Calpine Reports First Quarter 2019 Results

HOUSTON–(BUSINESS WIRE)–Calpine Corporation:

Summary of First Quarter 2019 Financial Results (in millions):

    Three Months Ended March 31,
2019     2018     % Change
 
Operating Revenues $ 2,599 $ 2,009 29.4 %
Income (loss) from operations $ 358 $ (328 ) NM
Cash provided by (used in) operating activities $ 241 $ (115 ) NM
Net Income (Loss)1 $ 175 $ (598 ) NM
Commodity Margin2 $ 779 $ 612 27.3 %
Adjusted Unlevered Free Cash Flow2 $ 419 $ 238 76.1 %
Adjusted Free Cash Flow2 $ 264 $ 75 252.0 %
________
1  

Reported as Net Income (Loss) attributable to Calpine on our
Consolidated Condensed Statements of Operations.

2

Non-GAAP financial measure, see “Regulation G
Reconciliations” for further details.

 

Calpine Corporation today reported Net Income of $175 million for the
first quarter of 2019 compared to Net Loss of $598 million in the prior
year period. The key drivers of the increase in Net Income were a
period-over-period improvement in non-cash, unrealized mark-to-market
gain/loss and a favorable variance in commodity revenue, net of
commodity expense, which largely resulted from higher market spark
spreads in our West segment, higher contributions from hedging
activities across all regions, and higher regulatory capacity revenues
in our East segment. Cash provided by operating activities for the first
quarter of 2019 was $241 million compared to cash used of $115 million
in the prior year period. The period-over-period increase in cash
provided by operating activities was primarily due to an increase in
commodity revenue, net of commodity expense, as previously discussed, as
well as a decrease in working capital employed resulting from a
period-over-period net decrease in margin posting requirements during
the first quarter of 2019.

REGIONAL SEGMENT REVIEW OF RESULTS

Table 1: Commodity Margin by Segment (in millions)

      Three Months Ended March 31,
2019       2018       Variance
West $ 264 $ 185 $ 79
Texas 162 166 (4 )
East 265 184 81
Retail 88   77   11  
Total $ 779   $ 612   $ 167  
 

West Region

First Quarter: Commodity Margin in our West segment increased by
$79 million in the first quarter of 2019 compared to the prior year
period. Primary drivers were:

+ higher market spark spreads and

+ higher resource adequacy revenue, partially offset by

– lower contribution from hedges.

Texas Region

First Quarter: Commodity Margin in our Texas segment decreased by
$4 million in the first quarter of 2019 compared to the prior year
period. Primary drivers were:

– higher revenue in the first quarter of 2018 associated with the sale
of environmental credits with no similar activity in the current year
period, partially offset by

+ higher contribution from hedges.

East Region

First Quarter: Commodity Margin in our East segment increased by
$81 million in the first quarter of 2019 compared to the prior year
period. Primary drivers were:

+ higher regulatory capacity revenue in ISO-NE and PJM and

+ higher contribution from hedges, partially offset by

– lower generation, driven primarily by milder weather in January 2019
compared to January 2018, and

– a gain associated with the cancellation of a PPA recorded during the
first quarter of 2018 with no similar activity in the current year
period.

Retail

First Quarter: Commodity Margin in our Retail segment increased
by $11 million in the first quarter of 2019 compared to the prior year
period. The primary driver was:

+ increased contribution from power and gas supply hedging activity
during the first quarter of 2019 compared to the prior year period.

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

Table 2: Liquidity (in millions)

      March 31, 2019       December 31, 2018
Cash and cash equivalents, corporate(1) $ 129 $ 141
Cash and cash equivalents, non-corporate 55   64
Total cash and cash equivalents 184 205
Restricted cash 334 201
Corporate Revolving Facility availability(2) 1,152 966
CDHI letter of credit facility availability(3) 75 49
Other facilities availability(4) 4   7
Total current liquidity availability(5) $ 1,749   $ 1,428

_________

(1)

 

Our ability to use corporate cash and cash equivalents is
unrestricted.

(2)

Our ability to use availability under our Corporate Revolving
Facility is unrestricted. On April 5, 2019, we amended our
Corporate Revolving Facility to increase the capacity by
approximately $330 million from $1.69 billion to approximately
$2.02 billion.

