Q4 2020 Clearway Energy Inc Earnings Call

March 1, 2021

[music].

Good morning, ladies and gentlemen, and walk on to the Clearway Energy, Inc. Fourth quarter 'twenty 'twenty earnings call.

At this time all participants are in a listen only mode.

Later, we will conduct day question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press Star then zero on your Touchtone telephone.

As a reminder, this conference call may be recorded I went on.

And I'd like to turn the conference over to your host Mr. Chris Sotos, President and CEO of Clearway energy.

Thank you good morning, let me first thank you for taking the time to join us on his call.

Joining me. This morning is Chad Plotkin, our Chief Financial Officer, Akil Marsh, our Investor Relations manager and Craig Cornelius President and CEO of Clearway Energy group.

And it 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, and today's presentation as well as the risk factors on our SEC filings. In addition, we will 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 today's presentation.

Turning to page four.

First before I begin I want to say, thank you to all of our colleagues across the enterprise and to our partners for navigating through 2020, and making the passengers success for the company.

It was managing through the PGD bankruptcy or the impacts of the global pandemic the company executed across the platform and further position clear way for long term growth.

Financially, we achieved full year cash of $295 million, which includes the effect of Covid.

We invested or committed to and are committed to invest approximately $880 million and growth projects and execute on $1 4 billion and capital formation.

Clearly also has resumed growth and its dividend with now a one 9% increase to $32.04 per share and the first quarter of 2021 on track for the upper end of our 5% to 8% growth target for the full year.

On a long term outlook is strong as ever certain of our projects did face and early challenge in 2021 due to the unprecedented weather events and the ERCOT market.

This event is expected to have an impact of between 20 or $30 million, depending on final settlements discussions with contractual counterparties and any potential state sponsored actions while significant the company has proven to be resilient and the impact is very manageable to overall liquidity and the shortfall does not affect the company's target EPS growth expectations, which we are reaffirming today.

And response to these events clearly is already working to enhance fleet resiliency and risk management through a combination of initiatives with our CPG colleagues.

Before I move on from discussing the financial impact of the Texas weather event I would go on.

And this if I did not highlight the incredible efforts of our operations team. While there are many advantages of having a large footprint and this sector the ability to deploy nearly 100 operators from other states to our Texas sites and troubleshoot damage and restart our facilities was critical and I'm. So grateful to our team for volunteering to travel to climb towers and sub zero temperatures helped with the lights back on and Texas.

Longer term and through the execution of new growth commitments since the third quarter of 2020 earnings call clearly has improved its pro forma cap your per share outlook with and increased to $1 80 per share on the $1 71 that we announced just in November of last year.

This increase was driven by the execution of third party acquisitions, namely Mount Storm, which is anticipated to close and the first half of 2021 and the previously announced acquisition of the remaining interest in agriculture and thing.

Growth was also driven by the co investment and one six gigawatt and diversified portfolio of assets announced in December.

Each of these asset additions results and strong cash per share accretion, while supporting the long term weighted average contract life of the company's portfolio.

In addition, these assets add to clearway portfolio scale, and diversification, which are important factors and creating value and stable Kathy.

Looking forward to 2021, we have a wealth of opportunities to work on.

As we and our colleagues at Clearway group construct the next stage of renewable portfolio co investments.

And clearly group as increases pipeline to $10, one gigawatts of which five four gigawatts are late stage, even after accounting for projects completed last year.

And it's tailored the development pipeline for projects that are optimized for additional our fleet based on the resource profile customers technology and expected contract value and is phasing as development and capital structuring to align with the capital investment profile, we need to sustain our 5% to 8% dividend per share growth roadmap and to the coming years.

With those components, we are now working with Clearway group towards the next co investment commitment that could comprise between $1, one and one seven gigawatts of projects. These projects will span a diverse set of geographies, including California, the Pacific Northwest and the southwest, including a mix of solar wind and battery storage technology with planned closings for these contingent since.

Constituent projects spanning 2021% to 2023, we see the opportunity to construct a well optimize supplement to clearway platform, adding to our growth going forward.

Turning to page five.

And I want to highlight the two third party acquisitions, we announced since our third quarter call.

First clearly acquired Nrg's remaining 35% of current day.

Providing a 51% ownership and the asset underpinned by a 19 year remaining PPA life and a nine 9% cap to yield we are very excited about being able to add a well understood and long tenured PPA assets at such attractive economics and.

In addition, clearway it looks to leverage its operational footprint with the purchase of up to 264 megawatt non storm wind project, which is located near the 110 megawatt Blackrock and the 35 megawatt pinnacle wind projects.

