Calpine: Q3 Results

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 Recent Achievements:
    Operations:
    — Generated more than 33 million MWh3 of electricity in the third quarter of 2012, a record for the period and a 14% increase compared to the third quarter of 2011
    — Held year-to-date plant operating expense4 essentially flat, despite a 31% increase in generation3
    — Delivered lowest year-to-date fleetwide forced outage factor on record: 1.6%
    — Produced highest year-to-date fleetwide starting reliability on record: 98.5% 
    — Achieved best year-to-date safety performance on record
    Commercial:
    — Announcing sale of Broad River Energy Center, an 847 MW simple-cycle power plant in South Carolina, for $427 million5, or $504/kW
    — Announced acquisition of Bosque Energy Center, an 800 MW combined-cycle power plant in Central Texas for $432 million5, or $540/kW
    — Signed 15-year PPA for 260 MW of capacity, energy and ancillary services from our Oneta Energy Center commencing in June 2016
    Capital Structure:
    — Simplified capital structure by entering into $835 million first lien term loan at an attractive rate, using proceeds to redeem 10% of existing first lien notes and retire project-level BRSP debt
Calpine Corporation (CPN) reported third quarter 2012 Adjusted EBITDA of $706 million, compared to $638 million in the prior year period, and Adjusted Recurring Free Cash Flow of $463 million, or $0.99 per diluted share, compared to $361 million, or $0.74 per diluted share, in the prior year period. Net Income1 for the third quarter was $437 million, or $0.94 per diluted share, compared to $190 million, or $0.39 per diluted share, in the prior year period. Net Income, As Adjusted2, for the third quarter of 2012 was $215 million compared to $195 million in the prior year period.
Year-to-date 2012 Adjusted EBITDA was $1,434 million, compared to $1,347 million in the prior year period, and Adjusted Recurring Free Cash Flow was $523 million, or $1.10 per diluted share, compared to $381 million, or $0.78 per diluted share, in the prior year period. Net Income1 for the first nine months of 2012 was $99 million, or $0.21 per diluted share, compared to a Net Loss1 of $177 million, or $0.36 per diluted share, in the prior year period. Net Income, As Adjusted2, for the first nine months of 2012 was $164 million compared to $30 million in the prior year period.
“Calpine’s power plants continue to deliver record operating results,” said Jack Fusco, Calpine’s President and Chief Executive Officer. “Our versatile fleet generated nearly 90 million MWhs through the first nine months of 2012 – 31% more than last year – while holding plant operating expenses essentially flat. This was due in large part to our focus on operational excellence and preventive maintenance, which yielded our best year-to-date forced outage factor and starting reliability on record. In addition, our commercial optimization efforts resulted in significant contribution from our Texas segment during the third quarter due to our seasonal hedging activity, which captured margin above what ultimately proved to be weak market prices driven by mild weather. As a result, we are able to maintain the midpoint of our full-year 2012 Adjusted EBITDA and Adjusted Recurring Free Cash Flow guidance while narrowing the range.
“Consistent with our disciplined capital allocation program, Calpine continues to make significant progress across the board, from acquisitions and divestitures to organic growth to share repurchases. With respect to acquisitions and divestitures, I am pleased to report that we have taken another meaningful step forward in our initiative to realign our portfolio by monetizing non-core assets and redeploying capital to enhance long-term shareholder value. Today, we are announcing the divestiture of our Broad River Energy Center, a contracted peaking plant in South Carolina, for $427 million, which complements our recently announced $432 million acquisition of Bosque, a merchant CCGT in the attractive Texas market. In addition, we expect to receive $392 million by year-end for the sale of our Riverside Energy Center, a CCGT in Wisconsin. Meanwhile, we plan to bring almost 800 MW of contracted growth projects in California online by mid-2013 and continue to advance more than 800 MW of development projects in Texas and Delaware. Finally, we have completed approximately $427 million of our previously announced $600 million share repurchase program.”
Zamir Rauf, Calpine’s Chief Financial Officer, added, “We’ve had a great year to date, as evidenced by our 41% growth in Adjusted Recurring Free Cash Flow Per Share, which I believe is the best measure for evaluating shareholder value creation. Free cash flow per share represents cash available for capital allocation and captures value created through asset monetizations, debt portfolio optimization, our substantial NOL tax position and share repurchases. Therefore, in addition to our 2013 guidance, we are initiating an Adjusted Recurring Free Cash Flow Per Share growth target rate of 15-20% compounded annually, which we also believe represents potential annual total shareholder return.”
SUMMARY OF FINANCIAL PERFORMANCE
Third Quarter Results
Adjusted EBITDA for the third quarter of 2012 was $706 million compared to $638 million in the prior year period. The year-over-year increase in Adjusted EBITDA was primarily due to a $72 million increase in Commodity Margin, which was driven primarily by:
                  +     higher contribution from hedges in our Texas segment, and
      +   higher regulatory capacity revenue in the Mid-Atlantic market.
