EDMONTON, Alberta – Capital Power Corporation (TSX: CPX) today released financial results for the quarter ended June 30, 2020.
- Generated net cash flows from operating activities of $91 million and adjusted funds from operations (AFFO) of $97 million in the second quarter of 2020
- Generated net income of $23 million and adjusted EBITDA of $217 million in the second quarter of 2020
- Proceeding with the Strathmore Solar project that will add 40.5 megawatts in early 2022
- Proceeding with the third phase of the Whitla Wind facility that will add 54 megawatts in late 2021
- Capital Power Executive team realigned for the future
- Increased the common share dividend by 6.8% to $2.05 per year representing the seventh consecutive annual increase
“Capital Power’s financial results in the second quarter of 2020 were in line with management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “We continue to see minimal impact on our cash flow generation from COVID-19 given the strong operating performance of our facilities combined with a highly contracted and diversified portfolio of generation assets. Our Alberta merchant exposure for the balance of 2020 is significantly hedged and based on our forecast for the remainder of the year, we are on track to deliver AFFO near the midpoint and adjusted EBITDA above the midpoint of our $500 million to $550 million and $935 million to $985 million annual guidance ranges for 2020, respectively.”
“We continued to make progress on our annual $500 million committed capital for growth target by announcing in June that we are proceeding with phase 3 of the Whitla Wind facility, and once all three phases of the facility are completed at the end of 2021, it will be Alberta’s largest wind facility with 353 megawatts of generation capacity,” added Mr. Vaasjo. “To further expand our renewable portfolio, we are also moving ahead with the 40.5 megawatt Strathmore Solar project in Alberta, which will be our first solar development project in Canada.”
“Capital Power also went through a process of more effectively and efficiently aligning responsibilities as well as recognizing the increasing complexity of both employees in the new work world and Environmental, Social and Governance impacts,” said Mr. Vaasjo. “This resulted in a realignment of Executive responsibilities, new Executive appointments and a net reduction of 12 positions in the Company.”
“I am pleased to announce that the Board of Directors has approved a 6.8% per common share dividend increase effective with the third quarter 2020 dividend payment, which is consistent with our 7% annual dividend growth guidance to 2021 and 5% for 2022,” stated Mr. Vaasjo. “The annualized dividend of $2.05 per year is forecasted to be below our long-term AFFO payout ratio target of 45% to 55% in 2020.”
|Operational and Financial Highlights 1
|Three months ended
|Six months ended
|(millions of dollars except per share and operational amounts)||2020||2019||2020||2019|
|Electricity generation (Gigawatt hours)||5,472||5,500||11,034||11,282|
|Generation facility availability||92%||92%||92%||94%|
|Revenues and other income 3||$435||$366||$968||$763|
|Adjusted EBITDA 2, 3||$217||$191||$451||$393|
|Net income 3||$23||$106||$23||$166|
|Net income attributable to shareholders of the Company 3||$23||$108||$25||$169|
|Basic earnings (loss) per share 3||$0.10||$0.93||$(0.02)||$1.42|
|Diluted earnings (loss) per share 3||$0.09||$0.92||$(0.02)||$1.41|
|Normalized earnings attributable to common shareholders 2,3||$18||$15||$46||$45|
|Normalized earnings per share 2, 3||$0.17||$0.14||$0.44||$0.44|
|Net cash flows from operating activities||$91||$114||$194||$310|
|Adjusted funds from operations 2||$97||$85||$215||$202|
|Adjusted funds from operations per share 2||$0.92||$0.82||$2.04||$1.97|
|Purchase of property, plant and equipment and other assets||$87||$279||$186||$330|
|Dividends per common share, declared||$0.4800||$0.4475||$0.9600||$0.8950|
- The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the unaudited condensed interim consolidated financial statements for the six months ended June 30, 2020.
- 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 and adjusted funds from operations 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.
