CPX Capital Power Corporation

Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended June 30, 2024.

Financial highlights

• Generated adjusted funds from operations (AFFO) of $178 million and net cash flows from operating activities of $136 million
• Generated adjusted EBITDA of $323 million and a net income of $76 million
• Successfully completed the first Canadian 30-year hybrid financing for $450 million
• Increased annual common share dividend by 6% to $2.61 per year

Strategic highlights

• Marking our milestone of being 100% off coal, Genesee Repowering achieved commercial operations for simple cycle for Unit 1 and Unit 2, and retired the legacy unit 2
• Continued integration of newly acquired assets at La Paloma, Harquahala and Frederickson driving the U.S. facilities to ~43% of Q2 adjusted EBITDA and ~25% revenues and other income
• Welcomed two new board members following one retirement
• Entered into 25-year power purchase agreements (PPAs) for Hornet and Bear Branch solar projects in the U.S.

“Our Genesee Repowering project achieved simple cycle commercial operation for Unit 2 during the second quarter of 2024, marking Capital Power and Alberta’s transition off coal more than five years ahead of the government mandate. This monumental achievement represents the single largest decarbonization event in Alberta’s history and enhances our competitive positioning by increasing our capacity and efficiency,” said Avik Dey, President and CEO of Capital Power. “We are proud of the progress made on our Battery Energy Storage System (BESS) projects, which are advancing on time and under budget, with construction expected to begin in the third quarter. Meanwhile, our U.S. business continues to perform well underscoring our ability to acquire and integrate assets. Across our portfolio we are advancing our strategic areas of focus and positioning our business to succeed now and in the long-term," stated Mr. Dey.

“The second quarter results demonstrated the success of our geographic diversification strategy, with approximately 43% of our adjusted EBITDA coming from our U.S. facilities, a significant increase relative to approximately 26% seen in the second quarter of 2023,” said Sandra Haskins, SVP Finance and CFO of Capital Power. “In particular, we saw strong contributions from the newly acquired assets in California, Arizona and Washington. While financial results were in line with expectations for the quarter, we’ve revised our annual adjusted EBITDA guidance range to $1,310 million to $1,410 million driven by lower Alberta power prices and outages at Genesee during the first half of the year. AFFO is expected to be at the midpoint of the original guidance range.” Ms. Haskins added, “from a funding perspective, Capital Power successfully closed the first Canadian 30-year Hybrid bond for total proceeds of $450 million. This transaction demonstrates our disciplined approach to balance sheet optimization and continued ability to access capital to fund our growth and diversification efforts.”

Operational and Financial Highlights1

($ millions, except per share amounts)	Three months ended June 30				Six months ended June 30
	2024		2023		2024		2023
Electricity generation (Gigawatt hours)	8,603		7,857		17,412		15,274
Generation facility availability	91%		95%		92%		94%
Revenues and other income	774		881		1,893		2,148
Adjusted EBITDA 2	323		327		602		728
Net income 3	76		85		281		370
Net income attributable to shareholders of the Company	75		87		280		373
Basic earnings per share ($)	0.51		0.68		2.06		3.06
Diluted earnings per share ($)	0.51		0.67		2.06		3.05
Net cash flows from operating activities	136		11		470		360
Adjusted funds from operations 2	178		151		320		361
Adjusted funds from operations per share ($) 2	1.37		1.29		2.53		3.09
Purchase of property, plant and equipment and other assets, net	226		131		444		217
Dividends per common share, declared ($)	0.6150		0.5800		1.2300		1.1600

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 six months ended June 30, 2024.
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 and other items that are not reflective of the long-term performance of the Company’s underlying business (adjusted EBITDA) and 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.
3. Includes depreciation and amortization for the three months ended June 30, 2024 and 2023 of $120 million and $143 million, respectively, and for the six months ended June 30, 2024 and 2023 of $242 million and $284 million, respectively. Forecasted depreciation and amortization for the remainder of 2024 is $122 million and $130 million for the third and fourth quarters, respectively.

Significant Events

Executes 25-year contracts for Hornet Solar and Bear Branch Solar projects in North Carolina

In June 2024, the Company successfully executed 25-year PPAs with Duke Energy Carolinas for the Hornet Solar and Bear Branch Solar projects located in North Carolina totalling 105 MW. Construction of the solar projects is expected to begin in the second half of 2024 with targeted commercial operations expected in the second half of 2026.