Net Income1 was $437 million for the third quarter of 2012, compared to $190 million in the prior year period. As detailed in Table 1, Net Income, As Adjusted2, was $215 million in the third quarter of 2012 compared to $195 million in the prior year period. The year-over-year improvement was driven largely by:
                  +     higher Commodity Margin, as previously discussed, and
      +   lower interest expense, primarily resulting from a decrease in our annual effective interest rate, partially offset by
      –   increased income tax expense due primarily to an increase in various state and foreign jurisdiction income taxes.
Year-to-Date Results
Adjusted EBITDA for the nine months ended September 30, 2012, was $1,434 million compared to $1,347 million in the prior year period. The year-over-year increase in Adjusted EBITDA was primarily due to a $102 million increase in Commodity Margin, partially offset by modest increases in plant operating expense4 and sales, general and administrative expenses6. The increase in Commodity Margin was primarily due to:
                  +     higher contribution from hedges, primarily in our Texas segment during the third quarter of 2012 compared to the prior year period
      +   higher generation due to increased market opportunities, primarily driven by lower natural gas prices in all segments during the first half of 2012 compared to the same period in 2011, as well as lower hydroelectric generation and a nuclear power plant outage in California during the nine months ended September 30, 2012, and
      +   an extreme cold weather event in Texas in February 2011 that negatively impacted our Commodity Margin in that period, which did not recur in the current year, partially offset by
      –   lower regulatory capacity revenues during the first half of 2012 compared to the prior year period and
      –   the expiration of contracts.
Net Income1 was $99 million for the nine months ended September 30, 2012, compared to a Net Loss1 of $177 million in the prior year period. As detailed in Table 1, Net Income, As Adjusted2, was $164 million in the nine months ended September 30, 2012, compared to $30 million in the prior year period. The year-over-year improvement was driven largely by:
                  +     higher Commodity Margin, as previously discussed, and
      +   lower interest expense, primarily resulting from a decrease in our annual effective interest rate.
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1 Reported as net income (loss) attributable to Calpine on our Consolidated Condensed Statements of Operations.
2 Refer to Table 1 for further detail of Net Income, 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 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 nine months ended September 30, 2012 and 2011.
5 Amounts subject to adjustments upon close.
6 Increase in sales, general and administrative 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 nine months ended September 30, 2012 and 2011.
 Liquidity remained strong at over $2 billion as of September 30, 2012.
Cash flows from operating activities for the nine months ended September 30, 2012, resulted in net inflows of $608 million compared to $536 million in the prior year period. The increase in cash provided by operating activities was primarily due to an increase in income from operations (adjusted for non-cash items), partially offset by an increase in cash paid for interest due to timing of interest payments on our debt.
Cash flows used in investing activities increased to $701 million for the nine months ended September 30, 2012, compared to $660 million in the prior year period, driven largely by the termination of our legacy interest rate swaps and by an increase in restricted cash associated with 2011 changes in project related debt that did not recur in the nine months ended September 30, 2012.
Cash flows used in financing activities were $62 million for the nine months ended September 30, 2012, and were primarily related to the payments we made under our share repurchase program, offset by the receipt of proceeds from project financings related to our Russell City and Los Esteros construction projects. In addition, we incurred lower financing costs and lower repayments on project debt due in part to the refinancing activities we completed during the nine months ended September 30, 2011.
Adjusted Recurring Free Cash Flow was $523 million for the nine months ended September 30, 2012, compared to $381 million for the prior year period. Adjusted Recurring Free Cash Flow increased during the period primarily due to an $87 million increase in Adjusted EBITDA, as previously discussed. Lower maintenance capital expenditures related to our plant outage schedule and lower interest expense further contributed to the increase compared to the prior year period.
Consistent with our efforts to optimize and simplify our capital structure, on October 9, 2012, we announced that we had entered into a $835 million term loan, the proceeds of which we intend to use to redeem 10% (or approximately $590 million) of our senior secured notes and to retire variable rate project-level BRSP debt (approximately $218 million remaining balance). The term loan, which amortizes at a rate of 1% per year, matures in 2019. The term loan bears interest at LIBOR plus 3.25% per annum (subject to a LIBOR floor of 1.25%) and is expected to produce annual interest savings of approximately $25 million. “As a result of this opportunistic refinancing,” said Zamir Rauf, Calpine’s Chief Financial Officer, “we have improved our capital structure while reducing our cost of debt, delivering Adjusted Recurring Free Cash Flow accretion.”
CAPITAL ALLOCATION
Portfolio Optimization
Today, we are announcing that we have entered into an agreement with Broad River Power, LLC, a wholly owned subsidiary of Energy Capital Partners, LLC, to sell our Broad River Energy Center, an 847 MW natural gas-fired, simple-cycle power plant in South Carolina, for $427 million plus adjustments, or approximately $504/kW. We expect the transaction to close in December 2012, subject to regulatory approvals.
On October 3, 2012, we agreed to purchase the Bosque Energy Center, an 800 MW natural gas-fired, combined-cycle power plant in Central Texas, for $432 million plus adjustments, or approximately $540/kW. The acquisition will increase our capacity in Texas, one of our key markets. We expect the transaction to close in November 2012 and will fund the acquisition with cash on hand.
