NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the
2018
Form 10-K. In the opinion of NEP management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. In addition, certain prior year amounts have been retrospectively adjusted for an accounting standards update related to leases. The results of operations for an interim period generally will not give a true indication of results for the year.
1
.
Acquisitions
In March 2019, an indirect subsidiary of NEP entered into an agreement with indirect subsidiaries of NEER to acquire:
|
|
•
|
100%
of the membership interests in Ashtabula Wind II, LLC, a project company that owns a
120
MW wind generation facility located in North Dakota;
|
|
|
•
|
100%
of the membership interests in Garden Wind, LLC, a project company that owns a
150
MW wind generation facility (Story County II) located in Iowa;
|
|
|
•
|
100%
of the membership interests in White Oak Energy Holdings, LLC, which, at closing, is expected to own
100%
of the membership interests of White Oak Energy LLC, which owns a
150
MW wind generation facility located in Illinois;
|
|
|
•
|
100%
of the Class C membership interests in Rosmar Holdings, LLC, which represent a
49.99%
noncontrolling ownership interest in
two
solar generation facilities, Marshall and Roswell, with a total combined generating capacity of approximately
132
MW located in Minnesota and New Mexico, respectively; and
|
|
|
•
|
49.99%
of the membership interests, representing a controlling ownership interest, in Silver State South Solar, LLC, which indirectly owns a
250
MW solar generation facility located in Nevada.
|
NEP expects to complete the acquisition in the second quarter of 2019, subject to customary closing conditions and the receipt of certain regulatory approvals, for a total consideration of approximately
$1,020 million
, subject to customary working capital and other adjustments.
In December 2018, a subsidiary of NEP completed the acquisition from NEER of NEP Renewables, which indirectly owns
ten
wind and
one
solar generation facilities with a combined generating capacity of approximately
1,388
MW.
Supplemental Unaudited Pro forma Results of Operations
NEP’s pro forma results of operations, had the acquisition of NEP Renewables been completed on January 1, 2017, are as follows:
|
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|
|
|
|
Three Months Ended
March 31, 2018
|
|
(millions)
|
Unaudited pro forma results of operations:
|
|
Pro forma revenues
|
$
|
242
|
|
Pro forma operating income
|
$
|
98
|
|
Pro forma net loss
|
$
|
(29
|
)
|
Pro forma net income attributable to NEP
|
$
|
122
|
|
The unaudited pro forma consolidated results of operations include adjustments to:
|
|
•
|
reflect the historical results of NEP Renewables beginning on January 1, 2017;
|
|
|
•
|
reflect the estimated depreciation and amortization expense based on the estimated fair value of property, plant and equipment - net and the intangible assets - PPAs;
|
|
|
•
|
reflect allocations of income to noncontrolling interests related to the financing transaction to fund the acquisition; and
|
|
|
•
|
reflect related income tax effects.
|
The unaudited pro forma information is not necessarily indicative of the results of operations that would have occurred had the transaction been made at the beginning of the periods presented or the future results of the consolidated operations.
2
.
Revenue
NEP's operating revenues are generated primarily from various non-affiliated parties under PPAs and natural gas transportation agreements. Revenue is recognized as energy and any related renewable energy attributes are delivered, based on rates stipulated
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
in the respective PPAs, or natural gas transportation services are performed. NEP believes that the obligation to deliver energy and provide the natural gas transportation services is satisfied over time as the customer simultaneously receives and consumes benefits provided by NEP. In addition, NEP believes that the obligation to deliver renewable energy attributes is satisfied at multiple points in time, with the control of the renewable energy attribute being transferred at the same time the related energy is delivered. Included in NEP’s operating revenues for the
three months ended March 31, 2019
is approximately
$125 million
and
$52 million
, and for the
three months ended March 31, 2018
is
$144 million
and
$55 million
, of revenue from contracts with customers for renewable energy sales and natural gas transportation services, respectively. NEP's accounts receivable are primarily associated with revenues earned from contracts with customers. Receivables represent unconditional rights to consideration and reflect the differences in timing of revenue recognition and cash collections. For substantially all of NEP's receivables, regardless of the type of revenue transaction from which the receivable originated, customer and counterparty credit risk is managed in the same manner and the terms and conditions of payment are similar.
