Ladies and gentlemen, thank you for standing by and welcome to the Clearway Energy, Inc. Q2 2022 Earnings Call. [Operator Instructions] I would now like to turn the call over to your host, Chris Sotos, President and CEO, you may begin.

Good morning. First, thank you for taking the time to join today's call. Joining me this morning is Akil Marsh, Director of Investor Relations; and Craig Cornelius, President and CEO of Clearway Energy Group. The group will be available for the Q&A portion of our presentation. Before we begin, I'd like to quickly note that today's discussions contain forward-looking statements which are based on assumptions we believe to be visible 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 will refer to both GAAP and non- financial measures. For information regarding our non-GAAP financial measures and reconciliations to the most solely directly comparable GAAP measures, please refer to today's presentation. I would be remiss in not recognizing this is the first call where our CFO, Chad Plotkin is not participating. I want to thank Chad for all his contributions over the quarters and for ensuring an orderly transition of the responsibilities prior to his departure. We recently launched a search for his replacement and will take a deliberate and careful approach to ensure our executive leadership team has appropriate skills and experience to continue to lead Clearway forward. Turning to Page 3. The first half of 2022 perform sensitivity ranges with Clearway diversified portfolio, producing $176 million CAFD in the second quarter of 2022 to $174 million in the first half, where we increase its dividend by 2%, $2.3604 cents per share, or $1.442 cents on annual basis. Keeping us on target to achieve the upper range of our dividend growth objectives for the year. Clearway continues to solidify its pro forma CAFD outlook by a strong execution. We have now contracted the remaining 20% of capacity at the…

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith with Bank of America.

This is Anya stepping in for Julien today. So actually, the first question, I was just kind of curious, how are you thinking of strategic options for the California natural gas portfolio in light of just the changes made recently, for instance, the GIP Total agreement and just the potential strategic optionality there? I guess how are you thinking about them long-term and outlet valuation, would you consider potentially selling those assets, monetizing them?

Sure. A couple of different questions, Anya. Hopefully, I unpack it. So I think the one question really, Total's involvement doesn't change our view of the underlying value of the assets, our desire to hold them and the like [indiscernible] that we view the diversification that we have on those assets is valuable. And I think as we've talked over the past several years, the value of those assets is tending to increase versus decrease overall. In terms of valuation and where we'd want to sell those, I wouldn't give out exact valuation numbers but in terms of where if somebody wanted to buy any or all of those assets, we're open to that just as we are with any asset of Clearway Energy. But if we think we can sell it for a value above where we hold, we'd be interested in monetizing but it doesn't really go really beyond that.

And then curious to just on the IRA, if I could ask a question on that. How are you guys thinking of your strategy if that does pass? And then what are your thoughts on expanding further into storage versus your overall portfolio? Where are you seeing opportunities today? And I guess where are returns today as well?

Sure. I think I'll answer the answer the first part and then hand over to Craig for the second part. But in terms of strategy, I think as we kind of talked a little bit in my prepared remarks, obviously, the devils are in the details of exactly how it unfolds. I think long-term, obviously, it's a pretty big positive for Renewables. And for our perspective, it allows us some more flexibility in our approach looking at PTCs and different applications around tax. But Craig, I don't know if you want to answer the other two parts of the question.

Yes, sure. Well, for the energy system and the customers that depend on it here, we really just couldn't be more pleased to see the form of the legislation that Senators mention and Summer have ultimately crafted. It's a truly elegant piece of legislation that both should enable transition in terms of carbon reduction but also enhancement of our systems reliability and resiliency. So, we really could not be more pleased by the final form of it. As far as Clearway specifically goes, there's a number of provisions we're excited to put to work in our context. Extension of the wind PTC is going to enable a better value proposition for our customers and should enable a greater velocity of our build program as we look into the mid-decade. That will be true across a significant portion of our country but we're particularly happy about what it will mean for the development program we've had underway in PJM and West Virginia, in particular, where wind resources are in especially high demand but really all over the country. The qualification of solar projects for the PTC is going to enable us to evolve the capital structure we use for those projects and will mean that a greater fraction of the permanent capitalization of those projects can come from the project sponsor which both makes for a better model for long-term management for all of the project stakeholders. And also in the context of CWEN, it's is going to mean that the quantity of capital deployed for any given project can be meaningfully higher than it would be for a project electing the ITC as a tax credit. The stand-alone storage ITC is going to be transformative for the way we can make clean renewable assets dispatchable generally and enhanced reliability in…