(3)

Our $300 million CDHI letter of credit facility is restricted
to support certain obligations under PPAs and power transmission
and natural gas transportation agreements as well as fund the
construction of our Washington Parish Energy Center. Pursuant to
the terms and conditions of the CDHI credit agreement, the
capacity under the CDHI letter of credit facility will be reduced
to $125 million on June 30, 2019. The decrease in capacity will
not have a material effect on our liquidity as alternative sources
of liquidity are available.

(4)

We have two unsecured letter of credit facilities with third
party financial institutions totaling $200 million at March 31,
2019. On May 6, 2019, we entered into a new unsecured letter of
credit facility which increased the total capacity available to us
by approximately $100 million.

(5)

Includes $136 million and $52 million of margin deposits
posted with us by our counterparties at March 31, 2019 and
December 31, 2018, respectively.

 

Liquidity was approximately $1.75 billion as of March 31, 2019. Cash,
cash equivalents and restricted cash increased by $112 million during
the first quarter of 2019, due largely to an increase in cash provided
by operating activities, partially offset by an increase in cash used in
investing activities and a decrease in cash provided by financing
activities, as further detailed below.

Table 3: Cash Flow Activities (in millions)

      Three Months Ended March 31,
2019       2018
Beginning cash, cash equivalents and restricted cash $ 406   $ 443  
Net cash provided by (used in):
Operating activities 241 (115 )
Investing activities (152 ) (115 )
Financing activities 23   158  
Net increase (decrease) in cash, cash equivalents and restricted cash 112   (72 )
Ending cash, cash equivalents and restricted cash $ 518   $ 371  
 

Cash provided by operating activities in the first quarter of 2019 was
$241 million compared to cash used in operating activities of $115
million in the prior year period. The period-over-period increase was
primarily due to higher income from operations, adjusted for non-cash
items, that resulted largely from an increase in Commodity Margin, as
previously discussed, and from a decrease in operating and maintenance
expense and general and other administrative expense driven primarily by
merger-related costs in the first quarter of 2018 that did not recur in
the current year period. In addition, cash provided by operating
activities also increased as a result of a decrease in working capital
employed, which was primarily driven by lower period-over-period margin
posting requirements.

Cash used in investing activities was $152 million during the first
quarter of 2019 compared to $115 million in the prior year period. The
increase was primarily related to higher capital expenditures on
construction projects incurred in the first quarter of 2019 compared to
the prior year period.

Cash provided by financing activities was $23 million during the first
quarter of 2019, primarily related to net borrowings under our Corporate
Revolving Facility, partially offset by repurchases of our Senior
Unsecured Notes and scheduled repayments of our debt.

Portfolio Management

On April 8, 2019, we, through our indirect, wholly owned subsidiaries
Calpine Holdings, LLC and Calpine Northbrook Project Holdings, LLC,
entered into agreement with Cobalt Power, L.L.C., to sell 100% of our
ownership interests in Garrison Energy Center LLC (“Garrison”) and
RockGen Energy LLC (“RockGen”) for approximately $360 million, subject
to certain working capital adjustments and the execution of contracts.
Garrison is an indirect, wholly owned subsidiary that owns the Garrison
Energy Center, a 309 MW natural gas-fired, combined-cycle power plant
located in Dover, Delaware, and RockGen is an indirect, wholly owned
subsidiary that owns the RockGen Energy Center, a 503 MW natural
gas-fired, simple-cycle power plant located in Christiana, Wisconsin. We
expect the sale, which is subject to regulatory approvals, to close in
the third quarter of 2019 and we will use the sale proceeds for our
capital allocation activities and general corporate purposes.

At March 31, 2019, we have reclassified the assets and liabilities of
Garrison Energy Center and RockGen Energy Center, which are part of our
East segment, to current assets and liabilities held for sale on our
Consolidated Condensed Balance Sheet, consisting primarily of property,
plant and equipment, net, and finance leases, respectively, and recorded
an immaterial adjustment to the carrying value to reflect fair value
less cost to sell.

Balance Sheet Management

During the first quarter of 2019, we repurchased $48 million in
aggregate principal of our Senior Unsecured Notes for $44 million. In
connection with the repurchases, we recorded approximately $4 million in
gain on extinguishment of debt. Since the fourth quarter of 2018, we
have cumulatively repurchased $438 million in aggregate principal of our
Senior Unsecured Notes for $399 million.

