 | ||||||||
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 30, 2022
OR
For the transition period from ________ to ________
Commission File Number | Exact name of registrant as specified in its charter, address of principal executive offices and registrant's telephone number | IRS Employer Identification Number | ||||||||||||
(561 ) 694-4000
State or other jurisdiction of incorporation or organization: Delaware
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months. Yes þ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☑
Number of NextEra Energy Partners, LP common units outstanding at September 30, 2022: 86,535,284
DEFINITIONS
Acronyms and defined terms used in the text include the following:
| Term | Meaning | ||||
| 2020 convertible notes | senior unsecured convertible notes issued in 2020 | ||||
| 2021 convertible notes | senior unsecured convertible notes issued in 2021 | ||||
| 2021 Form 10-K | NEP's Annual Report on Form 10-K for the year ended December 31, 2021 | ||||
| ASA | administrative services agreement | ||||
| BLM | U.S. Bureau of Land Management | ||||
| CITC | convertible investment tax credit | ||||
| CSCS agreement | amended and restated cash sweep and credit support agreement | ||||
| Genesis Holdings | Genesis Solar Holdings, LLC | ||||
| IDR fee | certain payments from NEP OpCo to NEE Management as a component of the MSA which are based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders | ||||
| IPP | independent power producer | ||||
| ITC | investment tax credit | ||||
limited partner interest in NEP OpCo | limited partner interest in NEP OpCo's common units | ||||
| Management's Discussion | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
| March 2022 Form 10-Q | NEP's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 | ||||
| Meade | Meade Pipeline Co LLC | ||||
| Meade purchaser | Meade Pipeline Investment, LLC | ||||
| MSA | amended and restated management services agreement among NEP, NEE Management, NEP OpCo and NEP OpCo GP | ||||
| MW | megawatt(s) | ||||
| NEE | NextEra Energy, Inc. | ||||
| NEECH | NextEra Energy Capital Holdings, Inc. | ||||
| NEE Equity | NextEra Energy Equity Partners, LP | ||||
| NEE Management | NextEra Energy Management Partners, LP | ||||
| NEER | NextEra Energy Resources, LLC | ||||
| NEP | NextEra Energy Partners, LP | ||||
| NEP GP | NextEra Energy Partners GP, Inc. | ||||
| NEP OpCo | NextEra Energy Operating Partners, LP | ||||
| NEP OpCo credit facility | senior secured revolving credit facility of NEP OpCo and its direct subsidiary | ||||
| NEP OpCo GP | NextEra Energy Operating Partners GP, LLC | ||||
| NEP Pipelines | NextEra Energy Partners Pipelines, LLC | ||||
| NEP Renewables II | NEP Renewables II, LLC | ||||
| NEP Renewables III | NEP Renewables III, LLC | ||||
| NOLs | net operating losses | ||||
| Note __ | Note __ to condensed consolidated financial statements | ||||
| O&M | operations and maintenance | ||||
Pemex | Petróleos Mexicanos | ||||
| PPA | power purchase agreement | ||||
| preferred units | Series A convertible preferred units representing limited partner interests in NEP | ||||
| PTC | production tax credit | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| Silver State | Silver State South Solar, LLC | ||||
| STX Midstream | South Texas Midstream, LLC | ||||
| Texas pipelines | natural gas pipeline assets located in Texas | ||||
| Texas pipeline entities | the subsidiaries of NEP that directly own the Texas pipelines | ||||
| U.S. | United States of America | ||||
| VIE | variable interest entity | ||||
Each of NEP and NEP OpCo has subsidiaries and affiliates with names that may include NextEra Energy, NextEra Energy Partners and similar references. For convenience and simplicity, in this report, the terms NEP and NEP OpCo are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context. Discussions of NEP's ownership of subsidiaries and projects refers to its controlling interest in the general partner of NEP OpCo and NEP's indirect interest in and control over the subsidiaries of NEP OpCo. See Note 6 for a description of the noncontrolling interest in NEP OpCo. References to NEP's projects and NEP's pipelines generally include NEP's consolidated subsidiaries and the projects and pipelines in which NEP has equity method investments.
2
TABLE OF CONTENTS
| Page No. | ||||||||
3
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the federal securities laws. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, anticipate, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on NEP's operations and financial results, and could cause NEP's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEP in this Form 10-Q, in presentations, on its website, in response to questions or otherwise.
Operational Risks
•NEP's ability to make cash distributions to its unitholders is affected by wind and solar conditions at its renewable energy projects.
•Operation and maintenance of renewable energy projects and pipelines involve significant risks that could result in unplanned power outages, reduced output or capacity, personal injury or loss of life.
•NEP's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather.
•NEP depends on certain of the renewable energy projects and pipelines in its portfolio for a substantial portion of its anticipated cash flows.
•NEP may pursue the repowering of wind projects or the expansion of natural gas pipelines that would require up-front capital expenditures and could expose NEP to project development risks.
•Terrorist acts, cyberattacks or other similar events could impact NEP's projects, pipelines or surrounding areas and adversely affect its business.
•The ability of NEP to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers. NEP's insurance coverage does not provide protection against all significant losses.
•NEP relies on interconnection, transmission and other pipeline facilities of third parties to deliver energy from its renewable energy projects and to transport natural gas to and from its pipelines. If these facilities become unavailable, NEP's projects and pipelines may not be able to operate or deliver energy or may become partially or fully unavailable to transport natural gas.
•NEP's business is subject to liabilities and operating restrictions arising from environmental, health and safety laws and regulations, compliance with which may require significant capital expenditures, increase NEP's cost of operations and affect or limit its business plans.
•NEP's renewable energy projects or pipelines may be adversely affected by legislative changes or a failure to comply with applicable energy and pipeline regulations.
•Pemex may claim certain immunities under the Foreign Sovereign Immunities Act and Mexican law, and the Texas pipeline entities' ability to sue or recover from Pemex for breach of contract may be limited and may be exacerbated if there is a deterioration in the economic relationship between the U.S. and Mexico.
•NEP does not own all of the land on which the projects in its portfolio are located and its use and enjoyment of the property may be adversely affected to the extent that there are any lienholders or land rights holders that have rights that are superior to NEP's rights or the BLM suspends its federal rights-of-way grants.
•NEP is subject to risks associated with litigation or administrative proceedings that could materially impact its operations, including, but not limited to, proceedings related to projects it acquires in the future.
•NEP's operations require NEP to comply with anti-corruption laws and regulations of the U.S. government and Mexico.
•NEP is subject to risks associated with its ownership interests in projects that are under construction, which could result in its inability to complete construction projects on time or at all, and make projects too expensive to complete or cause the return on an investment to be less than expected.
Contract Risks
•NEP relies on a limited number of customers and is exposed to the risk that they may be unwilling or unable to fulfill their contractual obligations to NEP or that they otherwise terminate their agreements with NEP.
•NEP may not be able to extend, renew or replace expiring or terminated PPAs, natural gas transportation agreements or other customer contracts at favorable rates or on a long-term basis.
•If the energy production by or availability of NEP's renewable energy projects is less than expected, they may not be able to satisfy minimum production or availability obligations under their PPAs.
Risks Related to NEP's Acquisition Strategy and Future Growth
•NEP's growth strategy depends on locating and acquiring interests in additional projects consistent with its business strategy at favorable prices.
•Reductions in demand for natural gas in the United States or Mexico and low market prices of natural gas could materially adversely affect NEP's pipeline operations and cash flows.
4
•Government laws, regulations and policies providing incentives and subsidies for clean energy could be changed, reduced or eliminated at any time and such changes may negatively impact NEP's growth strategy.
•NEP's growth strategy depends on the acquisition of projects developed by NEE and third parties, which face risks related to project siting, financing, construction, permitting, the environment, governmental approvals and the negotiation of project development agreements.
•Acquisitions of existing clean energy projects involve numerous risks.
•NEP may continue to acquire other sources of clean energy and may expand to include other types of assets. Any further acquisition of non-renewable energy projects may present unforeseen challenges and result in a competitive disadvantage relative to NEP's more-established competitors.
•NEP faces substantial competition primarily from regulated utilities, developers, IPPs, pension funds and private equity funds for opportunities in North America.
•The natural gas pipeline industry is highly competitive, and increased competitive pressure could adversely affect NEP's business.
Risks Related to NEP's Financial Activities
•NEP may not be able to access sources of capital on commercially reasonable terms, which would have a material adverse effect on its ability to consummate future acquisitions and pursue other growth opportunities.
•Restrictions in NEP and its subsidiaries' financing agreements could adversely affect NEP's business, financial condition, results of operations and ability to make cash distributions to its unitholders.
•NEP's cash distributions to its unitholders may be reduced as a result of restrictions on NEP's subsidiaries’ cash distributions to NEP under the terms of their indebtedness or other financing agreements.
•NEP's subsidiaries’ substantial amount of indebtedness may adversely affect NEP's ability to operate its business, and its failure to comply with the terms of its subsidiaries' indebtedness could have a material adverse effect on NEP's financial condition.
•NEP is exposed to risks inherent in its use of interest rate swaps.
•Widespread public health crises and epidemics or pandemics may have material adverse impacts on NEP’s business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders.
Risks Related to NEP's Relationship with NEE
•NEE has influence over NEP.
•Under the CSCS agreement, NEP receives credit support from NEE and its affiliates. NEP's subsidiaries may default under contracts or become subject to cash sweeps if credit support is terminated, if NEE or its affiliates fail to honor their obligations under credit support arrangements, or if NEE or another credit support provider ceases to satisfy creditworthiness requirements, and NEP will be required in certain circumstances to reimburse NEE for draws that are made on credit support.
•NEER or one of its affiliates is permitted to borrow funds received by NEP's subsidiaries and is obligated to return these funds only as needed to cover project costs and distributions or as demanded by NEP OpCo. NEP's financial condition and ability to make distributions to its unitholders, as well as its ability to grow distributions in the future, is highly dependent on NEER’s performance of its obligations to return all or a portion of these funds.
