Earnings call transcript: Capital Power Q1 2025 earnings beat expectations

Capital Power Corporation (CPX) reported its first-quarter 2025 earnings, significantly surpassing market expectations. The company announced an earnings per share (EPS) of $1.03, well above the forecasted $0.5664. This earnings surprise, coupled with a revenue of $988 million against an expected $711.91 million, led to a positive market reaction, with the stock rising by 3.11% to close at $50.73. According to InvestingPro analysis, CPX currently trades at an attractive P/E ratio of 15.13 and appears undervalued based on its Fair Value assessment.

Key Takeaways

• Capital Power’s EPS exceeded forecasts by $0.4636, signaling robust financial health.
• The company’s revenue outpaced expectations by $276.09 million.
• Stock price increased by 3.11% post-earnings announcement.
• U.S. and Canadian Flexible Generation segments showed significant EBITDA growth.
• Strategic entry into the PJM market and ongoing innovations bolster future prospects.

Company Performance

Capital Power demonstrated exceptional performance in Q1 2025, with adjusted EBITDA reaching $367 million, an $88 million increase year-over-year. The company’s strategic initiatives, including the Genesee repowering project and expansion into the PJM market, have contributed to its strong financial results. The U.S. Flexible Generation segment saw a 42% increase in EBITDA, while Canadian operations grew by 16%.

Financial Highlights

• Revenue: $988 million, up from $711.91 million forecasted.
• Earnings per share: $1.03, compared to a forecast of $0.5664.
• Adjusted EBITDA: $367 million, $88 million increase year-over-year.
• Adjusted Funds from Operations (AFFO): $218 million, $76 million increase year-over-year.

Earnings vs. Forecast

Capital Power’s Q1 2025 EPS of $1.03 surpassed the forecast of $0.5664 by 81.8%, marking a significant earnings beat. This performance highlights the company’s strong operational capabilities and successful strategic initiatives.

Market Reaction

Following the earnings announcement, Capital Power’s stock price rose by 3.11%, closing at $50.73. This increase reflects investor optimism, driven by the company’s robust earnings and successful market strategies. The stock’s performance is noteworthy, with InvestingPro data showing a strong one-year total return of 32.34% and impressive six-month gains of 15.62%. The company’s liquid assets exceed short-term obligations, indicating solid financial positioning.

Outlook & Guidance

Capital Power reaffirmed its 2025 guidance, focusing on integrating its PJM assets and exploring further M&A opportunities. The company is also considering a potential U.S. listing and remains vigilant in monitoring renewable asset acquisitions.

Executive Commentary

CEO Avik Day emphasized the company’s strategic progress, stating, "We continue to make tangible progress in delivering on our strategy." CFO Sandra Haskins highlighted the company’s financial strength, noting, "We are proud to be solidifying our pro forma capital structure with this financing."

Risks and Challenges

• Regulatory changes in the Alberta power market could impact operations.
• Carbon tax implications may affect profitability.
• Expanding into new markets presents potential operational risks.
• Competition in the power generation sector remains strong.
• Economic fluctuations could influence energy demand.

Q&A

During the earnings call, analysts inquired about Capital Power’s strategy for entering the PJM market and its approach to merchant power exposure. The company also addressed questions about its carbon tax and hedging strategies, highlighting its proactive measures to mitigate potential risks.

Full transcript - Capital Power Corporation (CPX) Q1 2025:

Conference Operator: a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Roy Arthur, vice president, strategic planning and investor relations.

Please go ahead, sir.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power: Good morning, everyone. My name is Roy Arthur, vice president, strategy planning and investor relations. Thank you for joining us to review Power’s first quarter twenty twenty five results, which we published earlier today. Our first quarter report and presentation for this conference call are available on our website. During today’s call, our President and CEO, Abic Day, will provide an update on our business.

Following that, Sandra Haskins, our SVP, Finance and CFO, will present a review of the quarterly and financials for the company. Abic will wrap up with a review of our 2025 strategic priorities, after which we will open the floor to questions from analysts in our interactive Q and A session. Before I start, I would like to remind everyone that certain statements about future events made on the call are forward looking in nature and are based on certain assumptions and analysis made by the company. Actual results could differ materially from the company’s expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward looking information on slide three of our regulatory filings available on SEDAR.

In today’s discussion, we will be referring to various non GAAP financial measures and ratios also noted on slide three. These measures are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used in other enterprises. These measures are provided for to complement the GAAP measures which are provided in the analysis of the company’s results from manager’s perspective. Reconciliations of these non GAAP financial measures to their nearest GAAP measures can be found in our integrated annual report. We acknowledge that Capital Powers office in Edmonton is located within the traditional and contemporary home of many indigenous peoples of Treaty 6 Region and the Metis Nation of Alberta region four.

We acknowledge the diverse indigenous communities that are in these areas and whose presence continues to enrich the community and our lives as we learn more about the indigenous history of the lands on which we live and work. With that, I will hand it over to Abhak.

Avik Day, President and CEO, Capital Power: Thanks, Roy. Good morning, everyone, and thank you for joining us today. In the first quarter of twenty twenty five, we created value and delivered on our strategy on multiple fronts. We delivered 9.6 terawatt hours of reliable power across our strategically positioned portfolio with strong contributions from all four of our revised segments, which we will describe in more detail later in the presentation. We continue to deliver operational excellence by optimizing and maintaining our assets, completing 43% of our scheduled outage days for the year.

