Mr. Avik Dey reports

CAPITAL POWER ANNOUNCES FOURTH QUARTER AND YEAR-END 2023 RESULTS

Capital Power Corp. has released financial results for the quarter and year ended Dec. 31, 2023.

Financial highlights:

• In the fourth quarter of 2023, generated:
  • Adjusted funds from operations (AFFO) of $162-million and net cash flows used in operating activities of $18-million;
  • Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $313-million and a net income of $95-million.
• For 2023, generated:
  • AFFO of $819-million and net cash flows from operating activities of $822-million;
  • Adjusted EBITDA of $1,455-million and a net income of $737-million.

Strategic highlights:

• Delivered on Capital Power's grid-critical natural gas strategy through the acquisition of three contracted, natural gas facilities that are well positioned in high-demand areas of the U.S. Western Electricity Coordinating Council (WECC) market and support further development opportunities in the region:
  • $1.5-billion ($1.1-billion (U.S.)) acquisition of 100-per-cent interest in the La Paloma facility in California and 50-per-cent interest in the Harquahala facility in Arizona, which received strong institutional support;
  • $129-million ($97.5-million (U.S.)) acquisition of 50.15-per-cent interest in the Frederickson 1 generating station in Washington.
• Achieved strong financing results to finance strategic growth and fleetwide optimization and maintenance activities, in support of delivering reliable, affordable and decarbonized power for our customers:
  • Completed a $850-million medium-term note (MTN) offering;
  • Completed a $400-million subscription receipts offering.

"Over the past year, Capital Power has delivered on our strategy with momentum as we advance a net-zero energy future," said Avik Dey, president and chief executive officer of Capital Power. "We continued to transform our Genesee generating station to move off coal by completing the work needed for unit 3 to be 100 per cent natural-gas-fuelled and progressed the repowering of units 1 and 2, with completion expected in 2024. Additionally, the company marked a milestone in our growth in the U.S. WECC region with our largest transaction in our corporate history through the acquisition of the La Paloma and Harquahala natural gas facilities, as well as the addition of the Frederickson 1 facility. We are proud to now be the fifth-largest natural gas IPP in North America.

"Dispatchable natural gas plays a vital role in our strategy to provide stable energy supply as we build out renewables and advance transformative net-zero solutions. We are dedicated to leading a balanced approach to the energy transition with a steadfast focus on delivering reliable, affordable and decarbonized power for our customers," stated Mr. Dey.

"In 2023, we achieved record annual adjusted EBITDA of $1,455-million -- representing a 7.5-per-cent increase year-over-year. Our team of experts and innovators delivered strong fleetwide performance throughout the year -- driven in particular by a full year of contributions from Midland Cogeneration Venture. Additionally, the financing of our recent U.S. facility acquisitions represents the largest capital markets transaction in the company's history through a $400-million subscription receipts offering, and the completion of a $850-million medium-term note offering," said Sandra Haskins, senior vice-president, finance, and chief financial officer of Capital Power.

Factors impacting results for the fourth quarter of 2023 -- for the quarter ended Dec. 31, 2023, Capital Power recorded AFFO of $162-million compared with $140-million for the quarter ended Dec. 31, 2022. AFFO was higher than the corresponding period primarily due to lower overall sustaining capital expenditures resulting from less outage activities, and higher adjusted EBITDA. This was partially offset by higher current income tax due to higher overall consolidated net income before tax. Adjusted EBITDA of $313-million for the quarter ended Dec. 31, 2023, was moderately higher than the corresponding period in 2022 of $303-million. The was mainly a result of realized gains on the company's Alberta commercial portfolio optimization activities combined with lower emission compliance expenses driven by use of offsets inventory and the conversion of G3 from coal to natural gas, and lower transmission costs at the Alberta commercial facilities more than offset the lower power prices realized during the quarter compared with the prior period.

Significant events

Acquisition of Frederickson 1 generating station

On Dec. 28, 2023, the company completed its acquisition of a 50.15-per-cent ownership interest in the Frederickson 1 generating station from Atlantic Power & Utilities for $129-million ($97.5-million (U.S.)), subject to working capital and other closing adjustments. The other 49.85 per cent is owned by Puget Sound Energy (PSE). Capital Power financed the transaction using cash on hand and its credit facilities.

Frederickson 1 is a 265-megawatt natural-gas-fired combined-cycle generating facility located in Pierce county, Washington. It has tolling agreements for 100 per cent of its capacity out to October, 2030, with creditworthy counterparties. Frederickson 1 is expected to generate average contracted adjusted EBITDA of $21-million ($15-million (U.S.)) per year during the five-year period of 2024 to 2029.

Frederickson 1 is well positioned as a flexible and dispatchable resource that provides reliable power in support of the continuing energy transition to renewables in the region. Capital Power will operate and maintain the facility with its knowledge and experience in plant operations and optimization and will receive an annual management fee under the operating arrangement with PSE. Located southeast of Tacoma in the Puget Sound region load centre, Frederickson sits on approximately seven acres of land that is adjacent to additional lands owned by Capital Power. Current layout and additional space allow for future development such as battery installation or a hybrid opportunity.

$850-million medium-term notes offering

On Dec. 15, 2023, the company closed a public offering of unsecured medium-term notes in the aggregate principal amount of $850-million. The offering consists of $400-million medium-term notes with a coupon rate of 5.378 per cent and $450-million of medium-term notes with a coupon rate of 5.973 per cent and mature on Jan. 25, 2027, and Jan. 25, 2034, respectively.

The net proceeds from the offering were used to partially finance Capital Power's acquisitions of (i) a 50-per-cent interest in New Harquahala Generating Company LLC, and (ii) a 100-per-cent interest in CXA La Paloma LLC, and related expenses, or for general corporate purposes (see subsequent events).

