Capital Power Corporation (TSX: CPX) today released financial
results for the quarter ended March 31, 2024.
Financial highlights
- Generated adjusted funds from operations (AFFO) of $142 million
and net cash flows used in operating activities of $334
million
- Generated adjusted EBITDA of $279 million and a net income of
$205 million
Strategic highlights
- Successful commissioning began on Genesee repower unit 1 simple
cycle and retired Genesee 1, a significant milestone towards our
net-zero by 2045 goal. Provided updated cost on Genesee repower
project as completion nears.
- Discontinuing pursuit of $2.4 billion Genesee carbon capture
and storage (CCS) project.
- Completed acquisition of 100% interest in the La Paloma
facility in California and 50% interest in the Harquahala facility
in Arizona for $1.5 billion (US $1.1 billion) in the U.S. Western
Electricity Coordinating Council (WECC) market and enabling further
development opportunities in the region.
- Partnership with Ontario Power Generation (OPG) to advance new
nuclear in Alberta with agreement to assess feasibility of small
modular reactors (SMRs) for Alberta grid.
- Announced large-scale 15-year virtual power purchase agreement
signed with Saputo Inc.
“Capital Power continued to execute on its strategic focus in
the first quarter,” said Avik Dey, President and CEO of Capital
Power. “We delivered affordable and reliable power across our
diverse and strategically positioned fleet of flexible generation
assets. We continued to build decarbonized power through our
Genesee Repowering project where we reached a key milestone with
our startup of simple cycle unit 1 during Q1 2024. Once we startup
simple cycle unit 2, expected in mid-2024, we will be fully off
coal, achieving a significant carbon reduction target. We advanced
our pursuit of low-carbon solutions by partnering with OPG to
evaluate the deployment of small modular reactors in Alberta.
Lastly, we closed the acquisition of the La Paloma and Harquahala
generation assets, demonstrating our balanced approach to growth by
diversifying our footprint into strategic regions where we provide
reliable and affordable power,” stated Mr. Dey.
“During the quarter, strong contributions from our recent
acquisitions of Frederickson 1, Harquahala, and La Paloma partially
offset the impact of lower contributions from our Alberta
commercial portfolio on adjusted EBITDA results, underscoring the
benefits of a diversified fleet,” said Sandra Haskins, SVP Finance
and CFO of Capital Power. “As indicated in our guidance
presentation earlier this year, a decrease in contributions from
the Alberta portfolio was expected throughout 2024 due to the lower
power price environment and forecasted lower generation during the
Genesee Repowering project commissioning process. The table below
shows the incremental impacts in the quarter as prices settled
below expectations, the first fire of simple cycle commissioning
for Unit 1 was delayed, and a number of ill-timed forced outages
were experienced on the existing, aging Genesee units. As we look
out longer term, we are excited by how Capital Power is uniquely
positioned to deliver growth and create shareholder value, driven
by the macro trends that are increasing North American power
demand. We look forward to sharing further insights into our
strategic pathway to net zero at our 2024 Investor Day event on May
7 and 8 in Edmonton," stated Ms. Haskins.
