July 29, 2019 - 5:30 PM EDT
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Calpine Reports Second Quarter 2019 Results

HOUSTON

Calpine Corporation:

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

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

% Change

 

2019

 

2018

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenues

$

2,599

 

 

$

2,259

 

 

15.1

%

 

$

5,198

 

 

$

4,268

 

 

21.8

%

Income from operations

$

444

 

 

$

417

 

 

6.5

%

 

$

802

 

 

$

89

 

 

NM

Cash provided by operating activities

$

278

 

 

$

171

 

 

62.6

%

 

$

519

 

 

$

56

 

 

NM

Net Income (Loss)1

$

266

 

 

$

352

 

 

(24.4

)%

 

$

441

 

 

$

(246

)

 

NM

Commodity Margin2

$

752

 

 

$

694

 

 

8.4

%

 

$

1,531

 

 

$

1,306

 

 

17.2

%

Adjusted Unlevered Free Cash Flow2

$

360

 

 

$

334

 

 

7.8

%

 

$

779

 

 

$

572

 

 

36.2

%

Adjusted Free Cash Flow2

$

203

 

 

$

165

 

 

23.0

%

 

$

467

 

 

$

240

 

 

94.6

%

________

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 $266 million for the second quarter of 2019 compared to $352 million in the prior year period. The key driver of the decrease in Net Income was an unfavorable period-over-period change in our income taxes resulting from the application of intraperiod tax allocation rules to our interim results. The period-over-period change in income taxes was partially offset by an increase in commodity revenue, net of commodity expense, which largely resulted from higher energy margins and the commencement of commercial operations at our 828 MW York 2 Energy Center in March 2019. Cash provided by operating activities for the second quarter of 2019 was $278 million compared to $171 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.

Net Income for the first half of 2019 was $441 million compared to Net Loss of $246 million in the prior year period. The key drivers of the increase in Net Income were a period-over-period increase in commodity revenue, net of commodity expense, which largely resulted from higher energy margins and the commencement of commercial operations at our York 2 Energy Center in March 2019, and increased non-cash, mark-to-market earnings on our commodity hedge position for the first half of 2019 compared to the prior year period. Cash provided by operating activities for the first half of 2019 was $519 million compared to $56 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.

REGIONAL SEGMENT REVIEW OF RESULTS

Table 1: Commodity Margin by Segment (in millions)

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

Variance

 

2019

 

2018

 

Variance

West

 

$

251

 

 

$

241

 

 

$

10

 

 

$

515

 

 

$

426

 

 

$

89

 

Texas

 

173

 

 

151

 

 

22

 

 

335

 

 

317

 

 

18

 

East

 

235

 

 

225

 

 

10

 

 

500

 

 

409

 

 

91

 

Retail

 

93

 

 

77

 

 

16

 

 

181

 

 

154

 

 

27

 

Total

 

$

752

 

 

$

694

 

 

$

58

 

 

$

1,531

 

 

$

1,306

 

 

$

225

 

West Region

Second Quarter: Commodity Margin in our West segment increased by $10 million in the second quarter of 2019 compared to the prior year period. Primary drivers were:

+ higher contribution from hedging activities resulting from lower market spark spreads, and

+ higher resource adequacy revenues.

Year-to-Date: Commodity Margin in our West segment increased by $89 million in the first half of 2019 compared to the prior year period. Primary drivers were:

+ higher market spark spreads in the first quarter of 2019 and higher resource adequacy revenues, and

+ the positive effect of a new contract associated with our Sutter Energy Center that became effective during the second quarter of 2018.

Texas Region

Second Quarter: Commodity Margin in our Texas segment increased by $22 million in the second quarter of 2019 compared to the prior year period. Primary drivers were:

+ higher contribution from hedging activities, partially offset by

– lower on-peak market spark spreads.