•NEER's right of first refusal may adversely affect NEP's ability to consummate future sales or to obtain favorable sale terms.
•NEP GP and its affiliates may have conflicts of interest with NEP and have limited duties to NEP and its unitholders.
•NEP GP and its affiliates and the directors and officers of NEP are not restricted in their ability to compete with NEP, whose business is subject to certain restrictions.
•NEP may only terminate the MSA under certain limited circumstances.
•If the agreements with NEE Management or NEER are terminated, NEP may be unable to contract with a substitute service provider on similar terms.
•NEP's arrangements with NEE limit NEE's potential liability, and NEP has agreed to indemnify NEE against claims that it may face in connection with such arrangements, which may lead NEE to assume greater risks when making decisions relating to NEP than it otherwise would if acting solely for its own account.
Risks Related to Ownership of NEP's Units
•NEP's ability to make distributions to its unitholders depends on the ability of NEP OpCo to make cash distributions to its limited partners.
•If NEP incurs material tax liabilities, NEP's distributions to its unitholders may be reduced, without any corresponding reduction in the amount of the IDR fee.
•Holders of NEP's units may be subject to voting restrictions.
•NEP's partnership agreement replaces the fiduciary duties that NEP GP and NEP's directors and officers might have to holders of its common units with contractual standards governing their duties and the New York Stock Exchange does not require a publicly traded limited partnership like NEP to comply with certain of its corporate governance requirements.
•NEP's partnership agreement restricts the remedies available to holders of NEP's common units for actions taken by NEP's directors or NEP GP that might otherwise constitute breaches of fiduciary duties.
•Certain of NEP's actions require the consent of NEP GP.
•Holders of NEP's common units currently cannot remove NEP GP without NEE's consent and provisions in NEP's partnership agreement may discourage or delay an acquisition of NEP that NEP unitholders may consider favorable.
5
•NEE's interest in NEP GP and the control of NEP GP may be transferred to a third party without unitholder consent.
•NEP may issue additional units without unitholder approval, which would dilute unitholder interests.
•Reimbursements and fees owed to NEP GP and its affiliates for services provided to NEP or on NEP's behalf will reduce cash distributions from NEP OpCo and from NEP to NEP's unitholders, and there are no limits on the amount that NEP OpCo may be required to pay.
•Increases in interest rates could adversely impact the price of NEP's common units, NEP's ability to issue equity or incur debt for acquisitions or other purposes and NEP's ability to make cash distributions to its unitholders.
•The liability of holders of NEP's units, which represent limited partnership interests in NEP, may not be limited if a court finds that unitholder action constitutes control of NEP's business.
•Unitholders may have liability to repay distributions that were wrongfully distributed to them.
•The issuance of securities convertible into, or settleable with, common units may affect the market price for NEP's common units, will dilute common unitholders’ ownership in NEP and may decrease the amount of cash available for distribution for each common unit.
Taxation Risks
•NEP's future tax liability may be greater than expected if NEP does not generate NOLs sufficient to offset taxable income or if tax authorities challenge certain of NEP's tax positions.
•NEP's ability to use NOLs to offset future income may be limited.
•NEP will not have complete control over NEP's tax decisions.
•Distributions to unitholders may be taxable as dividends.
These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in the 2021 Form 10-K and Part II, Item 1A. Risk Factors in the March 2022 Form 10-Q and investors should refer to those sections of the 2021 Form 10-K and the March 2022 Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made, and NEP undertakes no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.
Website Access to U.S. Securities and Exchange Commission (SEC) Filings. NEP makes its SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEP's internet website, www.nexteraenergypartners.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC. The information and materials available on NEP's website are not incorporated by reference into this Form 10-Q.
6
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions, except per unit amounts)
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
Renewable energy sales | $ | $ | $ | $ | |||||||||||||||||||
Texas pipelines service revenues | |||||||||||||||||||||||
Total operating revenues(a) | |||||||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
Operations and maintenance(b) | |||||||||||||||||||||||
Depreciation and amortization | |||||||||||||||||||||||
Taxes other than income taxes and other | |||||||||||||||||||||||
| Total operating expenses – net | |||||||||||||||||||||||
| GAINS (LOSSES) ON DISPOSAL OF BUSINESSES/ASSETS – NET | ( | ||||||||||||||||||||||
| OPERATING INCOME | |||||||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | |||||||||||||||||||||||
Interest expense | ( | ||||||||||||||||||||||
Equity in earnings of equity method investees | |||||||||||||||||||||||
| Equity in earnings of non-economic ownership interests | |||||||||||||||||||||||
| Other – net | |||||||||||||||||||||||
| Total other income – net | |||||||||||||||||||||||
| INCOME BEFORE INCOME TAXES | |||||||||||||||||||||||
| INCOME TAXES | |||||||||||||||||||||||
NET INCOME(c) | |||||||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ( | ( | ( | ( | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common unit attributable to NextEra Energy Partners, LP – basic | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common unit attributable to NextEra Energy Partners, LP – assuming dilution | $ | $ | $ | $ | |||||||||||||||||||
____________________
(a) Includes related party revenues of $9 million and $5 million for the three months ended September 30, 2022 and 2021, respectively, and $21 million and $44 million for the nine months ended September 30, 2022 and 2021, respectively.
(b) Includes O&M expenses related to renewable energy projects of $91 million and $52 million for the three months ended September 30, 2022 and 2021, respectively, and $247 million and $144 million for the nine months ended September 30, 2022 and 2021, respectively. Includes O&M expenses related to the Texas pipelines of $14 million and $11 million for the three months ended September 30, 2022 and 2021, respectively, and $34 million and $35 million for the nine months ended September 30, 2022 and 2021, respectively. Total O&M expenses presented include related party amounts of $70 million and $52 million for the three months ended September 30, 2022 and 2021, respectively, and $195 million and $151 million for the nine months ended September 30, 2022 and 2021, respectively.
(c) For the three and nine months ended September 30, 2022, NEP recognized less than $1 million and $1 million, respectively, of other comprehensive income related to equity method investees, which was primarily attributable to noncontrolling interests. For the nine months ended September 30, 2021, NEP recognized $1 million of other comprehensive income related to equity method investees, which was primarily attributable to noncontrolling interests.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
7
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(unaudited)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Other receivables | |||||||||||
| Due from related parties | |||||||||||
| Inventory | |||||||||||
| Derivatives | |||||||||||
| Other | |||||||||||
| Total current assets | |||||||||||
| Other assets: | |||||||||||
| Property, plant and equipment – net | |||||||||||
| Intangible assets – PPAs – net | |||||||||||
| Intangible assets – customer relationships – net | |||||||||||
| Derivatives | |||||||||||
| Goodwill | |||||||||||
| Investments in equity method investees | |||||||||||
| Deferred income taxes | |||||||||||
| Other | |||||||||||
| Total other assets | |||||||||||
| TOTAL ASSETS | $ | $ | |||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued expenses | $ | $ | |||||||||
| Due to related parties | |||||||||||
| Current portion of long-term debt | |||||||||||
| Accrued interest | |||||||||||
| Derivatives | |||||||||||
| Accrued property taxes | |||||||||||
| Other | |||||||||||
| Total current liabilities | |||||||||||
| Other liabilities and deferred credits: | |||||||||||
| Long-term debt | |||||||||||
| Asset retirement obligations | |||||||||||
| Derivatives | |||||||||||
| Due to related parties | |||||||||||
| Other | |||||||||||
| Total other liabilities and deferred credits | |||||||||||
| TOTAL LIABILITIES | |||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||
| REDEEMABLE NONCONTROLLING INTERESTS | |||||||||||
| EQUITY | |||||||||||
Common units ( | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Noncontrolling interests | |||||||||||
| TOTAL EQUITY | |||||||||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | $ | $ | |||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
8
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | |||||||||||
| Intangible amortization – PPAs | |||||||||||
Change in value of derivative contracts | ( | ( | |||||||||
Deferred income taxes | |||||||||||
Equity in earnings of equity method investees, net of distributions received | ( | ( | |||||||||
| Equity in earnings of non-economic ownership interests, net of distributions received | ( | ( | |||||||||
| Losses (gains) on disposal of businesses/assets – net | ( | ||||||||||
Other – net | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Current assets | ( | ( | |||||||||
Noncurrent assets | ( | ||||||||||
Current liabilities | ( | ||||||||||
Noncurrent liabilities | ( | ||||||||||
Net cash provided by operating activities | |||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
| Acquisition of membership interests in subsidiaries – net | ( | ( | |||||||||
Capital expenditures and other investments | ( | ( | |||||||||
Proceeds from CITCs | |||||||||||
| Proceeds from sale of a business | |||||||||||
| Payments to related parties under CSCS agreement – net | ( | ( | |||||||||
Distributions from equity method investee | |||||||||||
| Reimbursements from related parties for capital expenditures | |||||||||||
| Other | |||||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
| Proceeds from issuance of common units – net | |||||||||||
Issuances of long-term debt | |||||||||||
Retirements of long-term debt | ( | ( | |||||||||
| Debt issuance costs | ( | ( | |||||||||
| Capped call transaction | ( | ||||||||||
Partner contributions | |||||||||||
Partner distributions | ( | ( | |||||||||
| Proceeds on sale of differential membership interests | |||||||||||
Proceeds from differential membership investors | |||||||||||
Payments to differential membership investors | ( | ( | |||||||||
Proceeds on sale of Class B noncontrolling interests – net | |||||||||||
| Payments to Class B noncontrolling interest investors | ( | ( | |||||||||
Change in amounts due to related parties | ( | ( | |||||||||
| Payment of CITC obligation to third party | ( | ||||||||||
| Other | ( | ( | |||||||||
| Net cash provided by (used in) financing activities | ( | ||||||||||
| NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – BEGINNING OF PERIOD | |||||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH – END OF PERIOD | $ | $ | |||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |||||||||||
Change in noncash investments in equity method investees – net | $ | ( | $ | ||||||||
| Accrued property additions | $ | $ | |||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
9
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(millions)
(unaudited)
| Common Units | |||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2022 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | Redeemable Non-controlling Interests | |||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||
Issuance of common units – net(a)(b) | — | — | — | ||||||||||||||||||||||||||||||||
| Acquisition of subsidiaries with differential membership interests and noncontrolling ownership interest | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||||||||
| Related party distributions | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | ( | |||||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||
Distributions to unitholders(c) | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net | — | ( | — | ( | — | ||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||
_________________________
(a) Includes NEE Equity's exchange of NEP OpCo common units for NEP common units. Includes deferred tax impact of approximately $14 million. See Note 8 - Common Unit Issuances.
