Q3 2022 Capital Power Corp Earnings Call
Thank you for standing by this is the conference operator, welcome to capital Power's third quarter 2022 results conference call.
As a reminder, all participants are in listen only mode and the conference call is being recorded today October 31st 2022.
I will now turn the call over to Mr. Randy Mah, the director of Investor Relations. Please.
Please go ahead.
Good morning, and thank you for joining us today to review capital Power's third quarter 'twenty to 2022 results, which we released earlier. This morning, our third quarter report and the presentation for this conference call are posted on our website at capital power Dot com.
Joining me this morning are Brian Boswell, President and CEO , etcetera, Haskins Senior Vice President Finance and CFO will start with opening comments and then open the lines to 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 on forward looking information on slide two.
In today's discussion, we will be referring to various non-GAAP financial measures and ratios as 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 enterprises. These measures are provided to complement the GAAP measures, which.
Provided in the analysis of the company's results from management's perspective reconciliations of these non-GAAP financial measures to the nearest GAAP measures can be found in our third quarter 2022 MD&A I will now turn the call over to Brian for his remarks, starting on slide four.
Thanks, Randy and good morning capital Power's head office here in Edmonton is located within the traditional and contemporary home, but many indigenous peoples of the Treaty six region and there may be a nation of Alberta region. Four 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 land on which we live and work.
Overall, our third quarter results were strong and we set a record quarter for adjusted EBITDA, We had strong operational performance with a 96% average availability that enabled a 15% increase in generation compared to a year ago.
On the strength of Alberta power prices that averaged $221 per megawatt hour in the quarter, our Alberta commercial facilities generated strong results.
Side of Alberta, or go away facility in Ontario, and Decatur, Alabama also delivered strong results with double digit percentage increases in adjusted EBITDA in the third quarter.
At the end of September we closed the acquisition of the Midland Co. Gen facility, we've executed a partnership and management services agreement with our joint venture partner Manulife investment management capital Power's responsible for the operations and maintenance and asset management of the Midland Co Gen facility.
Work continues to integrate to integrate Midland into our commercial portfolio and transition operational and business systems interfaces into our networks.
We are forecasting 35 million dollar plus in adjusted EBITDA for Q4 of this year.
Although the in service date for Genesee one has been revised from late 2023 to 2024 due to delays in the interconnection. The overall project continues to progress well and we remain on track to be off coal in 2023.
Feed study activities for the Genesee <unk> project continues and moving forward as expected we continue to pursue other growth opportunities, including in Ontario, where we are very optimistic with the competitiveness of our three natural gas facilities.
I look forward to sharing more details on our growth opportunities at our upcoming Investor day.
Turning to slide five recently there have been numerous favorable policy announcements that are a continuation of supportive market dynamics for our strategy.
Britta environment in parks initiated consultations on potential changes to the tier framework that Alberta expects will maintain equivalency with the federal backstop framework and preserve provincial jurisdiction over carbon pricing. It includes a proposal to commit Alberta to adopt the federal Alberta price schedule.
Through 'twenty 30, introducing a 2% year reduction in the electricity stringent Chi some 0.37 tons per megawatt hour performance standard until 2030.
The AEP is targeting to finalize a recommendation and by fall of 2022 and have the enabling regulations completed by December 31, 2022. Overall, we are supportive of other proposed changes by a P.
The ACO has initiated consultation on potential changes to the current SSC limit of 466 megawatts. The current limit impacts the Genesee Repowering project.
At each combined cycle unit it would exceed the current level.
However, battery storage could alleviate any constraints the existing MFC MFC limit may present, we are supportive of <unk>.
So increasing this limit.
The U S inflation reduction act enacted in August as the most significant legislation to invest in clean energy and address climate change in the U S. History. It includes an expansion of PTC and ITC is until the end of 'twenty 'twenty four.
We're most forms of renewable energy, including energy storage technology overall, the I R. A provides strong support for renewable asset growth plans in the United States.
Ontario Ministry of environment Conservation and parks issued proposed changes to the emissions performance standard program for 2023 to 2030. It includes a proposal to change their performance standard from three seven to three one.
Tons of Cotwo per megawatt hour, starting in 2023 and remain constant until 2030 for our Ontario natural gas facilities. There are contract provisions that will limit the impact of proposed EPS benchmark changes to capital power.
I'll now turn it over to Sandra.
Thanks, Brian starting on slide six I'll briefly comment on our inaugural Green hybrid bond issuance that we completed in September it was a successful $350 million offering that replaced our series seven and nine preferred shares.