Alberta Commercial Facilities Q1 Impacts
|
($ millions) |
|
|
|
Q1-23 Alberta commercial facilities adjusted
EBITDA |
$ |
235 |
|
|
Q1-24 guidance reduction (volume and price) |
|
(50) |
|
|
Lower captured gross margin (below guidance) |
|
(14) |
|
|
Genesee repowering project - Unit 1 delay |
|
(17) |
|
|
Other outage costs and impacts |
|
(19) |
|
|
Q1-24 Alberta commercial facilities adjusted
EBITDA |
$ |
135 |
|
Operational and Financial
Highlights1
|
(unaudited, millions of dollars except per share and operational
amounts) |
Three months ended March 31 |
|
|
2024 |
|
|
2023 |
|
|
Electricity generation (Gigawatt hours) |
|
8,809 |
|
|
|
7,417 |
|
| Generation facility
availability |
|
94 |
% |
|
|
94 |
% |
| Revenues and other income |
$ |
1,119 |
|
|
$ |
1,267 |
|
| Adjusted EBITDA 2 |
$ |
279 |
|
|
$ |
401 |
|
| Net income 3 |
$ |
205 |
|
|
$ |
285 |
|
| Net income attributable to
shareholders of the Company |
$ |
205 |
|
|
$ |
286 |
|
| Basic earnings per share |
$ |
1.58 |
|
|
$ |
2.39 |
|
| Diluted earnings per
share |
$ |
1.57 |
|
|
$ |
2.38 |
|
| Net cash flows from operating
activities |
$ |
334 |
|
|
$ |
349 |
|
| Adjusted funds from operations
2 |
$ |
142 |
|
|
$ |
210 |
|
| Adjusted funds from operations
per share 2 |
$ |
1.15 |
|
|
$ |
1.80 |
|
| Purchase of property, plant
and equipment and other assets, net |
$ |
218 |
|
|
$ |
86 |
|
|
Dividends per common share, declared |
$ |
0.6150 |
|
|
$ |
0.5800 |
|
- The operational and
financial highlights in this press release should be read in
conjunction with the Management’s Discussion and Analysis and the
audited condensed interim financial statements for the three months
ended March 31, 2024.
- Earnings before net
finance expense, income tax expense, depreciation and amortization,
impairments, foreign exchange gains or losses, finance expense and
depreciation expense from joint venture interests, gains or losses
on disposals and unrealized changes in fair value of commodity
derivatives and emissions credits and other items that are not
reflective of the long-term performance of the Company’s underlying
business (adjusted EBITDA) and adjusted funds from operations
(AFFO) are used as non-GAAP financial measures by the Company. The
Company also uses AFFO per share which is a non-GAAP ratio. These
measures and ratios do not have standardized meanings under GAAP
and are, therefore, unlikely to be comparable to similar measures
used by other enterprises. See Non-GAAP Financial Measures and
Ratios.
- Includes
depreciation and amortization for the three months ended March 31,
2024 and 2023 of $122 million and $141 million, respectively.
Forecasted depreciation and amortization for the remainder of 2024
is $116 million per quarter.
Significant Events
Large-scale virtual power purchase agreement with Saputo
Inc.
On March 27, 2024, the Company announced it had entered into a
15-year virtual power purchase agreement (VPPA) with Saputo Inc.
The agreement pertains to the Company’s Canadian-based wind
facility Halkirk 2 currently under construction. Subject to final
regulatory approvals and once operational, the portion of the wind
facility contracted by Saputo will generate approximately 206,300
MWh of renewable electricity per year.
Acquisition of CXA La Paloma LLC and New Harquahala
Generating Company, LLC
The La Paloma Acquisition and the Harquahala Acquisition closed
on February 9, 2024 and February 16, 2024, respectively.
On November 20, 2023, the Company announced that it had entered
into two separate definitive agreements with CSG Investments, Inc.,
a subsidiary of Beal Financial Corporation, to acquire:
- 100% of the equity interests in CXA
La Paloma, LLC (La Paloma), which owns the 1,062 MW La Paloma
natural gas-fired generation facility in Kern County, California
(the La Paloma Acquisition); and
- under a newly formed 50/50
partnership between Capital Power Investments, LLC and an affiliate
of a fund managed by BlackRock’s Diversified Infrastructure
business (BlackRock), 100% of the equity interests in New
Harquahala Generating Company, LLC (Harquahala), which owns the
1,092 MW Harquahala natural gas-fired generation facility in
Maricopa County, Arizona (the Harquahala Acquisition and together
with the La Paloma Acquisition, the Acquisitions).
Under the newly established 50/50 partnership, Capital Power and
BlackRock are each responsible for funding 50% of the cash
consideration for the Harquahala Acquisition. Capital Power is
responsible for the operations and maintenance and asset management
for which it will receive an annual management fee.
La Paloma and Harquahala are critical infrastructure assets,
which support the reliability of California and Arizona’s
electricity grids and add further growth opportunities in the
attractive WECC market while balancing the Company’s geographical
footprint across North America. La Paloma is contracted under
various resource adequacy contracts through 2029 with multiple
investment grade utilities and load serving entities. Harquahala is
100% contracted under a tolling agreement through 2031 with an
investment grade utility.