(b) See Note 8 – ATM Program for further discussion. Includes deferred tax impact of approximately $18 million.
(c) Distributions per common unit of $0.7625 were paid during the three months ended September 30, 2022 .
| Common Units | |||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2022 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | Redeemable Non-controlling Interests | |||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||
Issuance of common units – net(a)(b) | — | — | — | ||||||||||||||||||||||||||||||||
| Acquisition of subsidiaries with differential membership interests and noncontrolling ownership interest | — | — | — | — | |||||||||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Related party note receivable | — | — | — | — | |||||||||||||||||||||||||||||||
| Related party distributions | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||
| Changes in non-economic ownership interests | — | — | — | — | |||||||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | ( | |||||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | ( | ( | — | |||||||||||||||||||||||||||||
Distributions to unitholders(c) | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net | — | ( | — | — | |||||||||||||||||||||||||||||||
| Other | — | — | — | — | |||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | ( | $ | $ | $ | |||||||||||||||||||||||||||||
_________________________
(a) Includes NEE Equity's exchange of NEP OpCo common units for NEP common units. Includes deferred tax impact of approximately $14 million. See Note 8 - Common Unit Issuances.
(b) See Note 8 – ATM Program for further discussion. Includes deferred tax impact of approximately $18 million.
(c) Distributions per common unit of $2.2025 were paid during the nine months ended September 30, 2022.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
10
NEXTERA ENERGY PARTNERS, LP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(millions)
(unaudited)
| Common Units | |||||||||||||||||||||||||||||
| Three Months Ended September 30, 2021 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||
| Related party distributions | — | — | — | ( | ( | ||||||||||||||||||||||||
Changes in non-economic ownership interests | — | — | — | ||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | ||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | ( | ( | ||||||||||||||||||||||||
Distributions to unitholders(a) | — | ( | — | — | ( | ||||||||||||||||||||||||
| Other | — | ( | — | ( | |||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
_____________________________
(a) Distributions per common unit of $0.6625 were paid during the three months ended September 30, 2021.
| Common Units | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2021 | Units | Amount | Accumulated Other Comprehensive Loss | Noncontrolling Interests | Total Equity | ||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
Issuance of common units – net(a) | — | — | |||||||||||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||||||||
| Other comprehensive income | — | — | |||||||||||||||||||||||||||
| Related party note receivable | — | — | — | ||||||||||||||||||||||||||
| Related party distributions | — | — | — | ( | ( | ||||||||||||||||||||||||
| Changes in non-economic ownership interests | — | — | — | ||||||||||||||||||||||||||
| Other differential membership investment activity | — | — | — | ||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | — | — | — | ( | ( | ||||||||||||||||||||||||
Distributions to unitholders(b) | — | ( | — | — | ( | ||||||||||||||||||||||||
| Sale of Class B noncontrolling interest — net | — | — | — | ||||||||||||||||||||||||||
| Sale of differential membership interest | — | — | — | ||||||||||||||||||||||||||
Adoption of accounting standards update(c) | — | ( | — | ( | |||||||||||||||||||||||||
| Capped call transaction | — | ( | — | ( | |||||||||||||||||||||||||
| Other | — | ( | — | ( | ( | ||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
_____________________________
(a) See Note 8 – ATM Program for further discussion. Includes deferred tax impact of approximately $6 million.
(b) Distributions per common unit of $1.9150 were paid during the nine months ended September 30, 2021.
(c) See Note 7 for further discussion. Includes deferred tax impact of approximately $7 million.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
11
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2021 Form 10-K. In the opinion of NEP management, all adjustments considered necessary for fair financial statement presentation have been made. All adjustments are normal and recurring unless otherwise noted. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
1. Acquisitions
In August 2021, an indirect subsidiary of NEP acquired from a third party 100 % of the ownership interests (August 2021 acquisition) in a portfolio of four operating wind assets with a combined generating capacity totaling approximately 391 MW located in California and New Hampshire.
In October 2021, an indirect subsidiary of NEP acquired from subsidiaries of NEER ownership interests (October 2021 acquisition) in a portfolio of wind and solar generation facilities with a combined net generating capacity totaling approximately 589 MW located in various states across the U.S.
In December 2021, an indirect subsidiary of NEP acquired from subsidiaries of NEER 100 % of the Class A membership interests in Star Moon Holdings, LLC (Star Moon Holdings) which represents an indirect 50 % controlling ownership interest in seven wind generation facilities and six solar generation facilities located in various states across the U.S., some of which include solar storage, with a combined net generating capacity totaling approximately 1,260 MW and net storage capacity totaling 58 MW. The wind and solar generation facilities were under construction by NEER when the acquisition was announced. At closing, three projects remained under construction and NEER agreed to continue to manage the construction of such projects after the acquisition, at its own cost, and to contribute to those projects any capital necessary for the construction of such projects. During the three months ended March 31, 2022, construction of the projects was completed and the projects entered service. In December 2021, NEER sold the remaining 50 % noncontrolling ownership interest in the wind and solar generation facilities to a third party, which is reflected as noncontrolling interests on NEP's condensed consolidated balance sheets (see Note 10 - Noncontrolling Interests). NEER operates the wind and solar generation facilities under O&M and administrative service agreements (see Note 9).
In December 2021, an indirect subsidiary of NEP acquired from a third party a 102 MW wind generation facility (Coram II acquisition) located in California.
In September 2022, an indirect subsidiary of NEP acquired from NEER interests in Sunlight Renewables Holdings, LLC (Sunlight Renewables Holdings) which represent an indirect 67 % controlling ownership interest in a battery storage facility in California with storage capacity of 230 MW. The purchase price consisted of cash consideration of approximately $191 million, plus working capital and other adjustments of $3 million. The purchase price was allocated primarily to property, plant and equipment — net of approximately $435 million and noncontrolling interests of $242 million, including $147 million relating to differential membership interests, based on the fair value of assets acquired and liabilities assumed. NEER operates the battery storage facility under O&M and administrative service agreements (see Note 9).
Supplemental Unaudited Pro forma Results of Operations
NEP’s pro forma results of operations in the combined entity had the August 2021 acquisition, the October 2021 acquisition and the Coram II acquisition been completed on January 1, 2020 are as follows:
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | ||||||||||
| (millions) | |||||||||||
| Unaudited pro forma results of operations: | |||||||||||
Pro forma revenues | $ | $ | |||||||||
Pro forma operating income | $ | $ | |||||||||
| Pro forma net income | $ | $ | |||||||||
| Pro forma net income attributable to NEP | $ | $ | |||||||||
The unaudited pro forma consolidated results of operations include adjustments to:
•reflect the historical results of the businesses acquired beginning on January 1, 2020 assuming consistent operating performance over all periods;
•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 assumed interest expense related to funding the acquisitions; 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
12
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
transactions been made at the beginning of the periods presented or the future results of the consolidated operations.
NEP incurred approximately $2 million in acquisition-related costs during the nine months ended September 30, 2022 which are reflected as operations and maintenance in NEP's condensed consolidated statements of income.
2. Revenue
Revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. NEP's operating revenues are generated primarily from various non-affiliated parties under PPAs and natural gas transportation agreements. NEP's operating revenues from contracts with customers are partly offset by the net amortization of intangible asset – PPAs and intangible liabilities – PPAs. Revenue is recognized as energy and any related renewable energy attributes are delivered, based on rates stipulated in the respective PPAs, or natural gas transportation services are performed. NEP believes that the obligation to deliver energy and provide the natural gas transportation services is satisfied over time as the customer simultaneously receives and consumes benefits provided by NEP. In addition, NEP believes that the obligation to deliver renewable energy attributes is satisfied at multiple points in time, with the 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 September 30, 2022 is $232 million and $64 million, for the nine months ended September 30, 2022 is $747 million and $181 million, for the three months ended September 30, 2021 is $190 million and $58 million, and for the nine months ended September 30, 2021 is $530 million and $176 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 agreements. 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 2022 to 2035. At September 30, 2022, NEP expects to record approximately $1.6 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 2025 to 2052, will vary based on the volume of energy delivered. At September 30, 2022, NEP expects to record approximately $183 million of revenues related to the fixed price components of one PPA through 2039 as the energy is delivered.
3. Derivative Instruments and Hedging Activity
NEP uses derivative instruments (primarily interest rate swaps) to manage the interest rate cash flow risk associated with outstanding and expected future debt issuances and borrowings. NEP records all derivative instruments that are required to be marked to market as either assets or liabilities on its condensed consolidated balance sheets and measures them at fair value each reporting period. NEP does not utilize hedge accounting for its derivative instruments. All changes in the derivatives' fair value are recognized in interest expense in NEP's condensed consolidated statements of income. At September 30, 2022 and December 31, 2021, the net notional amounts of the interest rate contracts were approximately $7.8 billion and $7.9 billion, respectively. Cash flows from the interest rate contracts are reported in cash flows from operating activities in NEP's condensed consolidated statements of cash flows.
Fair Value Measurement of Derivative Instruments – The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available. NEP uses several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. Certain financial instruments may be valued using multiple inputs including discount rates, counterparty credit ratings and credit enhancements. NEP’s assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the placement of those assets and liabilities within the fair value hierarchy levels. Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value. Transfers between fair value hierarchy levels occur at the beginning of the period in which the transfer occurred.