Particular acquisition benefits from the leveraging of our diversified operational scale to optimize cost and the reason this transaction will be underpinned with a 10 year energy.

Hedge and generates a cash yield of 10, 3%.

While continued success and closing third party acquisitions can never be assured we will share.

And with the continuing to look at opportunities to expand our portfolio efficiently.

Turning to page six.

This provides an overview of our investment activity since the start of 2020 as you can see we have committed to deploy nearly $1 billion of capital generating approximately $100 million and asset level Kathy <unk>.

Quality investments are expected to generate a cash yield of 10, 3% backed by weighted average contract life of approximately 14 years. These investments, particularly those announcements in the third quarter of 2020 allow us to increase our pro forma Kathy outlook to $1 80 per share versus $1 71 that we announced previously.

Through a combination of these investments leveraging our operational expertise and reach we are on track for our 2021 goals for Dps growth, but also importantly, and now show a visible path forward in terms of growing our dividend per share by 5% to 8% through the end of 2022 at our targeted 80% to 85% payout ratio.

With that I'll turn the discussion over to Chad Chad.

Thank you, Chris turning to slide eight where I'll provide an overview of the company's 2020 results and an update to our 2021 outlook.

Starting with 2020 today Clearway is reporting fourth quarter, adjusted EBITDA of $229 million and $30 million of cash available for distribution for Kathy.

These results bring full year 2020, adjusted EBITDA to approximately $1 $8 billion and Kathy to $295 million.

During the fourth quarter the company realized higher distributions from several of its equity method investments as well as improved operating efficiencies and lower costs across the portfolio.

However, moderate weakness primarily within the wind portfolio, which persisted for most of 2020 and and outage at the El Segundo GAAP project during December did weigh down results.

Overall, while full year results were below the company's original $310 million guidance the variances within expected sensitivity ranges for the portfolio.

During 2020, the company continued to progress on its long term objectives through efficient capital formation and its disciplined capital allocation program. During the year. The company formed approximately $1 4 billion and capital through project level debt optimization and utilization of the ATM program additional green bond issuances.

And through the disposition of non strategic assets.

Additionally, the company was able to gain access to $168 million and cash that had been trapped due to the <unk> bankruptcy.

Through these efforts clearway has maintained its commitment to its balance sheet targets and was able to allocate the excess capital to its growth investments and a manner leading to Kathy per share accretion.

It provided support and our ability to reset the dividend upon the resolution of the PGA and <unk> bankruptcy and has the company on a trajectory to reach to achieve the upper end of our 5% to 8% dividend growth target through the end of this year.

Now with the pending $96 million Mount Storm acquisition. The company has committed to $975 million and growth investments since the beginning of 2020 twice and clear way on a path to meet our growth objectives beyond 2021 as well.

Moving to our cap the expectations for 2021.

Per my comments from our last quarterly call the timing of when the company's growth investments get realized into results is dependent upon when projects achieve commercial operations.

So as previously mentioned our forecast for 2021 does not factor and the full upside relative to our committed growth investments.

This includes the pending Mount Storm acquisition that is not expected to lead to a meaningful contribution in 2021 and as further discussed on the next slide when showing the company's update to its pro forma cap the outlook.

With the closing of the Agua Caliente transaction in February the company was expecting to increase its full year 2021 Cathy guidance.

While we note that renewable resource performance above our full year media and expectations across the company and diversified portfolio such as what we have observed on the west coast During February and can insulate results from operational resource matters at certain projects.

We view the estimated financial exposure from the February conditions in ERCOT and event outside the scope of the company's normal annual sensitivity ranges.

Given this dynamic we are now factoring and the estimated impact related to the ERCOT event into full year financial expectations.

Today, we are maintaining our 2021, Cathy guidance at $325 million and amounts still sufficient to allow the company to meet its expected dividend growth.

Let's now turn to slide nine to discuss the update to our pro forma choppy.

And our last quarterly call, we indicated that the company's pro forma cap the outlook with $345 million.

The amount was based on growth commitments as of that time and capture the timing of when those projects would reach COPD.

Furthermore, this amount also adjusted for what we believe are temporary variances and 2021, such as COVID-19 related matters at the thermal segment and now the exposure, we see and 2021 relative to the February weather event and Texas.

With new growth execution and commitments. We are pleased to say the company's outlook has continued to improve.

Since the November 3rd quarterly earnings call. The company has announced the Agua Caliente transaction and co investment and the one six gigawatt renewable portfolio and now the Mount Storm acquisition.

These investments alone are expected to deliver an incremental $50 million and five year average annual asset level Kathy to the company upon all projects achieving Vod.

