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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Summary of Significant Accounting Policies

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could be different from these estimates.

Cash and Cash Equivalents, and Restricted Cash

Cash and cash equivalents include highly liquid investments with an original maturity of three months or less at the time of purchase. Cash and cash equivalents held at project subsidiaries was $176 million and $125 million as of September 30, 2020 and December 31, 2019, respectively. During October 2020, the last of the previously restricted cash of $34 million was paid out of a distribution reserve account at a subsidiary affected by the PG&E Bankruptcy to Clearway Energy Operating LLC.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statements of cash flows:


	September 30, 2020		December 31, 2019
	(In millions)
Cash and cash equivalents	$	359	$	155
Restricted cash	178		262
Cash, cash equivalents and restricted cash shown in the statement of cash flows	$	537	$	417

Restricted cash consists primarily of funds held to satisfy the requirements of certain debt agreements and funds held within the Company's projects that are restricted in their use. As of September 30, 2020, these restricted funds were comprised of $74 million designated to fund operating expenses, approximately $46 million designated for current debt service payments, and $28 million restricted for reserves including debt service, performance obligations and other reserves, as well as capital expenditures. The remaining $30 million is held in distribution reserve accounts.

Accumulated Depreciation, Accumulated Amortization

The following table presents the accumulated depreciation included in the property, plant and equipment, net, and accumulated amortization included in intangible assets, net, respectively, as of September 30, 2020 and December 31, 2019:


	September 30, 2020		December 31, 2019
	(In millions)
Property, Plant and Equipment Accumulated Depreciation	$	2,135	$	1,880
Intangible Assets Accumulated Amortization	461		394

Dividends to Class A and Class C common stockholders

The following table lists the dividends paid on the Company's Class A common stock and Class C common stock during the nine months ended September 30, 2020:


	Third Quarter 2020		Second Quarter 2020		First Quarter 2020
Dividends per Class A share	$	0.3125	$	0.2100	$	0.2100
Dividends per Class C share	$	0.3125	$	0.2100	$	0.2100

Dividends on the Class A common stock and Class C common stock are subject to available capital, market conditions, and compliance with associated laws, regulations and other contractual obligations. The Company expects that, based on current circumstances, comparable cash dividends will continue to be paid in the foreseeable future.

On October 27, 2020, the Company declared quarterly dividends on its Class A common stock and Class C common stock of $0.318 per share payable on December 15, 2020 to stockholders of record as of December 1, 2020.

Noncontrolling Interests

Clearway Energy LLC Distributions to CEG

The following table lists distributions paid to CEG during the period ended September 30, 2020 on Clearway Energy LLC's Class B and D units:


	Third Quarter 2020		Second Quarter 2020		First Quarter 2020
Distributions per Class B Unit	$	0.3125	$	0.2100	$	0.2100
Distributions per Class D Unit	$	0.3125	$	0.2100	$	0.2100

On October 27, 2020, Clearway Energy LLC declared a distribution on its Class B and Class D units of $0.318 per unit payable on December 15, 2020 to unit holders of record as of December 1, 2020.

Revenue Recognition

Revenue from Contracts with Customers

The Company applies the guidance in ASC 606, Revenue from Contracts with Customers, or Topic 606, when recognizing revenue associated with its contracts with customers. The Company's policies with respect to its various revenue streams are detailed below. In general, the Company applies the invoicing practical expedient to recognize revenue for the revenue streams detailed below, except in circumstances where the invoiced amount does not represent the value transferred to the customer.

Thermal Revenues

Steam and chilled water revenue is recognized as the Company transfers the product to the customer, based on customer usage as determined by meter readings taken at month-end. Some locations read customer meters throughout the month and recognize estimated revenue for the period between meter read date and month-end. For thermal contracts, the Company’s performance obligation to deliver steam and chilled water is satisfied over time and revenue is recognized based on the invoiced amount. The Thermal Business subsidiaries collect, and remit state and local taxes associated with sales to their customers, as required by governmental authorities. These taxes are presented on a net basis in the income statement.

As contracts for steam and chilled water are long-term contracts, the Company has performance obligations under these contracts that have not yet been satisfied. These performance obligations have transaction prices that are both fixed and variable, and which vary based on the contract duration, customer type, inception date and other contract-specific factors. For the fixed price contracts, the Company cannot accurately estimate the amount of its unsatisfied performance obligations as it will vary based on customer usage, which will depend on factors such as weather and customer activity.

Power Purchase Agreements

The majority of the Company’s revenues are obtained through PPAs or other contractual agreements. Energy, capacity and where applicable, renewable attributes, from the majority of the Company’s renewable energy assets and certain conventional energy plants is sold through long-term PPAs and tolling agreements to a single counterparty, which is often a utility or commercial customer. The majority of these PPAs are accounted for as leases. Previously ASC 840, and currently ASC 842, requires the minimum lease payments received to be amortized over the term of the lease and contingent rentals are recorded when the achievement of the contingency becomes probable. Management's judgment is required in determining the economic life of each generating facility, in evaluating whether certain lease provisions constitute minimum payments or represent contingent rent and other factors in determining whether a contract contains a lease and whether the lease is an operating lease or sales-type lease.

