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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2022

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. They also impact the reported amounts of net earnings during the reporting periods. Actual results could be different from these estimates.

Cash, 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 $135 million and $146 million as of June 30, 2022 and December 31, 2021, respectively.

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 consolidated statements of cash flows:


	June 30, 2022		December 31, 2021
	(In millions)
Cash and cash equivalents	$	955	$	179
Restricted cash	333		475
Cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows	$	1,288	$	654

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 June 30, 2022, these restricted funds were comprised of $143 million designated to fund operating expenses, $42 million designated for current debt service payments and $122 million restricted for reserves including debt service, performance obligations and other reserves as well as capital expenditures. The remaining $26 million is held in distributions reserve accounts.

In 2020, the members of the partnerships holding the Oahu Solar and Kawailoa Solar projects submitted applications to the state of Hawaii for refundable tax credits based on the cost of construction of the projects. In 2021, the members of the partnerships contributed their respective portions of the tax credits in the amount of $49 million to the Oahu Solar and Kawailoa project companies, which was recorded to restricted cash on the Company’s consolidated balance sheet with an offsetting adjustment to noncontrolling interests. In accordance with the projects’ related agreements, the cash is held in a restricted account and utilized to offset invoiced amounts under the projects’ PPAs. As of June 30, 2022, $30 million of the $49 million has been utilized to offset invoiced amounts under the projects’ PPAs.

Accumulated Depreciation and Accumulated Amortization

The following table presents the accumulated depreciation included in property, plant and equipment, net, and accumulated amortization included in intangible assets, net as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
	(In millions)
Property, Plant and Equipment Accumulated Depreciation	$	2,745	$	2,501
Intangible Assets Accumulated Amortization	687		605

Dividends to Class A and Class C Common Stockholders

The following table lists the dividends paid on the Company's Class A and Class C common stock during the six months ended June 30, 2022:


	Second Quarter 2022		First Quarter 2022
Dividends per Class A share	$	0.3536	$	0.3468
Dividends per Class C share	0.3536		0.3468

Dividends on the Class A 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 August 1, 2022, the Company declared quarterly dividends on its Class A and Class C common stock of $0.3604 per share payable on September 15, 2022 to stockholders of record as of September 1, 2022.

Noncontrolling Interests

Clearway Energy LLC Distributions to CEG

The following table lists distributions paid to CEG during the six months ended June 30, 2022 on Clearway Energy LLC’s Class B and D units:


	Second Quarter 2022		First Quarter 2022
Distributions per Class B Unit	$	0.3536	$	0.3468
Distributions per Class D Unit	0.3536		0.3468

On August 1, 2022, Clearway Energy LLC declared a distribution on its Class B and Class D units of $0.3604 per unit payable on September 15, 2022 to unit holders of record as of September 1, 2022.

Redeemable Noncontrolling Interests

To the extent that a third party has the right to redeem their interests for cash or other assets, the Company has included the noncontrolling interest attributable to the third party as a component of temporary equity in the mezzanine section of the consolidated balance sheet. The following table reflects the changes in the Company’s redeemable noncontrolling interest balance for the six months ended June 30, 2022:


	(In millions)
Balance as of December 31, 2021	$	—
Cash distributions to redeemable noncontrolling interests	(2)
Comprehensive income attributable to redeemable noncontrolling interests	6
Balance as of June 30, 2022	$	4

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.

Power Purchase Agreements, or PPAs

The majority of the Company’s revenues are obtained through PPAs or similar 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 operating leases as the Company retained its historical lease assessments and classification upon adoption of ASC 842, Leases. 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. Judgment is required by management 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 capital lease. Certain of these leases have no minimum lease payments and all of the rental income under these leases is recorded as contingent rent on an actual basis when the electricity is delivered.

Renewable Energy Credits, or RECs

Renewable energy credits, or RECs, are usually sold through long-term PPAs or through REC contracts with counterparties. 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.

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 consolidated statements of income.

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 that 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.

