NextEra 'very comfortable' despite PG&E bankruptcy concerns
- NextEra Energy shared financial results on Friday for the full 2018 and fourth-quarter, as executives told analysts they were prepared to meet a loss of revenue from potential changes in wholesale power contracts with Pacific Gas & Electric (PG&E), which is expected to file for bankruptcy protection this week.
- The company asked the Federal Energy Regulatory Commission (FERC) to determine its authority in the approval of changes to power contracts with PG&E expected to file for Chapter 11 bankruptcy due to billions of liabilities associated with the recent wildfire seasons.
- The generation subsidiaries have other parties interested in financing and a possible stay of contracts with utilities should not impact existing financing, executives told analysts. NextEra Energy Partners, the renewable energy subsidiary, also has a lot of debt capacity "that we can always fall back on as well," said John Ketchum, the company's Chief Financial Officer.
NextEra and several other companies that sell power to the California IOU have had their debt ratings downgraded, while PG&E's was reduced to near-junk status in January.
NextEra announced that it anticipates the PG&E bankruptcy filing to trigger an event of default on the financing for the 250 MW Genesis solar plant in southern California.
"I mean, obviously, I think it's appropriate for the focus on the PG&E assets and the cash flows. But we still have, at both NextEra Energy Resources and NextEra Energy Partners, we still have a lot of projects that are not PG&E and Southern California Edison. Projects that have significant cash flows," Armando Pimentel, CEO and president of subsidiary NextEra Energy Resources, said during the Q4 call.
NextEra could borrow more money through NEP without any financial problems, according to Ketchum, in addition to its other generation subsidiaries.
"We have debt capacity, plenty of debt capacity at NEP," he said. "Energy Resources is coming off the best development year in its history."
Energy Resources, the largest operator of wind and solar projects globally, had added 6.5 GW of renewable projects to its contracted backlog during the fourth quarter.
"[W]e feel, at least internally, very comfortable, as John [Ketchum] said, that even if these PG&E cash flows are tied up in these debt financings, that we can meet our current expectations," Pimentel said.
The confidence is based on "talking to the market" and the promising progress with origination in Energy Resources, he added.
NextEra reported a loss of $22 million in the fourth quarter of 2018, lagging behind analyst estimates from Zacks Equity Research, although its Energy Resources subsidiary contributed to a 20.2% overall year-over-year growth in earnings. The company reported 14% lower total operating expenses in 2018 based on the year prior.
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