Renewable Energy Credits

Renewable energy credits, or RECs, are usually sold through long-term PPAs. Revenue from the sale of self-generated RECs is recognized when the related energy is generated and simultaneously delivered even in cases where there is a certification lag as it has been deemed to be perfunctory.

In a bundled contract to sell energy, capacity and/or self-generated RECs, all performance obligations are deemed to be delivered at the same time and hence, timing of recognition of revenue for all performance obligations is the same and occurs over time. In such cases, it is often unnecessary to allocate transaction price to multiple performance obligations.

Disaggregated Revenues

The following tables represent the Company’s disaggregation of revenue from contracts with customers along with the reportable segment for each category for the three and nine months ended September 30, 2020 and 2019 respectively:


	Three months ended September 30, 2020
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue(a)	$	3	$	166	$	27	$	196
Capacity revenue(a)	119		—		24		143
Contract amortization	(6)		(15)		(1)		(22)
Other revenue	—		6		9		15

Total operating revenue	116		157		59		332

Less: Lease revenue	(122)		(153)		—		(275)
Less: Contract amortization	6		15		1		22
Total revenue from contracts with customers	$	—	$	19	$	60	$	79

(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:


(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue	$	3	$	153	$	—	$	156
Capacity revenue	119		—		—		119
Total	$	122	$	153	$	—	$	275


	Nine months ended September 30, 2020
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue(a)	$	6	$	486	$	77	$	569
Capacity revenue(a)	338		—		50		388
Contract amortization	(18)		(46)		(2)		(66)
Other revenue	—		12		24		36
Mark-to-market for economic hedges	—		(8)		—		(8)
Total operating revenue	326		444		149		919
Less: Mark-to-market for economic hedges	—		8		—		8
Less: Lease revenue	(344)		(449)		(1)		(794)
Less: Contract amortization	18		46		2		66
Total revenue from contracts with customers	$	—	$	49	$	150	$	199

(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:


(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue	$	6	$	449	$	1	$	456
Capacity revenue	338		—		—		338
Total	$	344	$	449	$	1	$	794


	Three months ended September 30, 2019
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue(a)	$	2	$	167	$	33	$	202
Capacity revenue(a)	89		—		14		103
Contract amortization	(1)		(16)		(1)		(18)
Mark-to-market for economic hedges	—		(2)		—		(2)
Other revenue	—		2		9		11
Total operating revenue	90		151		55		296
Less: Mark-to-market for economic hedges	—		2		—		2
Less: Lease revenue	(91)		(160)		(1)		(252)
Less: Contract amortization	1		16		1		18
Total revenue from contracts with customers	$	—	$	9	$	55	$	64

(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:


(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue	$	2	$	160	$	1	$	163
Capacity revenue	89		—		—		89
Total	$	91	$	160	$	1	$	252


	Nine months ended September 30, 2019
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue(a)	$	4	$	441	$	91	$	536
Capacity revenue(a)	253		—		41		294
Contract amortization	(4)		(46)		(2)		(52)
Mark-to-market for economic hedges	—		(9)		—		(9)
Other revenue	—		6		22		28
Total operating revenue	253		392		152		797
Less: Mark-to-market for economic hedges	—		9		—		9
Less: Lease revenue	(257)		(416)		(2)		(675)
Less: Contract amortization	4		46		2		52
Total revenue from contracts with customers	$	—	$	31	$	152	$	183

(a) The following amounts of energy and capacity revenue relate to leases and are accounted for under ASC 842:


(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue	$	4	$	416	$	2	$	422
Capacity revenue	253		—		—		253
Total	$	257	$	416	$	2	$	675

Contract Amortization

Assets and liabilities recognized from power sales agreements assumed through acquisitions related to the sale of electric capacity and energy in future periods for which the fair value has been determined to be significantly less (more) than market are amortized to revenue over the term of each underlying contract based on actual generation and/or contracted volumes or on a straight-line basis, where applicable.

Contract Balances

The following table reflects the contract assets and liabilities included on the Company’s balance sheet as of September 30, 2020:


(In millions)
Accounts receivable, net - Contracts with customers	$	37
Accounts receivable, net - Leases	119
Total accounts receivable, net	$	156

Recently Issued Accounting Standards Adopted in 2020

In March 2020, the FASB issued ASU 2020-4, Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide for optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria is met. These amendments apply only to contracts that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company intends to apply the amendments to all its eligible contract modifications where applicable.

Recently Issued Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The guidance is effective January 1, 2021, with early adoption permitted. The Company does not expect the effect of the new guidance to be material on its consolidated financial statements.

Reclassification

Certain prior year amounts have been reclassified for comparative purposes.