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Edited Transcript of NYLD.A earnings conference call or presentation 7-May-19 12:00pm GMT

Q1 2019 Clearway Energy Inc Earnings Call

Princeton Jun 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Clearway Energy Inc earnings conference call or presentation Tuesday, May 7, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Chad S. Plotkin

Clearway Energy, Inc. - Senior VP & CFO

* Christopher S. Sotos

Clearway Energy, Inc. - President, CEO & Director

* Craig Cornelius

Clearway Energy Group LLC - CEO & President

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Conference Call Participants

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* Abe C. Azar

Deutsche Bank AG, Research Division - VP in the United States Utilities & Power Equity Research Team and Associate Analyst

* Agnieszka Anna Storozynski

Macquarie Research - Head of US Utilities and Alternative Energy

* Colin William Rusch

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

* Gregory Harmon Gordon

Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research

* Julien Patrick Dumoulin-Smith

BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research

* Michael Jay Lapides

Goldman Sachs Group Inc., Research Division - VP

* Shahriar Pourreza

Guggenheim Securities, LLC, Research Division - MD and Head of North American Power

* Steven Isaac Fleishman

Wolfe Research, LLC - MD & Senior Utilities Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Clearway Energy First Quarter 2019 Earnings Call. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Christopher Sotos, President and CEO.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [2]

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Thank you. Good morning. Let me first thank you for taking the time to join today's call.

Joining me this morning is Chad Plotkin, our Chief Financial Officer; as well as 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 4. As many of you are aware, renewable energy resources were weak across most geographic regions in the first quarter, and Clearway was not immune to this dynamic. Chad will provide details, but the impact on our results for the full year are within our sensitivity ranges. Additionally, the projects impacted by the PG&E bankruptcy continue to perform, and our dialogue on forbearance with lenders continues to be constructive, albeit a slow process.

As such, we are maintaining our 2019 CAFD guidance of $270 million, which continues to be based on our full year P50 energy production estimates.

In addition, we are announcing a second quarter dividend of $0.20 a share. The same dividend as last quarter. This is consistent with our view that until CWEN obtains additional visibility around the PG&E bankruptcy and has full access to its project distributions, dividends paid to shareholders will be aligned with the available corporate liquidity at our target payout ratio.

Our pro forma CAFD outlook of $295 million remains on track with our first funding for the Hawaii Solar Phase 1 project partnership and with additional investment in the DG partnerships. In addition, our Mylan Labs project remains on schedule with anticipated COD of June 2019.

While working through the PG&E situation, we continue to drive toward achieving growth in the platform while minimizing capital needs. As such, we raised approximately $11 million of incremental capital available for investment through the refinancing of the nonrecourse debt at the Tapestry Wind portfolio. We then were able to quickly redeploy those proceeds toward our newest growth project at the Thermal segment, the acquisition of Duquesne University's district energy system, which I will talk about later in the presentation.

In addition, we are continuing to advance the repowering partnership with Clearway Group, which we initially formed last August and which covers 283 megawatts of our existing wind projects. We are targeting a binding equity commitment in the second quarter and will provide you an update on this transaction when the terms are closed definitively, but we assure you that this opportunity will be accretive to shareholders. Finally, Clearway Group continues to make progress on its development portfolio, planting the seeds for further growth, especially for when the PG&E situation reaches a conclusion and we can proceed with normal operations.

Turning to Page 5. We want to provide an overview of the growth we have made at the Thermal segment in the past year, including the most recent acquisition at Duquesne University. Our Thermal business stands out for its ability to create growth opportunities near or adjacent to the existing platform.

In Pittsburgh in particular, you can see evidence of the strategy. Our UPMC project came online in 2018 and has $4 million of CAFD on a 5-year average basis. Importantly, it also allowed us to achieve strong economics for the recently acquired Duquesne asset due to the operational leverage we can achieve by having the facilities so close to each other. Similarly, we believe that our Mylan investment in Puerto Rico, which will come online in the second quarter of this year, will lead to other opportunities to build a substantial portfolio in Puerto Rico over time.

