Earnings call transcript: Capital Power Q2 2025 misses expectations

Capital Power Corporation (CPX) reported its Q2 2025 earnings, revealing a significant miss against market expectations. The company posted an earnings per share (EPS) of -$0.92, starkly contrasting with the forecasted $0.49, resulting in a surprise of -287.64%. Revenue also fell short at $441 million, compared to the anticipated $828.99 million, a 46.8% miss. This disappointing performance led to a pre-market stock price drop of 6.29%, with shares falling $3.92 to $58.36. According to InvestingPro data, the company maintains a healthy financial position with a Current Ratio of 1.75, indicating strong liquidity with assets well exceeding short-term obligations.

Key Takeaways

• Capital Power’s Q2 2025 EPS and revenue significantly missed forecasts.
• Stock price declined by 6.29% following the earnings release.
• The company revised its full-year 2025 Adjusted EBITDA guidance upward.
• Operational expansion included a 5 GW increase in US flexible generation.
• Alberta power prices have dropped significantly since 2023.

Company Performance

Capital Power’s Q2 2025 performance showed mixed results. While the adjusted EBITDA remained flat year-over-year at $322 million, the adjusted funds from operations (AFFO) increased by $57 million from Q2 2024, reaching $235 million. The company has focused on diversifying its US flexible generation and reducing emissions costs, which contributed to these results.

Financial Highlights

• Revenue: $441 million, down from the forecasted $828.99 million.
• Earnings per share: -$0.92, missing the forecast of $0.49.
• Adjusted EBITDA: $322 million, flat year-over-year.
• AFFO: $235 million, an increase of $57 million from Q2 2024.

Earnings vs. Forecast

Capital Power’s actual EPS of -$0.92 fell short of the expected $0.49, marking a significant negative surprise of -287.64%. Revenue also underperformed, coming in at $441 million versus the forecasted $828.99 million, a 46.8% miss. This marked a stark deviation from the company’s historical trend of meeting or exceeding earnings expectations.

Market Reaction

Following the disappointing earnings report, Capital Power’s stock price dropped 6.29% in pre-market trading, reflecting investor disappointment. The stock, which had closed at $62.28, fell to $58.36. This movement places it closer to its 52-week low of $41.75, highlighting the market’s negative sentiment. Based on InvestingPro’s Fair Value analysis, the stock appears to be undervalued at current levels. With a Return on Equity of 17% and strong financial health metrics, long-term investors might find the current price attractive. Discover more insights and 8 additional ProTips about Capital Power with an InvestingPro subscription.

Outlook & Guidance

Despite the Q2 setback, Capital Power revised its full-year 2025 Adjusted EBITDA guidance upward to a range of $1.5 billion to $1.65 billion. The company continues to project AFFO between $950 million and $1.1 billion for the year. The company’s strong financial position is reflected in its Altman Z-Score of 7.97, indicating very low bankruptcy risk. Access the comprehensive Pro Research Report, available for Capital Power and 1,400+ other top stocks, exclusively on InvestingPro. Capital Power is also progressing with growth projects totaling approximately 610 MW and exploring further M&A opportunities.

Executive Commentary

CEO Avik Day emphasized the company’s resilience and strategic positioning. "Our business in Alberta is resilient, and it’s positioned for growth when growth comes to Alberta," he stated. He also highlighted the company’s capacity to capture value in expanding markets, saying, "We are a leading North American independent power producer positioned to capture value in markets that are expanding."

Risks and Challenges

• Continued volatility in Alberta power prices, which have dropped significantly.
• Potential regulatory impacts from Clean Electricity Regulations.
• Challenges in integrating newly acquired PGM assets.
• Market saturation risks in core markets like PJM and MISO.
• Economic pressures affecting discretionary spending in energy markets.

Q&A

During the earnings call, analysts focused on Alberta’s data center opportunities and the dynamics of the PJM market. Questions also addressed the company’s renewable development strategy and potential future acquisitions, providing insights into Capital Power’s strategic priorities and market positioning.

Full transcript - Capital Power Corporation (CPX) Q2 2025:

Conference Operator: Good day. Thank you for standing by. Welcome to the Capital Power’s Second Quarter twenty twenty five Analyst Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session.

Please note that today’s conference may be recorded. I will now hand the conference over to your speaker host, Roy Arthur, Vice President, Strategy Planning and Investor Relations. Please go ahead, sir.

Roy Arthur, Vice President, Strategy, 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 Capital Power’s second quarter twenty twenty five results, which we published earlier today. Our second quarter report and presentation for this conference call are available on our website. During today’s call, our President and CEO, Attic Day, will provide an update on our business.

Following that, Sandra Haskins, SVP, Finance and CFO, will review the quarter end and year to date financials for the company in addition to our revised guidance for 2025. Abbek will then conclude the formal part of the presentation before we open the floor to questions from analysts in our interactive Q and A. Before we 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 material risks and uncertainties associated with our business. Please refer to the cautionary statement on forward looking information on Slide three or our regulatory filings available on SEDAR plus In today’s discussion, we’ll 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 by other enterprise. These measures are provided to complement the GAAP measures, which are provided in the analysis of the company’s financial results from management’s perspective. Reconciliations of these non GAAP financial measures to their nearest GAAP measures can be found in our quarterly financial statements. We acknowledge that Capital Power’s head 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 4. We acknowledge the diverse indigenous communities that are in these areas whose presence continues to enrich the community and our lives as we learn about the indigenous history of the land on which we live and work.

With that, I will hand it over to Abic.

Avik Day, President and CEO, Capital Power: Thank you, Roy. Good morning, everyone, and thank you for joining us today. In the 2025, we announced and closed our largest acquisition to date, adding 2.2 gigawatts of capacity. This transaction is part of a significant transformation of our business over the past three years, which we will explore in more detail throughout the presentation. Key highlights from q two twenty twenty five include reaching commercial operation on our Goreway upgrade project with an extended contract term to 2035, progressing growth projects totaling approximately 610 megawatts of capacity, delivering nine terawatt hours of power across our strategically positioned portfolio, including contributions from our newly acquired PGM assets, and lastly, continuing to deliver operational excellence by optimizing and maintaining our assets, completing 62% of our scheduled outage days for the year.

