Calpine Reports Third Quarter Results
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Power and Commercial Operations:
— Generated record 34 million MWh3 in the third quarter of 2016
— Achieved top quartile4 safety metrics: 0.56 total recordable incident rate through third quarter
— Delivered strong third quarter fleetwide starting reliability: 98.3%
— Champion Energy ranked highest in customer satisfaction among Texas retail electric providers by J.D. Power for sixth time in past seven years
— Entered into a new five-year steam agreement, subject to certain conditions precedent, with a wholly owned subsidiary of The Dow Chemical Company to provide steam from our Texas City Power Plant through 2021
— Entered into a new five-year PPA with USS-POSCO Industries to provide 50 MW of energy and steam from our Los Medanos Energy Center commencing in January 2017, which also provides for yearly extensions through 2024
— Completed repairs on our Geysers assets to generate renewable power for our customers at pre-fire capacity levels
Portfolio and Balance Sheet Management:
— Announced accretive acquisition of leading commercial and industrial retail electricity provider Noble Americas Energy Solutions, LLC for $800 million plus approximately $100 million of estimated net working capital at closing
— Announced and closed on the sale of our Mankato Power Plant to Southern Power Company for $396 million5
— Received approval from ERCOT to economically retire our 400 MW Clear Lake Power Plant by February 2017
Calpine Corporation (NYSE: CPN) today reported Net Income1 of $295 million, or $0.83 per diluted share, for the third quarter of 2016 compared to $273 million, or $0.76 per diluted share, in the prior year period. Net Income for the first nine months of 2016 was $68 million, or $0.19 per diluted share, compared to $282 million, or $0.77 per diluted share, in the prior year period. The increase in Net Income during the third quarter was primarily due to an increase in mark-to-market gains and lower income tax expense, offset by lower commodity revenue, net of commodity expense. The decrease in Net Income during the first nine months of 2016 was primarily due to lower commodity revenue, net of commodity expense.
Adjusted EBITDA2 for the third quarter was $632 million compared to $791 million in the prior year period, and Adjusted Free Cash Flow2 was $383 million compared to $576 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 hedges. Net Income, As Adjusted2, for the third quarter of 2016 was $186 million compared to $347 million in the prior year period. The decrease in Net Income, As Adjusted, was primarily due to lower commodity revenue, net of commodity expense, as previously discussed.
Adjusted EBITDA in the first nine months of 2016 was $1,458 million, compared to $1,586 million in the prior year period, and Adjusted Free Cash Flow was $643 million compared to $745 million in the prior year period. The decreases in Adjusted EBITDA and Adjusted Free Cash Flow were largely due to lower Commodity Margin, driven primarily by lower energy margins due to decreased contribution from hedges. Net Income, As Adjusted, for the first nine months of 2016 was $104 million compared to $318 million in the prior year period. The decrease in Net Income, As Adjusted, was primarily due to lower commodity revenue, net of commodity expense, as previously discussed.
“Calpine’s wholesale power generation fleet continued to demonstrate its operational excellence during the third quarter, producing a record 34 million MWh with 98% fleetwide starting reliability and zero OSHA recordable events,” said Thad Hill, Calpine’s President and Chief Executive Officer. “In addition, we are accretively recycling capital from non-core wholesale assets into Noble Americas Energy Solutions, the nation’s best-in-class independent supplier of power to large commercial and industrial retail customers.
“Noble’s geographic footprint and direct-sales approach complement our existing Champion Energy retail platform. Strategically, this acquisition increases our retail scale, further diversifies our company and moves us closer to customers in our core deregulated markets of California, Texas and the Northeast.
“Also today, we are narrowing our 2016 Adjusted EBITDA guidance range to $1.8 billion to $1.85 billion. While we anticipated lower 2016 summer hedge pricing relative to 2015, actual summer liquidations disappointed relative to expectations. As we look toward next year, we introduce our 2017 Adjusted EBITDA guidance of $1.8 billion to $1.95 billion and Adjusted Free Cash Flow of $710 million to $860 million, growing Adjusted Free Cash Flow by approximately 7% over 2016, based on the midpoint. In 2017, the accretive retail acquisition of Noble will triple the Adjusted EBITDA and Free Cash Flow derived from the facilities for which we have previously announced divestitures - Mankato, Osprey and South Point. And now our focus will be to integrate Noble, close on remaining non-core portfolio sales and complete the York 2 expansion project, while controlling costs and operating safely and effectively.
“Ultimately, we believe our unique wholesale power generation portfolio, complemented by a growing retail business, will generate strong cash flow returns for years to come. Moreover, we expect that more than 65% of our current market capitalization will be available over the next three years for deployment towards growth, debt reduction or return to shareholders.”