Our next question comes from Keith Stanley with Wolfe Research.

First, a bit of a follow-up to the last one. But I think you mentioned the drop-downs from CEG could be more than that planned $300 million now for that bucket of assets you show on the slide. Could it be, I guess, due to the bill, could it be materially more than $300 million because of the solar PTC and other dynamics? And then relatedly, just Chris, any comments on overall level of visibility and confidence on fully redeploying the Thermal cash over the next 6 to 12 months or so?

Sure. I think not to minimize the question. The answer to the first question is, yes, I think obviously, as we talked about in the prepared remarks, we want to see exactly how this all comes to pass. I want to make sure everything is tied out before kind of talking about exactly what the number might be but does it potentially be materially different? Yes. To your second question around confidence, I think, again, we're being disciplined. I think, obviously, some of that cash would be used depending on exactly the final determination of how much the $300 million moves. But yes, we are working hard to make sure we deploy it appropriately. So I think our ability to play is pretty high but you'll know when we're done.

And then just in Texas, any comments you can give on how the assets performed with the heat wave last month and some of the power price spikes?

Sure. In July, once again, books are not closed. So this is kind of an indicative. The portfolio seems to have held up well. So we saw some price spikes. But in general, the portfolio performed well from [indiscernible].

Our next question comes from Colton Bean with TPH.

On the conventional portfolio. You now have two of the three natural gas facilities recontracted. Any updates as to how you’re approaching dispatch on the new RA agreements? Would that still be at the counterparty’s discretion? Or, do you all have interest in maintaining flexibility there to potentially capitalize around market volatility?

Sure. We sold the capacity portion forward at the energy margin. So to your question, that would kind of be for our book currently on an open basis. However, if a counterparty we're interested in buying the energy piece, we'd be open to that as well. But to your question, currently, the energy margin is open on those assets.

And then just on El Segundo, I know more fulsome update likely still to come. But with that being a CCGT and I don’t think it was too many years ago that it was running at something close to base load, any differences in how you’re approaching recontracting there?

Not really. I think for ourselves, obviously, the energy margin should be higher on CCGT than on a Pico. But for us, really not a difference in terms of how we view it. We think it's well positioned within the market.

Our next question comes from Michael Lapides with Goldman Sachs.

Will kind of high level one here. Can you talk about with more large-cap utility holding companies, more international players, more infrastructure funds, developing utility-scale wind and solar. Can you just talk about the landscape? And I don’t know whether this is the Steve or Chris question but what’s it doing on returns? Is it doing a project centers, meaning the length of contracts, what it’s doing in the overall dynamic, given there’s just a lot more capital flowing into the space right now?

Thanks, Michael. I'll kind of answer half of it and then pass over to Craig for his view but I think for -- we're not seeing a dramatic difference than, frankly, what we saw last year, Michael, as you're well familiar, a lot of capital has moved into this industry over in the past several years. And so for us, I think what we're seeing in terms of returns and what's available out there, it's a pretty rich M&A market. I think that's why you continually heard me emphasize we're going to be disciplined in how we allocate the capital. So that's what we intend to do. But I think in terms of market opportunities, there's quite a few out there in attractive assets. We'll see how those end up. But I think that also with the increase in the treasuries, treasuries obviously come back a little bit to about 2.6, depending on where it is this morning, on the 10 year. So some of that has yet to pass through. But I think overall, IRRs and there are no real different in terms of downward pressure this year versus last, given that inflow because I think that inflow has been happening for quite a while. But Craig, from your view, any difference?

