Calpine Corporation (NYSE: CPN):
Summary of First Quarter 2017 Financial Results (in
millions):
Three Months Ended March 31, 2017
2016 % Change
Operating Revenues $ 2,281 $ 1,615 41.2 % Income from operations $
72 $ 3
NM
Cash provided by operating activities $ 94 $ 31 203.2 % Net Loss1 $
(56 ) $ (198 ) 71.7 % Commodity Margin2 $ 558 $ 580 (3.8 )%
Adjusted EBITDA2 $ 326 $ 374 (12.8 )% Adjusted Free Cash Flow2 $ 43
$ 102 (57.8 )% Net Loss, As Adjusted2 $ (114 ) $ (104 ) (9.6 )%
Weighted Average Shares Outstanding (diluted) 355 354
Reaffirming 2017 Full Year Guidance (in millions):
2017 Adjusted EBITDA2 $1,800 - 1,950
Adjusted Free Cash Flow2 $710 - 860
Recent Achievements:
- Power and Commercial Operations:—
Generated more than 21 million MWh3 in the first quarter of 2017—
Delivered strong fleetwide starting reliability: 97.5%
- Portfolio Management:— Signed a 10-year
PPA with Guadalupe Valley Electric Cooperative for 200 MW beginning
in 2019, concurrently canceling construction of a 418 MW natural
gas-fired peaking power plant in Texas— Retired 400 MW Clear Lake
Power Plant due to lack of adequate compensation in Texas—
Monetizing legacy site through an agreement to construct and sell
an approximately 360 MW natural gas-fired peaking power plant to
Entergy Louisiana after commercial operation, expected in early
2021— Negotiating Reliability Must Run contracts with CAISO for two
natural gas-fired peakers in California— Closed on the sale of
Osprey Energy Center to Duke Energy for $166 million4— Acquired
growing residential retail provider North American Power for
approximately $105 million4, representing an attractively priced
portfolio addition to our Champion Energy retail platform
- Balance Sheet Management:— As part of
our $2.7 billion plan to delever and reduce interest expense, we
paid down approximately $233 million of debt (net) in the first
quarter of 2017 out of $850 million paydown planned for 2017
Calpine Corporation (NYSE: CPN) today reported Net Loss1 of $56
million, or $0.16 per diluted share, for the first quarter of 2017
compared to $198 million, or $0.56 per diluted share, in the prior
year period. The period-over-period decrease in Net Loss was
primarily due to the favorable variance in our net mark-to-market
activities driven by changes in forward commodity prices and the
positive effect of our retail hedging activities. Cash provided by
operating activities for the first quarter of 2017 was $94 million
compared to $31 million in the prior year. The increase in cash
provided by operating activities was primarily due to a decrease in
working capital employed resulting from the period over period
change in net margining requirements associated with our commodity
hedging activity, partially offset by a decrease in income from
operations, adjusted for non-cash items.
Adjusted EBITDA2 for the first quarter was $326 million compared
to $374 million in the prior year period, and Adjusted Free Cash
Flow2 was $43 million compared to $102 million in the prior year
period. The decreases in Adjusted EBITDA and Adjusted Free Cash
Flow were primarily due to lower Commodity Margin2, largely driven
by lower energy margins due to decreased contribution from
wholesale hedges and weaker market conditions, lower regulatory
capacity revenue in our East segment and the sales of Mankato Power
Plant in October 2016 and Osprey Energy Center in January 2017.
These changes were partially offset by our retail acquisitions of
Calpine Energy Solutions in December 2016 and North American Power
in January 2017.
Net Loss, As Adjusted2, for the first quarter of 2017 was $114
million compared to $104 million in the prior year period. The
increase in Net Loss, As Adjusted, was primarily due to lower
Commodity Margin, as previously discussed, as well as increases in
plant operating expense and depreciation and amortization expense
primarily due to our retail acquisitions, partially offset by a
higher income tax benefit resulting primarily from changes in
estimated tax benefits and a favorable adjustment to our reserve
for uncertain tax positions.
“This year’s first quarter results reflect our ability to meet
our financial commitments despite a very mild winter in Texas and
the East and above-normal hydroelectric generation in the West,”
said Thad Hill, Calpine’s President and Chief Executive Officer.
“We are reaffirming our full year guidance range of $1.8 to $1.95
billion of Adjusted EBITDA, given upside in the back half of the
year from our retail acquisitions and higher regulatory capacity
payments in the East.
“During the quarter, we began executing on our deleveraging plan
while continuing to make progress on controlling costs and
integrating our retail platform. We have completed $233 million of
our full year target of $850 million in debt reduction, and we are
on track to complete our $2.7 billion of planned debt paydown by
the end of 2019.
“We also continued our relentless focus on managing our
portfolio for long-term value. Specifically, I am pleased to
announce three great examples of how our customer-focused efforts
helped us find mutually beneficial solutions. First, we have signed
a 10-year PPA with Guadalupe Valley Electric Cooperative to supply
200 MW of power from our existing Texas fleet, replacing our prior
agreement to construct a new 418 MW peaking power plant. Secondly,
we are announcing the monetization of a legacy development site in
Louisiana, where we have entered into a construction and sale
agreement with Entergy Louisiana for a natural gas-fired peaking
power plant. Finally, we completed the sale of our Osprey Energy
Center to Duke Energy Florida.
“We also took further action to economically optimize our
portfolio by filing to retire four of our natural gas-fired peakers
in California at the beginning of 2018 when their contracts expire.
The California Independent System Operator has since declared that
two of the units are required for reliability, and we are currently
negotiating Reliability Must Run contracts that will appropriately
compensate us for providing critical reliability to the grid.
