Calpine: Q1 Results, 2012 Guidance

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Summary of First Quarter 2012 Financial Results (in millions):
            Three Months Ended March 31,
            2012             2011             % Change
Operating Revenues             $     1,236                 $     1,499                 

Commodity Margin             $     517                 $     489                 5.7         %
Adjusted EBITDA             $     325                 $     303                 7.3         %
Adjusted Recurring Free Cash Flow             $     (27     )             $     (21     )             
Net Loss1             $     (9     )             $     (297     )             
Net Loss, As Adjusted2             $     (65     )             $     (110     )             

Raising 2012 Full Year Guidance:
            Prior Guidance             
            (as of February 2012)             Current Guidance
            (in millions)
Adjusted EBITDA             $1,600 - 1,725             $1,675 - 1,800
Adjusted Recurring Free Cash Flow             $425 - 550             $470 - 595

Recent Achievements:

    -- Generated 29 million MWh3 of electricity in the first quarter of 2012, a 52% increase compared to the first quarter of 2011
    -- Delivered lowest first quarter fleetwide forced outage factor on record: 1.1%
    -- Produced highest first quarter fleetwide starting reliability on record: 98%
    -- Achieved first quarter on record without a lost-time incident

    -- Entered into 20-year PPA for 160 MW - 280 MW of power from our Oneta Energy Center
    -- Advancing more than 800 MW of CCGT development opportunities in ERCOT and PJM

    Capital Structure:
    -- Doubled size of share repurchase program to $600 million
    -- Terminated legacy interest rate swaps

HOUSTON, Apr 27, 2012 (BUSINESS WIRE) --Calpine Corporation (NYSE:CPN) today reported first quarter 2012 Adjusted EBITDA of $325 million, compared to $303 million in the prior year period, and Adjusted Recurring Free Cash Flow of $(27) million, compared to $(21) million in the prior year period. Net Loss1 for the first quarter narrowed to $9 million, or $0.02 per diluted share, compared to $297 million, or $0.61 per diluted share, in the prior year period. Net Loss, As Adjusted2, for the first quarter of 2012 was $65 million compared to $110 million in the prior year period. The narrowing of Net Loss, As Adjusted2, was primarily related to higher Commodity Margin driven largely by increased generation resulting from lower natural gas prices.

"Calpine's power generation fleet achieved record-breaking performance in the first quarter of 2012, producing 29 million MWh of power - 52% more than the prior year," said Jack Fusco, Calpine's President and Chief Executive Officer. "In short, despite unusually mild winter weather dampening overall market demand for power, the impact of coal-to-gas switching in the Texas, Mid-Atlantic and Southeast markets meaningfully increased demand for power production from our natural gas-fired units. In the face of this increased demand, our plant personnel were able to execute exceptionally well, as exemplified by 98% starting reliability with only a 1% forced outage factor and no lost-time incidents while holding plant operating expenses flat.

"As a result of this solid operating performance and despite tighter power prices resulting from the milder weather and market dynamics, we delivered improved financial results with Commodity Margin up 6% and Adjusted EBITDA up 7% versus first quarter 2011. Based on this performance and our favorable outlook for the balance of the year, we are raising our full-year guidance for Adjusted EBITDA to $1,675 million to $1,800 million and for Adjusted Free Cash Flow to $470 million to $595 million," said Fusco.

"We expect the secular shift toward greater utilization of combined-cycle gas technology and the tightening of supply/demand dynamics in key power markets to continue. These trends, supported by continued strong operating and commercial execution, should lead to volume and margin expansion for Calpine for the balance of this year and beyond," concluded Fusco.

"We continue to focus on enhancing shareholder value through effective capital allocation," added Zamir Rauf, Calpine's Chief Financial Officer. "During the first quarter, we updated our capital allocation outlook given the low natural gas price environment. Based on the increased clarity and favorable outlook we now have for the balance of 2012 and beyond, we are pursuing several strategies. We are advancing more than 800 MW of disciplined growth projects, requiring almost $550 million in investments over the next three years. In addition, our Riverside facility sale remains on target and we continue to seek opportunities to monetize the value of our Southeast fleet through long-term contracts or asset divestitures. Finally, we are increasing our share repurchase program by $300 million, bringing the total program size to $600 million. Going forward, as a normal course of capital allocation decision-making, this may evolve into a continuous share repurchase program in which we may not announce incremental share repurchase targets, but we would provide quarterly updates on our progress."


First Quarter Results

Adjusted EBITDA for the first quarter of 2012 was $325 million compared to $303 million in the prior year period. The period-over-period increase in Adjusted EBITDA was primarily due to a $28 million increase in Commodity Margin, partially offset by modest increases in sales, general and administrative expenses and other operating expense4. The increase in Commodity Margin was primarily due to:
                        +         higher generation volumes driven by a low natural gas price environment and
                        +         an extreme cold weather event in Texas in February 2011 that resulted in unplanned outages, causing us to purchase power at prices substantially above our hedge prices, which did not recur in the first quarter of 2012, partially offset by
                        -         lower regulatory capacity prices and the expiration of contracts subsequent to the first quarter of 2011 and
                        -         lower super-peak prices in Texas and the North due to milder weather conditions during the first quarter of 2012 compared to the prior year period.

