Capital Power reports third quarter results and reiterates its revised higher 2021 financial guidance

Edmonton, Alberta, CANADA


EDMONTON, Alberta, Oct. 27, 2021 (GLOBE NEWSWIRE) -- Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended September 30, 2021.

Highlights

  • Generated net cash flows from operating activities of $347 million and adjusted funds from operations (AFFO) of $206 million in the third quarter of 2021
  • Generated net income of $38 million and adjusted EBITDA of $286 million in the third quarter of 2021
  • Announced 15-year renewable power purchase agreement with Dow Chemical Canada ULC for a portion of our Whitla Wind 2 project, currently under construction in Alberta
  • Continued constructive discussions for the re-contracting of the Island Generation facility
  • Strong performance, financial position and outlook led to announced suspension of the Company’s Dividend Re-investment Plan (DRIP)

“Our operating and financial results for the third quarter of 2021 were generally in line with management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “The unplanned outage at Genesee 2 that started in mid-July is running longer than anticipated with the asset currently expected to return to service at the end of November 2021. A claim has been submitted to our insurers for both the physical damage and business interruption losses incurred as a result of the incident which will be settled upon the return to service of the facility.”

“Alberta power prices remain strong, averaging $100 per megawatt hour (MWh) in the third quarter, a period during which our trading desk captured an average realized power price of $75 per MWh. Our outlook for Alberta power prices continues to be positive and based on our forecast for the remainder of the year, we expect to generate adjusted EBITDA in line with the mid-point of our revised annual guidance range of $1,090 million to $1,140 million and AFFO modestly above the mid-point of our revised annual guidance range of $570 million to $620 million,” stated Mr. Vaasjo.

Operational and Financial Highlights 1
(unaudited)
Three months ended
September 30
Nine months ended
September 30
(millions of dollars except per share and operational amounts)2021 2020 2021 2020 
Electricity generation (Gigawatt hours) 6,103  6,327  16,708  17,361 
Generation facility availability 91% 98% 90% 94%
Revenues and other income$377 $453 $1,318 $1,421 
Adjusted EBITDA 2$286 $284 $830 $735 
Net income 3$38 $106 $156 $129 
Net income attributable to shareholders of the Company 3$40 $108 $163 $133 
Basic earnings per share 3$0.23 $0.89 $1.10 $0.87 
Diluted earnings per share 3$0.23 $0.89 $1.09 $0.87 
Normalized earnings attributable to common shareholders 2,3$63 $69 $166 $115 
Normalized earnings per share 2, 3$0.55 $0.66 $1.50 $1.09 
Net cash flows from operating activities$347 $258 $682 $452 
Adjusted funds from operations 2$206 $221 $456 $436 
Adjusted funds from operations per share 2$1.78 $2.10 $4.12 $4.14 
Purchase of property, plant and equipment and other assets, net$176 $67 $424 $253 
Dividends per common share, declared$0.5475 $0.5125 $1.5725 $1.4725 

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 nine months ended September 30, 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, 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 September 30, 2021 and 2020 of $133 million and $115 million, respectively, and for the nine months ended September 30, 2021 and 2020 of $402 million and $356 million, respectively. Forecasted depreciation and amortization for the remainder of 2021 is $139 million.


Significant Events

Executed 15-year contract for Whitla Wind 2

On September 15, 2021, the Company announced a 15-year renewable power purchase agreement with Dow Chemical Canada ULC, a subsidiary of Dow, for 25 MW of capacity and the associated environmental attributes from our Whitla Wind 2 project, currently under construction.

Forced outage at Genesee 2

In July 2021, Genesee 2 experienced a forced outage due to a generator failure which is covered by the Company’s insurance policy for both asset damage and business interruption. The unit is undergoing repairs and expected to return to service in the latter part of the fourth quarter of 2021. Accrued insurance recoveries, net of related expenses, of $16 million have been recorded in the third quarter of 2021. Accrued insurance recoveries reflect both the expensed costs and capitalized costs incurred to date to repair Genesee 2, net of the deductible amount under the insurance contract.

Dividend increase

On July 29, 2021, the Company’s Board of Directors approved an increase of 6.8% in the annual dividend for holders of its common shares, from $2.05 per common share to $2.19 per common share. This increased common share dividend will commence with the third quarter 2021 quarterly dividend payment on October 29, 2021 to shareholders of record at the close of business on September 30, 2021.