After the end of the quarter, we announced the largest acquisition in our company’s history and entered North America’s most meaningful and liquid power market PJM. We’re delivering balanced energy solutions for our customers while advancing development projects and new opportunities, including data centers in Canada and The U. S. And exploring small modular reactors in Alberta. In summary, we continue to make tangible progress in delivering on our strategy.

Our business remains resilient and continues to offer compelling risk adjusted return potential. Amid considerable market turmoil, we have continued to invest in natural gas. Why? The answer is simple. The demand growth potential we see is insensitive to economic and other forms of disruption.

Over the past twenty five years, US natural gas power generation has grown at a 5% compound annual growth rate, far outpacing the total power generation and real US GDP. During this time, The US experienced three recessions and significant renewables growth. Despite these events, natural gas has continued to grow and since 2015 has been the number one source of US power generation with no real competition for this title. Looking forward, we remain encouraged by the long term fundamentals that underpin the need for natural gas fired power generation. Just as the broader natural gas thematic is resilient, so is our business.

We procure our feedstock and monetize our power domestically in both Canada and The US. Our strategically positioned assets are in regions with strong fundamentals and disproportionate C and I demand. Our cash flows are highly contracted with high quality counterparties with over 90 of our PPAs with A rated entities. In summary, our business is largely insulated from tariffs and other macro impacts. This was demonstrated this quarter when we grew our portfolio and delivered strong results during a period of extreme uncertainty.

One notable growth area highlighting the need for natural gas power is data centers. In Alberta and beyond, our proactive engagement seeks to achieve mutually beneficial outcomes. In Alberta, we’ve completed and continue to pursue proactive and extensive engagement with the ISO to understand their concerns and communicate the needs of our target market of off takers. Simultaneously, we are working with potential commercial counterparties and have conducted detailed engineering to understand the key parameters for a colocated data center at the Genesee site. Regarding our broader US portfolio, we are evaluating a wide variety of potential site configurations and commercial constructs.

With the addition of assets in PJM, we will have greater than two gigawatts of incremental capacity available to be contracted. The data center opportunity remains robust for our business. As part of our growth and evolution, we are revising the way we report on our business. Going forward, we intend to disclose in four segments, US flexible generation, Canada flexible generation, US Renewables, and Canada Renewables. As we continue to grow and diversify, we believe that these categories better capture the composition of our business and how we manage it internally.

Let’s zoom in on our flexible generation segments, key pillars of our significant value creation. Starting with Canada, our strong flexible generation portfolio is seeing growth and improvement across multiple areas. We’ve added capacity through repowering and have five ongoing optimization projects in Ontario. These efforts increase scale and efficiency across this segment, lowering the portfolio’s average age and lengthening its weighted average contract life. Exemplifying the strategic positioning of these assets is the recent performance of Goreway.

This facility had a record quarterly capacity factor, providing reliability for the Ontario grid during major outages at a large nuclear facility in the region. We expect the combination of nuclear outages and growing demand to drive strong utilization of this facility and our other assets in the province for years to come. Turning to The US, we are using our strategic and highly accretive acquisition to drive value. Our US portfolio is growing in scale efficiency and lowering its age after adding these two new assets in PJM, Rolling Hills and Hummel. Similar to our Canadian flexible generation assets, strong demand in our key markets continues to drive elevated capacity factors, with Arlington Valley and MTV seeing record quarterly capacity factors in the past twelve months.

Focusing in on the quarter, we saw significant year over year increase in generation at Decatur, driven by nuclear outages in the area. Decatur’s high availability during the quarter allowed the plant to fully capture the upside from the TBA dispatch. These portfolio improvements and overall asset performance reflect our shareholder value creation priorities in action and highlight the benefits they create. The addition of Hummel and Rolling Hills to our portfolio also increases diversification of cash flows and lowers market specific risks, with no single market representing more than 30% of our total pro form a capacity of 11.8 gigawatts once the transaction closes. In addition, this transaction diversifies our merchant generation capacity outside of Alberta and creates additional opportunities to contract with commercial counterparties and access new demand centers.

I’ll now pass it to Sandra.

Sandra Haskins, SVP, Finance and CFO, Capital Power: Thank you, Avik, and good morning, everyone. Before I talk about our first quarter twenty twenty five results, I would like to highlight our ability to finance our growth as demonstrated with the acquisitions of Hummel and Rolling Hills. We have a strong track record of maintaining financial flexibility and discipline while optimizing our cost of capital and enhancing shareholder value. The consideration for our most recent acquisition was a mix of cash on hand, new corporate debt, and a discrete common equity offering. The discrete common offering consisted of $667,000,000 in common equity and a concurrent private placement with Aimco.

We are proud to be solidifying our pro form a capital structure with this financing while enhancing the institutional support for our business with this high quality investor. We are especially proud to have this level of institutional backing during a period where so few entities were able to access capital markets to fund their growth. Outside of M and A and the completion of the Genesee repowering project, in 2025 we will continue to invest approximately hundred million dollars in development CapEx, advancing the projects that make our portfolio larger, lower carbon, younger, and more efficient. We have a history of eleven years of consecutive dividend growth with a low dividend payout ratio. Our ability to deliver sustainable dividends to our shareholders while maintaining a low risk capitalization structure and investing in attractive growth opportunities drives our value for our shareholders.

Now to dive into our first quarter of twenty twenty five results. Capital Power delivered a strong quarter of financial and operational performance. For the quarter, adjusted EBITDA of $367,000,000 was $88,000,000 higher period over period, largely driven by lower emission costs from the Genesee repowering and Goreway’s record quarterly dispatch in the Canada flexible generation portfolio. U. S.

