
| Weighted average number of Class C common shares outstanding - basic | 64 |
| | 63 |
| | 63 |
| | 63 |
|
| Weighted average number of Class C common shares outstanding - diluted | 75 |
| | 73 |
| | 63 |
| | 63 |
|
| Earnings per Weighted Average Class A and Class C Common Share - Basic | $ | 0.30 |
| | $ | 0.34 |
| | $ | 0.56 |
| | $ | 0.72 |
|
| Earnings per Weighted Average Class A Common Share - Diluted | 0.27 |
| | 0.30 |
| | 0.56 |
| | 0.68 |
|
| Earnings per Weighted Average Class C Common Share - Diluted | 0.29 |
| | 0.32 |
| | 0.56 |
| | 0.72 |
|
| Dividends Per Class A Common Share | 0.28 |
| | 0.24 |
| | 0.81 |
| | 0.70 |
|
| Dividends Per Class C Common Share | $ | 0.28 |
| | $ | 0.24 |
| | $ | 0.81 |
| | $ | 0.70 |
|
(a)Retrospectively adjusted as discussed in Note 1, Nature of Business. | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| (In millions, except per share amounts) | | | | | 2022 | | 2021 |
| Operating Revenues | | | | | | | |
| Total operating revenues | | | | | $ | 214 | | | $ | 237 | |
| Operating Costs and Expenses | | | | | | | |
| | | | | | | |
| Cost of operations, exclusive of depreciation, amortization and accretion shown separately below | | | | | 128 | | | 110 | |
| Depreciation, amortization and accretion | | | | | 124 | | | 128 | |
| | | | | | | |
| General and administrative | | | | | 12 | | | 10 | |
| Transaction and integration costs | | | | | 2 | | | 2 | |
| Development costs | | | | | 1 | | | 1 | |
| Total operating costs and expenses | | | | | 267 | | | 251 | |
| Operating Loss | | | | | (53) | | | (14) | |
| Other Income (Expense) | | | | | | | |
| Equity in earnings of unconsolidated affiliates | | | | | 4 | | | 4 | |
| | | | | | | |
| Other income, net | | | | | — | | | 1 | |
| Loss on debt extinguishment | | | | | (2) | | | (42) | |
| Interest expense | | | | | (47) | | | (45) | |
| Total other expense, net | | | | | (45) | | | (82) | |
| Loss Before Income Taxes | | | | | (98) | | | (96) | |
| Income tax benefit | | | | | (1) | | | (20) | |
| Net Loss | | | | | (97) | | | (76) | |
| | | | | | | |
| Less: Loss attributable to noncontrolling interests and redeemable interests | | | | | (65) | | | (79) | |
| Net (Loss) Income Attributable to Clearway Energy, Inc. | | | | | $ | (32) | | | $ | 3 | |
| (Losses) Earnings Per Share Attributable to Clearway Energy, Inc. Class A and Class C Common Stockholders | | | | | | | |
| Weighted average number of Class A common shares outstanding - basic and diluted | | | | | 35 | | | 35 | |
| | | | | | | |
| Weighted average number of Class C common shares outstanding - basic and diluted | | | | | 82 | | | 82 | |
| | | | | | | |
| (Losses) Earnings per Weighted Average Class A and Class C Common Share - Basic and Diluted | | | | | $ | (0.28) | | | $ | 0.03 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Dividends Per Class A Common Share | | | | | $ | 0.3468 | | | $ | 0.3240 | |
| Dividends Per Class C Common Share | | | | | $ | 0.3468 | | | $ | 0.3240 | |
See accompanying notes to consolidated financial statements.
NRG YIELD,
CLEARWAY ENERGY, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Unaudited)
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (In millions) | 2017 | | 2016 (a) | | 2017 | | 2016 (a) |
| Net Income | $ | 41 |
| | $ | 50 |
| | $ | 85 |
| | $ | 116 |
|
| Other Comprehensive Gain (Loss), net of tax | | | | | | | |
| Unrealized gain (loss) on derivatives, net of income tax benefit of $0, $1, $0 and $13 | 7 |
| | 21 |
| | 7 |
| | (36 | ) |
| Other comprehensive gain (loss) | 7 |
| | 21 |
| | 7 |
| | (36 | ) |
| Comprehensive Income | 48 |
| | 71 |
| | 92 |
| | 80 |
|
| Less: Pre-acquisition net income of Drop Down Assets | 1 |
| | 11 |
| | 18 |
| | 20 |
|
| Less: Comprehensive income attributable to noncontrolling interests | 17 |
| | 28 |
| | 19 |
| | 11 |
|
| Comprehensive Income Attributable to NRG Yield, Inc. | $ | 30 |
| | $ | 32 |
| | $ | 55 |
| | $ | 49 |
|
(a)Retrospectively adjusted as discussed in Note 1, Nature of Business. | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| (In millions) | | | | | 2022 | | 2021 |
| Net Loss | | | | | $ | (97) | | | $ | (76) | |
| Other Comprehensive Income | | | | | | | |
| Unrealized gain on derivatives, net of income tax expense of, $2 and $2 | | | | | 14 | | | 11 | |
| Other comprehensive income | | | | | 14 | | | 11 | |
| Comprehensive Loss | | | | | (83) | | | (65) | |
| Less: Comprehensive loss attributable to noncontrolling interests and redeemable interests | | | | | (57) | | | (72) | |
| Comprehensive (Loss) Income Attributable to Clearway Energy, Inc. | | | | | $ | (26) | | | $ | 7 | |
See accompanying notes to consolidated financial statements.
NRG YIELD,
CLEARWAY ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
| | | (In millions, except shares) | September 30, 2017 | | December 31, 2016 | (In millions, except shares) | March 31, 2022 | | December 31, 2021 |
| ASSETS | (unaudited) | | | ASSETS | (Unaudited) | | |
| Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | $ | 179 |
| | $ | 322 |
| Cash and cash equivalents | $ | 140 | | | $ | 179 | |
| Restricted cash | 140 |
| | 165 |
| Restricted cash | 326 | | | 475 | |
| Accounts receivable — trade | 126 |
| | 92 |
| Accounts receivable — trade | 153 | | | 144 | |
| | Inventory | 38 |
| | 39 |
| Inventory | 38 | | | 37 | |
| Derivative instruments | — |
| | 2 |
| Derivative instruments | 2 | | | — | |
| Notes receivable | 15 |
| | 16 |
| |
| | Current assets held-for-sale | | Current assets held-for-sale | 653 | | | 631 | |
| Prepayments and other current assets | 22 |
| | 20 |
| Prepayments and other current assets | 61 | | | 65 | |
| Total current assets | 520 |
| | 656 |
| Total current assets | 1,373 | | | 1,531 | |
| Property, plant and equipment, net | 5,247 |
| | 5,460 |
| Property, plant and equipment, net | 7,661 | | | 7,650 | |
| Other Assets | | | | Other Assets | |
| Equity investments in affiliates | 1,183 |
| | 1,152 |
| Equity investments in affiliates | 374 | | | 381 | |
| Intangible assets, net | 1,234 |
| | 1,286 |
| |
| | Intangible assets for power purchase agreements, net | | Intangible assets for power purchase agreements, net | 2,379 | | | 2,419 | |
| Other intangible assets, net | | Other intangible assets, net | 78 | | | 80 | |
| Derivative instruments | — |
| | 1 |
| Derivative instruments | 16 | | | 6 | |
| Deferred income taxes | 202 |
| | 216 |
| Deferred income taxes | 100 | | | 95 | |
| Right-of-use assets, net | | Right-of-use assets, net | 528 | | | 550 | |
| | Other non-current assets | 56 |
| | 65 |
| Other non-current assets | 119 | | | 101 | |
| Total other assets | 2,675 |
| | 2,720 |
| Total other assets | 3,594 | | | 3,632 | |
| Total Assets | $ | 8,442 |
| | $ | 8,836 |
| Total Assets | $ | 12,628 | | | $ | 12,813 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current Liabilities | |
| | |
| Current Liabilities | |
| Current portion of long-term debt | $ | 300 |
| | $ | 291 |
| Current portion of long-term debt | $ | 770 | | | $ | 772 | |
| | Accounts payable — trade | 27 |
| | 23 |
| Accounts payable — trade | 76 | | | 74 | |
| Accounts payable — affiliate | 45 |
| | 40 |
| |
| | Accounts payable — affiliates | | Accounts payable — affiliates | 15 | | | 107 | |
| Derivative instruments | 23 |
| | 32 |
| Derivative instruments | 71 | | | 46 | |
| Accrued interest expense | | Accrued interest expense | 40 | | | 54 | |
| Current liabilities held-for-sale | | Current liabilities held-for-sale | 500 | | | 494 | |
| Accrued expenses and other current liabilities | 95 |
| | 86 |
| Accrued expenses and other current liabilities | 55 | | | 84 | |
| Total current liabilities | 490 |
| | 472 |
| Total current liabilities | 1,527 | | | 1,631 | |
| Other Liabilities | | | | Other Liabilities | | | |
| Long-term debt | 5,520 |
| | 5,696 |
| Long-term debt | 6,979 | | | 6,939 | |
| Accounts payable — affiliate | 3 |
| | 9 |
| |
| Deferred income taxes | | Deferred income taxes | 11 | | | 13 | |
| Derivative instruments | 43 |
| | 44 |
| Derivative instruments | 252 | | | 196 | |
| Long-term lease liabilities | | Long-term lease liabilities | 541 | | | 561 | |
| Other non-current liabilities | 87 |
| | 76 |
| Other non-current liabilities | 179 | | | 173 | |
| Total non-current liabilities | 5,653 |
| | 5,825 |
| |
| Total other liabilities | | Total other liabilities | 7,962 | | | 7,882 | |
| Total Liabilities | 6,143 |
| | 6,297 |
| Total Liabilities | 9,489 | | | 9,513 | |
| | Commitments and Contingencies | | | | Commitments and Contingencies | 0 | | 0 |
| Stockholders' Equity | | | | |
| Stockholders’ Equity | | Stockholders’ Equity | | |
| Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued | — |
| | — |
| Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued | — | | | — | |
| Class A, Class B, Class C and Class D common stock, $0.01 par value; 3,000,000,000 shares authorized (Class A 500,000,000, Class B 500,000,000, Class C 1,000,000,000, Class D 1,000,000,000); 184,780,837 shares issued and outstanding (Class A 34,586,250, Class B 42,738,750, Class C 64,717,087, Class D 42,738,750) at September 30, 2017 and 182,848,000 shares issued and outstanding (Class A 34,586,250, Class B 42,738,750, Class C 62,784,250, Class D 42,738,750) at December 31, 2016 | 1 |
| | 1 |
| |
| Class A, Class B, Class C and Class D common stock, $0.01 par value; 3,000,000,000 shares authorized (Class A 500,000,000, Class B 500,000,000, Class C 1,000,000,000, Class D 1,000,000,000); 201,995,385 shares issued and outstanding (Class A 34,599,645, Class B 42,738,750, Class C 81,918,240, Class D 42,738,750) at March 31, 2022 and 201,856,166 shares issued and outstanding (Class A 34,599,645, Class B 42,738,750, Class C 81,779,021, Class D 42,738,750) at December 31, 2021 | | Class A, Class B, Class C and Class D common stock, $0.01 par value; 3,000,000,000 shares authorized (Class A 500,000,000, Class B 500,000,000, Class C 1,000,000,000, Class D 1,000,000,000); 201,995,385 shares issued and outstanding (Class A 34,599,645, Class B 42,738,750, Class C 81,918,240, Class D 42,738,750) at March 31, 2022 and 201,856,166 shares issued and outstanding (Class A 34,599,645, Class B 42,738,750, Class C 81,779,021, Class D 42,738,750) at December 31, 2021 | 1 | | | 1 | |
| Additional paid-in capital | 1,864 |
| | 1,879 |
| Additional paid-in capital | 1,826 | | | 1,872 | |
| Retained Earnings (Accumulated deficit) | 24 |
| | (2 | ) | |
| Accumulated deficit | | Accumulated deficit | (65) | | | (33) | |
| Accumulated other comprehensive loss | (27 | ) | | (28 | ) | Accumulated other comprehensive loss | — | | | (6) | |
| Noncontrolling interest | 437 |
| | 689 |
| Noncontrolling interest | 1,377 | | | 1,466 | |
| Total Stockholders' Equity | 2,299 |
| | 2,539 |
| |
| Total Liabilities and Stockholders' Equity | $ | 8,442 |
| | $ | 8,836 |
| |
| Total Stockholders’ Equity | | Total Stockholders’ Equity | 3,139 | | | 3,300 | |
| Total Liabilities and Stockholders’ Equity | | Total Liabilities and Stockholders’ Equity | $ | 12,628 | | | $ | 12,813 | |
See accompanying notes to consolidated financial statements.
NRG YIELD,
CLEARWAY ENERGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | | | | |
| | Nine months ended September 30, |
| | 2017 | | 2016 (a) |
| | (In millions) |
| Cash Flows from Operating Activities | | | |
| Net income | $ | 85 |
| | $ | 116 |
|
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Equity in earnings of unconsolidated affiliates | (63 | ) | | (34 | ) |
| Distributions from unconsolidated affiliates | 52 |
| | 43 |
|
| Depreciation and amortization | 241 |
| | 224 |
|
| Amortization of financing costs and debt discounts | 18 |
| | 15 |
|
| Amortization of intangibles and out-of-market contracts | 52 |
| | 57 |
|
| Changes in deferred income taxes | 15 |
| | 25 |
|
| Changes in derivative instruments | (2 | ) | | (5 | ) |
| Loss on disposal of asset components | 8 |
| | 5 |
|
| Changes in prepaid and accrued liabilities for tolling agreements | 5 |
| | 2 |
|
| Changes in other working capital | (37 | ) | | (5 | ) |
| Net Cash Provided by Operating Activities | 374 |
| | 443 |
|
| Cash Flows from Investing Activities | | | |
| Payments for the Drop Down Assets | (176 | ) | | (77 | ) |
| Capital expenditures | (23 | ) | | (16 | ) |
| Cash receipts from notes receivable | 11 |
| | 11 |
|
| Return of investment from unconsolidated affiliates | 32 |
| | 16 |
|
| Investments in unconsolidated affiliates | (48 | ) | | (69 | ) |
| Net Cash Used in Investing Activities | (204 | ) | | (135 | ) |
| Cash Flows from Financing Activities | | | |
| Net contributions from noncontrolling interests | 13 |
| | 7 |
|
| Net distributions and return of capital to NRG prior to the acquisition of Drop Down Assets | (49 | ) | | (126 | ) |
| Net proceeds from the issuance of common stock | 34 |
| | — |
|
| Payments of dividends and distributions | (149 | ) | | (127 | ) |
| Payments of debt issuance costs | (4 | ) | | (6 | ) |
| Proceeds from the revolving credit facility | — |
| | 60 |
|
| Payments for the revolving credit facility | — |
| | (366 | ) |
| Proceeds from the issuance of long-term debt | 41 |
| | 550 |
|
| Payments for long-term debt | (224 | ) | | (204 | ) |
| Net Cash Used in Financing Activities | (338 | ) | | (212 | ) |
| Net Decrease in Cash, Cash Equivalents and Restricted Cash | (168 | ) | | 96 |
|
| Cash, Cash Equivalents and Restricted Cash at Beginning of Period | 487 |
| | 242 |
|
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 319 |
| | $ | 338 |
|
(a)Retrospectively adjusted as discussed in Note 1, Nature of Business. | | | | | | | | | | | |
| Three months ended March 31, |
| (In millions) | 2022 | | 2021 |
| Cash Flows from Operating Activities | | | |
| Net Loss | $ | (97) | | | $ | (76) | |
| Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
| Equity in earnings of unconsolidated affiliates | (4) | | | (4) | |
| Distributions from unconsolidated affiliates | 11 | | | 13 | |
| Depreciation, amortization and accretion | 124 | | | 128 | |
| Amortization of financing costs and debt discounts | 4 | | | 4 | |
| Amortization of intangibles | 42 | | | 32 | |
| Loss on debt extinguishment | 2 | | | 42 | |
| Reduction in carrying amount of right-of-use assets | 4 | | | 2 | |
| | | |
| | | |
| Changes in deferred income taxes | (1) | | | (20) | |
| Changes in derivative instruments | 82 | | | (27) | |
| | | |
| Cash used in changes in other working capital | | | |
| Changes in prepaid and accrued liabilities for tolling agreements | (44) | | | (44) | |
| Changes in other working capital | (30) | | | (3) | |
| Net Cash Provided by Operating Activities | 93 | | | 47 | |
| Cash Flows from Investing Activities | | | |
| Acquisitions, net of cash acquired | — | | | (111) | |
| | | |
| Acquisition of Drop Down Assets | (51) | | | (132) | |
| | | |
| | | |
| Capital expenditures | (47) | | | (58) | |
| Asset purchase from affiliate | — | | | (21) | |
| Return of investment from unconsolidated affiliates | 3 | | | 8 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other | 3 | | | — | |
| Net Cash Used in Investing Activities | (92) | | | (314) | |
| Cash Flows from Financing Activities | | | |
| Contributions from noncontrolling interests, net of distributions | 23 | | | 229 | |
| | | |
| | | |
| Payments of dividends and distributions | (70) | | | (66) | |
| Distributions to CEG of escrowed amounts | (64) | | | — | |
| Proceeds from the revolving credit facility | 80 | | | 195 | |
| Payments for the revolving credit facility | (20) | | | (170) | |
| Proceeds from the issuance of long-term debt | 194 | | | 1,004 | |
| Payments of debt issuance costs | (4) | | | (15) | |
| Payments for long-term debt | (317) | | | (957) | |
| Other | (6) | | | 13 | |
| Net Cash (Used in) Provided by Financing Activities | (184) | | | 233 | |
| Reclassification of Cash to Assets Held-for-Sale | (5) | | | — | |
| Net Decrease in Cash, Cash Equivalents and Restricted Cash | (188) | | | (34) | |
| Cash, Cash Equivalents and Restricted Cash at beginning of period | 654 | | | 465 | |
| Cash, Cash Equivalents and Restricted Cash at end of period | $ | 466 | | | $ | 431 | |
See accompanying notes to consolidated financial statements.
NRG YIELD,
CLEARWAY ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2022
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive Loss | | Noncontrolling
Interest | | Total
Stockholders’
Equity |
| Balances at December 31, 2021 | $ | — | | | $ | 1 | | | $ | 1,872 | | | $ | (33) | | | $ | (6) | | | $ | 1,466 | | | $ | 3,300 | |
| Net loss | — | | | — | | | — | | | (32) | | | — | | | (67) | | | (99) | |
| Unrealized gain on derivatives, net of tax | — | | | — | | | — | | | — | | | 6 | | | 8 | | | 14 | |
| | | | | | | | | | | | | |
| Distributions to CEG, net of contributions, cash | — | | | — | | | — | | | — | | | — | | | (3) | | | (3) | |
| Contributions from noncontrolling interests, net of distributions, cash | — | | | — | | | — | | | — | | | — | | | 28 | | | 28 | |
| | | | | | | | | | | | | |
| Mesquite Sky Drop Down | — | | | — | | | (1) | | | — | | | — | | | (7) | | | (8) | |
| Black Rock Drop Down | — | | | — | | | — | | | — | | | — | | | 1 | | | 1 | |
| Mililani I Drop Down | — | | | — | | | (11) | | | — | | | — | | | (19) | | | (30) | |
| | | | | | | | | | | | | |
| Non-cash adjustments for change in tax basis | — | | | — | | | 8 | | | — | | | — | | | — | | | 8 | |
| Stock based compensation | — | | | — | | | (2) | | | — | | | — | | | — | | | (2) | |
| Common stock dividends and distributions to CEG unit holders | — | | | — | | | (40) | | | — | | | — | | | (30) | | | (70) | |
| Balances at March 31, 2022 | $ | — | | | $ | 1 | | | $ | 1,826 | | | $ | (65) | | | $ | — | | | $ | 1,377 | | | $ | 3,139 | |
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CLEARWAY ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Three Months Ended March 31, 2021
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Preferred Stock | | Common Stock | | Additional
Paid-In
Capital | | Accumulated Deficit | | Accumulated
Other
Comprehensive Loss | | Noncontrolling
Interest | | Total
Stockholders’
Equity |
| Balances at December 31, 2020 | $ | — | | | $ | 1 | | | $ | 1,922 | | | $ | (84) | | | $ | (14) | | | $ | 890 | | | $ | 2,715 | |
| Net income (loss) | — | | | — | | | — | | | 3 | | | — | | | (81) | | | (78) | |
| Unrealized gain on derivatives, net of tax | — | | | — | | | — | | | — | | | 4 | | | 7 | | | 11 | |
| Contributions from CEG, non-cash | — | | | — | | | — | | | — | | | — | | | 27 | | | 27 | |
| Contributions from CEG, cash | — | | | — | | | — | | | — | | | — | | | 103 | | | 103 | |
| Contributions from noncontrolling interests, net of distributions, cash | — | | | — | | | — | | | — | | | — | | | 126 | | | 126 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Agua Caliente acquisition | — | | | — | | | — | | | — | | | — | | | 273 | | | 273 | |
| Rattlesnake Drop Down | — | | | — | | | — | | | — | | | — | | | (118) | | | (118) | |
| Non-cash adjustments for change in tax basis | — | | | — | | | 2 | | | — | | | — | | | — | | | 2 | |
| | | | | | | | | | | | | |
| Common stock dividends and distributions to CEG unit holders | — | | | — | | | (38) | | | — | | | — | | | (28) | | | (66) | |
| Balances at March 31, 2021 | $ | — | | | $ | 1 | | | $ | 1,886 | | | $ | (81) | | | $ | (10) | | | $ | 1,199 | | | $ | 2,995 | |
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CLEARWAY ENERGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Nature of Business
NRG Yield,Clearway Energy, Inc., together with its consolidated subsidiaries, or the Company, is a dividend growth-oriented company formed to serve as the primary vehicle through which NRG owns, operatespublicly-traded energy infrastructure investor in and acquiresowner of modern, sustainable and long-term contracted renewable and conventional generation and thermal infrastructure assets.assets across North America. The Company believes it is well positionedindirectly owned by Global Infrastructure Partners, or GIP. GIP is an independent infrastructure fund manager that makes equity and debt investments in infrastructure assets and businesses. The Company is sponsored by GIP through GIP’s portfolio company, Clearway Energy Group LLC, or CEG.
The Company is one of the largest renewable energy owners in the U.S. with over 5,000 net MW of installed wind and solar generation projects. The Company's over 7,500 net MW of assets also includes approximately 2,500 net MW of environmentally-sound, highly efficient natural gas-fired generation facilities. Through this environmentally-sound, diversified and primarily contracted portfolio, the Company endeavors to be a premier company forprovide its investors seekingwith stable and growing dividend incomeincome.Substantially all of the Company’s generation assets are under long-term contractual arrangements for the output or capacity from a diversified portfoliothese assets.
On May 1, 2022, the Company completed the sale of lower-risk, high-quality assets. NRG Yield, Inc. owns 100% of the Class A units and Class C units of NRG Yield LLC, including a controlling interest through its position as managing member.
The Company owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assetsinterests in the U.S. The Company’s contracted generation portfolio collectively represents 5,080 net MW asThermal Business to KKR. For further details of September 30, 2017. Each of these assets sells substantially all of its output pursuantthe Thermal Disposition, refer to long-term offtake agreements with creditworthy counterparties. The weighted average remaining contract duration of these offtake agreements was approximately 16 years as of September 30, 2017 based on CAFD. Note 3, Acquisitions and Dispositions.
The Company also owns thermal infrastructure assets with an aggregate steam and chilled water capacity of 1,319 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot and/or chilled water, and, in some instances, electricity to commercial businesses, universities, hospitals and governmental units in multiple locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions.
NRG Yield, Inc. consolidates the results of NRG YieldClearway Energy LLC through its controlling interest, with NRG'sCEG’s interest shown as noncontrollingnon-controlling interest in the consolidated financial statements. The holders of NRG Yield, Inc.'sthe Company’s outstanding shares of Class A and Class C common stock are entitled to dividends as declared. NRGCEG receives its distributions from NRG YieldClearway Energy LLC through its ownership of NRG YieldClearway Energy LLC Class B and Class D units. From time to time, CEG may also hold shares of the Company’s Class A and/or Class C common stock.
The Company owned 57.68% of the economic interests of Clearway Energy LLC, with CEG owning 42.32% of the economic interests of Clearway Energy LLC as of March 31, 2022.
The following table represents the structure of the Company as of September 30, 2017:March 31, 2022:
On July 12, 2017, NRG announced that it had adopted and initiated a three-year, three-part improvement plan, or the NRG Transformation Plan. As partBasis of the NRG Transformation Plan, NRG announced that it is exploring strategic alternatives for its renewables platform and its interest in the Company. NRG, through its holdings of Class B common stock and Class D common stock, has a 55.1% voting interest in the Company and receives distributions from NRG Yield LLC through its ownership of Class B units and Class D units. NRG stated that the strategic alternatives span a variety of ownership structures and partnership types, including the potential partial or full monetization of NRG's renewables platform and NRG's interest in the Company. NRG is the Company's controlling stockholder and the Company has been highly dependent on NRG for, among other things, growth opportunities and management and administration services. See Part I, Item 1A, Risk Factors in the Company's 2016 Form 10-K, as well as Part II, Item 1A, Risk Factors in the Company's Form 10-Q for the quarter ended June 30, 2017, for risks related to the NRG Transformation Plan and the Company's relationship with NRG.