Year-to-Date: Commodity Margin in our Texas segment increased by $18 million in the first half of 2019 compared to the prior year period. Primary drivers were:

+ higher contribution from hedging activities during the second quarter of 2019, partially offset by

– lower on-peak market spark spreads during the first half of 2019 and

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

East Region

Second Quarter: Commodity Margin in our East segment increased by $10 million in the second quarter of 2019 compared to the prior year period. Primary drivers were:

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

+ higher contribution from hedging activities, and

+ commencement of commercial operations at our York 2 Energy Center in March 2019, partially offset by

– lower market spark spreads.

Year-to-Date: Commodity Margin in our East segment increased by $91 million in the first half of 2019 compared to the prior year period. Primary drivers were:

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

+ higher contribution from hedging activities, and

+ commencement of commercial operations at our York 2 Energy Center in March 2019, partially offset by

– 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

Second Quarter: Commodity Margin in our Retail segment increased by $16 million in the second quarter of 2019 compared to the prior year period, primarily driven by increased contribution from power and gas supply hedging activity during the second quarter of 2019 compared to the prior year period.

Year-to-Date: Commodity Margin in our Retail segment increased by $27 million in the first half of 2019 compared to the prior year period, primarily driven by increased contribution from power and gas supply hedging activity during the first half of 2019 compared to the prior year period.

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

Table 2: Liquidity (in millions)

 

June 30, 2019

 

December 31, 2018

Cash and cash equivalents, corporate(1)

$

242

 

 

$

141

 

Cash and cash equivalents, non-corporate

55

 

 

64

 

Total cash and cash equivalents

297

 

 

205

 

Restricted cash

262

 

 

201

 

Corporate Revolving Facility availability(2)

1,356

 

 

966

 

CDHI letter of credit facility availability(3)

61

 

 

49

 

Other facilities availability(4)

4

 

 

7

 

Total current liquidity availability(5)

$

1,980

 

 

$

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 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 was reduced to $125 million on June 28, 2019. The decrease in capacity did not have a material effect on our liquidity as alternative sources of liquidity are available.

(4)

We have three unsecured letter of credit facilities with two third-party financial institutions totaling approximately $300 million at June 30, 2019.

(5)

Includes $85 million and $52 million of margin deposits posted with us by our counterparties at June 30, 2019 and December 31, 2018, respectively.

Liquidity was approximately $1.98 billion as of June 30, 2019. Cash, cash equivalents and restricted cash increased by $153 million during the first half of 2019, largely due to cash provided by operating activities, partially offset by capital expenditures on construction and growth projects and net repayments of debt.

Table 3: Cash Flow Activities (in millions)

 

Six Months Ended June 30,

 

2019

 

2018

Beginning cash, cash equivalents and restricted cash

$

406

 

 

$

443

 

Net cash provided by (used in):

 

 

 

Operating activities

519

 

 

56

 

Investing activities

(315

)

 

(234

)

Financing activities

(51

)

 

69

 

Net increase (decrease) in cash, cash equivalents and restricted cash

153

 

 

(109

)

Ending cash, cash equivalents and restricted cash

$

559

 

 

$

334

 

Cash provided by operating activities for the six months ended June 30, 2019 was $519 million compared to $56 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 resulting from a period-over-period net decrease in margin posting requirements as well as a decrease in the purchase of environmental products inventory.

Cash used in investing activities was $315 million during the six months ended June 30, 2019 compared to $234 million in the prior year period. The increase was primarily related to higher capital expenditures on construction and growth projects incurred in the first six months of 2019 compared to the prior year period.

Cash used in financing activities was $51 million during the six months ended June 30, 2019, primarily related to repurchases of our Senior Unsecured Notes and net repayments of our project financing, notes payable and other, partially offset by net borrowings under our Corporate Revolving Facility.

Portfolio Management

On July 10, 2019, we, through our indirect, wholly owned subsidiaries Calpine Holdings, LLC and Calpine Northbrook Project Holdings, LLC, completed the sale of 100% of our ownership interests in Garrison Energy Center LLC (“Garrison”) and RockGen Energy LLC (“RockGen”) to Cobalt Power, L.L.C. for approximately $360 million, subject to certain working capital adjustments and the execution of contracts. Garrison owns the Garrison Energy Center, a 309 MW natural gas-fired, combined-cycle power plant located in Dover, Delaware, and RockGen owns the RockGen Energy Center, a 503 MW natural gas-fired, simple-cycle power plant located in Christiana, Wisconsin.