On May 1, 2022, the Company completed the sale of 100% of its interests in the Thermal Business to KKR. For further details of the Thermal Disposition, refer to Note 3, Acquisitions and Dispositions.

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 six months ended June 30, 2022 and 2021, respectively:


	Three months ended June 30, 2022
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue (a)	$	3	$	306	$	11	$	320
Capacity revenue (a)	106		1		4		111
Contract amortization	(6)		(35)		—		(41)
Other revenue	—		27		3		30
Mark-to-market for economic hedges	—		(52)		—		(52)
Total operating revenues	103		247		18		368
Less: Mark-to-market for economic hedges	—		52		—		52
Less: Lease revenue	(109)		(268)		—		(377)
Less: Contract amortization	6		35		—		41
Total revenue from contracts with customers	$	—	$	66	$	18	$	84

(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	$	268	$	—	$	271
Capacity revenue	106		—		—		106
Total	$	109	$	268	$	—	$	377


	Three months ended June 30, 2021
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue (a)	$	2	$	261	$	29	$	292
Capacity revenue (a)	113		—		15		128
Contract amortization	(6)		(30)		(1)		(37)
Other revenue	—		22		6		28
Mark-to-market for economic hedges	—		(31)		—		(31)
Total operating revenues	109		222		49		380
Less: Mark-to-market for economic hedges	—		31		—		31
Less: Lease revenue	(115)		(228)		—		(343)
Less: Contract amortization	6		30		1		37
Total revenue from contracts with customers	$	—	$	55	$	50	$	105

(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	$	228	$	—	$	230
Capacity revenue	113		—		—		113
Total	$	115	$	228	$	—	$	343


	Six months ended June 30, 2022
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue (a)	$	3	$	501	$	48	$	552
Capacity revenue (a)	220		1		18		239
Contract amortization	(12)		(71)		—		(83)
Other revenue	—		41		11		52
Mark-to-market for economic hedges	—		(178)		—		(178)
Total operating revenues	211		294		77		582
Less: Mark-to-market for economic hedges	—		178		—		178
Less: Lease revenue	(223)		(430)		(1)		(654)
Less: Contract amortization	12		71		—		83
Total revenue from contracts with customers	$	—	$	113	$	76	$	189

(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	$	430	$	1	$	434
Capacity revenue	220		—		—		220
Total	$	223	$	430	$	1	$	654


	Six months ended June 30, 2021
(In millions)	Conventional Generation		Renewables		Thermal		Total
Energy revenue (a)	$	3	$	387	$	58	$	448
Capacity revenue (a)	220		—		28		248
Contract amortization	(12)		(55)		(2)		(69)
Other revenue	—		31		14		45
Mark-to-market for economic hedges	—		(55)		—		(55)
Total operating revenues	211		308		98		617
Less: Mark-to-market for economic hedges	—		55		—		55
Less: Lease revenue	(223)		(373)		(1)		(597)
Less: Contract amortization	12		55		2		69
Total revenue from contracts with customers	$	—	$	45	$	99	$	144

(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	$	373	$	1	$	377
Capacity revenue	220		—		—		220
Total	$	223	$	373	$	1	$	597

Contract Amortization

Assets and liabilities recognized from power sales agreements assumed through acquisitions relating to the sale of electric capacity and energy in future periods arising from differences in contract and market prices 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 consolidated balance sheets as of June 30, 2022 and December 31, 2021:


	June 30, 2022		December 31, 2021
	(In millions)
Accounts receivable, net - Contracts with customers	$	60	$	44
Accounts receivable, net - Leases	162		100
Total accounts receivable, net	$	222	$	144

Recently Adopted Accounting Standards

In March 2020, the FASB issued ASU No. 2020-04, 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 are met. These amendments apply only to contracts that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform, which affects certain of the Company’s debt and interest rate swap agreements. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. As of June 30, 2022, the Company has applied the amendments to all of its eligible contract modifications, where applicable, during the reference rate reform period. Additionally, the Company has not elected any optional expedients provided in the standard.