NEP recognizes revenues as energy and any related renewable energy attributes are delivered or natural gas transportation services are performed, consistent with the amounts billed to customers based on rates stipulated in the respective PPAs. NEP considers the amount billed to represent the value of energy delivered or services provided to the customer. NEP’s customers typically receive bills monthly with payment due within 30 days.
The contracts with customers related to pipeline service revenues contain a fixed price related to firm natural gas transportation capacity with maturity dates ranging from 2019 to 2035. At
March 31, 2019
, NEP expects to record approximately
$2.2 billion
of revenues over the remaining terms of the related contracts as the capacity is provided. Revenues yet to be earned under contracts with customers to deliver energy and any related energy attributes, which have maturity dates ranging from 2030 to 2046, will vary based on the volume of energy delivered.
3
.
Income Taxes
Income taxes are calculated for NEP as a single taxpaying corporation for U.S. federal and state income taxes (based on its election to be taxed as a corporation). Because NEP OpCo is a limited partnership, NEP only recognizes in income its applicable ownership share of U.S. income taxes related to the U.S. projects and, prior to the sale of Canadian Holdings in June 2018, the Canadian projects. NEP's former Canadian subsidiaries were all Canadian taxpayers, and therefore NEP recognized in income all of the Canadian taxes. Income taxes include NEP's applicable ownership share of U.S. taxes and
100%
of Canadian taxes. Net income or loss attributable to noncontrolling interests includes no U.S. taxes and NEER's applicable ownership share of Canadian taxes. Net income attributable to NEP includes NEP's applicable ownership share of U.S. and Canadian taxes.
The effective tax rate for the
three months ended March 31, 2019
was approximately
5%
. The effective tax rate is primarily affected by taxes attributable to the noncontrolling interests. During the
three months ended March 31, 2018
, the effective tax rate was not meaningful as NEP recorded an income tax charge of approximately
$20 million
related to the
$231 million
adjustment to differential membership interests as a result of the change in federal corporate income taxes due to the Tax Cuts and Jobs Act that became effective January 1, 2018 (see Note 10 - Noncontrolling Interests).
4
.
Fair Value Measurements
The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available. NEP uses several different valuation techniques to measure the fair value of assets and liabilities relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. Certain financial instruments may be valued using multiple inputs including discount rates, counterparty credit ratings and credit enhancements. NEP’s assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the placement of those assets and liabilities within the fair value hierarchy levels. Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value. Transfers between fair value hierarchy levels occur at the beginning of the period in which the transfer occurred.
Cash Equivalents and Restricted Cash Equivalents -
The fair value of money market funds that are included in cash and cash equivalents, restricted cash and other non-current assets on the condensed consolidated balance sheets is estimated using a market approach based on current observable market prices.
Interest Rate Contracts -
NEP estimates the fair value of its derivatives using an income approach based on a discounted cash flows valuation technique utilizing the net amount of estimated future cash inflows and outflows related to the agreements. The primary inputs used in the fair value measurements include the contractual terms of the derivative agreements, current interest
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
rates and credit profiles. The significant inputs for the resulting fair value measurement are market-observable inputs and the measurements are reported as Level 2 in the fair value hierarchy.
NEP’s financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Total
|
|
(millions)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
14
|
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Restricted cash equivalents
(a)
|
10
|
|
|
—
|
|
|
10
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Interest rate contracts
|
—
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|
24
|
|
|
24
|
|
Total assets
|
$
|
24
|
|
|
$
|
5
|
|
|
$
|
29
|
|
|
$
|
83
|
|
|
$
|
24
|
|
|
$
|
107
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts
|
$
|
—
|
|
|
$
|
217
|
|
|
$
|
217
|
|
|
$
|
—
|
|
|
$
|
116
|
|
|
$
|
116
|
|
Total liabilities
|
$
|
—
|
|
|
$
|
217
|
|
|
$
|
217
|
|
|
$
|
—
|
|
|
$
|
116
|
|
|
$
|
116
|
|
____________________
|
|
(a)
|
At
March 31, 2019
and
December 31, 2018
, approximately
$9 million
and
$9 million
, respectively, of restricted cash equivalents are included in other non-current assets on NEP's condensed consolidated balance sheets.
|
Financial Instruments Recorded at Other than Fair Value -
The carrying amounts and estimated fair values of other financial instruments recorded at other than fair value are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
(millions)
|
Long-term debt, including current maturities
(a)
|
$
|
3,413
|
|
|
$
|
3,392
|
|
|
$
|
3,435
|
|
|
$
|
3,301
|
|
____________________
|
|
(a)
|
At
March 31, 2019
and
December 31, 2018
, approximately
$2,958 million
and
$2,826 million
, respectively, of the fair value is estimated using a market approach based on quoted market prices for the same or similar issues (Level 2); the balance is estimated using an income approach utilizing a discounted cash flow valuation technique, considering the current credit profile of the debtor (Level 3).
|
5
.