Net Loss1 declined to $9 million for the first quarter of 2012, compared to $297 million in the prior year period. As detailed in Table 1, Net Loss, As Adjusted, was $65 million in the first quarter of 2012 compared to $110 million in the prior year period. The period-over-period reduction in Net Loss, As Adjusted, was driven largely by:
                        +         higher Commodity Margin, as previously discussed, and
                        +         lower major maintenance expense resulting from our plant outage schedule, offset in part by
                        -         an increase in depreciation and amortization expense due to a revision in the expected settlement dates of asset retirement obligations that benefited the first quarter of 2011 and did not recur in the first quarter of 2012.


1 Reported as net loss attributable to Calpine on our Consolidated Condensed Statements of Operations.

2 Refer to Table 1 for further detail of Net Loss, As Adjusted.

3 Includes generation from power plants owned but not operated by Calpine and our share of generation from unconsolidated power plants.

4 Increase in sales, general and administrative expense and other operating expense excludes changes in stock-based compensation expense, amortization and other items. See the table titled "Consolidated Adjusted EBITDA Reconciliation" for the actual amounts of these items for the three months ended March 31, 2012 and 2011.


On August 23, 2011, we announced that our Board of Directors had authorized the repurchase of up to $300 million in shares of our common stock. In April 2012, our Board of Directors authorized us to double the size of our share repurchase program, increasing our permitted cumulative repurchases to $600 million in shares of our common stock. The announced share repurchase program did not specify an expiration date. The repurchases may be commenced or suspended from time to time without prior notice. Through the filing of this release, a total of 8,524,576 shares of our outstanding common stock have been repurchased under this program for approximately $124 million at an average price of $14.60 per share. The shares repurchased as of the date of this release were purchased in open market transactions.



Russell City Energy Center: The Russell City Energy Center is under construction and continues to move forward with expected COD in 2013. Upon completion, this project will bring online approximately 429 MW of net interest baseload capacity (464 MW with peaking capacity) representing our 75% share. Upon completion, the Russell City Energy Center is contracted to deliver its full output to PG&E under a 10-year PPA.

Los Esteros: During 2009, we and PG&E negotiated a new PPA to replace the existing California Department of Water Resources contract and facilitate the upgrade of our Los Esteros Critical Energy Facility from a 188 MW simple-cycle generation power plant to a 309 MW combined-cycle generation power plant, which will also increase the efficiency and environmental performance of the power plant by lowering the heat rate. The existing 188 MW simple-cycle facility was shut down at the end of 2011 to allow for major maintenance on the combustion turbines and installation of the new heat recovery steam generators and a steam turbine generator in connection with the new PPA. Construction is ongoing and COD is expected in the third quarter of 2013.


Channel and Deer Park Expansions: We are actively permitting the addition of 520 MW of combined-cycle capacity at existing sites in ERCOT, based on tightening reserve margins and the potential impact of EPA regulations on generation in Texas. At both our Deer Park and Channel Energy Centers, we have the ability to install an additional combustion turbine generator and connect to the existing steam turbine generator to expand the capacity of these facilities and to improve overall plant efficiency. In September and November 2011, we filed air permit applications with the Texas Commission on Environmental Quality and the EPA to expand the Deer Park and Channel Energy Centers by approximately 260 MW each. We continue to move forward with development and permitting activities and expect COD in summer 2014 for these expansions.


Garrison Energy Center: We are actively permitting 618 MW of new combined-cycle capacity at a development site secured by a lease option with the City of Dover. PJM has completed a feasibility study and a system impact study and is currently conducting a facility study for the first phase (309 MW). The feasibility study has been completed and a system impact study is ongoing for the second phase (309 MW). Environmental permitting, site development planning and development engineering are underway, and the first phase's capacity will be bid into PJM's 2015/2016 base residual auction.

All Segments:

Turbine Upgrades: We continue to move forward with our turbine upgrade program. Through March 31, 2012, we have completed the upgrade of ten Siemens and five GE turbines and have agreed to upgrade approximately six additional Siemens and GE turbines (and may upgrade additional turbines in the future). Our turbine upgrade program is expected to increase our generation capacity in total by approximately 275 MW. This upgrade program began in the fourth quarter of 2009 and is scheduled through 2014. The upgraded turbines have been operating with more efficient heat rates consistent with expectations.