As noted in the chart because permanent capital will need to be formed to fund. These transactions, we make an assumption for the cost of the debt portion of this financing, which based on our target leverage ratios would yield approximately $9 million and.

And additional interest expense, assuming a range of three five to four 5% of new corporate debt.

And amount that continues to support our long term dividend growth goals with that I'll turn the call back to Chris for closing remarks.

Thank you Chad turned.

Turning to page 11, and recapping 2020, clearly energy had a very strong year, we delivered on our financial commitments with Kathy within our sensitivity range and reset our dividend and growth trajectory. Following the resolution of the <unk> bankruptcy.

And 2020, clearly committed to nearly $900 million investments and next year on $1 4 billion of capital formation through a combination of refinancing non recourse debt additional corporate capital and recycling of non strategic assets. These.

These investments allow clear with enhance our pro forma Kathy outlook supporting our Dps growth in line with our long term targets.

And looking forward to 2021, we are targeting to deliver on our 2021 Cathy guidance taking into account the February Texas weather, while achieving dividend per share growth at the upper end of our range.

We look to continue to grow on a $1 <unk> pro forma Cathy for sure outlook.

Further opportunistic M&A as well as continued work with our Clearway group colleagues to invest on a portfolio of at least one one gigawatts with 2021 through 2023 closing dates during the first half of 2021.

Finally, as we have discussed over the years 2021 is an important year and positioning our gas fleet and California beyond 2023.

<unk>, reducing risk and optimizing value on these assets going forward as the previous year has demonstrated the value of these assets through their importance to the grid during constrained periods and the addition of black start to Marsh landing our gasoline is a valuable asset and we will work to optimize our and 2021, we look forward to operating updating you on our progress during the year.

Thank you operator open the lines for questions. Please.

And at this time, if you have any question. Please press Star then the number one on your telephone keypad.

And your first question comes from Julien Dumoulin Smith with Bank of America.

Hi can you hear me.

Yes.

Good morning, Julien Hey, good morning team. Thanks for the time I just wanted to channel.

Hedging here, how do you think about Texas and the E&ps.

The active events there in terms of your thoughts on that guidance.

Portfolio and perhaps changing.

How do you guys do.

Engage and PPA going forward.

Thanks, Julien I think theres always a preference for ppas versus hedges don't get me wrong, but sometimes the market has certain constraints on it in terms of what's available I think from our view we want to do is really look from a risk management and plant design perspective to make sure that we have increased with organization and life for ice sharing technology and some of those ERCOT assets, where you actually have.

Our fixed physical delivery versus the PPA take or pay type of obligation and then also establish whether outage prediction predictors and train equipment procedures to mitigate those type of events. So I think from on operational side from risk management, I think we want to incorporate liability tracking around these obligations to make sure we understand that but I think for all of that total.

And it was as everyone's aware.

We're a pretty unprecedented effect and ERCOT, but I don't think people would see happening on a regular basis, but there was some of the mitigating factors, we look to do going forward.

Got it and then quickly begin and how.

And how do you think about retrofitting the risk going forward.

And on a sort of nascent conversation if you can talk about that.

And there is.

Assets.

Operational level retrofit and that can be pursued here as well.

Yes, you broke up a little bit there, David and I think you asked about what retrofits, we could kind of do it at the projects and Texas Craig any.

Those users got it yes.

Yeah sure glad to address that yes. So.

Yes.

Our wind machines and Texas in general were rated for operation down to ambient temperatures like those that were observed in this event, but like many other operators I think we find that there are certain supplemental deployments that would be useful and particular in conditions like those that produced the ice that was observed and <unk>.

During this event and those include hydrophobic coatings for blades.

And to the specification and fluids and lubricants that we use at machines and supplemental heater elements within the nacelle debt will help assure that machine and stay out of false during an event like this.

While we were pleased to see about the machines that we do have and Texas was that we were able to bring them back very quickly after.

<unk> began to shed during the return to.

Above freezing temperatures so by way of example, Julien within hours of temperatures exceeding freezing we had brought all of our central Texas assets back up online and within 24 hours they were producing at nameplate.

With the well calibrated and operations work force and machines that are ready to run.

And the supplementation on the specs that we have there at those plants with the types of coatings or fluid changes our heaters that we've deployed.

We are hopeful that we would be able to mitigate comparable operational risks and our future events.

Got it and no no.

Cause estimate yet.

No and joy.

He was asking if there is a process a bit.

Too early.

Understood. Thank you.

Your next question comes from Michael <unk> with Goldman Sachs.