13
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
NEP estimates the fair value of its derivative instruments using an income approach based on a discounted cash flows valuation technique utilizing the net amount of estimated future cash inflows and outflows related to the agreements. The primary inputs used in the fair value measurements include the contractual terms of the derivative agreements, current interest rates and credit profiles. The significant inputs for the resulting fair value measurement are market-observable inputs and the measurements are reported as Level 2 in the fair value hierarchy.
The tables below present NEP's gross derivative positions, based on the total fair value of each derivative instrument, at September 30, 2022 and December 31, 2021, as required by disclosure rules, as well as the location of the net derivative positions, based on the expected timing of future payments, on NEP's condensed consolidated balance sheets.
| September 30, 2022 | ||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net fair value by balance sheet line item: | ||||||||||||||||||||||||||||||||
| Current derivative assets | $ | |||||||||||||||||||||||||||||||
| Noncurrent derivative assets | ||||||||||||||||||||||||||||||||
| Total derivative assets | $ | |||||||||||||||||||||||||||||||
| Current derivative liabilities | $ | |||||||||||||||||||||||||||||||
| Noncurrent derivative liabilities | ||||||||||||||||||||||||||||||||
| Total derivative liabilities | $ | |||||||||||||||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Assets: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||
| Net fair value by balance sheet line item: | ||||||||||||||||||||||||||||||||
| Current derivative assets | $ | |||||||||||||||||||||||||||||||
| Noncurrent derivative assets | ||||||||||||||||||||||||||||||||
| Total derivative assets | $ | |||||||||||||||||||||||||||||||
| Current derivative liabilities | $ | |||||||||||||||||||||||||||||||
| Noncurrent derivative liabilities | ||||||||||||||||||||||||||||||||
| Total derivative liabilities | $ | |||||||||||||||||||||||||||||||
____________________
(a) Includes the effect of the contractual ability to settle contracts under master netting arrangements.
Financial Statement Impact of Derivative Instruments – Gains related to NEP's interest rate contracts are recorded in NEP's condensed consolidated financial statements as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
Interest rate contracts: | |||||||||||||||||||||||
| Gains recognized in interest expense | $ | $ | $ | $ | |||||||||||||||||||
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
14
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4. Non-Derivative Fair Value Measurements
Non-derivative fair value measurements consist of NEP's cash equivalents. The fair value of these financial assets is determined using the valuation techniques and inputs as described in Note 3 – Fair Value Measurement of Derivative Instruments. The fair value of money market funds that are included in cash and cash equivalents, current other assets and noncurrent other assets on NEP's condensed consolidated balance sheets is estimated using a market approach based on current observable market prices.
Recurring Non-Derivative Fair Value Measurements – NEP’s financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Level 1 | Level 2 | Total | Level 1 | Level 2 | Total | ||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||
Assets: | |||||||||||||||||||||||||||||||||||
Cash equivalents | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Total assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
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:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
Long-term debt, including current maturities(a) | $ | $ | $ | $ | |||||||||||||||||||
____________________
5. Income Taxes
Income taxes are calculated for NEP as a single taxpaying corporation for U.S. federal and state income taxes (based on NEP's election to be taxed as a corporation). NEP recognizes in income its applicable ownership share of U.S. income taxes due to the disregarded/partnership tax status of substantially all of the U.S. projects under NEP OpCo. Net income or loss attributable to noncontrolling interests includes minimal U.S. taxes.
The effective tax rates for the three and nine months ended September 30, 2022 were approximately 16 % and 14 %, respectively, and for the three and nine months ended September 30, 2021 were approximately 6 % and 10 %, respectively. The effective tax rates are below the U.S. statutory rate of 21% primarily due to tax expense (benefit) attributable to noncontrolling interests of approximately $(23 ) million and $(126 ) million for the three and nine months ended September 30, 2022, respectively, and $(14 ) million and $(64 ) million for the three and nine months ended September 30, 2021, respectively.
On August 16, 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law which includes: (i) extensions for wind and solar tax credits on facilities that start construction before the later of 2034 or the end of the calendar year following the year in which greenhouse gas emissions from U.S. electric generation are reduced by 75% from 2022 levels; (ii) a new solar PTC and standalone battery ITC; (iii) the ability to transfer renewable energy tax credits to an unrelated transferee; and (iv) a 15% corporate profits minimum tax based on pre-tax income for years after 2022. This legislation does not require NEP to revalue its deferred income taxes given that there was no change to the corporate tax rate.
6. Variable Interest Entities
15
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
noncontrolling 53.8 % 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 September 30, 2022, NEP OpCo consolidated 17 VIEs related to certain subsidiaries which have sold differential membership interests in entities which own and operate 32 wind generation facilities as well as seven solar projects, including related battery storage facilities, and one battery storage facility. These entities are considered VIEs because the holders of the differential membership interests do not have substantive rights over the significant activities of these entities. The assets, primarily property, plant and equipment – net, and liabilities, primarily accounts payable and accrued expenses and asset retirement obligation, of the VIEs, totaled approximately $9,419 million and $537 million, respectively, at September 30, 2022 and $9,740 million and $1,310 million, respectively, at December 31, 2021.
At September 30, 2022, NEP OpCo also consolidated five VIEs related to the sales of noncontrolling Class B interests in certain NEP subsidiaries (see Note 10 – Noncontrolling Interests) which have ownership interests in and operate wind and solar facilities with a combined net generating capacity of approximately 3,576 MW as well as ownership interests in seven natural gas pipeline assets. These entities are considered VIEs because the holders of the noncontrolling Class B interests do not have substantive rights over the significant activities of the entities. The assets, primarily property, plant and equipment – net, intangible assets – PPAs and investments in equity method investees, and the liabilities, primarily accounts payable and accrued expenses, long-term debt, other long-term liabilities and asset retirement obligation, of the VIEs totaled approximately $10,749 million and $1,641 million, respectively, at September 30, 2022 and $11,810 million and $2,480 million, respectively, at December 31, 2021. Certain of these VIEs include five other VIEs related to NEP's ownership interests in Rosmar, Silver State, Meade, Pine Brooke Holdings and Star Moon Holdings (see Note 1). In addition, certain of these VIEs contain entities which have sold differential membership interests and approximately $4,165 million and $4,749 million of assets and $361 million and $1,159 million of liabilities are also included in the disclosure of the VIEs related to differential membership interests at September 30, 2022 and December 31, 2021, respectively.
At September 30, 2022, NEP OpCo has an investment in Sunlight Renewables Holdings which is a VIE (see Note 1). The assets, primarily property, plant and equipment – net, and the liabilities, primarily accounts payable and accrued expenses and asset retirement obligation, of the VIE totaled approximately $443 million and $8 million at September 30, 2022, respectively. This VIE contains entities which have sold differential membership interests and approximately $342 million of assets and $8 million of liabilities is included in the disclosure of VIEs related to differential membership interests at September 30, 2022 above.
Certain subsidiaries of NEP OpCo have noncontrolling interests in entities accounted for under the equity method that are considered VIEs.
NEP has an indirect equity method investment in three NEER solar projects with a total generating capacity of 277 MW and battery storage capacity of 230 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 September 30, 2022 and December 31, 2021, NEP's equity method investment related to the non-economic ownership interests of approximately $99 million and $47 million, respectively, is reflected as noncurrent other assets on NEP's 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.
16
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. Debt
Significant long-term debt issuances and borrowings by subsidiaries of NEP during the nine months ended September 30, 2022 were as follows:
Date Issued/Borrowed | Debt Issuances/Borrowings | Interest Rate | Principal Amount | Maturity Date | ||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||
| February 2022 | NEP OpCo credit facility | Variable(a) | $ | (b) | 2027 | |||||||||||||||||||||
| January 2022 – September 2022 | Senior secured limited-recourse debt | Variable(a) | $ | (c) | 2026 | |||||||||||||||||||||
————————————
(a)Variable rate is based on an underlying index plus a margin.
(b)During the nine months ended September 30, 2022, approximately $585 million of the outstanding borrowings under this facility were repaid. At September 30, 2022, approximately $55 million of borrowings were outstanding and $118 million of letters of credit were issued under the NEP OpCo credit facility. Approximately $1 million of the outstanding borrowings have a maturity date in 2024.
(c)At September 30, 2022, approximately $865 million of borrowings were outstanding under the existing credit agreement of the Meade purchaser and Pipeline Investment Holdings, LLC.
In February 2022, the maturity date was extended from February 2026 to February 2027 for essentially all of the NEP OpCo credit facility. In May 2022, the NEP OpCo credit facility was amended to, among other things, increase the revolving credit facility size from $1.25 billion to $2.5 billion. In October 2022, the loan parties borrowed $90 million under the NEP OpCo credit facility.
NEP OpCo and its subsidiaries' secured long-term debt agreements are secured by liens on certain assets and contain provisions which, under certain conditions, could restrict the payment of distributions or related party fee payments. At September 30, 2022, NEP and its subsidiaries were in compliance with all financial debt covenants under their financings.
8. Equity
Distributions – On October 21, 2022, the board of directors of NEP authorized a distribution of $0.7875 per common unit payable on November 14, 2022 to its common unitholders of record on November 4, 2022. NEP anticipates that an adjustment will be made to the conversion ratio for the 2020 convertible notes under the related indenture on the ex-distribution date for such distribution, which will be computed using the last reported sale price of NEP’s units on the day before the ex-distribution date, subject to certain carryforward provisions in the indenture.
Earnings Per Unit – Diluted earnings per unit is based on the weighted-average number of common units and potential common units outstanding during the period, including the dilutive effect of convertible notes. The dilutive effect of the 2021 convertible notes and the 2020 convertible notes is computed using the if-converted method.