“Finally, we have been advocating for competitive power markets,
including opposing out-of-market nuclear bailouts that are being
debated or implemented in multiple states. We fundamentally
disagree with adding more subsidies into functioning wholesale
markets and are actively challenging them at the state level and in
the courts. Regardless of those outcomes, we are optimistic that
independent system operators and the new FERC will move through
tariff reform to protect the integrity of their markets from state
intervention. Competitive wholesale power markets need to provide
non-discriminatory forward price signals that result in
market-driven solutions that ensure reliable power. Calpine’s
clean, modern and flexible fleet is integral to maintaining
reliability in each of our wholesale power markets.”
________
1 Reported as Net Loss attributable to Calpine on our
Consolidated Condensed Statements of Operations.
2 Non-GAAP financial measure, see “Regulation G Reconciliations”
for further details.
3 Includes generation from power plants owned but not operated
by Calpine and our share of generation from unconsolidated power
plants.
4 Excluding working capital and other adjustments.
SUMMARY OF FINANCIAL
PERFORMANCE
First Quarter Results
Adjusted EBITDA for the first quarter of 2017 was $326 million
compared to $374 million in the prior year period. The
year-over-year decrease in Adjusted EBITDA was primarily related to
a $22 million decrease in Commodity Margin and $24 million increase
in plant operating expense5, which was largely driven by net
portfolio changes including our retail acquisitions, as previously
discussed. The decrease in Commodity Margin was primarily due
to:
– lower energy
margins due to decreased contribution from wholesale hedges and
weaker market conditions due to milder weather in the Texas and
East segments and increased hydroelectric generation in the West
segment, – lower regulatory capacity revenue, primarily in the East
segment and – the net impact of our portfolio management
activities, including the sales of Mankato Power Plant in October
2016 and Osprey Energy Center in January 2017, partially offset by
+ increased contribution from our retail hedging activity following
our retail acquisitions, as previously discussed, and + the
positive effect of a new PPA associated with our Morgan Energy
Center in the East segment, which became effective in February
2016.
Adjusted Free Cash Flow was $43 million in the first quarter of
2017 compared to $102 million in the prior year period. Adjusted
Free Cash Flow decreased due to lower Adjusted EBITDA, as
previously discussed, and higher major maintenance capital
expenditures primarily due to improvements of our Geysers
assets.
__________
5 Increase in plant operating expense excludes changes in major
maintenance expense, stock-based compensation expense, non-cash
loss on disposition of assets and other costs. See the table titled
“Consolidated Adjusted EBITDA Reconciliation” for the actual
amounts of these items for the three months ended March 31, 2017
and 2016.
REGIONAL SEGMENT REVIEW OF
RESULTS
Table 1: Commodity Margin by Segment (in millions)
Three Months Ended March 31, 2017
2016 Variance West $ 221
$ 197 $ 24 Texas 148 153 (5 ) East 189 230 (41 )
Total $ 558 $ 580 $ (22 )
West Region
First Quarter: Commodity Margin in our West segment increased by
$24 million in the first quarter of 2017 compared to the prior year
period. Primary drivers were:
+ increased
contribution from the expansion of our retail portfolio following
the acquisition of Calpine Energy Solutions in December 2016, +
higher resource adequacy payments and + increased generation at our
Geysers assets, which were recovering from the effects of a
wildfire in the first quarter of 2016, partially offset by – lower
contribution from wholesale hedging activity and lower spark
spreads driven by higher hydroelectric generation in the region.
Texas Region
First Quarter: Commodity Margin in our Texas segment decreased
by $5 million in the first quarter of 2017 compared to the prior
year period. Primary drivers were:
– lower
contribution from hedges, – lower generation driven by weaker
ERCOT-wide off-peak spark spreads, primarily due to an increase in
coal-fired generation in the state and – milder weather in the
first quarter of 2017.
East Region
First Quarter: Commodity Margin in our East segment decreased
$41 million in the first quarter of 2017 compared to the prior year
period. Primary drivers were:
– lower
contribution from wholesale hedges and lower realized spark
spreads, particularly in New England, – lower regulatory capacity
revenue in PJM and – the net impact of portfolio management
activities, including the sales of Mankato Power Plant in October
2016 and Osprey Energy Center in January 2017, partially offset by
+ higher contribution from our retail hedging activity in 2016
following the acquisition of Calpine Energy Solutions in December
2016 and North American Power in January 2017 and + the positive
effect of a new PPA associated with our Morgan Energy Center, which
became effective in February 2016.
LIQUIDITY, CASH FLOW AND CAPITAL
RESOURCES
Table 2: Liquidity (in millions)
March 31, 2017 December 31,
2016 Cash and cash equivalents, corporate(1) $ 153 $ 345 Cash
and cash equivalents, non-corporate 90 73 Total cash and
cash equivalents 243 418 Restricted cash 177 188 Corporate
Revolving Facility availability(2) 1,294 1,255 CDHI letter of
credit facility availability 63 50 Total current liquidity
availability(3) $ 1,777 $ 1,911
____________
(1) Includes $9 million and $16 million of margin deposits
posted with us by our counterparties at March 31, 2017, and
December 31, 2016, respectively.
(2) Our ability to use availability under our Corporate
Revolving Facility is unrestricted.
(3) Our ability to use corporate cash and cash equivalents is
unrestricted. Our $300 million CDHI letter of credit facility is
restricted to support certain obligations under PPAs and power
transmission and natural gas transportation agreements.
Liquidity was approximately $1.8 billion as of March 31,
2017. Cash and cash equivalents decreased in the first quarter of
2017 primarily due to the acquisition of North American Power,
capital expenditures on construction projects and outages, and net
repayments of debt, partially offset by cash provided by the sale
of Osprey Energy Center, as well as from operating activities.
