Capital Power reports strong first quarter results and expects 2021 results to exceed annual financial guidance

EDMONTON, Alberta, April 30, 2021 (GLOBE NEWSWIRE) — Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended March 31, 2021.

Highlights

  • Generated net cash flows from operating activities of $206 million and adjusted funds from operations (AFFO) of $159 million in the first quarter of 2021
  • Generated net income of $101 million and adjusted EBITDA of $303 million in the first quarter of 2021
  • Forecast is on track to generate AFFO and adjusted EBITDA that is modestly above the top end of the annual guidance ranges for 2021
  • Executed a 15-year renewable energy agreement with Labatt Brewing Company Ltd. of Canada (Labatt) for the 75 megawatt Enchant Solar project in Alberta
  • Ceased operations of the Southport and Roxboro facilities in North Carolina following the expiry of their power purchase agreements
  • Changes to the Capital Power Executive team

“Our first quarter results benefitted from excellent operating performance across the entire fleet with average facility availability of 96% and a solid contribution from our trading desk that captured an average realized Alberta power price of $77 per megawatt hour (MWh) in the quarter,” said Brian Vaasjo, President and CEO of Capital Power. “This strong performance delivered financial results that exceeded management’s expectations.”

“The extreme cold temperatures in February set a new daily record for demand and contributed to the high average power price of $95 per MWh in the first quarter, representing the highest average power price in a quarter in nearly eight years,” continued Mr. Vaasjo. “Based on the increase in Alberta forward power prices, our forecast is on track to generate AFFO and adjusted EBITDA that is modestly above the top end of the $500 million to $550 million and $975 million to $1,025 million annual guidance ranges for 2021, respectively.”

“We continue to expand our renewable contracted cash flows with the recent execution of a long-term renewable energy agreement with Labatt for our Enchant Solar project. This innovative agreement includes the sale of electricity and renewable energy credits that will cover all of the electricity needed to brew Budweiser in Canada and meet Labatt’s 100% renewable electricity goals.”

“Following the conclusion of our April 29 Annual General Meeting, Don Lowry retired as Chair of the Board of Directors and I would like to thank him for his outstanding leadership as Board Chair since Capital Power’s inception in 2009 and wish him well on his retirement.”

“I would like to congratulate Darcy Trufyn, Senior Vice President, Operations, Engineering and Construction on his retirement. Darcy has been an integral part of the executive team for the past twelve years and I would like to thank him for his valuable contributions and outstanding service and wish him well in his retirement.”

Operational and Financial Highlights 1
(unaudited)
Three months ended March 31
(millions of dollars except per share and operational amounts) 2021   2020  
Electricity generation (Gigawatt hours)   5,630     5,562  
Generation facility availability   96 %   91 %
Revenues and other income $ 554   $ 533  
Adjusted EBITDA 2 $ 303   $ 234  
Net income 3 $ 101   $  
Net income attributable to shareholders of the Company $ 103   $ 2  
Basic and diluted earnings (loss) per share $ 0.83   $ (0.11 )
Normalized earnings attributable to common shareholders 2 $ 68   $ 28  
Normalized earnings per share 2 $ 0.64   $ 0.27  
Net cash flows from operating activities $ 206   $ 103  
Adjusted funds from operations 2 $ 159   $ 118  
Adjusted funds from operations per share 2 $ 1.49   $ 1.12  
Purchase of property, plant and equipment and other assets $ 125   $ 99  
Dividends per common share, declared $ 0.5125   $ 0.4800  
  1. The operational and financial highlights in this press release should be read in conjunction with the Management’s Discussion and Analysis and the unaudited condensed interim financial statements for the three months ended March 31, 2021.
  2. 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), normalized earnings attributable to common shareholders, normalized earnings per share, adjusted funds from operations (AFFO) and AFFO per share are non-GAAP financial measures and 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.
  3. Includes depreciation and amortization for the three months ended March 31, 2021 and 2020 of $135 million and $120 million, respectively. Forecasted depreciation and amortization for the remainder of 2021 is $137 million, $137 million and $138 million for the second through fourth quarters, respectively.