With these investments plus the acquisition of Tulare in California, we have added approximately $8.3 million CAFD on a 5-year average basis to the Thermal business, all at highly accretive economics supporting CAFD per share growth. I am very positive about the momentum the Thermal division has been able to achieve, and we expect continued growth there over time.

Duquesne in particular is an excellent opportunity, built upon a 40-year energy services agreement with the university, which is a strong investment-grade counterparty. While the total capital requirements were approximately $107 million, through accessing, on a nonrecourse basis, the tax-exempt financing market, the amount of CWEN capital required was approximately $13.5 million. The project produces approximately $1.8 million of CAFD on a 5-year average for a strong yield of 13.3%, again emphasizing the highly accretive benefits in the platform.

I will now turn the call over to Chad to discuss results. Chad?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [3]

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Thank you, Chris. Turning to Slide 7. For the first quarter, Clearway Energy is reporting adjusted EBITDA of $191 million and cash available for distribution or CAFD of negative $13 million.

As previously discussed, projects or investments impacted by the PG&E bankruptcy are currently restricted from making distributions to the company despite operating in the normal course. This includes being current on all post-petition receivables. Assuming this continues and as we indicated on our last earnings call, we will report on CAFD as if cash distributions would have been received, which in the first quarter included $7 million from unconsolidated projects.

During the quarter, weak renewable energy conditions prevailed across both the wind and solar portfolio, negatively impacting business performance. These conditions were quite poor not only in the Western part of the country, where our largest assets are located, but also through the Midwest and East Coast. This is evidenced by the chart in the appendix section of the presentation where you can see that the wind and solar portfolios were off 13% and 15%, respectively, relative to median production expectations.

Though these results are disappointing, variability and weather is expected over the life cycle of the portfolio and it's something we have observed in the company's past results, including within any given year. While we won't predict weather for the balance of 2019, 2018 was a good example of this dynamic with renewable production also below expectations in the first quarter, with the recovery over the balance of the year that was materially close to our median expectations.

In part driven by the weather in the quarter, offsetting this weakness was a timing shift in O&M expense and CapEx across not only the Renewables segment but also the Thermal segment. Additionally, the quarter benefited from higher distributions from unconsolidated projects, which we anticipate will normalize through the year.

Given these timing differences and as noted in the seasonality table, CAFD results were near the midpoint of the company's quarterly sensitivities. However, if not for these timing differences, CAFD results for the quarter would have been at the low end of the company's seasonality and sensitivity range. In that regard and pointing to these sensitivities, we continue to maintain the company's $270 million in full year CAFD guidance, which, amongst the other variables noted on the slide, assumes P50 median expectations for the entire year.

As Chris discussed, last week, the company successfully refinanced the nonrecourse project debt of the Tapestry Wind Portfolio, which provided approximately $11 million in new capital available for growth investments. Because this amount materially covered the capital needs for the acquisition of the Duquesne University district energy system, our corporate liquidity remains roughly the same as our prior expectations, including the revolver that is completely undrawn. This provides us the same flexibility, as previously discussed, to execute on the revised capital allocation plan implemented in February, pay our adjusted dividend to shareholders within our payout ratio targets and keep us on track to achieve the pro forma outlook CAFD of $295 million.

I'll now turn the call back to Chris for his closing remarks.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [4]

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Thank you, Chad. Turning to Page 9. Our focus for the year is to continue to execute on growing and strengthening the platform as the PG&E process evolves. We are meeting our commitments and maintaining our 2019 guidance and are also on schedule to finalize the remaining transition and integration requirements post closing of the GIP transaction.

During this time, we are adhering to the revised capital allocation program presented to you in February, including the funding of our committed growth investments as evidenced by Mylan, Hawaii Solar Phase 1 and the DG partnerships. We're also not sitting still as we are finding new accretive growth opportunities like Duquesne while securing new capital sources through internal means with the refinancing of Tapestry Wind. In addition, we continue to work with Clearway Group to source future opportunities for Clearway Energy as well as closing on our repowering partnership anticipated in the second quarter.