- Includes depreciation and amortization for the three months ended June 30, 2020 and 2019 of $121 million and $122 million, respectively, and for the six months ended June 30, 2020 and 2019 of $254 million (including the $13 million write-off of capital costs related to the discontinuation of the Genesee 4 and 5 project and $3 million related to the termination of East Windsor steam contract) and $220 million, respectively. Forecasted depreciation and amortization for the remainder of 2020 is $119 million per quarter, for the third and fourth quarters.
Whitla Wind 3 project proceeding
In June 2020, the Company announced that, subject to successful permitting and receipt of regulatory approvals, it is moving forward with the third phase of the Whitla Wind facility which will add 54 megawatts (MW) in late 2021. Capital Power will leverage its construction experience from Whitla Wind 1, to deliver Whitla Wind 3 with an expected capital cost of $92 million.
Whitla Wind 3 will generate carbon credits that can be used to hedge against Capital Power’s carbon compliance costs from its Alberta thermal generation facilities. Both construction activities and discussions around renewable offtake contracts for Whitla Wind 3 are expected to occur concurrently with those of Whitla Wind 2 and the Company is in active discussions with commercial and industrial customers for renewable offtake contracts for Whitla Wind 2 and 3.
Signed agreements for the extension of wind facility LTSAs and Whitla Wind 2 and 3 turbine supply
In late April 2020, the Company signed agreements with Vestas setting the terms for 10-year LTSA extensions for the maintenance of nine of the Company’s wind facilities and the supply of turbines for the 97 MW of capacity of Whitla Wind 2 with commercial operations expected in 2021. The agreement for the supply of turbines for Whitla Wind 2 contained an option to supply turbines for Whitla Wind 3, which the Company has exercised in the second quarter of 2020.
The agreement for the 10-year extension on the series of LTSAs with Vestas covers a wider scope of services for all of our Vestas-equipped wind facilities while reducing costs by an estimated 26% compared to current service and maintenance agreements. Once individual facility LTSAs have been finalized later in the year and each of the new LTSAs become effective, the Company expects to realize ongoing annual savings on the Company’s wind facilities covered under the agreement, which would increase adjusted EBITDA and AFFO by approximately $8 million and $6 million per year, respectively. The new LTSAs are expected to take effect between 2021 and 2023.
Acquisition of Buckthorn Wind
On April 1, 2020, the Company acquired a 100% ownership interest in Buckthorn Wind, a 101 MW wind facility, from co-sellers John Laing Investments and Clearway Renew LLC, a subsidiary of Clearway Energy Group LLC. The purchase price consisted of (i) $84 million (US$60 million) in total cash consideration, including working capital and other closing adjustments, (ii) the assumption of tax equity financing of $103 million (US$73 million) and (iii) contingent consideration valued at nil. Contingent consideration, to a maximum of US$8 million, would become payable in the future if certain market outcomes lead to Buckthorn Wind exceeding agreed upon thresholds. At this time, the Company considers the likelihood of contingent consideration payment to be low, resulting in no value being ascribed to the contingent consideration in the purchase price allocation.
Buckthorn Wind is located in Erath County, approximately 60 miles south of Dallas, Texas and began commercial operations in January 2018. It operates in the liquid Electric Reliability Council of Texas (ERCOT) North region between most of the wind generation in ERCOT-West and the Dallas load center. The ERCOT North region has strong fundamentals with a high likelihood of baseload generation retirements and is one of the fastest growing regions in the United States.
Buckthorn Wind has a 15-year weighted average contract life remaining with two offtake arrangements including one with JPMorgan Chase Bank involving a 20-year contract for differences (CfD) for 55% of the generation output, and a 13-year financial hedge for the remaining 45% of the output. The long-term contracts strengthen the Company’s contracted cash flow profile while expanding our renewables portfolio.