Table 3: Cash Flow Activities (in millions)
Three Months Ended March 31, 2017
2016 Beginning cash and cash equivalents $ 418
$ 906 Net cash provided by (used in): Operating
activities 94 31 Investing activities (13 ) (611 ) Financing
activities (256 ) (82 ) Net decrease in cash and cash equivalents
(175 ) (662 ) Ending cash and cash equivalents $ 243 $ 244
Cash provided by operating activities in the first quarter of
2017 was $94 million compared to $31 million in the prior year
period, as previously discussed.
Cash used in investing activities was $13 million during the
first quarter of 2017 compared to $611 million in the prior year
period. The decrease was primarily related to acquisitions,
divestitures and capital expenditures. In the first quarter of
2017, we closed on the acquisition of North American Power for $111
million and closed on the sale of Osprey Energy Center, receiving
net proceeds of $162 million. In the first quarter of 2016, we
purchased Granite Ridge Energy Center for $527 million. There was
also a decrease of $42 million for capital expenditures primarily
due to lower expenditures on construction projects and outages
during the first quarter of 2017 as compared to 2016.
Cash used in financing activities was $256 million during the
first quarter of 2017 and primarily related to net repayment of
debt in accordance with our deleveraging plan.
CAPITAL ALLOCATION
Our capital allocation philosophy seeks to maximize levered cash
returns to equity while maintaining a strong balance sheet. We seek
to enhance shareholder value through a diverse and balanced capital
allocation approach that includes portfolio management, organic or
acquisitive growth, returning capital to shareholders and debt
reduction. The mix of this activity shifts over time given the
external market environment and the opportunity set. In the current
environment, we believe that paying down debt and strengthening our
balance sheet is a high-return investment for our shareholders. We
also consider the repurchases of our own shares of common stock as
an attractive investment opportunity, and we utilize the expected
returns from this investment as the benchmark against which we
evaluate all other capital allocation decisions. We believe this
philosophy closely aligns our objectives with those of our
shareholders.
Managing Our Balance
Sheet
We further optimized our capital structure during the quarter
ended March 31, 2017, as follows:
2023 First Lien Notes:
— As part of our commitment to reduce debt
and interest expense, on March 6, 2017, we redeemed the remaining
$453 million of our 7.875% First Lien Notes due in 2023 using cash
on hand along with the proceeds from a new $400 million, three-year
First Lien Term Loan priced at LIBOR + 1.75% per annum. We intend
to repay the 2019 First Lien Term Loan in full by the end of 2018.
This accelerates debt reduction and results in substantial annual
interest savings of more than $20 million in the interim.
2017 First Lien Term Loan:
— We repaid approximately $150 million of our
2017 First Lien Term Loan using cash on hand during the first
quarter of 2017.
Expanding Our Customer Sales
Channels
We continue to focus on getting closer to our customers through
expansion of our retail platform, which began with the acquisition
of Champion Energy in 2015 and was followed by the acquisitions of
Calpine Energy Solutions in late 2016 and North American Power in
early 2017. Our retail platform geographically and strategically
complements our wholesale generation fleet by providing forward
liquidity with sufficient margins. The combination of our wholesale
origination and retail platform provides Calpine access to both
direct and mass market sales channels. Our direct sales efforts aim
to provide our larger customers with customized products,
leveraging both our successful wholesale origination efforts and
Calpine Energy Solutions’ presence among large commercial and
industrial organizations to secure new contracts. Our mass market
approach relies upon our expanded Champion Energy retail platform
to serve the needs of both residential and smaller commercial and
industrial customers across the country. We believe that our retail
platform is strategically complete and are now focused on
integrating it into our business and optimizing its financial
performance.
Acquisition of North American Power & Gas, LLC
On January 17, 2017, we completed the purchase of North American
Power for approximately $105 million, excluding working capital and
other adjustments. North American Power is a growing retail energy
supplier for homes and small businesses and is primarily
concentrated in the Northeast U.S., where Calpine has a substantial
power generation presence and where Champion Energy has a
substantial retail sales footprint that is enhanced by the addition
of North American Power, which has been integrated into our
Champion Energy retail platform. With this acquisition, we now
serve residential load in 63 utility service territories as
compared to 51 in 2016.
Portfolio Management
East:
Washington Parish: On April 21, 2017, we entered into an
agreement with Entergy Louisiana (Entergy), a subsidiary of Entergy
Corporation, to construct an approximately 360 MW natural gas-fired
peaking power plant on a partially developed site that we own near
Bogalusa, Louisiana. Within a short period of time subsequent to
the plant commencing commercial operations and meeting certain
performance objectives, Entergy will purchase the plant for a fixed
payment, including a fair market return. Construction on the
facility will not commence until 2019 with COD expected in early
2021. The agreement contains conditions precedent to effectiveness
including, but not limited to, approval of the Louisiana Public
Service Commission. We plan to fund the project with a construction
loan that will be repaid upon receipt of sale proceeds.
York 2 Energy Center: York 2 Energy Center is an 828 MW
dual-fuel, combined-cycle project that is co-located with our York
Energy Center in Peach Bottom Township, Pennsylvania. Once
complete, the power plant will feature two combustion turbines, two
heat recovery steam generators and one steam turbine. The project
is under construction, and the initial 760 MW of capacity cleared
PJM’s last three base residual auctions with the 68 MW of
incremental capacity clearing the last two base residual auctions.
Due to construction delays, we are now targeting COD in early
2018.
Osprey Energy Center: On January 3, 2017, we completed the sale
of Osprey Energy Center to Duke Energy Florida, Inc. for
approximately $166 million, excluding working capital and other
adjustments. This transaction supports our effort to divest
non-core assets outside our strategic concentration.