Thank you. Operator, please open the lines for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Julien Dumoulin-Smith of BAML.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [2]

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So just wanted to first kick things off. Obviously, PG&E continue to garner a good amount of attention. How do you think about the opportunity to proactively renegotiate contracts? And specifically, to the extent to which that -- potentially that would be an option, how do you think about options bifurcated between renewable and conventional assets given the shorter duration on some of your fossil assets here? Is there any...

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [3]

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I think part one, we anticipate that contracts as they currently exist should be assumed as part of the bankruptcy process. So that's our operating assumption kind of going through this, is that while it's taking time, that, that will be the end result. So Julien, to your question, yes, I wouldn't necessarily differentiate between a renewable and a conventional contract. I think from our perspective, both should be assumed because they're both binding. And you've seen in the statements by PG&E and others, they anticipate basically continuing their PPA obligations.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [4]

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And then if you can clarify -- I mean I'm sort of curious. How are you seeing the opportunity to either blend and extend just independent of the process or otherwise, layer in new capacity commitments for the fossil portfolio? I know we're a little early, but I want to fixate on this a little bit just given the evolution in procurement broadly in California and how you see that evolving.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [5]

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Sure. Hopefully, this answers your question. I think from our perspective, we're really not looking to blend and extend or those type of mechanics currently. As I said, we're really focused on -- that the contracts should be assumed as part of the bankruptcy process. Your question on conventional in terms of going forward, I think, frankly, we kind of need to see what happens and when in terms of that contract being assumed to really answer your question intelligently. For us to say we're going to procure RA in a certain way in several years but not know the results of the assumption or lack thereof of that contract, I think, is a bit premature.

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Julien Patrick Dumoulin-Smith, BofA Merrill Lynch, Research Division - Director and Head of the US Power, Utilities & Alternative Energy Equity Research [6]

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Fair enough. Understood. A little bit more detailed question here on Tapestry. I noticed that it doesn't seem like the amortization table on Tapestry evolved at all despite the refinancing. I just -- can you give us a little bit more detail on exactly what happened with that specific financing? I know it's a little -- it's very detailed.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [7]

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Yes. I mean in terms of -- I mean, basically, it was kind of renewed and, as we indicated, about $11 million of net proceeds to Clearway Energy. And so from our perspective, it was really just kind of tweaking the financing a little, but I think the difference in debt service in the first 5 years is several hundred thousand dollars. So it's pretty small per year. So I think from our perspective, we are able to kind of maintain the CAFD -- the negative CAFD profile, so to speak, of the debt but basically get $11 million of additional capital that we could use and, frankly, be able to put into Duquesne in the near term.

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Operator [8]

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Our next question comes from Colin Rusch of Oppenheimer.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [9]

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You're mentioning the solar coupled with storage is now standard. Can you talk a little bit about the duty cycle that you're expecting on those systems? Are you looking at just arbitraging time for peak power? Or are you doing some ancillary services with those storage devices? And if you could just give us a bit more detail about what the duty cycle looks like?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [10]

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Sure. Craig, if you don't mind maybe answering that. You're much closer to the development cycle on those than I am.

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Craig Cornelius, Clearway Energy Group LLC - CEO & President [11]

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Yes. Sure, Colin. For our utility-scale assets today, the structure of the contracts that we're signing with load serving entities put the dispatch of the battery energy storage systems under the control of the load serving entity who has the ability to dispatch the battery components within a certain range, with a certain frequency that's defined so that we can be compensated for the evolution of the technical components therein. We don't underwrite a separate stream of ancillary revenues for ourselves in those instances. And the expectation that we have with those load serving entities in California is that they're using those as resources to handle load shape in the later hours of the day.

In California, the dispatch is -- or in Hawaii, the dispatch is slightly different because of the difference between coincidence of renewable resources and load in Oahu. But similarly in that instance also, the load serving entity has the ability to dispatch the battery energy storage system, inclusive of attributes that can deliver ancillary support at their own discretion.

