Q2 2022 Capital Power Corp Earnings Call
Thank you for standing by. This is the conference operator. Welcome to Capital Powers, 2nd quarter, 2022 results conference call.
As a reminder, all participants are in listen-only mode, and the conference is being recorded today, August 2nd, 2022.
I will now join the call over to Mr. Randy Ma, the Director of Investor Relations. Please go ahead. Good morning. Thank you for joining us today to review Capital Power's Second Quarter 2022 results, which we released earlier this morning. Our second quarter report and the presentation for this conference call are posted on our website at capitalpower.com. Joining me this morning are Brian Vagil, President and CEO and Sandra Halskins, Senior Vice President, Finance, and CFO .
We'll start with opening comments and then open the lines and take your questions. 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 various risks and uncertainties associated with our business. Please refer to the cautionary statement of forward-looking information on slide 2.
In today's discussion, we will be referring to various non- GAAP financial measures and ratios as node-on slide three. These measures are not defined financial measures according to GAP and do not have standardized meanings prescribed by GAP and therefore are unlikely to be comparable to similar measures used by other enterprises. These measures are provided to complement the GAAP measures which are provided in the analysis of the company's results for management's perspective. Reconcilations of these non- GAAP financial measures to their nearest GAAP measures .
can be found in our second quarter, 2022 MD&A. I will now turn the call over to Brian for his remarks on starting on slide four..
Thanks, Randy, and good morning. Capital Powers Head Office in Edmonton is located within the traditional and contemporary home of many Indigenous peoples of the Treaty 6 region and Métis Nation of Alberta Region 4. We acknowledge the diverse Indigenous communities that are located 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.
In the second quarter, there were notable developments that took place that are very supportive of our natural gas strategy. Briefly touch on these developments and comment further later in my remarks. In the second quarter, there were notable developments that took place that are very supportive of our natural gas strategy.
First, we continue our successful track record of re-contracting with the recent 4.5 year contract renewal on our Island Generation Facility in BC.
In July , we announced an agreement to acquire a 50% interest in the Midland Cogend facility, the largest natural gas co-generation facility in North America. This acquisition checks all the boxes of our natural gas strategy, including being well positioned for re-contracting beyond 2030.
The Ontario ISO has identified significant incremental capacity needs as early as 2025. This provides a positive outlook for our three natural gas facilities that are well positioned in the province.
And last month, the federal government released its proposed frame for its clean electricity regulation. Under the proposed frame, it recognizes the continued role of natural gas generation in supporting reliability and integrating renewables. All these developments are positive as we continue executing on our natural gas strategy going forward.
Turning to slide 5, as mentioned we announced an agreement to acquire the Midland CoGen facility with our partner, Manual Life Investment Management. Midland is right down the middle of the fairway relative to our midlife acquisition strategy. This includes its competitive operational features, the potential to add value by leveraging its existing site, its accretive and contracted and its advantage location.
where it's well positioned for future recontracting.
The purchase price is approximately 894 million US that includes 521 million US project level debt. We plan to finance our...
portion of $186 million US with cash on hand in utilizing our credit facilities.
No equity will be required to finance this transaction. The five-year average AFFO accretion per share is forecast to be $0.30 US or 7%.
Approximately 85% of the capacity is under long-term contracts with high quality counterparties with contract expiries in 2030 and 2035. Midland CoGen is a critical asset to support grid reliability during the transition to renewables in Michigan and is extremely well positioned for recontracting beyond 2030. The closing of the transaction is expected to be in the third quarter of this year.
Slide 6 highlights a track record of re-contracting natural gas assets after they've been required. The
This includes recontracting two US facilities with financial upside compared to the previous PPAs. At Decatur in Alabama, the 10-year extension included immediate enhancements for additional capacity before the previous contract expired. And for Arlington and Arizona, we executed a six-year extension with materially higher AFFO over the extended term.
And most recently we executed a four and a half year renewal for island generation in BC. We continue to advance for longer term recontracting as part of our BCUC's IRP review process.
In Ontario, the ISO's future forecast of additional capacity and energy needs are significant over the next two decades.
To meet this demand, they have announced their intention to run procurement processes with contract awards being made as early as Q1 2023. Our three natural gas facilities, Goreway,
York Energy and East Windsor all fall in these areas of Ontario that the ISO has signaled as high need zones.