The Acquisitions are expected to generate average annual
Adjusted EBITDA of approximately $265 million (US$197 million) for
the 2024-2028 period and are estimated to be, on average, 8%
accretive to AFFO per share over the same period.
The purchase price of the Acquisitions attributable to Capital
Power was $1.5 billion (US$1.1 billion), subject to working capital
and other customary closing adjustments. The Acquisitions were
partially funded by a $400 million subscription receipt offering
and $850 million medium term notes offering.
Updates to Genesee Repowering project
On January 16, 2024, the Company updated our Genesee repowering
timelines. Commissioning of simple cycle Unit 1 occurred in the
first quarter of 2024 and Unit 2 is expected to be completed in
third quarter of 2024. During the commissioning phase, unit
dispatch will be driven by project needs rather than economic
dispatch therefore output during commissioning of simple cycle will
range between 0 and 411 MWs. Combined cycle for Unit 1 and Unit 2
is expected to be completed in Q4 2024 and output will range
between 0 and 466 MWs during commissioning. Both units are expected
to reach 566 MWs in the first half of 2025. Due to incremental
costs related to outages required for tie in and ongoing
productivity challenges, the project is expected to come in at the
updated cost of $1.55 to $1.65 billion.
Partnered with Ontario Power Generation to advance new
nuclear in Alberta
On January 15, 2024, the Company announced that it had entered
into an agreement with OPG to jointly assess the development and
deployment of grid-scale SMRs to provide clean, reliable nuclear
energy for Alberta.
Pursuant to the agreement, the two companies will examine the
feasibility of developing SMRs in Alberta, including possible
ownership and operating structures. SMRs are being pursued by
jurisdictions in Canada and around the world to power the growing
demand for clean electricity and energy security.
Capital Power and OPG will complete the feasibility assessment
within two years, while continuing to work on the next stages of
SMR development.
Subsequent Event
Discontinuation of $2.4 billion Genesee CCS
project
Capital Power is discontinuing pursuit of the Genesee CCS
project. Through our development of the project, we have confirmed
that CCS is a technically viable technology and potential pathway
to decarbonization for thermal generation facilities including
Genesee. However, at this time, the project is not economically
feasible and as a result we will be turning our time, attention,
and resources to other opportunities to serve our customers with
balanced energy solutions. Capital Power looks forward to exploring
CCS at Genesee and certain assets in our North American fleet in
the future as economics improve.
Analyst conference call and
webcast
Capital Power will be hosting a conference call and live webcast
with analysts on May 1, 2024 at 9:00 am (MT) to discuss the first
quarter financial results. The webcast can be accessed at:
https://edge.media-server.com/mmc/p/sdxtbcnm/.
Conference call details will be sent directly to analysts.
An archive of the webcast will be available on the Company’s
website at www.capitalpower.com following the conclusion of the
analyst conference call.
Non-GAAP Financial Measures and
Ratios
Capital Power uses (i) earnings before net finance expense,
income tax expense, depreciation and amortization, impairments,
foreign exchange gains or losses, finance expense and depreciation
expense from our joint venture interests, gains or losses on
disposals and unrealized changes in fair value of commodity
derivatives and emission credits (adjusted EBITDA), and (ii) AFFO
as financial performance measures.
Capital Power also uses AFFO per share as a performance measure.
This measure is a non-GAAP ratio determined by applying AFFO to the
weighted average number of common shares used in the calculation of
basic and diluted earnings per share.
These terms are not defined financial measures according to GAAP
and do not have standardized meanings prescribed by GAAP and,
therefore, are unlikely to be comparable to similar measures used
by other enterprises. These measures should not be considered
alternatives to net income, net income attributable to shareholders
of Capital Power, net cash flows from operating activities or other
measures of financial performance calculated in accordance with
GAAP. Rather, these measures are provided to complement GAAP
measures in the analysis of our results of operations from
management’s perspective.