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Colin William Rusch, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [12]

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That's incredibly helpful. And then just -- this is more a housekeeping thing, but would you guys consider guiding with a P70 rating on the cash flow just for a little bit more consistency? Is that something that you're tossing around or would be under consideration at some point?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [13]

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Chad, why don't you go?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [14]

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Yes. Colin, it's a good question. I think on an annual basis, we always take a look at our actual results and roll that forward any time we do forecasting and, again, looking at -- on a long term basis to sort of determine whether or not the efficacy of like our budgeting is good. And I think the deviations we're seeing any quarter or any year tend to fall out statistically relative to that long-term forecast. And I mean, even if you look at like our performance over -- especially our largest projects that are materially driving CAFD over the past 3 years, you're almost right on top of our P50. I mean I'm not perfect but no more than maybe 100 basis points here or there. So I think, right now, I think we felt -- we continue to feel pretty good about our forecasting versus making the adjustment down.

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Operator [15]

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Our next question comes from Abe Azar of Deutsche Bank.

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Abe C. Azar, Deutsche Bank AG, Research Division - VP in the United States Utilities & Power Equity Research Team and Associate Analyst [16]

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So can you clarify your reaffirmation of the 2019 guidance? Are you essentially counting on the renewable resources being better than average for the balance of the year and by how much?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [17]

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In essence -- I'll let Chad kind of add any details. But in essence, no, I think, Abe, it's kind of similar to last year where the first quarter was lower. And as I've talked about kind of over the years, you kind of need the year to play out to really see where the P50 comes in over the course of the full year versus any particular quarter. So I think the simple answer is kind of no. We expect our P50 production over the course of the year, not in any necessarily one particular quarter. But Chad, anything to add?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [18]

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Yes. I think, Abe, the convention we've used, and I think it's the same convention we've used over the past few years, is rather than us be in a position where we feel like we want to adjust our annual perspective in any given quarter where production may be higher than, lower than P50, I think as we -- as I indicated in my comments, if you roll forward production in the first quarter and you assume P50 for the rest of the year, yes, we're at the low end of our quarterly sensitivity. So it would be hard-pressed for me to say that we would deliver on the $270 million. But I think the point is, is that we have the point estimate, we give you the sensitivities around that and then you're able to sort of determine what the annual number would otherwise look like if we don't get the recovery for outperformance in the -- in another part of the year.

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Abe C. Azar, Deutsche Bank AG, Research Division - VP in the United States Utilities & Power Equity Research Team and Associate Analyst [19]

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Got it. And then shifting topics. What size commitment do you expect for the repowering? And what will the source of financing be? And do you have a minimum kind of cash and liquidity target that we can think about there?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [20]

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Sure. We don't really have a minimum cash and liquidity target. I think it'd be predominantly through the revolver and cash on hand. Our revolver is basically undrawn at this point with, I believe, $41 million in LCs outstanding, plus, minus. Obviously, in terms of size, Abe, I'd rather kind of, once again, once everything is kind of put together, put all numbers collectively in front of you. I'd prefer to wait until then.

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Operator [21]

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Our next question comes from Michael Lapides with Goldman Sachs.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [22]

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Guys, just curious. When I look at the asset portfolio and the continued additions at the Thermal segment of some of the [gilt] and other assets, do you worry about diversifying too far away from wind and solar and whether the mix of assets longer term kind of -- whether there are synergies across the mix of assets or maybe whether the Thermal segment is something that isn't necessarily core to the long-term growth? I mean if I think about what's up top at your parent and available for drop-down, most of that is traditional wind and solar. I may be mistaken. So I'm just trying to think about how all the pieces of the puzzle fit together longer term.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [23]

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Sure. A couple of different parts to that question, Michael, so I'll sort of unpack it a bit. A, to your question if Thermal is core or not, I think, from our view, it is a core part of the business. And to answer -- and to expand upon that, why, basically, because it is not really correlated with wind and solar production and shortfalls like we might have in the first quarter given resource. From our perspective, kind of over the years, we look at diversification as a real strength of the CWEN portfolio, A, in terms of the ability to produce stable CAFD because you do have a diversified portfolio that's not entirely dominated by wind and solar production; but B, also areas that you can invest in to create CAFD per share growth in the long term. If kind of all we did was only "wind or solar," then if those markets got overheated, you kind of have to invest in those markets to continue to grow. So I think, internally, we think about Thermal on a macro basis kind of in that perspective.