17
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The reconciliation of NEP's basic and diluted earnings per unit for the three and nine months ended September 30, 2022 and 2021 is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions, except per unit amounts) | |||||||||||||||||||||||
| Numerator – Net income attributable to NEP | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average number of common units outstanding – basic | |||||||||||||||||||||||
| Dilutive effect of convertible notes | |||||||||||||||||||||||
| Weighted-average number of common units outstanding and assumed conversions | |||||||||||||||||||||||
| Earnings per unit attributable to NEP: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Assuming dilution | $ | $ | $ | $ | |||||||||||||||||||
ATM Program – During the three and nine months ended September 30, 2022, NEP issued approximately 1.8 145 0.7 50 1 1 million for the nine months ended September 30, 2021.
Common Unit Issuances – During the three and nine months ended September 30, 2022, NEP issued 0.8
Accumulated Other Comprehensive Income (Loss) – During the three and nine months ended September 30, 2022, NEP recognized less than $1 million and $1 million, respectively, of other comprehensive income related to equity method investees. During the nine months ended September 30, 2021, NEP recognized approximately $1 million of other comprehensive income related to equity method investees. At September 30, 2022 and 2021, NEP's accumulated other comprehensive loss totaled approximately $17 million and $19 million, respectively, of which $9 million and $11 million, respectively, was attributable to noncontrolling interest and $8 million and $8 million, respectively, was attributable to NEP.
9. Related Party Transactions
Each project entered into O&M agreements and ASAs with subsidiaries of NEER whereby the projects pay a certain annual fee plus actual costs incurred in connection with certain O&M and administrative services performed under these agreements. These services are reflected as operations and maintenance in NEP's condensed consolidated statements of income. Additionally, certain NEP subsidiaries pay affiliates for transmission and retail power services which are reflected as operations and maintenance in NEP's condensed consolidated statements of income. Certain projects have also entered into various types of agreements including those related to shared facilities and transmission lines, transmission line easements, technical support and construction coordination with subsidiaries of NEER whereby certain fees or cost reimbursements are paid to, or received by, certain subsidiaries of NEER.
Management Services Agreement – Under the MSA, an indirect wholly owned subsidiary of NEE provides operational, management and administrative services to NEP, including managing NEP’s day-to-day affairs and providing individuals to act as NEP’s executive officers and directors, in addition to those services that are provided under the existing O&M agreements and ASAs described above between NEER subsidiaries and NEP subsidiaries. NEP OpCo pays NEE an annual management fee equal to the greater of 1 % of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the most recently ended fiscal year and $4 million (as adjusted for inflation beginning in 2016), which is paid in quarterly installments with an additional payment each January to the extent 1 % of the sum of NEP OpCo’s net income plus interest expense, income tax expense and depreciation and amortization expense less certain non-cash, non-recurring items for the preceding fiscal year exceeds $4 million (as adjusted for inflation beginning in 2016). NEP OpCo also makes certain payments to NEE based on the achievement by NEP OpCo of certain target quarterly distribution levels to its unitholders. NEP’s O&M expenses for the three and nine months ended September 30, 2022 include approximately $43 million and $122 million, respectively, and for the three and nine months ended September 30, 2021 include approximately $36 million and $102 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’
18
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
contractual obligations. NEP OpCo pays NEER an annual credit support fee based on the level and cost of the credit support provided, payable in quarterly installments. NEP’s O&M expenses for the three and nine months ended September 30, 2022 include approximately $2 million and $6 million, respectively, and for the three and nine months ended September 30, 2021 include approximately $1 million and $4 million, respectively, related to the CSCS agreement.
NEER and certain of its affiliates may withdraw funds (Project Sweeps) from NEP OpCo under the CSCS agreement or NEP OpCo's 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 OpCo'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 September 30, 2022 and December 31, 2021, the cash sweep amounts held in accounts belonging to NEER or its affiliates were approximately $65 million and $57 million, respectively, and are included in due from related parties on NEP's condensed consolidated balance sheets.
Guarantees and Letters of Credit Entered into by Related Parties – Certain PPAs include requirements of the project entities to meet certain performance obligations. NEECH or NEER has provided letters of credit or guarantees for certain of these performance obligations and payment of any obligations from the transactions contemplated by the PPAs. In addition, certain financing agreements require cash and cash equivalents to be reserved for various purposes. In accordance with the terms of these financing agreements, guarantees from NEECH have been substituted in place of these cash and cash equivalents reserve requirements. Also, under certain financing agreements, indemnifications have been provided by NEECH. In addition, certain interconnection agreements and site certificates require letters of credit or a surety bond to secure certain payment or restoration obligations related to those agreements. NEECH also guarantees the Project Sweep amounts held in accounts belonging to NEER, as described above. In addition, NEECH and NEER provided guarantees associated with obligations, primarily incurred and future construction payables, associated with the December 2021 acquisition from NEER discussed in Note 1. At September 30, 2022, NEECH or NEER guaranteed or provided indemnifications, letters of credit or surety bonds totaling approximately $2,513 million related to these obligations.
Due to Related Parties – Noncurrent amounts due to related parties on NEP's condensed consolidated balance sheets primarily represent amounts owed by certain of NEP's wind projects to NEER to refund NEER for certain transmission costs paid on behalf of the wind projects. Amounts will be paid to NEER as the wind projects receive payments from third parties for related notes receivable recorded in noncurrent other assets on NEP's condensed consolidated balance sheets.
10. Summary of Significant Accounting and Reporting Policies
Restricted Cash – At September 30, 2022 and December 31, 2021, NEP had less than $1 million and approximately $4 million, respectively, of restricted cash included in current other assets on NEP's condensed consolidated balance sheets. Restricted cash at September 30, 2022 and December 31, 2021 is primarily related to collateral deposits from a counterparty. Restricted cash reported as current assets are recorded as such based on the anticipated use of these funds.
Property, Plant and Equipment – Property, plant and equipment consists of the following:
| September 30, 2022 | December 31, 2021 | ||||||||||
| (millions) | |||||||||||
| Property, plant and equipment, gross | $ | $ | |||||||||
| Accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment – net | $ | $ | |||||||||
19
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Noncontrolling Interests – At September 30, 2022, noncontrolling interests on NEP's condensed consolidated balance sheets primarily reflects the Class B noncontrolling ownership interests (the Class B noncontrolling ownership interests in NEP Renewables II, NEP Pipelines, STX Midstream, Genesis Holdings, and NEP Renewables III owned by third parties), the differential membership interests, NEE Equity's approximately 53.8 % noncontrolling interest in NEP OpCo, NEER's approximately 50 % noncontrolling ownership interest in Silver State and 33 % noncontrolling interest in Sunlight Renewables Holdings, non-affiliated parties' 10 % interest in one of the Texas pipelines and 50 % interest in Star Moon Holdings and the non-economic ownership interests. The impact of the net income (loss) attributable to the differential membership interests and the Class B noncontrolling ownership interests are allocated to NEE Equity's noncontrolling ownership interest and the net income attributable to NEP based on the respective ownership percentage of NEP OpCo. Details of the activity in noncontrolling interests are below:
Class B Noncontrolling Ownership Interests | Differential Membership Interests | NEE's Indirect Noncontrolling Ownership Interests(a) | Other Noncontrolling Ownership Interests | Total Noncontrolling Interests | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Three months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Balances, June 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Acquisition of subsidiaries with differential membership interests | — | — | — | |||||||||||||||||||||||||||||
| Acquisition of subsidiaries with noncontrolling ownership interests | — | — | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||
| Related party distributions | — | — | ( | ( | ( | |||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | — | — | |||||||||||||||||||||||||||||
Payments to Class B noncontrolling interest investors | ( | — | — | — | ( | |||||||||||||||||||||||||||
| Reclassification of redeemable noncontrolling interests | — | — | — | |||||||||||||||||||||||||||||
Other | — | ( | ||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine months ended September 30, 2022 | ||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net(b) | — | — | — | |||||||||||||||||||||||||||||
| Acquisition of subsidiaries with differential membership interests | — | — | — | |||||||||||||||||||||||||||||
| Acquisition of subsidiaries with noncontrolling ownership interest | — | — | — | |||||||||||||||||||||||||||||
| Related party note receivable | — | — | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
| Related party distributions | — | — | ( | ( | ( | |||||||||||||||||||||||||||
| Changes in non-economic ownership interests, net of distributions | — | — | — | |||||||||||||||||||||||||||||
| Differential membership investment contributions, net of distributions | — | — | — | |||||||||||||||||||||||||||||
Payments to Class B noncontrolling interest investors | ( | — | — | — | ( | |||||||||||||||||||||||||||
| Reclassification of redeemable noncontrolling interests | — | — | — | |||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||
| Balances, September 30, 2022 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
————————————
(a)Primarily reflects NEE Equity's noncontrolling interest in NEP OpCo and NEER's noncontrolling interests in Silver State and Sunlight Renewables Holdings.
(b)Represents NEP Renewables III final funding.
20
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| Class B Noncontrolling Ownership Interests | Differential Membership Interests | NEE's Indirect Noncontrolling Ownership Interests(a) | Other Noncontrolling Ownership Interests | Total Noncontrolling Interests | ||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||
| Three months ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Balances, June 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||
| Related party distributions | — | — | ( | ( | ( | |||||||||||||||||||||||||||
| Changes in non-economic ownership interests, net of distributions | — | — | — | |||||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | — | — | |||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | ( | — | — | — | ( | |||||||||||||||||||||||||||
| Other | — | — | ( | |||||||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine months ended September 30, 2021 | ||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||
Sale of Class B noncontrolling interest – net(b) | — | — | — | |||||||||||||||||||||||||||||
| Related party note receivable | — | — | — | |||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interests | ( | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | |||||||||||||||||||||||||||||
| Related party distributions | — | — | ( | ( | ( | |||||||||||||||||||||||||||
| Changes in non-economic ownership interests, net of distributions | — | — | — | |||||||||||||||||||||||||||||
Differential membership investment contributions, net of distributions | — | — | — | |||||||||||||||||||||||||||||
| Payments to Class B noncontrolling interest investors | ( | — | — | — | ( | |||||||||||||||||||||||||||
| Sale of differential membership interest | — | — | — | |||||||||||||||||||||||||||||
| Other | ( | ( | ||||||||||||||||||||||||||||||
| Balances, September 30, 2021 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
————————————
(a)Primarily reflects NEE Equity's noncontrolling interest in NEP OpCo and NEER's noncontrolling interest in Silver State.