At June 30, 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. We recorded impairment losses of $40 million and $55 million during the three and six months ended June 30, 2019, respectively, associated with the sale to adjust the carrying value of the assets to reflect fair value less cost to sell.

Capital Allocation

On July 18, 2019, our board of directors approved a special cash dividend of $400 million to be paid to our parent, CPN Management, LP, which was funded with the proceeds from the sale of the Garrison and RockGen Energy Centers and cash on hand and paid on July 18, 2019.

Balance Sheet Management

During the first half 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 recorded 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 recorded 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 78 power plants in operation or under construction represents nearly 26,000 megawatts of generation capacity. Through wholesale power operations and our retail businesses Calpine Energy Solutions and Champion Energy, we serve customers in 23 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 June 30, 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 the 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 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 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 June 30,

 

Six Months Ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(in millions)

Operating revenues:

 

 

 

 

 

 

 

Commodity revenue

$

2,128

 

 

$

2,121

 

 

$

4,666

 

 

$

4,517

 

Mark-to-market gain (loss)

467

 

 

131

 

 

523

 

 

(260

)

Other revenue

4

 

 

7

 

 

9

 

 

11

 

Operating revenues

2,599

 

 

2,259

 

 

5,198

 

 

4,268

 

Operating expenses:

 

 

 

 

 

 

 

Fuel and purchased energy expense:

 

 

 

 

 

 

 

Commodity expense

1,367

 

 

1,426

 

 

3,125

 

 

3,216

 

Mark-to-market (gain) loss

280

 

 

(57

)

 

290

 

 

(77

)

Fuel and purchased energy expense

1,647

 

 

1,369

 

 

3,415

 

 

3,139

 

Operating and maintenance expense

245

 

 

242

 

 

484

 

 

517

 

Depreciation and amortization expense

175

 

 

186

 

 

349

 

 

387

 

General and other administrative expense

34

 

 

31

 

 

66

 

 

91

 

Other operating expenses

19

 

 

19

 

 

38

 

 

56

 

Total operating expenses

2,120

 

 

1,847

 

 

4,352

 

 

4,190

 

Impairment losses

40

 

 

 

 

55

 

 

 

(Income) from unconsolidated subsidiaries

(5

)

 

(5

)

 

(11

)

 

(11

)

Income from operations

444

 

 

417

 

 

802

 

 

89

 

Interest expense

157

 

 

157

 

 

306

 

 

308

 

(Gain) loss on extinguishment of debt

3

 

 

 

 

(1

)

 

 

Other (income) expense, net

5

 

 

62

 

 

28

 

 

69

 

Income (loss) before income taxes

279

 

 

198

 

 

469

 

 

(288

)

Income tax expense (benefit)

9

 

 

(158

)

 

19

 

 

(50

)

Net income (loss)

270

 

 

356

 

 

450

 

 

(238

)

Net income attributable to the noncontrolling interest

(4

)

 

(4

)

 

(9

)

 

(8

)

Net income (loss) attributable to Calpine

$

266

 

 

$

352

 

 

$

441

 

 

$

(246

)

CALPINE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED BALANCE SHEETS

(Unaudited)

 

 

 

June 30,

 

December 31,

 

 

2019

 

2018

 

 

(in millions, except share and per share amounts)

ASSETS

 

 

 

 

Current assets:

 

 

 

 

Cash and cash equivalents

 

$

297

 

 

$

205

 

Accounts receivable, net of allowance of $8 and $9

 

806

 

 

1,022

 

Inventories

 

541

 

 

525

 

Margin deposits and other prepaid expense

 

276

 

 

315

 

Restricted cash, current

 

182

 

 

167

 

Derivative assets, current

 

202

 

 

142

 

Current assets held for sale

 

335

 

 

 

Other current assets

 