Texas:
Clear Lake Power Plant: On February 1, 2017, we retired our 400
MW Clear Lake Power Plant due to a lack of adequate compensation in
Texas. Built in 1985, Clear Lake utilized an older, less efficient
technology.
Guadalupe Peaking Energy Center: In April 2017, we canceled an
agreement with Guadalupe Valley Electric Cooperative (GVEC) related
to the construction of a 418 MW natural gas-fired peaking power
plant to be co-located with our existing Guadalupe Energy
Center. In lieu of building the facility, we will now serve
GVEC with 200 MW of generating capacity under a 10-year PPA
beginning in June 2019.
West:
California Peakers: As a result of the pending expiration of a
PPA in December 2017, we informed CAISO of our intent to suspend
operations at four of our California peaking natural gas-fired
power plants with capacity totaling 186 MW. CAISO has determined
that two of these power plants, Yuba City and Feather River energy
centers, are needed to continue reliable operation of the power
grid. We are currently negotiating Reliability Must Run contracts
for these two power plants.
South Point Energy Center: As a result of the denial by the
Nevada Public Utility Commission of the sale of South Point Energy
Center to Nevada Power Company in February 2017, we terminated the
corresponding asset sale agreement in the first quarter of 2017. We
are currently assessing our options related to South Point Energy
Center.
OPERATIONS UPDATE
First Quarter Power Operations Achievements:
- Availability Performance:— Delivered
strong fleetwide starting reliability: 97.5%
- Power Generation:— Generated more than
21 million MWh3— Texas fleet: Record low first quarter forced
outage factor— Westbrook Energy Center: 100% starting reliability
across 215 starts
2017 Operating Event at our Delta Energy Center
On January 29, 2017, we experienced an operating event at our
Delta Energy Center that resulted in an emergency shutdown of the
power plant and significant damage to the steam turbine and steam
turbine generator. Our current plan is to return the unit to
service in simple-cycle steam bypass configuration in June 2017 and
full combined-cycle configuration in the fourth quarter of 2017. We
anticipate that insurance will cover a significant portion of our
losses, after applicable deductibles.
2017 FINANCIAL OUTLOOK
(in millions)
Full Year 2017 Adjusted EBITDA $
1,800 - 1,950 Less: Operating lease payments 25 Major maintenance
expense and maintenance capital expenditures(1) 435 Cash interest,
net(2) 620 Cash taxes 10 Other
—
Adjusted Free Cash Flow $ 710 - 860 Debt amortization and
repayment (3) $ (850 ) Growth capital expenditures $ (220 )
____________
(1) Includes projected major maintenance expense of $315 million
and maintenance capital expenditures of $120 million in 2017.
Capital expenditures exclude major construction and development
projects.
(2) Includes commitment, letter of credit and other fees from
consolidated and unconsolidated investments, net of capitalized
interest and interest income.
(3) Amount includes $200 million of recurring amortization, as
well as the $550 million repayment of the 2017 First Lien Term
Loan, a portion of the $453 million of our callable 7 7/8% 2023
Senior Secured Notes and the buyout of the Pasadena lessor
interest.
As detailed above, today we are reaffirming our 2017 guidance
range. We expect Adjusted EBITDA of $1.8 billion to $1.95 billion
and Adjusted Free Cash Flow of $710 million to $860 million. We
expect to invest $220 million in our ongoing growth-related
projects during 2017, primarily the construction of York 2 Energy
Center.
INVESTOR CONFERENCE CALL AND
WEBCAST
We will host a conference call to discuss our financial and
operating results for the first quarter on Friday, April
28, 2017, at 10 a.m. Eastern time / 9 a.m. Central time. A
listen-only webcast of the call may be accessed through our website
at www.calpine.com, or by dialing
(800) 446-1671 in the U.S. or (847) 413-3362 outside the U.S. The
confirmation code is 44658283. A recording of the call will be made
available for a limited time on our website or by dialing (888)
843-7419 in the U.S. or (630) 652-3042 outside the U.S. and
providing confirmation code 44658283. Presentation materials to
accompany the conference call will be posted on our website on
April 28, 2017.
ABOUT CALPINE
Calpine Corporation is America’s largest generator of
electricity from natural gas and geothermal resources with
operations in competitive power markets. Our fleet of 80 power
plants in operation or under construction represents approximately
26,000 megawatts of generation capacity. Through wholesale power
operations and our retail businesses Calpine Energy Solutions and
Champion Energy, we serve customers in 25 states, Canada and
Mexico. Our clean, efficient, modern and flexible fleet uses
advanced technologies to generate power in a low-carbon and
environmentally responsible manner. We are uniquely positioned to
benefit from the secular trends affecting our industry, including
the abundant and affordable supply of clean natural gas,
environmental regulation, aging power generation infrastructure and
the increasing need for dispatchable power plants to successfully
integrate intermittent renewables into the grid. Please visit
www.calpine.com to learn more about
how Calpine is creating power for a sustainable future.
Calpine’s Annual Report on Form 10-Q for the quarter ended March
31, 2017, has been filed with the Securities and Exchange
Commission (SEC) and is available on the SEC’s website at
www.sec.gov.
FORWARD-LOOKING
INFORMATION
In addition to historical information, this release contains
“forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act, and Section 21E of the Exchange Act.
Forward-looking statements may appear throughout this release. We
use words such as “believe,” “intend,” “expect,” “anticipate,”
“plan,” “may,” “will,” “should,” “estimate,” “potential,” “project”
and similar expressions to identify forward-looking statements.
Such statements include, among others, those concerning our
expected financial performance and strategic and operational plans,
as well as all assumptions, expectations, predictions, intentions
or beliefs about future events. We believe that the forward-looking
statements are based upon reasonable assumptions and expectations.