Adjusted EBITDA
Capital Power uses adjusted EBITDA to measure the operating
performance of facilities and categories of facilities from period
to period. Management believes that a measure of facility operating
performance is more meaningful if results not related to facility
operations are excluded from the adjusted EBITDA measure such as
impairments, foreign exchange gains or losses, gains or losses on
disposals and other transactions, unrealized changes in fair value
of commodity derivatives and emission credits and other items that
are not reflective of the long-term performance of the Company’s
underlying business.
A reconciliation of adjusted EBITDA to net income (loss) is as
follows:
|
($ millions) |
Three months ended |
|
|
Mar 2024 |
Dec 2023 |
Sep 2023 |
Jun 2023 |
Mar 2023 |
Dec 2022 |
Sep 2022 |
Jun 2022 |
|
Revenues and other income |
1,119 |
|
984 |
|
1,150 |
|
881 |
|
1,267 |
|
929 |
|
786 |
|
713 |
|
|
Energy purchases and fuel, other raw materials and operating
charges, staff costs and employee benefits expense, and other
administrative expense |
(677 |
) |
(694 |
) |
(626 |
) |
(614 |
) |
(723 |
) |
(909 |
) |
(543 |
) |
(429 |
) |
|
Remove unrealized changes in fair value of commodity derivatives
and emission credits included within revenues and energy purchases
and fuel |
(200 |
) |
(14 |
) |
(151 |
) |
23 |
|
(179 |
) |
247 |
|
136 |
|
28 |
|
|
Remove other non-recurring items |
- |
|
1 |
|
4 |
|
- |
|
- |
|
- |
|
- |
|
- |
|
|
Adjusted EBITDA from joint ventures 1 |
37 |
|
36 |
|
37 |
|
37 |
|
36 |
|
36 |
|
4 |
|
7 |
|
|
Adjusted EBITDA |
279 |
|
313 |
|
414 |
|
327 |
|
401 |
|
303 |
|
383 |
|
319 |
|
|
Depreciation and amortization |
(122 |
) |
(142 |
) |
(148 |
) |
(143 |
) |
(141 |
) |
(139 |
) |
(133 |
) |
(139 |
) |
|
Unrealized changes in fair value of commodity derivatives and
emission credits |
200 |
|
14 |
|
151 |
|
(23 |
) |
179 |
|
(247 |
) |
(136 |
) |
(28 |
) |
|
Other non-recurring items |
- |
|
(1 |
) |
(4 |
) |
- |
|
- |
|
- |
|
- |
|
- |
|
|
Foreign exchange (losses) gains |
(10 |
) |
(2 |
) |
(9 |
) |
4 |
|
1 |
|
3 |
|
(12 |
) |
(7 |
) |
|
Net finance expense |
(42 |
) |
(49 |
) |
(35 |
) |
(34 |
) |
(48 |
) |
(44 |
) |
(40 |
) |
(35 |
) |
|
Gains (losses) on acquisition and disposal transactions |
2 |
|
(5 |
) |
5 |
|
(3 |
) |
- |
|
(33 |
) |
(3 |
) |
(1 |
) |
|
Other items 1,2 |
(25 |
) |
(22 |
) |
(19 |
) |
(19 |
) |
(21 |
) |
(17 |
) |
(4 |
) |
(1 |
) |
|
Income tax (expense) recovery |
(77 |
) |
(11 |
) |
(83 |
) |
(24 |
) |
(86 |
) |
75 |
|
(24 |
) |
(31 |
) |
|
Net income (loss) |
205 |
|
95 |
|
272 |
|
85 |
|
285 |
|
(99 |
) |
31 |
|
77 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to: |
|
|
|
|
|
|
|
|
|
Non-controlling interests |
- |
|
(2 |
) |
(2 |
) |
(2 |
) |
(1 |
) |
(1 |
) |
(3 |
) |
(3 |
) |
|
Shareholders of the Company |
205 |
|
97 |
|
274 |
|
87 |
|
286 |
|
(98 |
) |
34 |
|
80 |
|
|
Net income (loss) |
205 |
|
95 |
|
272 |
|
85 |
|
285 |
|
(99 |
) |
31 |
|
77 |
|
- Total income from joint ventures as
per our consolidated statements of income (loss).