Genesee Generating Station is off coal

On June 18, 2024, the Company reached a significant milestone for the Genesee Repowering project with the announcement that the Genesee Generating Station is off coal and now 100% natural gas-fueled, resulting in the facility being off coal more than 5 years ahead of the Alberta government mandate.

As part of the Genesee Repowering project, the facility completed simple cycle commissioning for Units 1 and 2 on May 3 and June 28, respectively, and Unit 3 has transitioned fully to natural gas. The project continues to progress with combined cycle completion expected in Q4 2024, which will result in 512 MW of additional net high efficiency, low heat rate capacity from the site. Both units are expected to reach 566 MWs in the first half of 2025.

During the commissioning phase, unit dispatch is driven by project needs rather than economic dispatch; therefore, output during simple cycle commissioning ranged between 0 and 411 MWs, and output during combined cycle commissioning will range between 0 and 466 MWs. 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.

$450 million Subordinated Notes offering

On June 5, 2024, the Company closed a public offering of Fixed-to-Fixed Subordinated Notes, Series 2, in the aggregate principal amount of $450 million (the Notes). The Notes have a fixed interest rate of 8.125% and mature on June 5, 2054.

The Company used the net proceeds from the sale of the Notes to repay certain amounts drawn on the Company’s credit facilities (which include amounts drawn for the acquisition of a 50% interest in New Harquahala Generating Company, LLC, and a 100% interest in CXA La Paloma, LLC, and related expenses, development purposes and in respect of ongoing operations), to redeem all of the Company’s outstanding Cumulative Minimum Rate Reset Preferred Shares, Series 11 (TSX: CPX.PR.K), and for general corporate purposes.

Redemption of Preferred Shares, Series 11

On May 15, 2024, the Company announced its intention to redeem all of its 6 million issued and outstanding 5.75% cumulative rate reset preference shares, Series 11 on June 30, 2024 (Redemption Date) at a price of $25.00 per share (Redemption Price) for an aggregate total of $150 million, less any tax required to be deducted and withheld by the Company. As June 30, 2024 was not a business day payment of the Redemption Price for the share redemption occurred on July 2, 2024.

Board of Director changes

On May 15, 2024, the Company announced the appointment of Neil H. Smith and George Williams to the Company’s Board of Directors effective May 15, 2024. The appointments follow Doyle Beneby’s retirement, after serving the full 12 year term limit as a member of the Board of Directors. With these appointments and retirement, Capital Power’s Board of Directors consists of 11 directors, with 40% of the independent directors being women, and 30% of the independent directors representing diverse groups beyond gender.

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. As part of our discontinuation of the project, Capital Power will incur a pre-tax cost of $18 million, related to termination of sequestration hub evaluation work. Capital Power looks forward to exploring CCS at Genesee and certain assets in our North American fleet in the future as economics improve.

When our Genesee Repowering project is completed, the units are expected to achieve industry-leading greenhouse gas emission reductions of 3.4 million tonnes annually. Capital Power is on track to meet its Scope 1 absolute emissions target at Genesee by 2030. However, our current projections show we will exceed our corporate emission intensity and absolute emission targets for 2030 due to a combination of higher anticipated utilization of our fleet, the discontinuation of the Genesee CCS project and growth in accordance with our strategy. As a result of the foregoing, we are currently assessing our overall emissions targets as well as our pathway to net zero.

Subsequent Event

Dividend increase

On July 30, 2024, the Company’s Board of Directors approved an increase of 6% in the annual dividend for holders of its common shares, from $2.46 per common share to $2.61 per common share. This increased common share dividend will commence with the third quarter 2024 quarterly dividend payment on October 31, 2024 to shareholders of record at the close of business on September 30, 2024.

Analyst conference call and webcast

Capital Power will be hosting a conference call and live webcast with analysts on July 31, 2024 at 9:00 am (MT) to discuss the second quarter financial results. The webcast can be accessed at: https://edge.media-server.com/mmc/p/37jo9x7j/.