60

 

 

43

 

Total current assets

 

2,699

 

 

2,419

 

Property, plant and equipment, net

 

12,051

 

 

12,442

 

Restricted cash, net of current portion

 

80

 

 

34

 

Investments in unconsolidated subsidiaries

 

71

 

 

76

 

Long-term derivative assets

 

213

 

 

160

 

Goodwill

 

242

 

 

242

 

Intangible assets, net

 

370

 

 

412

 

Other assets

 

483

 

 

277

 

Total assets

 

$

16,209

 

 

$

16,062

 

LIABILITIES & STOCKHOLDER’S EQUITY

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

695

 

 

$

958

 

Accrued interest payable

 

98

 

 

96

 

Debt, current portion

 

263

 

 

637

 

Derivative liabilities, current

 

165

 

 

303

 

Current liabilities held for sale

 

22

 

 

 

Other current liabilities

 

470

 

 

489

 

Total current liabilities

 

1,713

 

 

2,483

 

Debt, net of current portion

 

10,461

 

 

10,148

 

Long-term derivative liabilities

 

119

 

 

140

 

Other long-term liabilities

 

463

 

 

235

 

Total liabilities

 

12,756

 

 

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

 

(6,101

)

 

(6,542

)

Accumulated other comprehensive loss

 

(129

)

 

(77

)

Total Calpine stockholder’s equity

 

3,354

 

 

2,963

 

Noncontrolling interest

 

99

 

 

93

 

Total stockholder’s equity

 

3,453

 

 

3,056

 

Total liabilities and stockholder’s equity

 

$

16,209

 

 

$

16,062

 

CALPINE CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

2019

 

2018

 

 

(in millions)

Cash flows from operating activities:

 

 

 

 

Net cash provided by operating activities

 

$

519

 

 

$

56

 

Cash flows from investing activities:

 

 

 

 

Purchases of property, plant and equipment

 

(304

)

 

(231

)

Other

 

(11

)

 

(3

)

Net cash used in investing activities

 

(315

)

 

(234

)

Cash flows from financing activities:

 

 

 

 

Borrowings under First Lien Term Loans

 

941

 

 

 

Repayment of CCFC Term Loan and First Lien Term Loans

 

(942

)

 

(21

)

Repurchases of Senior Unsecured Notes

 

(44

)

 

 

Borrowings under Corporate Revolving Facility

 

220

 

 

475

 

Repayments of Corporate Revolving Facility

 

(175

)

 

(200

)

Borrowings from project financing, notes payable and other

 

34

 

 

 

Repayments of project financing, notes payable and other

 

(77

)

 

(66

)

Distribution to noncontrolling interest holder

 

 

 

(3

)

Financing costs

 

(8

)

 

(12

)

Stock repurchases

 

 

 

(79

)

Shares repurchased for tax withholding on stock-based awards

 

 

 

(7

)

Dividends paid(1)

 

 

 

(18

)

Net cash (used in) provided by financing activities

 

(51

)

 

69

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

153

 

 

(109

)

Cash, cash equivalents and restricted cash, beginning of period

 

406

 

 

443

 

Cash, cash equivalents and restricted cash, end of period(2)

 

$

559

 

 

$

334

 

 

Cash paid during the period for:

 

 

 

 

Interest, net of amounts capitalized

 

$

283

 

 

$

284

 

Income taxes

 

$

8

 

 

$

10

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

Change in capital expenditures included in account payable

 

$

19

 

 

$

(14

)

Plant tax settlement offset in prepaid assets

 

$

(4

)

 

$

 

Asset retirement obligation adjustment offset in operating activities

 

$

(10

)

 

$

 

Garrison Energy Center, RockGen Energy Center and other property, plant and equipment, net, classified as current assets held for sale

 

$

(335

)

 

$

 

Garrison Energy Center capital lease liability classified as current liabilities held for sale

 

$

22

 

 

$

 

____________

(1)

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.