In addition, on May 18, 2012, our customer exercised its option to purchase our Riverside Energy Center for approximately $392 million. The sale is expected to close in December 2012.
Share Repurchase Program
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 25.6 million shares of our outstanding common stock have been repurchased under this program for approximately $427 million at an average price of $16.66 per share. The shares repurchased as of the date of this release were purchased in open market transactions.
PLANT DEVELOPMENT
West:
Russell City Energy Center: Construction at our Russell City Energy Center continues to move forward. 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. Construction is ongoing and COD is expected during the summer of 2013.
Los Esteros Critical Energy Facility: 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 during the summer of 2013.
Texas:
Channel and Deer Park Expansions: We are actively permitting the addition of 520 MW7 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 (TCEQ) and the EPA to expand the Deer Park and Channel Energy Centers by approximately 260 MW each. We received air permit approvals from the TCEQ for our Deer Park and Channel expansion projects in September and October 2012, respectively, and we executed engineering, procurement and construction agreements during the third quarter of 2012. We expect COD in summer 2014 for these expansions. We are currently evaluating funding sources, including, but not limited to, nonrecourse financing, corporate financing or internally generated funds.
North:
Garrison Energy Center: We are actively permitting 618 MW of new combined-cycle capacity at a development site secured by a long-term lease with the City of Dover. For the first phase (309 MW), PJM has completed a feasibility study and a system impact study and is currently conducting a facility study. For the second phase (309 MW), a feasibility study has been completed and a system impact study is ongoing. Environmental permitting, site development planning and development engineering are underway, and the first phase’s capacity cleared PJM’s 2015/2016 base residual auction. We expect to receive the air permit in the fourth quarter of 2012 and expect COD for the first phase by the summer of 2015. We are currently evaluating funding sources, including but not limited to nonrecourse financing, corporate financing or internally generated funds.
All Segments:
Turbine Upgrades: We continue to move forward with our turbine upgrade program. Through September 30, 2012, we have completed the upgrade of eleven Siemens and eight GE turbines totaling over 200 MW and have agreed to upgrade approximately three additional turbines (and may upgrade additional turbines in the future).
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7 Represents incremental baseload capacity at annual average conditions. Incremental summer peaking capacity is approximately 200 MW per unit, supplemented by incremental efficiencies across the balance of plant.
OPERATIONS UPDATE
Third Quarter 2012 Power Operations Achievements:
    Safety Performance:
    — Maintained stellar safety metrics
    — Recognized 10 years with no lost time incidents: Westbrook Energy Center, Pine Bluff Energy Center, Baytown Energy Center, Geysers plants – Aidlin, Sonoma, Cobb Creek, Quicksilver, Socrates
    Availability Performance:
    — Delivered lowest year-to-date fleetwide forced outage factor on record: 1.6%
    — Maintained impressive third quarter fleetwide starting reliability: 98.8%
    Cost Performance:
    — Held year-to-date plant operating expense4 essentially flat, despite a 31% increase in generation3
    Geothermal Generation:
    — Provided over 1.5 million MWh of renewable baseload generation with a record 0.5% forced outage factor during the third quarter of 2012
    Natural Gas-fired Generation:
    — Increased combined-cycle capacity factor in the first nine months of 2012 to 54.3% compared to 40.9% in the prior year period
    — Santa Rosa Energy Center: 100% starting reliability, 0.00% forced outage factor
Third Quarter 2012 Commercial Operations Achievements:
    Customer-oriented Growth:
    — Entered into a 15-year PPA with Public Service Company of Oklahoma to provide 260 MW of capacity, energy and ancillary services from our Oneta Energy Center commencing in June 2016 through May 2031
We are narrowing our 2012 guidance. We now project Adjusted EBITDA of $1,725 million to $1,775 million and Adjusted Recurring Free Cash Flow of $525 million to $575 million. We also expect to invest $100 million, net of debt funding, in growth-related projects during the year, including our Garrison Energy Center development project and the expansion of our Deer Park and Channel Energy Centers, as well as our ongoing turbine upgrade program. (Though our construction projects at Russell City and Los Esteros 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.) Finally, during the fourth quarter of 2012, we expect to close on the sales of our Broad River and Riverside Energy Centers and the purchase of Bosque Energy Center.
Today, we are also initiating 2013 guidance. We expect Adjusted EBITDA of $1,760 million to $1,960 million and Adjusted Recurring Free Cash Flow of $575 million to $775 million. The 2013 guidance range reflects all pending acquisition and divestiture activity, including today’s announced sale of Broad River Energy Center, which we estimate would have contributed approximately $40 million of Adjusted EBITDA in 2013. We also expect to invest $250 million, net of debt funding, in our ongoing growth-related projects during the year.
 ABOUT CALPINE
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 September 30, 2012, has been filed with the Securities and Exchange Commission (SEC) and may be found on the SEC’s website at www.sec.gov.
Contact:
Calpine Corporation
Bryan Kimzey, 713-830-8777 ( Investor Relations)
bryan.kimzey@calpine.com (Link entfernt)
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