Derivative Instruments and Hedging Activity
NEP uses derivative instruments (primarily interest rate swaps) to manage the interest rate cash flow risk associated primarily with outstanding and expected future debt issuances and borrowings. NEP records all derivative instruments that are required to be marked to market as either assets or liabilities on its condensed consolidated balance sheets and measures them at fair value each reporting period. NEP does not utilize hedge accounting for its derivative instruments. All changes in the derivatives' fair value are recognized in interest expense in the condensed consolidated statements of income (loss). In general, the commencement and termination dates of the interest rate swap agreements and the related hedging relationship coincide with the corresponding dates of the underlying variable-rate debt instruments. At
March 31, 2019
and
December 31, 2018
, the combined notional amounts of the interest rate contracts were approximately
$9,246 million
and
$9,256 million
, respectively.
During the
three months ended March 31, 2019
, NEP reclassified approximately
$6 million
from AOCI to interest expense primarily because it became probable that related future transactions being hedged would not occur. At
March 31, 2019
, NEP's AOCI does not include any amounts related to discontinued cash flow hedges. Cash flows from the interest rate swap contracts are reported in cash flows from operating activities in the condensed consolidated statements of cash flows.
Prior to the sale of Canadian Holdings in June 2018, NEP entered into certain foreign currency exchange contracts to economically hedge its cash flows from foreign currency rate fluctuations. During the
three months ended March 31, 2018
, NEP recorded approximately
$1 million
of
gains
related to the foreign currency contracts in other - net in the condensed consolidated statements of income (loss).
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Fair Value of Derivative Instruments
- The tables below present NEP's gross derivative positions, based on the total fair value of each derivative instrument, at
March 31, 2019
and
December 31, 2018
, as required by disclosure rules, as well as the location of the net derivative positions, based on the expected timing of future payments, on the condensed consolidated balance sheets.
|
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|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
Gross Basis
|
|
Net Basis
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(millions)
|
Interest rate contracts
|
$
|
5
|
|
|
$
|
217
|
|
|
$
|
7
|
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
Net fair value by balance sheet line item:
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
$
|
5
|
|
|
|
Other non-current assets
|
|
|
|
|
2
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
$
|
2
|
|
Derivatives
|
|
|
|
|
|
|
217
|
|
Total derivatives
|
|
|
|
|
$
|
7
|
|
|
$
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Gross Basis
|
|
Net Basis
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(millions)
|
Interest rate contracts
|
$
|
24
|
|
|
$
|
116
|
|
|
$
|
13
|
|
|
$
|
105
|
|
|
|
|
|
|
|
|
|
Net fair value by balance sheet line item:
|
|
|
|
|
|
|
|
Other current assets
|
|
|
|
|
$
|
7
|
|
|
|
Other non-current assets
|
|
|
|
|
6
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
$
|
1
|
|
Derivatives
|
|
|
|
|
|
|
104
|
|
Total derivatives
|
|
|
|
|
$
|
13
|
|
|
$
|
105
|
|
Financial Statement Impact of Derivative Instruments
- Gains (losses) related to NEP's interest rate contracts are recorded in the condensed consolidated financial statements as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
|
(millions)
|
Interest rate contracts:
|
|
Gains (losses) reclassified from AOCI to interest expense
|
$
|
6
|
|
|
$
|
(2
|
)
|
Losses recognized in interest expense
|
$
|
(118
|
)
|
|
$
|
(52
|
)
|
Credit-Risk-Related Contingent Features
- Certain of NEP's derivative instruments contain credit-related cross-default and material adverse change triggers, none of which contain requirements to maintain certain credit ratings or financial ratios. At
March 31, 2019
and
December 31, 2018
, the aggregate fair value of NEP's derivative instruments with contingent risk features that were in a liability position was approximately
$196 million
and
$108 million
, respectively.
6
.