Yes, sure. I'll go quick, Chris. Yes, in terms of new asset creation and development, honestly, the period of the last 12 months, I think, has been an important and useful one in allowing both suppliers of energy providers of components and customers for energy all to get grounded around the importance of project viability and sponsor strength. And as we're engaging with customers today, what we're seeing is that those customers value in, I think, very important ways and more than they might have, say, two years past. The locational viability of individual projects based on where they're located in the transmission system, the time line that those transmission interconnections will allow resources to come online, the quality of the siting of the project in terms of the effective load-carrying capacity that it can support or congestion risk that it might face. The quality of the project sponsor itself in both its financial resources and its operational acumen in terms of the ability to get a project built and brought online and to navigate the supply chain challenges that exist and will persist for some time. And we find that all those things actually play to strength that companies like ourselves have. So, I'm actually quite optimistic about what the next years are going to have in store for businesses like ours because the demand from end-use customers that want a deflationary lower-cost resource that's renewable or storage back is extraordinarily high. And there's still a scarcity of projects and sponsors that can credibly deliver the value proposition and the time frame that customers want and then also have a proven ability to navigate the types of disruptions that we've had and that I think, we would expect to need to continue to navigate. So I'm quite optimistic that we're going to be able to continue to create projects that exhibit in Total, a good contracting and revenue portfolio for CWEN and that that are going to produce adequate returns both for the investments that CWEN makes and for what we do in the creation of the projects. And I think that will really persist into the mid-decade even with the availabilities of these incentives and all the capital flowing into the space.

And just real quick on contract centers, are you seeing customers mean buyers seek shorter-term deals than what you saw maybe two, three, four years, I guess?

It's interesting is actually the trend of late has almost shifted in the opposite direction. The inflationary trends that have been observed over the course of the last six months in particular, I think, have shifted the calculus for a lot of buyers that locking in a resource that has a predictable cost to it. It's actually a useful part of procurement for an overall energy mix. So that's the first thing that I'd say. When we look at the models that work for us, you probably noticed that there’s a substantial expansion we’ve undertaken in development of resources out in the WECC. And a lot of the natural buyers for those resources are load-serving entities, who like 20, 25 year contracts as they plan their system for the long run. And we’ve done that with intention because of the way we think those could fit in the CWEN portfolio. And then we’re also matching those with some commercial contracting designs that put a floor around price but will allow us to participate in upside when price volatility exists. So we’re trying to construct an overall portfolio that may involve both very long tenors and open positions with downside revenue protection. That in total will be a nice complementary match to the existing portfolio that we have within CWEN. And to your first question, I think many customers see these resources as an attractive thing to walk in and tenders have not been walking in further. In fact, in many cases, customers have been looking to contract them for longer links.

Our next question comes from Mark Jarvi with CIBC.

I wanted to come back to the IRA and talk about the impact on existing assets, particularly the wind. Can you comment whether – like maybe just looking at the legislation put now impact around how you store those sites and repowering, if you’ve got a feel for storage to be more impactful versus repowering? And how many of the sites maybe can even do both in the current portfolio?

No problem, though. I'll hand over you to the back half as usual. I think from our view, it's important to keep in mind that a lot of our assets have the benefit of being relatively new. So as I talked about on other calls, our repowering opportunity, it's not as though we've got a gigawatt of repowering that can happen. A lot of it kind of happens over time as you move through it because a lot of our assets are relatively new with longer tenured contracts that would need to be renegotiated. So I think overall, the opportunity from a site perspective is impactful in terms of the different rules around PTC and tax treatment. However, I wouldn’t want you to read too much into that, given, I guess, the age of our fleet is relatively young and as the PPA tenor is relatively long. So it’s not as though there’s a big opportunity in the next 24 months to do a gigawatt of repowering or something like that. But Craig, what’s your view?