All three sites have capacity for future new build developments such as batteries and our peaking facilities as well as potential up rates. We have been working to get all three sites ready to be positioned to bid into the procurement processes. Providing additional capacity may require extending the existing contracts.
Thank you.
Turning to slide seven.
I'll discuss the recent update to the Clean Energy Standard in March 2022.
The federal government initiated consultations on CES design principles and considerations to manage the transition to maintain reliability and affordability.
In July , the proposed frame for the clean energy regulation was released. One of the key elements in this classification of new and existing units. New units defined as those with a COD in 2025 or later would be subject to the near zero intensity base performance standard starting in 2035. Existing units defined as those with a COD before 2035 would be subject to the performance standard either in...
and not new units. The framework would accommodate regional differences and mitigate potential for market disruption. It would leave it to provinces to develop detailed pathways reflective of their particular market structure and resource endowment.
It also affirms a continued role for natural gas generation within a net-zero framework. The framework recognizes a larger and long-term role for abated natural gas generation and does not reflect a ban on natural gas generation. Overall, the proposed frame is positive and enhances the value of our natural gas fleet.
Turning to slide 8, this morning we announced our ninth consecutive year of dividend growth with a 6% dividend increase. Based on the strength of our contracted cash flows from Midland CoGen acquisition, we announced an increase to our annual dividend growth guidance through 2025 from 5% to 6%.
From 2022 to 2025, the average AFF will pay off ratio based on the higher dividend increase is forecasted to be approximately 40% in below our target of 45 to 55%. I'll now turn it over to Sandra.
Thanks, Brian . On slide nine, I'll touch on the financial highlights for the second quarter.
Strong company-wide performance led to the financial results that exceeded our expectations.
Revenues and other income before unrealize changes in fair value of commodity derivative and emission credits with $697 million in the second quarter, a 33% increase year over year.
Adjusted EBITDA of 319 million benefited from higher generation and favorable margins from the Alberta commercial facilities, and a full quarter of contributions from the additional phases of Whitlow Wind and Strapmore Solar. And Strapmore Solar.
In Ontario, we saw one and a half times higher generation from goreway from increased dispatch, mainly due to nuclear outages that required additional base load generation and warmer temperatures in the province. And in the US, there were significantly higher contributions from decatur and Arlington facilities due to higher dispatch, largely due to the timing impacts of the planned outages here over year.
We reported AFFO of $180 million in the second quarter, nearly double that of last year.
Overall, higher generation and availability across the fleet contributed to significant year-over-year increases in AFSO and adjusted EBITDA.
Turning to slide 10, I'll review our financial performance for the first half of the year.
The year-over-year explanations for the six-month outperformance are similar to the second quarter commentary.
Revenues and other income before unrealized changes in fair value of commodity derivative and emission credits were up 28% to 1.4 billion. Revenues and emission credits were up 28% to 1.4 billion.
Adjusted EBITDA of $667 million was up 23% and benefited from higher generation and a strong Alberta power price that averaged $106 per megawatt hour and was partially offset by higher current income taxes and higher sustaining cat-backs.
AFFO was $380 million, up 52% from a year ago. Overall, we saw double-digit percentage increases in all key financial metrics.
In the second quarter, we executed a new energy purchase agreement for island generation. Unlike the previous agreement, the new EPA is classified as a finance lease for accounting purposes, and while it does not impact AFSO.
it reduces adjusted EBITDA by approximately 3 million per quarter.
On slide 11, we have split out the key drivers of our outperformance in the first half of the year relative to our original guidance expectations.
As you can see from the illustrate of pie chart, it was higher generation in the Alberta commercial segments that included generation due to the deferral of the Gen. 3 unplanned outage to the back half of this year. And better performance from the non-albert facilities that were the two main drivers for the outperformance, contributing more than two-thirds of the total.
To a lesser degree, higher Alberta power prices and natural gas trading optimization were also key contributors.
Moving to slide 12, I'll touch on the Alberta power market and our hedge positions.
The average Alberta spot price in the second quarter was $122 per megawatt hour compared to $105 per megawatt hour a year ago.
The higher power price reflects the impact of higher natural gas costs, lower imports, and an overall increase in demand, along with an increase in carbon compliance pricing from $40 a ton to $50 a ton.
Colder temperatures in the early part of the spring and outages in the oil fans contributed to higher demand for power in the second quarter.
