EDMONTON, Alberta, Feb. 28, 2024 (GLOBE NEWSWIRE) — Capital Power Corporation (TSX:CPX) today released financial results for the quarter and year ended December 31, 2023.
Financial highlights
In the fourth quarter of 2023, generated:
adjusted funds from operations (AFFO) of $162 million and net cash flows used in operating activities of $18 million
adjusted EBITDA of $313 million and a net income of $95 million
For 2023, generated:
AFFO of $819 million and net cash flows from operating activities of $822 million
adjusted EBITDA of $1,455 million and a net income of $737 million
Strategic highlights
Delivered on our grid-critical natural gas strategy through the acquisition of three contracted, natural gas facilities that are well-positioned in high demand areas of the U.S. Western Electricity Coordinating Council (WECC) market and support further development opportunities in the region.
$1.5 billion (US $1.1 billion) acquisition of 100% interest in the La Paloma facility in California and 50% interest in the Harquahala facility in Arizona, which received strong institutional support.
$129 million (US$97.5 million) acquisition of 50.15% interest in the Frederickson 1 Generating Station in Washington.
Achieved strong financing results to fund strategic growth and fleetwide optimization and maintenance activities, in support of delivering reliable, affordable and decarbonized power for our customers.
Completed a $850 million medium term note (MTN) offering.
Completed a $400 million subscription receipts offering.
“Over the past year, Capital Power has delivered on our strategy with momentum as we advance a net zero energy future,” said Avik Dey, President and CEO of Capital Power. “We continued to transform our Genesee Generating Station to move off coal by completing the work needed for Unit 3 to be 100% natural gas-fuelled and progressed the repowering of Units 1 and 2, with completion expected in 2024. Additionally, the Company marked a milestone in our growth in the U.S. WECC region with our largest transaction in our corporate history through the acquisition of the La Paloma and Harquahala natural gas facilities, as well as the addition of the Frederickson 1 facility. We are proud to now be the fifth largest natural gas IPP in North America.”
“Dispatchable natural gas plays a vital role in our strategy to provide stable energy supply as we build out renewables and advance transformative net zero solutions. We are dedicated to leading a balanced approach to the energy transition with a steadfast focus on delivering reliable, affordable and decarbonized power for our customers,” stated Mr. Dey.
“In 2023, we achieved record annual adjusted EBITDA of $1,455 million – representing a 7.5% increase year over year. Our team of experts and innovators delivered strong fleetwide performance throughout the year – driven in particular by a full year of contributions from Midland Cogeneration Venture. Additionally, the financing of our recent U.S. facility acquisitions represents the largest capital markets transaction in the Company’s history through a $400 million subscription receipts offering, and the completion of a $850 million medium term note offering,” said Sandra Haskins, SVP, Finance and CFO of Capital Power.
Operational and Financial Highlights1
(unaudited, $ millions, except per share amounts)
Three months ended
December 31
Year ended
December 31
2023
2022
2023
2022
Electricity generation (Gigawatt hours)
8,692
8,049
32,487
28,573
Generation facility availability
93%
90%
95%
93%
Revenues and other income
984
929
4,282
2,929
Adjusted EBITDA 2
313
303
1,455
1,353
Net income (loss) 3
95
(99
)
737
128
Net income (loss) attributable to shareholders of the Company
97
(98
)
744
138
Basic earnings (loss) per share ($)
0.74
(0.91
)
6.07
0.85
Diluted earnings (loss) per share ($)
0.74
(0.91
)
6.04
0.84
Net cash flows (used in) from operating activities
(18
)
42
822
935
Adjusted funds from operations 2
162
140
819
848
Adjusted funds from operations per share ($) 2
1.38
1.20
6.99
7.28
Purchase of property, plant and equipment and other assets, net
244
179
723
682
Dividends per common share, declared ($)
0.6150
0.5800
2.3900
2.2550
The operational and financial highlights in this press release should be read in conjunction with the Management’s Discussion and Analysis and the audited consolidated financial statements for the year ended December 31, 2023.
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 (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 December 31, 2023 and 2022 of $142 million and $139 million, respectively, and for the year ended December 31, 2023 and 2022 of $574 million and $553 million, respectively. Budgeted depreciation and amortization for 2024 is $121 million per quarter.
Factors impacting results for the fourth quarter of 2023 – For the quarter ended December 31, 2023, Capital Power recorded AFFO of $162 million compared to $140 million for the quarter ended December 31, 2022. AFFO was higher than the corresponding period primarily due to lower overall sustaining capital expenditures resulting from less outage activities, and higher adjusted EBITDA. This was partially offset by higher current income tax due to higher overall consolidated net income before tax. Adjusted EBITDA of $313 million for the quarter ended December 31, 2023, was moderately higher than the corresponding period in 2022 of $303 million. The was mainly a result of realized gains on the Company’s Alberta commercial portfolio optimization activities combined with lower emission compliance expenses driven by use of offsets inventory and the conversion of G3 from coal to natural gas, and lower transmission costs at the Alberta Commercial facilities more than offset the lower power prices realized during the quarter compared to the prior period.