This includes 18 planned turnarounds, 14 on our flexible generation assets, and four on our renewable fleet. In summary, we continue to make tangible progress in delivering on our strategy. None of this would be possible without the enormous contribution of our people. From our exceptional operational staff to our corporate services team and everyone in between. Capital Power is truly a leading North American independent power producer of scale.

Our recent transformation has created a more resilient, diversified, and growth oriented business anchored by one of the most efficient gas fleets in North America. This combined with our ability to operate, expand, and optimize safely, efficiently, and economically continues to set us apart from our peers. We now have operations across five core markets, which means our portfolio is less exposed to the volatility of any single market, enhancing the stability of our cash flows and reinforcing our investment grade credit rating. During the past three years, we’ve maintained our track record of delivering compelling risk adjusted returns and are better positioned than ever to grow and create long term shareholder value. Between 2022 and 2025, we have delivered impressive growth in our US flexible generation portfolio, positioning us as one of the top five natural gas independent power producers in North America.

We’ve expanded our flexible generation asset base by approximately five gigawatts and now have over 10 gigawatts of flexible generation capacity in Canada and The US. Our growth has largely been through m and a and concentrated in core markets with strong fundamentals. We continue to see opportunities to acquire generation capacity for significantly less cost than new builds. As a result of our significant growth and entry into new markets, we now have 12 gigawatts of total capacity with no single market representing more than 30% of our portfolio. In each of our core markets, we continue to see strong fundamentals.

Growing demand has outpaced additions of new supply, driving increased capacity and energy prices in regions such as PJM and MISO, and continued growth demand in Ontario has resulted in more calls for power. Across our portfolio, recontracting continues to be a strong priority for our business. As we strive to maximize the value of the existing generation, current fundamentals give us confidence in the ability to recontract at compelling prices for longer duration than we have seen in the past. We are engaged in multiple negotiations to extend our current contracts given the growing need for reliable and affordable power across North America. In PJM, where we have recently added 2.2 gigawatts of generation, there is strength in both capacity and energy pricing.

Capacity payments typically represent about one third of the total gross margin from our PJM business, with the remainder coming from energy sales. PJM is the most liquid power trading market globally, an important factor for maximizing value for an organization like ours. This liquidity means access to a broad, high quality set of counterparties and enables us to transact across a wide range of durations in this rising price environment. Since closing the acquisition, we’ve moved quickly to implement significant hedges and other contracts covering the balance of 2025 and beyond. We’ve executed these at pricing levels aligned with our business case and at a pace far exceeding what would be possible in Alberta.

The benefits of a diversified portfolio are especially clear when we examine single variable sensitivity to energy price changes in our merchant markets. For example, if we were fully unhedged, a $5 per megawatt hour change in PJM prices would result in a 4 to 5% change in full year adjusted EBITDA. In contrast, the same price movement in Alberta would have a smaller impact, approximately three to 4% going forward. This is a significant move down from approximately seven to 8% in 2023. Our other merchant markets in The US are smaller and contribute even less to overall volatility.

So despite having greater merchant capacity in the portfolio, we expect reduced volatility of our cash flows. We have already taken steps and will continue to do so to actively manage risk through hedging in both Alberta and PJM. Our Genesee repowering project is an excellent example of how our growth efforts have contributed to our superior portfolio positioning. Since 2023, Alberta pool pricing has declined by approximately 70%. Despite this decline, our twenty twenty five year to date clean spark spreads at Genesee one and two have increased through a combination of improved efficiency, lower carbon intensity, and hedging.

Our repowered units are now the most efficient in Canada. We’ve also reduced their carbon intensity below the Alberta tier benchmark threshold, which means we currently pay no carbon tax on these units. Finally, we continue to actively hedge power pricing and input costs to stabilize returns. Overall, through our resilient asset base, Alberta remains a market where we can harvest returns in the short and long term. This includes data center opportunities.

Genesee is well positioned to benefit from any data center demand that comes to the province. That said, we continue to believe it represents one of the most compelling sites in North America for a gigawatt scale data center to be colocated. It offers a comprehensive solution that balances affordability and reliability concerns and allows for a gigawatt scale data center to move forward in a timely fashion, which is critical in the market today. Under ASIL’s large load interconnection process, a one gigawatt project is not viable under phase one. However, we will continue to pursue the one gigawatt scale option through phase two and further consultation with government.

In addition, we chose not to pursue a smaller project at Genesee. However, we will pursue opportunities to provide PPAs to other DC projects that require a generation partner with available dispatchable power today. The Genesee repowering project, which moved us off coal and our accretive acquisitions, have reinforced our strong asset positioning relative to industry peers. We operate a younger, more efficient fleet, an important advantage in merchant markets where higher efficiency translates into stronger returns across the cycle. Further, the younger age of our assets implies a longer remaining useful life, which enhances our competitiveness for long term contracting opportunities.

These contracts are key to driving both improved returns and greater stability of our cash flows. With that, I will hand it over to Sandra to walk through our funding considerations and financial results before I conclude the call and open the floor to questions.

Sandra Haskins, SVP, Finance and CFO, Capital Power: Thanks, Avik. We are proud of our growth and how we have funded it. Our approach has been balanced and based on our ability to access multiple pools of low cost capital. Most recently, we proudly executed our inaugural US debt issuance on the back of getting our third investment grade credit rating from Fitch at BBB minus. This $1,200,000,000 private offering was multiple times oversubscribed for both the three year and ten year tranches.

Our debt maturity profile continues to be well laddered, which reduces refinancing risk in any given year. From an equity perspective, we have been highly successful in accessing discrete common equity. Our ability to deliver sustainable growing dividends while maintaining a low risk capital structure and investing in high quality growth sets us apart from our IPP peers. Reflecting on our recent efforts, we’re proud to have completed and achieved commercial operation of our largest growth project, closed the largest acquisition in our history and expanded into a new U. S.