(2)

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 RECONCILIATIONS

In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying second quarter 2019 earnings release contains non-GAAP financial measures. Commodity Margin, Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are non-GAAP financial measures that we use as measures of our performance and liquidity. These non-GAAP measures should be viewed as a supplement to and not a substitute for our U.S. GAAP measures of performance and liquidity, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated.

Commodity Margin includes revenues recognized on our wholesale and retail power sales activity, electric capacity sales, renewable energy credit sales, steam sales, realized settlements associated with our marketing, hedging, optimization and trading activity less costs from our fuel and purchased energy expenses, commodity transmission and transportation expenses, environmental compliance expenses and ancillary retail expense. We believe that Commodity Margin is a useful tool for assessing the performance of our core operations and is a key operational measure of profit 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 (loss) 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 Free Cash Flow represents cash flows from operating activities including the effects of maintenance capital expenditures, adjustments to reflect the Adjusted Free Cash Flow from unconsolidated investments and to exclude the noncontrolling interest and other miscellaneous adjustments such as the effect of changes in working capital. Adjusted Unlevered Free Cash Flow is calculated on the same basis as Adjusted Free Cash Flow but excludes the effect of cash interest, net, and operating lease payments, thus capturing the performance of our business independent of its capital structure. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are presented because we believe they are useful measures of liquidity to assist in comparing financial results from period to period on a consistent basis and to readily view operating trends, as measures for planning and forecasting overall expectations and for evaluating actual results against such expectations and in communications with our Board of Directors, owners, creditors, analysts and investors concerning our financial results. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are liquidity measures and are not intended to represent cash flows from operations, the most directly comparable U.S. GAAP measure, and are not necessarily comparable to similarly titled measures reported by other companies.

Adjusted Unlevered Free Cash Flow Reconciliation

In the following table, we have reconciled our cash flows from operating activities to our Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow for the three and six months ended June 30, 2019 and 2018 (in millions).

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Net cash provided by operating activities

 

$

278

 

 

$

171

 

 

$

519

 

 

$

56

 

Add:

 

 

 

 

 

 

 

 

Maintenance capital expenditures(1)

 

(107

)

 

(88

)

 

(204

)

 

(194

)

Tax differences

 

(7

)

 

(131

)

 

(4

)

 

(96

)

Adjustments to reflect Adjusted Free Cash Flow from unconsolidated investments and exclude the non-controlling interest

 

1

 

 

1

 

 

(6

)

 

2

 

Capitalized corporate interest

 

(1

)

 

(7

)

 

(8

)

 

(14

)

Changes in working capital

 

46

 

 

183

 

 

166

 

 

425

 

Amortization of acquired derivative contracts

 

2

 

 

1

 

 

8

 

 

7

 

Other(2)

 

(9

)

 

35

 

 

(4

)

 

54

 

Adjusted Free Cash Flow

 

$

203

 

 

$

165

 

 

$

467

 

 

$

240

 

Add:

 

 

 

 

 

 

 

 

Cash interest, net(3)

 

151

 

 

162

 

 

300

 

 

319

 

Operating lease payments

 

6

 

 

7

 

 

12

 

 

13

 

Adjusted Unlevered Free Cash Flow

 

$

360

 

 

$

334

 

 

$

779

 

 

$

572

 

 

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

$

(163

)

 

$

(119

)

 

$

(315

)

 

$

(234

)

Net cash provided by (used in) financing activities

 

$

(74

)

 

$

(89

)

 

$

(51

)

 

$

69

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash activities:

 

 

 

 

 

 

 

 

Major maintenance expense and maintenance capital expenditures(4)

 

$

143

 

 

$

118

 

 

$

268

 

 

$

256

 

Cash taxes

 

$

7

 

 

$

6

 

 

$

7

 

 

$

10

 

Other

 

$

1

 

 

$

1

 

 

$

1

 

 

$

1

 

_________

(1)

Maintenance capital expenditures exclude major construction and development projects.

(2)

Other primarily represents miscellaneous items excluded from Adjusted Free Cash Flow that are included in cash flow from operations.