As of September 30, 2017, the Company's operating assets are comprised of the following projects:
|
| | | | | | | | | | |
| Projects | | Percentage Ownership | | Net Capacity (MW)(a) | | Offtake Counterparty | | Expiration |
| Conventional | | | | | | | | |
| El Segundo | | 100 | % | | 550 |
| | Southern California Edison | | 2023 |
| GenConn Devon | | 50 | % | | 95 |
| | Connecticut Light & Power | | 2040 |
| GenConn Middletown | | 50 | % | | 95 |
| | Connecticut Light & Power | | 2041 |
| Marsh Landing | | 100 | % | | 720 |
| | Pacific Gas and Electric | | 2023 |
| Walnut Creek | | 100 | % | | 485 |
| | Southern California Edison | | 2023 |
| | | | | 1,945 |
| | | | |
| Utility Scale Solar | | | | | | | | |
| Agua Caliente | | 16 | % | | 46 |
| | Pacific Gas and Electric | | 2039 |
| Alpine | | 100 | % | | 66 |
| | Pacific Gas and Electric | | 2033 |
| Avenal | | 50 | % | | 23 |
| | Pacific Gas and Electric | | 2031 |
| Avra Valley | | 100 | % | | 26 |
| | Tucson Electric Power | | 2032 |
| Blythe | | 100 | % | | 21 |
| | Southern California Edison | | 2029 |
| Borrego | | 100 | % | | 26 |
| | San Diego Gas and Electric | | 2038 |
| CVSR | | 100 | % | | 250 |
| | Pacific Gas and Electric | | 2038 |
| Desert Sunlight 250 | | 25 | % | | 63 |
| | Southern California Edison | | 2035 |
| Desert Sunlight 300 | | 25 | % | | 75 |
| | Pacific Gas and Electric | | 2040 |
| Kansas South | | 100 | % | | 20 |
| | Pacific Gas and Electric | | 2033 |
| Roadrunner | | 100 | % | | 20 |
| | El Paso Electric | | 2031 |
| TA High Desert | | 100 | % | | 20 |
| | Southern California Edison | | 2033 |
Utah Solar Portfolio (b) (e) | | 50 | % | | 265 |
| | PacifiCorp | | 2036 |
| | | | | 921 |
| | | | |
| Distributed Solar | | | | | | | | |
| Apple I LLC Projects | | 100 | % | | 9 |
| | Various | | 2032 |
| AZ DG Solar Projects | | 100 | % | | 5 |
| | Various | | 2025 - 2033 |
| | | | | 14 |
| | | | |
| Wind | | | | | | | | |
| Alta I | | 100 | % | | 150 |
| | Southern California Edison | | 2035 |
| Alta II | | 100 | % | | 150 |
| | Southern California Edison | | 2035 |
| Alta III | | 100 | % | | 150 |
| | Southern California Edison | | 2035 |
| Alta IV | | 100 | % | | 102 |
| | Southern California Edison | | 2035 |
| Alta V | | 100 | % | | 168 |
| | Southern California Edison | | 2035 |
Alta X (b) | | 100 | % | | 137 |
| | Southern California Edison | | 2038 |
Alta XI (b) | | 100 | % | | 90 |
| | Southern California Edison | | 2038 |
| Buffalo Bear | | 100 | % | | 19 |
| | Western Farmers Electric Co-operative | | 2033 |
Crosswinds (b) (f) | | 99 | % | | 21 |
| | Corn Belt Power Cooperative | | 2027 |
Elbow Creek (b) (f) | | 100 | % | | 122 |
| | NRG Power Marketing LLC | | 2022 |
Elkhorn Ridge (b) (f) | | 66.7 | % | | 54 |
| | Nebraska Public Power District | | 2029 |
Forward (b) (f) | | 100 | % | | 29 |
| | Constellation NewEnergy, Inc. | | 2017 |
Goat Wind (b) (f) | | 100 | % | | 150 |
| | Dow Pipeline Company | | 2025 |
Hardin (b) (f) | | 99 | % | | 15 |
| | Interstate Power and Light Company | | 2027 |
| Laredo Ridge | | 100 | % | | 80 |
| | Nebraska Public Power District | | 2031 |
Lookout (b) (f) | | 100 | % | | 38 |
| | Southern Maryland Electric Cooperative | | 2030 |
|
| | | | | | | | | | |
| Projects | | Percentage Ownership | | Net Capacity (MW)(a) | | Offtake Counterparty | | Expiration |
Odin (b) (f) | | 99.9 | % | | 20 |
| | Missouri River Energy Services | | 2028 |
| Pinnacle | | 100 | % | | 55 |
| | Maryland Department of General Services and University System of Maryland | | 2031 |
San Juan Mesa (b) (f) | | 75 | % | | 90 |
| | Southwestern Public Service Company | | 2025 |
Sleeping Bear (b) (f) | | 100 | % | | 95 |
| | Public Service Company of Oklahoma | | 2032 |
| South Trent | | 100 | % | | 101 |
| | AEP Energy Partners | | 2029 |
Spanish Fork (b) (f) | | 100 | % | | 19 |
| | PacifiCorp | | 2028 |
Spring Canyon II (b) | | 90.1 | % | | 29 |
| | Platte River Power Authority | | 2039 |
Spring Canyon III (b) | | 90.1 | % | | 25 |
| | Platte River Power Authority | | 2039 |
| Taloga | | 100 | % | | 130 |
| | Oklahoma Gas & Electric | | 2031 |
Wildorado (b) (f) | | 100 | % | | 161 |
| | Southwestern Public Service Company | | 2027 |
| | | | | 2,200 |
| | | | |
| Thermal | | | | | | | | |
| NRG Dover Energy Center LLC | | 100 | % | | 103 |
| | NRG Power Marketing LLC | | 2018 |
| Thermal generation | | 100 | % | | 20 |
| | Various | | Various |
| | | | | 123 |
| | | | |
Total net generation capacity(c) | | | | 5,203 |
| | | | |
| | | | | | | | | |
Thermal equivalent MWt (d) | | 100 | % | | 1,319 |
| | Various | | Various |
(a) Net capacity represents the maximum, or rated, generating capacity of the facility multiplied by the Company's percentage ownership in the facility as of September 30, 2017.
(b) Projects are part of tax equity arrangements.
(c) The Company's total generation capacity is net of 6 MWs for noncontrolling interest for Spring Canyon II and III. The Company's generation capacity including this noncontrolling interest was 5,209 MWs.
(d) For thermal energy, net capacity represents MWt for steam or chilled water and excludes 134 MWt available under the right-to-use provisions contained in agreements between two of the Company's thermal facilities and certain of its customers.
(e) Represents interests in Four Brothers Solar, LLC, Granite Mountain Holdings, LLC, and Iron Springs Holdings, LLC, all acquired as part of the March 2017 Drop Down Assets (ownership percentage is based upon cash to be distributed).
(f) Projects are part of NRG Wind TE Holdco portfolio.
In addition to the facilities owned or leased in the table above, the Company entered into partnerships to own or purchase solar power generation projects, as well as other ancillary related assets from a related party via intermediate funds. The Company does not consolidate these partnerships and accounts for them as equity method investments. The Company's net interest in these projects is 226 MW based on cash to be distributed as of September 30, 2017. For further discussions, refer to Note 4, Investments Accounted for by the Equity Method and Variable Interest Entities of this Form 10-Q and Note 5, Investments Accounted for by the Equity Method and Variable Interest Entities to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 2017 Form 8-K.
Substantially all of the Company's generation assets are under long-term contractual arrangements for the output or capacity from these assets. The thermal assets are comprised of district energy systems and combined heat and power plants that produce steam, hot water and/or chilled water and, in some instances, electricity at a central plant. Certain district energy systems are subject to rate regulation by state public utility commissions (although they may negotiate certain rates) while the other district energy systems have rates determined by negotiated bilateral contracts.
As described in Note 3, Business Acquisitions, on August 1, 2017, the Company acquired the remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, referred to as the August 2017 Drop Down Assets, from NRG for total cash consideration of $44 million, including working capital adjustment of $3 million. The purchase agreement also included potential additional payments to NRG dependent upon actual energy prices for merchant periods beginning in 2027, which were estimated and accrued as contingent consideration in the amount of $8 million as of September 30, 2017. On March 27, 2017, the Company acquired the following interests from NRG, referred to as the March 2017 Drop Down Assets: (i) Agua Caliente Borrower 2 LLC, which owns a 16% interest in the Agua Caliente solar farm, one of the ROFO assets and (ii) NRG's interests in seven utility-scale solar farms located in Utah that were part of NRG's November 2, 2016 acquisition of projects from SunEdison, or the Utah Solar Portfolio. The Company paid total cash consideration of $130 million, plus a $2 million working capital adjustment, and assumed non-recourse debt of $328 million, which is consolidated, as well as its pro-rata share of non-recourse project-level debt of $135 million. The acquisition was funded with cash on hand.
The acquisitions of the August 2017 Drop Down Assets and March 2017 Drop Down Assets were accounted for as transfers of entities under common control. The accounting guidance requires retrospective combination of the entities for all periods presented as if the combinations had been in effect from the beginning of the financial statement period or from the date the entities were under common control (if later than the beginning of the financial statement period). In connection with the acquisition of the March 2017 Drop Down Assets, the Company filed the May 9, 2017 Form 8-K to recast the financial statements included in its 2016 Form 10-K for all periods presented in the following sections: Part II, Item 6. Selected Financial Data, Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and Part IV, Item 15. Exhibits, Financial Statement Schedules. The recast of the Company's financial statements for the August 2017 and March 2017 Drop Down Assets did not affect the historical net income attributable to NRG Yield, Inc.'s weighted average number of shares outstanding, earnings per share or dividends.Presentation
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the SEC’s regulations for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The following notes should be read in conjunction with the accounting policies and other disclosures as set forth in the notes to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 2017Company’s 2021 Form 8-K.10-K. Interim results are not necessarily indicative of results for a full year.
In the opinion of management, the accompanying unaudited interim consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company'sCompany’s consolidated financial position as of September 30, 2017,March 31, 2022, and the results of operations, comprehensive (loss) income (loss) and cash flows for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021.
Note 2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, andstatements. They also impact the reported amounts of revenues and expensesnet earnings during the reporting period.periods. Actual results could be different from these estimates.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the time of purchase. Cash and cash equivalents held at project subsidiaries was $95 million and $146 million as of March 31, 2022 and December 31, 2021, respectively.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the consolidated statements of cash flows:
| | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | (In millions) |
| Cash and cash equivalents | $ | 140 | | | $ | 179 | |
| Restricted cash | 326 | | | 475 | |
| Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | $ | 466 | | | $ | 654 | |
Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company’s projects that are restricted in their use. As of March 31, 2022, these restricted funds were comprised of $135 million designated to fund operating expenses, $38 million designated for current debt service payments and $135 million restricted for reserves including debt service, performance obligations and other reserves as well as capital expenditures. The remaining $18 million is held in distributions reserve accounts.
In 2020, the members of the partnerships holding the Oahu Solar and Kawailoa Solar projects submitted applications to the state of Hawaii for refundable tax credits based on the cost of construction of the projects. In 2021, the members of the partnerships contributed their respective portions of the tax credits in the amount of $49 million to the Oahu Solar and Kawailoa project companies, which was recorded to restricted cash on the Company’s consolidated balance sheet with an offsetting adjustment to noncontrolling interests. In accordance with the projects’ related agreements, the cash is held in a restricted account and utilized to offset invoiced amounts under the projects’ PPAs. As of March 31, 2022, $23 million of the $49 million has been utilized to offset invoiced amounts under the projects’ PPAs.
Accumulated Depreciation and Accumulated Amortization
The following table presents the accumulated depreciation included in the property, plant and equipment, net, and accumulated amortization included in intangible assets, net, respectively, as of September 30, 2017March 31, 2022 and December 31, 2016:2021:
| | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 |
| (In millions) |
| Property, Plant and Equipment Accumulated Depreciation | $ | 2,623 | | | $ | 2,501 | |
| Intangible Assets Accumulated Amortization | 646 | | | 605 | |
|
| | | | | | | |
| | September 30, 2017 | | December 31, 2016 |
| | (In millions) |
| Property, Plant and Equipment Accumulated Depreciation | $ | 1,189 |
| | $ | 951 |
|
| Intangible Assets Accumulated Amortization | 216 |
| | 163 |
|
Noncontrolling InterestsThe following table lists the dividends paid on the Company's Class A and Class C common stock during the three months ended March 31, 2022:
Stockholders' equity represents the equity associated with | | | | | | | | | | | | | |
| | | | | | | First Quarter 2022 |
| Dividends per Class A share | | | | | | | $ | 0.3468 | |
| Dividends per Class C share | | | | | | | 0.3468 | |
Dividends on the Class A and Class C common stockholders,stock are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the equity associated withforeseeable future.
On May 4, 2022, the Company declared quarterly dividends on its Class BA and Class DC common stockholder, NRG, and the third-party interests under certain tax equity arrangements are classifiedstock of $0.3536 per share payable on June 15, 2022 to stockholders of record as noncontrolling interests. The following table reflects the changes in the Company's noncontrolling interest balance:of June 1, 2022.
|
| | | |
| | (In millions) |
| Balance as of December 31, 2016 | $ | 689 |
|
| Capital contributions from tax equity investors, net of distributions | 11 |
|
| Payment for the March 2017 and August 2017 Drop Down Assets | (176 | ) |
| Pre-acquisition net income of Drop Down Assets | 18 |
|
| Comprehensive income | 19 |
|
| Distributions to NRG for Drop Down Assets, net of contributions | (47 | ) |
| August 2017 Drop Down Assets contingent consideration | (8 | ) |
| NRG Yield LLC distributions to NRG | (69 | ) |
| Balance as of September 30, 2017 | $ | 437 |
|
Distributions to NRG for Drop Down Assets, net of contributions
Distributions and contributions to and from NRG for Drop Down Assets relate primarily to NRG's interests in the August 2017 and March 2017 Drop Down Assets prior to the acquisition by the Company. This amount includes cash and non-cash distributions and includes a distribution to NRG from Agua Caliente Borrower 2 LLC following the issuance of the Agua Caliente Holdco financing, as described in Note 7, Long-term Debt.
NRG YieldClearway Energy LLC Distributions to NRGCEG
The following table lists the distributions paid to NRGCEG during the three months ended March 31, 2022 on NRG Yield LLC'sClearway Energy LLC’s Class B and D units during the nine months ended September 30, 2017:units:
|
| | | | | | | | | | | |
| | Third Quarter 2017 | | Second Quarter 2017 | | First Quarter 2017 |
| Distributions per Class B Unit | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
| Distributions per Class D Unit | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
| | | | | | | | | | | | | |
| | | | | | | First Quarter 2022 |
| Distributions per Class B Unit | | | | | | | $ | 0.3468 | |
| Distributions per Class D Unit | | | | | | | 0.3468 | |
On October 31, 2017, NRG YieldMay 4, 2022, Clearway Energy LLC declared a distribution on its Class A, Class B Class C and Class D units of $0.288$0.3536 per unit payable on DecemberJune 15, 20172022 to unit holders of record as of DecemberJune 1, 2017.2022.
Income TaxesRevenue Recognition
NRG Yield, Inc.Revenue from Contracts with Customers
The Company applies the guidance in ASC 606, Revenue from Contracts with Customers, orTopic 606, when recognizing revenue associated with its contracts with customers. The Company's policies with respect to its various revenue streams are detailed below. In general, the Company applies the invoicing practical expedient to recognize revenue for the revenue streams detailed below, except in circumstances where the invoiced amount does not represent the value transferred to the customer.
Thermal Revenues
Steam and chilled water revenue is includedrecognized as the Company transfers the product to the customer, based on customer usage as determined by meter readings taken at month-end. Some locations read customer meters throughout the month and recognize estimated revenue for the period between meter read date and month-end. For thermal contracts, the Company’s performance obligation to deliver steam and chilled water is satisfied over time and revenue is recognized based on the invoiced amount. The Thermal Business subsidiaries collect, and remit state and local taxes associated with sales to their customers, as required by governmental authorities. These taxes are presented on a net basis in the consolidated statements of operations.
As contracts for steam and chilled water are long-term contracts, the Company has performance obligations under these contracts that have not yet been satisfied. These performance obligations have transaction prices that are both fixed and variable, and that vary based on the contract duration, customer type, inception date and other contract-specific factors. For the fixed price contracts, the Company cannot accurately estimate the amount of its unsatisfied performance obligations as it will vary based on customer usage, which will depend on factors such as weather and customer activity.
On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR. For further details of the Thermal Disposition, refer to Note 3, Acquisitions and Dispositions.
Power Purchase Agreements, or PPAs
The majority of the Company’s revenues are obtained through PPAs or similar contractual agreements. Energy, capacity and where applicable, renewable attributes, from the majority of the Company’s renewable energy assets and certain NRG consolidated unitary state tax return filingsconventional energy plants is sold through long-term PPAs and tolling agreements to a single counterparty, which is reflectedoften a utility or commercial customer. The majority of these PPAs are accounted for as operating leases as the Company retained its historical lease assessments and classification upon adoption of ASC 842, Leases. ASC 842 requires the minimum lease payments received to be amortized over the term of the lease and contingent rentals are recorded when the achievement of the contingency becomes probable. Judgment is required by management in NRG Yield, Inc.'s state effective tax rate. If NRG Yield, Inc. fileddetermining the economic life of each generating facility, in evaluating whether certain lease provisions constitute minimum payments or represent contingent rent and other factors in determining whether a contract contains a lease and whether the lease is an operating lease or capital lease. Certain of these leases have no minimum lease payments and all of the rental income under these leases is recorded as contingent rent on an actual basis when the electricity is delivered.
Renewable Energy Credits, or RECs
Renewable energy credits, or RECs, are usually sold through long-term PPAs or through REC contracts with counterparties. Revenue from the sale of self-generated RECs is recognized when the related energy is generated and simultaneously delivered even in cases where there is a separate standalone methodology, there wouldcertification lag as it has been deemed to be an additional state tax expenseperfunctory.
In a bundled contract to sell energy, capacity and/or self-generated RECs, all performance obligations are deemed to be delivered at the same time and hence, timing of approximately $1 millionrecognition of revenue for all performance obligations is the same and occurs over time. In such cases, it is often unnecessary to allocate transaction price to multiple performance obligations.
Disaggregated Revenues
The following tables represent the Company’s disaggregation of revenue from contracts with customers along with the reportable segment for each category for the three months ended March 31, 2022 and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | | | | | Total |
Energy revenue (a) | $ | — | | | $ | 195 | | | $ | 37 | | | | | | | $ | 232 | |
Capacity revenue (a) | 114 | | | — | | | 14 | | | | | | | 128 | |
| Contract amortization | (6) | | | (36) | | | — | | | | | | | (42) | |
| Other revenue | — | | | 14 | | | 8 | | | | | | | 22 | |
| Mark-to-market for economic hedges | — | | | (126) | | | — | | | | | | | (126) | |
| Total operating revenues | 108 | | | 47 | | | 59 | | | | | | | 214 | |
| Less: Mark-to-market for economic hedges | — | | | 126 | | | — | | | | | | | 126 | |
| Less: Lease revenue | (114) | | | (162) | | | (1) | | | | | | | (277) | |
| Less: Contract amortization | 6 | | | 36 | | | — | | | | | | | 42 | |
| Total revenue from contracts with customers | $ | — | | | $ | 47 | | | $ | 58 | | | | | | | $ | 105 | |
| | | | | | | | | | | |
(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Total |
| Energy revenue | $ | — | | | $ | 162 | | | $ | 1 | | | $ | 163 | |
| Capacity revenue | 114 | | | — | | | — | | | 114 | |
| Total | $ | 114 | | | $ | 162 | | | $ | 1 | | | $ | 277 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2021 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | | | | | Total |
Energy revenue (a) | $ | 1 | | | $ | 126 | | | $ | 29 | | | | | | | $ | 156 | |
Capacity revenue (a) | 107 | | | — | | | 13 | | | | | | | 120 | |
| Contract amortization | (6) | | | (25) | | | (1) | | | | | | | (32) | |
| Other revenue | — | | | 9 | | | 8 | | | | | | | 17 | |
| Mark-to-market for economic hedges | — | | | (24) | | | — | | | | | | | (24) | |
| Total operating revenues | 102 | | | 86 | | | 49 | | | | | | | 237 | |
| Less: Mark-to-market for economic hedges | — | | | 24 | | | — | | | | | | | 24 | |
| Less: Lease revenue | (108) | | | (145) | | | (1) | | | | | | | (254) | |
| Less: Contract amortization | 6 | | | 25 | | | 1 | | | | | | | 32 | |
| Total revenue from contracts with customers | $ | — | | | $ | (10) | | | $ | 49 | | | | | | | $ | 39 | |
| | | | | | | | | | | |
(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Total |
| Energy revenue | $ | 1 | | | $ | 145 | | | $ | 1 | | | $ | 147 | |
| Capacity revenue | 107 | | | — | | | — | | | 107 | |
| Total | $ | 108 | | | $ | 145 | | | $ | 1 | | | $ | 254 | |
Contract Amortization
Assets and liabilities recognized from power sales agreements assumed through acquisitions relating to the sale of electric capacity and energy in future periods arising from differences in contract and market prices are amortized to revenue over the term of each underlying contract based on actual generation and/or contracted volumes or on a straight-line basis, where applicable.
Contract Balances
The following table reflects the contract assets and liabilities included on the Company’s consolidated balance sheets as of September 30, 2017 due to a change in the NRG Yield, Inc. state effective tax rate.March 31, 2022 and December 31, 2021:
Reclassifications | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | (In millions) |
| Accounts receivable, net - Contracts with customers | | $ | 32 | | | $ | 44 | |
| Accounts receivable, net - Leases | | 121 | | | 100 | |
| Total accounts receivable, net | | $ | 153 | | | $ | 144 | |
Certain prior-year amounts have been reclassified for comparative purposes.Recently Adopted Accounting Standards
Recent Accounting Developments
ASU 2017-12 — In August 2017,March 2020, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities, or ASU No. 2017-12. ASU No. 2017-12 amends ASU No. 2016-15.2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments of ASU No. 2016-15 were issuedprovide for optional expedients and exceptions for applying GAAP to simplify the application of hedge accounting guidance and more closely aligning financial reporting forcontracts, hedging relationships with economic results of an entity's risk management activities. The issues addressed by ASU No. 2017-12 include but are not limited to alignment of risk management activities and financial reporting, risk component hedging, accounting for the hedged item in fair value hedges of interest rate risk, recognition and presentation of the effects of hedging instruments, amounts excluded from the assessment of hedge effectiveness, and other simplificationstransactions affected by reference rate reform if certain criteria are met. These amendments apply only to contracts that reference LIBOR or another reference rate expected to be discontinued because of hedge accounting guidance. The amendments of ASU No. 2017-12 are effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted in any interim period and the effect of the adoption should be reflected as of the beginning of the fiscal year of adoption. The Company does not expect that the adoption of ASU No. 2017-12 will have a material impact on our consolidated results of operations, cash flows, and statement of financial position.
ASU 2016-18 — In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230), Restricted Cash, or ASU No. 2016-18. The amendments of ASU No. 2016-18 require an entity to include amounts generally described as restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. The amendments of ASU No. 2016-18 are effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted and the adoption of ASU No. 2016-18 will be applied retrospectively. The Company early adopted ASU No. 2016-18 during the second quarter of 2017. Net cash flows used in investing activities for the nine months ended September 30, 2016 decreased by $7 million. The sum of Company's cash and cash equivalents and restricted cash reported within the consolidated balance sheet as of December 31, 2016 equals the beginning balances of cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows for the nine months ended September 30, 2017. The sum of Company's cash and cash equivalents and restricted cash reported within the consolidated balance sheet as of September 30, 2017 equals to the ending balances of cash, cash equivalents and restricted cash shown in the consolidated statement of cash flows for the nine months ended September 30, 2017.
ASU 2016-02 — In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), or Topic 842, with the objective to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and to improve financial reporting by expanding the related disclosures. The guidance in Topic 842 provides that a lessee that may have previously accounted for a lease as an operating lease under current GAAP should recognize the assets and liabilities that arise from a lease on the balance sheet. In addition, Topic 842 expands the required quantitative and qualitative disclosures with regards to lease arrangements. The Company expects to adopt the standard effective January 1, 2019 utilizing the required modified retrospective approach for the earliest period presented. The Company expects to electreference rate reform, which affects certain of the practical expedients permitted, including the expedient that permitsCompany’s debt and interest rate swap agreements. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. As of March 31, 2022, the Company has applied the amendments to retainall of its existing lease assessmenteligible contract modifications, where applicable, during the reference rate reform period. Additionally, the Company has not elected any optional expedients provided in the standard.
Note 3 — Acquisitions and classification. TheDispositions
Mililani I Drop Down — On March 25, 2022, the Company, through its indirect subsidiary, Lighthouse Renewable Holdco LLC, acquired Mililani BL Borrower Holdco LLC, the indirect owner of the Mililani I solar project, a 39 MW solar project with 156 MWh of storage capacity that is currently working through an adoption plan and evaluating the anticipated impact on the Company's resultsunder construction, located in Oahu, Hawaii, from Clearway Renew LLC, a subsidiary of operations, cash flows and financial position. While the Company is currently evaluating the impact the new guidance will have on its financial position and results of operations, the Company expects to recognize lease liabilities and right of use assets. The extent of the increase to assets and liabilities associated with these amounts remains to be determined pending the Company’s review of its existing lease contracts and service contracts which may contain embedded leases. While this review is still in process, the Company believes the adoption of Topic 842 may be material to its financial statements.
ASU 2014-09 — In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU No. 2014-09, which was further amended through various updates issued by the FASB thereafter. The amendments of ASU No. 2014-09 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a five step model to be applied by an entity in evaluating its contracts with customers. The Company expects to adopt the standard effective January 1, 2018 and apply the guidance retrospectively to contracts at the date of adoption. The Company will recognize the cumulative effect of applying Topic 606 at the date of initial application, as prescribed under the modified retrospective transition method. The Company also expects to elect the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that corresponds directly with the value to the customer for performance completed to date by the entity. The majority of the Company's revenues are obtained through PPAs, which are currently accounted for as operating leases. In connection with the implementation of Topic 842, as described above, the Company expects to elect certain of the practical expedients permitted, including the expedient that permits the Company to retain its existing lease assessment and classification. As leases are excluded from the scope of Topic 606, the Company expects the standard to have an immaterial impact on the Company's results of operations, cash flows and financial position.
Note 3 — Business Acquisitions
2017 Acquisitions
November 2017 Drop Down Assets — On November 1, 2017, the Company acquired a 38 MW solar portfolio primarily comprised of assets from NRG's Solar Power Partners (SPP) funds and other projects developed by NRG,CEG, for cash consideration of $71$22 million. Lighthouse Renewable Holdco LLC is a partnership between the Company and a third-party investor. The third-party investor also contributed cash consideration of $14 million excluding working capital adjustments, plus assumed non-recourse debtutilized to acquire their portion of $26 million. Asthe acquired entity. Mililani BL Borrower Holdco LLC consolidates, as the direct owner of September 30, 2017, the November 2017 Drop Down Assets' debt was $33 million, ofprimary beneficiary, a tax equity fund, Mililani TE Holdco LLC, which $7 million was paiddirectly holds the Mililani I solar project, as further described in Note 4, Investments Accounted for by NRGthe Equity Method and Variable Interest Entities. Mililani I has a 20-year power purchase agreement with an investment-grade utility that commences when the project achieves commercial operations. The Mililani I operations are reflected in October 2017.
The purchase price for the November 2017 Drop Down AssetsCompany’s Renewables segment and the acquisition was funded with cashexisting sources of liquidity. The acquisition was determined to be an asset acquisition and the Company consolidates Mililani I on hand.a prospective basis in its financial statements. The assets and liabilities transferred to the Company relate to interests under common control by NRGGIP and were recorded at historical cost in accordance with ASC 805-50, Business Combinations - Related Issues. The difference betweensum of the cash paid of $22 million and the historical valuecost of the entities' equityCompany’s net liabilities assumed of $8 million was recorded as a distributionan adjustment to NRG and reducedCEG’s noncontrolling interest balance. In addition, the balance of its noncontrolling interest. Because the transaction constituted a transfer of net assets under common control, the guidance requires retrospective combinationCompany reflected $15 million of the entities for all periods presentedCompany’s purchase price, which was contributed back by CEG to pay down the acquired long-term debt, as ifdistributions to CEG, net of contributions, in the combination has been in effect since the inceptionconsolidated statement of common control.stockholders’ equity.