Market, increased our dividend by 6%, all while remaining within our guardrails from a payout and leverage perspective. These achievements underscore our strong positioning for continued growth. Now let’s dive into our Q2 twenty twenty five results. Capital Power delivered strong financial and operational performance. Adjusted EBITDA was $322,000,000 which was flat year over year, driven by the diversification of our U.

S. Flexible generation contributions, offset by the sell down of PDN and quality wind in Q4 twenty twenty four and lower renewable resource in 2025. AFFO reached $235,000,000 up $57,000,000 from Q2 twenty twenty four, driven by lower income tax, reduced sustaining capital and settlement of coal compensation. These gains were partially offset by higher financing costs from recent debt issuances and lower joint venture contributions. Overall, the quarter reflects our ability to execute our strategic priorities amid macroeconomic uncertainty.

This slide breaks down adjusted EBITDA variance across our four new reporting segments. Our U. S. Flexible generation is up 10% in Q2 twenty twenty five, driven by partial contributions from PGM assets and strong dispatch performance. Our Canadian flexible generation is up 2%, supported by strong Alberta dispatch and lower emissions costs.

Repowered Genesee units, which incurred minimal carbon tax, enabled margin expansion despite a $5 per megawatt hour drop in captured price. And finally, our renewables portfolio continues to contribute meaningfully, though adjusted EBITDA declined year over year due to lower wind resource in Canada and The U. S. The values in this table are fully consolidated for comparability purposes with prior periods. For the 2025, adjusted EBITDA was six eighty nine million dollars up $77,000,000 from the same period in 2024.

Key drivers included stronger contributions from our U. S. Flexible generation portfolio, reflecting full period results from La Paloma and Harco Walla, which closed February 2024, and the addition of Hummel Station and Rolling Hills, which closed June 2025 lower emissions costs from our Canadian flexible generation portfolio driven by the Genesee repowering and reduced corporate expenses primarily driven by lower salary costs. AFFO totaled $454,000,000 up $126,000,000 year over year driven by the same factors noted in the Q2 variance, most notably tax recovery, lower sustaining capital and coal compensation settlement, partially offset by higher financing costs. Due to the addition of Hummel and Rolling Hills to our portfolio, we have updated our twenty twenty five full year guidance.

The revised adjusted EBITDA range is now projected to between $1,500,000,000 and $1,650,000,000 reflecting nearly seven months of contributions from the newly acquired PGM assets. The range continues to be supported by our strong long term contracts and prudent risk management activities across our uncontracted assets. The revised AFFO range is expected to be between $950,000,000 and $1,100,000,000 a significant increase from original guidance due to the favorable tax impacts and the newly acquired assets. Sustaining capital is now forecast between two fifteen million dollars and $245,000,000 covering over 40 planned outages. These revisions reinforce our confidence in the strategy and our ability to deliver strong financial performance.

With that, I will hand it back to Abic to conclude the call.

Avik Day, President and CEO, Capital Power: Thanks, Sandra. To recap, the transformation of our business has created a more resilient, diversified, and growth oriented platform with one of the most efficient natural gas fleets in North America. Our ability to operate safely, efficiently, and economically is what distinguishes us from our peers. As we look forward, we have multiple ways to win from both organic and inorganic growth perspective. Our business is comprised of a young and efficient fleet strategically positioned in markets with strong fundamentals.

We have a proven ability to deliver rooted in disciplined capital allocation and a strong balance sheet, which has driven our compelling ten year total shareholder returns of approximately 15% per year. We are a leading North American independent power producer positioned to capture value in markets that are expanding. We are excited about the future and the opportunities we see unfolding in this sector. Before we start Q and A, I’m pleased to announce that we will be hosting our twenty twenty five Investor Day event on December in Toronto. We will provide more details in due course.

Capital Power’s leadership team is excited to connect with our investors at this event. We appreciate your continued support of our business. I will now hand it over to the operator to start Q and A.

Conference Operator: Thank first question coming from the line of Robert Hope with Scotiabank. Your line is now open.

Robert Hope, Analyst, Scotiabank: Morning, everyone. Just regarding the the Genesee commentary on the data centers there and not pursuing a smaller opportunity there. Are you able to monetize your allocation there? And as part of that, can you make a contingent, that it is included with some sort of PPA with the with the, with the eventual build out there? And I guess, secondly, you know, how should we think about kind of the timing of phase two there?

Avik Day, President and CEO, Capital Power: Hi, Rob. Thanks. Let me just start by saying, our business in Alberta is Genesee, and Genesee is capital power. And if I was to characterize our Alberta business, I would say two things. It’s resilient, and it’s positioned for growth when growth comes to Alberta.

And, you know, the slide showed just in terms of, our ability to capitalize on lower prices while increasing spark spread. Why that’s important for this data center conversation? We started on this data center journey two years ago in The US. We’ve been incredibly fortunate that we’ve been able to learn from our partners amongst data center providers, hyperscalers of what’s required to build hyperdata centers. And so, that as a preamble, we have incredible flexibility on the Genesee site.

As a leading generator in Alberta, our core business is to provide power. And so with this phase one, we do expect to be able to monetize, our capacity by providing power to other data center projects because that’s our role in the province. And thereby actually preserving optionality on our site. Our physical site at Genesee is incredibly advantaged for a large hyperdata center. We chose not to use that 375 megawatts for a smaller data center project because our site has the advantage of redundant access to fiber, which is critical for a large data center.

Our our site has access to transmission and distribution that would require no bulk system upgrades, thereby reducing costs, for power for Albertans. And so preserving that optionality was important. But make no mistake, we will be a participant because we are a preeminent generator in the province, and those data center prod projects that require generation partners through PPAs, we will likely be a player there. So, hopefully, that answers the question. But, you know, it’s an important positioning point for us because for us, data centers are a new customer, for our generation capacity on both sides of the border.

In Alberta, it’s unique because we happen to have a very unique physical site.

Robert Hope, Analyst, Scotiabank: Right. Appreciate that. And then maybe to switch gears, you know, there’s a lot going on in the organization with integration of PJM and as well as data centers. You know, when we think about incremental m and a, you know, do you think you have enough horsepower to focus on transacting, you know, in the near term, and what does that market look like?