Hey, guys. Thank you for taking my question I have two totally unrelated to each other one.

Can you just remind us what planned equity financings or equity like financings, you have and will likely have over the next year or so and then too.

Kevin what happened in California last year.

A price spikes that would be probably enhanced value per existing fossil generation. How are you thinking about the avenues for potential new contracts and the assets over a longer term versus being on short term arrangements.

Sure I'll try and take your second question first Michael and then hand, it to Chad on the equity side. So I think in terms of looking at re contracting I do think that it does.

Depreciation and California last year, I think does make it more conducive to longer term contracts. However, I want to be fair to your question is that probably doesn't mean 15 years that probably means maybe somewhere between five and 10 and a positive sense and so I think that's one thing that kind of once again and we want to make progress on this year I think Michael we've.

Talked a lot over the years I think you've been back in 2016, I told you the utilities would probably want to talk about re contracting one to two years and a contract expiration. We are there and so to me that's kind of consistent with what we've indicated and I think overtime I. Once again would hope to get something at least for part of the fleet.

More on the five to 10 year range I think what you are saying, Hey, <unk> I think that's a little bit aggressive to be fair to your question.

Sure and then and then Michael on your comment with respect to equity capital needs and.

And maybe I'll take it in two steps if you go back to where we were in the third quarter. What we had intimated at that time as the capital formation that we had executed inclusive of the cash that had come from the PGA and <unk> projects was sufficient to fund all capital needs for the growth that we had executed through.

That backhaul so effectively when you think about the announcement today Theres three investments I would point to which is Agua caliente.

<unk> investment and the partnership and then now Mount Storm. So that's call it up a little over $500 million of total capital needs and which we would need to form permanent capital around.

If you look at how we presented data were consistent with how we've generally financed our business and we use our normal kind of target leverage ranges, which is in line with our rating targets, we would seek to lever those at the corporate level between four to four five times. So if you look at our slide that we presented on slide eight you see that AD and PD, it's roughly 200 <unk>.

$14 million of corporate debt now again, this is somewhat prescriptive and im not going to tell you things don't move around a little bit, but just using that as a proxy so that interface about around about $300 million of equity that is ultimately required to fund those transactions.

And I think as it relates to the equity needs I would tell you that we're going to continue similar to how we've historically done things whether or not it's utilizing our ATM program, whether or not and might be occasional smaller block type of transactions or as we even did this past year incremental capital that may come from optimization of project level debt.

Net debt.

Disposition of projects net of whatever we need to do to maintain our leverage targets. Those are sort of the way that we would sort of fund the equity need I think the main point on raises were going to do things consistent with our balance sheet targets and try and continue to do things and way, we've done which is the maintain flexibility by keeping a revolver that is relatively undrawn so that.

And we're funding new growth, we can sort of be pretty pragmatic with the timing of when we place that permanent capital.

Got it okay. Thank you Chad much appreciated and just coming back to California, a little bit.

Can you remind us are there any environmental either regulate regulation or constraints regarding continued operation of your fleet out there and the gas fleet.

No none that I'm aware of.

Got it. Thank you much appreciate it guys.

Okay.

Your next question comes from Colin Rusch with Oppenheimer.

Thanks, so much guys.

Yes.

Historically, you've talked about not retrofit in existing projects that are under ppas with energy storage or any sort of kind of voltage management incremental investments I am wondering if that thought process is starting to change as you see some of the instability on the on the network.

I think that really depends I think that the type of retrofits that question has typically been as kind of a little bit more all encompassing in terms of what you might have to do to take projects off line versus kind of taking on a wind turbine at a time and putting in some of the elements that Craig talked about so I think in terms of adding battery storage and a.

Trophic situations and taking turbines or panels offline to do that I still think we have high dollar value ppas that math is tough to do.

And if I'm understanding your question correctly.

Yes.

I'll take it offline with you guys, but I think thats getting to the heart of the matter.

Second question is are you guys thinking about changing.

The P 50 standard at all.

Some of the variability and the network at this point in terms of estimation and how you're operating the business.

Got it got it and us.

With no hopefully performance.

Simple answer is no any P 50 adjustments, we normally take as part of kind of our guidance that we given our November call. So we can typically go through the year re look how the P 51 during the year and make adjustments at that time. So so to your question, it's not as though anything thats occurred would make us move up $2 58.

Perfect.

And just just to add though on that Colin as Youre aware.

And when we when we produce and energy estimate for a project. We also take into account expectations of the grids performance and outage time and so on so I think.

When when we are underwriting new projects I think we've demonstrated that our ability to incorporate expectations for those types of grid outage events has been reached.