The following is a summary of assets and liabilities transferred in connection with the acquisition of the November 2017 Drop Down Assets as of September 30, 2017:
|
| | | |
| | (In millions) |
| Assets: | |
| Current assets | $ | 11 |
|
| Property, plant and equipment | 84 |
|
| Non-current assets | 32 |
|
| Total assets | 127 |
|
| Liabilities: | |
Debt (Current and non-current) (a) | 31 |
|
| Other current and non-current liabilities | 3 |
|
| Total liabilities assumed | 34 |
|
| Net assets acquired | $ | 93 |
|
|
| | | | | | | |
| (In millions) | | Mililani I |
| Other current and non-current assets | | $ | 2 | |
| Property, plant and equipment | | 118 | |
| Right-of-use-assets | | 19 | |
| | |
| Total assets acquired | | 139 | |
| | |
Long-term debt (a) | | 100 | |
| Long-term lease liabilities | | 20 | |
| Other current and non-current liabilities | | 27 | |
| | |
| Total liabilities assumed | | 147 | |
| | |
| Net liabilities assumed | | $ | (8) | |
(a)NetIncludes a $16 million construction loan, $27 million sponsor equity bridge loan and $60 million tax equity bridge loan, offset by $3 million in unamortized debt issuance costs. The sponsor equity bridge loan was repaid at acquisition date utilizing $14 million from the cash equity investor, as well as $15 million of the Company's purchase price, which was contributed back to the Company by CEG, of which $27 million was utilized to pay down the acquired long-term debt and $2 million of net debt issuance costs.
Supplemental Pro Forma Information
As described above,was utilized to pay associated fees. Also at acquisition date, the tax equity investor contributed $18 million into escrow, which is included in restricted cash on the Company's acquisitionconsolidated balance sheet at March 31, 2022. The tax equity investor will contribute an additional $42 million when the project reaches substantial completion, which will be utilized, along with the $18 million in escrow, to repay the $60 million tax equity bridge loan. The project is expected to achieve commercial operations in the second half of 2022.
Thermal Disposition — On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR for net proceeds of approximately $1.46 billion, inclusive of working capital, which excludes approximately $20 million in transaction expenses that were incurred in connection with the disposition. The Company estimates that the Thermal Disposition will result in a gain of approximately $1.31 billion. Effective with the approval by the Board of Directors and signing of the November 2017 Drop Down Assets was accounted for as a transfer of entities under common control. The following unaudited supplemental pro forma information representsagreement to sell the consolidated results of operations as ifThermal Business on October 22, 2021, the Company acquiredconcluded that all entities that are included within the November 2017 Drop Down AssetsThermal Business will be treated as held for sale on January 1, 2016, includinga prospective basis, thus the impact of acquisition accounting with respect to NRG's acquisition of the projects. All net income or losses prior to the Company's acquisition of the projects is reflected as attributable to NRG and, accordingly, no pro forma impact to earnings per Class A and Class C common share was calculated.
|
| | | | | | | | | | | | | | | |
| | For the three months ended | | For the nine months ended |
| | September 30, 2017 | | September 30, 2016 | | September 30, 2017 | | September 30, 2016 |
| | | | | | | | |
| Total operating revenues | $ | 269 |
| | $ | 275 |
| | $ | 777 |
| | $ | 798 |
|
| Net income | 19 |
| | 52 |
| | 65 |
| | 119 |
|
August 2017 Drop Down Assets — On August 1, 2017, the Company acquired the remaining 25% interest in NRG Wind TE Holdco, a portfolio of 12 wind projects, from NRG for total cash consideration of $44 million, including working capital adjustment of $3 million. The purchase agreement also included potential additional payments to NRG dependent upon actual energy prices for merchant periods beginning in 2027, which were estimated and accrued as contingent consideration in the amount of $8 million as of September 30, 2017.
The Company originally acquired 75% of NRG Wind TE Holdco on November 3, 2015, or November 2015 Drop Down Assets, which were consolidated with 25% of the net assets recorded as noncontrolling interest. The assets and liabilities transferred towere reported as separate held for sale line items on the Company related to interests under common control by NRGCompany’s consolidated balance sheets as of March 31, 2022 and were recorded at historical cost in accordance with ASC 805-50, Business Combination - Related Issues. December 31, 2021. As the Company had reflected NRG's 25% ownership of NRG Wind TE Holdco in noncontrolling interest, the difference between the cash paidMarch 31, 2022, property, plant and equipment represented 76% and intangible assets represented 9% of $44 million, netassets classified as held for sale while long-term debt represented 83% of liabilities classified as held for sale. As of December 31, 2021, property, plant and equipment represented 78% and intangible assets represented 9% of assets classified as held for sale while long-term debt represented 85% of liabilities classified as held for sale. The Company’s Thermal segment is comprised solely of the contingent considerationThermal Business's results of $8 million, and the historical value of the remaining 25% of $87 million as of July 31, 2017, was recorded as an adjustment to NRG's noncontrolling interest. Since the transaction constituted a transfer of entities under common control, the accounting guidance requires retrospective combination of the entities for all periods presented as if the combination has been in effect from the beginning of the financial statement period or from the date the entities were under common control (if later than the beginning of the financial statement period).operations.
March 2017 Drop Down Assets — On March 27, 2017, the Company acquired the following interests from NRG: (i) Agua Caliente Borrower 2 LLC, which owns a 16% interest (approximately 31% of NRG's 51% interest) in the Agua Caliente solar farm, one of the ROFO Assets, representing ownership of approximately 46 net MW of capacity and (ii) NRG's interests in the Utah Solar Portfolio. Agua Caliente is located in Yuma County, AZ and sells power subject to a 25-year PPA with Pacific Gas and Electric, with 22 years remaining on that contract. The seven utility-scale solar farms in the Utah Solar Portfolio are owned by the following entities: Four Brothers Capital, LLC, Iron Springs Capital, LLC, and Granite Mountain Capital, LLC. These utility-
scale solar farms achieved commercial operations in 2016, sell power subject to 20-year PPAs with PacifiCorp, a subsidiary of Berkshire Hathaway and are part of a tax equity structure with Dominion Solar Projects III, Inc., or Dominion, through which the Company is entitled to receive 50% of cash to be distributed, as further described below. The Company paid cash consideration of $130 million, plus $2 million of working capital paid through September 30, 2017. The acquisition of the March 2017 Drop Down Assets was funded with cash on hand. The Company recorded the acquired interests as equity method investments. The Company also assumed non-recourse debt of $41 million and $287 million on Agua Caliente Borrower 2 LLC and the Utah Solar Portfolio, respectively, as further described in Note 7, Long-term Debt, as well as its pro-rata share of non-recourse project-level debt of Agua Caliente Solar LLC, as further described in Note 4 — Investments Accounted for by the Equity Method and Variable Interest Entities.
The assets and liabilities transferred to the Company relate to interests under common control by NRG and were recorded at historical cost in accordance with ASC 805-50, Business Combination - Related Issues. The difference between the cash paid and the historical value of the entities' equity of $8 million was recorded as an adjustment to NRG's noncontrolling interest. Since the transaction constituted a transfer of entities under common control, the accounting guidance requires retrospective combination of the entities for all periods presented as if the combination has been in effect from the beginning of the financial statement period or from the date the entities were under common control (if later than the beginning of the financial statement period). Accordingly, in connection with the retrospective adjustment of prior periods, the Company adjusted its financial statements to reflect its results of operations, financial position and cash flows as if it recorded its interests in the Agua Caliente Borrower 2 LLC on January 1, 2016, and its interests in the Utah Solar Portfolio on November 2, 2016.
The following is a summary of assets and liabilities transferred in connection with the acquisition of the March 2017 Drop Down Assets as of March 27, 2017:
|
| | | |
| | (In millions) |
| Assets: | |
| Cash | $ | 6 |
|
| Equity investment in projects | 456 |
|
| Total assets acquired | 462 |
|
| Liabilities: | |
Debt (Current and non-current) (a) | 320 |
|
| Other current and non-current liabilities | 3 |
|
| Total liabilities assumed | 323 |
|
| Net assets acquired | $ | 139 |
|
(a)Net of $8 million of debt issuance costs.
The following tables present a summary of the Company's historical information combining the financial information for the March 2017 Drop Down Assets transferred in connection with the acquisition:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2016 | | Nine months ended September 30, 2016 |
| | As Previously Reported | | March 2017 Drop Down Assets | | As Currently Reported | | As Previously Reported | | March 2017 Drop Down Assets | | As Currently Reported |
| (In millions) | �� | | | | | | | | | | |
| Total operating revenues | $ | 272 |
| | $ | — |
| | $ | 272 |
| | $ | 789 |
| | $ | — |
| | $ | 789 |
|
| Operating income | 117 |
| | — |
| | 117 |
| | 317 |
| | — |
| | 317 |
|
| Net income | 47 |
| | 3 |
| | 50 |
| | 111 |
| | 5 |
| | 116 |
|
2016 Acquisitions
CVSR Drop Down — Prior to September 1, 2016, the Company had a 48.95% interest in CVSR, which was accounted for as an equity method investment.On September 1, 2016, the Company acquired from NRG the remaining 51.05% interest of CVSR Holdco LLC, which indirectly owns the CVSR solar facility, for total cash consideration of $78.5 million plus an immaterial working capital adjustment. The Company also assumed additional debt of $496 million, which represents 51.05% of the CVSR project level debt and 51.05% of the notes issued under the CVSR Holdco Financing Agreement, as of the closing date, as further
described in Note 10, Long-term Debt, to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 2017 Form 8-K. The acquisition was funded with cash on hand.
The assets and liabilities transferred to the Company relate to interests under common control by NRG and were recorded at historical cost in accordance with ASC 805-50, Business Combinations - Related Issues. The difference between the cash paid and historical value of the CVSR Drop Down of $112 million, as well as $6 million of AOCL, was recorded as a distribution to NRG with the offset to noncontrolling interest. Because the transaction constituted a transfer of net assets under common control, the guidance requires retrospective combination of the entities for all periods presented as if the combination has been in effect since the inception of common control. In connection with the retrospective adjustment of prior periods, the Company now consolidates CVSR and 100% of its debt, consisting of $771 million of project level debt and $200 million of notes issued under the CVSR Holdco Financing Agreement as of September 1, 2016. In connection with the retrospective adjustment of prior periods, the Company has removed the equity method investment from all prior periods and adjusted its financial statements to reflect its results of operations, financial position and cash flows as if it had consolidated CVSR from the beginning of the financial statement period.
Note 4 — Investments Accounted for by the Equity Method and Variable Interest Entities
Entities that are Consolidated
The Company has a controlling financial interest in certain entities which have been identified as VIEs under ASC 810, Consolidations, or ASC 810. These arrangements are primarily related to tax equity arrangements entered into with third parties in order to monetize certain tax credits associated with wind and solar facilities, as further described inunder Item 15 — Note 5, Investments Accounted for by the Equity Method and Variable Interest Entities, to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 20172021 Form 8-K.10-K.
Summarized financial information for the Company's consolidated VIEs consisted of the following as of September 30, 2017:March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Alta TE Holdco | | Buckthorn Renewables, LLC | | DGPV Funds(a) | | Kawailoa Partnership | | Langford TE Partnership LLC | | Lighthouse Renewable Holdco LLC(b) | | Lighthouse Renewable Holdco 2 LLC(c) |
| Other current and non-current assets | $ | 53 | | | $ | 4 | | | $ | 84 | | | $ | 39 | | | $ | 15 | | | $ | 112 | | | $ | 67 | |
| Property, plant and equipment | 325 | | | 200 | | | 592 | | | 133 | | | 131 | | | 726 | | | 374 | |
| Intangible assets | 209 | | | — | | | 15 | | | — | | | 2 | | | — | | | — | |
| Total assets | 587 | | | 204 | | | 691 | | | 172 | | | 148 | | | 838 | | | 441 | |
| Current and non-current liabilities | 38 | | | 10 | | | 75 | | | 96 | | | 47 | | | 302 | | | 132 | |
| Total liabilities | 38 | | | 10 | | | 75 | | | 96 | | | 47 | | | 302 | | | 132 | |
| Noncontrolling interest | 18 | | | 40 | | | 5 | | | 50 | | | 63 | | | 432 | | | 236 | |
| Net assets less noncontrolling interests | $ | 531 | | | $ | 154 | | | $ | 611 | | | $ | 26 | | | $ | 38 | | | $ | 104 | | | $ | 73 | |
(a)DGPV Funds is comprised of DGPV Fund 2 LLC, Clearway & EFS Distributed Solar LLC, DGPV Fund 4 LLC, Golden Puma Fund LLC, Renew Solar CS4 Fund LLC and Chestnut Fund LLC.
(b ) Lighthouse Renewable Holdco LLC consolidates Mesquite Star Tax Equity Holdco LLC, Black Rock TE Holdco LLC and Mililani TE Holdco LLC, which are also consolidated VIEs.
(c)Lighthouse Renewable Holdco 2 LLC consolidates Mesquite Sky TE Holdco LLC, which is also a consolidated VIE.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In millions) | Oahu
Solar Partnership | | Pinnacle Repowering Partnership LLC | | Rattlesnake TE Holdco LLC | | Rosie TargetCo LLC | | Wildorado TE Holdco | | Other (a) |
| Other current and non-current assets | $ | 46 | | | $ | 11 | | | $ | 15 | | | $ | 26 | | | $ | 18 | | | $ | 17 | |
| Property, plant and equipment | 170 | | | 106 | | | 191 | | | 248 | | | 221 | | | 165 | |
| Intangible assets | — | | | 18 | | | — | | | — | | | — | | | 1 | |
| Total assets | 216 | | | 135 | | | 206 | | | 274 | | | 239 | | | 183 | |
| Current and non-current liabilities | 107 | | | 4 | | | 16 | | | 98 | | | 18 | | | 57 | |
| Total liabilities | 107 | | | 4 | | | 16 | | | 98 | | | 18 | | | 57 | |
| Noncontrolling interest | 32 | | | 81 | | | 97 | | | 138 | | | 121 | | | 82 | |
| Net assets less noncontrolling interests | $ | 77 | | | $ | 50 | | | $ | 93 | | | $ | 38 | | | $ | 100 | | | $ | 44 | |
(a)Other is comprised of Crosswind Transmission, LLC, Hardin Hilltop Wind LLC, Elbow Creek TE Holdco and Spring Canyon TE Holdco projects.
The discussion below describes material changes to VIEs during the three months ended March 31, 2022.
Lighthouse Renewable Holdco LLC — As described in Note 3, Acquisitions and Dispositions, on March 25, 2022, Lighthouse Renewable Holdco LLC acquired the Class B interests in a partnership, Mililani BL Borrower Holdco LLC, which consolidates, as the direct owner of the primary beneficiary, a tax equity fund, Mililani TE Holdco LLC, that holds the Mililani I solar project. The tax equity investor’s interest is shown as noncontrolling interest and the HLBV method is utilized to allocate the income or losses of Mililani TE Holdco LLC. The third-party investor in Lighthouse Renewable Holdco LLC also acquired and contributed an interest in Mililani BL Borrower Holdco LLC to Lighthouse Renewable Holdco LLC. The Company recorded the related noncontrolling interest at historical carrying amount, with the offset to contributed capital.
|
| | | | | | | | | | | |
| (In millions) | NRG Wind TE Holdco | | Alta Wind TE Holdco | | Spring Canyon |
| Other current and non-current assets | $ | 175 |
| | $ | 17 |
| | $ | 4 |
|
| Property, plant and equipment | 417 |
| | 443 |
| | 96 |
|
| Intangible assets | 2 |
| | 265 |
| | — |
|
| Total assets | 594 |
| | 725 |
| | 100 |
|
| Current and non-current liabilities | 206 |
| | 9 |
| | 6 |
|
| Total liabilities | 206 |
| | 9 |
| | 6 |
|
| Noncontrolling interest | 22 |
| | 96 |
| | 63 |
|
| Net assets less noncontrolling interests | $ | 366 |
| | $ | 620 |
| | $ | 31 |
|
Entities that are not Consolidated
The Company has interests in entities that are considered VIEs under ASC 810, but for which it is not considered the primary beneficiary. The Company accounts for its interests in these entities and entities in which it has a significant investment under the equity method of accounting, as further described inunder Item 15 — Note 5, Investments Accounted for by the Equity Method and Variable Interest Entities, to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 20172021 Form 8-K.
10-K.
The Company'sCompany’s maximum exposure to loss as of September 30, 2017March 31, 2022 is limited to its equity investment in the unconsolidated entities, as further summarized in the table below:
| | | | | | | | |
| Name | Economic Interest | Investment Balance |
| | (In millions) |
| Avenal | 50% | $ | 3 | |
| Desert Sunlight | 25% | 237 | |
| Elkhorn Ridge | 67% | 28 | |
GenConn (a) | 50% | 84 | |
| San Juan Mesa | 75% | 22 | |
| | |
| | $ | 374 | |
(a) GenConn is a variable interest entity.
|
| | | |
| (In millions) | Maximum exposure to loss |
| Four Brothers Solar, LLC | $ | 221 |
|
| Granite Mountain Holdings, LLC | 81 |
|
| Iron Springs Holdings, LLC | 56 |
|
| GenConn Energy LLC | 102 |
|
| NRG DGPV Holdco 1 LLC | 71 |
|
| NRG RPV Holdco 1 LLC | 65 |
|
| NRG DGPV Holdco 2 LLC | 54 |
|
| NRG DGPV Holdco 3 LLC | 20 |
|
NRG DGPV Holdco 2 LLC— The Company contributed $37 million into NRG DGPV Holdco 2 LLC, or DGPV Holdco 2 during the nine months ended September 30, 2017, with an additional $2 million due to NRG in accounts payable — affiliate as of September 30, 2017, to be funded in tranches as the project milestones are completed. The Company co-owns approximately 107 MW of distributed solar capacity, based on cash to be distributed, with a weighted average contract life of approximately 21 years as of September 30, 2017.
On October 12, 2017, the Company and NRG amended the DGPV Holdco 2 partnership agreement to increase the aggregate commitment of $50 million to $60 million in order to accommodate funding of additional projects.
NRG DGPV Holdco 3 LLC— On September 26, 2017, the Company entered into an additional partnership with NRG by forming NRG DGPV Holdco 3 LLC, or DGPV Holdco 3, in which the Company would invest up to $50 million in an operating portfolio of distributed solar assets, primarily comprised of community solar projects, developed by NRG. The Company invested $4 million during September 2017 with an additional $16 million due to NRG in accounts payable - affiliate as of September 30, 2017, to be funded in tranches as the project milestones are completed. The Company co-owns approximately 33 MW of distributed solar capacity, based on cash to be distributed, with a weighted average contract life of approximately 20 years as of September 30, 2017.
Utah Solar Portfolio — As described in Note 3, Business Acquisitions, on March 27, 2017, as part of the March 2017 Drop Down Assets acquisition, the Company acquired from NRG 100% of the Class A equity interests in the Utah Solar Portfolio, comprised of Four Brothers Solar, LLC, Granite Mountain Holdings, LLC, and Iron Springs Holdings, LLC. The Class B interests of the Utah Solar Portfolio are owned by a tax equity investor, or TE Investor, who receives 99% of allocations of taxable income and other items until the flip point, which occurs when the TE Investor obtains a specified return on its initial investment, at which time the allocations to the TE Investor change to 50%. The Company generally receives 50% of distributable cash throughout the term of the tax-equity arrangements. The three entities comprising the Utah Solar Portfolio are VIEs. As the Company is not the primary beneficiary, the Company uses the equity method of accounting to account for its interests in the Utah Solar Portfolio. The Company utilizes the HLBV method to determine its share of the income or losses in the investees.
The following tables present summarized financial information for the Utah Solar Portfolio:
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (In millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| Income Statement Data: | | | | | | | | |
| Utah Solar Portfolio | | | | | | | | |
| Operating revenues | | $ | 23 |
| | $ | — |
| | $ | 60 |
| | $ | — |
|
| Operating income | | 9 |
| | — |
| | 17 |
| | — |
|
| Net income | | 9 |
| | — |
| | 17 |
| | — |
|
| | | September 30, 2017 | | December 31, 2016 |
| Balance Sheet Data: | | (In millions) |
| Utah Solar Portfolio | | | | |
| Current assets | | $ | 25 |
| | $ | 20 |
|
| Non-current assets | | 1,091 |
| | 1,105 |
|
| Current liabilities | | 9 |
| | 14 |
|
| Non-current liabilities | | 21 |
| | 38 |
|
Non-recourse project-level debt of unconsolidated affiliates
Agua Caliente Financing— As described in Note 3, Business Acquisitions, the Company acquired a 16% interest in the Agua Caliente solar facility through its acquisition of Agua Caliente Borrower 2 LLC. As of September 30, 2017, Agua Caliente Solar LLC, the direct owner of the Agua Caliente solar facility, had $833 million outstanding under the Agua Caliente financing agreement with the Federal Financing Bank, or FFB, borrowed to finance the costs of constructing the facility. The Company's pro-rata share of the Agua Caliente financing arrangement was $133 million as of September 30, 2017. Amounts borrowed under the Agua Caliente financing agreement accrue interest at a fixed rate based on U.S. Treasury rates plus a spread of 0.375%, mature in 2037 and are secured by the assets of Agua Caliente Solar LLC. The loans provided by the FFB are guaranteed by the U.S. DOE.
Note 5 — Fair Value of Financial Instruments
Fair Value Accounting under ASC 820
ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:
•Level 1—quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.
•Level 2—inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.
•Level 3—unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.
In accordance with ASC 820, the Company determines the level in the fair value hierarchy within which each fair value measurement in its entirety falls, based on the lowest level input that is significant to the fair value measurement.
For cash and cash equivalents, restricted cash, accounts receivable accounts receivable — affiliate,trade, accounts payable current portion of the— trade, accounts payable — affiliates and accrued expenses and other current liabilities, the carrying amounts approximate fair value because of the short-term maturity of those instruments and are classified as Level 1 within the fair value hierarchy.
The estimated carrying amounts and estimated fair values of the Company’s recorded financial instruments not carried at fair market value or that do not approximate fair value are as follows:
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (In millions) | |
| Assets: | | | | | | | |
Notes receivable (a) | $ | 18 |
| | $ | 18 |
| | $ | 30 |
| | $ | 30 |
|
| Liabilities: | | | | | | | |
Long-term debt, including current portion (b) | $ | 5,881 |
| | $ | 5,942 |
| | $ | 6,057 |
| | $ | 6,056 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| (In millions) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Long-term debt, including current portion (a) | $ | 7,822 | | | $ | 7,644 | | | $ | 7,782 | | | $ | 7,997 | |
(a) Includes the long-term portion of notes receivable, which is recorded in other noncurrent assets on the Company's consolidated balance sheets.
(b) Excludes deferred financingnet debt issuance costs, which are recorded as a reduction to long-term debt on the Company's consolidated balance sheets.
The fair value of the Company's publicly-traded long-term debt is based on quoted market prices and is classified as Level 2 within the fair value hierarchy. The fair value of debt securities, non-publicly traded long-term debt and certain notes receivable of the Company are based on expected future cash flows discounted at market interest rates, or current interest rates for similar instruments with equivalent credit quality and are classified as Level 3 within the fair value hierarchy. The following table presents the level within the fair value hierarchy for long-term debt, including current portion as of September 30, 2017March 31, 2022 and December 31, 2016:2021:
|
| | | | | | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Level 2 | | Level 3 | | Level 2 | | Level 3 |
| | (In millions) |
| Long-term debt, including current portion | $ | 1,525 |
| | $ | 4,417 |
| | $ | 1,455 |
| | $ | 4,601 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| As of March 31, 2022 | | As of December 31, 2021 |
| Level 2 | | Level 3 | | Level 2 | | Level 3 |
| | (In millions) |
| Long-term debt, including current portion | $ | 2,041 | | | $ | 5,603 | | | $ | 2,159 | | | $ | 5,838 | |
Recurring Fair Value Measurements
The Company records its derivative assets and liabilities at fair market value on its consolidated balance sheet. The following table presents assets and liabilities measured and recorded at fair value on the Company's consolidated balance sheets on a recurring basis and their level within the fair value hierarchy:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | As of March 31, 2022 | | As of December 31, 2021 |
| | | Fair Value (a) | | Fair Value (a) |
| (In millions) | | | Level 2 | | Level 3 | | | | Level 2 | | Level 3 | | |
| Derivative assets: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Interest rate contracts | | | $ | 18 | | | $ | — | | | | | $ | 6 | | | $ | — | | | |
Other financial instruments (b) | | | — | | | 24 | | | | | — | | | 25 | | | |
| Total assets | | | $ | 18 | | | $ | 24 | | | | | $ | 6 | | | $ | 25 | | | |
| Derivative liabilities: | | | | | | | | | | | | | |
| Commodity contracts | | | $ | — | | | $ | 304 | | | | | $ | — | | | $ | 179 | | | |
| Interest rate contracts | | | 19 | | | — | | | | | 63 | | | — | | | |
| Total liabilities | | | $ | 19 | | | $ | 304 | | | | | $ | 63 | | | $ | 179 | | | |
|
| | | | | | | | | | | |
| | As of September 30, 2017 | | As of December 31, 2016 |
| | Fair Value (a) | | Fair Value (a) | | Fair Value (a) |
| (In millions) | Level 2 | | Level 1 | | Level 2 |
| Derivative assets: | | | | | |
| Commodity contracts | $ | — |
| | $ | 1 |
| | $ | 1 |
|
| Interest rate contracts | — |
| | — |
| | 1 |
|
| Total assets | — |
| | 1 |
| | 2 |
|
| Derivative liabilities: | | | | | |
| Commodity contracts | 2 |
| | — |
| | 1 |
|
| Interest rate contracts | 64 |
| | — |
| | 75 |
|
| Total liabilities | $ | 66 |
| | $ | — |
| | $ | 76 |
|
(a) There were no derivative assets classified as Level 1 or Level 3 and no liabilities classified as Level 1 as of September 30, 2017. There were no derivative assets or liabilities classified as Level 3 as of September 30, 2017March 31, 2022 and December 31, 2016.2021.
(b) SREC contract.
The following table reconciles the beginning and ending balances for instruments that are recognized at fair value in the consolidated financial statements using significant unobservable inputs:
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
| (In millions) | | | | Fair Value Measurement Using Significant Unobservable Inputs (Level 3) |
| Beginning balance | | | | | | $ | (154) | | | $ | (15) | |
| Total losses for the period included in earnings | | | | | | (111) | | | (24) | |
| Additions due to loss of NPNS exception | | | | | | (21) | | | — | |
| Settlements | | | | | | 6 | | | — | |
| Ending balance | | | | | | $ | (280) | | | $ | (39) | |
| Change in unrealized losses included in earnings for derivatives and other financial instruments held as of March 31, 2022 | | | | | | $ | (111) | | | 0 |
Derivative and Financial Instruments Fair Value Measurements
The Company's contracts are non-exchange-traded and valued using prices provided by external sources. For the Company’sThe Company uses quoted observable forward prices to value its energy markets, management receives quotes from multiple sources.contracts. To the extent that multiple quotesobservable forward prices are received,not available, the quoted prices reflect the average of the bid-ask mid-pointforward prices obtained from all sources believedthe prior year, adjusted for inflation. As of March 31, 2022, contracts valued with prices provided by models and other valuation techniques make up 94% of derivative liabilities and 100% of other financial instruments.
The Company’s significant positions classified as Level 3 include physical commodity contracts executed in illiquid markets. The significant unobservable inputs used in developing fair value include illiquid power tenors and location pricing, which is derived by extrapolating pricing as a basis to provideliquid locations. The tenor pricing and basis spread are based on observable market data when available or derived from historic prices and forward market prices from similar observable markets when not available.