Our hedge positions for power and natural gas for 2023 to 2025 are shown on the slide.
For 2023, we are 70% hedged in the high $60 per megawatt hour range. In 2024, we are 45% hedged in the low $60 per megawatt hour range. In 2025, we are 27% hedged in the low $60 range. In 2025, we are 27% hedged in the low $60 range.
This compares to forward prices of $95, $69 and $65 per megawatt hour for 2023 to 2025, respectively.
Outside of our hedges, we continue to capture upside from higher power prices and price volatility with our clover bar gas-peaking units and our Hellkirk and Wind, Whitlow Wind facilities.
Our exposure to rising natural gas prices for the Alberta fleet has been effectively hedged over the next few years.
For 2023 and 2024, our expected natural gas burn is over 80% hedged and over 50% hedged in 2025.
The average hedge prices for all three years is between $2 and $2.50 per GJ, which is much lower than the forward prices.
Turning to slide 13, I'll conclude by reviewing our year-over-year performance and highlighting our Higher Revised Financial Guidance for 2022.
After six months, facility availability was 93% and consistent with the full year target, which reflects the planned outage for Genesee 3 scheduled later in the year.
Sustaining CAPEX with 55 million in the first half of the year and is expected to be above the 105 million to target range due to increased work planned for the remainder of the year and the timing of work.
Driven by our stronger Alberta commercial performance, higher contributions from the contracted Ontario and US facilities, and the acquisition of Midland Co-Jans facility, We have increased our 2022 financial guidance.
The revised targets represent an 11% and 19% increase to the midpoints of the guidance ranges for adjusted EBITDA and AFFO respectively.
The revised guidance range for adjusted EBITDA is 1.24 billion to 1.28 billion and 700 million to 740 million in AFSO.
Lastly, we exceeded our 500 million growth target with the Midland Cogin Actual acquisition.
However, this does not preclude us from continuing to look for good opportunities. Similar to other years, we have the ability to do more than the target. To do more than the target.
I'll now turn the call back over to Randy.
All right, thanks, Sandra. We're ready to start taking questions.
Absolutely. We'll now begin the question and answer session.
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The first question comes from David Casado with Raymond James.
The first question comes from David Casado with Raymond James. Please go ahead.
Thanks, morning everyone. My first question here just on the feed study for the Genesee CCS project. Just curious if there's any color or context you can provide on the parameters you're looking for in terms of performance and capital costs. Any specific items there that you'll look to learn as you approach FID in that process?
So, Ryan here, it's a typical feed study associated with CCUS. And as you know, we've been through this a couple of times before. So firstly, obviously the capital costs need to be firmed up in terms of our estimate of about $2 billion. Any in addition to that, the technical viability is proved.
to ramp, to a limited degree, to parallel what's happening with Genesee 1 and 2 as it's operating. The other parameter is around a degree of capture that we're looking for, and typically that's also a backstop by guarantees from the technology provider. And so those are the main parameters that we're looking for. We expect that we'll have some good preliminary view near the end of this year as sort of a checkpoint.
solar side and if availability has improved for you there noticeably.
No, we haven't seen any material changes. You know, there continues to be a lot of discussion and a lot of sort of repositioning in the market. But, you know, forward curves continue to be sort of pointing down a bit, but nonetheless, don't really see any material changes in the situation for solar panels.
Okay, great. Thank you.
The next question comes from Rob Hope with Scotia Bank.
Let's go to the bank. Please go ahead.
Good morning everyone. Good morning.
And more conceptual question. You know, with you adding a partner for the Midland acquisition, there has changed. And
the size of M&A opportunities that you could be confident going forward with in the future, or could we see you?
go after additional acquisitions knowing that you have this, you don't call it secondary source of capital available to you. You don't call it secondary source of capital available to you.
So, you know, over the past, I'll say half a dozen years, we have looked at large opportunities with what I call a financial partner. So this isn't new to us in terms of potentially larger kinds of transactions. This is one of the first ones obviously or the first one that's come to fruition.
And, ManuLife has, is already our partner at York and very familiar with them and, you know, relatively easy partnership. We could certainly see doing more with them in the future, but it does, it always has expanded our view as to the size of acquisition that we could take on.
That's all right. And then the follow-up question there, you know, can you give an update? You know, if there's any other attractive opportunities in the midlife gas acquisition space, and then I guess secondly, would you look to kind of integrate and kind of reap some synergies at mid-Lindipore going after another one?