<unk> on par so we take that into account and just on your other question with respect to California at least there are opportunities outstanding now for utilities to consider contracting for <unk>.

Storage capacity that is.

Incorporated as a supplement to existing operating assets and so where we've got the ability to offer something.

And we're making plans to try and be able to make those offers and we will compete in the marketplace to see its utilities wanted to take us up on it.

Okay I appreciate it guys.

Okay and final question. Please press Star then the number one on your telephone keypad.

And at this time there are no further questions.

Alright, well. Thank you all for joining and look forward to talking to you and Matt take care.

That concludes today's conference. Thank you for your participation you may now disconnect.

[music].

Good morning, ladies and gentlemen, and walk on to the Clearway Energy, Inc. Fourth quarter, 'twenty and 'twenty earnings call. At this time all participants are in a listen only mode. Later, we will conduct day question and answer session and instructions will follow at that time, if anyone should require assistance during the conference. Please press.

Star then zero on your Touchtone telephone.

As a reminder, this conference call may be recorded I would now like turn the conference over to your host Mr. Chris Sotos, President and CEO of Clearway energy.

Thank you good morning, when he first thank you for taking the time to join today's call.

Joining me this morning is Chad Plotkin, our Chief Financial Officer.

Marsh, our Investor Relations manager and Craig Cornelius President and CEO of Clearway Energy group and <unk>.

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 day.

Actual results may differ materially. Please review the safe Harbor and today's presentation as well as the risk factors on our SEC filings and and.

And we will 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 today's presentation.

Turning to page four.

Before I begin I want to say, thank you to all of our colleagues across the enterprise and to our partners for navigating through 2020, and making the past year's success for the company, where he was managing through the PGA bankruptcy or the impacts on the global pandemic the company executed across the platform and further position clear way for long term growth.

Hi, Ashley Clearway achieve full year cafe of $295 million, which includes the effect of Covid.

We invested or committed to and are committed to invest approximately $880 million on growth projects and execute on $1 4 billion and capital formation.

And clearly also has resumed the growth and its dividend with now a one 9% increase to $32 <unk> per share and the first quarter of 2021 on track for the upper end of our 5% to 8% growth target for the full year.

On a long term outlook is as strong as ever and certain of our projects did face and early challenge in 2021 due to the unprecedented weather events and the aircraft market.

This event is expected to have an impact of between 28 or $30 million, depending on final settlements discussions with contractual counterparties and any potential state sponsored actions while significant the company has proven to be resilient and the impact is very manageable to overall liquidity and the shortfall does not affect the company's target EPS growth expectations, which we are reaffirming today.

And response to these events, where we are already working to enhance fleet resiliency and risk management and through a combination of initiatives with our CPG colleagues.

Before I move on from discussing the financial impact of the Texas weather events I would be remiss if I did not highlight the incredible efforts of our operations team. While there are many advantages of having a large footprint and the sector and the ability to deploy nearly 100 operators from other states to our Texas sites control shoot damage and he startup facilities was critical and <unk>.

All of our team for volunteering to travel to climb towers and subzero temperatures helped with the lights back on and Texas.

Longer term and through the execution of new growth commitments since the third quarter of 2020 earnings call clearly has improved its pro forma Kathy per share outlook with and increased to $1 80 per share on the $1 71 that we announced just in November of last year.

Growth was also driven by the co investment and one six gigawatt and diversified portfolio of assets announced in December.

Each of these asset additions results and strong cash per share accretion, while supporting the long term weighted average contract life of the company's portfolio.

In addition, these assets and to clear was portfolio scale, and diversification, which are important factors and creating value and stable Kathy.

Looking forward to 2021, we have a wealth of opportunities to work on.

As we and our colleagues at Clearway group construct the next stage of renewable portfolio co investments.

Clearway group has increased its pipeline to $10, one gigawatts of which five four gigawatts are late stage, even after accounting for projects completed last year.

And it's tailored the development pipeline for projects that are optimized for additional our fleet based on the resource profile customers technology and expected contract type and is phasing as development and capital structuring to align with the capital investment profile, we need to sustained our 5% to 8% dividend per share growth roadmap and to the coming years.

With those components, we are now working with Clearway group toward the next co investment commitment that could comprise between $1, one and one seven gigawatts of projects. These projects will span a diverse set of geographic geographies, including California, The Pacific Northwest and the southwest, including a mix of solar wind and battery storage technology with plant closings for these contingent expense.

Constituent projects spanning 2021% to 2023, we see the opportunity to construct a well optimize supplement to clearway platform, adding to our growth going forward.

Turning to page five.