The following table quantifies the most liquid market forsignificant unobservable inputs used in developing the commodity.fair value of the Company's Level 3 positions as of March 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 |
| Fair Value | | Input/Range |
| Assets | Liabilities | Valuation Technique | Significant Unobservable Input | Low | High | Weighted Average |
| (In millions) | | | | | |
| Commodity Contracts | $ | — | | $ | 304 | | Discounted Cash Flow | Forward Market Price (per MWh) | $ | 17.33 | | $ | 95.02 | | $ | 34.22 | |
| Other Financial Instruments | 24 | | — | | Discounted Cash Flow | Forecast annual generation levels of certain DG solar facilities | 80,872 MWh | 129,913 MWh | 124,783 MWh |
The following table provides the impact on the fair value measurements to increases/(decreases) in significant unobservable inputs as of March 31, 2022:
| | | | | | | | | | | |
| Significant Observable Input | Position | Change In Input | Impact on Fair Value Measurement |
| Forward Market Price Power | Buy | Increase/(Decrease) | Higher/(Lower) |
| Forward Market Price Power | Sell | Increase/(Decrease) | Lower/(Higher) |
| Forecast Generation Levels | Sell | Increase/(Decrease) | Higher/(Lower) |
The fair value of each contract is discounted using a risk freerisk-free interest rate. In addition, a credit reserve is applied to reflect credit risk, which is, for interest rate swaps, calculated based on credit default swaps using the bilateral method. For commodities, to the extent that the net exposureNet Exposure under a specific master agreement is an asset, the Company uses the counterparty’s default swap rate. If the net exposureNet Exposure under a specific master agreement is a liability, the Company uses NRG'sa proxy of its own default swap rate. For interest rate swaps and commodities, the credit reserve is added to the discounted fair value to reflect the exit price that a market participant would be willing to receive to assume the liabilities or that a market participant would be willing to pay for the assets. As of September 30, 2017,March 31, 2022, the creditnon-performance reserve resultedwas a $32 million gain recorded primarily to total operating revenues in a $1 million increase in fair value in interest expense.the consolidated statement of operations. It is possible that future market prices could vary from those used in recording assets and liabilities and such variations could be material.
Concentration of Credit Risk
In addition to the credit risk discussion inas disclosed under Item 15 — Note 2, Summary of Significant Accounting Policies, to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 2017Company’s 2021 Form 8-K,10-K, the following item is a discussion of the concentration of credit risk for the Company's financial instruments. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; (ii) daily monitoring of counterparties' credit limits;limits on as needed basis; (iii) as applicable, the use of credit mitigation measures such as margin, collateral, prepayment arrangements, or volumetric limits; (iv) the use of payment netting agreements; and (v) the use of master netting agreements that allow for the netting of positive and negative exposures of various contracts associated with a single counterparty. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties.
Counterparty credit exposure includes credit risk exposure under certain long-term agreements, including solar and other PPAs. As external sources or observable market quotes are not available to estimate such exposure, the Company estimates the exposure related to these contracts based on various techniques including, but not limited to, internal models based on a fundamental analysis of the market and extrapolation of observable market data with similar characteristics. Based on these valuation techniques, as of September 30, 2017, credit risk exposure to these counterparties attributable to the Company's ownership interests was approximately $2.9 billion for the next five years. The majorityA significant portion of these powercommodity contracts are with utilities with strong credit quality and public utility commission or other regulatory support. However, such regulated utility counterparties can be impacted by changes in government regulations or adverse financial conditions, which the Company is unable to predict.
Certain subsidiaries of the Company sell the output of their facilities to PG&E, a significant counterparty of the Company, under long-term PPAs, and PG&E’s credit rating is below investment-grade.
Note 6 — Accounting for Derivative Instruments and Hedging Activities
This footnote should be read in conjunction with the complete description under Item 15 — Note 7, Accounting for Derivative Instruments and Hedging Activities,to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 20172021 Form 8-K.
Energy-Related Commodities
As of September 30, 2017, the Company had energy-related derivative instruments extending through 2020. At September 30, 2017, these contracts were not designated as cash flow or fair value hedges.10-K.
Interest Rate Swaps
The Company enters into interest rate swap agreements in order to hedge the variability of expected future cash interest payments. As of September 30, 2017,March 31, 2022, the Company had interest rate derivative instruments on non-recourse debt extending through 2036,2031, a portion of which arewere designated as cash flow hedges. Under the interest rate swap agreements, the Company pays a fixed rate and the counterparties to the agreements pay a variable interest rate.
Energy-Related Commodities
As of March 31, 2022, the Company had energy-related derivative instruments extending through 2033. At March 31, 2022, these contracts were not designated as cash flow or fair value hedges.
Volumetric Underlying Derivative Transactions
The following table summarizes the net notional volume buybuy/(sell) of the Company's open derivative transactions broken out by commodity:commodity as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | |
| | | Total Volume |
| | | March 31, 2022 | | December 31, 2021 |
| Commodity | Units | | (In millions) |
| Natural Gas | MMBtu | | 1 | | | 2 | |
| Power | MWh | | (19) | | | (17) | |
| Interest | Dollars | | $ | 1,223 | | | $ | 1,326 | |
| | | | | |
| | | | | |
|
| | | | | | | | | |
| | | | Total Volume |
| | | | September 30, 2017 | | December 31, 2016 |
| Commodity | Units | | (In millions) |
| Natural Gas | MMBtu | | 2 |
| | 3 |
|
| Interest | Dollars | | $ | 1,983 |
| | $ | 2,070 |
|
Fair Value of Derivative Instruments
There were no derivative asset positions on the balance sheet as of September 30, 2017. The following table summarizes the fair value within the derivative instrument valuation on the consolidated balance sheet:sheets:
| | | | Fair Value | | Fair Value |
| | Derivative Assets | | Derivative Liabilities | | Derivative Assets | | Derivative Liabilities |
| | December 31, 2016 | | September 30, 2017 | | December 31, 2016 | | March 31, 2022 | | December 31, 2021 | | March 31, 2022 | | December 31, 2021 |
| | (In millions) | | (In millions) |
| Derivatives Designated as Cash Flow Hedges: | | | | | | Derivatives Designated as Cash Flow Hedges: | | | | | | | |
| Interest rate contracts current | $ | — |
| | $ | 7 |
| | $ | 26 |
| Interest rate contracts current | $ | — | | | $ | — | | | $ | 1 | | | $ | 5 | |
| Interest rate contracts long-term | 1 |
| | 13 |
| | 39 |
| Interest rate contracts long-term | 6 | | | 2 | | | — | | | 3 | |
| Total Derivatives Designated as Cash Flow Hedges | 1 |
| | 20 |
| | 65 |
| Total Derivatives Designated as Cash Flow Hedges | $ | 6 | | | $ | 2 | | | $ | 1 | | | $ | 8 | |
| Derivatives Not Designated as Cash Flow Hedges: | | | | | | Derivatives Not Designated as Cash Flow Hedges: | | | | | | | |
| Interest rate contracts current | — |
| | 15 |
| | 5 |
| Interest rate contracts current | $ | 2 | | | $ | — | | | $ | 8 | | | $ | 17 | |
| Interest rate contracts long-term | — |
| | 29 |
| | 5 |
| Interest rate contracts long-term | 10 | | | 4 | | | 10 | | | 38 | |
| Commodity contracts current | 2 |
| | 1 |
| | 1 |
| Commodity contracts current | — | | | — | | | 62 | | | 24 | |
| Commodity contracts long-term | — |
| | 1 |
| | — |
| Commodity contracts long-term | — | | | — | | | 242 | | | 155 | |
| Total Derivatives Not Designated as Cash Flow Hedges | 2 |
| | 46 |
| | 11 |
| Total Derivatives Not Designated as Cash Flow Hedges | $ | 12 | | | $ | 4 | | | $ | 322 | | | $ | 234 | |
| Total Derivatives | $ | 3 |
| | $ | 66 |
| | $ | 76 |
| Total Derivatives | $ | 18 | | | $ | 6 | | | $ | 323 | | | $ | 242 | |
The Company has elected to present derivative assets and liabilities on the balance sheet on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. As of September 30, 2017, there were no offsetting amounts at the counterparty master agreement level nor outstanding collateral paid or received. As ofMarch 31, 2022 and December 31, 2016,2021, there was no outstanding collateral paid or received. The following tables summarize the offsetting of derivatives by the counterparty master agreement level as of December 31, 2016:counterparty:
| | | | | | | | | | | | | | | | | |
| Gross Amounts Not Offset in the Statement of Financial Position |
| As of March 31, 2022 | Gross Amounts of Recognized Assets/Liabilities | | Derivative Instruments | | Net Amount |
| Commodity contracts | (In millions) |
| | | | | |
| Derivative liabilities | $ | (304) | | | $ | — | | | $ | (304) | |
| Total commodity contracts | $ | (304) | | | $ | — | | | $ | (304) | |
| Interest rate contracts | | | | | |
| Derivative assets | $ | 18 | | | $ | (3) | | | $ | 15 | |
| Derivative liabilities | (19) | | | 3 | | | (16) | |
| Total interest rate contracts | $ | (1) | | | $ | — | | | $ | (1) | |
| Total derivative instruments | $ | (305) | | | $ | — | | | $ | (305) | |
| | | | | | | | | | | | | | | | | |
| Gross Amounts Not Offset in the Statement of Financial Position |
| As of December 31, 2021 | Gross Amounts of Recognized Assets/Liabilities | | Derivative Instruments | | Net Amount |
| Commodity contracts | (In millions) |
| | | | | |
| Derivative liabilities | $ | (179) | | | $ | — | | | $ | (179) | |
| Total commodity contracts | $ | (179) | | | $ | — | | | $ | (179) | |
| Interest rate contracts: | |
| Derivative assets | $ | 6 | | | $ | (5) | | | $ | 1 | |
| Derivative liabilities | (63) | | | 5 | | | (58) | |
| Total interest rate contracts | $ | (57) | | | $ | — | | | $ | (57) | |
| Total derivative instruments | $ | (236) | | | $ | — | | | $ | (236) | |
|
| | | | | | | | | | | |
| As of December 31, 2016 | Gross Amounts of Recognized Assets/Liabilities | | Derivative Instruments | | Net Amount |
| Commodity contracts: | (In millions) |
| Derivative assets | $ | 2 |
| | $ | — |
| | $ | 2 |
|
| Derivative liabilities | (1 | ) | | — |
| | (1 | ) |
| Total commodity contracts | 1 |
| | — |
| | 1 |
|
| Interest rate contracts: | | | | | |
| Derivative assets | 1 |
| | (1 | ) | | — |
|
| Derivative liabilities | (75 | ) | | 1 |
| | (74 | ) |
| Total interest rate contracts | (74 | ) | | — |
| | (74 | ) |
| Total derivative instruments | $ | (73 | ) | | $ | — |
| | $ | (73 | ) |
Accumulated Other Comprehensive Loss
The following table summarizes the effects on the Company’s accumulated OCL balance attributable to interest rate swaps designated as cash flow hedge derivatives, net of tax:
| | | | Three months ended September 30, | | Nine months ended September 30, | | | | Three months ended March 31, |
| | 2017 | | 2016 | | 2017 | | 2016 | | | | 2022 | | 2021 |
| | (In millions) | | | (In millions) |
| Accumulated OCL beginning balance | $ | (70 | ) | | $ | (140 | ) | | $ | (70 | ) | | $ | (83 | ) | Accumulated OCL beginning balance | | | $ | (11) | | | $ | (30) | |
| Reclassified from accumulated OCL to income due to realization of previously deferred amounts | 4 |
| | 4 |
| | 10 |
| | 10 |
| Reclassified from accumulated OCL to income due to realization of previously deferred amounts | | | 2 | | | 2 | |
| Mark-to-market of cash flow hedge accounting contracts | 3 |
| | 17 |
| | (3 | ) | | (46 | ) | Mark-to-market of cash flow hedge accounting contracts | | | 12 | | | 9 | |
| Accumulated OCL ending balance, net of income tax benefit of $16 and $29, respectively | (63 | ) | | (119 | ) | | (63 | ) | | (119 | ) | |
| Accumulated OCL ending balance, net of income tax (expense) benefit of $(2) and $4, respectively | | Accumulated OCL ending balance, net of income tax (expense) benefit of $(2) and $4, respectively | | | 3 | | | (19) | |
| Accumulated OCL attributable to noncontrolling interests | (36 | ) | | (71 | ) | | (36 | ) | | (71 | ) | Accumulated OCL attributable to noncontrolling interests | | | 3 | | | (9) | |
| Accumulated OCL attributable to NRG Yield, Inc. | $ | (27 | ) | | $ | (48 | ) | | $ | (27 | ) | | $ | (48 | ) | |
| Losses expected to be realized from OCL during the next 12 months, net of income tax benefit of $3 | $ | 14 |
| | | | $ | 14 |
| | | |
| Accumulated OCL attributable to Clearway Energy, Inc. | | Accumulated OCL attributable to Clearway Energy, Inc. | | | $ | — | | | $ | (10) | |
| Losses expected to be realized from OCL during the next 12 months, net of income tax benefit of $1 | | Losses expected to be realized from OCL during the next 12 months, net of income tax benefit of $1 | | | $ | (3) | | | 0 |
Amounts reclassified from accumulated OCL into income and amounts recognized in income from the ineffective portion of cash flow hedges are recorded to interest expense. There was no ineffectiveness for the nine months ended September 30, 2017 and 2016.
Accounting guidelines require a high degree of correlation between the derivative and the hedged item throughout the period in order to qualify as a cash flow hedge. As of December 31, 2016, the Company's regression analysis for Viento Funding II interest rate swaps, while positively correlated, did not meet the required threshold for cash flow hedge accounting. As a result, the Company de-designated the Viento Funding II cash flow hedges as of December 31, 2016, and will prospectively mark these derivatives to market through the income statement.
The Company's regression analysis for Marsh Landing, Walnut Creek and Avra Valley interest rate swaps, while positively correlated, no longer contain matching terms for cash flow hedge accounting. As a result, the Company voluntarily de-designated the Marsh Landing, Walnut Creek and Avra Valley cash flow hedges as of April 28, 2017, and will prospectively mark these derivatives to market through the income statement.
Impact of Derivative Instruments on the Consolidated Statements of IncomeOperations
The Company has interest rate derivative instruments thatMark-to-market gains and losses related to the Company’s derivatives are not designatedrecorded in the consolidated statements of operations as cash flow hedges. The effect of interest rate hedges is recordedfollows:
| | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2022 | | 2021 |
| | | | (In millions) |
| Interest Rate Contracts (Interest expense) | | | | | $ | 41 | | | $ | 47 | |
Commodity Contracts (Mark-to-market for economic hedging activities) (a) | | | | | (125) | | | (22) | |
(a) Relates to interest expense. Forlong-term commodity contracts at Elbow Creek Wind Project LLC, or Elbow Creek, Mesquite Star, Mt. Storm, Langford and Mesquite Sky and gains or losses are recognized in operating revenues. During the three months ended September 30, 2017March 31, 2022, the commodity contract for Langford, which previously met the NPNS exception, no longer qualified for NPNS treatment and, 2016, the impactaccordingly, is accounted for as a derivative and marked to the consolidated statements of income was a gain of $7 million and $2 million, respectively. For the nine months ended September 30, 2017 and 2016, the impact to the consolidated statements of income was a loss of $2 million and $7 million, respectively.
market value through operating revenues.
A portion of the Company’s derivative commodity contracts relatesrelate to its Thermal Business for the purchase of fuelfuel/electricity commodities based on the forecasted usage of the thermal district energy centers. Realized gains and losses on these contracts are reflected in the fuel costs that are permitted to be billed to customers through the related customer contracts or tariffs and, accordingly, no gains or losses are reflected in the consolidated statements of incomeoperations for these contracts.
See Note 5, Fair Value of Financial Instruments, for a discussion regarding concentration of credit risk.
Note 7 — Long-term Debt
This footnotenote should be read in conjunction with the complete description under Item 15 — Note 10, Long-term Debt, to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 20172021 Form 8-K. Long-term debt10-K. The Company’s borrowings, including short-term and long-term portions consisted of the following: |
| | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 | | September 30, 2017, interest rate % (a) | | Letters of Credit Outstanding at September 30, 2017 |
| | | (In millions, except rates) | | |
| 2019 Convertible Notes | | $ | 345 |
| | $ | 345 |
| | 3.500 | | |
| 2020 Convertible Notes | | 288 |
| | 288 |
| | 3.250 | | |
| 2024 Senior Notes | | 500 |
| | 500 |
| | 5.375 | | |
| 2026 Senior Notes | | 350 |
| | 350 |
| | 5.000 | | |
| Project-level debt: | | | | | | | | |
| Agua Caliente Borrower 2, due 2038 | | 41 |
| | — |
| | 5.430 | | 17 |
|
| Alpine, due 2022 | | 138 |
| | 145 |
| | L+1.750 | | 37 |
|
| Alta Wind I - V lease financing arrangements, due 2034 and 2035 | | 940 |
| | 965 |
| | 5.696 - 7.015 | | 103 |
|
| CVSR, due 2037 | | 746 |
| | 771 |
| | 2.339 - 3.775 | | — |
|
| CVSR Holdco Notes, due 2037 | | 194 |
| | 199 |
| | 4.680 | | 13 |
|
| El Segundo Energy Center, due 2023 | | 400 |
| | 443 |
| | L+1.75 - L+2.375 | | 102 |
|
| Energy Center Minneapolis, due 2017 and 2025 | | 82 |
| | 96 |
| | 5.950 -7.250 | | — |
|
| Energy Center Minneapolis Series D Notes, due 2031 | | 125 |
| | 125 |
| | 3.550 | | — |
|
| Laredo Ridge, due 2028 | | 96 |
| | 100 |
| | L+1.875 | | 10 |
|
| Marsh Landing, due 2017 and 2023 | | 334 |
| | 370 |
| | L+1.750 - L+1.875 | | 34 |
|
| Tapestry, due 2021 | | 165 |
| | 172 |
| | L+1.625 | | 20 |
|
| Utah Solar Portfolio, due 2022 | | 284 |
| | 287 |
| | L+2.625 | | 13 |
|
| Viento, due 2023 | | 169 |
| | 178 |
| | L+3.00 | | 27 |
|
| Walnut Creek, due 2023 | | 279 |
| | 310 |
| | L+1.625 | | 49 |
|
| Other | | 425 |
| | 440 |
| | Various | | 37 |
|
| Subtotal project-level debt: | | 4,418 |
| | 4,601 |
| | | | |
| Total debt | | 5,901 |
| | 6,084 |
| | | | |
| Less current maturities | | (300 | ) | | (291 | ) | | | | |
| Less net debt issuance costs | | (61 | ) | | (70 | ) | | | | |
Less discounts (b) | | (20 | ) | | (27 | ) | | | | |
| Total long-term debt | | $ | 5,520 |
| | $ | 5,696 |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| (In millions, except rates) | March 31, 2022 | | December 31, 2021 | | March 31, 2022 interest rate % (a) | | Letters of Credit Outstanding at March 31, 2022 |
| | | | | | | |
| | | | | | | |
| 2028 Senior Notes | $ | 850 | | | $ | 850 | | | 4.750 | | | |
| 2031 Senior Notes | 925 | | | 925 | | | 3.750 | | | |
| 2032 Senior Notes | 350 | | | 350 | | | 3.750 | | | |
Clearway Energy LLC and Clearway Energy Operating LLC Revolving Credit Facility, due 2023 (b) | 305 | | | 245 | | | L+1.750 | | 82 | |
Bridge Loan, due 2022 (c) | 335 | | | 335 | | S+1.000 | | — | |
| Project-level debt: | | | | | | | |
| Agua Caliente Solar LLC, due 2037 | 680 | | | 684 | | | 2.395 - 3.633 | | 45 | |
| Alta Wind Asset Management LLC, due 2031 | 13 | | | 13 | | | L+2.625 | | — | |
| Alta Wind I-V lease financing arrangements, due 2034 and 2035 | 756 | | | 756 | | | 5.696 - 7.015 | | 35 | |
| Alta Wind Realty Investments LLC, due 2031 | 23 | | | 24 | | | 7.000 | | | — | |
| Borrego, due 2024 and 2038 | 54 | | | 54 | | | Various | | — | |
| Buckthorn Solar, due 2025 | 122 | | | 123 | | | L+1.750 | | 22 | |
| Carlsbad Energy Holdings LLC, due 2027 | 136 | | | 136 | | | L+1.750 | | 77 | |
| Carlsbad Energy Holdings LLC, due 2038 | 407 | | | 407 | | | 4.120 | | | — | |
| Carlsbad Holdco, due 2038 | 205 | | | 205 | | | 4.210 | | | 6 | |
| CVSR, due 2037 | 638 | | | 652 | | | 2.339 - 3.775 | | — | |
| CVSR Holdco Notes, due 2037 | 160 | | | 169 | | | 4.680 | | | 13 | |
| DG-CS Master Borrower LLC, due 2040 | 434 | | | 441 | | | 3.510 | | | 30 | |
| | | | | | | |
| | | | | | | |
| El Segundo Energy Center, due 2023 | 154 | | | 193 | | | L+1.875 - L+2.500 | | 138 | |
| | | | | | | |
| | | | | | | |
| Kawailoa Solar Portfolio LLC, due 2026 | 78 | | | 78 | | | L+1.375 | | 14 | |
Laredo Ridge, due 2028 (d) | — | | | 72 | | | L+2.125 | | — | |
| | | | | | | |
| Marsh Landing, due 2023 | 72 | | | 84 | | | L+2.375 | | 62 | |
| Mililani I, due 2022 and 2024 | 79 | | | — | | | L+1.000 - L+1.250 | | 3 | |
| NIMH Solar, due 2024 | 175 | | | 176 | | | L+2.000 | | 11 | |
| Oahu Solar Holdings LLC, due 2026 | 86 | | | 86 | | | L+1.375 | | 10 | |
| | | | | | | |
| Rosie Class B LLC, due 2027 | 78 | | | 78 | | | L+1.750 | | 17 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Tapestry Wind LLC, due 2031(d) | — | | | 85 | | | L+1.375 | | — | |
| Utah Solar Holdings, due 2036 | 273 | | | 273 | | | 3.590 | | | 10 | |
| | | | | | | |
Viento Funding II, LLC, due 2023 and 2029 (d) | 190 | | | 29 | | | S+1.475 | | 34 | |
| Walnut Creek, due 2023 | 62 | | | 74 | | | L+1.750 | | 126 | |
| WCEP Holdings, LLC, due 2023 | 29 | | | 30 | | | L+3.000 | | — | |
| Other | 149 | | | 151 | | | Various | | 191 | |
| Subtotal project-level debt: | 5,053 | | | 5,073 | | | | | |
| Total debt | 7,818 | | | 7,778 | | | | | |
| Less current maturities | (770) | | | (772) | | | | | |
| Less net debt issuance costs | (73) | | | (71) | | | | | |
Add premiums (e) | 4 | | | 4 | | | | | |
| Total long-term debt | $ | 6,979 | | | $ | 6,939 | | | | | |
(a)As of September 30, 2017,March 31, 2022, L+ equals 3 month LIBOR plus x%, except for the Utah Solar Portfolio,Clearway Energy Operating LLC Revolving Credit Facility, due 2023, Marsh Landing, due 2023, Mililani I, due 2022 and 2024, and Walnut Creek, due 2023, where L+ equals 1 month LIBOR plus x%.
(b) DiscountsApplicable rate is determined by the borrower leverage ratio, as defined in the credit agreement.
(c) S+ equals SOFR, plus x%.
(d) Laredo Ridge, due 2028; Tapestry Wind, LLC, due 2031; and Viento Funding II, LLC, due 2023 project-level debt was repaid on March 16, 2022 totaling $186 million and was replaced with $190 million in new project-level debt under Viento Funding II, LLC that was obtained on March 16, 2022 and is due in 2029, as discussed further below.
(e) Premiums relate to the 2019 Convertible Notes and 2020 Convertible2028 Senior Notes.
The financing arrangements listed above contain certain covenants, including financial covenants that the Company is required to be in compliance with during the term of the respective arrangement. As of September 30, 2017,March 31, 2022, the Company was in compliance with all of the required covenants.
The discussion below describes material changes to or additions of long-term debt for the ninethree months ended September 30, 2017.March 31, 2022.
NRG YieldClearway Energy LLC and NRG YieldClearway Energy Operating LLC Revolving Credit Facility
As of September 30, 2017, there were noMarch 31, 2022, the Company had $305 million in outstanding borrowings under the revolving credit facility and the Company had $68$82 million ofin letters of credit outstanding.
Thermal Financing
On During the three months ended March 16, 2017, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Thermal LLC, amended31, 2022, the shelf facility of its existing Thermal financing arrangement to allow for the issuance of an additional $10Company borrowed $80 million of Series F notes at a 4.60% interest rate, or Series F Notes, increasing the total principal amount of notes available for issuance under the shelfrevolving credit facility, to $80and subsequently repaid $20 million. The Series F Notes will be secured by substantially all of On May 3, 2022, the assets of NRG Energy Center Minneapolis LLC. NRG Thermal LLC has guaranteedCompany repaid the indebtedness and its guarantee is secured by a pledge of the equity interests$305 million in all of NRG Thermal LLC’s subsidiaries.
Financing Related to the March 2017 Drop Down Assets
Agua Caliente Borrower 2, due 2038
On February 17, 2017, Agua Caliente Borrower 1 LLC, an indirect subsidiary of NRG, and Agua Caliente Borrower 2 LLC, issued $130 million of senior secured notesoutstanding borrowings under the Agua Caliente Borrower 1 LLC and Agua Caliente Borrower 2 LLC financing agreement, or Agua Caliente Holdco Financing Agreement, that bear interest at 5.43% and mature on December 31, 2038. Asrevolving credit facility utilizing the proceeds received from the Thermal Disposition, as further described in Note 3, Business Acquisitions, on and Dispositions.
Bridge Loan Agreement
As of March 27, 2017,31, 2022, the Company acquired Agua Caliente Borrower 2had $335 million in outstanding borrowings under the Bridge Loan Agreement. On May 3, 2022, the Company repaid the $335 million in outstanding borrowings under the Bridge Loan Agreement utilizing proceeds received from the Thermal Disposition, as further described in Note 3, Acquisitions and Dispositions.
Project - level Debt
Viento Funding II, LLC
On March 16, 2022, the Company, through its indirect subsidiary, Viento Funding II, LLC, entered into a financing agreement which included the issuance of a $190 million term loan as well as $35 million in letters of credit, supported by the Company’s interests in the Elkhorn Ridge, Laredo Ridge, San Juan Mesa and Taloga wind projects. The term loan bears annual interest at a rate of SOFR plus a spread of 0.10% and an applicable margin, which is 1.35% per annum through the fourth anniversary of the term loan and 1.50% per annum thereafter through the maturity date of March 16, 2029. The proceeds from NRGthe term loan were used to pay off the existing debt in the amount of $186 million related to Laredo Ridge, Tapestry Wind LLC and Viento Funding II, LLC and to pay related financing costs. The Company recorded a loss on debt extinguishment of $2 million to expense unamortized debt issuance costs.