Variable Interest Entities
NEP has identified NEP OpCo, a limited partnership with a general partner and limited partners, as a VIE. NEP has consolidated the results of NEP OpCo and its subsidiaries because of its controlling interest in the general partner of NEP OpCo. At
March 31, 2019
, NEP owned an approximately
35.6%
limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling
64.4%
limited partner interest in NEP OpCo (NEE's noncontrolling interest). The assets and liabilities of NEP OpCo as well as the operations of NEP OpCo represent substantially all of NEP's assets and liabilities and its operations.
In addition, at
March 31, 2019
, NEP OpCo consolidated
12
VIEs related to certain subsidiaries that have sold differential membership interests in entities which own and operate
20
wind electric generation facilities. These entities are considered VIEs because the holders of the differential membership interests do not have substantive rights over the significant activities of these entities. The assets, primarily property, plant and equipment - net, and liabilities, primarily asset retirement obligation and non-current due to
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
related party, of the VIEs, totaled approximately
$4,895 million
and
$112 million
, respectively, at
March 31, 2019
and
$4,937 million
and
$132 million
, respectively, at
December 31, 2018
.
At
March 31, 2019
, NEP OpCo also consolidated a VIE related to a noncontrolling Class B interest in NEP Renewables. This entity is considered a VIE because the holder of the noncontrolling Class B interest does not have substantive rights over the significant activities of the entity. The assets, primarily property, plant and equipment - net and liabilities, primarily long-term debt and asset retirement obligation, of the VIE totaled approximately
$2,319 million
and
$92 million
at
March 31, 2019
and
$2,339 million
and
$89 million
, respectively, at December 31, 2018.
NEP has an indirect equity method investment in
three
NEER solar projects with a total generating capacity of
277
MW. Through a series of transactions, a subsidiary of NEP issued
1,000,000
NEP OpCo Class B Units, Series 1 and
1,000,000
NEP OpCo Class B Units, Series 2, to NEER for approximately
50%
of the ownership interests in the
three
solar projects (non-economic ownership interests). NEER, as holder of the NEP OpCo Class B Units, will retain
100%
of the economic rights in the projects to which the respective Class B Units relate, including the right to all distributions paid by the project subsidiaries that own the projects to NEP OpCo. NEER has agreed to indemnify NEP against all risks relating to NEP’s ownership of the projects until NEER offers to sell economic interests to NEP and NEP accepts such offer, if NEP chooses to do so. NEER has also agreed to continue to manage the operation of the projects at its own cost, and to contribute to the projects any capital necessary for the operation of the projects, until NEER offers to sell economic interests to NEP and NEP accepts such offer. At
March 31, 2019
and
December 31, 2018
, NEP's equity method investment related to the non-economic ownership interests is reflected as investments in non-economic ownership interests on the condensed consolidated balance sheets. All equity in earnings of the non-economic ownership interests is allocated to net income attributable to noncontrolling interests. NEP is not the primary beneficiary and therefore does not consolidate these entities because it does not control any of the ongoing activities of these entities, was not involved in the initial design of these entities and does not have a controlling interest in these entities.
7
.
Capitalization
Equity
- On
April 22, 2019
, the board of directors of NEP authorized a distribution of $
0.4825
per common unit payable on
May 15, 2019
to its common unitholders of record on
May 7, 2019
.
In March 2019, NEP and two of its indirect subsidiaries, NEP Renewables Holdings II, LLC (NEP Renewables Holdings II) and NEP Renewables II, LLC (NEP Renewables II), entered into a membership interest purchase agreement (membership purchase agreement) with a third-party investor (NEP Renewables II investor) for the purpose of financing the 2019 acquisition of the projects described in Note
1
and the recapitalization of
four
existing wind projects indirectly owned by NEP. The NEP Renewables II investor has committed to pay approximately
$900 million
to NEP Renewables Holdings II for
100%
of the noncontrolling Class B membership interest in NEP Renewables II, subject to the specified conditions set forth in the membership purchase agreement. NEP Renewables Holdings II will retain
100%
of the Class A membership interest and NEP will consolidate NEP Renewables II, which will be considered a VIE because the NEP Renewables II investor will not have substantive rights over the significant activities of NEP Renewables II. Prior to closing, an indirect subsidiary of NEP will transfer to NEP Renewables II the ownership interests to be purchased from NEER in 2019 as described in Note
1
as well as
100%
of the membership interests in entities that own (1) Perrin Ranch Wind Energy Center, an approximately
99
MW wind generation facility located in Arizona; (2) Tuscola Bay Wind Energy Center, a
120
MW wind generation facility located in Michigan; (3) Ashtabula Wind III Energy Center, an approximately
62
MW wind generation facility located in North Dakota; and (4) Stateline Wind Energy Center, a
300
MW wind generation facility located in Oregon and Washington.