Redeemable Noncontrolling Interests – Prior to the acquisition in December 2021 from NEER (see Note 1), differential membership interests related to certain of the acquired solar facilities were sold to third party investors. If, subject to certain contingencies, certain events occurred that delayed or prevented completion of any underlying projects, NEP could have been obligated to reacquire all or a portion of the third party investors' interests in these projects for up to approximately $204 million. Additionally, if a solar PTC was not enacted by a certain date, NEP may have been obligated to return proceeds up to approximately $117 million to the third party investors in these projects. As these potential redemptions or return of proceeds were outside of NEP’s control, the balances were classified as redeemable noncontrolling interests on NEP's condensed consolidated balance sheet as of December 31, 2021.
During the three months ending March 31, 2022, the underlying projects were completed and the redeemable noncontrolling interests amount related to the completion of the projects was reclassified to noncontrolling interests. During the three months ending September 30, 2022, legislation was enacted establishing a solar PTC, which substantially resolved the contingencies related to the return of proceeds and resulted in $93 million of redeemable noncontrolling interests being reclassified to noncontrolling interests. The remaining contingencies are expected to be resolved in the fourth quarter of 2022. Prior to paying any amounts to the third party investors related to these contingencies, NEP would receive the full amount of any such payments from a subsidiary of NEER.
21
NEXTERA ENERGY PARTNERS, LP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(unaudited)
Disposal of Pipeline – In April 2022, subsidiaries of NEP sold (the pipeline sale) to a third party all of their ownership interests in an approximately 156-mile, 16-inch pipeline that transports natural gas in Texas for total consideration of approximately $203 million, subject to working capital and other adjustments. Approximately $70 million of the cash proceeds from the sale were distributed to the third-party owner of Class B membership interests in STX Midstream. In connection with the sale, NEP recorded a gain of approximately $20 million ($18 million after tax) in the second quarter of 2022 and $10 million ($9 million after tax) in the third quarter of 2022 upon resolution of a contingency.
Disposal of Wind Project – In June 2022, NEP received notification from the offtaker of NEP's 62 MW wind project located in Barnes County, North Dakota of its intent to exercise an option to acquire the wind project for approximately $50 million. As such, the carrying amounts of the major classes of assets related to the wind project that were classified as held for sale, which are included in current other assets on NEP's condensed consolidated balance sheets, were approximately $50 million at September 30, 2022 and primarily represent property, plant and equipment – net. Liabilities associated with assets held for sale, which are included in current other liabilities on NEP's condensed consolidated balance sheets, were approximately $1 million at September 30, 2022. The sale is expected to close in January of 2023.
22
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
NEP is a growth-oriented limited partnership formed to acquire, manage and own contracted clean energy projects with stable long-term cash flows. NEP consolidates the results of NEP OpCo and its subsidiaries through its controlling interest in the general partner of NEP OpCo. At September 30, 2022, NEP owned an approximately 46.2% limited partner interest in NEP OpCo and NEE Equity owned a noncontrolling 53.8% limited partner interest in NEP OpCo. Through NEP OpCo, NEP has ownership interests in a portfolio of contracted renewable generation assets consisting of wind, solar and battery storage projects and a portfolio of contracted natural gas pipeline assets. NEP's financial results are shown on a consolidated basis with financial results attributable to NEE Equity reflected in noncontrolling interests.
This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 2021 Form 10-K. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussions, all comparisons are with the corresponding items in the prior year period.
In 2021, indirect subsidiaries of NEP completed multiple acquisitions of ownership interests in wind and solar generation facilities, some of which include battery storage facilities, with a combined net generating capacity totaling approximately 2,342 MW and net storage capacity totaling 58 MW. In April 2022, indirect subsidiaries of NEP sold their ownership interests in a pipeline in Texas. See Note 10 - Disposal of Pipeline. In June 2022, NEP received notification from the offtaker of a 62 MW wind project of its intent to exercise an option to acquire the wind project. See Note 10 - Disposal of Wind Project. In September 2022, an indirect subsidiary of NEP completed the acquisition from NEER of a 67% indirect controlling ownership interest in a battery storage facility in California with storage capacity of 230 MW. See Note 1.
On August 16, 2022, the IRA was enacted which significantly expanded tax incentives for clean energy. The IRA expanded the PTC to include solar generation facilities and extended the 100% PTC and the 30% ITC to wind and solar generation facilities that start construction before the later of 2034 or the end of the calendar year following the year in which greenhouse gas emissions from U.S. electric generation are reduced by 75% from 2022 levels. Accordingly, owners of utility-scale wind and solar generation facilities placed in service in 2022 or later are eligible to claim a PTC (or an ITC in lieu of the PTC) upon initially achieving commercial operation. In order to qualify for the 100% PTC or 30% ITC rate, a facility must meet certain other requirements or construction must start on the facility before 60 days after guidance on these requirements is issued. In addition, the PTC is increased by 10% and the ITC rate is increased by 10 percentage points for facilities that satisfy certain tax credit enhancement requirements. Retrofitted wind and solar generation facilities may qualify for a PTC or ITC if the cost basis of the new investment is at least 80% of the facility’s total fair value.
In addition, the IRA expanded the 30% ITC to include storage projects placed in service after 2022 (previously, such projects qualified only if they were connected to and charged by a renewable generation facility that claimed the ITC), subject to certain other requirements. In addition, storage projects claiming an ITC are eligible for a 10 percentage point increase in the ITC rate if the facilities satisfy certain tax credit enhancement requirements.
For taxable years beginning after 2022, renewable energy tax credits generated during the taxable year can be transferred to an unrelated transferee.
23
Results of Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
(millions) | |||||||||||||||||||||||
| Statement of Income Data: | |||||||||||||||||||||||
| OPERATING REVENUES | |||||||||||||||||||||||
Renewable energy sales | $ | 236 | $ | 193 | $ | 762 | $ | 543 | |||||||||||||||
Texas pipelines service revenues | 66 | 59 | 183 | 208 | |||||||||||||||||||
| Total operating revenues | 302 | 252 | 945 | 751 | |||||||||||||||||||
| OPERATING EXPENSES | |||||||||||||||||||||||
| Operations and maintenance | 153 | 110 | 417 | 302 | |||||||||||||||||||
Depreciation and amortization | 107 | 71 | 315 | 207 | |||||||||||||||||||
Taxes other than income taxes and other | 1 | 7 | 32 | 26 | |||||||||||||||||||
| Total operating expenses – net | 261 | 188 | 764 | 535 | |||||||||||||||||||
| GAINS (LOSSES) ON DISPOSAL OF BUSINESSES/ASSETS – NET | 8 | — | 35 | (4) | |||||||||||||||||||
| OPERATING INCOME | 49 | 64 | 216 | 212 | |||||||||||||||||||
| OTHER INCOME (DEDUCTIONS) | |||||||||||||||||||||||
Interest expense | 155 | (24) | 853 | 145 | |||||||||||||||||||
Equity in earnings of equity method investees | 52 | 47 | 154 | 131 | |||||||||||||||||||
| Equity in earnings of non-economic ownership interests | 20 | 12 | 56 | 26 | |||||||||||||||||||
| Other – net | 1 | 1 | 2 | 3 | |||||||||||||||||||
| Total other income – net | 228 | 36 | 1,065 | 305 | |||||||||||||||||||
| INCOME BEFORE INCOME TAXES | 277 | 100 | 1,281 | 517 | |||||||||||||||||||
| INCOME TAXES | 45 | 6 | 178 | 54 | |||||||||||||||||||
| NET INCOME | 232 | 94 | 1,103 | 463 | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | (153) | (76) | (660) | (317) | |||||||||||||||||||
| NET INCOME ATTRIBUTABLE TO NEXTERA ENERGY PARTNERS, LP | $ | 79 | $ | 18 | $ | 443 | $ | 146 | |||||||||||||||
Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021
Operating Revenues
Operating revenues increased $50 million for the three months ended September 30, 2022. Renewable energy sales increased $43 million during the three months ended September 30, 2022 primarily reflecting higher revenues of approximately $55 million associated with the renewable energy projects acquired in 2021, partly offset by unfavorable resource.
Operating Expenses
Operations and Maintenance
O&M expenses increased $43 million during the three months ended September 30, 2022 primarily reflecting higher O&M expenses of approximately $26 million associated with the renewable energy projects acquired in 2021, higher net operating expenses at the existing NEP projects of $15 million and higher corporate operating expenses of $2 million primarily reflecting $5 million of higher IDR fees related to growth in NEP's distributions to its common unitholders, partly offset by $4 million of lower deal costs.
Depreciation and Amortization
Depreciation and amortization expense increased $36 million during the three months ended September 30, 2022 primarily reflecting depreciation and amortization associated with the renewable energy projects acquired in 2021.
Gains (Losses) on Disposal of Businesses/Assets – Net
The $8 million net gains on disposal of businesses/assets recognized during the three months ended September 30, 2022 primarily reflects the additional gain recorded for the sale of Monument pipeline. See Note 10 - Disposal of Pipeline.
Other Income (Deductions)
Interest Expense
The change in interest expense of approximately $179 million during the three months ended September 30, 2022 primarily reflects $194 million of favorable mark-to-market activity ($201 million of gains recorded in 2022 compared to $6 million of gains in 2021), partly offset by higher corporate interest due to higher average debt outstanding.
24
Equity in Earnings of Equity Method Investees
Equity in earnings of equity method investees increased approximately $5 million during the three months ended September 30, 2022 primarily reflecting earnings from equity method interests acquired in October 2021.
Equity in Earnings of Non-Economic Ownership Interests
Equity in earnings of equity method investees increased approximately $8 million during the three months ended September 30, 2022 primarily reflecting favorable mark-to-market activity on interest rate swaps in 2022.