US$150 million private placement of senior notes

On July 20, 2021, the Company executed a US$150 million private placement of senior notes. The 12-year senior notes will bear a coupon rate of 3.24% and mature on October 28, 2033. Subject to satisfying customary closing conditions, the transaction is expected to fund on October 28, 2021. The net proceeds from the transaction will be used to fund growth initiatives including 985 megawatts (MW) in advanced stages of development and for general corporate purposes.

Sustainability-linked credit facilities

On July 14, 2021, the Company announced the extension, amendment and transition of its existing committed credit facilities to sustainability-linked credit facilities (SLCs). The 5-year commitment to SLCs extends the Company’s existing $1 billion of unsecured credit facilities, which include a $700 million syndicated credit facility and an unsecured club credit facility of $300 million, to July 2026. The SLCs are structured with one key performance indicator with annual sustainability performance targets aligned to one of Capital Power’s publicly stated sustainability targets: to reduce Scope 1 CO2 emission intensity by 65% by 2030 from 2005 levels. The SLCs include terms that reduce or increase borrowing costs as the annual targets are met or missed.

Common share offering

In June of 2021 the Company completed a public offering of 7,480,750 common shares (inclusive of the full exercise of a 975,750 common shares over-allotment option), at an issue price of $38.45 per common share for total gross proceeds of $288 million (the Offering) less issue costs of $12 million. The Company intends to use the net proceeds from the Offering to fund growth initiatives (including projects in advanced stages of development) and for general corporate purposes.

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 continue to serve in their current roles. Darcy Trufyn, Senior Vice President, Operations, Engineering and Construction retired from his role effective June 30, 2021. Darcy was an integral part of the executive team with outstanding service and valuable contributions over the past twelve years.

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 Brewing Company Ltd. of Canada, 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.

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 during the first quarter of 2021 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 Event

Suspension of Dividend Re-investment Plan

Subsequent to the close of the third quarter of 2021, Capital Power announced that effective with the December 31, 2021 dividend, its DRIP for its common shares will be suspended. Shareholders participating in the DRIP will begin receiving cash dividends on the January 31, 2022 payment date.

Analyst conference call and webcast

Capital Power will be hosting a conference call and live webcast with analysts on October 27, 2021 at 9:00 am (MT) to discuss the third 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 is as follows:

(unaudited, $ millions)Three months ended
 Sep 30 2021 Jun 30 2021 Mar 31 2021 Dec 31 2020 Sep 30 2020 Jun 30 2020 Mar 31 2020 Dec 31 2019 
Revenues and other income377 387 554 516 453 435 533 683 
Energy purchases and fuel, other raw materials and operating charges, staff costs and employee benefits expense, and other administrative expense(162)(176)(264)(321)(144)(233)(323)(309)
Remove unrealized changes in fair value of commodity derivatives and emission credits included within revenues and energy purchases and fuel66 24 7 19 (31)9 18 (28)
Adjusted EBITDA from joint venture 15 6 6 6 6 6 6 6 
Adjusted EBITDA286 241 303 220 284 217 234 352 
Depreciation and amortization(133)(132)(137)(122)(115)(121)(120)(118)
Unrealized changes in fair value of commodity derivatives and emission credits(66)(24)(7)(19)31 (9)(18)28 
Impairment (losses) reversal(8)2 - (13)- - (13)- 
Gains (losses) on disposals and other transactions31 (3)2 - - - - 24 
Foreign exchange (loss) gain(7)(2)1 5 1 3 (9)- 
Net finance expense(43)(46)(41)(57)(47)(49)(44)(41)
Finance expense and depreciation expense from joint venture 1(4)(5)- (4)(4)(6)(13)(1)
Income tax expense(18)(14)(20)(9)(44)(12)(17)(63)
Net income38 17 101 1 106 23 - 181 
         
Net income (loss) attributable to:         
Non-controlling interests(2)(3)(2)(2)(2)- (2)(1)
Shareholders of the Company40 20 103 3 108 23 2 182 
Net income38 17 101 1 106 23 - 181 