Under the amended and restated limited liability company agreement for NEP Renewables II (the LLC agreement) that will be entered into at closing, NEP, through its indirect ownership of NEP Renewables Holdings II, will receive approximately
95%
of NEP Renewables II’s cash distributions for the first
six years
after closing, and the NEP Renewables II investor will receive
5%
. From the third and one-half to the sixth anniversary of the closing, NEP has the option (the buyout right), subject to certain limitations and extensions, to periodically purchase the NEP Renewables II investor’s interest in NEP Renewables at a buyout price that implies a fixed pre-tax annual return of approximately
8.3%
to the NEP Renewables II investor (inclusive of all prior distributions). If exercised, NEP has the right to pay at least
70%
of the buyout price in NEP non-voting common units, issued at the then-current market price of NEP common units, with the balance paid in cash, subject to limitations as described in the LLC agreement. Following the sixth anniversary after closing, if NEP has not exercised its entire buyout right, or following the four and one-half year anniversary after closing if certain minimum buyouts have not occurred, the NEP Renewables II investor’s allocation of distributable cash flow from the portfolio for the portion of the Class B membership interest that the NEP Renewables II investor still owns would increase to
99%
. Beginning January 1, 2025, NEP will give the NEP Renewables II investor, under a registration rights agreement to be entered into at closing, certain rights to require NEP, under certain circumstances, to initiate underwritten offerings for the units that are issuable if NEP exercises the buyout right.
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Following any exercise of the buyout right, the NEP Renewables II investor will have, among other terms, the right to receive pro rata quarterly cash distributions with respect to the NEP non-voting common units it owns and rights, subject to certain limitations, to convert the NEP non-voting common units into NEP common units on a one-for-one basis.
Earnings Per Unit
- Diluted earnings per unit are based on the weighted-average number of common units and potential common units outstanding during the period, including the dilutive effect of the convertible notes and preferred units. The dilutive effect of the convertible notes and preferred units is computed using the if-converted method.
The reconciliation of NEP's basic and diluted earnings per unit is as follows:
|
|
|
|
|
|
Three Months Ended
March 31, 2018
|
|
(millions, except per unit amounts)
|
Numerator:
|
|
Net income attributable to NEP – basic
|
$
|
74
|
|
Adjustments for convertible notes and preferred units
|
16
|
|
Net income attributable to NEP – assuming dilution
|
$
|
90
|
|
Denominator:
|
|
Weighted-average number of common units outstanding – basic
|
54.3
|
|
Convertible notes and preferred units
|
19.7
|
|
Weighted-average number of common units outstanding – assuming dilution
|
74.0
|
|
Earnings per unit attributable to NEP:
|
|
Basic
|
$
|
1.36
|
|
Assuming dilution
|
$
|
1.22
|
|
The weighted-average number of common units issuable pursuant to the convertible notes and preferred units that were not included in the calculation of diluted earnings per unit due to their antidilutive effect totaled approximately
19.7 million
for the three months ended March 31, 2019.
8
.