Significant Events

United States power operations relating to extreme weather event

During the February 9 to 20, 2021 period, extreme winter weather caused some disruptions to our wind facilities, most notably in Texas (Buckthorn Wind) with no significant impact on the balance of Capital Power’s U.S. operations. Buckthorn Wind experienced no significant physical damage, but some turbines were forced offline. As of February 22, 2021, the operations were back to normal. The net impact of the U.S. storm on Buckthorn Wind resulted in increases of $8 million (US$6 million) to adjusted EBITDA and AFFO. In addition, during the peak days of the weather event, the Company was able to leverage its commodity management expertise to physically flow power around North America to contribute a further positive financial impact.

The favourable impacts of the weather event were largely driven by the settlement of the offtake and commodity swaps for Buckthorn Wind for the noted period of extreme weather. However, Buckthorn Wind’s counterparty is contesting the settlement, arguing that settlement should have been based upon a different reference price. Historically these two prices have been similar, but as a result of the recent extreme weather, the Company became aware of a divergence in these prices during scarcity events. Both parties invoked dispute-resolution procedures before the close of quarter and the Company subsequently initiated litigation. Based on the contract terms of the offtake and commodity swaps, the Company considers the probability of ultimate settlement using the reference price advocated by the counterparty as being unlikely. In the event that the dispute is resolved unfavourably to the Company, the net exposure to the Company’s revenues would be a reduction of up to approximately $18 million (US$15 million).

Approval of normal course issuer bid

During the first quarter of 2021, the Toronto Stock Exchange approved Capital Power’s normal course issuer bid to purchase and cancel up to 10.7 million of its outstanding common shares during the one-year period from February 26, 2021 to February 25, 2022.

Subsequent Events

Executive appointments

On April 30, 2021, Capital Power and the Board of Directors announced the following executive position appointments effective June 1, 2021:

  • Bryan DeNeve, Senior Vice President Operations,
  • Chris Kopecky, Senior Vice President and Chief Legal, Development and Commercial Officer, and
  • Steve Owens, Senior Vice President Construction and Engineering.

Kate Chisholm, Sandra Haskins and Jacquie Pylypiuk will continue to serve in their current roles. Darcy Trufyn, currently Senior Vice President, Operations, Engineering and Construction will be retiring effective June 30, 2021.

Executed 15-year contract for Enchant Solar project

On April 19, 2021, the Company announced that it executed a 15-year renewable energy agreement to sell 51% of the electricity generated from the 75 megawatt Enchant Solar project (Enchant Solar) in Alberta to Labatt, along with bundled renewable energy certificates (RECs). Of the contracted capacity under this agreement, approximately one-quarter will be bundled with project-generated RECs directly from Enchant Solar and three-quarters will be packaged with RECs sourced from Eastern Canada. The terms of this agreement are consistent with the previously disclosed financial expectations for Enchant Solar.

Construction of Enchant Solar is set to commence in the second quarter of 2022 with commercial operations expected in the fourth quarter of 2022.

Analyst conference call and webcast

Capital Power will be hosting a conference call and live webcast with analysts on April 30, 2021 at 9:00 am (MT) to discuss the first quarter financial results. The conference call dial-in number is:

(800) 319-4610 (toll-free from Canada and USA)

Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conclusion of the analyst conference call.

Non-GAAP Financial Measures

The Company uses (i) adjusted EBITDA, (ii) AFFO, (iii) AFFO per share, (iv) normalized earnings attributable to common shareholders, and (v) normalized earnings per share as financial performance measures.

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 the Company, 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 the Company’s 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 such as impairments, foreign exchange gains or losses and gains or losses on disposals are excluded from the adjusted EBITDA measure.

A reconciliation of adjusted EBITDA to net income (loss) is as follows:

(unaudited, $ millions) Three months ended
  Mar
2021
  Dec
2020
  Sep
2020
  Jun
2020
  Mar
2020
  Dec
2019
  Sep
2019
  Jun
2019
 