Flexible generation contributions driven by favorable performance of our Desert Southwest portfolio and overall higher generation for our portfolio relative to 2024. AFFO for the quarter was $218,000,000 up $76,000,000 from Q1 twenty twenty four, primarily driven by higher adjusted EBITDA as described above and decreased current income tax expense. This was partially offset by increased financing expenses and higher sustaining capital expenditure. Overall, the quarter is evidence of our ability to progress on our strategic initiatives despite uncertainty in the macro environment. The slide highlights the period over period adjusted EBITDA variance for each of our four new reporting segments.

Q1 twenty twenty five saw a 42% increase in the contribution of adjusted EBITDA from our U. S. Flexible generation fleet. This was driven by a full first quarter contribution from HeartKoala and Lapaloma, which we added to our portfolio midway through Q1 twenty twenty four and strong dispatch from our U. S.

Flexible generation assets. There was a 16% increase in the contribution from our Canadian flexible generation portfolio with Goreway seeing record dispatch. Higher generation at our repowered Genesee unit, which did not incur carbon tax in the quarter, allowed for margin expansion year over year despite captured price declining by $9 per megawatt hour. Our renewable portfolio continues to meaningfully contribute to our overall adjusted EBITDA with minimal variance year over year. After the sell down of 49% of quality wind and PDN in December 2024, Canadian renewables are down in Q1 twenty twenty five to $33,000,000 compared to $44,000,000 in 2024.

The results shown here are fully consolidated to ease comparison to the prior period. The uplift in adjusted EBITDA through asset recycling of these assets will be reflected in The U. S. Flexible Generation segment post closing We are on track relative to our 2025 guidance and are reaffirming it for the year.

We will provide revised guidance including the previously announced TGM acquisition closer to the closing of the transaction. Altogether, the results from Q1 and our recent acquisition underscore the resilience and effectiveness of our strategy and our ability to create meaningful long term shareholder value through a variety of market conditions. I’ll now pass it back to Avik.

Avik Day, President and CEO, Capital Power: We are immensely proud of our accomplishments year to date. Our team is delivering excellence and driving results across our business, as demonstrated by our significant portfolio growth and strong quarterly results from our existing assets. In our January guidance call, we outlined our strategic priorities for the year, and we are making meaningful progress on all our priorities, including fully executing on expanding our flexible generation portfolio. We look forward to providing further updates on the other priorities as the year progresses. And with that, I will hand it back to Roy.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power: Thanks, Vivek. Operator, we are now ready to take questions.

Conference Operator: Certainly. And our first question comes from the line of Thomas Merrick from Janney Montgomery Scott. Your question please.

Thomas Merrick, Analyst, Janney Montgomery Scott: Good morning, team. Thanks for the time. Two questions for me on The U. S. Assets.

I’ll start with kind of PJM capacity question and then follow-up on La Paloma. But what are your thoughts on the auction results upcoming this July? And then second part of that is when do you think the RTO will get back on schedule for running the auctions kind of relative to the three year forward look?

Avik Day, President and CEO, Capital Power: Thanks for the question, Thomas. So on the second one, you know, think that’s an open question. I think we expect that resolution on scheduling to occur over the coming twelve months, but we don’t have we don’t we don’t have a view as of yet when we’ll get back on specifically, but we understand that, you know, that’s being worked out as we speak. With regards to, you know, forward outlook, you know, when we looked at these assets, what underpinned our underwrite was the high quality nature of both assets on Hummel, you know, a low heat rate. And underpinning our view on the market was a, you know, a mean view on what capacity markets would do.

And, you know, as we said on the call when we announced the transaction, you know, our outlook is within the range of the floor and the cap on market outlook.

Thomas Merrick, Analyst, Janney Montgomery Scott: Thanks for that. And follow-up on La Paloma. Appreciate the color on Decatur and Midland cogen that you made. Just curious if you could dig in to La Paloma as well for the quarter. Looked like pretty strong results out of that asset.

And that’s it for me. Thanks for the time.

Avik Day, President and CEO, Capital Power: Yeah, thanks for the question. On lymphoma in terms of generation, we saw strong generation out of the first quarter and overall performance. You

Robert Hope, Analyst, Scotiabank: know,

Avik Day, President and CEO, Capital Power: it was, better than expected, but, yeah, it just really speaks to the positioning of the asset within Queso and, just the optimization that our team, was able to deliver on the training side. But, you know, overall, you know, as we we like glaucoma because of its positioning, given its specific gas supply and then our ability to, you know, hedge and optimize that asset with strong deliverability. So you can see the results on our generation on that quarter over quarter, but that that’s what was reflected in the market. But I would say it was asset specific more than it was market specific.

Conference Operator: Thank you. And our next question comes from the line of Robert Hope from Scotiabank. Your question, please.

Thomas Merrick, Analyst, Janney Montgomery Scott: Morning. There’s been a couple of changes in the REM in Alberta over the last couple of weeks. Maybe just kind of your thoughts on the changes that the ISO is making and the implications for your business.

Avik Day, President and CEO, Capital Power: Yeah. Thanks, Rob. You know, obviously, there’s been a few additional changes here over the last four weeks, in particular, you know, the removal of the day ahead market. You know, I think in aggregate, you know, fundamentals of the market being an energy only market bias heavily towards efficient units and so the fundamentals of where we are on pricing and outlook that we’re oversupplied. I think, you know, ultimately, putting a premium on dispatchable generation and efficient generation is what will carry the day, and, you know, the government is really trying to pinpoint the policy that allows for that, but still in sense, new build, and sending the right price signal is key.