(3)

Includes commitment, letter of credit and other bank fees from both consolidated and unconsolidated investments, net of capitalized interest and interest income.

(4)

Includes $36 million and $30 million in major maintenance expense for the three months ended June 30, 2019 and 2018, respectively, and $107 million and $88 million in maintenance capital expenditures for the three months ended June 30, 2019 and 2018, respectively. Includes $64 million and $62 million in major maintenance expense for the six months ended June 30, 2019 and 2018, respectively, and $204 million and $194 million in maintenance capital expenditures for the six months ended June 30, 2019 and 2018, respectively.

Commodity Margin Reconciliation

The following tables reconcile income (loss) from operations to Commodity Margin for the three and six months ended June 30, 2019 and 2018 (in millions):

 

 

Three Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

Consolidation

 

 

 

 

Wholesale

 

 

 

and

 

 

 

 

West

 

Texas

 

East

 

Retail

 

Elimination

 

Total

Income (loss) from operations

 

$

153

 

 

$

277

 

 

$

154

 

 

$

(140

)

 

$

 

 

$

444

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expense

 

84

 

 

66

 

 

72

 

 

33

 

 

(10

)

 

245

 

Depreciation and amortization expense

 

60

 

 

54

 

 

48

 

 

13

 

 

 

 

175

 

General and other administrative expense

 

5

 

 

15

 

 

10

 

 

4

 

 

 

 

34

 

Other operating expenses

 

7

 

 

1

 

 

11

 

 

 

 

 

 

19

 

Impairment losses

 

 

 

 

 

40

 

 

 

 

 

 

40

 

(Income) from unconsolidated subsidiaries

 

 

 

 

 

(6

)

 

1

 

 

 

 

(5

)

Less: Mark-to-market commodity activity, net and other(1)

 

58

 

 

240

 

 

94

 

 

(182

)

 

(10

)

 

200

 

Commodity Margin

 

$

251

 

 

$

173

 

 

$

235

 

 

$

93

 

 

$

 

 

$

752

 

 

 

 

Three Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

Consolidation

 

 

 

 

Wholesale

 

 

 

and

 

 

 

 

West

 

Texas

 

East

 

Retail

 

Elimination

 

Total

Income (loss) from operations

 

$

58

 

 

$

314

 

 

$

94

 

 

$

(50

)

 

$

1

 

 

$

417

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expense

 

80

 

 

65

 

 

65

 

 

41

 

 

(9

)

 

242

 

Depreciation and amortization expense

 

67

 

 

57

 

 

49

 

 

13

 

 

 

 

186

 

General and other administrative expense

 

5

 

 

13

 

 

8

 

 

5

 

 

 

 

31

 

Other operating expenses

 

8

 

 

3

 

 

8

 

 

 

 

 

 

19

 

(Income) from unconsolidated subsidiaries

 

 

 

 

 

(6

)

 

1

 

 

 

 

(5

)

Less: Mark-to-market commodity activity, net and other(1)

 

(23

)

 

301

 

 

(7

)

 

(67

)

 

(8

)

 

196

 

Commodity Margin

 

$

241

 

 

$

151

 

 

$

225

 

 

$

77

 

 

$

 

 

$

694

 

 

 

 

Six Months Ended June 30, 2019

 

 

 

 

 

 

 

 

 

 

Consolidation

 

 

 

 

Wholesale

 

 

 

and

 

 

 

 

West

 

Texas

 

East

 

Retail

 

Elimination

 

Total

Income (loss) from operations

 

$

303

 

 

$

359

 

 

$

296

 

 

$

(156

)

 

$

 

 

$

802

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expense

 

165

 

 

131

 

 

139

 

 

67

 

 

(18

)

 

484

 

Depreciation and amortization expense

 

133

 

 

99

 

 

91

 

 

26

 

 

 

 

349

 

General and other administrative expense

 

12

 

 

27

 

 

19

 

 

8

 

 

 

 

66

 

Other operating expenses

 

16

 

 

3

 

 

19

 

 

 

 

 

 

38

 

Impairment losses

 

 

 

 