However, you are cautioned that any such forward-looking statements
are not guarantees of future performance and that a number of risks
and uncertainties could cause actual results to differ materially
from those anticipated in the forward-looking statements. Such
risks and uncertainties include, but are not limited to:
- Financial results that may be volatile
and may not reflect historical trends due to, among other things,
seasonality of demand, fluctuations in prices for commodities such
as natural gas and power, changes in U.S. macroeconomic conditions,
fluctuations in liquidity and volatility in the energy commodities
markets and our ability and extent to which we hedge risks;
- Laws, regulations and market rules in
the markets in which we participate and our ability to effectively
respond to changes in laws, regulations or market rules or the
interpretation thereof including those related to the environment,
derivative transactions and market design in the regions in which
we operate;
- Our ability to manage our liquidity
needs, access the capital markets when necessary and comply with
covenants under our Senior Unsecured Notes, First Lien Notes, First
Lien Term Loans, Corporate Revolving Facility, CCFC Term Loans and
other existing financing obligations;
- Risks associated with the operation,
construction and development of power plants, including unscheduled
outages or delays and plant efficiencies;
- Risks related to our geothermal
resources, including the adequacy of our steam reserves, unusual or
unexpected steam field well and pipeline maintenance requirements,
variables associated with the injection of water to the steam
reservoir and potential regulations or other requirements related
to seismicity concerns that may delay or increase the cost of
developing or operating geothermal resources;
- Competition, including from renewable
sources of power, interference by states in competitive power
markets through subsidies or similar support for new or existing
power plants, and other risks associated with marketing and selling
power in the evolving energy markets;
- Structural changes in the supply and
demand of power resulting from the development of new fuels or
technologies and demand-side management tools (such as distributed
generation, power storage and other technologies);
- The expiration or early termination of
our PPAs and the related results on revenues;
- Future capacity revenue may not occur
at expected levels;
- Natural disasters, such as hurricanes,
earthquakes, droughts, wildfires and floods, acts of terrorism or
cyber-attacks that may affect our power plants or the markets our
power plants or retail operations serve and our corporate
headquarters;
- Disruptions in or limitations on the
transportation of natural gas or fuel oil and the transmission of
power;
- Our ability to manage our counterparty
and customer exposure and credit risk, including our commodity
positions;
- Our ability to attract, motivate and
retain key employees;
- Present and possible future claims,
litigation and enforcement actions that may arise from
noncompliance with market rules promulgated by the SEC, CFTC, FERC
and other regulatory bodies; and
- Other risks identified in this press
release, in our Annual Report on Form 10-K for the year ended
December 31, 2016, and in other reports filed by us with the
SEC.
Given the risks and uncertainties surrounding forward-looking
statements, you should not place undue reliance on these
statements. Many of these factors are beyond our ability to control
or predict. Our forward-looking statements speak only as of the
date of this release. Other than as required by law, we undertake
no obligation to update or revise forward-looking statements,
whether as a result of new information, future events, or
otherwise.
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited) Three Months Ended March 31,
2017 2016 (in millions, except share
and per share amounts) Operating revenues: Commodity revenue $
2,063 $ 1,585 Mark-to-market gain 214 25 Other revenue 4
5 Operating revenues 2,281
1,615 Operating expenses: Fuel and purchased energy
expense: Commodity expense 1,533 1,006 Mark-to-market loss
159 120 Fuel and purchased energy expense
1,692 1,126 Plant operating expense 282
255 Depreciation and amortization expense 206 180 Sales, general
and other administrative expense 40 38 Other operating expenses
20 20 Total operating expenses
2,240 1,619 (Gain) on sale of assets, net (27
) — (Income) from unconsolidated subsidiaries (4 ) (7
) Income from operations 72 3 Interest expense 159 157 Debt
extinguishment costs 24 — Other (income) expense, net 2
5 Loss before income taxes (113 ) (159 )
Income tax expense (benefit) (61 ) 35 Net loss
(52 ) (194 ) Net income attributable to the noncontrolling interest
(4 ) (4 ) Net loss attributable to Calpine $ (56 ) $
(198 ) Basic and diluted loss per common share attributable
to Calpine: Weighted average shares of common stock outstanding (in
thousands) 354,682 353,501 Net loss per
common share attributable to Calpine — basic and diluted $ (0.16 )
$ (0.56 )
CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited) March 31,
2017 December 31, 2016 (in millions, except share and
per share amounts) ASSETS Current assets: Cash and cash
equivalents $ 243 $ 418 Accounts receivable, net of allowance of $8
and $6 765 839 Inventories 535 581 Margin deposits and other
prepaid expense 364 441 Restricted cash, current 162 173 Derivative
assets, current 1,387 1,725 Current assets held for sale — 210
Other current assets 65 45 Total
current assets 3,521 4,432 Property, plant and equipment, net
13,009 13,013 Restricted cash, net of current portion 15 15
Investments in unconsolidated subsidiaries 92 99 Long-term
derivative assets 670 543 Goodwill 233 187 Intangible assets, net
635 650 Other assets 401 378 Total
assets $ 18,576 $ 19,317
LIABILITIES &
STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $
655 $ 671 Accrued interest payable 125 125 Debt, current portion
608 748 Derivative liabilities, current 1,273 1,630 Other current
liabilities 459 528 Total current
liabilities 3,120 3,702 Debt, net of current portion 11,344 11,431
Long-term derivative liabilities 550 476 Other long-term
liabilities 280 369 Total liabilities