Accumulated Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Net Unrealized
Gains on
Cash Flow Hedges
|
|
Other Comprehensive
Income (Loss) Related to
Equity Method Investee
|
|
Total
|
|
(millions)
|
Three months ended March 31, 2019
|
|
|
|
|
|
Balances, December 31, 2018
|
$
|
6
|
|
|
$
|
(24
|
)
|
|
$
|
(18
|
)
|
Amounts reclassified from AOCI to interest expense
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
Other comprehensive income related to equity method investee
|
—
|
|
|
1
|
|
|
1
|
|
Net other comprehensive income (loss)
|
(6
|
)
|
|
1
|
|
|
(5
|
)
|
Balances, March 31, 2019
|
$
|
—
|
|
|
$
|
(23
|
)
|
|
$
|
(23
|
)
|
AOCI attributable to noncontrolling interest
|
$
|
—
|
|
|
$
|
(15
|
)
|
|
$
|
(15
|
)
|
AOCI attributable to NEP
|
$
|
—
|
|
|
$
|
(8
|
)
|
|
$
|
(8
|
)
|
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Net Unrealized
Gains on
Cash Flow Hedges
|
|
Net Unrealized
Losses on
Foreign Currency
Translation
|
|
Other Comprehensive
Income (Loss) Related to
Equity Method Investee
|
|
Total
|
|
(millions)
|
Three months ended March 31, 2018
|
|
|
|
|
|
|
|
Balances, December 31, 2017
|
$
|
1
|
|
|
$
|
(98
|
)
|
|
$
|
(30
|
)
|
|
$
|
(127
|
)
|
Amounts reclassified from AOCI to interest expense
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Net unrealized losses on foreign currency translation
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
Other comprehensive income related to equity method investee
|
—
|
|
|
—
|
|
|
4
|
|
|
4
|
|
Net other comprehensive income (loss)
|
1
|
|
|
(4
|
)
|
|
4
|
|
|
1
|
|
Balances, March 31, 2018
|
$
|
2
|
|
|
$
|
(102
|
)
|
|
$
|
(26
|
)
|
|
$
|
(126
|
)
|
AOCI attributable to noncontrolling interest
|
$
|
—
|
|
|
$
|
(99
|
)
|
|
$
|
(28
|
)
|
|
$
|
(127
|
)
|
AOCI attributable to NEP
|
$
|
2
|
|
|
$
|
(3
|
)
|
|
$
|
2
|
|
|
$
|
1
|
|
9
.
Related Party Transactions
Each project entered into O&M agreements and ASAs with subsidiaries of NEER whereby the projects pay a certain annual fee plus actual costs incurred in connection with certain O&M and administrative services performed under these agreements. These services are reflected as operations and maintenance in the condensed consolidated statements of income (loss). Additionally, a NEP subsidiary pays an affiliate for transmission services which are reflected as operations and maintenance in the condensed consolidated statements of income (loss). Certain projects have also entered into various types of agreements including those related to shared facilities and transmission lines, transmission line easements, technical support and construction coordination with subsidiaries of NEER whereby certain fees or cost reimbursements are paid to, or received by, certain subsidiaries of NEER.
Management Services Agreement
- Under the MSA, an indirect wholly owned subsidiary of NEE provides operational, management and administrative services to NEP, including managing NEP’s day-to-day affairs and providing individuals to act as NEP’s executive officers and directors, in addition to those services that are provided under the existing O&M agreements and ASAs described above between NEER subsidiaries and NEP subsidiaries. NEP OpCo pays NEE an annual management fee equal to the greater of
1%
of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the most recently ended fiscal year and
$4 million
(as adjusted for inflation beginning in 2016), which is paid in quarterly installments with an additional payment each January to the extent
1%
of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the preceding fiscal year exceeds
$4 million
(as adjusted for inflation beginning in 2016). NEP OpCo also makes certain payments to NEE based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders. NEP’s O&M expenses for the
three
months ended
March 31, 2019
and
2018
include approximately
$22 million
and
$18 million
, respectively, related to the MSA.
Cash Sweep and Credit Support Agreement
- NEP OpCo is a party to the CSCS agreement with NEER under which NEER and certain of its affiliates provide credit support in the form of letters of credit and guarantees to satisfy NEP’s subsidiaries’ contractual obligations. NEP OpCo pays NEER an annual credit support fee based on the level and cost of the credit support provided, payable in quarterly installments. NEP’s O&M expenses for the
three
months ended
March 31, 2019
and
2018
include approximately
$1 million
and
$1 million
, respectively, related to the CSCS agreement.
NEER and certain of its affiliates may withdraw funds (Project Sweeps) received by NEP OpCo under the CSCS agreement, or its subsidiaries in connection with certain long-term debt agreements, and hold those funds in accounts belonging to NEER or its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by NEP's subsidiaries. NEER and its affiliates may keep the funds until the financing agreements permit distributions to be made, or, in the case of NEP OpCo, until such funds are required to make distributions or to pay expenses or other operating costs or NEP OpCo otherwise demands the return of such funds. If NEER or its affiliates fail to return withdrawn funds when required by NEP's subsidiaries’ financing agreements, the lenders will be entitled to draw on any credit support provided by NEER or its affiliates in the amount of such withdrawn funds. If NEER or one of its affiliates realizes any earnings on the withdrawn funds prior to the return of such funds, it will be permitted to retain those earnings. At
March 31, 2019
and
December 31, 2018
, the cash sweep amounts held in accounts
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
belonging to NEER or its affiliates were approximately
$42 million
and
$66 million
, respectively, and are included in due from related parties on the condensed consolidated balance sheets.