So from a capital power perspective, you know, we we support the changes that the the government is trying to put in place, and, you know, there’s a high level engagement. There was a CEO forum where where these changes were discussed a little over a month ago. But it’s really important that, you know, the price signals remain to, one, incent new builds, and it looks as though, you know, the government is looking to to put those in place. So, you know, we weren’t expecting the the change on, the removal of the day ahead market, but the replacement of that with, you know, dispatchability products is is a positive indication and one that I think benefits our fleet in particular and Genesee in particular.

Thomas Merrick, Analyst, Janney Montgomery Scott: Alright. Good to hear. And then just taking a look at the presentation for the quarter, like in the 2025 strategic priorities, you know, acquisitions and expanding the generation portfolio is still listed as a strategic priority. You know, are you still looking at assets, or does the focus now turn to integrating the PGM assets and then, you know, maybe take a look again in 2026?

Avik Day, President and CEO, Capital Power: The the priority is definitely focused on integrating the PJM assets. But I would say on m and a, it’s not something you can start and stop. I think our our company in particular over a decade has demonstrated that we can maintain a deep pipeline of of opportunities, both, you know, bilateral and participate in broad auctions. And, hopefully, we’ve demonstrated a strong capability to execute. And so, you know, we will continue looking at opportunities, but make no mistake, the priority for this year will be to, one close the transaction and two integrate these two assets in particular because we’re in a new market.

Robert Hope, Analyst, Scotiabank: Thank you.

Conference Operator: Thank you. And our next question comes from the line of Patrick Kenny from NBF. Your question please.

Patrick Kenny, Analyst, NBF: Thank you. Good morning. I guess just with respect to the ASO approving really any data center interconnections in the province, It sounds like based on the Premier’s comments yesterday, the federal government now has about a six month window to withdraw or at least revise the CER to align with the province’s net zero time line. So I just wanted to confirm if Q4 is still a realistic time line for potentially securing a co location agreement at Genesee? And also any color on how your commercial discussions have been progressing relative to your initial expectations coming into the year?

Avik Day, President and CEO, Capital Power: Thanks Pat. We continue to progress on the data center initiative and Alberta continues to be very compelling for customers. And as I’ve mentioned before, in particular, of in service dates being attractive coming in at 2028 or earlier. And given our positioning of having excess capacity, a highly efficient unit, and where we where the grid is in Alberta, nothing’s changed in that regard. So we continue to advance, discussions and negotiations there.

With regard to CER, I would say CER, does not impact our ability to contract in Alberta, specifically at Genesee today because the capacity is built out. It will obviously have a clear impact on any new build that occurs in the province, and has a later in service date, but, at Genesee specifically we don’t see, that as a barrier. But I would emphasize, you know, we still do believe CER as it’s currently contemplated, does not meet the needs of Alberta’s grids, and, you know, the repeal of it or significant modification of it, would be required to, you know, enable a safe, efficient, and reliable grid for Albertans.

Patrick Kenny, Analyst, NBF: And I guess until we see data center load come into the province, just looking at your Alberta power hedging profile, it doesn’t look like there’s been much opportunity to add significant positions for 2026 or beyond. And with the forward curve down, call it $10 a megawatt hour since the beginning of the year, How are you thinking about mitigating your exposure beyond next year? Or perhaps do you see a disconnect between where the forwards are at and your own internal forecast?

Sandra Haskins, SVP, Finance and CFO, Capital Power: Yeah, thanks Pat. I think that when you look at our hedging profile out the next couple of years, it is actually more hedged than historically we would have. And that’s just because of the longer contracts that we put in place before. So we’re able to be somewhat patient before locking in more hedges. I think what we saw with some of the depression in the forwards was just some uncertainty around carbon tax pricing and where that would settle out post election.

So I think with the Liberals being remaining in power that you might see some rebound there. But from our perspective, I think we would continue to hedge out that book probably when we get a little more closer to 2026 and you have some of the retail load looking to hedge out. So we’re comfortable with the level of hedges that we have now and not feeling any urgency. So we can be somewhat flexible in terms of our position.

Patrick Kenny, Analyst, NBF: Okay, that’s great. Appreciate the comments. I’ll jump back in the queue.

Conference Operator: Thank you. And our next question comes from the line of Mark Jarvi from CIBC. Your question please.

Robert Hope, Analyst, Scotiabank: Yeah, thanks for the time this morning. Maybe, Sandra, picking up on your last comment with the forward curves and maybe the market pricing in sort of a flat or change What are you guys hearing in terms of that? Is that holding you off from doing any additional hedging in near term in terms of your expectation around what happens there?

Sandra Haskins, SVP, Finance and CFO, Capital Power: I don’t think it would be I would say it’s holding us off, but certainly it is one that we think that there’s a little bit more clarity now in terms of what that policy is likely to be. So as I said, we still look for opportunities in the curve to step into positions and we’ll continue to do that. But I’m not expecting a material shift until we get a little farther into the year, as we sort of expect that the forward curve is softer, given that we are seeing softer prices now. So to the extent there’s any kind of volatility in prices or clarity on policies, I think we’ll get a clearer view as this year progresses as to where the forwards for ’twenty six will be in our ability to transact in an opportunistic fashion.

Robert Hope, Analyst, Scotiabank: So your assumptions at this point are continued $15 a ton increases annually? Or are you hearing some indications or hearing from government potentially a pause or potentially revisiting sort of the what’s gonna happen in terms of the the the forward increases on the carbon price?