Mililani I
On March 25, 2022, as part of the March 2017 Drop Down Assets acquisition of Mililani I, as further described in Note 3, Acquisitions and Dispositions, the Company assumed NRG's portionthe project’s financing agreement which included a $16 million construction loan that converts to a term loan upon completion of senior secured notes underconstruction, $60 million tax equity bridge loan and a $27 million sponsor equity bridge loan. The sponsor equity bridge loan was repaid at acquisition date, utilizing $14 million from the Agua Caliente Holdco Financing Agreement. Agua Caliente Borrower 2 LLC holds $41cash equity investor, as well as $15 million of the Agua Caliente Holdco debt as of September 30, 2017.Company’s acquisition price, which was contributed back by CEG, and $2 million was utilized to pay associated fees. The debttax equity bridge loan will be repaid with the final proceeds from the tax equity investor that will be received when Mililani I achieves commercial operations, which is joint and several with respectexpected to Agua Caliente Borrower 1 LLC and Agua Caliente Borrower 2 LLC and is secured by the equity interests of each borroweroccur in the Agua Caliente solar facility.second half of 2022.
Utah Solar Portfolio, due 202226
As part of the March 2017 Drop Down Assets acquisition, the Company assumed non-recourse debt of $287 million relating to the Utah Solar Portfolio at an interest rate of LIBOR plus 2.625%. The debt matures on December 16, 2022. The $287 million consisted of $222 million outstanding at the time of NRG's acquisition of the Utah Solar Portfolio on November 2, 2016, and additional borrowings of $65 million, net of debt issuance costs, incurred during 2016. The Company holds $284 million of the Utah Solar Portfolio debt as of September 30, 2017.
Note 8 — (Losses) Earnings Per Share
Basic (losses) earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding. Shares issued during the year are weighted for the portion of the year that they were outstanding. Diluted (losses) earnings per share is computed in a manner consistent with that of basic (losses) earnings per share while giving effect to all potentially dilutive common shares that were outstanding during the period.
The reconciliation of the Company'sCompany’s basic and diluted (losses) earnings per share is shown in the following tables:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, |
| 2022 | 2021 |
(In millions, except per share data) (a) | Common Class A | | Common Class C | | Common Class A | | Common Class C |
| Basic and diluted (losses) earnings per share attributable to Clearway Energy, Inc. common stockholders | | | | | | | |
| Net (loss) income attributable to Clearway Energy, Inc. | $ | (9) | | | $ | (23) | | | $ | 1 | | | $ | 2 | |
| Weighted average number of common shares outstanding — basic and diluted | 35 | | | 82 | | | 35 | | | 82 | |
| (Losses) earnings per weighted average common share — basic and diluted | $ | (0.28) | | | $ | (0.28) | | | $ | 0.03 | | | $ | 0.03 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
- |
| | | | | | | | | | | | | | | |
| | Three months ended September 30, |
| | 2017 | | 2016 |
(In millions, except per share data) (a) | Common Class A | | Common Class C | | Common Class A | | Common Class C |
| Basic earnings per share attributable to NRG Yield, Inc. common stockholders | | | | | | | |
| Net income attributable to NRG Yield, Inc. | $ | 10 |
| | $ | 19 |
| | $ | 12 |
| | $ | 21 |
|
| Weighted average number of common shares outstanding — basic | 35 |
| | 64 |
| | 35 |
| | 63 |
|
| Earnings per weighted average common share — basic | $ | 0.30 |
| | $ | 0.30 |
| | $ | 0.34 |
| | $ | 0.34 |
|
| Diluted earnings per share attributable to NRG Yield, Inc. common stockholders | | | | | | | |
| Net income attributable to NRG Yield, Inc. | $ | 13 |
| | $ | 21 |
| | $ | 15 |
| | $ | 24 |
|
Weighted average number of common shares outstanding — diluted | 49 |
| | 75 |
| | 49 |
| | 73 |
|
| Earnings per weighted average common share — diluted | $ | 0.27 |
| | $ | 0.29 |
| | $ | 0.30 |
| | $ | 0.32 |
|
|
| | | | | | | | | | | | | | | |
| | Nine months ended September 30, |
| | 2017 | | 2016 |
(In millions, except per share data) (a) | Common Class A | | Common Class C | | Common Class A | | Common Class C |
| Basic and diluted earnings per share attributable to NRG Yield, Inc. common stockholders | | | | | | | |
| Net income attributable to NRG Yield, Inc. | $ | 19 |
| | $ | 35 |
| | $ | 25 |
| | $ | 45 |
|
Weighted average number of common shares outstanding — basic | 35 |
| | 63 |
| | 35 |
| | 63 |
|
| Earnings per weighted average common share — basic | $ | 0.56 |
| | $ | 0.56 |
| | $ | 0.72 |
| | $ | 0.72 |
|
| Diluted earnings per share attributable to NRG Yield, Inc. common stockholders | | | | | | | |
| Net income attributable to NRG Yield, Inc. | $ | 19 |
| | $ | 35 |
| | $ | 34 |
| | $ | 45 |
|
Weighted average number of common shares outstanding — diluted | 35 |
| | 63 |
| | 49 |
| | 63 |
|
| Earnings per weighted average common share — diluted | $ | 0.56 |
| | $ | 0.56 |
| | $ | 0.68 |
| | $ | 0.72 |
|
(a) BasicNet (loss) income attributable to Clearway Energy, Inc. and basic and diluted (losses) earnings per share might not recalculate due to presenting values in millions rather than whole dollars.
The following table summarizes the Company's outstanding equity instruments that are anti-dilutive and were not included in the computation of the Company's diluted earnings per share:
|
| | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions of shares) |
| 2019 Convertible Notes - Common Class A | — |
| | — |
| | 15 |
| | — |
|
| 2020 Convertible Notes - Common Class C | — |
| | — |
| | 10 |
| | 10 |
|
Note 9 — Changes in Capital Structure
At-the-Market Equity Offering Program, or the ATM Program
NRG Yield, Inc. is party to an equity distribution agreement with Barclays Capital Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and RBC Capital Markets, LLC, as sales agents. Pursuant to the terms of the equity distribution agreement, NRG Yield, Inc. may offer and sell shares of its Class C common stock par value $0.01 per share, from time to time through the sales agents up to an aggregate sales price of $150 million through an at-the-market equity offering program, or the ATM Program. NRG Yield, Inc. may also sell shares of its Class C common stock to any of the sales agents, as principals for its own account, at a price agreed upon at the time of sale. The following table lists the issuance of shares of Class C common stock under the ATM Program during the three and nine months ended September 30, 2017:
|
| | | |
| (In millions, except shares) | Three months ended September 30, 2017 | | Nine months ended September 30, 2017 |
| Shares of Class C common stock issued | 987,727 | | 1,921,866 |
| Gross proceeds | $18 | | $35 |
NRG Yield, Inc. incurred commission fees of approximately $346 thousand in connection with the issuance of Class C common stock during the nine months ended September 30, 2017. At September 30, 2017, approximately $115 million of Class C common stock remains available for issuance under the ATM Program.
As a result of the Company's sale of shares of Class C common stock under the ATM Program, the public shareholders of Class A and Class C common stock increased their economic and voting interests in NRG Yield, Inc. to 53.7%, and 44.9%, respectively, as of September 30, 2017.
Dividends to Class A and Class C common stockholders
The following table lists the dividends paid on the Company's Class A common stock and Class C common stock during the nine months ended September 30, 2017:
|
| | | | | | | | | | | |
| | Third Quarter 2017 | | Second Quarter 2017 | | First Quarter 2017 |
| Dividends per Class A share | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
| Dividends per Class C share | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
Dividends on the Class A common stock and Class C common stock are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future.
On October 31, 2017, the Company declared quarterly dividends on its Class A common stock and Class C common stock of $0.288 per share payable on December 15, 2017, to stockholders of record as of December 1, 2017.
The Company also has authorized 10 million shares of preferred stock, par value $0.01 per share. None of the shares of preferred stock have been issued.
Note 10 — Segment Reporting
The Company’s segment structure reflects how management currently operates and allocates resources. The Company'sCompany’s businesses are primarily segregated based on conventional power generation, renewable businesses which consist of solar and wind, and the thermal and chilled water business.Thermal Business, which was classified as held for sale as of March 31, 2022. On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business. The Corporate segment reflects the Company'sCompany’s corporate costs.costs and includes eliminating entries. The Company's chief operating decision maker, its Chief Executive Officer, evaluates the performance of its segments based on operational measures including adjusted earnings before interest, taxes, depreciation and amortization, or Adjusted EBITDA, and CAFD, as well as economic gross margin and net income (loss).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2022 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Corporate (a) | | Total |
| Operating revenues | $ | 108 | | | $ | 47 | | | $ | 59 | | | $ | — | | | $ | 214 | |
| Cost of operations, exclusive of depreciation, amortization and accretion shown separately below | 21 | | | 68 | | | 39 | | | — | | | 128 | |
| Depreciation, amortization and accretion | 33 | | | 91 | | | — | | | — | | | 124 | |
| | | | | | | | | |
| General and administrative | — | | | — | | | 1 | | | 11 | | | 12 | |
| Transaction and integration costs | — | | | — | | | — | | | 2 | | | 2 | |
| Development costs | — | | | — | | | 1 | | | — | | | 1 | |
| Operating income (loss) | 54 | | | (112) | | | 18 | | | (13) | | | (53) | |
| Equity in earnings of unconsolidated affiliates | 1 | | | 3 | | | — | | | — | | | 4 | |
| | | | | | | | | |
| | | | | | | | | |
| Loss on debt extinguishment | — | | | (2) | | | — | | | — | | | (2) | |
| | | | | | | | | |
| | | | | | | | | |
| Interest expense | (8) | | | (8) | | | (5) | | | (26) | | | (47) | |
| Income (loss) before income taxes | 47 | | | (119) | | | 13 | | | (39) | | | (98) | |
| Income tax benefit | — | | | — | | | — | | | (1) | | | (1) | |
| Net Income (Loss) | $ | 47 | | | $ | (119) | | | $ | 13 | | | $ | (38) | | | $ | (97) | |
Total Assets (b) | $ | 2,361 | | | $ | 9,461 | | | $ | 653 | | | $ | 153 | | | $ | 12,628 | |
(a)Includes eliminations.
(b)Thermal Business assets were classified as held for sale at March 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, 2021 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Corporate | | Total |
| Operating revenues | $ | 102 | | | $ | 86 | | | $ | 49 | | | $ | — | | | $ | 237 | |
| Cost of operations, exclusive of depreciation, amortization and accretion shown separately below | 27 | | | 52 | | | 31 | | | — | | | 110 | |
| Depreciation, amortization and accretion | 34 | | | 87 | | | 7 | | | — | | | 128 | |
| | | | | | | | | |
| General and administrative | — | | | — | | | 1 | | | 9 | | | 10 | |
| Transaction and integration costs | — | | | — | | | — | | | 2 | | | 2 | |
| Development costs | — | | | — | | | 1 | | | — | | | 1 | |
| Operating income (loss) | 41 | | | (53) | | | 9 | | | (11) | | | (14) | |
| Equity in earnings of unconsolidated affiliates | 2 | | | 2 | | | — | | | — | | | 4 | |
| | | | | | | | | |
| Other income, net | 1 | | | — | | | — | | | — | | | 1 | |
| Loss on debt extinguishment | — | | | (1) | | | — | | | (41) | | | (42) | |
| | | | | | | | | |
| | | | | | | | | |
| Interest expense | (11) | | | (4) | | | (5) | | | (25) | | | (45) | |
| Income (loss) before income taxes | 33 | | | (56) | | | 4 | | | (77) | | | (96) | |
| Income tax benefit | — | | | — | | | — | | | (20) | | | (20) | |
| Net Income (Loss) | $ | 33 | | | $ | (56) | | | $ | 4 | | | $ | (57) | | | $ | (76) | |
|
| | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2017 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Corporate | | Total |
| Operating revenues | $ | 88 |
| | $ | 131 |
| | $ | 46 |
| | $ | — |
| | $ | 265 |
|
| Cost of operations | 16 |
| | 33 |
| | 29 |
| | — |
| | 78 |
|
| Depreciation and amortization | 27 |
| | 56 |
| | 5 |
| | — |
| | 88 |
|
| General and administrative | — |
| | — |
| | — |
| | 4 |
| | 4 |
|
| Operating income (loss) | 45 |
| | 42 |
| | 12 |
| | (4 | ) | | 95 |
|
| Equity in earnings of unconsolidated affiliates | 3 |
| | 25 |
| | — |
| | — |
| | 28 |
|
| Other income, net | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Interest expense | (13 | ) | | (39 | ) | | (2 | ) | | (21 | ) | | (75 | ) |
| Income (loss) before income taxes | 36 |
| | 28 |
| | 10 |
| | (25 | ) | | 49 |
|
| Income tax expense | — |
| | — |
| | — |
| | 8 |
| | 8 |
|
| Net Income (Loss) | $ | 36 |
| | $ | 28 |
| | $ | 10 |
| | $ | (33 | ) | | $ | 41 |
|
| Total Assets | $ | 1,920 |
| | $ | 5,821 |
| | $ | 420 |
| | $ | 281 |
| | $ | 8,442 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, 2016 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Corporate | | Total |
| Operating revenues | $ | 82 |
| | $ | 142 |
| | $ | 48 |
| | $ | — |
| | $ | 272 |
|
| Cost of operations | 14 |
| | 31 |
| | 31 |
| | — |
| | 76 |
|
| Depreciation and amortization | 20 |
| | 50 |
| | 5 |
| | — |
| | 75 |
|
| General and administrative | — |
| | — |
| | — |
| | 4 |
| | 4 |
|
| Operating income (loss) | 48 |
| | 61 |
| | 12 |
| | (4 | ) | | 117 |
|
| Equity in earnings of unconsolidated affiliates | 3 |
| | 13 |
| | — |
| | — |
| | 16 |
|
| Other income, net | 1 |
| | — |
| | — |
| | — |
| | 1 |
|
| Interest expense | (13 | ) | | (37 | ) | | (2 | ) | | (19 | ) | | (71 | ) |
| Income (loss) before income taxes | 39 |
| | 37 |
| | 10 |
| | (23 | ) | | 63 |
|
| Income tax expense | — |
| | — |
| | — |
| | 13 |
| | 13 |
|
| Net Income (Loss) | $ | 39 |
|
| $ | 37 |
|
| $ | 10 |
|
| $ | (36 | ) |
| $ | 50 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2017 |
| (In millions) | Conventional Generation |
| Renewables |
| Thermal |
| Corporate |
| Total |
| Operating revenues | $ | 246 |
| | $ | 391 |
| | $ | 130 |
| | $ | — |
|
| $ | 767 |
|
| Cost of operations | 53 |
| | 100 |
| | 86 |
| | — |
|
| 239 |
|
| Depreciation and amortization | 77 |
| | 149 |
| | 15 |
| | — |
|
| 241 |
|
| General and administrative | — |
| | — |
| | — |
| | 14 |
|
| 14 |
|
| Acquisition-related transaction and integration costs | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| Operating income (loss) | 116 |
| | 142 |
| | 29 |
| | (16 | ) | | 271 |
|
| Equity in earnings of unconsolidated affiliates | 9 |
| | 54 |
| | — |
| | — |
|
| 63 |
|
| Other income, net | 1 |
| | 1 |
| | — |
| | 1 |
| | 3 |
|
| Interest expense | (39 | ) | | (128 | ) | | (7 | ) | | (63 | ) |
| (237 | ) |
| Income (loss) before income taxes | 87 |
| | 69 |
| | 22 |
| | (78 | ) |
| 100 |
|
| Income tax expense | — |
| | — |
| | — |
| | 15 |
|
| 15 |
|
| Net Income (Loss) | $ | 87 |
|
| $ | 69 |
|
| $ | 22 |
|
| $ | (93 | ) |
| $ | 85 |
|
| Total Assets | $ | 1,920 |
| | $ | 5,821 |
| | $ | 420 |
| | $ | 281 |
|
| $ | 8,442 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30, 2016 |
| (In millions) | Conventional Generation | | Renewables | | Thermal | | Corporate | | Total |
| Operating revenues | $ | 246 |
| | $ | 412 |
| | $ | 131 |
| | $ | — |
| | $ | 789 |
|
| Cost of operations | 53 |
| | 98 |
| | 87 |
| | — |
| | 238 |
|
| Depreciation and amortization | 60 |
| | 149 |
| | 15 |
| | — |
| | 224 |
|
| General and administrative | — |
| | — |
| | — |
| | 10 |
| | 10 |
|
| Operating income (loss) | 133 |
| | 165 |
| | 29 |
| | (10 | ) | | 317 |
|
| Equity in earnings of unconsolidated affiliates | 10 |
| | 24 |
| | — |
| | — |
| | 34 |
|
| Other income, net | 1 |
| | 2 |
| | — |
| | — |
| | 3 |
|
| Interest expense | (36 | ) | | (115 | ) | | (5 | ) | | (57 | ) | | (213 | ) |
| Income (loss) before income taxes | 108 |
| | 76 |
| | 24 |
| | (67 | ) | | 141 |
|
| Income tax expense | — |
| | — |
| | — |
| | 25 |
| | 25 |
|
| Net Income (Loss) | $ | 108 |
|
| $ | 76 |
|
| $ | 24 |
|
| $ | (92 | ) |
| $ | 116 |
|
Note 1110 — Income Taxes
Effective Tax Rate
The income tax provision consisted of the following:following amounts:
|
| | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (In millions, except percentages) |
| Income before income taxes | $ | 49 |
| | $ | 63 |
| | $ | 100 |
| | $ | 141 |
|
| Income tax expense | 8 |
| | 13 |
| | 15 |
| | 25 |
|
| Effective income tax rate | 16.3 | % | | 20.6 | % | | 15.0 | % | | 17.7 | % |
| | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | 2022 | | 2021 |
| | | | | (In millions, except percentages) |
| Loss before income taxes | | | | | $ | (98) | | | $ | (96) | |
| Income tax benefit | | | | | (1) | | | (20) | |
| Effective income tax rate | | | | | 1.0 | % | | 20.8 | % |
For the three and nine months ended September 30, 2017March 31, 2022 and 2016,2021, the overall effective tax rate was different than the statutory rate of 35%21% primarily due to taxable earnings and losses allocated to NRG resulting from itspartners’ interest in NRG YieldClearway Energy LLC, and production and investment tax credits generated fromwhich includes the effects of applying the HLBV method of accounting for book purposes of certain wind and solar assets, respectively.partnerships.
For tax purposes, NRG YieldClearway Energy LLC is treated as a partnership; therefore, the Company and NRGCEG each record their respective share of taxable income or loss.
Note 1211 — Related Party Transactions
In addition to the transactions and relationships described elsewhere in thesethe notes to the consolidated financial statements, NRG and certain subsidiaries of NRGCEG provide services to the Company and its project entities. Amounts due to NRGCEG subsidiaries are recorded as accounts payable - affiliate— affiliates and amounts due to the Company from NRG or itsCEG subsidiaries are recorded as accounts receivable - affiliate in the Company's balance sheet.
Power Purchase Agreements (PPAs) between the Company and NRG Power Marketing
Elbow Creek and Dover are parties to PPAs with NRG Power Marketing and generate revenue under the PPAs, which are recorded to operating revenues— affiliates in the Company's consolidated statements of operations. Forbalance sheets. The disclosures below summarize the threeCompany’s material related party transactions with CEG and nine months ended September 30, 2017, Elbow Creek and Dover, collectively, generated revenue of $3 million and $10 million, respectively. For the three and nine months ended September 30, 2016, Elbow Creek and Dover, collectively, generated revenue of $4 million and $10 million, respectively.Energy Marketing Services Agreement by and between Thermal entities and NRG Power Marketing
NRG Energy Center Dover LLC, NRG Energy Center Minneapolis, NRG Energy Center Phoenix LLC, and NRG Energy Center Paxton LLC, or Thermal entities,its subsidiaries that are parties to Energy Marketing Services Agreements with NRG Power Marketing, a wholly-owned subsidiary of NRG. Under the agreements, NRG Power Marketing procures fuel and fuel transportation for the operation of Thermal entities. For the three and nine months ended September 30, 2017, Thermal entities purchased $1 million and $7 million, respectively, of natural gas from NRG Power Marketing. For the three and nine months ended September 30, 2016, Thermal entities purchased $1 million and $6 million, respectively, of natural gas from NRG Power Marketing.
Operation and Maintenance (O&M) Services Agreements by and between Company's subsidiaries and NRG
Certain of the Company's subsidiaries are party to O&M Services Agreements with NRG, pursuant to which NRG subsidiaries provide necessary and appropriate services to operate and maintain the subsidiaries' plant operations, businesses and thermal facilities. NRG is reimbursed for the provided services, as well as for all reasonable and related expenses and expenditures, and payments to third parties for services and materials rendered to or on behalf of the parties to the agreements. NRG is not entitled to any management fee or mark-up under the agreements. The following table summarizes material O&M costs recorded in the cost of operations lineincluded in the Company's consolidated statements of operations:operating costs.
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2017 | | 2016 |
| O&M costs | | $ | 10 |
| | $ | 9 |
| | $ | 29 |
| | $ | 28 |
|
There were balances of $21 million and $22 million due from the entities above to NRG in accounts payable — affiliate as of September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, $3 million was recorded in long term liabilities of the consolidated balance sheet.
O&MServices Agreements by and between GenConn and NRG
GenConn incurs fees under two O&M agreements with wholly-owned subsidiaries of NRG. For the three months and nine months ended September 30, 2017 and September 30, 2016, the aggregate fees incurred under the agreements were $1 million and $4 million for each period in each year, respectively.
Administrative Services Agreement by and between Marsh Landing and NRG West Coast LLC
On December 19, 2016, Marsh Landing entered into an administrative services agreement with NRG West Coast LLC, a wholly owned subsidiary of NRG. The administrative services agreement was previously between Marsh Landing and GenOn Energy Services, LLC, a wholly-owned subsidiary of NRG and was subsequently assigned to and assumed by NRG West Coast LLC. The Company reimbursed costs under this agreement of $4 million and $10 million for the three and nine months ended September 30, 2017, respectively. The Company reimbursed costs under the agreement of $4 million and $9 million for the three and nine months ended September 30, 2016, respectively.
Administrative Services Agreements by and between the Company and NRG RenewClearway Renewable Operation & Maintenance LLC
Various wholly-owned subsidiaries of the Company in the Renewables segment are party to administrative services agreements with NRG RenewClearway Renewable Operation and& Maintenance LLC, or RENOM, a wholly-owned subsidiary of NRG,CEG, which provides operation and maintenance, or O&M, services on behalf ofto these entities. The Company incurred total expenses for these services in the amount of $6 million and $16 million for the three and nine months ended September 30, 2017, respectively.subsidiaries. The Company incurred total expenses for these services of $4$15 million and $9$13 million for the three and nine months ended September 30, 2016,March 31, 2022 and 2021, respectively. There was a balance of $4 million and $5$9 million due to RENOM as of September 30, 2017both March 31, 2022 and December 31, 2016, respectively.2021.
ManagementAdministrative Services AgreementAgreements by and between the Company and NRGCEG
NRG providesVarious wholly-owned subsidiaries of the Company are parties to services agreements with Clearway Asset Services LLC and Clearway Solar Asset Management LLC, 2 wholly-owned subsidiaries of CEG, which provide various operation, management,administrative services to the Company's subsidiaries. The Company incurred expenses under these agreements of $3 million for each of the three months ended March 31, 2022 and 2021. There was a balance of $2 million due to CEG as of both March 31, 2022 and December 31, 2021.
CEG Master Services Agreements
The Company is a party to Master Services Agreements with CEG, or MSAs, pursuant to which CEG and certain of its affiliates or third-party service providers provide certain services to the Company, including operational and administrative services, which include human resources, accounting, tax, legal, information systems, treasury,external affairs, accounting, procurement and risk management as set forthservices,and the Company provides certain services to CEG, including accounting, internal audit, tax and treasury services, in the Management Services Agreement. As of September 30, 2017, the base management fee was approximately $8 million per year, subject to an inflation-based adjustment annually at an inflation factor based on the year-over-year U.S. consumer price index. The fee is also subject to adjustments following the consummation of acquisitions and as a result of a change in the scope of services provided under the Management Services Agreement. Costs incurred under this agreement were $2 million and $8 millionexchange for the payment of fees in respect of such services. The Company incurred net expenses of $1 million under these agreements for each of the three and nine months ended September 30, 2017, respectively. Costs incurred under this agreement for the threeMarch 31, 2022 and nine months ended September 30, 2016 were $2 million and $7 million, respectively. The costs incurred under the Management Service Agreement included certain direct expenses incurred by NRG on behalf of the Company in addition to the base management fee.2021.
Note 12— Contingencies
Note 13— Contingencies
This note should be read in conjunction with the complete description under Item 15 — Note 16, Commitments and Contingencies, to the consolidated financial statements included in the Company's 20162021 Form 10-K.
The Company's material legal proceedings are described below. The Company believes that it has valid defenses to these legal proceedings and intends to defend them vigorously. The Company records reserves for estimated losses from contingencies when information available indicates that a loss is probable and the amount of the loss, or range of loss, can be reasonably estimated. As applicable, the Company has established an adequate reserve for the matters discussed below. In addition, legal costs are expensed as incurred. Management assesses such matters based on current information and makes a judgment concerning its potential outcome, considering the nature of the claim, the amount and nature of damages sought, and the probability of success. The Company is unable to predict the outcome of the legal proceedings below or reasonably estimate the scope or amount of any associated costs and potential liabilities. As additional information becomes available, management adjusts its assessment and estimates of such contingencies accordingly. Because litigation is subject to inherent uncertainties and unfavorable rulings or developments, it is possible that the ultimate resolution of the Company's liabilities and contingencies could be at amounts that are different from its currently recorded reserves and that such difference could be material.
In addition to the legal proceedings noted below, the Company and its subsidiaries are party to other litigation or legal proceedings arising in the ordinary course of business. In management's opinion, the disposition of these ordinary course matters will not materially adversely affect the Company's consolidated financial position, results of operations, or cash flows.
Braun v. NRG Yield, Inc. —
Buckthorn Solar Litigation
On April 19, 2016, plaintiffsOctober 8, 2019, the City of Georgetown, Texas, or Georgetown, filed a putative class action lawsuit against NRG Yield, Inc.,petition in the currentDistrict Court of Williamson County, Texas naming Buckthorn Westex, LLC, the Company’s subsidiary that owns the Buckthorn Westex solar project, as the defendant, alleging fraud by nondisclosure and former membersbreach of its board of directors individually,contract in connection with the project and other parties in California Superior Court in Kern County, CA. Plaintiffs allege various violationsthe PPA, and seeking (i) rescission and/or cancellation of the Securities ActPPA, (ii) declaratory judgment that the alleged breaches constitute an event of default under the PPA entitling Georgetown to terminate, and (iii) recovery of all damages, costs of court, and attorneys’ fees. On November 15, 2019, Buckthorn Westex filed an original answer and counterclaims (i) denying Georgetown’s claims, (ii) alleging Georgetown has breached its contracts with Buckthorn Westex by failing to pay amounts due, toand (iii) seeking relief in the defendants’form of (x) declaratory judgment that Georgetown’s alleged failure to disclose material facts related to low wind production prior to NRG Yield, Inc.'s June 22, 2015 Class C common stock offering. Plaintiffs seek compensatory damages, rescission, attorney’spay amounts due constitute breaches of and an event of default under the PPA and that Buckthorn did not commit any events of default under the PPA, (y) recovery of costs, expenses, interest, and attorneys’ fees, and costs.(z) such other relief to which it is entitled at law or in equity. The defendants filed demurrerscurrent deadline to complete discovery is June 24, 2022, and a motion challenging jurisdiction onbench trial is expected to be scheduled for September or October 18, 2016. On October 26, 2017,2022. Buckthorn Westex believes the court approved the parties' stipulation which provides the plaintiffs' oppositionallegations of Georgetown are meritless, and Buckthorn Westex is due on December 6, 2017 and the defendants' reply is due on February 8, 2018.