So, you know, there continues to be a fair number of opportunities in terms of natural gas acquisitions out there that are consistent with our strategy. So, you know, we continue to look at them and certainly would not wait to, you know, quote, unquote, integrate Midland before we'd move on another one. But, you know, again, it's a, it's a, it's a, it,
continues to be a relatively high traffic market, and so we're pretty optimistic about being able to find similar kinds of opportunities.
But again, we've got the financial capability to move fairly quickly and certainly, I'll say the people capacity to take on a couple of acquisitions at the same time. In fact, I think in our history, we've demonstrated that a few times.
Thank you.
Next question comes from Patrick Kenney with National Bank Financial.
Please go ahead.
Thank you. Good morning, everyone.
just on the Midland acquisition, and I know it's early days, but can you expand on what sort of operational efficiencies as well as capacity expansion potential? You think you might be able to go after on-site and then how much upside this might represent to your base return or accretion guidance? to your base return or accretion guidance?
So Pat, when we're looking at an opportunity like Midland, you know, there's always elements that you look at in terms of potential efficiencies and different things that as capital power, we stand back and look at it and say, you know, we may well be able to create an optimization here or there. But, you know, it's been a very well-run plant. And so there isn't, there aren't glaring.
additional natural gas and batteries at that location. But again, you know, that takes a much more complete market assessment. And, you know, just to kind of put some color around it, you know, when we looked at the acquisition and looked at the potential and, you know, looked at that values in terms of, you know, expansion or, you know, value ongoing value of the site beyond, you know, the re-contracting that we've assumed.
You know, we've only attributed a couple of percent in value. So it's not, we don't see it or haven't paid for a significant amount, although we do see that there should be some significant potential there. But an assessment of to what degree at this point would be totally arbitrary.
Okay, thanks for that, Brian . And then maybe just switching gears to the CCS project and update on timing for a contract for differences. And yet update on timing for a contract for differences.
with the federal government related to the carbon tax or any progress expected to be made here through the back half of the year.
So we do expect a significant amount of progress through the back half of the year, particularly on the contract for differences. There hasn't been a lot of feedback yet to the market. We do understand that the federal government is looking at it and considering it, but again, not a lot of feedback, not a lot of discussion taking place, but they do realize...
that that is likely going to be the one element that holds up progress not just with us, but across anyone looking at CCUS. you know across anyone looking at CCUS.
Okay, thanks. And then maybe just the housekeeping question here, or Sandra. Thank you. Sandra.
Just back to your natural gas hedging update on slide 12 there. Now representing over 80% of your base load needs, I think that's down from just over 90% previously. So just wondering if you can reconcile the difference there and maybe confirm if you've been active in monetizing any natural gas positions. And if so, if you expect to crystallize more value from the hedge book going forward.
Thanks Pat, yeah you're right. We were reporting over 90% last quarter. That's now down to just over 80% and that's just based on the desk doing exactly what you indicated. We are crystallizing value on some of those trades and that's being driven by a review of our expected gas burn. So that's the operational profile of the facility. So as we get closer to the beginning of 2023, we'll continue to optimize both our gas and power position.
Please go ahead.
Thanks, good morning. Briny, on the carbon capture and the investment tax cut, I know some of the language around.
The use for post-combochant and whether or not it's to be compliant needs just updated use in terms of how you see that playing on eligibility, maybe the framework for tier equivalency and then the federal path on carbon or emission standards went forward. So just maybe your updated use on your ability to get that tax credit.
So definitely see that we are fully eligible for that tax credit. In terms of, you know, there is a little bit of discussion as to, you know, what might be a level of capture that one might have to meet in order to be eligible. And also, you know, the emissions profile going forward. And in fact, I would say the federal government has worked very cooperatively across.
the federal bodies looking at these different elements, because from our reading of it, there's clearly a path there for Genesee 1 and 2 combined with CCUS to have a physical life well beyond, or economic life well beyond 2035. So for us, the actual proposed regulations and discussions.
are actually dovetailing to definitely to our the
Okay, and in Sandroge, maybe sub-dited use in terms of other sources of funding, you know, the debt market, press market, obviously talked about earlier in the call, those appetites for more capital deployment, just how you guys see those markets right now, would you be able to access them right now? Does that give you any pause or if the market's all totally settled down?