Sandra Haskins, SVP, Finance and CFO, Capital Power: We’re not hearing anything different than the baseline assumption that it would still continue to go 15 a year up to 170, but we’ll see whether or not anything is forthcoming on that. It’s always been our expectation that large emitters would continue to see carbon taxes. And if there was a change in government or a change in thinking on carbon pricing, it would be more at the consumer level. So we’ve always anticipated this level. I would just note that at Genesee, for example, we did this quarter ignore or were able to be below the intensity benchmark for carbon tax.

So I think for us, the most meaningful story in the quarter around carbon tax is the fact that our repowered units have hit a level of efficiency that we were expecting and seen a fair bit of uplift in our results in the quarter as a result of the repowering units performing as expected.

Robert Hope, Analyst, Scotiabank: Got it. And then going back to the topic of capacity pricing, maybe the MISO auctions that came out recently, Alex, your perspective on that, what that means for that market, what that means maybe for counterparties, a sense of urgency to contract at Midland, and then maybe even just going broadly through your other U. S. Assets in terms of opportunities to secure contracts. Is that a 2025 expectation or is that more 2026?

Avik Day, President and CEO, Capital Power: Yeah. Thanks, Mark. With respect with respect to the summer auction at MISO, it’s a trend that we’ve been seeing over the course of the last two years. As you’ll recall last year, you know, we had a record quarter of generation out of MCV as well. So, you know, we’re seeing the same dynamic play out in multiple markets, whether it’s, you know, Kaiso for reliability, you know, Desert Southwest for, you know, ongoing generation demand, you know, Decatur, we experienced that positive uplift because of nuclear outages.

And, you know, the thematic that we’ve been chasing over the last decade of finding really strong mid merit gas plants with proven gas supply where gas is a critical product for reliability, That thematic has played out in each and every one of our plants. So implications on MISO, for us at at MTV. MTV is contracted, so there’ll be no immediate, you know, uplift to that market. But, you know, we are having multiple conversations there as well as other plans around recontracting and data centers. So it’s, you know, it’s we expected that.

We continue seeing pressure. New build continues to be challenged with the cost of new entry. So this you know, and that’s what you’re seeing play out in multiple markets. Existing dispatchable generation is becoming more and more valuable. And, you know, when you have it on an existing interconnect, you know, that’s what you’re seeing play out in the market.

So we expected, the tightening of the market in MISO, and we continue to see more demand in those key markets.

Robert Hope, Analyst, Scotiabank: And just in terms of timing of for recontracting, our conversations continue to progress well. Do you think there’s something in the cards in the next couple of quarters around an update around those?

Avik Day, President and CEO, Capital Power: I I I can’t comment on that. What I would say, like I said last quarter, we’ve got multiple conversations on recontracting. And, you know, I think it’s, I think the opportunity for us to recontract is there. I think the decision for us, in specific negotiations is, whether we can agree on commercial terms that, you know, both sides are satisfied with. And, you know, we have to look at those options relative to our other alternatives, whether it’s expansion or, you know, doing, something with the data center.

So, you know, these are they’re ongoing conversations. They’re all favorable in nature. We’re not having one conversation where, you know, we’re looking out and we’re not getting better returns than where we currently are, the demand is is is generally working in our favor on this. So I can’t comment when we’ll, we’ll be able to deliver it, but given that we’re having many of these conversations at facilities much earlier, and much further away from the expiry of the existing contracts, you know, they take time. But, you know, I think constructive dialogue on multiple facilities, engaged counterparties, and, you know, it feels like, both sides are working towards, you know, mutually beneficial outcomes.

So, going in the right direction, can’t say whether it’ll will announce something in the next two quarters or not.

Robert Hope, Analyst, Scotiabank: Makes sense. And then maybe just last quick question. Just Alberta data centers, are you only looking at colocation style agreements for Genesee, or are there other options on the table based on some of the, customers you’re talking to?

Avik Day, President and CEO, Capital Power: So just generally across North America, we’re looking at multiple options. I would say in Alberta, as as is indicated by our interconnect applications, the priority is is definitely colocation. That is, you know, we have the interconnect, we have capacity within the framing of what the government minister, Newdorf, minister, have telegraphed to the market in terms of appetite for, you know, behind the fence, co located, or, you know, fully, behind the meter alternatives. Genesee is just very well positioned for that. And I think, as I said last quarter, our big advantage in this conversation is the hour in service date being sooner than almost anywhere in North America.

So, know, that benefits from colocation, if we can work through the the regulatory aspects of that with the ASO and and the ministry and the AUC. So, I think everyone in Alberta is working hard to getting to that outcome for the province. And, you know, and and we’re focused on, you know, delivering a product that meets the needs of a customer. And also as Premier Smith has said time and time again, having a project that doesn’t compromise reliability and affordability to consumers is paramount. So we’re trying to work within those bookends.

But, you know, things are things are continuing to move forward. And, you know, right now it’s just getting the rule book for Alberta to bring this industry to bear in the province and we’re trying to work within that framework.

Robert Hope, Analyst, Scotiabank: Got it. Thanks for the time today.

Conference Operator: Thank you. And our next question comes from the line of Maurice Choi from RBC Capital Markets. Your question please.

Maurice Choi, Analyst, RBC Capital Markets: Thank you and good morning everyone. I know you mentioned that you have 90% of the EBITDA contracted or hedged for 2025. But if I look beyond this year and look at your pro form a portfolio, the PJM assets are obviously mostly merchant cash flows. So my two part question is this. When you exclude hedges, what percentage of your assets are contracted pre and post the PJM acquisition?

Second part question is, big picture, if you think about the positive outlook for power growth across North America, how do you see taking on incremental merchant power exposure, fully recognizing that the rating agencies probably have a minimum level that you’ve got to adhere to?