Avik Day, President and CEO, Capital Power: Just in PJM or more broadly? More broadly. Look. I think we we have a fifteen year track record of acquiring plans, integrating them, optimizing them, finding upgrades and expansions. Nothing has changed.

This journey for us in terms of expansion, we identified this as an opportunity at our January 2024 Investor Day, and we’ve executed against it. You know, I’ve I made this comment, to our team this week. In my career, having been a serial acquirer and investor in assets and companies, I’ve never been involved in a transaction where we announced, financed, and closed the transaction of this size all in the same quarter. So our ability to execute, I think, is well established. In terms of forward opportunity, we’re continuing to see, inbounds, both bilateral and auctions.

And I think what’s really separating us is our ability to execute and operate efficiently and safely. Because what’s underpinning the opportunity to acquire assets today is two things. You know, the relative arb between the the cost to purchase these assets and what the cost of new entry is continues to widen. But to be able to capture that value, you need to be able to come in, take ownership of these assets, and steward operational efficiencies, upgrades, expansions, and recontracting. And the broader universe of investors does not currently it’s not to say they can’t build it, but not cur they don’t currently have the same capability and capacity, I.

E, the people to go execute that. So we feel pretty good about the, acquisition pipeline, the expansion pipeline, the recontracting pipeline. All of that, continues to to get more favorable for us as a company.

Benjamin Pham, Analyst, BMO: Thank you.

Conference Operator: Thank you. And our next question coming from the line of Julien Dumoulin Smith with Jefferies. Your line is now open.

Tanner, Analyst, Jefferies: Hi. This is Tanner on for Julien. How are you guys doing?

Avik Day, President and CEO, Capital Power: Great, Tanner.

Tanner, Analyst, Jefferies: Hi. So thank you for your commentary on the recontracting opportunity. Just a follow-up to that. Has the tenor of conversations with existing customers at all shifted given the recent inflationary data points for electricity prices? I know last quarter, Avik, you mentioned you’re always balancing options, and that perhaps in the event you can’t reach agreements on commercial terms, you could weigh options for expansion or colocation.

Has that line of thinking evolved?

Avik Day, President and CEO, Capital Power: It has evolved, only from the standpoint that, we’re seeing more interest in recontracting, and more parties coming to the table at at our different facilities. And but the context that’s changing is, we’re able to have more comprehensive conversations around what a recontracting looks like, whether it’s term, it’s pricing, it’s how do we talk about, you know, further partnerships, with potential offtakers, how do we, parlay those conversations into broader discussions, whether it’s through expansions or upgrade projects. So I think the the tailwinds of, increasing demand, reducing reliability, and the importance of addressing near term grid firming requirements is opening up a broader opportunity set for recontracting. All of that is subject to, you know, utilities and their IRPs, and most importantly, us having strong working relationships with those utilities and load serving entities, but we’re we’re excited about the opportunity set. We’re not in a position to announce something now, but I would say, things are progressing, and we continue we’re having more conversations, and they’re moving forward in a positive direction.

Tanner, Analyst, Jefferies: Great. And switching gears here. On the PJM acquisition, now that now that you have the PJM assets in the portfolio, you you you’ve had a better look at them. Are there further opportunities for upside to the accretion figures you initially provided? Perhaps specifically here, kind of given the age and composition of Rolling Hills, could there be some opportunity or for, you know, some form of optimization or improvement relative to your initial expectations?

: Yeah. Thanks for the question, Tanner. Yeah. What we’re seeing right now with having, you know, only assets for just just over six weeks is that they are performing in line with business case currently. But as we noted at the time of the acquisition is that we do see the ability for us to optimize and improve and then be able to do upgrades on the site as well.

While nothing there is scheduled to occur in the immediate term here, we do expect that there will be the same opportunities with those assets as what we saw with other acquisitions where we’re able to find some improvements and increase the accretion on those. And when we think about capital allocation to operate expansions and whatnot, as we go into 2026 and the integration continues to go extremely well with these assets is that the current development projects now that repowering is done, how Kirk two and our solar projects in Ontario operates is that we are going into 2026 with the expectation of having over $1,000,000,000 of discretionary cash flow that we will be able to deploy to upgrades to acquisitions to expansions. So with that and leveraging that allows us to do $2,000,000,000 in growth opportunities next year without even accessing the equity market. So expect that there’s a lot of opportunity for us over the next eighteen months to announce highly accretive growth initiatives.

Tanner, Analyst, Jefferies: Fantastic. Thank you very much.

Conference Operator: Thank you. Our next question coming from the line of Mark Jarvi with CIBC. Your line is now open.

Mark Jarvi, Analyst, CIBC: Hi, everyone. Just coming back to the comments, Rob’s question, Genesee sort of the path forward. The decision not to take the allocation to phase one, was that just the view that you couldn’t get enough capacity initially to meet a customer demand, or was it on the customer side where you seem to feel like you’re getting traction and you decided to forego the opportunity for now on at least in taking that allocation?

Avik Day, President and CEO, Capital Power: Thanks, Mark. We and our partner did not see a path to securing a thousand megawatts through phase one that was required to go forward with our project. So, you know, I think, as I said, we’re going to continue to advocate and pursue it together with our partner, you know, through phase two, and subsequent to that. But that was why we elected to go down the path that we did.

Mark Jarvi, Analyst, CIBC: And in terms of you know, I think you mentioned you could provide power to other data center operators. How do you balance that in terms of maybe, you know, locking in some offtake versus keeping the optionality open for a bigger gigawatt type opportunity at Tennessee?

Avik Day, President and CEO, Capital Power: Great question. There’s 1,200 megawatts that was, accounted for, by the ASO as available for generation for large loads, starting in 2027. That does not include, the capacity that we currently have installed at Genesee, that’s above the 466 MSCC limit. So it goes back to the original point I made around resilience and position for growth in Alberta. We, as a large generator with the most, efficient and largest power plant in Alberta are in the middle of providing critical baseload power and have the flexibility to contract that capacity.