Guarantees and Letters of Credit Entered into by Related Parties
- Certain PPAs include requirements of the project entities to meet certain performance obligations. NEECH or NEER has provided letters of credit or guarantees for certain of these performance obligations and payment of any obligations from the transactions contemplated by the PPAs
.
In addition, certain financing agreements require cash and cash equivalents to be reserved for various purposes
.
In accordance with the terms of these financing agreements, guarantees from NEECH have been substituted in place of these cash and cash equivalents reserve requirements. Also, under certain financing agreements, indemnifications have been provided by NEECH. In addition, certain interconnection agreements and site certificates require letters of credit or a bond to secure certain payment or restoration obligations related to those agreements. NEECH also guarantees the Project Sweep amounts held in accounts belonging to NEER, as described above. At
March 31, 2019
, NEECH or NEER guaranteed or provided indemnifications, letters of credit or bonds totaling approximately
$691 million
related to these obligations. Agreements related to the sale of differential membership interests require NEER to guarantee payments due by the VIEs and the indemnifications to the VIEs' respective investors. At
March 31, 2019
, NEER guaranteed a total of approximately
$69 million
related to these obligations.
Due to Related Party
- Non-current amounts due to related party on the condensed consolidated balance sheets primarily represent amounts owed by certain of NEP's wind projects to NEER to refund NEER for certain transmission costs paid on behalf of the wind projects. Amounts will be paid to NEER as the wind projects receive payments from third parties for related notes receivable recorded in other non-current assets on the condensed consolidated balance sheets. During the
three months ended March 31, 2019
, a subsidiary of NEECH provided, pursuant to a debt service reserve guarantee (see discussion above), approximately
$20 million
to fund the debt payment of Genesis Solar Funding, LLC which is reflected as non-current due to related party at
March 31, 2019
.
Transportation and Fuel Management Agreements -
A subsidiary of NEP assigned to a subsidiary of NEER certain gas commodity agreements in exchange for entering into transportation agreements and a fuel management agreement whereby the benefits of the gas commodity agreements (net of transportation paid to the NEP subsidiary) are passed back to the NEP subsidiary. During the
three months ended March 31, 2019
and 2018, NEP recognized approximately
$1 million
and
$2 million
, respectively, in revenues related to the transportation and fuel management agreements.
10
.
Summary of Significant Accounting and Reporting Policies
Restricted Cash
-
Current restricted cash on NEP's condensed consolidated balance sheets and approximately
$11 million
and
$11 million
of other non-current assets on NEP's condensed consolidated balance sheets at
March 31, 2019
and
December 31, 2018
, respectively, are held by certain subsidiaries to pay for certain capital or operating expenditures, as well as to fund required equity contributions pursuant to restrictions contained in the subsidiaries' debt agreements. Restricted cash reported as current assets are recorded as such based on the anticipated use of these funds.
Disposal of Canadian Holdings
- In June 2018, a subsidiary of NEP completed the sale of Canadian Holdings for cash proceeds of approximately CAD
$740 million
(USD
$563 million
at June 29, 2018), subject to post-closing working capital adjustments of approximately
$1 million
. In addition, the purchaser assumed approximately
$676 million
of existing debt. Canadian Holdings owned
four
wind generation facilities and
two
solar generation facilities located in Ontario, Canada with a generating capacity totaling approximately
396
MW. Income before income taxes associated with Canadian Holdings was approximately
$28 million
for the
three months ended March 31, 2018
.