Yes. Chris makes a very important point which is that with the long runway that the legislation creates, we can really pick the optimal point in time to repower our existing wind projects which in a lot of cases, will be as those PPAs from the original construction of the projects expire. And the way that we've advanced our repowering development program has anticipated the succession of those PPA milestones has taken into account the status of the equipment at those sites. And it's a systematic program with the benefit of this legislation which will be staged out over time, so that when we replace the equipment at the projects and benefit from the new tax incentives, the new revenue contract that's put in place is something that fairly values the asset which the shorter time frames we had to repower projects didn't really allow for in the past all the time. In terms of storage pairing, that's a pretty meaningful opportunity both in terms of wind and solar assets. We've got thousands of megawatt hours’ worth of paired storage or retrofit programs underway for development across both wind and solar resources in the West and the Midwest corridor of the country. And we expect that especially with the way the transmission system is evolving, that a number of the load-serving entities that we support through those existing plants, we'll find it useful to evaluate commercial solutions with us that would allow us to deploy that storage hybridization even while the existing contracts are in place. So, I think more -- as Chris says, this will take some time for us to figure out what's really optimal keeping in mind what the current commercial picture is for those projects. But there's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade. There's good reason to expect that there would be a substantial enhancement to value in the portfolio as we move through the decade.

And then just on the storage, would you need to be 100% contracted just as you start to understand that market better and see asset performance is just your comfort level on gigabit open level and being a bit open on the storage side?

Yes. I think it's a more complex answer, especially depending on what assets it's paired with. Don't get it wrong. I think our preference would be in general to have it 100% contracted. But I think it's important to say where the storage is, what type of assets paired with, how it works within the overall portfolio which may lead to different answers than 100%. So that's to treat your question, it's a little bit really how the storage is used. If it's a one-off, you want much higher level of contracted nature as is part of the overall portfolio, lower levels of contract could make sense given how it interfaces with the other assets.

And Chris, a question for you. When you look at the pipeline, Clearway Energy Group keeps expanding, lots of opportunities. So it’s not a lack of assets that will constrain our growth. So as you think about that now, what else comes in the picture when you’re thinking about which assets you want to negotiate? Is there anything on the diversification asset mix that is changing just giving you sort of abundance of assets to look at? What else is going into the decision-making in terms of when you sit down to discuss, what specific assets?

Yes, from our view, we've never really had precise diversification goals of we want to be 60-40 or 50-50, let's say, on the Renewables side. So for us, it's more about making sure that we have the right asset in the right place at the right value. So don't get wrong, as you can see with some of our acquisitions over the past two years, we've tended to diversify outside of California. So on the margin, if there's a $1, we probably are a little bit more outside of California than within and that's where you've seen a lot of our third-party M&A take place. So in general, that's kind of how we look to diversify but it's not as though that we look to say we want to be X or Y in terms of percentages from that perspective. It really is about kind of good assets at good value in the right place.

And in terms of the geographic diversification, like are you taking specific views on certain power markets also as well in terms of where you think the [indiscernible] either underappreciated or maybe people are too bullish on it but did that come in the decision making as well in terms of you think of sort of longer-term tail value?

For the longer-term tail value, as you're all familiar, most of the initial tenders are very predominantly contracted. So it really helps inform maybe a little bit our tail view of, okay, where do we want to be after the contract on lines and what markets still be a little bit more interested in but it really doesn't affect a lot of our decision making over the contract period, obviously.

Our next question comes from Justin Clare with ROTH.

So I guess first up here, I just wanted to follow-up on the Inflation Reduction Act. It seems like project economics could meaningfully improve here and you could also see more opportunities with growth in the market. But I just wanted to see how you're thinking about the potential economics of drop-downs. I know this will be market dependent but do you see potential opportunity for higher CAFD yields here? And then I know you touched on this a little already but could you give us a sense for how the change in the tax equity treatment here could also change your economics?