So, in our view, given where we stand, on T and D and the fact that there isn’t a significant investment in T and D required to colocate a data center at our site, we believe we’ve got significant flexibility to not just provide PPAs to others, in the short to medium term, but also to pursue the larger project, on our site with a partner. I think the key point in all of this is it’s not about the data center. It’s about pie providing power generation to, customers. This has been our core competency for fifteen years in all the markets that we play and predominantly in our home market, which is Alberta. So for us, that that was our calculus in making that decision to either elect, pursue, more megawatts and the decision we’ve ultimately made, which is we have an opportunity to provide a PPA and participate in phase two, just as a straight up power provider, which requires no capital on our behalf, just the monetization of megawatts while continuing to to work with government and pursue what we think is would be a transformative project, not just for Alberta, but for the country.

Mark Jarvi, Analyst, CIBC: Just based on the phase one allocations, your choice to not move forward right now and maybe a bit longer timeline at Genesee, what’s sort of the confidence level that you’ll actually see that 1,200 megawatts, that that excess generation be absorbed by data centers by 2829 time frame in Alberta?

Avik Day, President and CEO, Capital Power: I can’t comment on what others are doing. I I think we’ve been in the midst of a number of commercial organizations and and feel confident that, you know, others are going to be able to execute smaller projects, which we welcome and think is great news for the province and the industry. And and look. You know, all new demand coming in and new industry coming in to create jobs and bring capital into Alberta is positive for the Alberta power industry. And, you know, with Genesee specifically, it’s positive for consumers around electricity pricing, which is where our focus is.

So, you know, I I I think there will be projects done. We’ll see where it comes out relative to the 1,200, but our business in Alberta is resilient. And I go back to the point that 60% of our business is, focused in, you know, thriving and growing US markets. So as we’ve demonstrated in 2025, our business, we we increased our spark spread amongst the 70% drop in price in 2025. And why that’s important is it positions us well to provide offtakes to new customers in this province.

Mark Jarvi, Analyst, CIBC: Maybe just using moving to The US business, talked about recontracting opportunities. We’re also seeing on the gas supply, some of the producers, infrastructure firms become more involved on the power side of things. How do you think that’s shaping in terms of gas supply, spark spread realization? Are you thinking more longer term if you lock in on the power supply that you sort of match that with gas supply and are there sort of active dialogue there?

Avik Day, President and CEO, Capital Power: There’s absolutely active dialogue across the entire gas to molecule to computed megabyte value chain. It’s something that we’re a huge advocate of because, you know, as we said in January 2024, this is all going to be about balanced energy solutions and how you bring that value chain together. I think specifically around gas supply, midstream contracts, and firming up the infrastructure to provide, gas generation capacity, that’s more tied to IRP, you know, IRP, requests or, around new generation capacity. We’re not seeing that being as relevant to upgrades and expansions. So if you look at our business, which is primarily focused on, you know, acquiring mid merit CCGTs and peakers, and finding ways to upgrade, expand, recontract those, You know, the gas supply for the most part because our historic strategy for fifteen years has been go in where there’s firm gas supply, go in where, you know, there’s existing T and D.

It’s less of a concern in the plants that we’re targeting. But I think it’s gonna be a critical component to the broader ecosystem as it develops. Midstreamers are going to have to be part of the conversation for new build. Upstream companies are going to have to be part of the conversation as we continue to look at new builds, and utilities are considering that right now. So looking at their IRPs and trying to, you know, firm up infrastructure build out over the next decade.

It’s a critical point. It’s that’s the conversations that are happening amongst load serving entities and RTOs right now.

Mark Jarvi, Analyst, CIBC: Understood. Okay. Thanks for the time today.

Conference Operator: Thank you. And our next question coming from the line of Maurice Choi with RBC Capital Markets. Your line is now open.

Maurice Choi, Analyst, RBC Capital Markets: Thank you, and good morning, everyone. Just wanted to come back to the Alberta data center theme here. It’s clear that Phase two is a focus for you and your stock, and you previously wrote that there were things in Phase one that were suboptimal. When you look at Phase two, what tangibly do you think needs to change for your gigawatt scale data center opportunities to materialize?

Avik Day, President and CEO, Capital Power: Hey, Maurice. Thanks for the question. I think phase two is really going to be dependent upon two things. One, how much capacity remains available from phase one, to be discussed in phase two because phase two will really be a conversation around what the glide path is to installed capacity. Phase one is where data centers and data center providers are going to have to put up a deposit, to execute projects.

But the long term opportunity is how do we create an ecosystem, that allows for new generation build and large scale data centers to be, installed and built in the province. Why we are so focused on our site, as a hyperdata center is all the ingredients exist for the customer. At the end of the day, this opportunity only exists because it’s an economic one with access to market in a timely fashion. It’s not a business we can create without creating the economic conditions for those customers to come in at scale and for duration for an investment that’ll be in the tens of billions of dollars. So, you know, we will be an active participant in phase two.

The government and the ASO have been clear that, you know, they you know, in their allocation process that they thought the smaller allocations were the better way to go about it. We’re supportive of that, by virtue of us, participating the way we, hope to participate, but it doesn’t take our foot off the gas of advocacy for this thousand megawatt site. So whether it’s phase two or it’s through, you know, further conversations and dialogue, to identify a pathway for that thousand megawatt site, we’ll continue down that path. And I think it’s important also to recognize that, you know, we are not a data center provider. We’re not in the data center business.

What we’re trying to do to what we’re trying to do is firm up bringing in new demand for the market in Alberta. Whether it’s on our site or someone else’s, we believe that having these large sites is in the best interest of all market participants.

Maurice Choi, Analyst, RBC Capital Markets: Thanks. And maybe just a quick follow-up to that. I know the system operator is beginning its engagement on a long term framework perhaps later this year. Is it fair to say that given that timing, any gigawatt scale DC announcement you may make is possibly more of a mid twenty twenty six onwards event?