Noncontrolling Interests -
At
March 31, 2019
, NEE's
64.4%
noncontrolling limited partner interest in NEP OpCo, a non-affiliated party's
10%
interest in one of the Texas pipelines, the interests related to differential membership interests and the Class B noncontrolling interests in NEP Renewables sold in 2018 are reflected as noncontrolling interests on the condensed consolidated balance sheets. See Note 6. Details of the activity in noncontrolling interests for the
three months ended March 31, 2019
and 2018 are below:
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Ownership Interest in NEP OpCo Subsidiary
|
|
Differential Membership Interests
|
|
Noncontrolling Ownership Interests in NEP OpCo and Texas pipeline
|
|
Total Noncontrolling
Interests
|
|
|
(millions)
|
Balances, December 31, 2018
|
|
$
|
751
|
|
|
$
|
2,019
|
|
|
$
|
422
|
|
|
$
|
3,192
|
|
Net income (loss) attributable to NCI
|
|
12
|
|
(a)
|
(60
|
)
|
(b)
|
(57
|
)
|
|
(105
|
)
|
Other comprehensive loss
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
Related party contributions
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Related party distributions
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
(51
|
)
|
Changes in non-economic ownership interests
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Differential membership interests contributions, net of distributions
|
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
Payments to NEP OpCo subsidiary investor
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Balances, March 31, 2019
|
|
$
|
758
|
|
|
$
|
1,983
|
|
|
$
|
307
|
|
|
$
|
3,048
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2017
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
34
|
|
Related party note receivable
|
|
—
|
|
|
—
|
|
|
29
|
|
|
29
|
|
Net income (loss) attributable to NCI
|
|
—
|
|
|
(269
|
)
|
(b)
|
170
|
|
|
(99
|
)
|
Other comprehensive income
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Related party distributions
|
|
—
|
|
|
—
|
|
|
(64
|
)
|
|
(64
|
)
|
Changes in non-economic ownership interests
|
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
(6
|
)
|
Differential membership investment contributions, net of distributions
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
Adoption of accounting standards update
|
|
—
|
|
|
1,413
|
|
|
1
|
|
|
1,414
|
|
Balances, March 31, 2018
|
|
$
|
—
|
|
|
$
|
1,167
|
|
|
$
|
165
|
|
|
$
|
1,332
|
|
____________________
|
|
(a)
|
For the
three months ended March 31, 2019
, approximately
$8 million
of the income attributable to the NEP OpCo subsidiary investor benefits NEE's noncontrolling interest and
$4 million
is reflected as net income attributable to NEP.
|
|
|
(b)
|
Represents the benefits associated with differential membership interests recognized as third-party investors received their portion of the economic attributes of the related facilities. For the
three months ended March 31, 2019
and 2018, approximately
$39 million
and
$175 million
, respectively, of the loss attributable to differential membership interests benefits NEE's noncontrolling interest and
$21 million
and
$94 million
, respectively, is reflected as net income attributable to NEP. For the
three months ended March 31, 2018
, includes approximately
$231 million
(after-tax
$211 million
) related to the reduction of differential membership interests as a result of the change in federal corporate income tax rates effective January 1, 2018.
|
11
.
Commitments and Contingencies
Letter of Credit Facilities -
Two of NEP’s projects entered into letter of credit (LOC) facilities under which the LOC lenders may issue standby letters of credit not to exceed approximately
$82 million
in the aggregate. These LOC facilities have maturity dates of June 2022 and July 2022. At
March 31, 2019
, approximately
$68 million
of LOCs was outstanding primarily related to debt service reserves and as security for certain of the projects' agreements, including a PPA.
PG&E Bankruptcy
- During the
three months ended March 31, 2019
, approximately
2%
of net loss attributable to NEP was from PPAs that the Genesis, Desert Sunlight and Shafter solar projects have with PG&E. On January 29, 2019, PG&E filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code. The Genesis and Shafter solar projects are financed with various forms of indebtedness. PG&E’s Chapter 11 filing, or related events, have caused events of default under the financings for the Genesis and Shafter projects, blocking the distribution of cash generated by those projects.
Lenders under these financings could accelerate the repayment of borrowings thereunder or foreclose upon the projects’ equity or assets as a result of events of defaults caused by PG&E’s bankruptcy, which could have a material adverse impact on NEP. In addition, PG&E could seek to reject some or all of the PPAs. PG&E’s bankruptcy petition stated that PG&E has not yet made any decisions regarding whether to assume or reject any PPAs in its Chapter 11 case.
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(unaudited)
At March 31, 2019 and December 31, 2018, the debt outstanding under the Genesis and Shafter financings totaled approximately
$669 million
and
$682 million
, respectively, of which
$641 million
with scheduled final maturity dates ranging from 2033 to 2038 was reclassified into current debt on the condensed consolidated balance sheets. Based on the estimated future cash flows related to the Genesis, Shafter and Desert Sunlight solar projects,
no
impairment adjustment was recorded at March 31, 2019. NEP will continue to monitor its investments in these projects.
Unless a waiver or forbearance agreement is obtained or the events of default are otherwise cured, cash distributions from these projects generally are not able to be made. During the first quarter of 2019, approximately
$38 million
of cash distributions were not made.