Yeah, thanks Mark. So yet when we're looking at the financing on the debt side, as we've signaled, we do have a prefer redemption that is coming up. And we've under we've hedged the underlying on that and feel that we could could look to up size that if we needed to increase our debt. Also feel we could access the equity market if we were to do another transaction that was larger size. So feel that both markets are well open to us at this point in time on the back.
in the slide, but it's up side you're seeing there. So if the market is tight as expected to be an Ontario.
How big of an impact that is up for a goal where any of their interior gas assets can exist in contracts. This is a great example of a great impact that is up for a goal of an impact that is up for a goal a
And then I guess how has Gooeiway done relative to your sort of base case underwriting scenario when you get acquired the asset that companies know.
So starting with the last question, first, Goreway has done very well relative to our expectation. And today, as you're seeing in our results, it's being dispatched more, which illustrates its value to the ISO in terms of the Ontario Power situation.
So the degree to which we think the developments in Ontario will impact on our assets, just to maybe make a short story long, what's occurring is that therefore seeing shortage of 2500 megawatts by 2025 that the ISO and the government are in agreement that they need to fill.
And there's a couple of different alternatives. Obviously there's expanding some natural gas at existing sites. There's up rates at existing facilities. And there's also batteries.
And so they'll be looking at different opportunities at different sites to enable filling that 2,500 megawatts. And we believe we are extremely well positioned. They've identified two zones in particular that are problematic. One is called the West Zone, which is where East Windsor is. And then the other two are in the Toronto region, or the other issue is in the Toronto region.
and that's where Gourway and York are. So we see significant opportunities at all our three sites and have been actively pursuing them. In fact, we started the environmental process for permitting different alternatives. They'll back this spring. It's a very real opportunity for us and we're pursuing it very vigorously.
Thanks for that, quarantine.
next question comes from Maurice Choi with RBC Capital Markets.
Please go ahead.
Thank you and good morning. My first question is about the Cavalow location. And I believe in the last conference call, you mentioned that you intended for access free cash flow to be allocated towards acquisitions and development and theabolist recover in D? don't know of it.
and you weren't leaning towards any buybacks or changing of dividend growth target. So I guess with the upgrade to 6% dividend growth, could you just refresh us on the view of how you plan to allocate what obviously appears to be solid access pre-cash closed moving forward?
Yeah, thanks, Marie. So we did indicate that, you know, we were comfortable with our guidance at investor day for dividend increases. However, on the back of Midland and continued very strong outlook for this year and into next year felt that a 6% dividend guidance was in line with our cash flow projections. And as you know, we tend to do dividend increases on the back of contracted growth. So that being the catalyst.
From a capital allocation perspective going forward, you look at our payout ratio, and with this dividend increase, we do continue to be below our target, and the objective is to be at or below that target and redeploy the rest into growth. As we've spoken to, we see a fair bit of opportunity for us in Ontario and Alberta with respect to growth. So looking to have that cash flow available to fund those opportunities.
as well as other M&A in the build out of our renewable platform. As far as our dividend itself, we feel that the increase in our dividend yield are very competitive when we look at that relative to our peers. So at this point, feel that the capital allocation that we've targeted right now is an appropriate of our renewable.
Understood, and maybe you fall on from that in terms of growth capics.
As I remember correctly, you mentioned that you were hoping to progress at least one renewable project this year. Given that we have a two-year pause in tariff exemptions for solar from certain countries and maybe with the US inflation reduction act being introduced, you see a self-position to progress more than just one this year and for next year as well.
So I think there's still a little bit of churn in the market taking place. You know, we still are hopeful that we'll have a project come to fruition this year that we could announce. I think increasing that expectation would probably be a bit too aggressive, but certainly see next year a number of opportunities may welcome to fruition.
Great, thank you very much.
The next question comes from John Mould with TD Securities.
Please go ahead.
Thanks, thanks, good morning. Media, just going back to the clean electricity regulations. Media, just going back to the clean electricity regulations.
In the context of potential Canadian gas acquisitions, you noted the federal government's recently given us some more details on what that structure could look like. How does this update inform your willingness to look at acquisitions of more midlife gas assets specifically in Canada where policies specifically targeting carbon emissions look like they'll be much stronger than in the US or you know, are you de-anticipated than most if not all of it?
the gas facilities you'll seriously look at acquiring will most likely be located in the United States. What are your thoughts on all that?