15,294 15,978 Commitments and contingencies Stockholders’
equity:
Preferred stock, $0.001 par value per
share; authorized 100,000,000 shares, none issued and
outstanding
— — Common stock, $0.001 par value per share; authorized
1,400,000,000 shares, 361,833,256 and 359,627,113 shares issued,
respectively, and 360,797,377 and 359,061,764 shares outstanding,
respectively — — Treasury stock, at cost, 1,035,879 and 565,349
shares, respectively (13 ) (7 ) Additional paid-in capital 9,633
9,625 Accumulated deficit (6,269 ) (6,213 ) Accumulated other
comprehensive loss (139 ) (137 ) Total Calpine
stockholders’ equity 3,212 3,268 Noncontrolling interest 70
71 Total stockholders’ equity 3,282
3,339 Total liabilities and stockholders’
equity $ 18,576 $ 19,317
CALPINE CORPORATION AND
SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF
CASH FLOWS
(Unaudited)
Three Months Ended March 31, 2017
2016
(in millions)
Cash flows from operating activities: Net loss $ (52 ) $ (194 )
Adjustments to reconcile net loss to net cash provided by operating
activities: Depreciation and amortization(1) 265 226 Debt
extinguishment costs 6 — Income tax expense (benefit) (61 ) 35 Gain
on sale of assets, net (27 ) — Mark-to-market activity, net (55 )
94 (Income) from unconsolidated subsidiaries (4 ) (7 ) Return on
investments from unconsolidated subsidiaries 13 — Stock-based
compensation expense 8 9 Other — (4 ) Change in operating assets
and liabilities, net of effects of acquisitions: Accounts
receivable 82 87 Derivative instruments, net (21 ) (12 ) Other
assets 24 (19 ) Accounts payable and accrued expenses (104 ) (202 )
Other liabilities 20 18 Net cash
provided by operating activities 94 31
Cash flows from investing activities: Purchases of property, plant
and equipment (91 ) (133 ) Proceeds from sale of Osprey Energy
Center 162 — Purchase of Granite Ridge Energy Center — (527 )
Purchase of North American Power, net of cash acquired (111 ) —
Decrease in restricted cash 11 43 Other 16 6
Net cash used in investing activities
(13
)
(611
) Cash flows from financing activities: Borrowings under First Lien
Term Loans
396
—
Repayment of CCFC Term Loans and First Lien Term Loans (161 ) (13 )
Repurchase of First Lien Notes (453 ) — Borrowings under Corporate
Revolving Facility 25 — Repayments of project financing, notes
payable and other (44 ) (56 ) Distribution to noncontrolling
interest holder (6 ) (2 ) Financing costs (8 ) (7 ) Shares
repurchased for tax withholding on stock-based awards (6 ) (5 )
Other 1 1 Net cash used in financing
activities (256 ) (82 ) Net decrease in cash and cash
equivalents (175 ) (662 ) Cash and cash equivalents, beginning of
period 418 906 Cash and cash
equivalents, end of period $ 243 $ 244 Cash
paid during the period for: Interest, net of amounts capitalized $
141 $ 150 Income taxes $ 3 $ 2
Supplemental disclosure of
non-cash investing activities: Change in capital expenditures
included in accounts payable $ — $ 15
__________
(1) Includes amortization included in Commodity revenue and
Commodity expense associated with intangible assets and
amortization recorded in interest expense associated with debt
issuance costs and discounts.
REGULATION G RECONCILIATIONS
In addition to disclosing financial results in accordance with
U.S. GAAP, the accompanying first quarter 2017 earnings release
contains non-GAAP financial measures. Net Income (Loss), As
Adjusted, Commodity Margin, Adjusted EBITDA and Adjusted Free Cash
Flow are non-GAAP financial measures that we use as measures of our
performance. These non-GAAP measures should be viewed as a
supplement to and not a substitute for our U.S. GAAP measures of
performance, and the financial results calculated in accordance
with U.S. GAAP and reconciliations from these results should be
carefully evaluated.
Net Loss, As Adjusted, represents net loss attributable
to Calpine, adjusted for certain non-cash and non-recurring items,
including mark-to-market (gain) loss on derivatives, debt
modification and extinguishment costs and other adjustments. Net
Loss, As Adjusted, is presented because we believe it is a useful
tool for assessing the operating performance of our company in the
current period. Net Loss, As Adjusted, is not intended to represent
net income (loss), the most comparable U.S. GAAP measure, as an
indicator of operating performance, and is not necessarily
comparable to similarly titled measures reported by other
companies.
Commodity Margin includes our power and steam revenues,
sales of purchased power and physical natural gas, capacity
revenue, revenue from renewable energy credits, sales of surplus
emission allowances, transmission revenue and expenses, fuel and
purchased energy expense, fuel transportation expense,
environmental compliance expense, and realized settlements from our
marketing, hedging, optimization and trading activities, but
excludes mark-to-market activity and other revenues. We believe
that Commodity Margin is a useful tool for assessing the
performance of our core operations and is a key operational measure
reviewed by our chief operating decision maker. Commodity Margin is
not a measure calculated in accordance with U.S. GAAP and should be
viewed as a supplement to and not a substitute for our results of
operations presented in accordance with U.S. GAAP. Commodity Margin
does not intend to represent income from operations, the most
comparable U.S. GAAP measure, as an indicator of operating
performance and is not necessarily comparable to similarly titled
measures reported by other companies.
Adjusted EBITDA represents net loss attributable to
Calpine before net (income) attributable to the noncontrolling
interest, interest, taxes, depreciation and amortization, adjusted
for certain non-cash and non-recurring items as detailed in the
following reconciliation. Adjusted EBITDA is not intended to
represent cash flows from operations or net income (loss) as
defined by U.S. GAAP as an indicator of operating performance and
is not necessarily comparable to similarly titled measures reported
by other companies.
We believe Adjusted EBITDA is useful to investors and other
users of our financial statements in evaluating our operating
performance because it provides them with an additional tool to
compare business performance across companies and across periods.