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 invoices 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
September 30
Nine months ended
September 30
 2021 2020 2021 2020 
Net cash flows from operating activities per condensed interim consolidated statements of cash flows347 258 682 452 
Add (deduct) items included in calculation of net cash flows from operating activities per condensed interim consolidated statements of cash flows:    
Interest paid37 39 98 101 
Realized gains on settlement of interest rate derivatives- - (12)(1)
Change in fair value of derivatives reflected as cash settlement6 8 17 26 
Distributions received from joint venture(3)(3)(8)(8)
Miscellaneous financing charges paid 11 1 4 4 
Income taxes (recovered) paid(18)5 (13)38 
Change in non-cash operating working capital(120)(65)(105)(12)
 (97)(15)(19)148 
Net finance expense 2(29)(35)(93)(106)
Current income tax expense 3(3)(10)(19)(26)
Sustaining capital expenditures 4(52)(16)(99)(50)
Preferred share dividends paid(12)(13)(38)(39)
Cash received for off-coal compensation50 50 50 50 
Remove tax equity interests’ respective shares of adjusted funds from operations(1)(2)(7)(6)
Adjusted funds from operations from joint venture3 4 12 13 
Line Loss Rule Proceeding 5- - (13)- 
Adjusted funds from operations206 221 456 436 
Weighted average number of common shares outstanding (millions)115.5 105.1 110.7 105.2 
Adjusted funds from operations per share ($)1.78 2.10 4.12 4.14 

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 and nine months ended September 30, 2021, excludes current income tax expenses of $6 million and $14 million, respectively, related to the Genesee 3 and Keephills 3 swap transaction as these amounts are considered investing activities (three and nine months ended September 30, 2020 excludes current income tax recoveries of nil and $20 million, respectively).

4 Includes sustaining capital expenditures net of partner contributions of $1 million and $8 million for the three and nine months ended September 30, 2021, respectively, compared with $1 million and $4 million for the three and nine months ended September 30, 2020, respectively.

5 The LLR Proceeding invoicing process has resulted in gross billings to Capital Power of which amounts not attributable to Capital Power have been partly recovered from the appropriate parties for their respective shares. For the three and nine months ended September 30, 2021, actual net cash inflows of $2 and outflows of $33 million, respectively, for the LLR Proceeding amounts are reflected in net cash flows from operating activities through the change in non-cash operating working capital, which is removed in the calculation of AFFO. AFFO for the three and nine months ended September 30, 2021, is impacted only by the Company’s obligation related to the 2006-2009 and 2010-2013 invoice tranches (nil and $13 million for the three and nine months ended September 30, 2021, respectively) consistent with the Company’s definition of AFFO described above. The AFFO impacts differ from the actual cash outflows by the amounts paid by the Company but expected to be recovered from other parties (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
Sep 30 2021 Jun 30 2021 Mar 31 2021 Dec 31 2020 Sep 30 2020 Jun 30 2020 Mar 31 2020 Dec 31 2019 
Basic earnings (loss) per share ($) 0.23 0.05 0.83 (0.09)0.89 0.10 (0.11)1.61 
Net income attributable to shareholders of the Company per condensed interim consolidated statements of income40 20 103 3 108 23 2 182 
Preferred share dividends including Part VI.1 tax(13)(14)(14)(13)(14)(13)(14)(12)
Earnings (loss) attributable to common shareholders27 6 89 (10)94 10 (12)170 
Unrealized changes in fair value of derivatives 148 25 (10)12 (28)3 30 (28)
Genesee 2 forced outage2(12)- - - - - - - 
Provision for contingency(6)6 - - - - - - 
Impairment (reversal) losses6 (2)- 10 - - 10 - 
Reduction in applicable jurisdictional tax rates- - (10)- - - - - 
Provision for Line Loss Rule Proceeding 3- - (1)1 - 3 - 4 
Net gain on swap transaction- - - - - - - (115)
Other- - - - 3 2 - - 
Normalized earnings attributable to common shareholders63 35 68 13 69 18 28 31 
Weighted average number of common shares outstanding (millions)115.5 109.7 106.8 105.7 105.1 105.1 105.4 105.3 
Normalized earnings per share ($) 0.55 0.32 0.64 0.12 0.66 0.17 0.27 0.29 

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.

See Significant Events.

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, and updates to, the Company’s 2021 AFFO and adjusted EBITDA guidance, (ii) forecasted depreciation for the remainder of 2021, (iii) the intended use of proceeds from the common share offering (see Significant Events), (iv) expectations pertaining to the financial guidance, timing of construction and timing of commercial operations commencement of Enchant Solar (see Significant Events), (v) expectations around the resolution of the pricing dispute on the Buckthorn Wind offtake and commodity swaps (see Significant Events), (vi) the intended use of proceeds and expected closing date of the U.S. private placement of senior notes (see Significant Events), (vii) matters relating to the LLR Proceeding, including the recovery from appropriate parties and (viii) the expected timing of Genesee 2 returning to service (see Significant Events).

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 the need for and 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 and timing thereof 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 nine months ended September 30, 2021, prepared as of October 26, 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 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        
kperron@capitalpower.com
Investor Relations:
Randy Mah
(780) 392-5305 or (866) 896-4636 (toll-free)
investor@capitalpower.com


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