Buckthorn Wind has a tax equity investor (TEI) where the TEI receives the majority of the cash flows prior to the date on which the TEI reaches the agreed upon target rate of return (the flip date). The flip date is expected to occur in the late 2020s. Prior to the flip date, the Company expects average annual adjusted EBITDA and AFFO to be approximately $18 million (US$14 million) and $1 million (US$1 million), respectively. After the flip date during the CfD, the average annual adjusted EBITDA and AFFO are expected to be approximately $9 million (US$8 million) and $6 million (US$5 million), respectively.
Cardinal Point Wind begins commercial operations
On March 16, 2020, Cardinal Point Wind, a 150 MW facility in the McDonough and Warren Counties, Illinois, began commercial operations. Subsequently, the Company received approximately $221 million (US$157 million) in tax equity financing on March 26, 2020, net of issue costs of $3 million (US$2 million) associated with the financing, from two U.S. financial institutions in exchange for Class A interests of a subsidiary of the Company. The construction of the facility was completed on-schedule and within its projected total cost of US$236 million to US$246 million.
Capital Power will operate Cardinal Point Wind under a 12-year fixed price contract with an investment grade U.S. financial institution covering 85% of the facility’s output. The expected adjusted EBITDA and AFFO in the first full year of operations is $56 million (US$40 million) and $6 million (US$4 million), respectively.
Discontinuation of the Genesee 4 and 5 project
During the first quarter of 2020, the Company and its partner on the Genesee 4 and 5 project determined that they would no longer be pursuing the project. Arbitration has commenced between the Company and its partner around the costs of exiting the series of agreements previously entered into. As a result of the decision to no longer pursue the project, the Company has determined that $13 million of capital expenditures incurred by the Company were purely related to the development of Genesee 4 and 5. The Company has therefore recorded a write-off of these capital costs during the first quarter of 2020 within depreciation and amortization.
Strathmore Solar project proceeding
On July 30, 2020, the Company announced that, subject to successful permitting and regulatory approvals, it is moving forward with the Strathmore Solar project, in Strathmore Alberta, which will add 40.5 MW in early 2022. This will be the Company’s first solar pr/operations/strathmore-solaroject in Canada and will have an expected capital cost in the range of $50 million to $55 million.
Strathmore Solar will generate carbon credits that can be used to hedge against Capital Power’s carbon compliance costs from its Alberta thermal generation facilities. The Company expects a portion of the output from Strathmore Solar to be sold under renewable offtake contracts and is actively pursuing contracting opportunities. The Company expects average annual adjusted EBITDA and AFFO to be approximately $5 million and $5 million, respectively, over the first five years of the project.
On July 30, 2020, Capital Power and the Board of Directors announced the following executive position appointments effective immediately:
- Kate Chisholm, Senior Vice President Planning and Stakeholder Relations and Chief Sustainability Officer,
- Bryan DeNeve, Senior Vice President Business Development and Commercial Services,
- Sandra Haskins, Senior Vice President Finance and Chief Financial Officer,
- Chris Kopecky, Senior Vice President and Chief Legal Officer, and
- Jacquie Pylypiuk, Senior Vice President People, Culture and Technology.
Darcy Trufyn continues to serve as the Senior Vice President Operations, Engineering and Construction. Mark Zimmerman, who previously served as the Senior Vice President, Corporate Development and Commercial Services, will be stepping down from his role effective July 30, 2020.
Reinstatement of Dividend Reinvestment Plan
On July 30, 2020, the Company reinstated its Dividend Reinvestment Plan (the Plan) which was previously suspended on June 30, 2015 (the suspension). Eligible shareholders may elect to participate in the Plan commencing with the Company’s third quarter 2020 cash dividend. The reinstated Plan will provide eligible shareholders with an alternative to receiving their quarterly cash dividends. Under the Plan, eligible shareholders may elect to efficiently and cost-effectively accumulate additional shares in the Company by reinvesting their quarterly cash dividends on the applicable dividend payment date in new shares issued from treasury. The new shares will be issued at a discount of 3% to the average closing price on the Toronto Stock Exchange for the ten trading days immediately preceding the applicable Dividend Payment Date. Participation in the Plan is optional. Those shareholders who do not enroll in the Plan will still be entitled to receive their quarterly cash dividends. Shareholders that were enrolled in the Plan upon suspension, and remain enrolled with the Plan administrator, will automatically resume participation in the Plan.