Sandra Haskins, SVP, Finance and CFO, Capital Power: So thanks, Maurice. When we talk about our level of contractedness, we do exclude hedges that are put on in the year or short term duration hedges. So when we’re looking at being contracted or long term hedges of above our 60% threshold for this year, excluding the PGM acquisition, we were well in the high 70% contracted for the year. When you add in PGM, we still remain with a cushion above that 60%. So that’s part of the process that we would have gone through with the rating agencies looking out over the course of our plan and what our contracted level was.

So the exposure we take on in PGM does bring us more in line with that threshold of 60 to 65% contracted. And we expect that that’ll remain the level for the next number of years, absent more acquisitions.

Maurice Choi, Analyst, RBC Capital Markets: And your thoughts on, you know, the benefits are of taking on incremental merchant power exposure given the focus?

Sandra Haskins, SVP, Finance and CFO, Capital Power: Yeah. So I think what we’ve been talking about for some time now is that we are seeing rising prices that when you contract, you definitely derisk your cash flows, but you are giving up some of the upside. And so where we’re looking to capture that upside would be when we look to recontract assets where we think that we can contract at higher prices than would have been anticipated looking back a couple years ago. As far as that merchant exposure for us, the question becomes what markets do you wanna have that merchant exposure and and how much to take advantage of of the upside you can realize, from from the returns in a merchant market with higher pricing than what you would contract for. So we would be looking at the near term fundamentals of the various merchant exposures that we have and deciding where to allocate that 40% exposure to optimize returns.

But as you know, our view has always been to de risk our cash flows, to maintain enough cushion to make sure that we are resilient. So we would be employing all of those fundamentals in deciding on how much exposure we would take in a given year and how much we’d be looking to hedge out or to contract.

Maurice Choi, Analyst, RBC Capital Markets: Understood. And and just to finish off in another strategy question, I guess. So you made your your initial entry into the PJM market with this deal that you’ve announced. Just thoughts on how do you leverage that initial position to improve the returns beyond just holding it? Is there a contemplation that you would seek up more portfolio approach to that market?

And then or would you want to enter a new market like in other markets like ERCOT for example?

Avik Day, President and CEO, Capital Power: Thanks, Maurice. One of the reasons we’re so excited about these two assets is it’s large enough, and the combination of a CCGT and a large peaker allows us to take a portfolio positioning in PJM. So, you know, for us, the priority is first and foremost to go in and take over ownership and stewardship of those assets and and find ways to optimize those assets. I think Hummel in particular, you know, it’s a 2018 vintage CCGT, so it’s, you know, one of the most efficient and newer plants in the whole market. But, you know, at Rolling Hills, you know, we see significant opportunities there that we have not modeled and are not baked into the models that, you know, over the course of the first two to four quarters of ownership, we’ll look to find those opportunities.

In terms of our market assessment, across North America, you know, we highlighted in our twenty twenty four Investor Day that PJM and ERCOT were two interesting markets for us. PGM, we prioritized over the course of 2024 because of, you know, the market dynamics, because of the capacity market, and just because of the size and scale of that market. As we looked at ERCOT, you know, I would say in at the beginning of 2024, we looked at both of those on an equal playing field. And as we think about portfolio construction, we are diversified now where no single market you know post closing will be more than 30%. And as we look at ERCOT relative to our own position in Alberta where it’s a similar market structure, you know, we think we have comparative advantages in Alberta, whereas in ERCOT given the competitiveness of it, we like the market.

If there was something opportunistic there, we’d evaluate it. But we think in terms of portfolio construction, contract in this merchant exposure, you know, those dollars are more appropriately allocated towards Alberta, you know, if and when opportunities exist there. So, you know, I would say continuing to expand and optimize our business in PJM through, you know, upgrades, trading and origination, contracting opportunities, potential expansion of the fleet over time is a focus and we see those same opportunities in MISO, Desert Southwest and potentially Ontario as well.

Maurice Choi, Analyst, RBC Capital Markets: That’s great color. Thank you very much.

Conference Operator: Thank you. And our next question comes from the line of Benjamin Pham from BMO. Your question please.

Benjamin Pham, Analyst, BMO: Hi, thanks. Good morning. Just looking at your new segmenting renewables in particular, can you comment on the outlook there for those two segments? And then can you also comment on with renewables, is it better to buy right now or to build?

Avik Day, President and CEO, Capital Power: Just in terms of outlook, as as you know, between our Canadian and US business, it’s it’s mostly contracted. We are seeing more broadly, you know, multiple compression and valuation pressure on the renewable side. I would say to buy versus build, I think on the build side if you’ve got existing security of supply, in particular on The US side, know, as the tariff conversation continues, I think there’s compelling returns to be had. I think we last year going into the second half of twenty twenty four, we were expecting valuation to acquire assets to start being more compelling and more in line with our own multiples. And that was really the noise we were hearing in the market that didn’t transpire, as quickly as we thought.

But you know, do suspect that over the course of this year, in particular, lower contracted assets, so I would say sub 15 over ten year contractiveness on operating renewables As there continues to be more market pressure on the segment, we think there could be some compelling opportunities in renewables there, in particular ones where you have to apply the expertise that we have, you know, in terms of understanding construction, repowering opportunities, contracting opportunities, and and, you know, working with regulators. So, you know, I think if if there was something interesting there and compelling that would meet our return threshold, that would be it. It would be those assets that don’t naturally fit infrastructure firms or the big renewable players because they don’t have quite the length of contractedness that they would like, but it would be accretive to us on contractedness and require, you know, operational engineering and construction expertise to go realize that. So I’m actually I it’s it’s a space where I think, you know, we’ve we’ve always been in. We’ve found it hard to acquire, so that’s never been a focus, but, you know, we’re definitely monitoring it.