On April 5, 2019, we entered into a $950 million first lien senior
secured term loan (“2026 First Lien Term Loan”), which bears interest at
LIBOR plus 2.75% per annum (with a 0% LIBOR floor) and matures on April
5, 2026. An aggregate amount equal to 0.25% of the aggregate principal
amount of the 2026 First Lien Term Loan is payable at the end of each
quarter with the remaining balance payable on the maturity date. We paid
an upfront fee of an amount equal to 1.0% of the aggregate principal
amount of the 2026 First Lien Term Loan, which is structured as original
issue discount and expect to record approximately $7 million in debt
issuance costs during the second quarter of 2019 related to the issuance
of our 2026 First Lien Term Loan. The 2026 First Lien Term Loan contains
substantially similar covenants, qualifications, exceptions and
limitations as our First Lien Term Loans and First Lien Notes. We used
the proceeds from our 2026 First Lien Term Loan to repay our 2019 First
Lien Term Loan and a portion of our 2023 First Lien Term Loans with a
maturity date in January 2023 and expect to record approximately $3
million in loss on extinguishment of debt during the second quarter of
2019 associated with the repayment.

Also on April 5, 2019, we amended our Corporate Revolving Facility to
increase the capacity by approximately $330 million from $1.69 billion
to approximately $2.02 billion.

PG&E Bankruptcy

On January 29, 2019, PG&E and PG&E Corporation each filed voluntary
petitions for relief under Chapter 11. We currently have several power
plants that provide energy and energy-related products to PG&E under
PPAs, many of which have PG&E collateral posting requirements. Since the
bankruptcy filing, we have received all material payments under the
PPAs, either directly or through the application of collateral. We also
currently have numerous other agreements with PG&E related to the
operation of our power plants in Northern California, under which PG&E
has continued to provide service since its bankruptcy filing. We cannot
predict the ultimate outcome of this matter and continue to monitor the
bankruptcy proceedings.

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 more than 26,000 megawatts of generation
capacity. Through wholesale power operations and our retail businesses Calpine
Energy Solutions
and Champion
Energy
, we serve customers in 24 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 Quarterly Report on Form 10-Q for the quarter ended March 31,
2019, will be filed with the Securities and Exchange Commission (SEC)
and will be 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 wholesale and retail
    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 Loan 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;
  • Extensive competition in our wholesale and retail business,
    including from renewable sources of power, interference by states in
    competitive power markets through subsidies or similar support for new
    or existing power plants, lower prices and other incentives offered by
    retail competitors, and 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 offices;
  • 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 or if a significant
    customer were to seek bankruptcy protection under Chapter 11;
  • 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, 2018, 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,
2019       2018
(in millions)
Operating revenues:
Commodity revenue $ 2,538 $ 2,396
Mark-to-market gain (loss) 56 (391 )
Other revenue 5   4  
Operating revenues 2,599   2,009  
Operating expenses:
Fuel and purchased energy expense:
Commodity expense 1,758 1,790
Mark-to-market (gain) loss 10   (20 )
Fuel and purchased energy expense 1,768   1,770  
Operating and maintenance expense 239 275
Depreciation and amortization expense 174 201
General and other administrative expense 32 60
Other operating expenses 34   37  
Total operating expenses 2,247   2,343  
(Income) from unconsolidated subsidiaries (6 ) (6 )
Income (loss) from operations 358 (328 )
Interest expense 149 151
Gain on extinguishment of debt (4 )
Other (income) expense, net 23   7  
Income (loss) before income taxes 190 (486 )
Income tax expense 10   108  
Net income (loss) 180 (594 )
Net income attributable to the noncontrolling interest (5 ) (4 )
Net income (loss) attributable to Calpine $ 175   $ (598 )
           
 

CALPINE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

March 31, December 31,
2019 2018
(in millions, except share and per share amounts)
ASSETS
Current assets:
Cash and cash equivalents $ 184 $ 205
Accounts receivable, net of allowance of $6 and $9 794 1,022
Inventories 515 525
Margin deposits and other prepaid expense 380 315
Restricted cash, current 265 167
Derivative assets, current 136 142
Current assets held for sale 372
Other current assets 51   43  
Total current assets 2,697 2,419
Property, plant and equipment, net 12,048 12,442
Restricted cash, net of current portion 69 34
Investments in unconsolidated subsidiaries 67 76
Long-term derivative assets 165 160
Goodwill 242 242
Intangible assets, net 391 412
Other assets 472   277  
Total assets $ 16,151   $ 16,062  
LIABILITIES & STOCKHOLDER’S EQUITY
Current liabilities:
Accounts payable $ 720 $ 958
Accrued interest payable 120 96
Debt, current portion 258 637
Derivative liabilities, current 224 303
Current liabilitites held for sale 25
Other current liabilities 518   489  
Total current liabilities 1,865 2,483
Debt, net of current portion 10,533 10,148
Long-term derivative liabilities 113 140
Other long-term liabilities 427   235  
Total liabilities 12,938 13,006
 
