Clearway Energy, Inc.

For any further assistance, please press star zero. I would like to turn the call over to your speaker today, Chris Soros, President and Chief Financial Officer of Clearway Energy, Inc.

Good morning. Let me first thank you for taking the time to join today's call. Joining me this morning is Akil Marsh, Investor Relations, Chad Plotkin, our Chief Financial Officer, and Craig Cornelius, President and CEO of Clearway Energy Group. Craig will be available for the Q&A portion of our presentation. Before we begin, I'd like to quickly note that today's discussion will contain forward-looking statements, which are based on assumptions that we believe to be reasonable as of this date. Actual results may differ materially. Please review the safe harbor in today's presentation, as well as the risk factors in our SEC filings. In addition, we refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most directly comparable GAAP measures, please refer to today's presentation. Turning to page four. For Clearway Energy, the last quarter has been historic in terms of strategic execution and providing the company with an unprecedented level of financial flexibility to allocate toward growth in CAPTI per share. I am also very proud of and want to thank our teams who have operated safely for the past year and a half on the face of a pandemic. Their continued work on behalf of the company during this difficult time is of immeasurable value. I'm pleased to report that Clearway's financial results year to date are in line with our sensitivities and we are maintaining guidance for 2021. Clearway has announced an increase in its dividend by 1.6% to $0.34 per share for the fourth quarter of 2021. This achieved our goal of growing the dividend at the upper end of our long-term target in 2021, establishing a new baseline of $1.36 dividend per share on an annualized basis. Chad will review the results in more detail later in the presentation. I'm pleased to announce that Clearway has agreed to sell our thermal business for $1.9 billion, with an expectation of $1.3 billion in net proceeds after the assumption of non-recourse debt, estimated state taxes, and other transaction costs. This transaction was represented at approximately 20% of our market capitalization prior to announcement, compared to 10% of our current CAFTI, affords C1 an extraordinary level of financial flexibility, allowing us to drive long-term shareholder value while increasing our renewable portfolio footprint. Due to this flexibility, we require the remaining 50% interest in Utah on an unlevered basis for $335 million, adding $30 million of CAFTI on a five-year average basis, thereby replacing approximately 75% of the annual thermal CAFTI contribution of approximately $40 million, while only utilizing 25% of the $1.3 billion of thermal proceeds, an asset that has the benefit of 15 years remaining on its BPAs and a stable generation profile. Clearway will also fund its remaining capital commitments from previous announced drop-down transactions with this capital, allowing for $680 million of proceeds remaining to be allocated after funding all of these current growth investments. Let me be clear. We at Clearway do not take this capital as a license to lower our underwriting standards and return targets or to grow simply for the sake of size. We will allocate this capital with a core focus on driving sustainable per-share CAFTI and dividend growth. Hand-in-hand with this flexibility in capital allocation, Clearway Group continues to expand its development pipeline, including over 1.9 gigawatts of late-stage development projects with anticipated funding between now and 2024. We have been working with our Clearway Group colleagues on some exponential drop-down investments and tend to finalize economics when tax policy becomes more transparent. In addition, over the past quarter, we have further executed on contracting a significant amount of the financial position at our California natural gas assets beyond the expiration of their existing contracts in 2023. Specifically, we now have resource adequacy contracts for approximately 80% of marsh landings and 100% of Walnut Creek's net qualifying capacity at terms that maintain project-level CAFTI through the end of 2026. For those of you who have been following Clearway for some time, the success on a significant amount of previously open megawatts at strong prices is a significant step in maintaining the stability of CAFTI per share for years to come. As a result of this, Although it is the unprecedented financial flexibility afforded to Clearway via the thermal transaction, I am pleased to announce that we now see the ability to support our CAFTI per share and our corresponding dividend per share growth in the upper range of our 5% to 8% long-term growth objective within our payout ratio targets through 2026. I will review in a couple slides our potential path to target per share CAFTI in excess of $2.15 when the capital from the thermal sale is deployed. Turning to page five, this provides an overview of the thermal transaction. As discussed previously, Clearway has signed a binding agreement with KKR to sell the thermal business for $1.9 