Avik Day, President and CEO, Capital Power: Well, I think there’s two there’s different elements to this, Maurice. I think the advantage Alberta has today, and I’ve said this, publicly and at conferences and at multiple meetings with investors, the advantage Alberta has today is we have a pathway to a large data center that can be in service by 2028. We’ve been incredibly fortunate with deep dialogue with a number of hyperscalers and data center providers over the last two years as this business is maturing rapidly. And what’s been clear to us is the market is not focused on in service dates that are 2029, 2030, 2031. All of the attention of hyperscalers and data center providers as it relates to AI related compute is laser focused on 2027, 2028, and maybe 2029.

So that’s why for us, preserving the option value and continuing this advocacy, is important because we’ve got, you know, a 12 gigawatt fleet across North America. We’re seeing this play out in different markets, and we believe the best play for us is to continue to, advocate for a quick in service date, and because we’ve got the ingredients at Genesee to advocate for that. But, again, I would go back to the point in terms of materiality for us, in our business. Alberta is, resilient, and it’s positioned for this growth, whether it’s our data centers or someone else’s.

Maurice Choi, Analyst, RBC Capital Markets: Understood. Maybe just to finish up on a strategy question. In your prepared remarks, you mentioned that you continue to see opportunities to acquire generation capacity for significantly less cost than newbuild. There clearly are some more PGM assets out there today. So just your view as to what the gating factors are when assessing these opportunities.

For example, how big do you see PJM being as a percentage of your portfolio or whether you need to see the thesis on Hummel and Rolling Hills play out before moving forward with more?

Avik Day, President and CEO, Capital Power: Look. I think as I’ve said before, you know, our capital allocation process, we’ve been very clear around how we allocate capital, what our return thresholds are. That above all else is driving where we deploy capital. We saw the strategic opportunity in PGM because of the market’s construct, the size of the market, the complexity of the market with 13 jurisdictions, and then the tailwinds from multiple ways to win in terms of demand, increase. That clearly has played out, and we’ve been fortunate in in our ability to negotiate, and close a bilateral transaction of scale in that market, we continue to see opportunities to grow there.

But I would not say that we’re sitting here saying PJM will be four gig or five gig. We’re sitting here saying, let’s go find those opportunities of high quality assets, you know, young CCGTs with a good heat rate, or peaker sites with significant optionality, where they’ve got existing gas supply, access to T and D, and an opportunity for us to wholesale. That’s what we’re looking for. And so as we’ve high graded over time, I think we continue to see those opportunities at PJM, MISO, and. Obviously, we think the opportunity is getting better in PJM.

You know, the the market signals there are are excellent, but, you know, what’s driving our capital allocation is going to be, you know, client level economics, and our outlook against delivering against three things, upgrades, expansions, and recontracting. Simple.

Maurice Choi, Analyst, RBC Capital Markets: Got it. Thank you very much.

Conference Operator: Thank you. Our next question coming from the line of Patrick Kenny with NBF. Your line is now open.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power0: Thank you. Good morning. Avik, just back on the recent PJM capacity auction clearing above the price cap, do you still see a risk in the cap coming down over the next two to three auctions through 2026? Or perhaps would you see, would you have a bias towards the price cap continuing to move higher? And also if you had an update on the unit at Rolling Hills coming back online later this year and just how that facility is positioned to, you know, participate in future capacity auctions?

Avik Day, President and CEO, Capital Power: Yeah. Thanks for the question, Pat. Look, I think our answer hasn’t changed from last quarter to this quarter in terms of our expectation for the PJM market. You know, obviously, you know, this last auction coming out, at the high end of the range, was a surprise to many. But I think the market signals from the last auction, the delay, and what we’re seeing on the demand side, certainly, as we said, last year, we were comfortable with the bookends of the floor and the cap.

And I think this auction, demonstrated that that that floor and the cap was reasonable. At this point, I don’t expect to see a change in that range. And I think we’re in the same market construct of that $1.75 to $3.25. Now, you know, with respect to the second part of your question, whether it’s to the mid or to the high you know, mid to high, you know, I would reaffirm where we were. Like, that midpoint when we gave our guidance on five year average, we think is reasonable, when you parlay all of the market factors, design factors, around what’s happening in the market.

We on Rolling Hills, I would say, you know, six weeks into closing, we continue to maintain the same schedule that we had. We’ve now had a chance to assess, the the plant and the opportunity set around it. Our balanced energy solution team has already put forward, you know, DC packages, and are out to market on those. So, you know, we feel pretty good about what our underwrite was. I think when we announced the transaction, we said, look, it would take one to two quarters for us to figure out and quantify and qualify what the growth opportunities that at Rolling Hills was.

So I’m not in a position to say definitively. You know, we expect, you know, this level of you know, how we’ll participate in auction versus offtake or, you know, future expansions, but, you know, all all indications are are things are looking favorable for us there.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power0: Okay. Great. I appreciate the update there. And then switching to Yeah.

Avik Day, President and CEO, Capital Power: So one last point I’d make on that, Pat, is, you know, we got to start early. I I don’t think we expected to be able to close in the same quarter we announced. So, you know, I think we’ve got a head start, on integration versus our previous timelines and and being able to frame up the opportunity set.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power0: Yeah. Good point. And then switching to Alberta power prices, know, despite the spot market remaining relatively weak here, it looks like the forward curve has at least rebounded somewhat recently. Not sure if that’s solely a function of some of the REM design changes that were confirmed last month or if perhaps you’re seeing other market dynamics at play. And then as a follow-up, if you can comment whether or not the REM design changes increases your desire to continue to diversify your portfolio outside of Alberta?

Or do these changes incentivize you to maintain your current exposure to the Alberta market?

Avik Day, President and CEO, Capital Power: Yeah. Thanks. So, on on the the first part of your question on ’20 I mean, clearly, ’26, ’27, ’28, we all saw, you know, the the strip come up, on the back of the large load allocation. So I think, you know, our view is that was, the primary driver of of pricing coming up, and, you know, we continue to look to ways to, you know, hedge out as we historically have in that market. Our position, on that, on the market overall is on rim, we need clarity.

