EDMONTON, Alberta – Capital Power Corporation (Capital Power, or the Company) (TSX: CPX) today released financial results for the fourth quarter and year ended December 31, 2014.
Funds from operations were $102 million in the fourth quarter of 2014, a decrease of 7% from $110 million in the fourth quarter of 2013. Normalized earnings attributable to common shareholders in the fourth quarter of 2014 were $17 million, or $0.20 per share, compared with $32 million, or $0.40 per share, in the comparable period of 2013. Net income attributable to shareholders in the fourth quarter of 2014 was $39 million and basic earnings per share (attributable to common shareholders) were $0.40 compared with net income attributable to shareholders of $77 million and basic earnings per share of $0.89 (attributable to common shareholders) in the comparable period of 2013.
For the year ended December 31, 2014, funds from operations totaled $362 million compared with $426 million for the year ended December 31, 2013. Normalized earnings attributable to common shareholders were $59 million or $0.72 per share compared with $127 million or $1.74 per share for 2013. Net income attributable to shareholders in 2014 was $46 million and basic earnings per share (attributable to common shareholders) were $0.28 compared with net income attributable to shareholders of $175 million and basic earnings per share (attributable to common shareholders) of $2.13 in 2013.
“In October 2014, we updated our financial forecast for the year, expecting our funds from operations to be in the low end of our target range of $360 to $400 million. Actual funds from operations for 2014 of $362 million were consistent with this updated guidance,” said Brian Vaasjo, President and CEO of Capital Power. “Despite Alberta power prices averaging $30 per megawatt-hour in the fourth quarter of 2014, we were able to capture a realized average price of $58 per megawatt-hour for the Alberta portfolio through our hedging program. Earnings per share in the fourth quarter were lower than expected due to the non-cash impact of 2014 deferred tax expenses and lower wind generation at the Quality Wind and Port Dover and Nanticoke wind facilities.”
“For 2014, Capital Power’s owned plants had strong operating performance that enabled us to achieve our annual average plant availability target of 95%,” continued Mr. Vaasjo. “Our financial performance was impacted by an extended planned outage and other unplanned outages at the acquired Sundance PPA units and by other Alberta plant derates that resulted in funds from operations hitting the low end of the range.”
“Recent declining natural gas prices as well as expectations of lower power demand growth due to lower oil prices have had a significant impact on Alberta spot and forward power prices, ” said Mr. Vaasjo. “The 2015 forward curve has dropped from $49 per megawatt-hour at the beginning of December to $35 per megawatt-hour currently. Our actions over the last several years including our hedging program and cost reductions anticipated lower pricing in 2015. Despite the relatively significant drop in power prices to $35 per megawatt-hour, our 2015 funds from operations expectation remains in the target range but at the lower end. Capital Power’s financial strength is based on a foundation of strong contracted cash flow which is not impacted by changing Alberta power prices and, accordingly, we remain confident in our credit rating and dividend growth outlook.”
|Operational and Financial Highlights 1
|Three months ended
|Year ended December 31|
|(millions of dollars except per share and operational amounts)||2014||2013||2014||2013|
|Electricity generation (excluding acquired Sundance PPA) (GWh)||3,204||3,925||12,376||16,130|
|Generation plant availability (excluding acquired Sundance PPA) (%)||94%||93%||95%||93%|
|Adjusted EBITDA 2||$141||$119||$423||$509|
|Net income attributable to shareholders of the Company||$39||$77||$46||$175|
|Normalized earnings attributable to common shareholders 2||$17||$32||$59||$127|
|Basic earnings per share||$0.40||$0.89||$0.28||$2.13|
|Diluted earnings per share||$0.40||$0.89||$0.28||$2.08|
|Normalized earnings per share 2||$0.20||$0.40||$0.72||$1.74|
|Funds from operations 2||$102||$110||$362||$426|
|Purchase of property, plant and equipment and other assets||$57||$59||$220||$943|
|Business acquisition, net of acquired cash||$18||$ –||$18||$ –|
|Dividends per common share, declared||$0.340||0.315||1.310||1.260|
1. The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the audited Consolidated Financial Statements for the year ended December 31, 2014.
2. Earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange losses, and gains on disposals (adjusted EBITDA), normalized earnings attributable to common shareholders, normalized earnings per share and funds from operations 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.
Genesee 4 and 5
On April 24, 2014, Capital Power and ENMAX executed a purchase and sale agreement in support of a joint arrangement agreement to jointly develop, construct and operate Genesee 4 and 5. The joint arrangement agreement provides for, among other things, an agreement for ENMAX to purchase approximately 225 MW from Capital Power for eight years. The joint arrangement agreement closing occurred in July 2014.
On January 8, 2015, Capital Power and ENMAX announced that the project received all major regulatory approvals from the Alberta Utilities Commission and Alberta Environment and Sustainable Resource Development. They also announced the execution of agreements with Mitsubishi Hitachi Power Systems for the supply and maintenance of the world’s most advanced J-Class natural gas turbine technology in commercial operation with a targeted completion date as early as 2018.
