NextEra Partners to Sell Texas, Pennsylvania Gas Pipeline Assets in Renewables Shift

By P&GJ Staff

(P&GJ) — Capitalizing on the affordability and demand for significant investments in decarbonizing the U.S. economy, NextEra Energy Partners LP is refocusing on renewable energy. As part of this strategy, the business intends to sell its STX Midstream in the Eagle Ford shale play and Pennsylvania’s Meade natural gas pipeline assets, positioning itself as a fully renewables-based company.

The profits will be used for a variety of things, including funding expansion and reinvesting cash flow from the sold assets. Furthermore, a deal has been made to halt incentive distribution rights payments in order to make up for the decreased funds available for distribution as a result of the pipeline sales.

NextEra Energy Partners has developed a comprehensive plan to leverage the clean energy transition effectively. The first step involves initiating the process of selling its STX Midstream and Meade natural gas pipeline assets in 2023 and 2025, respectively. Once these sales are concluded, the surplus proceeds will be utilized to buy out the existing convertible equity portfolio financings, including STX Midstream, 2019 NEP Pipelines, and NEP Renewables II. This strategic move aims to minimize equity requirements until 2026, with the exception of the Genesis Holdings convertible equity portfolio financing, which is capped at $294 million for that year.

As part of their growth strategy, NextEra Energy Partners plans to utilize the excess proceeds from the sale of natural gas pipeline assets to fund future expansion, effectively eliminating equity requirements through 2024. This approach enables them to rely on opportunistic equity issuances under their at-the-market equity issuance program for future growth beyond 2024.

To compensate for the reduction in cash available for distribution (CAFD) resulting from the sale of pipeline assets, NextEra Energy Inc. and NextEra Energy Partners have reached an agreement to suspend NextEra Energy's incentive distribution rights (IDR) fees for all quarters from 2023 to 2026. By implementing this IDR fee suspension, the partnership can utilize the resulting cash flow to largely offset the reduced CAFD associated with the divestment of natural gas pipeline assets.

"Today, we are announcing plans to simplify the partnership's capital structure and singularly focus on a 100% renewable energy strategy. The U.S. economy's ongoing transition to renewable energy is a significant driver of future renewable energy investments, and we want NextEra Energy Partners to be well positioned to capitalize on these investments,” John Ketchum, chairman and CEO of NextEra, said.

He added: "To lead this transition, we are launching a process to sell our natural gas pipeline assets and we are suspending incentive distribution rights fees to NextEra Energy through 2026. These actions would both increase our renewable energy investments and eliminate the equity issuance that would otherwise be required to complete all three convertible equity portfolio financing buyouts planned for 2023, 2024 and 2025."

Upon successfully completing the sales of the natural gas pipeline assets, NextEra Energy Partners is expected to achieve Real Zero carbon emissions in 2025 and become the leading 100% renewables pure-play investment opportunity.

The partnership believes these changes could potentially invite a new class of investors looking for a carbon-free, pure-play option to participate in the energy transition.

In summary, the plan would eliminate the equity buyouts of the three near-term convertible equity portfolio financings via the divestiture of the partnership's interest in natural gas pipeline assets, and the CAFD associated with the sale of the natural gas pipeline assets would be largely replaced by the IDR fees suspension. NextEra Energy Partners expects that it would have excess proceeds from the natural gas pipeline sales available to eliminate equity requirements to fund future growth through 2024.

"Under our plan, we currently do not expect any equity to be required to finance our growth plan through 2024 and do not expect any equity issuances to finance convertible equity portfolio financing buyouts through 2025. The end result of these changes is intended to create the leading 100% renewables pure-play investment opportunity for the benefit of unitholders," Ketchum said.

NextEra Energy Partners believes it is well positioned to execute against its plan due to its ample liquidity and significant financing capacity. The partnership had approximately $2.8 billion of available liquidity as of March 31, 2023.


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