So, you know, we do have concerns, around, you know, vocational marginal pricing, and transmission rates. That continues to be a focus for us. We’ve provided our full submission on feedback to the government on that, which, will highlight that, and, you know, that’ll ultimately become, the specifics of our feedback will become public, sometime next quarter. But I think the the market broadly knows that that’s a concern amongst generators. And in terms of our position on Alberta is we’ve got a resilient business.

We’ve got the most efficient, largest gas plant in the province that’s critical for baseload power. We take that responsibility very seriously, and it is a resilient portfolio that allows us to maximize and optimize the value of that megawatt over the medium to long term. And so from a capital allocation perspective, as we’ve demonstrated, we’re clearly directing our capital, towards those markets that we can convert investment into, you know, megawatts produced, quickly, efficiently, and economically. So for us, playing that arb of buying capacity, at a much lower cost than the cost of new entry, investing in it to upgrade, expand, and repower, repower or recontract, that’s where our focus is, which, you know, today means, PJM, MISO, and case and and WACC. But for Alberta, it’s we’ve got a very important business here.

It’s very resilient because of the investment we made in repowering it, and it’s well positioned, for upside when new demand comes into this market. But I would emphasize the point that, you know, we need to get through REM. We need to address some of the concerns that we and others have so that we can give clarity to the broader market on how you invest in new generation in Alberta. And I think this ties back to the the data center point. You know, the data centers that will get, in that will get built, in Alberta before 2029 will be ones that leverage existing installed generation in the province because new generation can’t be built until REM gets resolved.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power0: Yeah. That make that makes sense. What about on the, US renewable development front? So, you know, adding some horsepower with Roger coming onboard, which is great. But, with the sunset on U.

S. Tax credits, I’m wondering how that might change your 20% capital allocation target through 2029, at least until you have more clarity on government subsidies? Or on the flip side, does your decision not to pursue the phase one Alberta data center opportunity perhaps open up a bit more dry powder to allocate towards US renewables?

Avik Day, President and CEO, Capital Power: So I think, you know, you know, Roger, our new head of US renewables and corp dev joined in early June. We are going through, an assessment of the opportunity set in front of us in The US right now. I think, you know, as I’ve said in past quarters, I think we see the opportunity as the bid ask spread closes on renewables, in particular, on the operating asset side, that it could be a competitive market for us to participate in because we can leverage our expertise for, repowering and development, and contracting. We have not seen that bid ask spread close. So for me, the question around renewables is really around, can we hit our return thresholds or not, and does it positively benefit shareholder value creation or not for us as a company?

So I think that’s something we’ll have more clarity on between now and the end of the year. But I would say, generally, where you have volatility in markets, it generally creates opportunity for investors. And where we have the advantage of understanding market structure, being able to trade and originate short, medium, and long term, and the ability to develop and operate, it should bring compelling opportunities. But, you know, I think we’ve tremendously benefited over our history of being very disciplined around renewables. We didn’t chase, gigawatt installed gigawatts.

We only pursued projects that hit our return thresholds, and that hasn’t changed. So I can’t comment today if our capital allocation will change or not because, directionally, it could go either way depending on what the market affords us as opportunities. If renewable if operating renewable assets that are twelve to fourteen years in average contract length that have good transmission distribution access are miraculously trading, at eight to nine times, which is probably where I think they should trade given, you know, their margin relative on an EBITDA per k w basis relative to gas, then, you know, you could you know, we might be a purchaser. So that probably gone into more detail than you expected, but just that’s a window into how I think about value.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power0: Okay. No. That that’s great. I appreciate it. I’ll leave it there.

Thanks, Avik.

Conference Operator: Thank you. Our next question coming from the line Cowen. Your line is now open.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power1: Hi. Morning, everybody. Maybe going back to your partner for Genesee, you you’ve you’ve stressed the need for speed to market in this broader data center opportunity for the province? And I’d I’d just like some clarity on the timeline of your partner. Appreciate you probably don’t wanna speak for them.

But what timeline do they need for a one gigawatt facility at Genesee to remain viable? Presumably, at some point, they’ll they’ll look out with Flare, and, you know, this one gigawatt opportunity doesn’t have an, you know, an unlimited expiry date. Can can you comment on that?

Avik Day, President and CEO, Capital Power: Well, I think the way to think about it, John, is it’s a you know, if we can’t build capacity in North America, that timeline keeps extending. So next year, ’28 becomes ’29. So so long as the economic cost and our ability to bring something online within that two to three year time frame, I think we’ll continue to have that opportunity in Alberta. It’s just, you know, the opportunity the risk is is that other markets figure this out, and, you know, provide incentives, and make investments in infrastructure to facilitate a large scale investment. So it’s not Okay.

That’s It’s not like there’s a cliff in 2028. It’s just those that can bring capacity on. And part of this issue is the following. You know, when you’re signing if you have a million square foot hyperdata center, those data centers are phased. It’s not like you go build a you know, it’s all modular and clusters.

So it’s not like you build a million square foot, you know, hall, and then you’re piling in racks, you know, starting starting COD. What happens is and what’s required is the hyperscaler requires the right to have access up to that total capacity or the commensurate power because on a rolling basis, they’re ordering and procuring the chips and the racks to scale with the requirement. So this is the chicken and the egg of the data center opportunity, which is if you need this requirement for scale of a thousand megawatts or a million square feet, you need to know that you’ve got the transmission and distribution and generation to meet that timeline and that ramp schedule. This is really all about the ramp and the guarantee for access to power and how you match capital and equipment coming in in a timely basis. So I don’t think it goes away in ’28.

It’s just we have this advantage because of how much generation we, as the market participants, have collectively installed, and, you know, what access we have on the installed transmission distribution infrastructure in the province.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power1: Okay. Thanks for that. And maybe just, apologies if this is repetitive, but just going back to the phase two, you know, timelines, you commented on that, you know, you’re seeking to preserve your option value in continuing your your advocacy there and advocating for a quick in service date. You know, based on your conversations with ASO and the government so far, you know, what’s your confidence level that that phase two, you know, could result in that relatively quick in service date with the glide path that that would be needed for something of a larger scale?