Benjamin Pham, Analyst, BMO: Yeah. Understood. And say on the acquisition side, you’ve you’ve mentioned it’s something going to continue to evaluate. Maybe you can share in the last twelve, twenty four months, you shared some good tidbits on the opportunities that remains robust, your target geographies and whatnot. Are you seeing any change there in terms of the amount of volumes you’re seeing on your your DAS?

And is is there more of these $3,000,000,000 type deals that are that you’re you’re of that size out there?

Avik Day, President and CEO, Capital Power: There’s definitely opportunities that are multibillion in nature. You know, obviously, Constellation transacting on Calpine sent a significant market signal. But the number of players that are corporate in nature or pools of assets that are owned by single owners is few and far between. So I would say third quarter going into fourth quarter last year, significant pickup in terms of number of assets coming to market through auctions. And we largely didn’t play in most of those auctions.

And I think as we rolled into this year before the tariffs were announced, think there was an expectation of a number of assets coming to market this year. So definitely more assets in the market, definitely more players in the market. I would say debt capital markets have not materially improved for the sector in terms of, you know, borrowing base capacity for merchant natural gas assets. And as a result, I think it’s more difficult for private equity and or infrastructure funds to play. So I do think, you know, in the the greater than billion dollar transaction size, there’s still a limited number of buyers that have the capability and capacity to, you know, operate, optimize, trade, and originate around the assets.

And so I do think that will continue to be niche area for us to exploit relative to the universe is getting more and more competitive.

Benjamin Pham, Analyst, BMO: Understood. Maybe just one last one on the balance sheet side of things. Do do you do you think that that’s nimble enough to to take advantage of it? Just just given your recent history with equity offerings and partnerships and whatnot.

Avik Day, President and CEO, Capital Power: You know, I think if anything, Ben, we’ve demonstrated that we can be flexible and creative in finding capital, and we’ve been incredibly fortunate to have investors support our strategy and approach to the market, which is underpinned by a decade long consistent approach to underwriting. So, you know, I I think we have to continue to be creative. We are committed to maintaining our investment grade status and our existing balance sheet strength. So it just means we’ve gotta find, you know, more partners and be more creative and stick to our knitting of doing what we do well. So we’ll continue to do that.

I think we’re, and it’s one of the reasons why the priority is integrating these assets, but, you know, we’ll continue to be in the market looking for interesting opportunities that that fit what we do well. And and maybe one last point there is we continue to see we continue to get inbounds, from parties wanting to partner with us on on opportunities. So I don’t think there’s a shortage of capital available to us to go pursue these.

Benjamin Pham, Analyst, BMO: Okay. That’s very useful. Thanks, Abbe.

Avik Day, President and CEO, Capital Power: Thank you.

Conference Operator: Thank you. And our next question comes from the line of Julien Dumoulin Smith from Jefferies LLC. Your question please.

Tanner, Analyst, Jefferies LLC: This is Tanner on for Julien. Good morning. Maybe I’ll follow-up on the M and A angle here. Following the PJM acquisition, is this M and a digestion period more a reflection of financing considerations or is it really just about enabling strategic integration? Like, instance, is there sort of FFO to debt or leverage target that would signal you’ve properly digested the acquisition and will look to become active again?

Or if it’s an operational consideration, what milestone would indicate you’re satisfied with the integration and ready for another phase of inorganic growth?

Avik Day, President and CEO, Capital Power: Yeah. Thanks for the question, Tanner. I would say the the latter is the first priority. I think we have clear, you know, glide guidelines and and indications from rating agencies on what’s what’s required, and we feel we’re within those parameters. But, you know, for us table stakes is ensuring we integrate these assets safely and efficiently and position them well inside our organization.

So, you know, I think for us, I don’t wanna telegraph a timing of when we would do the next thing other than to say we have an active pipeline. We continue to expand that pipeline. And obviously, with this transaction, you know, we were able to transact with formidable and industry leading counterparty like LS. You know, we’re just honored to have been able to transact and and take these assets on. And so, you know, I think we’re you know, the phone’s definitely ringing, but we wanna be prudent about our approach here.

So we’re not we’re not in a rush to do the next thing. We’re evaluating the market and priority is to integrate these assets.

Tanner, Analyst, Jefferies LLC: Great. And from a portfolio construction standpoint, I think you touched on this earlier from on a market by market standpoint, but zooming out. What is the ideal U. S. Canada mix going forward?

And then is there a threshold perhaps to cross where it makes increasing sense to begin looking into formally pursuing a dual listing?

Sandra Haskins, SVP, Finance and CFO, Capital Power: Thanks, Tanner. Yeah, so from our perspective, we’ve always considered that the timing of a U. S. Listing would be timed with an acquisition. So we haven’t really set a threshold in terms of the mix of business, Canada, US.

It’s a number of different considerations, including your overall market cap, investor interest, and we certainly see very strong momentum in all of those areas. So thinking that the time to do a list of that opportunity could be available to us. Certainly there are SOX requirements as well, and we are focused on ensuring that we align with those requirements before going down that path. So we continue to monitor that and expect that, it would be, something that we would have in our financing toolkit and, potentially the next couple of transactions out, if if not sooner, but, we’ll we’ll continue to monitor it.

Benjamin Pham, Analyst, BMO: Great. Thank you.