First Quarter 2012 Power Operations Achievements:

    Safety Performance:
    -- Achieved first quarter on record without a lost-time incident

    Availability Performance:
    -- Delivered lowest first quarter fleetwide forced outage factor on record: 1.1%
    -- Produced highest first quarter fleetwide starting reliability on record: 98%

    Cost Performance:
    -- Held plant operating expense5 flat year over year, despite a 52% increase in generation volume3

    Geothermal Generation:
    -- Provided over 1.5 million MWh of renewable baseload generation with 97% capacity factor during the first quarter of 2012

    Natural Gas-fired Generation:
    -- Increased combined-cycle capacity factor in first quarter of 2012 to 54% compared to 35% in the prior year period
    -- Westbrook and Oneta Energy Centers: 100% starting reliability and greater than 98% availability

First Quarter 2012 Commercial Operations Achievements:

    Customer-oriented Growth:
    -- Signed 20-year PPA with Western Farmers Electric Cooperative to provide 160 MW of power and capacity from our Oneta Energy Center beginning June 2014. The capacity under contract will increase in increments, up to a maximum of 280 MW in years 2019 - 2035.

First Quarter 2012 Financial Achievements:

    Simplifying Capital Structure:
    -- Retired legacy interest rate swaps
    -- Closed on purchase of two of the third-party equity interests in our subsidiary associated with our California peaking plants
    -- Unwound sale-leaseback financing at Agnews Power Plant


5 Change in plant operating expense excludes changes in major maintenance expense, stock-based compensation expense and non-cash loss on disposition of assets. See the table titled "Consolidated Adjusted EBITDA Reconciliation" for the actual amounts of these items for the three months ended March 31, 2012 and 2011.

            Full Year 2012
            (in millions)
Adjusted EBITDA             $     1,675 - 1,800     
Operating lease payments                 35     
Major maintenance expense and maintenance capital expenditures(1)                 350     
Accelerated parts purchases to support upgrades(2)                 30     
Recurring cash interest, net(3)                 770     
Cash taxes                 10     
Other                 10     
Adjusted Recurring Free Cash Flow             $     470 - 595     
Non-recurring interest rate swap payments(4)             $     (156     )
Growth capital expenditures (net of debt funding)(5)             $     (100     )
Riverside sale proceeds             $     392     


(1) Includes projected major maintenance expense of $185 million and maintenance capital expenditures of $165 million in 2012. Capital expenditures exclude major construction and development projects. 2012 figures exclude amounts to be funded by project debt.

(2) Incremental impact on 2012 maintenance capital expenditures related to acceleration of future turbine upgrades into 2012 and deferral of use of on-hand parts to post-2012 periods.

(3) Includes fees for letters of credit, net of interest income.

(4) Interest payments related to legacy LIBOR hedges associated with floating rate first lien credit facility, which has been refinanced.

(5) Though our construction projects at Russell City and Los Esteros will continue through 2012, we met our equity contribution requirements on these projects in 2011, such that all costs incurred in 2012 and beyond will be funded from the project debt we have secured for these projects.

As detailed above, today we are raising our 2012 guidance. We now project Adjusted EBITDA of $1,675 million to $1,800 million and Adjusted Recurring Free Cash Flow of $470 million to $595 million. We also expect to invest $100 million, net of debt funding, in growth-related projects during the year. This updated projection of 2012 growth capital expenditures represents a $90 million increase to our previous guidance, which is attributable to the advancements of our Garrison Energy Center development project and the expansion of our Deer Park and Channel Energy Centers, as previously discussed. Finally, we continue to expect to receive approximately $392 million during the fourth quarter of 2012 from one of our customers related to its intended exercise of a call option to purchase our Riverside Energy Center, which was approved by the Wisconsin Public Service Commission during April 2012.


Calpine Corporation is the largest independent power producer in the U.S., with a fleet of 93 power generation plants representing more than 28,000 megawatts of generation capacity. Last year our plants generated more than 94 million megawatt hours of power for our wholesale customers in 20 states and Canada. Our 91 operating plants as well as two under construction consist primarily of natural gas-fired and renewable geothermal power plants that use advanced technologies to generate power in a low-carbon and environmentally responsible manner. Our modern, clean, efficient and cost-effective fleet stands ready to respond to the increased need for cleaner and more affordable power as the economy recovers, as new environmental rules are implemented and force older, dirtier plants to retire or reduce generation, as variable renewable power generation from wind and solar grows and with it the need for flexible natural gas generation to assure firm supply to the grid, and finally, as natural gas becomes economically competitive with coal as a fuel for power generation. Please visit www.calpine.com to learn more about why Calpine is a generation ahead - today.

Calpine's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012, has been filed with the Securities and Exchange Commission (SEC) and may be found on the SEC's website at www.sec.gov.

SOURCE: Calpine Corporation

Calpine Corporation
Media Relations:
Norma F. Dunn, 713-830-8883
Investor Relations:
Bryan Kimzey, 713-830-8777
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