To your second question around the sponsor, while it is true that GIP and CE don't have thermal assets to "drop down," that's why we have thermal development at the Clearway Energy, Inc. box to kind of basically help produce opportunities like the Mylan opportunities, like Duquesne. And so I think from that perspective, that's where we see that growth.

I think to the third part of your question around diversification. We don't really worry about diversification kind of getting out of hand or from that perspective because I think the rating agencies and kind of markets in general look at diversification, in terms of what I talked about before for stability of CAFD generation, as a positive. It's not as though that we have defined goals that we want wind to be 33%, conventional to be 33%, et cetera. But we do view that a mix between different asset classes is a strength of CWEN. Hopefully, that answers your question.

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Michael Jay Lapides, Goldman Sachs Group Inc., Research Division - VP [24]

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No, that helps. The other thing is when you look across your growth opportunities, whether it's at Thermal and kind of doing more the projects like the Duquesne one versus the wind, versus the solar, where do you see the better returns? Where do you get better cash on cash?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [25]

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I think it really depends on each one. I won't say on a macro basis one is -- it's probably much more predominant on the tenor of the PPA profile that determines that. So I wouldn't characterize one as kind of always being better than the other. Also, I think size is important, right? The thermal assets and opportunities that we've done, while quite strong, tend to be on the smaller side in terms of CAFD generation. So I think it's a little bit of an apple-and-orange comparison. So I would -- I'd probably not make it.

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Operator [26]

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Our next question comes from Steve Fleishman of Wolfe Research.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [27]

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Just clarify, what would you say the impact of below-normal conditions were on the quarter EBITDA?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [28]

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Chad?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [29]

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Yes. On EBITDA, I think you could almost manifest it dollar for dollar, Steve, because, if you look at the impact, any reduction in revenue on the renewable fleet is going to hit EBITDA and CAFD the same. So I mean if you look at the numbers and if you're saying, "Hey, we're at -- it would have been closer to the low end of where we landed, if you look at that negative 11% of CAFD, you could almost do that -- gross that up and just say it's almost an equivalent EBITDA number.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [30]

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Okay. So you take the midpoint of the 3 -- yes, you take the midpoint of the negative 3 to 11 and then just assume you're at 11?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [31]

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Yes. I mean that -- I'm not saying that's all the way down at that level, but the point being is that is a good way to think about it.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [32]

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Okay. How were April conditions?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [33]

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April was roughly at par. So we didn't necessarily pick up a ton, but we saw April do -- across the portfolio was more right around our expectations.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [34]

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Okay. And then switching gears. So if the bankruptcy court judge for PG&E comes out and says he thinks he has the jurisdiction over deciding on PPAs, in and of itself, that doesn't necessarily mean anything. But just for your purposes, do you view that as meaning anything to your contracts?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [35]

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Frankly, no. I think that our view is, and as we've talk about kind of during the pendency of this situation, is that, right, our contracts really don't affect the value of the bankruptcy estate because they're passed through the ratepayers. So I think whether it's FERC has jurisdiction or the bankruptcy court has jurisdiction or how they work it out between them, I think that fundamental fact remains. So I think from our perspective, if your question was -- if, basically, kind of FERC is determined not to have jurisdiction, it's only the bankruptcy court, does that change our view as to the probability of the contracts being assumed? The answer is no.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [36]

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Okay. And lastly, just if you had in any of your own contacts with, I guess, leadership people in the state on their views of the contracts and also looking at future growth projects.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [37]

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So Steve, your question is do we have contact with the upper levels of state government. I apologize, I don't understand the question.

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Steven Isaac Fleishman, Wolfe Research, LLC - MD & Senior Utilities Analyst [38]

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Yes. The question is have you had your own discussions with, let's say, the governor's office or regulators on their view of supporting the contracts -- existing contracts and also on, I guess, potential growth opportunities for new renewables, particularly if the state might get more involved, yes.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [39]

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Sure. I think between ourselves and CEG, we obviously talk to any entities that make sense in terms of basically assuming the contracts exist today. And I'm sure at the CEG box, given their development activities and the long-term procurement of renewables in California, it's a critical issue. So yes, we have a wide variety of conversations along both avenues.