Revenues and other income 554   516   453   435   533   683   517   366  
Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense (264 ) (321 ) (144 ) (233 ) (323 ) (309 ) (231 ) (134 )
Remove unrealized changes in fair value of commodity derivatives and emission credits included within revenues and energy purchases and fuel 7   19   (31 ) 9   18   (28 ) (8 ) (48 )
Adjusted EBITDA from joint venture 1 6   6   6   6   6   6   6   7  
Adjusted EBITDA 303   220   284   217   234   352   284   191  
Depreciation and amortization (135 ) (122 ) (115 ) (121 ) (120 ) (118 ) (135 ) (122 )
Unrealized changes in fair value of commodity derivatives and emission credits (7 ) (19 ) 31   (9 ) (18 ) 28   8   48  
Impairments   (13 )     (13 )   (401 )  
Gains on acquisition and disposal transactions           24      
Foreign exchange gain (loss) 1   5   1   3   (9 )   (1 )  
Net finance expense (41 ) (57 ) (47 ) (49 ) (44 ) (41 ) (42 ) (37 )
Finance expense and depreciation expense from joint venture 1   (4 ) (4 ) (6 ) (13 ) (1 ) (7 ) (7 )
Income tax (expense) recovery (20 ) (9 ) (44 ) (12 ) (17 ) (63 ) 66   33  
Net income (loss) 101   1   106   23     181   (228 ) 106  
                 
Net income (loss) attributable to:                
Non-controlling interests (2 ) (2 ) (2 )   (2 ) (1 ) (2 ) (2 )
Shareholders of the Company 103   3   108   23   2   182   (226 ) 108  
Net income (loss) 101   1   106   23     181   (228 ) 106  
  1. Total income from joint venture as per the Company’s consolidated statements of income.

Adjusted funds from operations and adjusted funds from operations per share

AFFO is a measure of the Company’s ability to generate cash from its current 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 coal compensation that will be received annually,
  • remove the tax equity financing project investors’ shares of adjusted funds from operations 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
  • include net expected cash outflows for the Company’s share of Line Loss Rule (LLR) Proceeding amounts in the period each tranche is paid by the Company.

AFFO per share is determined by applying AFFO to the weighted average number of common shares used in the calculation of basic, diluted and normalized earnings per share.

A reconciliation of net cash flows from operating activities to adjusted funds from operations is as follows:

(unaudited, $ millions) Three months ended March 31
  2021   2020  
Net cash flows from operating activities per condensed interim consolidated statements of cash flows 206   103  
Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows:    
Interest paid 41   28  
Realized gain on settlement of interest rate derivatives   (1 )
Change in fair value of derivatives reflected as cash settlement 4   10  
Distributions received from joint venture (3 ) (2 )
Miscellaneous financing charges paid 1 1   2  
Income taxes paid 5   26  
Change in non-cash operating working capital (20 ) 18  
  28   81  
Net finance expense 2 (35 ) (34 )
Current income tax expense 3 (3 ) (6 )
Sustaining capital expenditures 4 (18 ) (16 )
Preferred share dividends paid (13 ) (13 )
Remove tax equity interests’ respective shares of adjusted funds from operations (4 ) (2 )
Adjusted funds from operations from joint venture 4   5  
Line Loss Rule Proceeding 5 (6 )  
Adjusted funds from operations 159   118  
Weighted average number of common shares outstanding (millions) 106.8   105.4  
Adjusted funds from operations per share ($) 1.49   1.12  
  1. 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.
  2. Excludes unrealized changes on interest rate derivative contracts, amortization, accretion charges and non-cash implicit interest on tax equity investment structures.
  3. For the three months ended March 31, 2020, excludes current income tax recoveries related to the Genesee 3 and Keephills 3 swap transaction of $20 million as these amounts are considered investing activities.
  4. Includes sustaining capital expenditures net of partner contributions of $5 million and $1 million for the three months ended March 31, 2021 and 2020, respectively.
  5. Net expected cash outflow for the second tranche of invoices for the LLR Proceeding covering the years 2010-2013. The invoicing process results in gross billings to Capital Power of which amounts not attributable to Capital Power have been invoiced and have begun to be recovered from the appropriate parties for their respective shares. Actual net cash outflows of $13 million for the LLR Proceeding amounts are reflected in net cash flows from operating activities through the change in non-cash operating working capital in the Consolidated Statements of Cash Flows for the three months ended March 31, 2021, which is removed in the calculation of adjusted funds from operations. The actual net cash outflows reflect the Company’s $6 million obligation related to the 2010-2013 invoice tranche and the amount paid by the Company but expected to be recovered from the Alberta Balancing Pool (net $7 million to Capital Power) (see Contingent Liabilities and Provisions).