And I want to highlight the two third party acquisitions, we announced since our third quarter call.

First quarter, we acquired Nrg's remaining 35% of current day, providing a 51% ownership and the asset underpinned by a 19 year remaining PPA life and a nine 9% cash to yield we're very excited about being able to add a well understood and long tenured GPA assets at such attractive economics.

In addition, clearway it looks to leverages operational footprint with the purchase of up to 264 megawatt and non storm wind project, which is located near the 110 megawatt Blackrock and the 35 megawatt pinnacle wind projects. This particular acquisition benefits from the leveraging of our diversified operational scale to optimize cost and the region.

The transaction will be underpinned with a 10 year energy hedge and generates a cash yield of 10, 3%.

While continued success and closing third party acquisitions can never be assured we look forward to continuing to look at opportunities to expand our portfolio efficiently.

Turning to page six.

This provides an overview of our investment activity since the start of 2020 as you can see we have committed deployed nearly $1 billion of capital generating approximately $100 million and asset level. Kathy. These quality investments are expected to generate a cash yield of 10, 3% backed by a weighted average contract life of approximately 14 years these investments, particularly.

And those announcements the third quarter of 2020 allow us to increase our pro forma Kathy outlook to $1 80 per share versus $1 71 that we announced previously.

Through a combination of these investments and leveraging our operational expertise and reach we are on track for our 2021 goals for Dps growth, but also importantly can now show a visible path forward in terms of growing our dividend per share by 5% to 8% through the end of 2022 at our targeted 80% to 85% payout ratio.

With that I'll turn the discussion over to Chad Chad.

Thank you, Chris turning to slide eight where I'll provide an overview of the company's 2020 results and an update to our 2021 outlook.

Starting with 2020 today Clearway is reporting fourth quarter, adjusted EBITDA of $229 million and $30 million of cash available for distribution for Kathy.

These results bring full year 2020, adjusted EBITDA to approximately $1.8 billion and Kathy to $295 million.

During the fourth quarter the company realized higher distributions from several of its equity method investments as well and improved operating efficiencies and lower costs across the portfolio.

However, moderate weakness primarily within the wind portfolio, which persisted for most of 2020 and and outage at the El Segundo GAAP project during December did weigh down results.

Overall, while full year results were below the company's original $310 million guidance the variances within expected sensitivity ranges for the portfolio.

During 2020, the company continued to progress on its long term objectives through efficient capital formation and its disciplined capital allocation program. During the year. The company formed approximately $1 4 billion and capital through project level debt optimization utilization of the ATM program additional green bond issuances.

And through the disposition of non strategic assets and <unk>.

Additionally, the company was able to gain access to $168 million and cash that had been trapped due to the PGA and <unk> bankruptcy.

Through these efforts clearway has maintained its commitment to its balance sheet targets and was able to allocate the excess capital to its growth investments and a manner, leading the copy per share accretion.

It provided support and our ability to reset the dividend upon the resolution of the PGA and <unk> bankruptcy and as a company on a trajectory to reach to achieve the upper end of our 5% to 8% dividend growth target through the end of this year.

Now with the pending $96 million Mount Storm acquisition. The company has committed to $975 million and growth investments since the beginning of 2020 price and clear way on a path to meet our growth objectives beyond 2021 as well.

Moving to our cap the expectations for 2021.

Per my comments from our last quarterly call the timing of when the company's growth investments get realized into results is dependent upon when projects achieve commercial operations. So.

So as previously mentioned our forecast for 2021 does not factor and the full upside relative to our committed growth investments.

With the closing of the Agua Caliente transaction in February the company was expecting to increase its full year 2021 cap the guidance.

While we note that renewable resource performance above our full year median expectations across the company and diversified portfolio such as what we have observed on the west coast During February and can insulate results from operational resource matters at certain projects.

We view the estimated financial exposure from the February conditions, and ERCOT as an event outside the scope of the company's normal annual sensitivity ranges.

Given this dynamic we are now factoring and the estimated impact related to the ERCOT event into full year financial expectations.

And today, we are maintaining our 2021, Cathy guidance at $325 million and amount still sufficient to allow the company to meet its expected dividend growth.

Let's now turn to slide nine to discuss the update to our pro forma choppy.

And our last quarterly call, we indicated that the company's pro forma cap the outlook with $345 million.

This amount was based on growth commitments as of that time and capture the timing of when those projects would reach cfd.

Furthermore, this amount also adjusted for what we believe are temporary variances and 2021, such as COVID-19 related matters and the thermal segment and now the exposure, we see and 2021 relative to February weather event and Texas.