- Includes finance expense,
depreciation expense and unrealized changes in fair value of
derivative instruments from joint ventures.
Adjusted funds from operations and adjusted
funds from operations per share
AFFO and AFFO per share are measures of the Company’s ability to
generate cash from its operating activities to fund growth capital
expenditures, the repayment of debt and the payment of common share
dividends.
AFFO represents net cash flows from operating activities
adjusted to:
- remove timing impacts of cash
receipts and payments that may impact period-to-period
comparability which include deductions for net finance expense and
current income tax expense, the removal of deductions for interest
paid and income taxes paid and removing changes in operating
working capital,
- include the Company’s share of the
AFFO of its joint venture interests and exclude distributions
received from the Company’s joint venture interests which are
calculated after the effect of non-operating activity joint venture
debt payments,
- include cash from off-coal
compensation that will be received annually,
- remove the tax equity financing
project investors’ shares of AFFO associated with assets under tax
equity financing structures so only the Company’s share is
reflected in the overall metric,
- deduct sustaining capital
expenditures and preferred share dividends,
- exclude the impact of fair value
changes in certain unsettled derivative financial instruments that
are charged or credited to the Company’s bank margin account held
with a specific exchange counterparty, and
- exclude other typically
non-recurring items affecting cash from operations that are not
reflective of the long-term performance of the Company’s underlying
business.
A reconciliation of net cash flows from operating activities to
adjusted funds from operations is as follows:
|
($ millions) |
Three months ended March 31 |
|
|
|
2024 |
|
|
|
2023 |
|
|
Net cash flows from operating activities per condensed
interim consolidated statements of cash flows |
|
334 |
|
|
|
349 |
|
|
Add (deduct) items included in calculation of net cash flows from
operating activities per condensed interim consolidated statements
of cash flows: |
|
|
|
Interest paid |
|
48 |
|
|
|
50 |
|
|
Change in fair value of derivatives reflected as cash
settlement |
|
(12 |
) |
|
|
(111 |
) |
|
Distributions received from joint ventures |
|
(8 |
) |
|
|
(9 |
) |
|
Miscellaneous financing charges paid 1 |
|
(7 |
) |
|
|
2 |
|
|
Income taxes paid |
|
15 |
|
|
|
14 |
|
|
Change in non-cash operating working capital |
|
(162 |
) |
|
|
3 |
|
|
|
|
(126 |
) |
|
|
(51 |
) |
|
Net finance expense 2 |
|
(35 |
) |
|
|
(35 |
) |
|
Current income tax expense |
|
(16 |
) |
|
|
(51 |
) |
|
Sustaining capital expenditures 3 |
|
(25 |
) |
|
|
(15 |
) |
|
Preferred share dividends paid |
|
(9 |
) |
|
|
(7 |
) |
|
Remove tax equity interests’ respective shares of adjusted funds
from operations |
|
(1 |
) |
|
|
(2 |
) |
|
Adjusted funds from operations from joint ventures |
|
21 |
|
|
|
22 |
|
|
Other non-recurring items4 |
|
(1 |
) |
|
|
- |
|
|
Adjusted funds from operations |
|
142 |
|
|
|
210 |
|
|
Weighted average number of common shares outstanding
(millions) |
|
123.7 |
|
|
|
116.9 |
|
|
Adjusted funds from operations per share ($) |
|
1.15 |
|
|
|
1.80 |
|
- Included in other cash items on the
condensed interim consolidated statements of cash flows to
reconcile net income to net cash flows from operating
activities.
- Excludes unrealized changes on
interest rate derivative contracts, amortization, accretion charges
and non-cash implicit interest on tax equity investment
structures.
- Includes sustaining capital
expenditures net of partner contributions of $5 million and $3
million for the three months ended March 31, 2024 and 2023,
respectively.
- Reflects current income tax expenses
of $1 million for the three months ended March 31, 2024 related to
other non-recurring items recognized in prior periods.