Income Taxes
For the three months ended September 30, 2022, NEP recorded income tax expense of approximately $45 million on income before income taxes of $277 million, resulting in an effective tax rate of 16%. The tax expense is comprised primarily of income tax expense of approximately $58 million at the statutory rate of 21% and $10 million of state taxes, partly offset by $23 million of income tax benefit attributable to noncontrolling interests.
For the three months ended September 30, 2021, NEP recorded income tax expense of approximately $6 million on income before income taxes of $100 million, resulting in an effective tax rate of 6%. The tax expense is comprised primarily of income tax expense of approximately $21 million at the statutory rate of 21%, partly offset by $14 million of income tax benefit attributable to noncontrolling interests.
Net Income Attributable to Noncontrolling Interests
For the three months ended September 30, 2022, the change in net income attributable to noncontrolling interests primarily reflects a higher net income allocation to NEE Equity's noncontrolling interest due to an increase in net income as compared to 2021. See Note 10 – Noncontrolling Interests.
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Operating Revenues
Operating revenues increased $194 million for the nine months ended September 30, 2022. Renewable energy sales increased $219 million during the nine months ended September 30, 2022 primarily reflecting higher revenues of approximately $180 million associated with the renewable energy projects acquired in 2021 as well as higher revenues due to favorable resource. Texas pipelines service revenues decreased $25 million during the nine months ended September 30, 2022 primarily reflecting decreases of approximately $30 million related to the absence of higher revenues under transportation and fuel management agreements during the February 2021 weather event (see Note 9 – Transportation and Fuel Management Agreements).
Operating Expenses
Operations and Maintenance
O&M expenses increased $115 million during the nine months ended September 30, 2022 primarily reflecting higher O&M expenses of approximately $72 million associated with the renewable energy projects acquired in 2021, higher net operating expenses at the existing NEP projects of $29 million and higher corporate operating expenses of $15 million primarily reflecting $18 million of higher IDR fees related to growth in NEP's distributions to its common unitholders, partly offset by $8 million of lower acquisition costs. In June 2022, the MSA was amended to cap the IDR fee paid by NEP at $39.25 million per quarter ($157 million per year) if quarterly distributions to NEP OpCo unitholders are at or above $0.7625 ($3.05 on an annualized basis) per NEP OpCo common unit. If quarterly distributions to NEP OpCo unitholders are less than the $0.7625 threshold, then the IDR fee structure described in Part II, Item 5 of the 2021 Form 10-K will apply.
Depreciation and Amortization
Depreciation and amortization expense increased $108 million during the nine months ended September 30, 2022 primarily reflecting depreciation and amortization associated with the renewable energy projects acquired in 2021.
Gains (Losses) on Disposal of Businesses/Assets - Net
The $35 million net gains on disposal of businesses/assets recognized during the nine months ended September 30, 2022 primarily reflects the gain recorded for the sale of Monument pipeline. See Note 10 - Disposal of Pipeline.
Other Income (Deductions)
Interest Expense
The change in interest expense of approximately $708 million during the nine months ended September 30, 2022 primarily reflects $726 million of more favorable mark-to-market activity ($978 million of gains recorded in 2022 compared to $235 million of gains in 2021).
25
Equity in Earnings of Equity Method Investees
Equity in earnings of equity method investees increased approximately $23 million during the nine months ended September 30, 2022 primarily reflecting earnings from equity method interests acquired in October 2021 as well as increased earnings at various existing equity method investees.
Equity in Earnings of Non-Economic Ownership Interests
Equity in earnings of equity method investees increased approximately $30 million during the nine months ended September 30, 2022 primarily reflecting favorable mark-to-market activity on interest rate swaps in 2022.
Income Taxes
For the nine months ended September 30, 2022, NEP recorded income tax expense of approximately $178 million on income before income taxes of $1,281 million, resulting in an effective tax rate of 14%. The tax expense is comprised primarily of income tax expense of approximately $269 million at the statutory rate of 21% and $35 million of state taxes, partly offset by $126 million of income tax benefit attributable to noncontrolling interests.
For the nine months ended September 30, 2021, NEP recorded income tax expense of approximately $54 million on income before income taxes of $517 million, resulting in an effective tax rate of 10%. The tax expense is comprised primarily of income tax expense of approximately $109 million at the statutory rate of 21% and $12 million of state taxes, partly offset by $64 million of income tax benefit attributable to noncontrolling interests.
Net Income Attributable to Noncontrolling Interests
For the nine months ended September 30, 2022, the increase in net income attributable to noncontrolling interests primarily reflects a higher net income allocation to NEE Equity's noncontrolling interest due to an increase in net income as compared to 2021. See Note 10 – Noncontrolling Interests.
Liquidity and Capital Resources
NEP’s ongoing operations use cash to fund O&M expenses, including related party fees discussed in Note 9, maintenance capital expenditures, debt service payments and related derivative obligations (see Note 7 and Note 3) and distributions to common unitholders and holders of noncontrolling interests (see Note 8 and Note 10 – Noncontrolling Interests). NEP expects to satisfy these requirements primarily with internally generated cash flow. In addition, as a growth-oriented limited partnership, NEP expects from time to time to make acquisitions and other investments (see Note 1). These acquisitions and investments are expected to be funded with borrowings under credit facilities or term loans, issuances of indebtedness, issuances of additional NEP common units or preferred units, capital raised pursuant to other financing structures, cash on hand and cash generated from operations.
These sources of funds are expected to be adequate to provide for NEP's short-term and long-term liquidity and capital needs, although its ability to make future acquisitions, fund additional expansion or repowering of existing projects and increase its distributions to common unitholders will depend on its ability to access capital on acceptable terms.
As a normal part of its business, depending on market conditions, NEP expects from time to time to consider opportunities to repay, redeem, repurchase or refinance its indebtedness. In addition, NEP expects from time to time to consider potential investments in new acquisitions and the expansion or repowering of existing projects. These events may cause NEP to seek additional debt or equity financing, which may not be available on acceptable terms or at all. Additional debt financing, if available, could impose operating restrictions, additional cash payment obligations and additional covenants.
NEP OpCo has agreed to allow NEER or one of its affiliates to withdraw funds received by NEP OpCo or its subsidiaries and to hold those funds in accounts of NEER or one of its affiliates to the extent the funds are not required to pay project costs or otherwise required to be maintained by NEP's subsidiaries, until the financing agreements permit distributions to be made, or, in the case of NEP OpCo, until such funds are required to make distributions or to pay expenses or other operating costs. NEP OpCo will have a claim for any funds that NEER fails to return:
• when required by its subsidiaries’ financings;
• when its subsidiaries’ financings otherwise permit distributions to be made to NEP OpCo;
• when funds are required to be returned to NEP OpCo; or
• when otherwise demanded by NEP OpCo.
In addition, NEER and certain of its affiliates may withdraw funds in connection with certain long-term debt agreements and hold those funds in accounts belonging to NEER or its affiliates and provide credit support in the amount of such withdrawn funds. If NEER fails to return withdrawn funds when required by NEP OpCo's subsidiaries’ financing agreements, the lenders will be entitled to draw on any credit support provided by NEER in the amount of such withdrawn funds.
If NEER or one of its affiliates realizes any earnings on the withdrawn funds prior to the return of such funds, it will be permitted to retain those earnings.
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Liquidity Position
At September 30, 2022, NEP's liquidity position was approximately $2,617 million. The table below provides the components of NEP’s liquidity position:
| September 30, 2022 | Maturity Date | ||||||||||
(millions) | |||||||||||
Cash and cash equivalents | $ | 225 | |||||||||
Amounts due under the CSCS agreement | 65 | ||||||||||
Revolving credit facilities(a) | 2,500 | 2027 | |||||||||
Less borrowings(b) | (55) | ||||||||||
| Less issued letters of credit | (118) | ||||||||||
| Total | $ | 2,617 | |||||||||
____________________
(a) Approximately $50 million of the NEP OpCo credit facility expires in 2024. Excludes certain credit facilities due to restrictions on the use of the borrowings. In October 2022, $90 million was borrowed under the NEP OpCo credit facility.
(b) Approximately $1 million of such borrowings have a maturity date in 2024.
Management believes that NEP's liquidity position and cash flows from operations will be adequate to finance O&M, maintenance capital expenditures, distributions to its unitholders and liquidity commitments. Management continues to regularly monitor NEP's financing needs consistent with prudent balance sheet management.
Financing Arrangements
In February 2022, the maturity date was extended from February 2026 to February 2027 for essentially all of the NEP OpCo credit facility. During the nine months ended September 30, 2022, approximately $86 million was drawn under the NEP OpCo credit facility and $585 million of the outstanding borrowings under this facility were repaid. In May 2022, the NEP OpCo credit facility was amended to, among other things, increase the revolving credit facility size from $1.25 billion to $2.5 billion. In October 2022, $90 million was borrowed under the NEP OpCo credit facility. See Note 7.
NEP OpCo and certain indirect subsidiaries are subject to financings that contain financial covenants and distribution tests, including debt service coverage ratios. In general, these financings contain covenants customary for these types of financings, including limitations on investments and restricted payments. Certain of NEP's financings provide for interest payable at a fixed interest rate. However, certain of NEP's financings accrue interest at variable rates based on an underlying index plus a margin. Interest rate contracts were entered into for certain of these financings to hedge against interest rate movements with respect to interest payments on the related borrowings. In addition, under the project-level financing structures, each project or group of projects will be permitted to pay distributions out of available cash so long as certain conditions are satisfied, including that reserves are funded with cash or credit support, no default or event of default under the applicable financing has occurred and is continuing at the time of such distribution or would result therefrom, and each project or group of projects is otherwise in compliance with the related covenants. For substantially all of the project-level financing structures, minimum debt service coverage ratios must be satisfied in order to make a distribution. For one project-level financing, the project must maintain a leverage ratio and an interest coverage ratio in order to make a distribution. At September 30, 2022, NEP's subsidiaries were in compliance with all financial debt covenants under their financings.
