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Clearway maintains reined-in dividend during PG&E bankruptcy uncertainty

Clearway Energy Inc. is maintaining its restricted dividend payout to shareholders given the uncertainty stemming from power contract exposure to PG&E Corp.'s bankruptcy.

For the third quarter, the company is keeping its dividend unchanged at 20 cents per share. Clearway's previous dividend, declared Oct. 31, 2018, was 33.1 cents.

"This is consistent with our view that until [Clearway Energy] obtains additional visibility around the PG&E bankruptcy, and has full access to this project distributions, dividends paid to shareholders will be aligned with available corporate liquidity and our target payout ratio," CEO Christopher Sotos said during the Aug. 6 earnings call.

The company has potential Pacific Gas and Electric Co., or PG&E, exposure of 1,263 MW through eight contracted projects. Direct exposure is at 1,200 MW.

"Because the contracts are performing, the results continue to factor in the contribution of projects and investments impacted by the PG&E bankruptcy, which continue to be restricted from making distributions in the normal course," Sotos added.

Sotos also maintained that rejecting Clearway's current PG&E contracts would result in an unsecured claim, unlike the recently renegotiated power purchase agreements with PG&E. According to Sotos, the renegotiated contracts covered projects that are not yet built. "That's a pretty important distinction between what you've probably seen out in the press and the nature of our contracts," he said.

Company executives see a possible resolution to PG&E Corp.'s bankruptcy by 2020 given recent legislative actions in California.

If the bankruptcy does get resolved by summer 2020, Clearway would consider reinstating the dividend, taking the cash available for distribution per share and multiplying it by about 80% to 85%, Sotos said.

Challenging first half

Clearway Energy revised its 2019 cash available for distribution guidance to $250 million after an outage at its California Valley Solar Ranch, or CVSR, and weak renewable energy conditions impacted first-half results.

A June 5 fire, which was reportedly related to an avian incident, damaged the 250-MW solar farm and resulted in about $9 million in lost revenue for the company. CVSR sells power to Pacific Gas and Electric under contracts expiring October 2038, according to S&P Global Market Intelligence data.

Moreover, the company experienced below-normal wind resource and irradiance levels across its portfolio, driving its renewable generation in the first half below median expectations and sensitivity ranges.

"[T]hese items and the importance of the second quarter have pushed expected performance outside of Clearway's probable distribution," Sotos said.

Despite these challenges, Clearway management remains optimistic for growth, starting with the expansion of its right-of-first offer pipeline with 354 MW of new projects. It also received an offer to acquire the existing right-of-first offer asset, the 419-MW Mesquite Star wind project in Texas.

"As part of this offer, we are negotiating with our colleagues at Clearway Group to structure a transaction, while being mindful of our capital constraints during the pendency of the PG&E bankruptcy," said Sotos. "These new ROFO additions will help provide a longer-term view around [Clearway's] opportunities for growth going forward, as well as increased geographic diversity and generation profile."