Conference Operator: Thank you. And our next question comes from the line of John Mould from TD Cowen. Your question, please.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power0: Hi, thanks. Good morning, everybody. Going back to the Alberta data center opportunity, just wondering if you can give us maybe a bit of a preview of what you’re hoping for, for an ASO next month in terms of how they’re going to approach that methodology for allocating available capacity and how your view on available capacity in the market for data centers has evolved based on what you’ve seen in the power market so far this year.

Avik Day, President and CEO, Capital Power: Thanks, John. Look, think the ASO has been very clear in their approach to the allocation and trying to find objective measures in how to fairly allocate that capacity. You know, we’ve continued to provide input to that as all producers have and generators have in the province. We are very confident that Genesee is well positioned for that and, you know, are hopeful that, you know, we’ll we’ll, you know, we’ll have a material allocation given the fact that we’ve just recently repowered and have excess capacity and the positioning of the Genesee, you know, relative to the grid. So, you know, I I think, you know, we have our interconnect applications in place.

We’ve got capacity there. We’ve got ongoing dialogue, and, you know, the AASO is is working hard to find that that best objective approach that also ensures grid reliability, and, you know, we feel like we’re well positioned for that. So I can’t really comment, more than that because we don’t know, when that will come out. We have an expectation that it will be in the next four weeks, but, we’re not privy to the specifics in how that will roll out, but, I feel good about our our positioning. With regards to the commercial opportunity in Alberta, you know, the conversation, it’s fantastic that we’ve got a number of projects in queue, and the prominence of Alberta has emerged as a in industry, an industry location, for data centers.

You know, this is not about Genesee and Capital Power building a data center. It’s really about forming the foundation for an industry supercenter. And so, you know, we welcome all the projects that are coming in. But the most important thing is a near term in service date. That’s what the hyperscalers are focused on, and those that have the nearest term in service dates are the ones that are going to fill first.

And so the opportunity for Alberta is to come up with the rules of the road, that service the industry so that we can one build the first one and then sanction all of the others. And I’m very excited about where Alberta is in this regard because as I said last year, it’s one of the only jurisdictions in North America where you have government, the Ministry of Utilities, Ministry of Technology, industry players all aligned in wanting the industry there. And so if we’re able to put this framework forward, we’ll be one of the first jurisdictions post generative AI that’s actually laid the the ground, the road map for how to go do this while not compromising reliability and affordability. So I think this, you know, the next, you know, four to eight weeks is very important in terms of how the government and the ASO align on, putting forth that allocation, and then the rules coming behind it, is a is a really big opportunity for the province. So, that’s that’s that’s our view, and those are the conversations we’ve been having with not just counterparties but government.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power0: Okay. Thanks for that detail. That’s great. And then just maybe on the on the, phased low growth approach, and, you know, you’ve made that, I think, comment the last couple of quarters. And, you know, as you noted, you’ve got early twenty twenty seven, I think, ISDs in your applications.

Just this, let’s say, clarification on phased load growth. Is that more of a reflection of customer preference for gradual growth, the realities of equipment and labor constraints in terms of what can get built, what the grid can handle, and how much of that is maybe driven by you know, broader economic considerations just in terms of the pace of of potential customer CapEx? Your thoughts on all that would be great. Thanks.

Avik Day, President and CEO, Capital Power: Yeah. And, you know, John, this is a conversation I’ve had quite a lot over the last two or three quarters. I would say, it started with for us anyways, I don’t know about other generators and their conversations with hyperscalers, but, you know, when we were introduced to this opportunity set in second quarter twenty twenty three, the conversations we’ve consistently had with hyperscalers, data center providers, and, you know, other interested parties was they needed the flexibility to come in at a material level, call it 300 megawatts plus, and have the option, to scale that to much higher numbers. And that was their need, not grid restrictions. And so as the conversation has evolved and as the hyperscalers have, you know, refined their own requirements, then it becomes a local market conversation.

And so the answer is it’s actually both. It’s customer need, and then on the other side, it’s capacity availability, grid reliability, and transmission and distribution constraints. And so that’s one of the reasons why all of these deals are taking longer across North America is, you know, you’re having to, you know, come forward with multi path, multilateral agreements that are bringing to the table stakeholders as well as off takers as well as generators. So I think most deals we’ll see will have some level of contingency and scaling, and that is going to accommodate both sides, whether it’s, you know, the the system operator or the utility and what their needs for for reliability and new generation are as well as, you know, the customer having some flexibility as well to scale. I think it’s less about supply availability.

I think it’s less about access to chips and more about the commercial needs of what the hyperscalers are and when and when and how they wanna scale.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power0: Okay. That’s great. Thank you. And maybe just one last one for Sandra. Just on the on the year over year EBITDA growth in Canadian flexible generation was about $28,000,000 Can you give us a sense of how that growth split between the Alberta and Ontario assets just given the improved cost structure at Genesee, but again, the increased dispatch at Goreway, which I wouldn’t have guessed would have been a huge impact, but that would be helpful.

Sandra Haskins, SVP, Finance and CFO, Capital Power: No, yeah, so I would say probably about 80% of it is Alberta, so Ontario would be less, so Goreway maybe in the neighborhood

Avik Day, President and CEO, Capital Power: plus

Sandra Haskins, SVP, Finance and CFO, Capital Power: million. And the rest of it would be on the Alberta assets.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power0: Okay, great. Those are my questions. Thank you very much.

Conference Operator: Thank you. This does conclude the question and answer session of today’s program. I’d like to hand the program back to Roy Arthur for any further remarks.

Roy Arthur, Vice President, Strategic Planning and Investor Relations, Capital Power: Thank you, operator. This concludes our call for today. We greatly appreciate those of you who dialed in and for your continued interest in our story. Have a great day.

Conference Operator: Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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