We believe that EBITDA is widely used by investors to measure a
company’s operating performance without regard to items such as
interest expense, taxes, depreciation and amortization, which can
vary substantially from company to company depending upon
accounting methods and book value of assets, capital structure and
the method by which assets were acquired.
Additionally, we believe that investors commonly adjust EBITDA
information to eliminate the effects of restructuring and other
expenses, which vary widely from company to company and impair
comparability. As we define it, Adjusted EBITDA represents EBITDA
adjusted for the effects of impairment losses, gains or losses on
sales, dispositions or retirements of assets, any mark-to-market
gains or losses from accounting for derivatives, adjustments to
exclude the Adjusted EBITDA related to the noncontrolling interest,
stock-based compensation expense, operating lease expense, non-cash
gains and losses from foreign currency translations, major
maintenance expense, gains or losses on the repurchase,
modification or extinguishment of debt, non-cash GAAP-related
adjustments to levelize revenues from tolling agreements and any
unusual or non-recurring items plus adjustments to reflect the
Adjusted EBITDA from our unconsolidated investments. We adjust for
these items in our Adjusted EBITDA as our management believes that
these items would distort their ability to efficiently view and
assess our core operating trends.
In summary, our management uses Adjusted EBITDA as a measure of
operating performance to assist in comparing performance from
period to period on a consistent basis and to readily view
operating trends, as a measure for planning and forecasting overall
expectations and for evaluating actual results against such
expectations, and in communications with our Board of Directors,
shareholders, creditors, analysts and investors concerning our
financial performance.
Adjusted Free Cash Flow represents net income (loss)
before interest, taxes, depreciation and amortization, as adjusted,
less operating lease payments, major maintenance expense and
maintenance capital expenditures, net cash interest, cash taxes and
other adjustments, including non-recurring items. Adjusted Free
Cash Flow is presented because we believe it is a useful tool for
assessing the financial performance of our company in the current
period. Adjusted Free Cash Flow is a liquidity measure and is not
intended to represent cash flows from operating activities, the
most directly comparable U.S. GAAP measure, and is not necessarily
comparable to similarly titled measures reported by other
companies.
Net Loss, As Adjusted Reconciliation
The following table reconciles our Net Loss, As Adjusted, to its
U.S. GAAP results for the three months ended March 31, 2017 and
2016 (in millions):
Three Months Ended March 31, 2017
2016 Net loss attributable to Calpine $ (56 )
$ (198 ) (Gain) on sale of assets, net(1) (27 ) — Debt
extinguishment costs(1) 24 — Mark-to-market (gain) loss on
derivatives(1)(2) (55 ) 94 Net Loss, As
Adjusted $ (114 ) $ (104 )
__________
(1) Assumes a 0% effective tax rate for these items.
(2) In addition to changes in market value on derivatives not
designated as hedges, changes in mark-to-market (gain) loss also
include hedge ineffectiveness and adjustments to reflect changes in
credit default risk exposure.
Commodity Margin Reconciliation
The following tables reconcile Income (loss) from operations to
Commodity Margin for the three months ended March 31, 2017 and 2016
(in millions):
Three Months Ended March 31, 2017
Consolidation
And West Texas East
Elimination Total Income (loss) from operations
$
88
$ (60 ) $ 44 $ — $ 72 Add: Plant operating expense 97 96 96 (7 )
282 Depreciation and amortization expense 91 62 53 — 206 Sales,
general and other administrative expense 13 17 10 — 40 Other
operating expenses 9 3 9 (1 ) 20 (Gain) on sale of assets, net — —
(27 ) — (27 ) (Income) from unconsolidated subsidiaries — — (4 ) —
(4 ) Less: Mark-to-market commodity activity, net and other(1) 77
(30 ) (8 ) (8 ) 31
Commodity Margin
$
221
$ 148 $ 189 $ — $ 558
Three Months Ended March 31, 2016 Consolidation
And West Texas East Elimination
Total Income (loss) from operations $ 65
$
(114
)
$ 52
$
—
$ 3 Add: Plant operating expense 91 86 84
(6
)
255 Depreciation and amortization expense 69 53 58 — 180 Sales,
general and other administrative expense 10 16 12 — 38 Other
operating expenses 8 2 10 — 20 (Income) from unconsolidated
subsidiaries — — (7 ) — (7 ) Less: Mark-to-market commodity
activity, net and other(1) 46
(110
)
(21 )
(6
)
(91 ) Commodity Margin $ 197
$
153
$ 230
$
—
$ 580
_________
(1) Includes $(22) million and $(22) million of lease
levelization and $60 million and $27 million of amortization
expense for the three months ended March 31, 2017 and 2016,
respectively.
Consolidated Adjusted EBITDA Reconciliation
In the following table, we have reconciled our Adjusted EBITDA
and Adjusted Free Cash Flow to our net income attributable to
Calpine for the three months ended March 31, 2017 and 2016, as
reported under U.S. GAAP (in millions):
Three Months Ended March 31, 2017
2016 Net loss attributable to Calpine $ (56 )
$ (198 ) Net income attributable to the noncontrolling interest 4 4
Income tax expense (benefit) (61 ) 35 Debt extinguishment costs and
other (income) expense, net 26 5 Interest expense 159
157 Income from operations $ 72 $ 3 Add: Adjustments
to reconcile income from operations to Adjusted EBITDA:
Depreciation and amortization expense, excluding deferred financing
costs(1) 205 179 Major maintenance expense 64 64 Operating lease
expense 6 6 Mark-to-market (gain) loss on commodity derivative
activity (55 ) 95 (Gain) on sale of assets, net (27 ) — Adjustments
to reflect Adjusted EBITDA from unconsolidated investments and
exclude the noncontrolling interest(2) 7 5 Stock-based compensation
expense 8 9 Loss on dispositions of assets 1 2 Contract
amortization 60 27 Other (15 ) (16 ) Total Adjusted
EBITDA $ 326 $ 374 Less: Operating lease payments 6 6
Major maintenance expense and capital expenditures(3) 115 105 Cash
interest, net(4) 156 158 Cash taxes 3 2 Other 3
1 Adjusted Free Cash Flow(5) $ 43 $ 102
Weighted Average Shares Outstanding (diluted) 355 354
_________
(1) Excludes depreciation and amortization expense attributable
to the non-controlling interest.