Forward-looking Information
Forward-looking information or statements included in this press
release are provided to inform the Company’s shareholders and
potential investors about management’s assessment of Capital
Power’s future plans and operations. This information may not be
appropriate for other purposes. The forward-looking information in
this press release is generally identified by words such as will,
anticipate, believe, plan, intend, target, and expect or similar
words that suggest future outcomes.
Material forward-looking information in this press release
includes disclosures regarding (i) status of the Company’s 2024
AFFO and adjusted EBITDA guidance, (ii) forecasted 2024
depreciation, (iii) the timing of, funding of, generation capacity
of, costs of technologies selected for, environmental benefits or
commercial and partnership arrangements regarding existing, planned
and potential development projects and acquisitions (including the
repowering of Genesee 1 and 2, La Paloma and Harquahala
acquisitions, and Halkirk 2, (iv) the financial impacts of the La
Paloma and Harquahala acquisitions, and (v) the timing of the
nuclear feasibility assessment between Capital Power and Ontario
Power Generation.
These statements are based on certain assumptions and analyses
made by the Company considering its experience and perception of
historical trends, current conditions, expected future developments
and other factors it believes are appropriate including its review
of purchased businesses and assets. The material factors and
assumptions used to develop these forward-looking statements relate
to: (i) electricity, other energy and carbon prices, (ii)
performance, (iii) business prospects (including potential
re-contracting of facilities) and opportunities including expected
growth and capital projects, (iv) status of and impact of policy,
legislation and regulations and (v) effective tax rates.
Whether actual results, performance or achievements will conform
to the Company’s expectations and predictions is subject to a
number of known and unknown risks and uncertainties which could
cause actual results and experience to differ materially from the
Company’s expectations. Such material risks and uncertainties are:
(i) changes in electricity, natural gas and carbon prices in
markets in which the Company operates and the use of derivatives,
(ii) regulatory and political environments including changes to
environmental, climate, financial reporting, market structure and
tax legislation, (iii) disruptions, or price volatility within our
supply chains, (iv) generation facility availability, wind capacity
factor and performance including maintenance expenditures, (v)
ability to fund current and future capital and working capital
needs, (vi) acquisitions and developments including timing and
costs of regulatory approvals and construction, (vii) changes in
the availability of fuel, (viii) ability to realize the anticipated
benefits of acquisitions, (ix) limitations inherent in the
Company’s review of acquired assets, (x) changes in general
economic and competitive conditions and (xi) changes in the
performance and cost of technologies and the development of new
technologies, new energy efficient products, services and programs.
See Risks and Risk Management in the Company’s Integrated Annual
Report for the year ended December 31, 2023, prepared as of
February 27, 2024, for further discussion of these and other
risks.
Readers are cautioned not to place undue reliance on any such
forward-looking statements, which speak only as of the specified
approval date. The Company does not undertake or accept any
obligation or undertaking to release publicly any updates or
revisions to any forward-looking statements to reflect any change
in the Company’s expectations or any change in events, conditions
or circumstances on which any such statement is based, except as
required by law.
Territorial Acknowledgement
In the spirit of reconciliation, Capital Power respectfully
acknowledges that we operate within the ancestral homelands,
traditional and treaty territories of the Indigenous Peoples of
Turtle Island, or North America. Capital Power’s head office is
located within the traditional and contemporary home of many
Indigenous Peoples of the Treaty 6 region and Métis Nation of
Alberta Region 4. We acknowledge the diverse Indigenous communities
that are located in these areas and whose presence continues to
enrich the community.
About Capital Power
Capital Power is a growth-oriented power producer committed to
net zero by 2045, with approximately 9,300 MW of power generation
at 32 facilities across North America.
We prioritize delivering reliable, affordable and decarbonized
power that communities can depend on, building decarbonized power
systems needed for tomorrow, and creating real net zero solutions
for customers. We are powering change by changing power.
For more information, please
contact:
|
Media Relations:Katherine Perron(780)
392-5335kperron@capitalpower.com |
Investor Relations:Roy Arthur(403)
736-3315investor@capitalpower.com |
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