Equity Arrangements
During the nine months ended September 30, 2022, a subsidiary of NEP issued noncontrolling Class B interests in NEP Renewables III under the membership interest purchase agreement entered into in 2021. NEP has buyout rights, subject to certain limitations and/or extensions, under which NEP has the right to pay a portion of the buyout price in NEP non-voting common units, as specified in the related agreement. The Class B investors receive a specified allocation of the related subsidiaries' distributable cash, which could increase if certain minimum buyout rights are not exercised or are not exercised during a certain period. See Note 10 - Noncontrolling Interests.
During the nine months ended September 30, 2022, NEP issued approximately 1.8 million common units under the ATM program. At September 30, 2022, NEP may issue up to approximately $155 million in additional common units under the ATM program.
During the nine months ended September 30, 2022, NEP issued 0.8 million NEP common units upon NEE Equity's exchange of NEP OpCo common units on a one-for-one basis.
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Capital Expenditures
Annual capital spending plans are developed based on projected requirements for the projects. Capital expenditures primarily represent the estimated cost of capital improvements, including construction expenditures that are expected to increase NEP OpCo’s operating income or operating capacity over the long term. Capital expenditures for projects that have already commenced commercial operations are generally not significant because most expenditures relate to repairs and maintenance and are expensed when incurred. For the nine months ended September 30, 2022 and 2021, NEP had capital expenditures of approximately $958 million and $82 million, respectively. The 2022 capital expenditures primarily relate to the newly constructed renewable energy and battery storage facilities which were acquired from NEER in December 2021. Such expenditures are reimbursed by NEER as contemplated in the acquisition (see Note 1). The 2021 capital expenditures primarily reflect additional investments associated with the ownership interests in Meade related to an expansion that was completed in the fourth quarter of 2021. Estimates of planned capital expenditures are subject to continuing review and adjustments and actual capital expenditures may vary significantly from these estimates.
Cash Distributions to Unitholders
During the nine months ended September 30, 2022, NEP distributed approximately $186 million to its common unitholders. On October 21, 2022, the board of directors of NEP authorized a distribution of $0.7875 per common unit payable on November 14, 2022 to its common unitholders of record on November 4, 2022.
Cash Flows
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
The following table reflects the changes in cash flows for the comparative periods:
| Nine Months Ended September 30, | |||||||||||||||||
| 2022 | 2021 | Change | |||||||||||||||
| (millions) | |||||||||||||||||
Net cash provided by operating activities | $ | 611 | $ | 492 | $ | 119 | |||||||||||
| Net cash used in investing activities | $ | (38) | $ | (1,069) | $ | 1,031 | |||||||||||
| Net cash provided by (used in) financing activities | $ | (499) | $ | 602 | $ | (1,101) | |||||||||||
Net Cash Provided by Operating Activities
The increase in net cash provided by operating activities was primarily driven by higher operating income.
Net Cash Used in Investing Activities
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
| Acquisition of membership interests in subsidiaries – net | $ | (190) | $ | (800) | |||||||
| Capital expenditures and other investments | (958) | $ | (82) | ||||||||
| Proceeds from sale of a business | 204 | — | |||||||||
| Payments to related parties under CSCS agreement – net | (8) | (295) | |||||||||
| Proceeds from CITCs | — | 75 | |||||||||
| Distributions from equity method investee | 15 | 1 | |||||||||
| Reimbursements from related parties for capital expenditures | 895 | 10 | |||||||||
| Other | 4 | 22 | |||||||||
| Net cash used in investing activities | $ | (38) | $ | (1,069) | |||||||
The decrease in net cash used in investing activities was primarily driven by fewer acquisitions (see Note 1), lower payments to NEER subsidiaries (net of amounts received) under the CSCS agreement, as well as proceeds received from the sale of Monument pipeline. See Note 10 - Disposal of Pipeline.
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Net Cash Provided by (Used in) Financing Activities
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
| Proceeds from issuance of common units – net | $ | 147 | $ | 50 | |||||||
| Issuances (retirements) of long-term debt – net | (524) | 526 | |||||||||
| Partner contributions | 1 | — | |||||||||
| Partner distributions | (468) | (387) | |||||||||
| Change in amounts due to related parties | (17) | (12) | |||||||||
| Proceeds related to differential membership interests – net | 106 | 95 | |||||||||
| Proceeds related to Class B noncontrolling interests – net | 264 | 430 | |||||||||
| Payment of CITC obligation to third party | — | (65) | |||||||||
| Other | (8) | (35) | |||||||||
| Net cash provided by (used in) financing activities | $ | (499) | $ | 602 | |||||||
The change in net cash provided by (used in) financing activities primarily reflects net retirements of long-term debt in 2022 compared to issuances of long-term debt in 2021 and lower proceeds related to Class B noncontrolling interests - net, partly offset by higher proceeds related to issuance of common units - net.
Quantitative and Qualitative Disclosures about Market Risk
NEP is exposed to several market risks in its normal business activities. Market risk is the potential loss that may result from market changes associated with its business. The types of market risks include interest rate and counterparty credit risks.
Interest Rate Risk
NEP is exposed to risk resulting from changes in interest rates associated with outstanding and expected future debt issuances and borrowings. NEP manages interest rate exposure by monitoring current interest rates, entering into interest rate contracts and using a combination of fixed rate and variable rate debt. Interest rate swaps are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements (see Note 3).
NEP has long-term debt instruments that subject it to the risk of loss associated with movements in market interest rates. At September 30, 2022, approximately 98% of the long-term debt, including current maturities, was not exposed to fluctuations in interest expense as it was either fixed rate debt or financially hedged. At September 30, 2022, the estimated fair value of NEP's long-term debt was approximately $4.7 billion and the carrying value of the long-term debt was $4.8 billion. See Note 4 – Financial Instruments Recorded at Other than Fair Value. Based upon a hypothetical 10% decrease in interest rates, the fair value of NEP's long-term debt would increase by approximately $34 million at September 30, 2022.
At September 30, 2022, NEP had interest rate contracts with a net notional amount of approximately $7.8 billion related to managing exposure to the variability of cash flows associated with outstanding and expected future debt issuances and borrowings. Based upon a hypothetical 10% decrease in rates, NEP’s net derivative liabilities at September 30, 2022 would increase by approximately $179 million.
Counterparty Credit Risk
Risks surrounding counterparty performance and credit risk could ultimately impact the amount and timing of expected cash flows. Credit risk relates to the risk of loss resulting from non-performance or non-payment by counterparties under the terms of their contractual obligations. NEP monitors and manages credit risk through credit policies that include a credit approval process and the use of credit mitigation measures such as prepayment arrangements in certain circumstances. NEP also seeks to mitigate counterparty risk by having a diversified portfolio of counterparties.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion – Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of September 30, 2022, NEP had performed an evaluation, under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of NEP's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the chief executive officer and the chief financial officer of NEP concluded that NEP's disclosure controls and procedures were effective as of September 30, 2022.
(b) Changes in Internal Control Over Financial Reporting
NEP is continuously seeking to improve the efficiency and effectiveness of its operations and of its internal controls. This results in refinements to processes throughout NEP. However, there has been no change in NEP's internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that occurred during NEP's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NEP's internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None. With regard to environmental proceedings to which a governmental authority is a party, NEP's policy is to disclose any such proceeding if it is reasonably expected to result in monetary sanctions of greater than or equal to $1 million.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in the 2021 Form 10-K and the March 2022 Form 10-Q. The factors discussed in Part I, Item 1A. Risk Factors in the 2021 Form 10-K and Part II, Item 1A. Risk Factors in the March 2022 Form 10-Q, as well as other information set forth in this report, which could materially adversely affect NEP's business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders should be carefully considered. The risks described in the 2021 Form 10-K and the March 2022 Form 10-Q are not the only risks facing NEP. Additional risks and uncertainties not currently known to NEP, or that are currently deemed to be immaterial, also may materially adversely affect NEP's business, financial condition, liquidity, results of operations and ability to make cash distributions to its unitholders.
Item 5. Other Information
(c) In accordance with the NEP partnership agreement, on October 21, 2022 the NEP board of directors modified the eligibility requirements for holders of units of NEP (eligible holders) that wish to submit the name of a qualified director nominee for inclusion in NEP’s proxy statement for the 2023 annual meeting of limited partners of NEP (2023 annual meeting). Under the modified requirements, in order to submit a proxy access nominee for the 2023 annual meeting, an eligible holder must have owned the required units, as defined in the NEP partnership agreement, continuously for at least twelve months prior to the date of nomination. Notice of a proxy access nominee for the 2023 annual meeting must be received by NEP’s Corporate Secretary at 700 Universe Boulevard, Juno Beach, Florida 33408 no earlier than November 3, 2022 and no later than the close of business on December 3, 2022. The notice may be made by personal delivery, by facsimile (561-691-7702) or sent by U.S. certified mail. Eligible holders who wish to submit nominees will be required to satisfy the requirements set forth in the NEP partnership agreement.
Item 6. Exhibits
| Exhibit Number | Description | |||||||
| 31(a) | ||||||||
| 31(b) | ||||||||
| 32 | ||||||||
| 101.INS | XBRL Instance Document – XBRL Instance Document – the instance document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document | |||||||
| 101.SCH | XBRL Schema Document | |||||||
| 101.PRE | XBRL Presentation Linkbase Document | |||||||
| 101.CAL | XBRL Calculation Linkbase Document | |||||||
| 101.LAB | XBRL Label Linkbase Document | |||||||
| 101.DEF | XBRL Definition Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
___________________________
* Incorporated herein by reference
NEP agrees to furnish to the SEC upon request any instrument with respect to long-term debt that NEP has not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 2, 2022
NEXTERA ENERGY PARTNERS, LP | |||||
| (Registrant) | |||||
| JAMES M. MAY | |||||
James M. May Controller and Chief Accounting Officer (Principal Accounting Officer) | |||||
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