The Company reserves the right to limit the amount of new equity available under the Plan on any particular dividend payment date. No assurances can be made that new shares will be made available under the Plan on a quarterly basis, or at all. Accordingly, participation may be prorated in certain circumstances. If on any dividend payment date the Company determines not to issue any equity under the Plan, or the availability of new shares is prorated in accordance with the terms of the Plan, then participants will be entitled to receive from the Company the full amount of their regular quarterly cash dividend for each share in respect of which the dividend is payable but cannot be reinvested under the Plan in accordance with the applicable election.
No commissions, service charges or similar fees will be payable in connection with the purchase of shares from treasury under the Plan. All administrative costs of the Plan will be paid by the Company. Shareholders who wish to participate in the Plan indirectly through the brokers, investment dealers, financial institutions or other similar nominees through which their shares are held should consult such nominees to confirm whether commissions, service charges or similar fees are payable.
Participation in the Plan will not relieve shareholders of any liability for taxes that may be payable in respect of dividends that are reinvested in new shares under the Plan. Shareholders should consult their tax advisors concerning the tax implications of their participation in the Plan having regard to their particular circumstances.
On July 29, 2020, the Company’s Board of Directors approved an increase of 6.8% in the annual dividend for holders of its common shares, from $1.92 per common share to $2.05 per common share. This increased common share dividend will commence with the third quarter 2020 quarterly dividend payment on October 30, 2020 to shareholders of record at the close of business on September 30, 2020.
Analyst conference call and webcast
Capital Power will be hosting a conference call and live webcast with analysts on July 30, 2020 at 9:00 am (MT) to discuss the second quarter financial results. The conference call dial-in number is:
(855) 327-6838 (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) 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 emission credits (adjusted EBITDA), (ii) adjusted funds from operations, (iii) adjusted funds from operations 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
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 2020 AFFO and dividend growth guidance, (ii) forecasted depreciation for the remainder of 2020, (iii) expected timing of commencement of commercial operations of Whitla Wind 2 and 3 and expected capital costs of Whitla Wind 3, (iv) expectations around the Vestas agreements including cost reductions, impacts on adjusted EBITDA and AFFO and timing of finalizing facility LTSAs as well as the years they will become effective (v) expectations around the likelihood of meeting the threshold and paying out contingent consideration related to Buckthorn Wind, (vi) expectations pertaining to the financial impacts of the acquisition of Buckthorn Wind, including the impacts to adjusted EBITDA and adjusted funds from operations, (vii) the expected timing of when the Buckthorn Wind tax equity investor reaches the agreed upon target rate of return, (viii) expectations pertaining to the financial impacts of Cardinal Point Wind in its first full year of operations, including the impacts to adjusted EBITDA and adjusted funds from operations, and (ix) expectations pertaining to Strathmore Solar including timing and costs of construction and financial impacts including impacts to adjusted EBITDA and adjusted funds from operations.
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 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 opportunities) and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, (v) effective tax rates, (vi) foreign exchange rates, and (vii) anticipated performance of Buckthorn Wind, Cardinal Point Wind, and Strathmore Solar.
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, market structure and tax legislation, (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 market prices and availability of fuel, (viii) ability to realize the anticipated benefits of the Buckthorn Wind acquisition, (ix) limitations inherent in the Company’s review of acquired assets, and (x) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s Management’s Discussion and Analysis for both the six months ended June 30, 2020, prepared as of July 29, 2020 and for the year ended December 31, 2019, prepared as of February 21, 2020, 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 power producer headquartered in Edmonton, Alberta. The company develops, acquires, owns, and operates power generation facilities using a variety of energy sources. Capital Power owns over 6,400 MW of power generation capacity at 28 facilities across North America. Approximately 190 MW of owned generation capacity is in advanced development in Alberta.