billion of total consideration, resulting in $1.3 billion of net expected proceeds. This results in a very accretive implied CAFTA yield, with the transaction expected to close in the first half of 2022. These net proceeds eliminate the need for Clearway to issue any new equity to fund the remaining $620 million of committed growth investments resulting from the previously announced transactions with CEG and the acquisition of Utah on a longer basis. After allocating capital to existing commitments, Clearway has remaining $680 million of excess proceeds, or more than $3.30 a share, to allocate to maximize shareholder value. This capital will be deployed with an adherence to our core underwriting standards that have served Clearway well in a variety of market conditions, focused on driving sustainable CAFTI and dividend per share growth. As a result of our current NOL position, excluding the impact of any new business activity or deployment of the $680 million, we anticipate our tax runway to come in by approximately three years to approximately 6.5 years, with some potential state tax obligations. It's important to note that while the NOL will move inward because of the strong economics of this transaction, we see the ability to maintain or lengthen that tenor depending on our deployment of capital and growth in the future. In previous years, we have been able to maintain our NOL runway through investment and additional assets. Looking at the right side of the page, this transaction allows us to improve the balance of the platform that comes from renewables. As a result of the transaction, our investment in committed investments, but not on allocated capital, our pro forma CAFTI contribution from renewables will increase from approximately 62% to 75%, and our adjusted EBITDA from 59% to 82%. For all the economic logic of the thermal transaction, the ability for Clearway to emphasize renewables as a part of its growth story is another key benefit to the portfolio. as it focuses the company's future more centered on the higher growth renewable sector. Page 6 provides an illustration of Clearway's allocation of $620 million of the thermal sale proceeds. Turning to the left side of the page, our remaining commitments from drop-down transactions account for $286 million of capital. These transactions have been factored into our growth outlook into 2022 and are on track for closing by year-end. These commitments will be funded under our revolver until repaid with the final proceeds of the thermal sale. On the right side of the page, we are now showing our Utah acquisition on an unlevered basis, allowing for $30 million of asset CAFTI, or a 9% asset-level CAFTI yield. This replaces 75% of the thermal CAFTI contribution while only allocating 25% of the proceeds by redeploying the capital into an operating solar portfolio with 15 years remaining under its PPAs and low operational volatility. Clearway has a high degree of confidence in the Utah asset's performance, having owned 50% of it since 2017. The ability to play capital at a strong unlevered CAF deal, an operational asset in which we have significant operating history, and the ability to drive operational synergies creates a strong investment opportunity for the company. Clearway will fund this acquisition through a bridge facility that will be repaid upon closing of the thermal transaction. The allocation of $620 million of the thermal sale proceeds of these investments allows Clearway to eliminate the need to issue any equity to close these transactions, while leaving $680 million of capital remaining to be profitably employed. Page 7 provides an update to our pro forma CAFTI outlook with the allocation of the thermal sale proceeds. With this allocation, and from the recontracting of the majority of our California gas assets, we see a path to be in the upper range of our 5% to 8% dividend growth target through 2026. starting with our current $1.85 of CAFTI per share pro forma guidance, where reduced CAFTI of $40 million from the sale of thermal, but regained $30 million of that with the acquisition of the 50% of Utah we don't already own. This, combined with the avoidance of issuing approximately 11 million shares that underpinned the investment that produced the $395 million of CAFTI in the first column, produces an updated pro forma CAFTI outlook of $1.90, with $680 million left to be deployed. If one assumes that Clearway allocates $680 million at an 8.5% CAFTA yield, that drives our CAFTA to $440 million in absolute terms and north of $2.15 on a per-show basis. This financial flexibility affords Clearway the ability to maintain its underwriting standards while not requiring additional capital. This ability to be efficient with our capital base will be employed as we look to identify drop-down opportunities that we're working on with our colleagues at Clearway Energy Group. Clearway has always emphasized that it is per share CAFTI that drives dividend growth and returns for our investors, and our focus on acquiring attractive assets as well as being disciplined with capital deployment and our NPV and IRR targets are the driving forces behind quality growth. With that, I'll turn it over to Chad. Chad?