Sure. I think a couple of different pieces there. In terms of actually changing cap deals and the like, I think that's much more dependent on the macroeconomic environment, where our stock trades, where treasuries are kind of weighted on a cost of capital perspective than necessarily what the IRA produces. I think that very much more affects the actual project than necessarily a direct buy into how it will affect returns. To your second question, in terms of tax equity, especially around the solar PTC, it allows to, I think, the point Craig made earlier in the discussion that you can kind of get a lot more cash and CAFD out of that versus having an ITC profile where we obviously aren't a current taxpayer. Some of those benefits aren't as helpful for us. So for us, I think it changes some of the demographics of returns that we're able to achieve. I think we have to see what it all works out to say if it actually changes CAFD yields or IRRs and the like.

And then just on the supply chain here, I was wondering if you could just give us a sense for how disruptive the UFLPA enforcement might be to the solar module availability. I think you have modules for the Hawaiian projects but could you give us the status for maybe Daggett Solar? And then for the commitments that you might be making here in the near-term, are you considering whether projects have panels available? Is that factoring into your decision-making here?

Sure. I'll answer first and then hand over to Craig. It's more to your last question. For us, we tend to take over projects at commercial operation date. So it's not as though that we're really taking a lot of construction risk in terms of panels arriving. So just for what it's worth, when we kind of commit, we're really usually funding at or near COD depending on tax rules. So just in terms of contact. But Craig, for the other part of the question?

Yes, sure. I'm very proud of the work that our team does in general, when it comes to technology forecasting and procurement and especially in the solar domain. I think we've generally been a few steps ahead of everybody else in thinking about what our supply chain needs to look like as an early adopter of bifacial as a major driver of procurement of panels that make use of U.S.-made polysilicon in establishment of Xinjiang free provisions in our procurement. And I think that Foresight is really serving us well today as an enterprise. So through the application of that kind of Foresight and the responsibility we put to work, we are optimistic that in the same way that we were resilient around the Hoshine withhold release order by virtue of the supply chain configuration for the panel supplies that we have employed for Hawaii. Our current expectation is that the vendors that we're working with will be able to import all the modules for our near-term pipeline in compliance with the UFLPA. So that compliance expectation around UFLPA is something that's been incorporated into the estimated CODs presented in today's earnings material for future near-term drop-down opportunities. And while it's conceivable, the temporary confirmatory holds at the border are possible for industry participants generally SCBP establishes its enforcement program. We think it's going to be a manageable risk for our enterprise without materially delaying any of our projects estimated CODs because of the supply chain configuration that we've procured really for all the projects, Daggett which makes use of the same supply chain that supported Hawaii, the Victory Pass in Arica project, the Texas Solar Nova projects and then Successor Solar and Storage projects that make use of similar supply arrangements. So in the short run, we think we have established a procurement program that anticipated U.S. policy objectives and therefore, should prove resilient. And then as we look into the future, I think, again, we’re trying to sort of spearhead the way of planning for an increasingly localized supply chain for solar modules or a supply chain that makes use of manufacturing locations consistent with U.S. policy objectives. And certainly, the incentives and the legislation that passed are going to make that an even more feasible goal for us as we go into the mid-decade. So I think in total, we’ve been thoughtful and we should be all right because of where we’re procuring these panels from. And while it’s possible that we may see disruptions just because ports are complicated entities and the way that the whole of the CBP implementation regime will function, is certainly something that will involve disruptions. But in the long run, we think we should be okay based on what we bought and who we bought it from.

Our next question comes from Noah Kaye with Oppenheimer.

Maybe to start with one back up and ask a high-level one around the Total cooperation here. I know you’re obviously in the planning stage, since it hasn’t closed yet but based off of those discussions, just can you sketch out some of the areas where you see the opportunities for collaboration? And maybe we can walk through the development side, the recontracting side and then even potentially the financing and M&A side?