With new growth execution and commitments. We are pleased to say the company's outlook has continued to improve since the November 3rd quarterly earnings call. The company has announced the Agua Caliente transaction and co investment and the one six gigawatt renewable portfolio and now the Mount Storm acquisition. These.

These investments alone are expected to deliver an incremental $50 million and five year average annual asset level Kathy to the company upon on all projects achieving Vod.

As noted in the chart because permanent capital will need to be formed to fund. These transactions, we make an assumption for the cost of the debt portion of its financing, which based on our target leverage ratios would yield approximately $9 million and additional interest expense assuming a range of three five to four 5% of new corporate debt.

So when combined with the asset level Kathy from the new committed growth investments, we now see an increase of over 11% and total Kathy potential with an updated pro forma cap the outlook of $385 million and amount that continues to support our long term dividend growth goals with that I'll turn the call back to Chris for closing remarks.

Thank you Chad.

And 2020, clearly committed to nearly $900 million investments and extra $1 4 billion of capital formation through a combination of refinancing non recourse debt additional corporate capital and recycling of non strategic assets. These.

And these investments allowed clear way to enhance our pro forma Kathy outlook supporting our Dps growth in line with our long term targets.

We look to continue to grow our now $1 <unk> pro forma cafe for sure on outlook through further opportunistic M&A as well as continued to work with our Clearway group colleagues to invest our portfolio of at least one one gigawatts with 2021 through 2023 closing dates during the first half 'twenty and 'twenty one.

Finally, as we have discussed over the years 'twenty 'twenty, one is an important year and positioning our gas fleet and California beyond 2023.

<unk>, reducing risks and optimizing value on these assets going forward as the previous year has demonstrated the value of these assets through their importance to the grid during constrained periods and the addition of black start to Marsh landing our gasoline is a valuable asset and we will work to optimize our and 2021, we look forward to updating updating you on our progress during the year.

Thank you operator open the lines for questions. Please.

And at this time, if you have any question. Please press Star then the number one on your telephone keypad.

And your first question comes from Julien Dumoulin Smith with Bank of America.

Hi can you hear me.

Yes.

Morning, Julien Hey, good morning, Thanks, and the time I just wanted to chat about hedging here, how do you think about the taxes and the impact.

Active events there in terms of your thoughts on the hedge portfolio and perhaps changing.

How do you guys do.

Gage and PPA going forward.

Thanks, Julien I think theres always a preference for ppas versus hedges don't get me wrong, but sometimes the market has certain constraints on it in terms of what's available I think from our view what we want to do is really look from a risk management and plant design perspective to make sure that we have increased with organization and light for ice sharing technology and some of those ERCOT assets, where you actually have.

Our fixed on physical delivery versus the PPA take or pay type of obligation and then also establish whether outage prediction predictors and train equipments that are procedures to mitigate those type of event and I think from on operational side from risk management I think we want to incorporate liability tracking around these obligations to make sure we understand that but I think for all of that said and done.

And it was as everyone's aware, a pretty unprecedented effect and ERCOT, but I don't think people would see happening on a regular basis, but those are some of the mitigating factors, we look to do going forward.

Got it and then it is great and then.

And how do you think about retrofitting Derisk, Texas going forward I know, there's been on a sort of nascent conversation and if you can talk about that and obviously.

Hmm.

Areas.

Yes.

Assets.

And our operational level retrofits that can be pursued here and as well.

Yes, you broke up a little bit there, David and I think you asked about what retrofits, we could kind of do it at the.

Projects and Texas, Craig any particular users got it.

Yeah sure glad to address that yes. So.

That was observed in Texas. During this event and those include hydrophobic coatings for blades a.

The change to the specification and fluids and lubricants that we use at machines and supplemental heater elements within the nacelle that will help assure that machine and stay out of faults during an event like this well.

While we were pleased to see about the machines that we do have and Texas was that we were able to bring them back very quickly after.

Things began to shed during the return to.

With a well calibrated operations work force and machines that are ready to run.

And the supplementation.

<unk> that we have there at those plants with the types of coatings or fluid changes our heaters that we've deployed.

We are hopeful that we would be able to mitigate comparable operational risks and our future event.

Got it and no no.

Cause estimate yet.

No.

He was asking if there is a process of bad debt.

Too early.

Understood. Thank you.

Your next question comes from Michael <unk> with Goldman Sachs.

Hey, guys. Thank you for taking my question I have two totally unrelated to each other one.

Can you just remind us what planned equity financings or equity like financings and you have on or will likely have over the next year or so and then too.

Kevin what happened in California last year.