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Operator [40]

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(Operator Instructions) Our next question comes from Greg Gordon of Evercore ISI.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [41]

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I don't want to beat a dead horse but I just want to be clear. While you're not -- you've reiterated your CAFD guidance for the year because, basically, it's too early in the year to tell, but you're starting off after a weak first quarter, a little bit behind the eight ball. Is that just a fair summary?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [42]

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Yes. The first quarter was below expectations, but once again, our P50 that we provide isn't a quarterly or daily P50. It's over the course of the year. So similar to what occurred last year, we were kind of down in the first quarter, but the rest of the year, the P50 basically showed up. Not that we know that will happen, but we don't see any reason to assume that it wouldn't either.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [43]

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No, fair. I just wanted to make I understood the prior responses. The second question is on Duquesne. When does that start to actually contribute to CAFD and EBITDA? And was that acquisition sort of -- I know other things in the backlog were assumed in the CAFD and EBITDA guidance for '19, but was that particular acquisition in the baseline expectation?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [44]

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Sure. The answer is no in terms of your second question, was it in our baseline expectations. We only do that when something is signed in terms of a binding commitment, which obviously only occurred recently. So it wasn't included in the $270 million or $295 million numbers that we had produced previously. To your other question in terms of -- sorry, your first question was? I apologize.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [45]

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When does it start contributing?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [46]

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I think currently -- I think, once again, there's some CapEx we have to put in it that's included in the $107 million overall number, so we think it would kind of be a net positive to CAFD much more in 2020 versus the 2019 time frame.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [47]

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Okay, fantastic. And then the third question, the business goes out a little bit over the horizon, but if we're in a scenario where we have -- obviously, a lot of your CAFD is being trapped at the project level because of the PG&E situation, but if that situation is ultimately resolved, not only would you get sort of an uplift in your sort of actual usable CAFD from the ongoing -- the release of cash, which on an ongoing basis had previously been trapped, but wouldn't there also be sort of a lump-sum release of cash? And if there was, at that point in the future, should we think about that as cash that you would return to your shareholders? Or would that just sort of create a war chest for you to continue to reinvest in the business, take drops and further enhance the reestablished higher level of dividends through more investment? How are you thinking about -- I know you're probably thinking about what's right in front of your nose now in terms of trafficking through the year. But in terms of the long term and the positive resolution of this situation, how do you think about that dynamic?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [48]

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Sure. A couple of good questions there. So part one, it wouldn't necessarily result in an uplift in CAFD because, as Chad's noted, we're kind of reporting CAFD under the assumption that, that cash is eventually distributed to us. So part one, in terms of like a reported CAFD, it wouldn't really change that number. Part two, to your point, we would, however, expect kind of a lump-sum release kind of when that's done as the different distribution accounts within the project financings release that cash that's been built up over time.

To your third question, whether we would use it for return of shareholders -- or return of capital to shareholders or for different investment purposes, I think consistent with what we've said before, we view it much more as a reinvestment in future growth prospects than necessarily returning to shareholders for that period of time. So I think we -- once again, depending on availability of growth investments, but we think they will be there, we'd probably much more put those into growth investments than a special onetime dividend or something like that. We think that creates a lot more lasting value.

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Gregory Harmon Gordon, Evercore ISI Institutional Equities, Research Division - Senior MD and Head of Power & Utilities Research [49]

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Right. But the -- but then -- and I -- my question was poorly stated in part. So -- but it would also allow you, because your CAFD -- even though you're reporting it as if PG&E assets were distributing, because your ongoing level of actual cash flow would then be restored, you'd be able to sort of partially or fully restore the distribution that you cut as a function of the event in the first place, correct?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [50]

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Yes, that's correct. So maybe to walk you through to make sure I answer your question appropriately. In the event that the contracts were resumed, there would: A, be a distribution of a lump-sum, so to speak, cash from the distribution accounts that have been fed up during the period of the bankruptcy. B, once again, given the new CAFD level, we would reinstate the dividend much more in line with previous levels given the CAFD over -- yes, that would be reinstated. And third, we intend to use that lump-sum cash to invest in future growth investments versus a special onetime dividend or something like that.