Ahmed v. NRG Energy, Inc. and the NRG Yield Board of Directors — On September 15, 2016, plaintiffs filed a putative class action lawsuit against NRG Energy, Inc., the directors of NRG Yield, Inc., and other parties in the Delaware Chancery Court. The complaint alleges that the defendants breached their respective fiduciary duties with regard to the recapitalization of NRG Yield, Inc. common stock in 2015. The plaintiffs generally seek economic damages, attorney’s fees and injunctive relief. The defendants filed a motion to dismiss the lawsuit on December 21, 2016. Plaintiffs filed their objection to the motion to dismiss on February 15, 2017. The defendants' reply was filed on March 24, 2017. The court heard oral argument on the defendants' motion to dismiss on June 20, 2017. On September 7, 2017, the court requested additional briefing which the parties provided on September 21, 2017.
GenOn Noteholders' Lawsuit — On December 13, 2016, certain indenture trustees for an ad hoc group of holders, or the Noteholders, of the GenOn Energy, Inc., or GenOn, 7.875% Senior Notes due 2017, 9.500% Notes due 2018, and 9.875% Notes due 2020, and the GenOn Americas Generation, LLC 8.50% Senior Notes due 2021 and 9.125% Senior Notes due 2031, along with certain of the Noteholders, filed a complaint in the Superior Court of the State of Delaware against NRG and GenOn alleging certain claims related to the Services Agreement between NRG and GenOn. On April 30, 2017, the Noteholders filed an amended complaint that asserts additional claims of fraudulent transfer, insider preference and breach of fiduciary duties. In addition to NRG and GenOn, the amended complaint names NRG Yield LLC and certain current and former officers and directors of GenOn as defendants. The plaintiffs, among other things, generally seek return of all monies paidvigorously defending its rights under the Services Agreement and any other damages that the court deems appropriate. On April 28, 2017, the bondholders filed an amended complaint adding the GenOn directors and officers as defendants and asserting claims that they breached certain fiduciary duties. Plaintiffs specifically allege that the transfer of Marsh Landing to NRG Yield LLC constituted a fraudulent transfer. On June 12, 2017, certain GenOn entities, NRG and certain holders of the GenOn and GenOn Americas Generation, LLC senior notes entered into a restructuring support and lock-up agreement. Pursuant to the terms of the restructuring support and lock-up agreement, this matter should ultimately be resolved if GenOn's plan of reorganization, originally submitted on June 29, 2017, is approved by the United States Bankruptcy Court for the Southern District of Texas, Houston Division.PPA.
ITEM 2 — Management's Discussion and Analysis of Financial Condition and the Results of Operations
The following discussion analyzes the Company's historical financial condition and results of operations, which were recast to include the effect of the August 2017 Drop Down Assets and the March 2017 Drop Down Assets.operations.
As you read this discussion and analysis, refer to the Company's Consolidated Financial Statementsconsolidated financial statements to this Form 10-Q, which present the results of operations for the three and nine months ended September 30, 2017March 31, 2022 and 2016.2021. Also refer to the Company's May 9, 20172021 Form 8-K,10-K, which includes detailed discussions of various items impacting the Company's business, results of operations and financial condition.
The discussion and analysis below has been organized as follows:
•Executive Summary, including a description of the business and significant events that are important to understanding the results of operations and financial condition;
•Known trends that may affect the Company’s results of operations and financial condition in the future;
•Results of operations, including an explanation of significant differences between the periods in the specific line items of the consolidated statements of income;operations;
•Financial condition addressing liquidity position, sources and uses of cash, capital resources and requirements, commitments and off-balance sheet arrangements;
•Known trends that may affect the Company’s results of operations and financial condition in the future; and
•Critical accounting policies which are most important to both the portrayal of the Company's financial condition and results of operations, and which require management's most difficult, subjective or complex judgment.
Executive Summary
Introduction and Overview
Clearway Energy, Inc. together with its consolidated subsidiaries, or the Company, is a publicly-traded energy infrastructure investor in and owner of modern, sustainable and long-term contracted assets across North America. The Company is a dividend growth-oriented company formed to serve as the primary vehicle through which NRG owns, operatesindirectly owned by Global Infrastructure Partners, or GIP. GIP is an independent infrastructure fund manager that makes equity and acquires contracted renewabledebt investments in infrastructure assets and conventional generation and thermal infrastructure assets.businesses. The Company believes it is well positionedsponsored by GIP through GIP's portfolio company, Clearway Energy Group LLC, or CEG.
The Company is one of the largest renewable energy owners in the U.S. with over 5,000 net MW of installed wind and solar generation projects. The Company's over 7,500 net MW of assets also includes approximately 2,500 net MW of environmentally-sound, highly efficient natural gas-fired generation facilities. Through this environmentally-sound, diversified and primarily contracted portfolio, the Company endeavors to be a premier company forprovide its investors seekingwith stable and growing dividend income from a diversified portfolio of lower-risk high-quality assets.
The Company owns a diversified portfolio of contracted renewable and conventional generation and thermal infrastructure assets in the U.S. The Company’s contracted generation portfolio collectively represents 5,080 net MW as of September 30, 2017. Each of these assets sells substantiallyincome.Substantially all of itsthe Company’s generation assets are under long-term contractual arrangements for the output pursuant to long-term offtake agreements with creditworthy counterparties.or capacity from these assets. The weighted average remaining contract duration of these offtake agreements was approximately 16 12 years as of September 30, 2017, March 31, 2022based on CAFDCAFD.
On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR. For further details of the Thermal Disposition, refer to Note 3, Acquisitions and Dispositions.
As of March 31, 2022, the Company's operating assets are comprised of the following projects:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Projects | | Percentage Ownership | | Net Capacity (MW)(a) | | Counterparty | | Expiration |
| Conventional | | | | | | | | |
| Carlsbad | | 100 | % | | 527 | | | San Diego Gas & Electric | | 2038 |
| El Segundo | | 100 | % | | 550 | | | SCE | | 2023 |
| GenConn Devon | | 50 | % | | 95 | | | Connecticut Light & Power | | 2040 |
| GenConn Middletown | | 50 | % | | 95 | | | Connecticut Light & Power | | 2041 |
| Marsh Landing | | 100 | % | | 720 | | | Various | | 2023 - 2030 |
| Walnut Creek | | 100 | % | | 485 | | | SCE | | 2023 - 2026 |
| Total Conventional | | | | 2,472 | | | | | |
| Utility Scale Solar | | | | | | | | |
| Agua Caliente | | 51 | % | | 148 | | | PG&E | | 2039 |
| Alpine | | 100 | % | | 66 | | | PG&E | | 2033 |
| Avenal | | 50 | % | | 23 | | | PG&E | | 2031 |
| Avra Valley | | 100 | % | | 27 | | | Tucson Electric Power | | 2032 |
| Blythe | | 100 | % | | 21 | | | SCE | | 2029 |
| Borrego | | 100 | % | | 26 | | | San Diego Gas and Electric | | 2038 |
Buckthorn Solar (b) | | 100 | % | | 154 | | | City of Georgetown, TX | | 2043 |
| CVSR | | 100 | % | | 250 | | | PG&E | | 2038 |
| Desert Sunlight 250 | | 25 | % | | 63 | | | SCE | | 2034 |
| Desert Sunlight 300 | | 25 | % | | 75 | | | PG&E | | 2039 |
| Kansas South | | 100 | % | | 20 | | | PG&E | | 2033 |
Kawailoa (b) | | 48 | % | | 24 | | | Hawaiian Electric Company | | 2041 |
Oahu Solar Projects (b) | | 95 | % | | 58 | | | Hawaiian Electric Company | | 2041 |
| Roadrunner | | 100 | % | | 20 | | | El Paso Electric | | 2031 |
Rosamond Central (b) | | 50 | % | | 96 | | | Various | | 2035 - 2047 |
| TA High Desert | | 100 | % | | 20 | | | SCE | | 2033 |
| Utah Solar Portfolio | | 100 | % | | 530 | | | PacifiCorp | | 2036 |
| Total Solar | | | | 1,621 | | | | | |
| Distributed Solar | | | | | | | | |
DGPV Fund Projects (b) | | 100 | % | | 286 | | | Various | | 2030 - 2044 |
| Solar Power Partners (SPP) Projects | | 100 | % | | 25 | | | Various | | 2026 - 2037 |
| Other DG Projects | | 100 | % | | 21 | | | Various | | 2023 - 2039 |
| Total Distributed Solar | | | | 332 | | | | | |
| | | | | | | | |
| Wind | | | | | | | | |
| Alta I | | 100 | % | | 150 | | | SCE | | 2035 |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Projects | | Percentage Ownership | | Net Capacity (MW)(a) | | Counterparty | | Expiration |
| Alta II | | 100 | % | | 150 | | | SCE | | 2035 |
| Alta III | | 100 | % | | 150 | | | SCE | | 2035 |
| Alta IV | | 100 | % | | 102 | | | SCE | | 2035 |
| Alta V | | 100 | % | | 168 | | | SCE | | 2035 |
Alta X (b) | | 100 | % | | 137 | | | SCE | | 2038 |
Alta XI (b) | | 100 | % | | 90 | | | SCE | | 2038 |
Black Rock (b) | | 50 | % | | 58 | | | Toyota and AEP | | 2036 |
| Buffalo Bear | | 100 | % | | 19 | | | Western Farmers Electric Co-operative | | 2033 |
| Crosswinds | | 99 | % | | 21 | | | Corn Belt Power Cooperative | | 2027 |
Elbow Creek (b) | | 100 | % | | 122 | | | Various | | 2029 |
| Elkhorn Ridge | | 66.7 | % | | 54 | | | Nebraska Public Power District | | 2029 |
| Forward | | 100 | % | | 29 | | | Constellation NewEnergy, Inc. | | 2022 |
| Goat Wind | | 100 | % | | 150 | | | Dow Pipeline Company | | 2025 |
| Hardin | | 99 | % | | 15 | | | Interstate Power and Light Company | | 2027 |
Langford (b) | | 100 | % | | 160 | | | Goldman Sachs | | 2033 |
| Laredo Ridge | | 100 | % | | 81 | | | Nebraska Public Power District | | 2031 |
Lookout (b) | | 100 | % | | 38 | | | Southern Maryland Electric Cooperative | | 2030 |
Mesquite Sky (b) | | 50 | % | | 170 | | | Various | | 2033 - 2036 |
Mesquite Star (b) | | 50 | % | | 210 | | | Various | | 2032 - 2035 |
| Mt. Storm | | 100 | % | | 264 | | | Citigroup | | 2031 |
| Ocotillo | | 100 | % | | 59 | | | N/A | | |
| Odin | | 99.9 | % | | 21 | | | Missouri River Energy Services | | 2028 |
Pinnacle (b) | | 100 | % | | 54 | | | Maryland Department of General Services and University System of Maryland | | 2031 |
Rattlesnake (b) (d) | | 100 | % | | 160 | | | Avista Corporation | | 2040 |
| San Juan Mesa | | 75 | % | | 90 | | | Southwestern Public Service Company | | 2025 |
| Sleeping Bear | | 100 | % | | 95 | | | Public Service Company of Oklahoma | | 2032 |
| South Trent | | 100 | % | | 101 | | | AEP Energy Partners | | 2029 |
| Spanish Fork | | 100 | % | | 19 | | | PacifiCorp | | 2028 |
Spring Canyon II (b) | | 90.1 | % | | 31 | | | Platte River Power Authority | | 2039 |
Spring Canyon III (b) | | 90.1 | % | | 26 | | | Platte River Power Authority | | 2039 |
| Taloga | | 100 | % | | 130 | | | Oklahoma Gas & Electric | | 2031 |
Wildorado (b) | | 100 | % | | 161 | | | Southwestern Public Service Company | | 2027 |
| Total Wind | | | | 3,285 | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Thermal generation (e) | | 100 | % | | 39 | | | Various | | Various |
| | | | | | | | |
| Total net generation capacity | | | | 7,749 | | | | | |
| | | | | | | | |
| | | | | | | | |
Thermal equivalent MWt (c) (e) | | 97 | % | | 1,370 | | | Various | | Various |
(a) Net capacity represents the maximum, or rated, generating capacity of the facility multiplied by the Company's percentage ownership in the facility as of March 31, 2022.
(b) Projects are part of tax equity arrangements and ownership percentage is based on cash to be distributed, as further described in Item 1 — Note 4, Investments Accounted for by the Equity Method and Variable Interest Entities.
(c) Net MWt capacity excludes 43 MWt available under the right-to-use provisions contained in agreements between one of the Company's thermal facilities and certain of its customers.
(d) Rattlesnake has a deliverable capacity of 144 MW.
(e) Includes Thermal assets sold on May 1, 2022, as further described in Item 1 — Note 3, Acquisitions and Dispositions.
Significant Events
Thermal Disposition
•On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR for net proceeds of approximately $1.46 billion, inclusive of working capital, which excludes approximately $20 million in transaction expenses that were incurred in connection with the disposition. The Company estimates that the Thermal Disposition will result in a gain of approximately $1.31 billion.
Corporate Financing Activities
•On May 3, 2022, the Company repaid (i) $305 million in outstanding borrowings under the revolving credit facility and (ii) $335 million in outstanding borrowings under the Bridge Loan Agreement utilizing proceeds received from the Thermal Disposition.
Project-Level Financing Activities
•On March 16, 2022, the Company, through its indirect subsidiary, Viento Funding II, LLC, entered into a financing agreement which included the issuance of a $190 million term loan as well as $35 million in letters of credit, supported by the Company’s interests in the Elkhorn Ridge, Laredo Ridge, San Juan Mesa and Taloga wind projects. The proceeds from the term loan were used to pay off the existing debt in the amount of $186 million related to Laredo Ridge, Tapestry Wind LLC and Viento Funding II, LLC and to pay related financing costs.
Drop Down Transactions
•On March 25, 2022, the Company, through its indirect subsidiary, Lighthouse Renewable Holdco LLC, acquired Mililani BL Borrower Holdco LLC, the indirect owner of the Mililani I solar project, a 39 MW Solar project with 156 MWh of storage capacity that is currently under construction, located in Oahu, Hawaii, from Clearway Renew LLC, a subsidiary of CEG, for cash consideration of $22 million. Lighthouse Renewable Holdco LLC is a partnership between the Company and a third-party investor. The third-party investor also owns thermal infrastructure assetscontributed cash consideration of $14 million utilized to acquire their portion of the acquired entity. Mililani BL Borrower Holdco LLC consolidates, as the direct owner of the primary beneficiary, a tax equity fund, Mililani TE Holdco LLC, which directly holds the Mililani I solar project. Mililani I has a 20-year power purchase agreement with an aggregate steam and chilled water capacityinvestment-grade utility that commences when the project achieves commercial operations The acquisition was funded with existing sources of 1,319 net MWt and electric generation capacity of 123 net MW. These thermal infrastructure assets provide steam, hot water and/or chilled water, and in some instances electricity, to commercial businesses, universities, hospitals and governmental units in multiple locations, principally through long-term contracts or pursuant to rates regulated by state utility commissions.
NRG Transformation Plan
On July 12, 2017, NRG announced that it had adopted and initiated a three-year, three-part improvement plan, or the NRG Transformation Plan.liquidity. As part of the NRG Transformation Plan, NRG announcedacquisition of Mililani I, the Company assumed the project’s financing agreement which included a $16 million construction loan that itconverts to a term loan upon completion of construction, $60 million tax equity bridge loan and a $27 million sponsor equity bridge loan. The sponsor equity bridge loan was repaid at acquisition date, utilizing $14 million from the cash equity investor, as well as $15 million of the Company’s acquisition price, which was contributed back by CEG, and $2 million was utilized to pay associated fees. The tax equity bridge loan will be repaid with the final proceeds from the tax equity investor that will be received when Mililani I achieves commercial operations, which is exploring strategic alternatives for its renewables platform and its interestexpected to occur in the Company. NRG, through its holdingssecond half of 2022.
•In February 2022, in connection with the Company’s 2021 acquisition of the Class B common stock and Class D common stock, has a 55.1% voting interestmembership interests in the Company and receives distributions from NRG YieldBlack Rock Wind Holding LLC, through its ownershipindirect subsidiary Lighthouse Renewable Holding Sub LLC, from Clearway Renew LLC, a subsidiary of Class B units and Class D units. NRG stated that the strategic alternatives span a variety of ownership structures and partnership types, including the potential partial or full monetization of NRG's renewables platform and NRG's interest in the Company. NRG is the Company's controlling stockholder andCEG, the Company has been highly dependent on NRG for, among other things, growth opportunities and management and administration services. See Part I, Item 1A, Risk Factors in the Company's 2016 Form 10-Kpaid an additional $23 million as well as Part II, Item 1A, Risk Factors in the Company's Form 10-Q for the quarter ended June 30, 2017, for risks related to the NRG Transformation Plan and the Company's relationship with NRG.
Regulatory Matters
The Company’s regulatory matters are described in the Company’s 2016 Form 10-K in Item 1, Business — Regulatory Matters and Item 1A, Risk Factors.
As owners of power plants and participants in wholesale and thermal energy markets, certainfinal funding after all remaining turbines of the Company's subsidiaries are subject to regulation by various federal and state government agencies. These include FERC and the PUCT, as well as other public utility commissions in certain states where the Company's assets are located. Each of the Company's U.S. generating facilities qualifies as a EWG or QF. In addition, the Company is subject to the market rules, procedures and protocols of the various ISO and RTO markets in which it participates. Likewise, the Company must also complyBlack Rock wind project became operational. Concurrent with the mandatory reliability requirements imposedfinal funding, the $59 million that was contributed in 2021 by NERC and the regional reliability entities in the regions where the Company operates.
The Company's operations within the ERCOT footprint are not subject to rate regulation by FERC, as they are deemed to operate solely within the ERCOT market and not in interstate commerce. These operations are subject to regulationthird-party investors, consisting of $36 million contributed by the PUCT.cash equity investor and $23 million contributed by the tax equity investor, was released to Clearway Renew LLC.
Environmental Matters
The Company’s environmental matters are described in the Company’s 2016 Form 10-K in Item 1, Business — Environmental Matters and Item 1A, Risk Factors.
The Company is subject to a wide range of environmental laws induring the development, construction, ownership and operation of projects.facilities. These existing and future laws generally require that governmental permits and approvals be obtained before construction and maintained during operation of facilities. The Company is also subjectobligated to comply with all environmental laws regardingand regulations applicable within each jurisdiction and required to implement environmental programs and procedures to monitor and control risks associated with the protectionconstruction, operation and decommissioning of wildlife, including migratory birds, eagles, threatened and endangered species.regulated or permitted energy assets. Federal and state environmental laws have historically become more stringent over time, although this trend could slow or pausechange in the near term with respectfuture.
Proposed Federal Reclassification of Northern Long-Eared Bat — On March 23, 2022, the U.S. Fish and Wildlife Service (FWS) announced a proposal to federal lawsreclassify the northern long-eared bat as endangered under the current U.S. presidential administration.Endangered Species Act. The bat, currently listed as threatened, faces extinction due to the range-wide impacts of white-nose syndrome, a deadly disease affecting cave-dwelling bats across the continent. The northern long-eared bat is found in 37 states in the eastern and north central United States and in Canada. The Company is working with renewable energy industry groups to provide comments on the proposed reclassification as this proposal could affect renewable energy facility siting and operations. The proposed listing was recently published by FWS in the Federal Register and comments on the proposal are due by May 23, 2022. The Company is participating in this comment process through the renewable industry group.
The Company’s environmental matters are further described in the Company’s 2021 Form 10-K in Item 1, Business — Environmental Matters and Item 1A, Risk Factors.
Regulatory Matters
The Company’s regulatory matters are described in the Company’s 2021 Form 10-K in Item 1, Business — Regulatory Matters and Item 1A, Risk Factors.
Trends Affecting Results of Operations and Future Business Performance
The Company’s trends are described in the Company’s May 9, 20172021 Form 8-K10-K in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations -— Trends Affecting Results of Operations and Future Business Performance.
Recent Developments Affecting Industry Conditions and the Company’s Business
Operational Matters
El Segundo Forced OutageCOVID-19 Update
In January 2017,response to the El Segundo Energy Center began a forced outageongoing coronavirus (COVID-19) pandemic, the Company has implemented preventative measures and developed corporate and regional response plans to protect the health and safety of its employees, customers and other business counterparties, while supporting the Company's suppliers and customers' operations to the best of its ability in the circumstances. The Company continues to promote heightened awareness and vigilance, hygiene, and implementation of more stringent cleaning protocols across its facilities and operations and continues to evaluate these measures, response plans and business practices in light of the evolving effects of COVID-19 and its variants.
As of the date of this report, the Company has not experienced any material financial or operational impacts related to COVID-19, or variants thereof. All of the Company’s facilities have remained operational. The Company will continue to assess any financial or operational impacts based on Units 5any future developments.
The Company cannot predict the full impact that COVID-19 and 6its variants will have on the Company’s financial expectations, its financial condition, results of operations and cash flows, its ability to pay dividends to its stockholders, the market prices of its common stock and its ability to satisfy its debt service obligations at this time, due to increasing vibrationsnumerous uncertainties. The ultimate impact will depend on successive operations at Unit 5. In consultationfuture developments, including, among others, the ultimate geographic spread of the virus and related variants, the consequences of governmental and other measures designed to prevent the spread of the virus, the development of effective treatments, including vaccines, the duration of the pandemic, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability and the timing and extent to which normal economic and operating conditions resume For additional discussion regarding risks associated with the Company’s operations and maintenance service provider, a subsidiary of NRG, the Company elected to replace the rotor on Unit 5. Both Unit 5 and 6 returned to service on February 24, 2017. In July 2017, the Company executed a warranty settlement agreement with the original equipment manufacturer that reduced total cost from $12 million to approximately $5 million.
Walnut Creek Forced Outage
During the first half of 2017, Walnut Creek experienced forced outages due to mechanical failures of turbine parts that caused downstream damage to severalCOVID-19 pandemic, see Part I, Item 1A Risk Factors of the plant's Units, primarily Unit 1. The repairs necessary to return Unit 1 to service were completed in the second quarter of 2017 and the plant has performed reliably since then. The estimated cost of this outage is approximately $8 million before the recovery of insurance proceeds, a significant portion of which the Company believes is recoverable by year end. In the third quarter of 2017, the Company, through Walnut Creek, executed an amendment to the contractual service agreement with the original equipment manufacturer to improve long term reliability. The amendment provides for the original equipment manufacturer to perform all required, currently available and future turbine reliability upgrades in exchange for an investment of approximately $15 million that will be paid over the next five years.Company's 2021 Form 10-K.
ROFO Asset Update36
Puente Power Project — On October 5, 2017, the California Energy Commission, or CEC, the agency responsible for permitting NRG’s Puente Power Project, a ROFO Asset, issued a statement on behalf of the committee of two Commissioners overseeing the permitting process stating their intention to issue a proposed decision that would deny a permit for the Puente Power Project. On October 16, 2017, NRG filed a motion to suspend the permitting proceeding for at least six months. A hearing on the motion was held on October 31, 2017, after which the CEC took the matter under submission subject to a written decision to be issued at an unspecified later date. If the CEC Commissioners accept the recommendation, and formally deny a permit for the Puente Power Project, then the project will not move forward.
Consolidated Results of Operations
The following table provides selected financial information:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| (In millions) | | | | | | | 2022 | | 2021 | | Change |
| Operating Revenues | | | | | | | | | | | |
| Energy and capacity revenues | | | | | | | $ | 360 | | | $ | 276 | | | $ | 84 | |
| Other revenues | | | | | | | 22 | | | 17 | | | 5 | |
| Contract amortization | | | | | | | (42) | | | (32) | | | (10) | |
| Mark-to-market for economic hedges | | | | | | | (126) | | | (24) | | | (102) | |
| Total operating revenues | | | | | | | 214 | | | 237 | | | (23) | |
| Operating Costs and Expenses | | | | | | | | | | | |
| Cost of fuels | | | | | | | 22 | | | 19 | | | 3 | |
| | | | | | | | | | | |
| Operations and maintenance | | | | | | | 76 | | | 68 | | | 8 | |
| Other costs of operations | | | | | | | 30 | | | 23 | | | 7 | |
| Depreciation, amortization and accretion | | | | | | | 124 | | | 128 | | | (4) | |
| | | | | | | | | | | |
| General and administrative | | | | | | | 12 | | | 10 | | | 2 | |
| Transaction and integration costs | | | | | | | 2 | | | 2 | | | — | |
| Development costs | | | | | | | 1 | | | 1 | | | — | |
| Total operating costs and expenses | | | | | | | 267 | | | 251 | | | 16 | |
| Operating Loss | | | | | | | (53) | | | (14) | | | (39) | |
| Other Income (Expense) | | | | | | | | | | | |
| Equity in earnings of unconsolidated affiliates | | | | | | | 4 | | | 4 | | | — | |
| | | | | | | | | | | |
| Other income, net | | | | | | | — | | | 1 | | | (1) | |
| Loss on debt extinguishment | | | | | | | (2) | | | (42) | | | 40 | |
| Derivative interest income | | | | | | | 41 | | | 47 | | | (6) | |
| Other interest expense | | | | | | | (88) | | | (92) | | | 4 | |
| Total other expense, net | | | | | | | (45) | | | (82) | | | 37 | |
| Loss Before Income Taxes | | | | | | | (98) | | | (96) | | | (2) | |
| Income tax benefit | | | | | | | (1) | | | (20) | | | 19 | |
| Net Loss | | | | | | | (97) | | | (76) | | | (21) | |
| Less: Loss attributable to noncontrolling interests and redeemable interests | | | | | | | (65) | | | (79) | | | 14 | |
| Net (Loss) Income Attributable to Clearway Energy, Inc. | | | | | | | $ | (32) | | | $ | 3 | | | $ | (35) | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (In millions) | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change |
| Operating Revenues | | | | | | | | | | | |
| Energy and capacity revenues | $ | 283 |
| | $ | 289 |
| | $ | (6 | ) | | $ | 819 |
| | $ | 840 |
| | $ | (21 | ) |
| Contract amortization | (18 | ) | | (17 | ) | | (1 | ) | | (52 | ) | | (51 | ) | | (1 | ) |
| Total operating revenues | 265 |
| | 272 |
| | (7 | ) | | 767 |
| | 789 |
| | (22 | ) |
| Operating Costs and Expenses | | | | | | | | | | | |
| Cost of fuels | 15 |
| | 18 |
| | (3 | ) | | 45 |
| | 48 |
| | (3 | ) |
| Emissions credit amortization | — |
| | — |
| | — |
| | — |
| | 6 |
| | (6 | ) |
| Operations and maintenance | 46 |
| | 41 |
| | 5 |
| | 143 |
| | 134 |
| | 9 |
|
| Other costs of operations | 17 |
| | 17 |
| | — |
| | 51 |
| | 50 |
| | 1 |
|
| Depreciation and amortization | 88 |
| | 75 |
| | 13 |
| | 241 |
| | 224 |
| | 17 |
|
| General and administrative | 4 |
| | 4 |
| | — |
| | 14 |
| | 10 |
| | 4 |
|
| Acquisition-related transaction and integration costs | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Total operating costs and expenses | 170 |
| | 155 |
| | 15 |
| | 496 |
| | 472 |
| | 24 |
|
| Operating Income | 95 |
| | 117 |
| | (22 | ) | | 271 |
| | 317 |
| | (46 | ) |
| Other Income (Expense) | | | | | | | | | | |
|
| Equity in earnings of unconsolidated affiliates | 28 |
| | 16 |
| | 12 |
| | 63 |
| | 34 |
| | 29 |
|
| Other income, net | 1 |
| | 1 |
| | — |
| | 3 |
| | 3 |
| | — |
|
| Interest expense | (75 | ) | | (71 | ) | | (4 | ) | | (237 | ) | | (213 | ) | | (24 | ) |
| Total other expense, net | (46 | ) | | (54 | ) | | 8 |
| | (171 | ) | | (176 | ) | | 5 |
|
| Income Before Income Taxes | 49 |
| | 63 |
| | (14 | ) | | 100 |
| | 141 |
| | (41 | ) |
| Income tax expense | 8 |
| | 13 |
| | (5 | ) | | 15 |
| | 25 |
| | (10 | ) |
| Net Income | 41 |
| | 50 |
| | (9 | ) | | 85 |
| | 116 |
| | (31 | ) |
| Less: Pre-acquisition net income of Drop Down Assets | 1 |
| | 11 |
| | (10 | ) | | 18 |
| | 20 |
| | (2 | ) |
| Net Income Excluding Pre-acquisition Net Income of Drop Down Assets | 40 |
| | 39 |
| | 1 |
| | 67 |
| | 96 |
| | (29 | ) |
| Less: Net Income attributable to noncontrolling interests | 11 |
| | 6 |
| | 5 |
| | 13 |
| | 26 |
| | (13 | ) |
| Net Income Attributable to NRG Yield, Inc. | $ | 29 |
| | $ | 33 |
| | $ | (4 | ) | | $ | 54 |
| | $ | 70 |
| | $ | (16 | ) |
|
| | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| Business metrics: | 2017 | | 2016 | | 2017 | | 2016 |
Renewables MWh generated/sold (in thousands) (a) | 1,544 |
| | 1,744 |
| | 5,295 |
| | 5,563 |
|
Conventional MWh generated (in thousands) (a)(b) | 717 |
| | 628 |
| | 1,172 |
| | 1,265 |
|
| Thermal MWt sold (in thousands) | 463 |
| | 496 |
| | 1,450 |
| | 1,497 |
|
Thermal MWh sold (in thousands) (c) | 9 |
| | 12 |
| | 27 |
| | 61 |
|
| | | | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| Business metrics: | | | | | 2022 | | 2021 |
Renewables MWh generated/sold (in thousands) (a) | | | | | 3,319 | | | 2,530 | |
| Thermal MWt sold (in thousands) | | | | | 652 | | | 611 | |
| Thermal MWh sold (in thousands) | | | | | 14 | | | 13 | |
Conventional MWh generated (in thousands) (a) (b) | | | | | 132 | | | 165 | |
| Conventional equivalent availability factor | | | | | 95.3 | % | | 83.2 | % |
14(a) Volumes do not include the MWh generated/sold by the Company's equity method investments.