So I think just naturally with a number of natural gas assets in the US versus Canada, there'll be more opportunities in the US than Canada. So in the longer term, I think you'd see whether it's that, whether it's a development, whether it's acquisition of renewable projects, I think you'd expect to see more activity in the US than Canada.
When it comes to the regulations in Canada and then being somewhat, I'll call it stricter, then in the US, from an environmental perspective, we certainly see with what's happening with the clean electricity standard as being on balance very positive for the natural gas strategy. The backdrop that has been there for the last couple of years.
on the natural gas side has been one where there was expectations, broad expectations that there'd be a significant increase in stringency, significant increases in actions on provincial and federal levels, including potentially even pro-abversions against natural gas.
what this actually represents, and what seems to be developing in Tierra, in Alberta is a broad recognition that natural gas is gonna be a critical fuel as we move forward, and not just for the next five years or 10 years, but it's gonna have a critical element even beyond that. So in terms of our natural gas strategy, and if you think of acquiring assets that are particularly well positioned,
and 2023 relative to where they are now as you transition Genofeed to fully running off a gas by the end of next year.
Thanks, Johnny. We're not expecting a material shift in the cost per tonne and coal, but it's something that we continue to work through as we get a clear line of sight of when we're completely off coal. So see that there has been an increase in the cost per tonne going back to a few years ago when we would have expected to be continuing on coal for a longer time. But the uptick in pricing isn't something I would view as being a material increase in our costs as we run out through 2023.
I'm wondering with this proposed CS.
Are you?
Expecting or still expecting that the decline in pricing in the middle part of the decade.
Yes, it is consistent with that. I would say, well, maybe I should step back. If you had a view of much higher levels of stringency, potentially even greater elevation in natural gas prices, you would see a scenario where you would have higher power prices.
So I'd say with this CES, or at least the initial discussions and where it seems to be going, you would see potentially slightly softer power prices as we move forward. But wouldn't dramatically change the expectations or certainly not the forward curve in a short run, but in the longer run, it would be signaling slightly a more moderate power.
taken today.
Okay, and do you still expect, and maybe I've linked that, this may work more where my question is going, do you expect the further supply?
It's just a long queue of gas plants because it looks like the...
The CS's.
Looking at the new units, how you've defined it, in low-use gas plants are coming in the 25-26 time frame.
So, obviously, the ones that are in process now, we see coming in, don't really see that it would create a flood of supply. I mean, what's clear in the regulations is that anything complete after 2025 would end up facing relatively significant environmental implications starting in 2035. So, a relatively short economic life.
Don't see the window of opportunity being big enough for, again, a significant number of facilities coming into Alberta.?? by ???ri ?????????.
Okay, and maybe my last one, switching to island generation. You highlighted the EBITDA impact.
Is that from, what's my square of light? Is that from an accounting change?
Impact results impact from the re-contracting.
Now that's an accounting change. As you may recall earlier this year, we did take an impairment on island generation and wrote down the book level book. All right.
the book value of that plant. So when we, and that was taking a view of what we expected, the re-contracting would be on island at that time. So as that contract was executed under accounting rules, you'll look at the present value of those contract payments and compare that to the book value. And if substantially all of the value of the contract is equal to the book value of the plant, it's considered a finance lease.
So if that set up your lease receivable and it runs off over the four and a half years of the contract term. So if that tree below sixty two of this trading centre will be your trading centre will have let us see it in back opened. And so now we open the full dishes or decide to the championNew Warrior class andosingAs canown in and over Under 123 Sanders Bro Cop commissioner and Spin dan abs Demelie S Vi Caesar and Sam Shués Flecha Mort Prince Men Stunden?? Bron restrictions those gegen Wheel All of him Captain Will Water Jones One Bend Red C March lecture.
set up your lease receivable and it runs off over the four and a half years of the contract term. Okay, got it. Thank you.
The next question comes from Andrew Kusk with Credit Suisse.
Please go ahead.
Thanks, good morning. I guess maybe if you could give us some context on just Midland and Cognizant hasn't closed, but when you think about just positioning with...
that the portfolio of development opportunities you have in particular in my so, to what degree do you think Midland will help you really pursue some of those opportunities with just greater market knowledge and then an ability to have a greater interaction among various pieces of generation equipment in the region. wouldn't that be so fair.