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Operator [51]

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Our next question comes from Angie Storozynski of Macquarie.

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Agnieszka Anna Storozynski, Macquarie Research - Head of US Utilities and Alternative Energy [52]

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So we've seen quite an increase in RA prices in California. I mean it seems like RA costs -- prices are around $4 per kilowatt-month or even higher. I understand that your Marsh Landing contract doesn't end until 2023. But in light of those prices, if you were to refinance or recontract this plant for $4 per kilo per kilowatt-month, is that enough to make this a viable project going forward? So is that price enough already, again, for Marsh Landing to continue operations beyond 2023?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [53]

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So you're asking beyond 2023? I think, Angie, maybe one way to think about it is -- and we've talked about this in the past, is beyond 2023, those projects are at that point unlevered. So as you know, given the way we've sized the project financing on those assets, the amount of cash that is otherwise used for debt service, both P&I, is pretty significant. The way we've always described it is you could almost take a 2/3 reduction in revenue and have an equivalent amount of cash flow -- or excuse me, 2/3 reduction in EBITDA and have an equivalent amount of cash flow to effectively see it. So at $4 a kilowatt-month, if you apply that, and you assume you can get RA over on Marsh Landing, a 720-megawatt facility, obviously, that fills up a certain amount of revenue that otherwise could be supportive of continued operations. Naturally, at that point in time, you also have to think about dispatching and your own fuel costs. But yes, I mean, I think, that's starting to get to a point where you could economically operate an asset beyond the contract period principally because it's an unlevered project at that point in time.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [54]

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To your second -- I don't know if we'd be able to relever it based solely on RA. That might be a little bit of a push, but I would take that chance to former point.

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Agnieszka Anna Storozynski, Macquarie Research - Head of US Utilities and Alternative Energy [55]

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Okay. And secondly, so we have another public yield [product is] pursuing a strategic review. We don't really know what it entails. But would you, I mean, potentially be open to, I don't know, combination with another public entity, a public yieldco?

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [56]

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I think that's kind of an M&A-type question. So I think, similar with historical practice, we really wouldn't comment on M&A.

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Operator [57]

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Our next question comes from Shar Pourreza with Guggenheim Partners.

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Shahriar Pourreza, Guggenheim Securities, LLC, Research Division - MD and Head of North American Power [58]

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So most of the questions were answered. Just, Chris, can you just elaborate around your prepared remarks with how the conversations are going with lenders with the California projects? I think you alluded to it's constructive but it's -- the process is slower than expected.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [59]

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Sure. I think I'll let Chad kind of expound upon it because he's really leading a lot of those efforts. But I think from our perspective, because there hasn't been a ton of, let's say, new information, definitive new information for lenders to get a feel for the lay of the land, I think just everyone is kind of operating in normal course, but kind of a true forbearance is quite tough to get because we don't really have any on-the-ground facts for some of the questions that, frankly, this audience is asking. But Chad, anything to expand upon?

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Chad S. Plotkin, Clearway Energy, Inc. - Senior VP & CFO [60]

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Yes. No, not really. I mean, Shar, like I always try to remind folks, I mean, is -- I know you've got Clearway and then a number of other public entities that own projects. I'm mindful that many of our project lenders -- I forget the number of projects that PG&E had indicated it has contracts with, but you could assume a significant amount of those are in likely similar situations, where they also have project financing. So the lender groups overall, I mean, they are significantly exposed. And I think what we've been reassured with, with the lenders is, is that it's -- obviously, if anybody wanted to try to exercise a remedy, it'll likely arise as something we would be disclosing. We're operating in the normal course. But for lenders and forbearance, naturally, facts are important on the ground. So I think our dialogue is constructive, our relationships are strong. But when there's uncertainty on the ground, obviously, it's reasonable to assume a lender is going to want to move at a pace that they believe is prudent for their own obligations.

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Operator [61]

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There are no further questions. I'd like to turn the call back over to Christopher Sotos for any closing remarks.

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Christopher S. Sotos, Clearway Energy, Inc. - President, CEO & Director [62]

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Thank you. So I think thank you for everyone's time, and look forward to talking with you in the next quarter. So thanks, everyone.

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Operator [63]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.