I'll kind of walk through some of the parts and then I'll have Craig on the development side. So I think financing and M&A, it's not as though we obviously currently need and we have a pretty strong capital market presence going forward [indiscernible]

As I think your question suggests, we're in the early stages of discussions with Total around collaboration. And of course, there's -- during the time period between signing and closing certain regulatory constraints that we need to be respectful of during that time period. But we see, in particular, a potential for unlocking new capabilities or opportunities in the ability to collaborate around energy management and the interface with power markets, where as Total grows its U.S. presence in electric power markets, its ability to act as a trading counterparty to help us establish revenue contract positions for projects that are consistent with the yieldco or manage around those positions for value and risk reduction could be a really important tool for us to have in the toolbox in some power markets. So that's one area we look forward to collaborating with them on. In terms of development activities, we'll certainly look to collaborate with them as we do with GIP on global procurement strategies, that help us drive value both for our projects and for the work that they do in the U.S. and elsewhere. So there's opportunity for us to collaborate around procurement and cost and long-run service in that regard. In some of the newer asset class categories that we touched on before, I think there's especially some interesting opportunity for collaboration. When we think about the capabilities that a company like Total brings to bear in the green hydrogen market globally, they are truly complementary to what we know how to do. We're -- I think one of the leading enterprises when it comes to citing renewable assets and building them and operating them and we've started to do the work of thinking about where they could be built for purposes of green hydrogen production. But moving molecules and marketing them in a value-added way is something that Total is a world-class leader in and we look forward to collaborating with them in terms of matching those capabilities up with our own. And then certainly, as you look across the offshore wind, there's -- Total is an emerging global leader in that asset class. And as we've thought about what's possible in the context of the Western U.S. where we're a leader, certainly, Clearway has been advancing a vision for what we could do in that asset class. And I think together with Total, we would be a formidable force as you look out in the longer run to the Western U.S. and what it can do in offshore wind. So these are early days and we have to be respectful of regulatory constraints that exist right now. But I could not be more optimistic about what we can do together as we look out into the future.

I guess, maybe this is more for you, Craig but as a follow-up, just talk a little bit about the process you went through over the last, call it, quarter of having to kind of go off and then on again, anywhere in the portfolio in terms of uncertainty around the tariff and then getting the clarification. Obviously, you had to remobilize crews. Some of the peers have pointed to specific kind of time delay period. So curious to know what you experienced and to what extent or any time frame you can put around any pushouts in CODs?

The COD forecast that are contained in the earnings materials reflect our current outlook for completion of projects. And what you'd observe is, in general, they have not moved that much from what you would have seen, say, six months ago. And part of that reflects the supply chain that we were employing on projects like Hawaiian Daggett which exhibited different facts than those that were a particular focus of the AD/CVD investigation. Some of that also reflects the work that we've done with our panel suppliers to assure that they are allocating the capacity that they have that were at the top of their priority list. And in candor, some of it reflects actions that we took at the sponsor company incurring material incremental costs in order to perfect that supply chain position so that projects would stay on track. And so I think our goal has been to advance those projects so that our customers can get the resources that they planned on as close as possible to the time frames they originally envisioned before some of either the supply chain disruptions or these trade policy-driven disruptions and to also get these projects online for CWEN to be able to deploy its capital into them. And that has not been a costless proposition for the parent entity but we take those objectives seriously. And so, we've incurred those costs to keep these projects moving forward and have been glad to be working with our customers who have worked out with us and are working with us to make the accommodations that those project circumstances require. So it's not been without impacts in terms of our cost or modest impact on schedule. But I think overall, our program has been less disrupted than others because of our readiness to incur those costs and also what we were planning on in terms of the supply chain in the first place.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Chris for any closing remarks.

I just want to say thank you for everyone for attending and I look forward to talking to you all in November. Take care.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.