(b) Volumes generated are not sold as the Conventional facilities sell capacity rather than energy.
(c) MWh sold do not include 34 MWh and 110 MWh during the three months ended September 30, 2017 and 2016, respectively, and 52 MWh and 184 MWh during the nine months ended September 30, 2017 and 2016, respectively, generated by NRG Dover, a subsidiary of the Company, under the PPA with NRG Power Marketing, as further described in Note 12, Related Party Transactions.
Management’s Discussion of the Results of Operations for the Three Months Ended September 30, 2017March 31, 2022 and 20162021
Gross MarginOperating Revenues
The Company calculates gross margin in order to evaluate operating performance as operatingOperating revenues less cost of sales, which includes cost of fuel, contract and emission credit amortization and mark-to-market for economic hedging activities.
Economic Gross Margin
In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company' presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as energy and capacity revenue less cost of fuels. Economic gross margin excludes the following components from GAAP gross margin: contract amortization, mark-to-market results, emissions credit amortization and (losses) gains on economic hedging activities. Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled.
The below tables present the composition of gross margin, as well as the reconciliation to economic gross margin, for the three months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Conventional Generation | | Renewables | | Thermal | | Total |
| (In millions) | | | | | | | |
| Three months ended September 30, 2017 | | | | | | |
|
| Energy and capacity revenues | $ | 89 |
| | $ | 147 |
| | $ | 47 |
| | $ | 283 |
|
| Cost of fuels | — |
| | — |
| | (15 | ) | | (15 | ) |
| Contract amortization | (1 | ) | | (16 | ) | | (1 | ) | | (18 | ) |
| Gross margin | 88 |
| | 131 |
| | 31 |
| | 250 |
|
| Contract amortization | 1 |
| | 16 |
| | 1 |
| | 18 |
|
| Economic gross margin | $ | 89 |
| | $ | 147 |
| | $ | 32 |
| | $ | 268 |
|
| | | | | | | | |
| Three months ended September 30, 2016 | | | | | | |
|
| Energy and capacity revenues | $ | 83 |
| | $ | 158 |
| | $ | 48 |
| | $ | 289 |
|
| Cost of fuels | — |
| | (1 | ) | | (17 | ) | | (18 | ) |
| Contract amortization | (1 | ) | | (16 | ) | | — |
| | (17 | ) |
| Gross margin | 82 |
| | 141 |
| | 31 |
| | 254 |
|
| Contract amortization | 1 |
| | 16 |
| | — |
| | 17 |
|
| Economic gross margin | $ | 83 |
| | $ | 157 |
| | $ | 31 |
| | $ | 271 |
|
Gross margin decreased by $4$23 million during the three months ended September 30, 2017,March 31, 2022, compared to the same period in 2016,2021, due to a combination of the following:drivers summarized in the table below:
|
| | | |
| | (In millions) |
|
| Decrease in the Renewables segment due to a 12% decrease in volume generated by wind projects, primarily at NRG Wind TE Holdco, Alta Wind and Tapestry, as well as a 6% decrease in solar generation, primarily at CVSR in connection with lower insolation | $ | (10 | ) |
| Increase in the Conventional segment due to fewer outages at Walnut Creek in 2017, as well as increased start revenues at El Segundo and Marsh Landing | 6 |
|
Decrease in gross margin
| $ | (4 | ) |
| | | | | | | | |
| | (In millions) |
| Renewables Segment | Increase due to a loss of $50 million in February 2021 related to net settlements of obligations for wind facilities that were unable to produce the required output during extreme weather conditions in Texas, as well as the 2021 acquisitions of Agua Caliente, Mt. Storm and the Utah Solar Portfolio | $ | 74 | |
| Thermal Segment | Increase primarily driven by higher fuel prices passed through to customers and higher volumes, partially driven by weather | 9 | |
| Conventional Segment | Increase driven by improved availability at the El Segundo facility due to the timing of annual planned maintenance outages | 6 | |
| Mark-to-market for economic hedges | Increase in unrealized losses from changes in the fair value of commodity contracts, primarily driven by an increase in forward power prices in the ERCOT and PJM markets, as well as the 2021 acquisitions of Mt. Storm and Mesquite Sky and the mark-to-market of the Langford commodity contract, which previously qualified for the NPNS exception | (102) | |
| Contract amortization | Increase primarily driven by amortization of the intangible assets for power purchase agreements related to the 2021 acquisitions of Agua Caliente and the Utah Solar Portfolio | (10) | |
| | $ | (23) | |
Operations and Maintenance Expense
Operations and maintenance expense increased by $5$8 million during the three months ended September 30, 2017,March 31, 2022, compared to the same period in 2016,2021, primarily duefrom the 2021 acquisitions of Mt. Storm, Mesquite Sky and the Utah Solar Portfolio.
Other Costs of Operations Expense
Other cost of operations increased $7 million for the three months ended March 31, 2022, compared to the forced outages that took place at Walnut Creeksame period in 2021, primarily from the first half2021 acquisitions of 2017.Mt. Storm, Mesquite Sky and the Utah Solar Portfolio.
Depreciation and Amortization ExpenseLoss on Debt Extinguishment
Depreciation and amortization expense increased by $13The Company recorded a loss on debt extinguishment of $2 million during the three months ended September 30, 2017, comparedMarch 31, 2022, which reflects the write-off of previously deferred finance costs related to the same periodLaredo Ridge, Tapestry Wind LLC and Viento Funding II, LLC, as further described in 2016, primarily due to change in estimated useful lives for certain componentsNote 7, Long-term Debt.
The Company recorded a loss on debt extinguishment of fixed assets in the Renewables and Conventional segments in the first half of 2017.
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased by $12$42 million during the three months ended September 30, 2017, comparedMarch 31, 2021, which primarily reflects the write-off of previously deferred finance costs and payment of premiums related to the same period in 2016, primarily due to an increase in earnings fromredemption of the Utah Solar Portfolio, which was acquired by NRG in November 2016, as well as an increase in earnings from Desert Sunlight, partially offset by a decrease in earnings from Avenal.2025 Senior Notes.
Interest Expense
Interest expense increased by $4 million during the three months ended September 30, 2017, compared to the same period in 2016, due to:
|
| | | |
| | (In millions) |
|
Issuance of the new long-term debt, primarily including 2026 Senior Notes in August 2016, Energy Center Minneapolis Series D Notes due 2031 issued in October 2016, and Agua Caliente Borrower 2 due 2038 issued in February 2017 | $ | 6 |
|
| Utah Solar Portfolio debt assumed in connection with the acquisition of the March 2017 Drop Down Assets | 4 |
|
| Amortization of de-designated interest rate swaps, partially offset by the change in fair value of interest rate swaps | (2 | ) |
| Lower principal balances on certain project level debt in 2017, as well as higher revolver borrowings in 2016 | (4 | ) |
| Increase in interest expense | $ | 4 |
|
IncomeTax ExpenseBenefit
For the three months ended September 30, 2017,March 31, 2022, the Company recorded an income tax expense was $5benefit of $1 million lower than inon pretax loss of $98 million. For the same period in 2016 due2021, the Company recorded an income tax benefit of $20 million on a pretax loss of $96 million. The primary driver of the $19 million decrease in income tax benefit is the increase in the allocation of mark-to-market losses to lower income before taxes. For the three months ended September 30, 2017 and 2016, the Company's overall effective tax rate was different than the statutory rate of 35% primarily due to taxable earnings allocated to NRG resulting from NRG's interestexternal partners in NRG Yield LLC,2022, which is treated as well as production and investment tax credits generated from certain wind and solar assets, respectively.a discrete item.
Income
Loss Attributable to Noncontrolling Interests and Redeemable Interests
For the three months ended September 30, 2017, the Company had income of $34 million attributable to NRG's interest in the Company and a loss of $23 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and the application of the HLBV method. For the three months ended September 30, 2016, the Company had income of $44 million attributable to NRG's interest in the Company and a loss of $38 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and the application of the HLBV method, which generally allocates more loss to the noncontrolling interest in the first several years after fund formation, reflecting the allocation of tax items such as production tax credits and tax depreciation to the fund investors.
Management’s Discussion of the Results of Operations for the Nine Months Ended September 30, 2017 and 2016
Gross Margin
The Company calculates gross margin in order to evaluate operating performance as operating revenues less cost of sales, which includes cost of fuel, contract and emission credit amortization and mark-to-market for economic hedging activities.
Economic Gross Margin
In addition to gross margin, the Company evaluates its operating performance using the measure of economic gross margin, which is not a GAAP measure and may not be comparable to other companies’ presentations or deemed more useful than the GAAP information provided elsewhere in this report. Economic gross margin should be viewed as a supplement to and not a substitute for the Company' presentation of gross margin, which is the most directly comparable GAAP measure. Economic gross margin is not intended to represent gross margin. The Company believes that economic gross margin is useful to investors as it is a key operational measure reviewed by the Company's chief operating decision maker. Economic gross margin is defined as energy and capacity revenue less cost of fuels. Economic gross margin excludes the following components from GAAP gross margin: contract amortization, mark-to-market results, emissions credit amortization and (losses) gains on economic hedging activities. Mark-to-market results consist of unrealized gains and losses on contracts that are not yet settled.
The below tables present the composition of gross margin, as well as the reconciliation to economic gross margin, for the nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| | Conventional Generation | | Renewables | | Thermal | | Total |
| (In millions) | | | | | | | |
| Nine months ended September 30, 2017 | | | | | | | |
| Energy and capacity revenues | $ | 250 |
| | $ | 437 |
| | $ | 132 |
| | $ | 819 |
|
| Cost of fuels | — |
| | — |
| | (45 | ) | | (45 | ) |
| Contract amortization | (4 | ) | | (46 | ) | | (2 | ) | | (52 | ) |
| Gross margin | 246 |
| | 391 |
| | 85 |
| | 722 |
|
| Contract amortization | 4 |
| | 46 |
| | 2 |
| | 52 |
|
| Economic gross margin | $ | 250 |
| | $ | 437 |
| | $ | 87 |
| | $ | 774 |
|
| | | | | | | | |
| Nine months ended September 30, 2016 | | | | | | | |
| Energy and capacity revenues | $ | 250 |
| | $ | 458 |
| | $ | 132 |
| | $ | 840 |
|
| Cost of fuels | (1 | ) | | (1 | ) | | (46 | ) | | (48 | ) |
| Contract amortization | (4 | ) | | (46 | ) | | (1 | ) | | (51 | ) |
| Emissions credit amortization | (6 | ) | | — |
| | — |
| | (6 | ) |
| Gross margin | 239 |
| | 411 |
| | 85 |
| | 735 |
|
| Contract amortization | 4 |
| | 46 |
| | 1 |
| | 51 |
|
| Emissions credit amortization | 6 |
| | — |
| | — |
| | 6 |
|
| Economic gross margin | $ | 249 |
| | $ | 457 |
| | $ | 86 |
| | $ | 792 |
|
Gross margin decreased by $13 million during the nine months ended September 30, 2017, compared to the same period in 2016, due to a combination of the following:
|
| | | |
| | (In millions) |
|
| Decrease in the Renewables segment due to a 4% decrease in volume generated by wind projects, primarily in connection with lower wind resource at the Alta Wind, and NRG Wind TE Holdco projects, as well as a 5% decrease in solar generation, primarily at CVSR in connection with lower insolation | $ | (20 | ) |
| Increase in the Conventional segment, primarily due to Emissions credit amortization of NOx allowances at Walnut Creek and El Segundo in compliance with amendments to the Regional Clean Air Incentives Market program in 2016 | 7 |
|
| Decrease in gross margin | $ | (13 | ) |
Operations and Maintenance
Operations and maintenance expense increased by $9 million during the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to forced outages at Walnut Creek and El Segundo in 2017.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $17 million during the nine months ended September 30, 2017, compared to the same period in 2016, due to the combination of the following:
|
| | | |
| | (In millions) |
|
| Increase in depreciation expense due to an update in estimated useful lives for certain components of fixed assets in the first half of 2017 in the Conventional and Renewables segments | $ | 23 |
|
Decrease in depreciation expense at NRG Wind TE Holdco, primarily due to the effect of assets impairment at Elbow Creek, Goat and Forward that took place in December 2016, as further described in Note 9 - Asset Impairments to the Company's 2016 Form 10-K. | (6 | ) |
| Increase in depreciation and amortization expense | $ | 17 |
|
Equity in Earnings of Unconsolidated Affiliates
Equity in earnings of unconsolidated affiliates increased by $29 million during the nine months ended September 30, 2017, compared to the same period in 2016, primarily due to the acquisition of the Utah Solar Portfolio in November 2016, partially offset by a decrease in earnings from the Company's partnerships with NRG.
Interest Expense
Interest expense increased by $24 million during the nine months ended September 30, 2017, compared to the same period in 2016, due to:
|
| | | |
| | (In millions) |
|
| Issuance of the new long-term debt in the second half of 2016, including primarily 2026 Senior Notes, CVSR Holdco Notes due 2037, and Energy Center Minneapolis Series D Notes due 2031 | $ | 20 |
|
| Utah Solar Portfolio debt assumed in connection with the acquisition of the March 2017 Drop Down Assets | 12 |
|
| Amortization of de-designated interest rate swaps, as well as the change in fair value of interest rate swaps | 3 |
|
| Higher revolver borrowings in 2016 combined with the lower principal balances on project level debt in 2017 | (11 | ) |
| Increase in interest expense | $ | 24 |
|
Income Tax Expense
For the nine months ended September 30, 2017, income tax expense was $10 million lower than in the same period in 2016 due to lower income before taxes. For the nine months ended September 30, 2017 and 2016, the overall effective tax rate was different than the statutory rate of 35% primarily due to taxable earnings allocated to NRG resulting from NRG's interest in NRG Yield LLC, as well as production and investment tax credits generated from certain wind and solar assets, respectively.
Income Attributable to Noncontrolling Interests
For the nine months ended September 30, 2017, the Company had income of $69 million attributable to NRG related to its economic interest in NRG Yield LLC. Additionally, for the nine months ended September 30, 2017,March 31, 2022, the Company had a loss of $56$65 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and the applicationredeemable interests comprised of the HLBV method. following:
| | | | | | | | |
| | (In millions) |
| CEG's economic interest in Clearway Energy LLC | | $ | (25) | |
| Losses attributable to third-party partnerships | | (22) | |
| Losses attributable to tax equity financing arrangements and the application of HLBV | | (18) | |
| | $ | (65) | |
For the ninethree months ended September 30, 2016,March 31, 2021, the Company had income of $93 million attributable to NRG's economic interest in the Company and a loss of $67$79 million attributable to noncontrolling interests with respect to its tax equity financing arrangements and applicationredeemable interests comprised of the HLBV method, which generally allocates more loss to the noncontrolling interest in the first several years after fund formation, reflecting the allocation of tax items such as production tax credits and tax depreciation to the fund investors.
following:
| | | | | | | | |
| | (In millions) |
| Losses attributable to tax equity financing arrangements and the application of HLBV | | $ | (41) | |
| Losses attributable to third-party partnerships | | (26) | |
| CEG's economic interest in Clearway Energy LLC | | (12) | |
| | |
| | $ | (79) | |
Liquidity and Capital Resources
The Company's principal liquidity requirements are to meet its financial commitments, finance current operations, fund capital expenditures, including acquisitions from time to time, service debt and pay dividends. As a normal part of the Company's business, depending on market conditions, the Company will from time to time consider opportunities to repay, redeem, repurchase or refinance its indebtedness. Changes in the Company's operating plans, lower than anticipated sales, increased expenses, acquisitions or other events may cause the Company to seek additional debt or equity financing in future periods. There can be no guarantee that financing will be available on acceptable terms or at all. Debt financing, if available, could impose additional cash payment obligations and additional covenants and operating restrictions.
Current Liquidity Position
As of September 30, 2017March 31, 2022 and December 31, 20162021, the Company's liquidity was approximately $746$574 million and $922$821 million,, respectively, comprised of cash, restricted cash and availability under the Company's revolving credit facility.
| | | | | | | | | | | | | | |
| (In millions) | | March 31, 2022 | | December 31, 2021 |
| Cash and cash equivalents: | | | | |
| Clearway Energy, Inc. and Clearway Energy LLC, excluding subsidiaries | | $ | 45 | | | $ | 33 | |
| Subsidiaries | | 95 | | | 146 | |
| Restricted cash: | | | | |
| Operating accounts | | 135 | | 246 | |
| Reserves, including debt service, distributions, performance obligations and other reserves | | 191 | | 229 | |
| Total cash, cash equivalents and restricted cash | | $ | 466 | | | $ | 654 | |
| Revolving credit facility availability | | 108 | | | 167 | |
| Total liquidity | | $ | 574 | | | $ | 821 | |
The Company'sCompany’s liquidity includes $140$326 million and $165$475 million of restricted cash balances as of September 30, 2017March 31, 2022 and December 31, 2016,2021, respectively. Restricted cash consists primarily of funds to satisfy the requirements of certain debt agreementsarrangements and funds held within the Company's projects that are restricted in their use. The Company's various financing arrangements are described in Note 7, Long-term Debt.As of September 30, 2017,March 31, 2022, these restricted funds were comprised of $135 million designated to fund operating expenses, approximately $38 million designated for current debt service payments and $135 million restricted for reserves including debt service, performance obligations and other reserves, as well as capital expenditures. The remaining $18 million is held in distribution reserve accounts.
As of March 31, 2022, the Company had $427$305 million of available borrowings under itsthe revolving credit facility.
As of September 30, 2017, there were no outstanding borrowingsfacility and there were $68$82 million ofin letters of credit outstandingoutstanding. During the three months ended March 31, 2022, the Company borrowed $80 million under the Company's revolving credit facility.facility, and subsequently repaid $20 million. On May 3, 2022, the Company repaid the $305 million in outstanding borrowings under the revolving credit facility utilizing the proceeds received from the Thermal Disposition. The facility will continue to be used for general corporate purposes including financing of future acquisitions and posting letters of credit.
Management believes that the Company'sCompany’s liquidity position, cash flows from operations, and availability under its revolving credit facility will be adequate to meet the Company's financial commitments; debt service obligations; growth, operating and maintenance capital expenditures; and to fund dividends to holders of the Company'sCompany’s Class A common stock and Class C common stock. Management continues to regularly monitor the Company'sCompany’s ability to finance the needs of its operating, financing and investing activity within the dictates of prudent balance sheet management.
Credit Ratings
Credit rating agencies rate a firm's public debt securities. These ratings are utilized by the debt markets in evaluating a firm's credit risk. Ratings influence the price paid to issue new debt securities by indicating to the market the Company'sCompany’s ability to pay principal, interest and preferred dividends. Rating agencies evaluate a firm's industry, cash flow, leverage, liquidity and hedge profile, among other factors, in their credit analysis of a firm'sfirm’s credit risk.
The following table summarizes the credit ratings for the Company and its Senior Notes as of September 30, 2017:
|
| | | | | | | | | | | | |
| S&P | | Moody's | | |
NRG Yield,Clearway Energy, Inc. | BB | | Ba2 | | |
5.375%4.750% Senior Notes, due 20242028 | BB | | Ba2 | | |
5.000%3.750% Senior Notes, due 20262031 | BB | | Ba2 | | |
| 3.750% Senior Notes, due 2032 | BB | | Ba2 | | |
The ratings outlook is stable.
Sources of Liquidity
The Company'sCompany’s principal sources of liquidity include cash on hand, cash generated from operations, proceeds from sales of assets, borrowings under new and existing financing arrangements and the issuance of additional equity and debt securities as appropriate given market conditions. As described in Item 1— 1 — Note 7,, Long-term Debt, and Note 9, Changes in Capital Structure, to this Form 10-Q and Item 15 — Note 10,, Long-term Debt, to the consolidated financial statements included in the Company's May 9, 2017 Company’s 2021 Form 8-K,10-K, the Company'sCompany’s financing arrangements consist of corporate level debt, which includes Senior Notes and the revolving credit facility, the 2019 Convertible Notes, the 2020 Convertible Notes, the Senior Notes,facility; the ATM ProgramPrograms; and project-level financings for its various assets.
At-the-Market Equity Offering ProgramThermal Disposition
DuringOn May 1, 2022, the nine months ended September 30, 2017, NRG Yield, Inc. issued 1,921,866 sharesCompany completed the sale of Class C common stock under100% of its interests in the ATM ProgramThermal Business to KKR for grossnet proceeds of $35approximately $1.46 billion, inclusive of working capital, which excludes approximately $20 million andin transaction expenses that were incurred commission feesin connection with the disposition. The Company estimates that the Thermal Disposition will result in a gain of $346 thousand.approximately $1.31 billion.
Thermal Financing
On March 16, 2017, NRG Energy Center Minneapolis LLC, a subsidiary of NRG Thermal LLC, amended the shelf facility of its existing Thermal financing arrangement to allow for the issuance of an additional $10 million of Series F notes at a 4.60% interest rate, or the Series F Notes, increasing the total principal amount of notes available for issuance under the shelf facility to $80 million. The Series F Notes will be secured by substantially all of the assets of NRG Energy Center Minneapolis LLC. NRG Thermal LLC has guaranteed the indebtedness and its guarantee is secured by a pledge of the equity interests in all of NRG Thermal LLC’s subsidiaries.
Uses of Liquidity
The Company'sCompany’s requirements for liquidity and capital resources, other than for operating its facilities, are categorized as: (i) debt service obligations, as described more fully in Item 1 — Note 7, Long-term Debt,;to the consolidated financial statements; (ii) capital expenditures; (iii) off-balance sheet arrangements; (iv) acquisitions and investments; and (iv)(v) cash dividends to investors.
Capital Expenditures
The Company's capital spending program is mainly focused on maintenance capital expenditures, consisting of costs to maintain the assets currently operating, such as costs to replace or refurbish assets during routine maintenance, and growth capital expenditures consisting of costs to construct new assets, costs to complete the construction of assets where construction is in process, and capital expenditures related to acquiring additional thermal customers.
For the ninethree months ended September 30, 2017March 31, 2022, the Company used approximately $23$47 million to fund capital expenditures, including growthexpenditures of $2$36 million in the Renewables segment, $17 million incurred in connection with the Mesquite Sky wind project, $9 million incurred in connection with the Black Rock wind project, $5 million incurred in connection with the Rattlesnake wind project and $5 million incurred by other wind and solar projects. The Company also incurred $4 million of growth capital expenditures in the Thermal segment incurred in connection with expansion of its customer base. For the nine months ended September 30, 2016,various development projects. In addition, the Company used approximately $16incurred $7 million to fundin maintenance capital expenditures, of which $12 million related to maintenance expenditures. The Company develops annual capital spending plans based on projected requirements for maintenance and growth capital. The Company estimated an additional $5 million and $32estimates $30 million of maintenance expenditures for the remainder of 2017 and full 2018, respectively. 2022. These estimates are subject to continuing review and adjustment and actualadjustment. Actual capital expenditures may vary from these estimates. Estimates for 2022 exclude any contributions from the Thermal segment for periods after the closing of the Thermal Disposition.
Acquisitions and Investments
The Company intends to acquire generation and thermal infrastructure assets developed and constructed by NRG and third parties in the future,CEG, as well as generation and thermal infrastructure assets from third parties where the Company believes its knowledge of the market and operating expertise provides a competitive advantage, and to utilize such acquisitions as a means to grow its CAFD. business.
Mililani I Drop Down — On February 24, 2017,March 25, 2022, the Company, amended and restatedthrough its indirect subsidiary, Lighthouse Renewable Holdco LLC, acquired Mililani BL Borrower Holdco LLC, the ROFO Agreement, expandingindirect owner of the ROFO Assets pipelineMililani I solar project, a 39 MW Solar project with the addition156 MWh of 234 net MWstorage capacity that is currently under construction, located in Oahu, Hawaii, from Clearway Renew LLC, a subsidiary of utility-scale solar projects, consisting of Buckthorn, a 154 net MW solar facility in Texas, and Hawaii solar projects, which have a combined capacity of 80 net MW.
On October 17, 2017, NRG offered the Company the opportunity to purchase 100% of its ownership interest in Buckthorn pursuant to the ROFO Agreement. The Buckthorn acquisition is subject to negotiation and approval by the Company's independent directors.