Avik Day, President and CEO, Capital Power: I don’t think I could, answer that with a confidence interval, but what I would say is I think we all want the same thing here. You know, in the conversations with government, yes, we agree. We disagreed on the on the allocation process, for large loads in phase one. But I think all parties in this, whether it’s the ASO or the Utilities Commission or the government more broadly, are keen to bring this industry to the province. We have a different view on how that should be allocated, but I think everyone’s trying to work to the same endgame here.

And, you know, I will concede, you know, the ASO and and the utilities, you know, the the utilities ministry and the government are balancing multiple, needs and considerations. So we are looking at it through the lens of, you know, optimizing for ourselves, and also to the benefit of consumers because of this advantage we have at Genesee. But I think everyone’s keen to bring the industry here. So, you know, I’m I’m optimistic, but, you know, we were on a timeline before this large load allocation, that could have delivered, ’27 or early twenty eight. And so now, you know, we’ve we’ve gotta go back to the drawing board, not based on the technical requirements of the project, but, you know, in terms of negotiating how we get a customer, access to colocate a thousand megawatt site at Genesee.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power1: Okay. Thanks for that. And maybe just just apologies if I misheard this clarification on the allocation, which I think you may have said is about 370 megawatts. Are you not accepting it so it goes back into the pool for other proponents or or selling it to another party that you believe will best put it to work and and, you know, bring that load to the province?

Avik Day, President and CEO, Capital Power: What I would say at this point is we are looking to ensure that that load gets utilized, and our, monetization of it will be providing power. So we’re keen to see the industry get going. So we’re trying to be a constructive player, within this phase one process. The benefit to us will be providing power.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power1: Got it. Okay. Maybe I’ll just sneak one more in because you you said new generation can’t be built until the REM gets revolved. Wondering about the clean electricity regulations, you know, what kind of dialogue you’ve had there with government, since since we’ve had a a change in, in leadership and and how that plays into your willingness to invest in gas in Canada currently?

Avik Day, President and CEO, Capital Power: I I look. I think for Alberta, the the question mark is equally around RIM and clean electricity regs. Federally, it’s obviously clean electricity regs. So that constraint exists nationally for new gas generation. Our concerns remain the same on clean electricity regs.

We support the notion of CER, but we have you know, we still have to see critical, changes to the CER that allows for offsets that addresses emissions caps, and specifically addresses end of life end of prescribed life. So we have had conversations. I think our current government understands what the constraints around, CER are. But, you know, I think we’ll we’ll see, you know, how and if that translates into legislative change. But, you know, I think we’ve got an engaged and willing federal government, that is listening and understanding what the concerns are for sure.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power1: Okay. I’ll leave it there. Thank you for taking my questions.

Conference Operator: Thank you. Our next question coming from the line of Benjamin Pham with BMO. Your line is now open.

Benjamin Pham, Analyst, BMO: Hi. Thanks. Good morning. A couple of clarification questions. I know a lots been asked on phase one, phase two, and and so just a couple couple ones for me.

On on the one gig that you’re you’re targeting, is the expectation you’ll you’ll be phasing that in over a number of years you expect it to to pop in right away?

Avik Day, President and CEO, Capital Power: Yeah. In specifically for Alberta?

Benjamin Pham, Analyst, BMO: That’s right.

Avik Day, President and CEO, Capital Power: It it was always phased. I mean, that’s why I mentioned, to John’s question. Like, the this whole process on hyper data centers, not one of them is COD day 100% deliverable. It’s always a ramp schedule that’s negotiated on behalf of, and in coordination with the customer and their requirements. So it’s not like they’re going out and buying half a million NVIDIA chips, all for delivery, for racks on day one.

And each customer has different requirements based on location and and use, but it’s it’s a ramp that could be over, you know, two years, three years, four years depending on what, the customer’s needs are. So even in this and that that’s the same for actually all data centers pretty much.

Benjamin Pham, Analyst, BMO: Okay. So so I guess, theoretically, in a sense, you you had some good visibility on the first phase of this build. The plus 400 megawatts is more your your lack of visibility on subsequent phases, what you you needed to see.

Avik Day, President and CEO, Capital Power: Correct.

Benjamin Pham, Analyst, BMO: Okay. And then on on phase two then, like, how how competitive do you think it could materialize? Because there’s there’s a lot of large scale projects in the queue. It’s, I think, 20 gigawatts now. You give time for your competitors to catch up to you in a sense.

But is is really your your your key advantage here is really speed to market. Is that still your main primary benefit?

Avik Day, President and CEO, Capital Power: So, you know, if we are successful, there will be space for many projects. That’s the objective here from a market perspective. You know, the scale requirements for AI and what’s going to be required for inference computing, quantum computing, cloud and edge computing to support that inference computing, you know, that rising tide will lift all boats. We are not concerned about other large projects because, ultimately, location, location, location. The cheapest, quickest one will get billed first.

And we, today, believe that’s our site, because of largely transmission and distribution, and the way the fiber is laid out in Alberta, to be able to meet redundancy requirements. But that could that could be different two years from now. But great. Someone builds a thousand megawatt center, and it’s not at Genesee, and they can do it before us or within a time frame. I mean, that ultimately benefits us.

And but the long term growth of this business is going to be predicated on building new generation alongside that new capacity. So this is why we come back to this point that where Capital Power has built an established generation with capacity and a T and D connect while we’re going through this REM process, you know, our project is one that can be underwritten, and we can get shovels in the ground for a customer, while REM is getting sorted.

Benjamin Pham, Analyst, BMO: Okay. Got it. Thank you. I’ll leave it there.

Conference Operator: Thank you. And I’m showing no further questions in the queue at this time. I will now turn the call back over to Roy Arthur for any closing remarks.

Roy Arthur, Vice President, Strategy, Planning and Investor Relations, Capital Power: If there are no more questions, this will conclude our you for joining us and for your interest in Capital Power. Today’s presentation and webcast will be made available on our website. We hope you have a great day.

Conference Operator: This concludes today’s conference. Thank you for your participation, and you may now disconnect.

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