Thank you, Chris. I'm turning to slide nine. For the third quarter, Clearway is reporting adjusted EBITDA of $337 million and and cash available for distribution, or CAPTI, of $161 million. Year-to-date, results continue to be within the company's sensitivity range, having now realized $900 million of adjusted EBITDA and $301 million of CAPTI. For the third quarter, the company benefited from excellent performance at the conventional segment and higher volumetric sales at the thermal segment. However, this was in part offset by low resource across parts of the renewable portfolio and as well as the timing of project-level debt service, which occurred in the third quarter versus the fourth quarter. For the conventional segment, availability across the California natural gas assets was above 99%, again demonstrating their value as critical reliability resources in the state. For thermal, the business continued to realize higher volumetric sales with an increase through the third quarter of approximately 6.5%, versus the same period last year due to favorable weather and ongoing recovery from the COVID-19 pandemic. At the renewable segment, challenging wind conditions observed in June extended into July where resource was exceptionally low. However, the wind portfolio did produce above average generation combined in August and September, bringing total wind portfolio performance during the quarter to around 91% of median expectations. For the solar segment, irradiance was also below expectations, as performance was at 94% of estimates. That said, on a year-to-date basis, the strength of the AltaWind project through most of the year and solid first-half solar production has insulated overall financial results. Lastly, results relative to estimates were impacted due to the timing of a debt service payment at a non-recourse entity. However, this will offset in the fourth quarter, so there is no change relative to four-year expectations. Given these factors, overall year-to-date CAPD is in the company's sensitivity ranges, so we continue to maintain CAPD guidance of $325 million. As a reminder, this guidance does continue to assume P50 median renewable production for the full year and is also affected by the approximate $25 million impact in the first quarter due to the February winter event in Texas. Moving to the balance sheet. During the third quarter, the company successfully refinanced the outstanding 26 senior notes with a new green bond that matures in 2032 at an interest cost of 3.75%. With this refinancing, the company has now cost-effectively extended the maturity of all its outstanding corporate indentures with the earliest maturity now in 2028. For capital formation, since the company now intends to fund all committed growth using cash proceeds from the thermal sale, whereby eliminating the need for new equity issuances, We will utilize existing and new temporary facilities to close transactions during the interim period. In that regard, we currently have $375 million available under the revolver, and we are working through an expected bridge financing facility to support the funding of the Utah transaction until the thermal sale closes. Now turning to slide 10 to discuss the update to the company's long-term pro forma CAPT outlook in 2022 expectations. Today we are announcing a revised view of our pro forma CAPTI outlook to $385 million. As noted on the slide, this figure captures the full exit from the thermal business, the expected average contribution from all committed growth investments, and continues to assume P50 median production estimates. It also assumes the California gas assets operate within current run rate profiles post-contract maturity, which is now significantly mitigated given success in recontracting. This figure does, however, exclude any further growth that may be realized from the deployment of the $680 million of excess proceeds from the thermal transaction. While the pro forma CAPD outlook and further growth potential is most critical for the company's ability to meet its long-term commitments, today we are also establishing 22 CAPD guidance. As noted on the slide, we provide a summary explanation from 2021 to 2022 CAPD guidance, including the effect of growth realization, the Utah transaction net of bridge financing costs, and a reversal of the February 21 winter storm event impacting current year results. This leads to the establishment of 2022 CAPT guidance of $395 million. However, please note that due to the timing of uncertainty of when the thermal sale will close, current 2022 CAPT guidance does factor in an expected $40 million on a full year basis from the thermal business. As is our normal practice with strategic transactions, we will provide an update to current year expectations upon the closing of the thermal sale. But as noted, the exit of the thermal business has already been accounted for in the $385 million on a pro forma CAPT basis. Now turning to the next slide to summarize where we stand from a balance sheet perspective relative to our pro forma CAPT outlook. Balance sheet management and the maintenance of our long-term credit metrics continue to be core strategic principles for the business. This is critical to grow the company over the long run as adherence to these standards supports the most effective cost of capital for the enterprise. As we evaluate where we stand today versus where we will be in the future, the trajectory is not only favorable relative to Clearway's ability to meet its growth objectives, but also as it relates to maintaining its credit ratios and and maximizing balance sheet flexibility and capacity over the long run. Using our pro forma outlook today, you will note in the left side of the table that relative to our targets, we are in range as corporate debt to corporate EBITDA is around 4.5 times and FFO to corporate debt is at 18%. Importantly, this excludes the impact to net debt given the excess $680 million in proceeds from the thermal sale that has yet to be allocated. As noted on the right side of the table, as we begin to allocate that excess capital and put consideration into the potential CAPD that can materialize from the deployment of this excess $680 million, not only will we be in a better position to extend the dividend growth runway, but our credit metrics will also improve. This is evidenced by the presentation of a potential reduction in our leverage metric to 4.0 times and an improvement in FFO to corporate debt to 21%. Given the strength of of these potential metrics, the company will build even further flexibility to execute on growth and maximize financing capacity while importantly adhering to its long-term balance sheet targets. And with that, I'll turn the call back to Chris for closing remarks.