$400-million subscription receipt offering

On Nov. 28, 2023, the company announced that it completed a public and private placement offering of subscription receipts. The public offering consisted of the issuance of 8,231,000 subscription receipts, on a bought deal basis, at an issue price of $36.45 per public subscription receipt, for total gross proceeds of approximately $300-million pursuant to an underwriting agreement with a syndicate of underwriters led by TD Securities Inc. and National Bank Financial Inc.

Concurrently, the company issued 2,745,000 subscription receipts at the offering price to Alberta Investment Management Corp. (AIMCo) on a private placement basis for gross proceeds of approximately $100-million. TD Securities acted as the sole agent and bookrunner for the private placement.

Each subscription receipt entitles the holder thereof to receive, without payment of additional consideration or further action, upon the first to close of the acquisitions of La Paloma and Harquahala, one common share of Capital Power. In addition, while the subscription receipts remain outstanding, holders were entitled to receive cash payments per subscription receipt equal to dividends declared by Capital Power on each common share. The La Paloma acquisition closed on Feb. 9, 2024 (see subsequent events), and each subscription receipt has been automatically exchanged in accordance with their terms for one common share of Capital Power. The net proceeds from the offerings will be used to partially finance the acquisitions of (i) 100 per cent of the equity interests in CXA La Paloma, and (ii) 50 per cent of the equity interests in New Harquahala Generating Company, from CSG Investments Inc., a subsidiary of Beal Financial Corp. (see subsequent events).

Subsequent events

Acquisition of CXA La Paloma and New Harquahala Generating Company

On Nov. 20, 2023, the company announced that it had entered into two separate definitive agreements with CSG Investments, a subsidiary of Beal Financial, to acquire:

1. 100 per cent of the equity interests in CXA La Paloma, which owns the 1,062 MW La Paloma natural-gas-fired generation facility in Kern county, California;
2. Under a newly formed 50/50 partnership between Capital Power Investments LLC and an affiliate of a fund managed by BlackRock's diversified infrastructure business, 100 per cent of the equity interests in New Harquahala Generating Company, which owns the 1,092 MW Harquahala natural-gas-fired generation facility in Maricopa county, Arizona.

Under the newly established 50/50 partnership, Capital Power and BlackRock will each be responsible for financing 50 per cent of the cash consideration for the Harquahala acquisition. Capital Power will be responsible for the operations and maintenance and asset management for which it will receive an annual management fee.

La Paloma and Harquahala are critical infrastructure assets, which support the reliability of California and Arizona's electricity grids and add further growth opportunities in the attractive Western Electricity Coordinating Council (WECC) market while balancing the company's geographical footprint across North America. La Paloma is contracted under various resource adequacy contracts through 2029 with multiple investment-grade utilities and load-serving entities. Harquahala is 100 per cent contracted under a tolling agreement through 2031 with an investment-grade utility.

The acquisitions are expected to generate average annual adjusted EBITDA of approximately $265-million ($197-million (U.S.)) for the 2024 to 2028 period and are estimated to be, on average, 8 per cent accretive to AFFO per share over the same period, based on expected permanent financing.

The purchase price of the acquisitions attributable to Capital Power was $1.5-billion ($1.1-billion (U.S.)), subject to working capital and other customary closing adjustments. The acquisitions were partially financed by a $400-million subscription receipt offering and $850-million medium-term notes offering (see significant events).

The La Paloma acquisition and the Harquahala acquisition closed on Feb. 9, 2024, and Feb. 16, 2024, respectively.

Updates to Genesee Repowering project schedule

On Jan. 16, 2024, the company updated its Genesee repowering timelines. Simple cycle commissioning for unit 1 and unit 2 is now expected to be completed in Q2 2024 and Q3 2024, respectively. During the commissioning phase, unit dispatch will be driven by project needs rather than economic dispatch; therefore, output during commissioning of simple cycle will range between zero and 411 MW. Combined cycle for unit 1 and unit 2 is now expected to be completed in Q4 2024 and output will range between zero and 466 MW during commissioning. Both units are expected to reach 566 MW in the first half of 2025.

Partnered with Ontario Power Generation to advance new nuclear in Alberta

On Jan. 15, 2024, the company announced that it had entered into an agreement with Ontario Power Generation (OPG) to jointly assess the development and deployment of grid-scale small modular reactors (SMRs) to provide clean, reliable nuclear energy for Alberta.

Pursuant to the agreement, the two companies will examine the feasibility of developing SMRs in Alberta, including possible ownership and operating structures. SMRs are being pursued by jurisdictions in Canada and around the world to power the growing demand for clean electricity and energy security.

Capital Power and OPG will complete the feasibility assessment within two years, while continuing to work on the next stages of SMR development.

Analyst conference call and webcast

Capital Power will be hosting a conference call and live webcast with analysts on Feb. 28, 2024, at 9 a.m. (MT) to discuss the financial results for the quarter and year ended Dec. 31, 2023. The webcast can be accessed on-line.

Conference call details will be sent directly to analysts.

An archive of the webcast will be available on the company's website following the conclusion of the analyst conference call.

Territorial acknowledgment

In the spirit of reconciliation, Capital Power respectfully acknowledges that it operates within the ancestral homelands, traditional and treaty territories of the indigenous peoples of Turtle Island, or North America. Capital Power's head office is located within the traditional and contemporary home of many indigenous peoples of the Treaty 6 region and Metis Nation of Alberta Region 4. Capital Power acknowledges the diverse indigenous communities that are located in these areas and whose presence continues to enrich the community.

About Capital Power Corp.

Capital Power is a growth-oriented power producer committed to net zero by 2045, with approximately 9,300 MW of power generation at 32 facilities across North America.

We seek Safe Harbor.