Clearway Haunted by Ongoing PG&E Uncertainty, Despite Favorable Q3

The renewables operator reported solid Q3 numbers, but the utility’s bankruptcy continues to entrap numerous projects.

Clearway Energy on Wednesday reported net income at $35 million for the third quarter of 2019, swinging away from losses in the first two quarters of the year but highlighting continued challenges associated with the bankruptcy of California utility Pacific Gas & Electric.

All told, Clearway has $1.2 billion in projects impacted by the bankruptcy. On a Wednesday earnings call, CFO Chad Plotkin said the company’s impacted projects have accumulated $46 million restricted from distribution so far in 2019. The PG&E situation has put “significant constraints” on Clearway’s ability to deploy capital, according to CEO Chris Sotos. 

“We are working to maintain our balance sheet flexibility as PG&E continues toward...emergence from bankruptcy,” said Sotos. “The contracts impacted by PG&E continue to perform. Our projects have not been impacted by the recent wildfires, and we continue to believe that [PG&E's] emergence from bankruptcy in June of next year is probable.” 

The latest results come after the company twice reduced its financial guidance in 2019, which it maintained at $250 million in Q3. The company also issued 2020 full-year guidance at $295 million, which includes $99 million in contributions from PG&E projects.

If PG&E exits bankruptcy in June as projected, the "vast majority" of yet-to-be-distributed money would be released within six to nine months, Sotos said Wednesday.

Clearway, which owns a large portfolio of renewables, has factored that uncertainty into its assumptions, but PG&E’s commitment to renewables contracts has remained a moving target over the last several months. To hedge against the uncertainty, Clearway has been working on forbearance agreements for its PG&E projects.

In Q3, Clearway reported progress on that front, reaching an agreement on its 250-megawatt California Valley Solar Ranch project and for the repurchase of debt for the 46-megawatt Agua Caliente solar installation, where it holds a 16 percent share. The latter effort will reduce credit exposure for lenders, according to Clearway.

Despite those favorable outcomes, the company continues to hold dividends at $0.20 per share. 

“Until [Clearway] obtains additional visibility around the PG&E bankruptcy and has full access to its project distributions, dividends paid to shareholders should be aligned with the available corporate liquidity at our target payout ratio,” said Sotos on the call.

Renewables developers have attained some clarity on PG&E contracts this quarter, with PG&E pledging to make good on those deals in its September bankruptcy plan (though bondholders now also have a shot at creating their own plan). But what will become of the utility is still an open question in California, with some calls for PG&E to become a customer-owned cooperative or hand its grid over to local control. 

Notably, Clearway said the current status of six renewables projects would encourage it to pursue growth in its thermal division, which provides fuel cell and combined-heat-and-power projects and is separate from its “conventional generation” portfolio. Thermal generation raked in $5 million in Q3 income, with Clearway inking a 15-year energy services deal with a resort in Puerto Rico. 

Though the company said it's happy with its current pipeline, it also hinted at potential wind and solar acquisitions, adding that it is exploring the prospects for solar in emerging regions where it sees “greater opportunity.”