A price spikes that the probably enhance value per existing fossil generation. How are you thinking about the avenues or potentially new contract and the assets over a longer term versus being on short term arrangements.

Sure I'll kind of take your second question first Michael and then hand, it to Chad on the equity side. So I think in terms of looking at re contracting I do think that it does.

Situation in California last year, I think does make it more conducive to longer term contracts. However, I want to be fair to your question is that probably doesn't mean 15 years that probably means maybe somewhere between five and 10 and a positive sense and so I think thats one thing that kind of once again and we want to make progress on this year I think Michael we've.

Talked a lot over the years I think you've been back in 2016, I told you the utilities would probably want to talk about re contracting one to two years and a contract exploration. We are there and so to me that's kind of consistent with what we've indicated and I think overtime I. Once again would hope to get something at least for part of the fleet.

More on the five to 10 year range, I think what Youre, saying, Hey, <unk> I think that's a little bit aggressive to be fair to your question.

Sure and then and then Michael on your comment with respect to equity capital needs and.

Backhaul, so effectively when you think about the announcement today, there's three investments I would point to which is Agua Caliente day.

<unk> investment and the partnership and then now Mount Storm. So that's call it up a little over $500 million of total capital needs and which we would need to form permanent capital around if you would.

Look at how we presented it if we're consistent with how we've generally financed our business and we use our normal kind of target leverage ranges, which is.

It is in line with our rating targets, we would seek to lever those at the corporate level between four to four five times. So if you look at our slide that we presented on slide eight you see that AD and PD, it's roughly $213 million of corporate debt. Now again. This is somewhat prescriptive and im not going to tell you things don't move around a little bit, but just using that as a proxy for that interface about around about <unk>.

$300 million of equity that is ultimately required to fund those transactions. So I think as it relates to the equity needs I would tell you that we're going to continue similar to how we have historically done things, whether or not it's utilizing our ATM program, whether or not and might be occasional smaller block type of transactions or as we even did this path.

Last year incremental capital that may come from optimization of project level debt on the disposition of projects net of whatever we need to do to maintain our leverage targets. Those are sort of the way that we would sort of fund the equity need I think the main point I'd raise and we're going to do things consistent with our balance sheet targets and try and continue to do things the way, we've done which has been maintained.

Flexibility by keeping a revolver that is relatively undrawn. So that as we're funding new growth, we can sort of be pretty pragmatic with the timing of when we place that permanent capital.

Got it okay. Thank you Chad much appreciated and just coming back to California, a little bit.

Can you remind us are there any environmental either regulate regulation work constraints regarding continued operation of your fleet out there and the gas fleet.

No none that I'm aware of.

Got it. Thank you much appreciate it guys.

Okay.

Your next question comes from Colin Rusch with Oppenheimer.

Thanks, so much guidance.

Historically, you've talked about not retrofit in existing projects that are under ppas with energy storage or any sort of on kind of a voltage management incremental investments I'm wondering if that thought process is starting to change as you see some of the instability on the on the network.

Fifth situations and taking turbines or panels offline to do that I still think we have high dollar value ppas that math is tough to do.

If I'm understanding your question correctly.

Yes.

And I'll take it offline with you guys, but I think that's the end of the heart of the matter is it.

Second question is are you guys thinking about changing.

The P 50 standard at all.

And given some of the variability and the network at this point in terms of estimation and how you're operating the business.

And got it got it and us with no and hopefully performance share.

Simple answer is no any P 50 adjustments, we normally take as part of kind of our guidance that we've given on November call. So we typically go through the year re look how the P 51 during the year and make adjustments at that time. So so to your question, it's not as though anything thats occurred would make us move up $2 58.

Perfect.

Just just to add though on that Colin.

Youre aware.

When we when we produce and energy estimate for a project. We also take into account and expectations of the grids performance and outage time, and so on and so I think.

When when we're underwriting new projects I think we've demonstrated that our ability to incorporate expectations for those types of grid outage events has been reached.

Glee on par so we take that into account and just on your other question with respect to California at least there are opportunities outstanding now for utilities to consider contracting for <unk>.

Storage capacity that is.

Incorporated as a supplement to existing operating assets and so where we've got the ability to offer something on.

And we're making plans to try to be able to make those offers and we will compete in the marketplace to see if utilities wanted to take us up on it.

Okay I appreciate it guys.

Okay and for any question. Please press Star then the number one on your telephone keypad.

And at this time there are no further questions.

Alright, well. Thank you all for joining and look forward to talking to you and Matt take care.

That concludes today's conference. Thank you for your participation you may now disconnect.

Q4 2020 Clearway Energy Inc Earnings Call

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