So Andrew, you're actually bang on in terms of your question. I mean, we have facilities already in the broader area that we think we may be able to look at different ways to leverage the two facilities. As you know, Midland does have a small portion of merchant capacity. So utilization of that may well complement the assets in the area.
But we also have other opportunities in the region in terms of renewables. But we see that, particularly that region, as being a very, very positive place to be from a North American perspective. There's significant coal retirements that'll be taking place. There's just recently, it was a nuclear retirement, and we expect further nuclear retirement. So there's a significant increase.
or decrease in supply that will be taking place, increasing demand in general, and we've got a site in a facility that's extremely well positioned with some very close significant industrial loads. So it's very well positioned for a whole range of different kinds of opportunities. So very pleased with that acquisition and see it as being integral to the real other opportunities in the region over time.
There's even a natural gas whopping opportunities with Ontario as its position. So, I mean, we just see a tremendous amount of capability there.
That's helpful context and then maybe just backing up and looking even further at the top of the house. How do you think of just capital allocation opportunities, say MISO, the Southeast, which you've been sort of building up from an opportunity standpoint and also have effectively assets generating power, and Alberta, if we just think of like those three major areas?
So, you know, typically we can continue to look at, you know, the best opportunities as they come forward from a value creation. And, you know, the view of value creation is expanding as we go forward. Certainly one of them is the environmental implications is very significant in terms of what we look at. But also, you know, whether or not it provides a bit of a platform with, you know, further development or, you know, adding assets to it.
We wouldn't necessarily, in the longer term, our longer term view, allocate capital to those regions. What we end up doing more is allocating resources looking at opportunities in regions. So, you know, we will be putting more effort into the MISO area given our position, but likewise, tremendous effort will be taking place in Ontario.
Alberta and into a lesser degree, the balance of our footprint.
Okay, very much appreciate. Thank you.
Once again, if you have a question, please press star then one.
The next question comes from Najib Aydun with IA Capital Markets.
next question comes from Najib Aydun with IA Capital Markets. Please go ahead.
Hi, good morning. Just a couple of questions. Maybe if you can give us a bit more color on the strategy around Midland over the long term.
They give the asset and maybe some previous attempts to expand capacity there. We're just wondering how you're thinking about that.
So when we look at the asset, specifically, it is true that it is an aging asset. But certainly we see opportunities there, A, from a footprint perspective, and potentially adding generation. But there's also a different levels of quote-unquote repowering that could take place on the existing assets. So the real value there.
for potential future growth is the site itself. And the services to a natural gas, you know, access position on the grid, et cetera. And again, we see that as being, you know, very, very favorable at that site. I'm very, very favorable at that site.
Okay, and just, I guess, similar to this wood midland, you're gonna be adding some management fees into your revenue or cash flow streams. Do you see other opportunities to go after?
those same types of revenues that arguably, you know, maybe our lower risk.
more asset light and something that you could replicate in other with other facilities.
So we could see, you know, certainly, you know, through partnership structures and so on. You know, we work from that perspective. You know, if you're thinking of, you know, would we, you know, go and operate without, you know, significant ownership position somewhere? No. You know, we, we very much see, uh, great value in owning assets and...
If we're putting in the effort to add value, we'd like to reap that value and now just to earn fees. So that is something that we would not do. And you simply operate assets for fees. And you simply operate assets for fees.
Okay, and maybe just to clarify when you say, an ownership taken and assets, is there a minimum threshold? Is that after being majority stake or even on a minority basis?
I think we'd consider it on a minority basis. It all depends on the partners in the structuring and what that reflects. But certainly something like a 25% interest in a significant asset would be, might have some appeal to us. But it boils down to the overall quantum of investment. I mean, you may recall when we had, I don't know, 15 co-jans all around North America that were...
relatively small investments for us and it just took a tremendous amount of effort. So we would have some significant minimums that we would consider if we were looking at a minority interest but an operating position in an asset. Certainly, we would have to be an investment opportunity of a couple hundred million before we would look at something like that.
Okay, that makes sense. Thank you very much. This concludes the question and answer session.
I would like to turn the conference back over to Mr. Randy Maw for any closing remarks.
Okay, if there are no more questions, we will conclude our conference call. Thanks for joining us this morning and for your interesting capital power. Have a good day everyone.
This concludes today's conference call. Please connect your lines.
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