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
	Jun 2024		Mar 2024		Dec 2023		Sep 2023		Jun 2023		Mar 2023		Dec 2022		Sep 2022
Revenues and other income	774		1,119		984		1,150		881		1,267		929		786
Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense	(504	)	(677	)	(694	)	(626	)	(614	)	(723	)	(909	)	(543	)
Remove unrealized changes in fair value of commodity derivatives and emission credits included within revenues and energy purchases and fuel	(8	)	(200	)	(14	)	(151	)	23		(179	)	247		136
Remove other non-recurring items 1	4		-		1		4		-		-		-		-
Adjusted EBITDA from joint ventures 2	57		37		36		37		37		36		36		4
Adjusted EBITDA	323		279		313		414		327		401		303		383
Depreciation and amortization	(120	)	(122	)	(142	)	(148	)	(143	)	(141	)	(139	)	(133	)
Unrealized changes in fair value of commodity derivatives and emission credits	8		200		14		151		(23	)	179		(247	)	(136	)
Other non-recurring items	(4	)	-		(1	)	(4	)	-		-		-		-
Foreign exchange (losses) gains	(4	)	(10	)	(2	)	(9	)	4		1		3		(12	)
Net finance expense	(53	)	(42	)	(49	)	(35	)	(34	)	(48	)	(44	)	(40	)
(Losses) gains on acquisition and disposal transactions	(17	)	2		(5	)	5		(3	)	-		(33	)	(3	)
Other items 2,3	(34	)	(25	)	(22	)	(19	)	(19	)	(21	)	(17	)	(4	)
Income tax (expense) recovery	(23	)	(77	)	(11	)	(83	)	(24	)	(86	)	75		(24	)
Net income (loss)	76		205		95		272		85		285		(99	)	31
Net income (loss) attributable to:
Non-controlling interests	1		-		(2	)	(2	)	(2	)	(1	)	(1	)	(3	)
Shareholders of the Company	75		205		97		274		87		286		(98	)	34
Net income (loss)	76		205		95		272		85		285		(99	)	31

1. Other non-recurring items for the three months ended June 30, 2024 includes costs related to the end-of-life of Genesee coal operations.
2. Total income from joint ventures as per our consolidated statements of income (loss).
3. 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:

(unaudited, $ millions)	Three months ended June 30				Six months ended June 30
	2024		2023		2024		2023
Net cash flows from operating activities per condensed interim consolidated statements of cash flows	136		11		470		360
Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows:
Interest paid	11		13		59		63
Change in fair value of derivatives reflected as cash settlement	(7	)	30		(19	)	(81	)
Realized gain on settlement of interest rate derivatives	(14	)	(10	)	(14	)	(10	)
Distributions received from joint ventures	(3	)	(9	)	(11	)	(18	)
Miscellaneous financing charges paid 1	-		2		(7	)	4
Income taxes paid	5		11		20		25
Change in non-cash operating working capital	92		192		(70	)	195
	84		229		(42	)	178
Net finance expense 2	(45	)	(31	)	(80	)	(66	)
Current income tax expense	(6	)	(30	)	(22	)	(81	)
Sustaining capital expenditures 3	(36	)	(41	)	(61	)	(56	)
Preferred share dividends paid	(9	)	(8	)	(18	)	(15	)
Remove tax equity interests’ respective shares of adjusted funds from operations	(2	)	(2	)	(3	)	(4	)
Adjusted funds from operations from joint ventures	38		23		59		45
Other non-recurring items 4	18		-		17		-
Adjusted funds from operations	178		151		320		361
Weighted average number of common shares outstanding (millions)	129.5		116.9		126.6		116.9
Adjusted funds from operations per share ($)	1.37		1.29		2.53		3.09

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. Includes sustaining capital expenditures net of partner contributions of $1 million and $6 million for the three and six months ended June 30, 2024, respectively, compared with $1 million and $4 million for the three and six months ended June 30, 2023, respectively.
4. For the three and six months ended June 30, 2024 other non-recurring items reflects costs related to the end-of-life of Genesee coal operations of $4 million and a provision of $18 million for the termination fee related to discontinuation of the Genesee CCS project (see Significant events), net of current income tax recovery of $4 million and $5 million for the three and six months ended June 30, 2024, related to other non-recurring items recognized in the prior and current periods, respectively.

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 and affordable power communities can depend on today, building clean power systems needed for tomorrow, and creating balanced solutions for our energy future. We are Powering Change by Changing PowerTM.  

For more information, please contact:

Media Relations:        Katherine Perron(780) 392-5335        kperron@capitalpower.com

Investor Relations:        Roy Arthur(403) 736-3315        investor@capitalpower.com