Commitments and contingencies
Stockholder’s equity:

Common stock, $0.001 par value per share; authorized 5,000 shares,
105.2

shares issued and outstanding

Additional paid-in capital 9,584 9,582
Accumulated deficit (6,367 ) (6,542 )
Accumulated other comprehensive loss (100 ) (77 )
Total Calpine stockholder’s equity 3,117 2,963
Noncontrolling interest 96   93  
Total stockholder’s equity 3,213   3,056  
Total liabilities and stockholder’s equity $ 16,151   $ 16,062  
     
 

CALPINE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 
Three Months Ended March 31,
2019       2018
(in millions)
Cash flows from operating activities:
Net income (loss) $ 180 $ (594 )
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization(1) 199 223
Gain on extinguishment of debt (4 )
Deferred income taxes 7 69
Mark-to-market activity, net (45 ) 369
(Income) from unconsolidated subsidiaries (6 ) (6 )
Return on investments from unconsolidated subsidiaries 11 3
Stock-based compensation expense 57
Other 19 6
Change in operating assets and liabilities:
Accounts receivable 228 164
Accounts payable (229 ) (77 )
Margin deposits and other prepaid expense (65 ) (72 )

Other assets and liabilities, net

27 (107 )
Derivative instruments, net (81 ) (150 )
Net cash provided by (used in) operating activities 241   (115 )
Cash flows from investing activities:
Purchases of property, plant and equipment (143 ) (114 )
Other (9 ) (1 )
Net cash used in investing activities (152 ) (115 )
Cash flows from financing activities:
Repayment of CCFC Term Loan and First Lien Term Loans (10 ) (10 )
Repurchases of Senior Unsecured Notes (44 )
Borrowings under Corporate Revolving Facility 170 325
Repayments of Corporate Revolving Facility (50 )
Repayments of project financing, notes payable and other (43 ) (43 )
Distribution to noncontrolling interest holder (2 )
Financing costs (6 )
Stock repurchases (79 )
Shares repurchased for tax withholding on stock-based awards (7 )
Dividends paid(2)   (20 )
Net cash provided by financing activities 23   158  
Net increase (decrease) in cash, cash equivalents and restricted cash 112 (72 )
Cash, cash equivalents and restricted cash, beginning of period 406   443  
Cash, cash equivalents and restricted cash, end of period(3) $ 518   $ 371  
Cash paid during the period for:
Interest, net of amounts capitalized $ 115 $ 110
Income taxes $ $ 4
 
Supplemental disclosure of non-cash investing and financing
activities:
Change in capital expenditures included in account payable $ 13 $ (6 )
Plant tax settlement offset in prepaid assets $ (4 ) $
Asset retirement obligation adjustment offset in operating activities $ (13 ) $
Garrison Energy Center and RockGen Energy Center property, plant and
equipment, net, classified as current assets held for sale
$ (363 ) $
Garrison Energy Center capital lease liability classified as current
liabilities held for sale
$ 22 $

_________

(1)

 

Includes amortization recorded in Commodity revenue and
Commodity expense associated with intangible assets and
amortization recorded in interest expense associated with debt
issuance costs and discounts.

(2)

On March 8, 2018, we completed a merger with an affiliate of
Energy Capital Partners and a consortium of other investors.
Subsequent to this transaction, we paid certain merger-related
costs incurred by CPN Management, LP, our direct parent.

(3)

Our cash and cash equivalents, restricted cash, current, and
restricted cash, net of current portion, are stated as separate
line items on our Consolidated Condensed Balance Sheets.

REGULATION G RECONCI

Contacts

Media Relations:
Brett Kerr
713-830-8809
[email protected]

Investor Relations:
Bryan Kimzey
713-830-8777
[email protected]

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