The capital cost for the project, excluding interest to fund construction and refundable transmission system contribution payments, is expected to be approximately $1.4 billion.
Acquisition of renewable development sites
On December 19, 2014, Capital Power acquired Element Power US, LLC (Element Power) for $18 million (US$15 million) net of cash acquired. The purchase also provides for contingent consideration of $12 million (US$10 million) which is payable upon reaching specified milestones in connection with the development sites acquired. Element Power provides Capital Power with a portfolio of attractive wind and solar energy development sites in the United States. The development sites consist of 10 wind sites and 4 solar sites including a North Carolina site with a 15 MW solar contract with Duke Energy Progress, Inc. The acquisition also includes Macho Springs, a 50 MW wind project in New Mexico that has been operating since 2011 under a 20-year power purchase arrangement with Tucson Electric Power. The Federal Energy Regulatory Commission approved the transfer of Macho Springs on December 16, 2014.
Write-down of deferred tax assets
Capital Power’s 2014 net income was negatively impacted by a non-cash write-down of deferred tax assets of $73 million in the third quarter. The write-down related to the accounting impact of U.S. income tax loss carryforwards that can no longer be recognized for accounting purposes based on the Company’s current long-term forecast for U.S. taxable income. The forecast showed a decline in taxable income over the latter years of the forecast period. For income tax purposes, these U.S. net operating losses do not expire until the 2027 to 2033 period. Accordingly, they retain economic value and could result in the Company recording deferred tax assets in the future. The Company continues to pursue U.S. contracted power opportunities and the U.S. business development pipeline is active. Importantly, the write-down is a non-cash item and had no impact on operations or other key performance measures.
On July 25, 2014, the Company announced that its Board of Directors approved a 7.9% increase in the annual dividend for holders of its common shares, from $1.26 per common share to $1.36 per common share. This increased common dividend commenced with the third quarter 2014 quarterly dividend payment paid on October 31, 2014 to shareholders of record at the close of business on September 30, 2014.
Genesee coal mine
Capital Power is a party to various agreements with Prairie Mines & Minerals Royalty Ltd. (PMRL) in relation to the operations of the Genesee coal mine (Genesee Coal Mine Agreements). Pursuant to the Genesee Coal Mine Agreements, PMRL operates the Genesee coal mine. In connection with the 2014 acquisition by Westmoreland Coal Company (Westmoreland) of PMRL and the 2014 acquisition by Altius Minerals Corporation (Altius) of the royalty assets of PMRL, the Genesee Coal Mine Agreements and certain related agreements were, among other things, amended to: (a) confirm the acquisitions by Westmoreland and Altius; (b) provide for certain amendments to the Genesee Coal Mine Agreements; and (c) provide for a payment to Capital Power of $20 million upon completion of the acquisitions; the payment was received in the second quarter of 2014.
Construction of K2 Wind Power Project commences
On March 24, 2014, construction of the K2 Wind Power Project (K2 Wind) commenced following the successful completion of an $850 million financing in the form of a construction loan that will convert to long-term project debt once K2 Wind starts commercial operations. K2 Wind is a 270 MW wind power project located in Goderich, Ontario that is under joint development by Samsung Renewable Energy, Inc., Pattern Energy Group LP and Capital Power with operations expected to commence in the second half of 2015. The total estimated project cost has been revised upward to $930 million from the previous upper end of range of $900 million primarily due to foreign exchange changes on U.S. contract deliverables. Capital Power’s share is $310 million. As a higher portion of the project is expected to be financed with project debt than originally forecast, Capital Power expects higher equity returns on the project.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on February 23, 2015 at 11:00 AM (ET) to discuss the fourth quarter results. The conference call dial-in numbers are:
(604) 681-8564 (Vancouver)
(403) 532-5601 (Calgary)
(416) 623-0333 (Toronto)
(514) 687-4017 (Montreal)
(855) 353-9183 (toll-free from Canada and USA)
Participant access code for the call: 21543#
A replay of the conference call will be available following the call at: (855) 201-2300 (toll-free) and entering conference reference number 1149970# followed by participant code 21543#. The replay will be available until May 24, 2015.
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) funds from operations, (iii) cash flow per share, (iv) discretionary cash flow, (v) normalized earnings attributable to common shareholders, and (vi) 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 are, therefore, unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to gross income, net income, net income attributable of 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. Reconciliations of adjusted EBITDA to gross income, operating income and net income, funds from operations to net cash flows from operating activities and normalized earnings attributable to common shareholders to net income attributable to shareholders of the Company are contained in the Company’s Management’s Discussion and Analysis, prepared as of February 20, 2015, for the year ended December 31, 2014 which is available under the Company’s profile on SEDAR at www.SEDAR.com.
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 expectations regarding: (i) negative impacts on Alberta’s economic growth, and (ii) 2015 funds from operations in the low end of target range.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) performance, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status and impact of policy, legislation and regulation, 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 prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting and tax legislation, (iv) power plant availability and performance including maintenance of equipment, (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 market prices and availability of fuel, and (viii) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis, prepared as of February 20, 2015, for further discussion of these and other risks.