As discussed in Item 1 — Note 3, Business Acquisitions, the Company completed the following acquisitions in 2017:
November 2017 Drop Down Assets — On November 1, 2017, the Company acquired a 38 MW solar portfolio primarily comprised of assets from NRG's Solar Power Partners (SPP) funds and other projects developed by NRG,CEG, for cash consideration of $71 million, excluding working capital adjustments, plus assumed non-recourse debt of $26$22 million. As of September 30, 2017, the November 2017 Drop Down Assets' debt was $33 million, of which $7 million was paid by NRG in October 2017.
August 2017 Drop Down Assets — On August 1, 2017,Lighthouse Renewable Holdco LLC is a partnership between the Company acquired the remaining 25% interest in NRG Wind TE Holdco,and a portfolio of 12 wind projects, from NRG for totalthird-party investor. The third-party investor also contributed cash consideration of $44$14 million including a working capital adjustment of $3 million. The transaction also includes potential additional paymentsutilized to NRG dependent upon actual energy prices for merchant periods beginning in 2027.
March 2017 Drop Down Assets — On March 27, 2017, the Company acquired the following interests from NRG: (i) Agua Caliente Borrower 2 LLC, which owns a 16% interest (approximately 31% of NRG's 51% interest) in the Agua Caliente solar farm, oneacquire their portion of the ROFO Assets, representing ownershipacquired entity. Mililani BL Borrower Holdco LLC consolidates, as the direct owner of approximately 46 net MW of capacity, and (ii) NRG's interests in seven utility-scale solar farms located in Utah, which are part ofthe primary beneficiary, a tax equity structurefund, Mililani TE Holdco LLC, which directly holds the Mililani I solar project. Mililani I has a 20-year power purchase agreement with Dominion Solar Projects III, Inc., or Dominion, from whichan investment-grade utility that commences when the Company would receive 50% of cash to be distributed.project achieves commercial operations. The Company paid cash consideration of $130 million, plus $2 million of working capital and assumed non-recourse project debt. The purchase price for the acquisition was funded with existing sources of liquidity. As part of the acquisition of Mililani I, the Company assumed the project’s financing agreement which included a $16 million construction loan that converts to a term loan upon completion of construction, $60 million tax equity bridge loan and a $27 million sponsor equity bridge loan. The sponsor equity bridge loan was repaid at acquisition date, utilizing $14 million from the cash on hand.equity investor, as well as $15 million of the Company’s acquisition price, which was contributed back by CEG, and $2 million was utilized to pay associated fees. The tax equity bridge loan will be repaid with the final proceeds from the tax equity investor that will be received when Mililani I achieves commercial operations, which is expected to occur in the second half of 2022.
Black Rock Drop Down - In February 2022, in connection with the Company’s 2021 acquisition of the Class B membership interests in Black Rock Wind Holding LLC, through its indirect subsidiary Lighthouse Renewable Holding Sub LLC, from Clearway Renew LLC, as subsidiary of CEG, the Company paid an additional $23 million as final funding after all remaining turbines of the Black Rock wind project became operational. Concurrent with the final funding, the $59 million that was contributed in 2021 by third-party investors, consisting of $36 million contributed by the cash equity investor and $23 million contributed by the tax equity investor, was released to Clearway Renew LLC.
Investment Partnership with NRGBridge Loan Agreement
On September 26, 2017,May 3, 2022, the Company entered into a partnership with NRG by forming NRG DGPV Holdco 3 LLC, or DGPV Holdco 3, in whichrepaid the Company would invest up to $50$335 million in an operating portfolio of distributed solar assets, primarily comprised of community solar projects, developed by NRG. The Company invested $4 million during September 2017 with an additional $16 million due to NRG in accounts payable - affiliate as of September 30, 2017, to be funded in tranches asoutstanding borrowings under the project milestones are completed. The Company co-owns approximately 33 MW of distributed solar capacity, based on cash to be distributed, with a weighted average contract life of approximately 20 years as of September 30, 2017.
DuringBridge Loan Agreement utilizing proceeds received from the nine months ended September 30, 2017, the Company invested $37 million in NRG DGPV Holdco 2 LLC.Thermal Disposition.
Cash Dividends to Investors
NRG Yield, Inc.The Company intends to use the amount of cash that it receives from its distributions from NRG YieldClearway Energy LLC to pay quarterly dividends to the holders of its Class A common stock and Class C common stock. NRG YieldClearway Energy LLC intends to distribute to its unit holders in the form of a quarterly distribution all of the CAFD it generatesthat is generated each quarter, less reserves for the prudent conduct of the business, including among others, maintenance capital expenditures to maintain the operating capacity of the assets. CAFD is defined as net income before interest expense, income taxes, depreciation and amortization, plus cash distributions from unconsolidated affiliates, cash receipts from notes receivable, less cash distributions to noncontrolling interests, maintenance capital expenditures, pro-rata EBITDA from unconsolidated affiliates, cash interest paid, income taxes paid, principal amortization of indebtedness and changes in prepaid and accrued capacity payments.business. Dividends on the Class A common stock and Class C common stock are subject to available capital, market conditions and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future.
The following table lists the dividends paid on NRG Yield, Inc.'sthe Company’s Class A common stock and Class C common stock during the ninethree months ended September 30, 2017:March 31, 2022:
|
| | | | | | | | | | | |
| | Third Quarter 2017 | | Second Quarter 2017 | | First Quarter 2017 |
| Dividends per Class A share | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
| Dividends per Class C share | $ | 0.28 |
| | $ | 0.27 |
| | $ | 0.26 |
|
| | | | | | | | | | | | | |
| | | | | | | First Quarter 2022 |
| Dividends per Class A share | | | | | | | $ | 0.3468 | |
| Dividends per Class C share | | | | | | | 0.3468 | |
On October 31, 2017, NRG Yield, Inc.May 4, 2022, the Company declared quarterly dividends on its Class A common stock and Class C common stock of $0.288$0.3536 per share payable on DecemberJune 15, 2017,2022, to stockholders of record as of DecemberJune 1, 2017.2022.
Cash Flow Discussion
The following table reflects the changes in cash flows for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016:
|
| | | | | | | | | | | |
| | Nine months ended September 30, | | |
| | 2017 | | 2016 | | Change |
| (In millions) |
| Net cash provided by operating activities | $ | 374 |
| | $ | 443 |
| | $ | (69 | ) |
| Net cash used in investing activities | (204 | ) | | (135 | ) | | (69 | ) |
| Net cash used in financing activities | (338 | ) | | (212 | ) | | (126 | ) |
Net Cash Provided By Operating Activities
|
| | | |
| Changes to net cash provided by operating activities were driven by: | (In millions) |
|
| Decrease in operating income adjusted for non-cash items | $ | (49 | ) |
| Decrease in working capital driven primarily by timing of cash receipts from customers in the first nine months of 2017 compared to the same period in 2016 | (29 | ) |
| Higher distributions from unconsolidated affiliates primarily due to the acquisition of the Utah Solar Portfolio, which was acquired by the Company in March 2017 and by NRG in November 2016 | 9 |
|
| | $ | (69 | ) |
Net Cash Used In Investing Activities
|
| | | |
| Changes to net cash used in investing activities were driven by: | (In millions) |
|
| Payments for the August 2017 Drop Down Assets and March 2017 Drop Down Assets compared to the payments made for the CVSR Drop Down in 2016 | $ | (99 | ) |
| Decrease in investments in unconsolidated affiliates in 2017 primarily due to the timing of funding of the projects | 37 |
|
| Higher capital expenditures in 2017 compared to the same period in 2016 due primarily to maintenance expenditures at Walnut Creek as a result of the forced outages | (7 | ) |
| | $ | (69 | ) |
Net Cash Used in Financing Activities
|
| | | |
| Changes in net cash used in financing activities were driven by: | (In millions) |
|
| Proceeds from the NRG Yield, Inc. Class C common stock offerings under the ATM Program, net of underwriting discounts and commissions | $ | 34 |
|
| Net borrowings under the revolving credit facility in 2016 | 306 |
|
| Higher borrowings in 2016, primarily related to the proceeds from the issuance of 2026 Senior Notes and CVSR Holdco Notes due 2037 combined with higher repayments of long-term debt and increased financing fees in 2017 | (527 | ) |
| Increase in net contributions from noncontrolling interests due to higher production-based payments in 2017 compared to 2016 | 6 |
|
| Increase in dividends paid to common stockholders, as declared dividends increased by 17% from 2016 to 2017 | (22 | ) |
| Lower payments of distributions to NRG for the Drop Down Assets relating to the pre-acquisition period in 2017 compared to 2016 | 77 |
|
| | $ | (126 | ) |
NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740
As of December 31, 2016, the Company has a cumulative federal NOL carry forward balance of $648 million for financial statement purposes, which will begin expiring in 2033, and does not anticipate any federal income tax payments for 2017. As a result of the Company's tax position, and based on current forecasts, the Company does not anticipate significant income tax payments for state and local jurisdictions in 2017. Based on the Company's current and expected NOL balances generated primarily by accelerated tax depreciation of its property, plant and equipment, the Company does not expect to pay significant federal income tax for a period of approximately ten years.
The Company is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state jurisdictions. The Company is not subject to U.S. federal or state income tax examinations for years prior to 2013.
The Company has no uncertain tax benefits.
Off-Balance Sheet Arrangements
Obligations under Certain Guarantee Contracts
The Company may enter into guarantee arrangements in the normal course of business to facilitate commercial transactions with third parties.
Retained or Contingent Interests
The Company does not have any material retained or contingent interests in assets transferred to an unconsolidated entity.
Obligations Arising Out of a Variable Interest in an Unconsolidated Entity
Variable interest in equity investments — As of September 30, 2017,March 31, 2022, the Company has several investments with an ownership interest percentage of 50% or less in energy and an energy-related entitiesentity that areis accounted for under the equity method. Utah Solar Portfolio, GenConn DGPV Holdco 1, RPV Holdco, DGPV Holdco 2, and DGPV Holdco 3 areis a variable interest entitiesentity for which the Company is not the primary beneficiary.
The Company'sCompany’s pro-rata share of non-recourse debt held by unconsolidated affiliates was approximately $643$341 million as of September 30, 2017.March 31, 2022. This indebtedness may restrict the ability of these subsidiaries to issue dividends or distributions to the Company. For a complete description of debt held by unconsolidated affiliates, seeNote 5, Investments Accounted for by the Equity Method and Variable Interest Entities to the consolidated financial statements for the year ended December 31, 2016 included in the Company's May 9, 2017 Form 8-K.
Contractual Obligations and Commercial Commitments
The Company has a variety of contractual obligations and other commercial commitments that represent prospective cash requirements in addition to the Company's capital expenditure programs, as disclosed in the Company's 20162021 Form 10-K. See also Note 3, Business Acquisitions
Cash Flow Discussion
The following table reflects the changes in cash flows for the three months ended March 31, 2022, compared to the three months ended March 31, 2021:
| | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | |
| 2022 | | 2021 | | Change |
| (In millions) |
| Net cash provided by operating activities | $ | 93 | | | $ | 47 | | | $ | 46 | |
| Net cash used in investing activities | (92) | | | (314) | | | 222 | |
| Net cash (used in) provided by financing activities | (184) | | | 233 | | | (417) | |
Net Cash Provided by Operating Activities
| | | | | |
| Changes to net cash provided by operating activities were driven by: | (In millions) |
| Increase in operating income adjusted for non-cash items | $ | 75 | |
| Decrease in working capital primarily driven by the timing of accounts receivable collections and payments of accounts payable | (27) | |
| Decrease in distributions from unconsolidated affiliates | (2) | |
| $ | 46 | |
| |
| |
Net Cash Used in Investing Activities
| | | | | |
| Changes to net cash used in investing activities were driven by: | (In millions) |
| Cash paid for Agua Caliente, net of cash acquired, in 2021 | $ | 111 | |
| Changes in cash paid for Drop Down assets | 81 | |
| Cash paid to CEG in 2021 for equipment for the Pinnacle wind project repowering | 21 | |
| |
| Changes in capital expenditures | 11 | |
| |
| |
| |
| Other | (2) | |
| $ | 222 | |
| |
| |
Net Cash (Used in) Provided by Financing Activities
| | | | | |
| Changes in net cash (used in) provided by financing activities were driven by: | (In millions) |
| Decrease in net contributions from noncontrolling interest members | $ | (206) | |
| Decrease in proceeds from issuance of long-term debt, net of payments | (170) | |
| Cash released from escrow distributed to CEG in 2022 | (64) | |
| Increase in dividends paid to common stockholders | (4) | |
| Increase in net borrowings under the revolving credit facility | 35 | |
| Other | (8) | |
| $ | (417) | |
| |
| |
NOLs, Deferred Tax Assets and Uncertain Tax Position Implications, under ASC 740
As of December 31, 2021, the Company had a cumulative federal NOL carry forward balance of $1.3 billion for financial statement purposes, of which $0.9 billion will begin expiring between 2033 to 2037 if unutilized. The Company does not anticipate any federal income tax payments for 2022. Additionally, as of December 31, 2021, the Company had a cumulative state NOL carryforward balance of $769 million for financial statement purposes, which will expire between 2023 to 2040 if unutilized. In addition, the Company has PTC and ITC carryforward balances totaling $15 million, which will expire between 2034 and 2041 if unutilized.
Based on the Company's current portfolio of assets, which include renewable assets that benefit from accelerated tax depreciation deductions and federal tax credits, current and expected NOL balances, and after taking into account the projected taxable gain from the Thermal Disposition, the Company estimates that it will not pay material federal income tax through 2027, but does expect to pay material state income tax across certain jurisdictions beginning in 2022.
As of December 31, 2021, the Company had an interest disallowance carry forward of $7 million as a result of the proposed and final regulations under §163(j) of the Internal Revenue Code, which was enacted as part of the Tax Act. The disallowed interest deduction has an indefinite carry forward period and any limitations on the utilization of this Form 10-Qcarry forward have been factored into our valuation allowance analysis.
On February 9, 2022, the governor of California signed Senate Bill 113, or SB 113, removing the suspension of California NOL utilization for a discussiontax year 2022. After assessing the law change, the Company expects SB 113 to have an immaterial impact on the consolidated financial statements.
The Company is subject to examination by taxing authorities for income tax returns filed in the U.S. federal jurisdiction and various state jurisdictions. The Company is not subject to U.S. federal or state income tax examinations for years prior to 2013. The Company has no uncertain tax benefits.
The Company has no uncertain tax benefits as of additional contingencies that occurred during 2017.March 31, 2022.
Fair Value of Derivative Instruments
The Company may enter into fuelcommodity purchase contracts and other energy-related derivativefinancial instruments to mitigate variability in earnings due to fluctuations in spot market prices and to hedge fuel requirements at certain generation facilities. In addition, in order to mitigate interest rate risk associated with the issuance of variable rate debt, the Company enters into interest rate swap agreements.
The tables below disclose the activities of non-exchange traded contracts accounted for at fair value in accordance with ASC 820. Specifically, these tables disaggregate realized and unrealized changes in fair value; disaggregate estimated fair values at September 30, 2017March 31, 2022, based on their level within the fair value hierarchy defined in ASC 820; and indicate the maturities of contracts at September 30, 2017March 31, 2022. For a full discussion of the Company's valuation methodology of its contracts, see Derivative Fair Value Measurements in Item 1 — 1 Note 5, Fair Value of Financial Instruments.
| | | | | |
| Derivative Activity (Losses) Gains | (In millions) |
| Fair value of contracts as of December 31, 2021 | $ | (236) | |
| Contracts realized or otherwise settled during the period | 12 | |
| Contracts acquired during the period | (2) | |
| Contracts added due to loss of NPNS exception | (22) | |
| Changes in fair value | (57) | |
| Fair value of contracts as of March 31, 2022 | $ | (305) | |
|
| | | |
| Derivative Activity (Losses)/Gains | (In millions) |
| Fair value of contracts as of December 31, 2016 | $ | (73 | ) |
| Contracts realized or otherwise settled during the period | 21 |
|
| Changes in fair value | (14 | ) |
| Fair value of contracts as of September 30, 2017 | $ | (66 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Fair value of contracts as of March 31, 2022 |
| Maturity | | |
| Fair Value Hierarchy (Losses) Gains | 1 Year or Less | | Greater Than 1 Year to 3 Years | | Greater Than 3 Years to 5 Years | | Greater Than 5 Years | | Total Fair Value |
| (In millions) |
| | | | | | | | | |
| Level 2 | $ | (7) | | | $ | 11 | | | $ | (6) | | | $ | 1 | | | $ | (1) | |
| Level 3 | (62) | | | (71) | | | (55) | | | (116) | | | (304) | |
| Total | $ | (69) | | | $ | (60) | | | $ | (61) | | | $ | (115) | | | $ | (305) | |
|
| | | | | | | | | | | | | | | | | | | |
| | Fair value of contracts as of September 30, 2017 |
| | Maturity | | |
| Fair Value Hierarchy Losses | 1 Year or Less | | Greater Than 1 Year to 3 Years | | Greater Than 3 Years to 5 Years | | Greater Than 5 Years | | Total Fair Value |
| | (In millions) |
| Level 2 | $ | 23 |
| | $ | 25 |
| | $ | 12 |
| | $ | 6 |
| | $ | 66 |
|
The Company has elected to disclose derivative assets and liabilities on a trade-by-trade basis and does not offset amounts at the counterparty master agreement level. As discussed below in Quantitative and Qualitative Disclosures about Market Risk - Commodity Price Risk, NRG, on behalf of the Company, measures the sensitivity of the portfolio to potential changes in market prices using VaR, a statistical model which attempts to predict risk of loss based on market price and volatility. NRG'sThe Company's risk management policy places a limit on one-day holding period VaR, which limits the net open position.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of the financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements and related disclosures in compliance with GAAP requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. The application of these policies necessarily involves judgments regarding future events, including the likelihood of success of particular projects, legal and regulatory challenges and the fair value of certain assets and liabilities. These judgments, in and of themselves, could materially affect the financial statements and disclosures based on varying assumptions, which may be appropriate to use. In addition, the financial and operating environment may also have a significant effect, not only on the operation of the business, but on the results reported through the application of accounting measures used in preparing the financial statements and related disclosures, even if the nature of the accounting policies has not changed.
On an ongoing basis, the Company evaluates these estimates, utilizing historic experience, consultation with experts and other methods the Company considers reasonable. In any event, actualActual results may differ substantially from the Company's estimates. Any effects on the Company's business, financial position or results of operations resulting from revisions to these estimates are recorded in the period in which the information that gives rise to the revision becomes known.
The Company identifies its most critical accounting policies as those that are the most pervasive and important to the portrayal of the Company's financial position and results of operations, and that require the most difficult, subjective and/or complex judgments by management regarding estimates about matters that are inherently uncertain. The Company's critical accounting policies include income taxes and valuation allowance for deferred tax assets, impairment of long lived assets and other intangible assetsaccounting utilizing Hypothetical Liquidation at Book Value, or HLBV, and acquisition accounting.
The Company tests its long-lived assets for impairment whenever indicators of impairment exist. Certain of the Company’s projects have useful lives that extend well beyond the contract period and therefore, management’s view of long-term merchant power prices in the post-contract periods may have a significant impact on the expected future cash flows for these projects. The Company’s annual budget is utilized to determine the cash flows associated with the Company’s long-lived assets, which incorporates various assumptions, including the Company’s long-term view of natural gas prices and its impact on merchant power prices and fuel costs. The Company’s annual budget process is finalized and approved by the Board of Directors in the fourth quarter. It is possible that the updated long term cash flows will not support the carrying value of certain assets, and the Company will be required to test such assets for impairment. During the preparation of the budget, the Company noted that management’s view of long term merchant power prices has decreased, and accordingly, it is possible that certain of the Company's long-lived assets will be impaired during the fourth quarter of 2017.
Recent Accounting Developments
See Item 1 — 1 Note 2, Summary of Significant Accounting Policies, for a discussion of recent accounting developments.
ITEM 3 — Quantitative and Qualitative Disclosures About Market Risk
The Company 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 the Company's power generation or with an existing or forecasted financial or commodity transaction. The types of market risks the Company is exposed to are commodity price risk, interest rate risk, liquidity risk, and credit risk. The following disclosures about market risk provide an update to, and should be read in conjunction with, Item 7A —Quantitative and Qualitative Disclosures About Market Risk, of the Company's 20162021 Form 10-K.
Interest Rate Risk
The Company is exposed to fluctuations in interest rates through its issuance of variable rate debt. Exposures to interest rate fluctuations may be mitigated by entering into derivative instruments known as interest rate swaps, caps, collars and put or call options. These contracts reduce exposure to interest rate volatility and result in primarily fixed rate debt obligations when taking into account the combination of the variable rate debt and the interest rate derivative instrument. NRG's risk management policies allow the Company to reduce interest rate exposure from variable rate debt obligations. See Item 1 —Note 6, Accounting for Derivative Instruments and Hedging Activities, for more information.
Most of the Company's project subsidiaries enter into interest rate swaps, intended to hedge the risks associated with interest rates on non-recourse project level debt. See Item 15 — Note 10, Long-term Debt, to the Company's audited consolidated financial statements for the year ended December 31, 20162021 included in the May 9, 20172021 Form 8-K10-K for more information about interest rate swaps of the Company's project subsidiaries.
If all of the interest rate swaps had been discontinued on September 30, 2017March 31, 2022, the Company would have owed the counterparties $69 million.6 million. Based on the credit ratings of the counterparties, the Company believes its exposure to credit risk due to nonperformance by counterparties to its hedge contracts to be insignificant.
The Company has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates. As of September 30, 2017March 31, 2022, a 1% change in interest rates would result in an approximately $3$6 million change in market interest expense on a rolling twelve-month basis.
As of September 30, 2017March 31, 2022, the fair value of the Company's debt was $5.94 billion$7,644 million and the carrying value was $5.88 billion.$7,822 million. The Company estimates that a 1% decrease in market interest rates would have increased the fair value of its long-term debt by approximately $320 million.$438 million.
Liquidity Risk
Liquidity risk arises from the general funding needs of the Company's activities and in the management of the Company's assets and liabilities.
Commodity Price Risk
Commodity price risks result from exposures to changes in spot prices, forward prices, volatilities, and correlations between various commodities, such as electricity, natural gas and emissions credits. The Company manages the commodity price risk of its merchant generation operations by entering into derivative or non-derivative instruments to hedge the variability in future cash flows from forecasted power sales or purchases of fuel. The portion of forecasted transactions hedged may vary based upon management's assessment of market, weather, operation and other factors.
Based on a sensitivity analysis using simplified assumptions, the impact of a $0.50 per MMBtu increase or decrease in natural gas prices across the term of the derivative contracts would cause ano change of approximately $1 million to the net value of natural gas derivatives, and an increase of $0.50 per MMBtu in natural gas prices across the term of the derivative contracts would cause an increase of approximately $1 million to the net value of natural gas derivatives as of September 30, 2017March 31, 2022. The impact of a $0.50 per MWh increase or decrease in power prices across the term of the derivatives contracts would cause a change of approximately $8 million to the net value of power derivatives as of March 31, 2022.
Counterparty Credit Risk
Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties pursuant to the terms of their contractual obligations. The Company monitors and manages credit risk through credit policies that include: (i) an established credit approval process; and (ii) the use of credit mitigation measures such as prepayment arrangements or volumetric limits. Risks surrounding counterparty performance and credit could ultimately impact the amount and timing of expected cash flows. The Company seeks to mitigate counterparty risk by having a diversified portfolio of counterparties. See Item 1 - Note 1, Nature of Business, and — Note 5, Fair Value of Financial Instruments, to the Consolidated Financial Statementsconsolidated financial statements for more information about concentration of credit risk.
ITEM 4 — Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure ControlsandProcedures
Under the supervision and with the participation of the Company's management, including its principal executive officer, principal financial officer and principal accounting officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as such term is defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act. Based on this evaluation, the Company's principal executive officer, principal financial officer and principal accounting officer concluded that the disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) that occurred induring the third quarter of 2017ended March 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS
For a discussion of the material legal proceedings in which the Company was involved through September 30, 2017,March 31, 2022, see Item 1 — Note 13, 12, Contingencies, to this Form 10-Q.
ITEM 1A — RISK FACTORS
Information regarding risk factors appears in Part I, Item 1A, Risk Factors, in the Company's 20162021 Form 10-K and Part II, Item 1A of the Company's Form 10-Q for the quarter ended June 30, 2017.10-K. There have been no material changes in the Company's risk factors since those reported in its 20162021 Form 10-K and its Form 10-Q for the quarter ended June 30, 2017.10-K.
ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 — DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 — MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 — OTHER INFORMATION
None.Disclosure Pursuant to Item 2.01 of Form 8-K – Completion of Acquisition or Disposition of Assets.
As previously disclosed, on October 22, 2021, Clearway Energy Operating LLC, a subsidiary of the Company, entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) to sell the Company’s Thermal Business to KKR. On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR for net proceeds of approximately $1.46 billion, which excludes approximately $20 million in transaction expenses that were incurred in connection with the disposition and is subject to certain post-closing adjustments.
The foregoing description of the Purchase Agreement is not complete and is qualified in its entirety by reference to the full text of the Purchase Agreement, a copy of which is filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on October 26, 2021, and is incorporated herein by reference.
ITEM 6 — EXHIBITS
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| | | | | | | | | | | | | |
| Number | | Description | | Method of Filing |
31.110.1†* | | | | Incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 18, 2022. |
| 10.2†* | | | | Incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on January 18, 2022. |
| 10.3^ | | | | Filed herewith. |
| 10.4^ | | | | Filed herewith. |
| 10.5^ | | | | Filed herewith. |
| 10.6^ | | | | Filed herewith. |
| 10.7^ | | | | Filed herewith. |
| 31.1 | | | | Filed herewith. |
| 31.2 | | | | Filed herewith. |
| 31.3 | | | | Filed herewith. |
| 32 | | | | Furnished herewith. |
| 101 INS | | Inline XBRL Instance Document. | | Filed herewith. |
| 101 SCH | | Inline XBRL Taxonomy Extension Schema. | | Filed herewith. |
| 101 CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase. | | Filed herewith. |
| 101 DEF | | Inline XBRL Taxonomy Extension Definition Linkbase. | | Filed herewith. |
| 101 LAB | | Inline XBRL Taxonomy Extension Label Linkbase. | | Filed herewith. |
| 101 PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase. | | Filed herewith. |
| 104 | | Cover Page Interactive Data File (the cover page interactive data file does not appear in Exhibit 104 because its Inline XBRL tags are embedded within the Inline XBRL document). | | Filed herewith. |
______________
| | | | | | | | |
| † | | Schedules and similar attachments to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission (the “SEC”) upon request. |
| * | | Certain portions of this Exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.The Company agrees to furnish supplementally an unredacted copy of this Exhibit to the SEC upon request. |
| ^ | | Indicates exhibits that constitute compensatory plans or arrangements. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| | | | | | | | | | | | | |
| NRG YIELD,CLEARWAY ENERGY, INC.
(Registrant)
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| | |
| /s/ CHRISTOPHER S. SOTOS | |
| Christopher S. Sotos | |
| President and Chief Executive Officer (Principal Executive Officer) | |
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| | |
| /s/ CHAD PLOTKIN | |
| Chad Plotkin | |
| Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |
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| | |
| /s/ DAVID CALLENSARAH RUBENSTEIN | |
| David CallenSarah Rubenstein | |
Date: November 2, 2017May 5, 2022 | Senior Vice President and Chief Accounting Officer (Principal Accounting Officer) | |
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