 

55

 

 

 

 

 

 

55

 

(Income) from unconsolidated subsidiaries

 

 

 

 

 

(12

)

 

1

 

 

 

 

(11

)

Less: Mark-to-market commodity activity, net and other(2)

 

114

 

 

284

 

 

107

 

 

(235

)

 

(18

)

 

252

 

Commodity Margin

 

$

515

 

 

$

335

 

 

$

500

 

 

$

181

 

 

$

 

 

$

1,531

 

 

 

 

Six Months Ended June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Consolidation

 

 

 

 

 

Wholesale

 

 

 

and

 

 

 

 

 

West

 

Texas

 

East

 

Retail

 

Elimination

 

Total

 

Income (loss) from operations

 

$

69

 

 

$

(264

)

 

$

186

 

 

$

98

 

 

$

 

 

$

89

 

 

Add:

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating and maintenance expense

 

170

 

 

145

 

 

136

 

 

81

 

 

(15

)

 

517

 

 

Depreciation and amortization expense

 

134

 

 

133

 

 

94

 

 

26

 

 

 

 

387

 

 

General and other administrative expense

 

21

 

 

38

 

 

23

 

 

9

 

 

 

 

91

 

 

Other operating expenses

 

22

 

 

19

 

 

15

 

 

 

 

 

 

56

 

 

(Income) from unconsolidated subsidiaries

 

 

 

 

 

(12

)

 

1

 

 

 

 

(11

)

 

Less: Mark-to-market commodity activity, net and other(2)

 

(10

)

 

(246

)

 

33

 

 

61

 

 

(15

)

 

(177

)

 

Commodity Margin

 

$

426

 

 

$

317

 

 

$

409

 

 

$

154

 

 

$

 

 

$

1,306

 

 

_________

(1)

Includes $(19) million and $(19) million of lease levelization and $18 million and $25 million of amortization expense for the three months ended June 30, 2019 and 2018, respectively.

(2)

Includes $(35) million and $(35) million of lease levelization and $39 million and $53 million of amortization expense for the six months ended June 30, 2019 and 2018, respectively.

OPERATING PERFORMANCE METRICS

The table below shows the operating performance metrics for the periods presented:

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

2019

 

2018

 

2019

 

2018

Total MWh generated (in thousands)(1)(2)

 

21,156

 

 

21,451

 

 

43,257

 

 

42,251

 

West

 

4,015

 

 

3,932

 

 

10,784

 

 

9,041

 

Texas

 

10,497

 

 

11,519

 

 

20,713

 

 

21,166

 

East

 

6,644

 

 

6,000

 

 

11,760

 

 

12,044

 

 

 

 

 

 

 

 

 

 

Average availability(2)

 

81.5

%

 

80.8

%

 

84.2

%

 

84.2

%

West

 

79.7

%

 

78.3

%

 

83.3

%

 

82.6

%

Texas

 

80.9

%

 

86.2

%

 

81.8

%

 

85.7

%

East

 

83.5

%

 

77.1

%

 

87.3

%

 

83.9

%

 

 

 

 

 

 

 

 

 

Average capacity factor, excluding peakers

 

41.6

%

 

43.9

%

 

43.9

%

 

43.4

%

West

 

26.6

%

 

25.6

%

 

35.9

%

 

29.5

%

Texas

 

54.3

%

 

59.6

%

 

53.9

%

 

55.1

%

East

 

41.8

%

 

42.1

%

 

39.1

%

 

42.4

%

 

 

 

 

 

 

 

 

 

Steam adjusted heat rate (Btu/kWh)(2)

 

7,338

 

 

7,387

 

 

7,305

 

 

7,356

 

West

 

7,526

 

 

7,533

 

 

7,391

 

 

7,345

 

Texas

 

7,149

 

 

7,124

 

 

7,110

 

 

7,121

 

East

 

7,571

 

 

7,832

 

 

7,596

 

 

7,780

 

_________

(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.

 

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

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


Source: Business Wire (July 29, 2019 - 5:30 PM EDT)

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