(2) Adjustments to reflect Adjusted EBITDA from unconsolidated
investments include (gain) loss on mark-to-market activity of nil
for each of the three months ended March 31, 2017 and
2016.
(3) Includes $65 million and $65 million in major maintenance
expense for the three months ended March 31, 2017 and 2016,
respectively, and $50 million and $40 million in maintenance
capital expenditures for the three months ended March 31, 2017
and 2016, respectively.
(4) Includes commitment, letter of credit and other bank fees
from both consolidated and unconsolidated investments, net of
capitalized interest and interest income.
(5) Adjusted Free Cash Flow, as reported, excludes changes in
working capital, such that it is calculated on the same basis as
our guidance.
In the following table, we have reconciled our Adjusted EBITDA
to our Commodity Margin, both of which are non-GAAP measures, for
the three months ended March 31, 2017 and 2016. Reconciliations for
both Adjusted EBITDA and Commodity Margin to comparable U.S. GAAP
measures are provided above. Amounts below are shown exclusive of
the noncontrolling interest (in millions):
Three Months Ended March 31, 2017
2016 Commodity Margin $ 558 $ 580 Other
revenue 4 5 Plant operating expense(1) (205 ) (181 ) Sales, general
and administrative expense(2) (35 ) (33 ) Other operating
expenses(3) (12 ) (13 ) Adjusted EBITDA from unconsolidated
investments 15 16 Other 1 — Adjusted
EBITDA $ 326 $ 374
_________
(1) Shown net of major maintenance expense, stock-based
compensation expense, non-cash loss on dispositions of assets and
other costs.
(2) Shown net of stock-based compensation expense and other
costs.
(3) Shown net of operating lease expense, amortization and other
costs.
Adjusted Free Cash Flow Reconciliation
In the following table, we have reconciled our cash flows from
operating activities to our Adjusted Free Cash Flow for the three
months ended March 31, 2017 and 2016 (in millions):
Three Months Ended March 31, 2017
2016 Cash provided by operating activities $
94 $ 31 Maintenance capital expenditures (50 ) (40 ) Tax
differences (3 ) (2 ) Adjustments to reflect Adjusted EBITDA from
unconsolidated investments and exclude the non-controlling interest
(5 ) 9 Cash debt extinguishment cost 18 — Capitalized corporate
interest (7 ) (4 ) Changes in working capital(1) 12 118 Other(2)
(16 ) (10 ) Adjusted Free Cash Flow $ 43 $ 102
_________
(1) Adjustment excludes $(13) million and $10 million in
amortization of acquired derivatives contracts for the three months
ended March 31, 2017 and 2016, respectively.
(2) Adjustment primarily represents miscellaneous items excluded
from Adjusted EBITDA that are included in cash flow from
operations.
Adjusted EBITDA and Adjusted Free Cash Flow Reconciliation
for Guidance (in millions)
Full Year 2017 Range: Low
High GAAP Net Income (1) $ 78 $ 228 Plus: Debt
extinguishment costs 24 24 Interest expense, net of interest income
625 625 (Gain) on the sale of assets, net (27 ) (27 ) Depreciation
and amortization expense 685 685 Major maintenance expense 310 310
Operating lease expense 25 25 Other(2) 80 80
Adjusted EBITDA $ 1,800 $ 1,950 Less: Operating lease
payments 25 25 Major maintenance expense and maintenance capital
expenditures(3) 435 435 Cash interest, net(4) 620 620 Cash taxes
10 10 Adjusted Free Cash Flow $ 710
$ 860
_________
(1) For purposes of Net Income guidance reconciliation,
mark-to-market adjustments are assumed to be nil.
(2) Other includes stock-based compensation expense, adjustments
to reflect Adjusted EBITDA from unconsolidated investments, income
tax expense and other items.
(3) Includes projected major maintenance expense of $315 million
and maintenance capital expenditures of $120 million. Capital
expenditures exclude major construction and development
projects.
(4) Includes commitment, letter of credit and other bank fees
from both consolidated and unconsolidated investments, net of
capitalized interest and interest income.
OPERATING PERFORMANCE METRICS
The table below shows the operating performance metrics for the
periods presented:
Three Months Ended March 31, 2017
2016 Total MWh generated (in thousands)(1)(2)
20,824 24,125 West 5,449 6,418 Texas 9,398 11,249 East 5,977 6,458
Average availability(2) 87.3 % 89.9 % West 86.3 % 90.3 %
Texas 86.9 % 86.6 % East 88.5 % 92.8 % Average capacity
factor, excluding peakers 42.8 % 47.4 % West 36.3 % 42.9 % Texas
48.8 % 56.0 % East 41.5 % 40.6 % Steam adjusted heat rate
(Btu/kWh)(2) 7,346 7,264 West 7,336 7,329 Texas 7,121 7,049 East
7,718 7,597
________
(1) Excludes generation from unconsolidated power plants and
power plants owned but not operated by us.
(2) Generation, average availability and steam adjusted heat
rate exclude power plants and units that are inactive.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170428005153/en/
Calpine CorporationInvestor Relations:Bryan Kimzey,
713-830-8777bryan.kimzey@calpine.comorMedia
Relations:Brett Kerr, 713-830-8809brett.kerr@calpine.com
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