Significant Events
Acquisition of Frederickson 1 Generating Station
On December 28, 2023, the Company completed its acquisition of a 50.15% ownership interest in the Frederickson 1 Generating Station (Frederickson 1) from Atlantic Power & Utilities for $129 million (US$97.5 million), subject to working capital and other closing adjustments. The other 49.85% is owned by Puget Sound Energy (PSE). Capital Power financed the transaction using cash on hand and its credit facilities.
Frederickson 1 is a 265 MW natural gas-fired combined-cycle generating facility located in Pierce County, Washington. It has tolling agreements for 100% of its capacity out to October 2030 with credit-worthy counterparties. Frederickson 1 is expected to generate average contracted adjusted EBITDA of $21 million (US$15 million) per year during the 5-year period of 2024-2029.
Frederickson 1 is well-positioned as a flexible and dispatchable resource that provides reliable power in support of the continuing energy transition to renewables in the region. Capital Power will operate and maintain the facility with its knowledge and experience in plant operations and optimization and will receive an annual management fee under the operating arrangement with PSE. Located southeast of Tacoma in the Puget Sound Region load centre, Frederickson sits on approximately 7 acres of land that is adjacent to additional lands owned by Capital Power. Current layout and additional space allow for future development such as battery installation or a hybrid opportunity.
$850 million medium term notes offering
On December 15, 2023, the Company closed a public offering of unsecured medium-term notes in the aggregate principal amount of $850 million (the Offering). The Offering consists of $400 million medium-term notes with a coupon rate of 5.378% and $450 million of medium-term notes with a coupon rate of 5.973% and mature on January 25, 2027 and January 25, 2034, respectively.
The net proceeds from the Offering were used to partially finance Capital Power’s acquisitions of (i) a 50% interest in New Harquahala Generating Company, LLC (the Harquahala Acquisition), and (ii) a 100% interest in CXA La Paloma, LLC (the La Paloma Acquisition), and related expenses, or for general corporate purposes (see Subsequent events).
$400 million subscription receipt offering
On November 28, 2023, the Company announced that it has completed a public and private placement offerings of subscription receipts (collectively the Offerings). The public offering consisted of the issuance of 8,231,000 subscription receipts (the Public Subscription Receipts), on a bought deal basis, at an issue price of $36.45 per Public Subscription Receipt (the Offering Price), for total gross proceeds of approximately $300 million (the Public Offering) pursuant to an underwriting agreement with a syndicate of underwriters (the Underwriters) led by TD Securities Inc. and National Bank Financial Inc.
Concurrently, the Company issued 2,745,000 subscription receipts (together with the Public Subscription Receipts, the Subscription Receipts) at the Offering Price to Alberta Investment Management Corporation (AIMCo) on a private placement basis for gross proceeds of approximately $100 million (the Private Placement). TD Securities Inc. acted as the sole agent and bookrunner for the Private Placement.
Each Subscription Receipt entitles the holder thereof to receive, without payment of additional consideration or further action, upon the first to close of the acquisitions of La Paloma and Harquahala , one common share of Capital Power. In addition, while the Subscription Receipts remain outstanding, holders were entitled to receive cash payments (Dividend Equivalent Payments) per Subscription Receipt equal to dividends declared by Capital Power on each Common Share. The La Paloma Acquisition closed on February 9, 2024 (see Subsequent events) and each Subscription Receipt have been automatically exchanged in accordance with their terms for one common share of Capital Power. The net proceeds from the Offerings will be used to partially finance the acquisitions of (i) 100% of the equity interests in CXA La Paloma, LLC, and (ii) 50% of the equity interests in New Harquahala Generating Company, LLC, from CSG Investments, Inc., a subsidiary of Beal Financial Corporation (see Subsequent events).
SUBSEQUENT EVENTS
Acquisition of CXA La Paloma LLC and New Harquahala Generating Company, LLC
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 will each be responsible for funding 50% of the cash consideration for the Harquahala Acquisition. Capital Power will be 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 Western Electricity Coordinating Council (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, based on expected permanent financing.
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 (see Significant events).
The La Paloma Acquisition and the Harquahala Acquisition closed on February 9, 2024 and February 16, 2024, respectively.
Updates to Genesee Repowering project schedule
On January 16, 2024, the Company updated our Genesee repowering timelines. Simple cycle commissioning for Unit 1 and Unit 2 is now expected to be completed in Q2 2024 and Q3 2024, respectively. 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 now 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.
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 Ontario Power Generation (OPG) to jointly assess the development and deployment of grid-scale small modular reactors (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.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on February 28, 2024 at 9:00 am (MT) to discuss the financial results for the quarter and year ended December 31, 2023. The webcast can be accessed at: https://edge.media-server.com/mmc/p/qb9dz78h/.
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.
Commencing with the Company’s December 31, 2023 quarter-end, the Company refined its adjusted EBITDA measure to better reflect the purpose of the measure to exclude other items affecting facility operations that are not reflective of the long-term performance of the Company’s underlying business. The quarter ended September 2023 comparative adjusted EBITDA figure has been restated for this change to adjust $4 million in other non-recurring items.
A reconciliation of adjusted EBITDA to net income (loss) is as follows:
(unaudited, $ millions)
Year ended
December 31
Three months ended
2023
2022
Dec 2023
Sep 2023
Jun 2023
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