Normalized earnings attributable to common shareholders and normalized earnings per share

The Company uses normalized earnings attributable to common shareholders and normalized earnings per share to measure performance by period on a comparable basis. Normalized earnings per share is based on earnings (loss) used in the calculation of basic earnings (loss) per share according to GAAP and adjusted for items that are not reflective of performance in the period such as unrealized fair value changes, impairment charges, unusual tax adjustments, gains and losses on disposal of assets or unusual contracts, and foreign exchange gain or loss on the revaluation of U.S. dollar denominated debt. The adjustments, shown net of tax, consist of unrealized fair value changes on financial instruments that are not necessarily indicative of future actual realized gains or losses, non-recurring gains or losses, or gains or losses reflecting corporate structure decisions.

(unaudited, $ millions except per share amounts and number of common shares) Three months ended
  Mar 31
2021
  Dec 31
2020
  Sep 30
2020
  Jun 30
2020
  Mar 31
2020
  Dec 31
2019
  Sep 30
2019
  Jun 30
2019
 
Basic earnings (loss) per share ($) 0.83   (0.09 ) 0.89   0.10   (0.11 ) 1.61   (2.25 ) 0.93  
Net income (loss) attributable to shareholders of the Company per condensed interim consolidated statements of income (loss) 103   3   108   23   2   182   (226 ) 108  
Preferred share dividends including Part VI.1 tax (14 ) (13 ) (14 ) (13 ) (14 ) (12 ) (14 ) (12 )
Earnings (loss) attributable to common shareholders 89   (10 ) 94   10   (12 ) 170   (240 ) 96  
Unrealized changes in fair value of derivatives 1 (10 ) 12   (28 ) 3   30   (28 ) (3 ) (30 )
Reduction in applicable jurisdictional tax rates (10 )              
Provision for Line Loss Rule Proceeding 2 (1 ) 1     3     4      
Restructuring charges     2            
Other tax adjustment     1            
Impairments   10       10        
Termination of East Windsor steam contract       2          
Net (gain) loss on swap transaction           (115 ) 307    
Alberta tax rate change               (51 )
Normalized earnings attributable to common shareholders 68   13   69   18   28   31   64   15  
Weighted average number of common shares outstanding (millions) 106.8   105.7   105.1   105.1   105.4   105.3   106.5   103.6  
Normalized earnings per share ($) 0.64   0.12   0.66   0.17   0.27   0.29   0.60   0.14  
  1. Includes impacts of the interest rate non-hedge held within a joint venture and recorded within income (loss) from joint venture on the Company’s condensed interim consolidated statements of income.
  2. See Contingent Liabilities and Provisions.

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 2021 AFFO and adjusted EBITDA guidance, (ii) forecasted depreciation for the remainder of 2021, (iii) expectations pertaining to the financial guidance, timing of construction and timing of commercial operations commencement of Enchant Solar, (iv) expectations around the resolution of the pricing dispute on the Buckthorn Wind offtake and commodity swaps (see Significant Events) and (v) matters relating to the LLR Proceeding, including the recovery from appropriate parties.

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, (v) effective tax rates, and (vi) matters relating to the LLR Proceeding, including the recovery of payments from appropriate parties.

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) generation facility availability, wind capacity factor and performance including maintenance expenditures, (iv) ability to fund current and future capital and working capital needs, (v) acquisitions and developments including timing and costs of regulatory approvals and construction, (vi) changes in the availability of fuel, (vii) ability to realize the anticipated benefits of acquisitions, (viii) limitations inherent in the Company’s review of acquired assets, (ix) changes in general economic and competitive conditions and (x) 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 Management’s Discussion and Analysis for both the three months ended March 31, 2021, prepared as of April 29, 2021 and the Company’s Integrated Annual Report for the year ended December 31, 2020, prepared as of February 18, 2021, 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.

About Capital Power

Capital Power (TSX: CPX) is a growth-oriented North American wholesale power producer with a strategic focus on sustainable energy headquartered in Edmonton, Alberta. We build, own, and operate high-quality, utility-scale generation facilities that include renewables and thermal. We have also made significant investments in carbon capture and utilization to reduce carbon impacts and are committed to be off coal in 2023. Capital Power owns over 6,400 megawatts (MW) of power generation capacity at 26 facilities across North America. Projects in advanced development include 425 MW of owned renewable generation capacity in North Carolina and Alberta and 560 MW of incremental natural gas combined cycle capacity from the repowering of Genesee 1 and 2 in Alberta.

For more information, please contact:

Media Relations:        
Katherine Perron
(780) 392-5335        
[email protected]
Investor Relations:
Randy Mah
(780) 392-5305 or (866) 896-4636 (toll-free)
[email protected]

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