The notes have an initial interest rate reset in September of 2032, and every five years thereafter and has a 60 year term maturing in September 2082.
The Green hybrid bond provides cost effective financing relative to the preferred shares with economic savings of approximately $5 million per year on an after tax basis for the initial 10 years compared to the reset rates of the preferred shares.
Prior to the bond offering we entered into interest rate swap hedges on the underlying.
With a positive mark to market settlement of the hedges the effective interest rate on the bond is approximately six 7%, which is a 125 basis points below the coupon rate of 795.
This green hybrid bond the first of its kind is shooting in the Canadian marketplace was issued under our green financing framework, where the net proceeds of the offering will be used to finance or refinance new or existing eligible green investments.
Yes.
Turning to slide seven I'll touch on the financial highlights for the third quarter. We saw a continuation of strong company wide performance that led to the financial results exceeding our expectations.
Alberta power prices averaged $221 per megawatt hour in the third quarter, where the strong price was driven by competitive bidding behaviors on seasonally hot weather and outages from natural gas units and tie line.
We generated adjusted EBITDA of $383 million, which benefited from higher generation and favorable spark spreads from the Canadian commercial facilities with a realized power price of $101 per megawatt hour compared to $75 a megawatt hour a year ago.
In Ontario core we had a 59% increase in generation as it was dispatched more frequently to supplement the supply shortage driven by nuclear refurbishment and other outages combined with warmer temperatures.
Our Decatur facility also contributed to strong financial performance from significantly higher generation compared to a year ago due to higher availability and increased demand.
In addition, Decatur recorded higher incentive payments given improvements in the facilities heat rate with the upgrades that were completed last year, along with terms of the extended tolling arrangement announced in 2021.
And corporate expenses of $19 million this quarter were higher than past quarters, primarily due to higher business development activity and increased share based incentive expense.
We reported <unk> of $328 million in the quarter up 59% from a year ago attributable to the factors mentioned above.
And favorable finance expense.
This was partially offset by higher current income tax expense driven by the cash tax impact from prior year's results.
Overall, we saw significant year over year increases in <unk>, and adjusted EBITDA from higher generation and strong Alberta power prices.
On slide eight I'll review, our year to date financial performance were the drivers of the nine month outperformance are similar to the third quarter commentary.
Adjusted EBITDA of 1.05 billion was up 27% and benefited from higher generation across the fleet and stronger Alberta power prices that averaged $145 per megawatt hour.
We have generated $708 million in <unk> year to date up 55% from a year ago.
Overall, we saw double digit percentage increases in all key financial metrics.
Turning to slide nine I'll touch on our Alberta power and natural gas hedge position.
For 2023, we are 72% hedged in the low $70 per megawatt hour range for 2024, we have 55% hedged in the low $60 per megawatt hour range and for 2025, we are 36% hedged in the low $60 range. This compares to forward prices of 114 eight.
Two and $76 per megawatt hour for 2023 to 2025, respectively.
The update from Q2 reflects both additional hedging activity during the quarter, where we took the opportunity to sell forward additional power length at favorable prices as well as updated expectations with respect to base load generation.
Overall, our long term hedging program continues to provide a strong balance between managing commodity exposure, while providing flexibility to capture upside from higher power prices and price volatility.
Our exposure to rising natural gas prices for the Alberta fleet has been effectively hedged in the short term our expected natural gas burn is over 80% hedged for 2023 over.
Over 70% in 2024 and over 50% hedged in 2025.
Our average hedge prices between $1 50 to $2 per GJ in 2023, and 2024 and between $2 50 and $3 per GJ. In 2025. This compares favorably to the higher forward gas prices at the end of the third quarter.
Okay.
Moving to slide 10, the chart shows our expected annual Alberta carbon cost compliance obligations from 2022 to 2020 for the.
The dark shaded area on the bar represents the Alberta emission expense, while the lighter shade is the savings from using carbon offsets.
With higher than forecast generation in 2022, the change in the Genesee Repowering schedule and the expected increase in stringency under Alberta tier beginning in 2023 overall compliance obligations have increased since the beginning of the year.
Management has optimized the available carbon emission credit inventory from 2022 to 2024 to align with the expected increase in tier stringency requirements with carbon compliance price increases.
The impact is a reduction in adjusted EBITDA and <unk> in 2022 of approximately $50 million. However, the optimization results in an estimated net savings of more than $7 million over the three years.
Yeah.
On slide 11, I'll cover our year to date performance and highlight the changes to our 2022 targets.
After nine months average facility availability was 94% slightly higher than the full year target of 93%.
Sustaining capex was $75 million year to date compared to the original annual target of $105 million to $115 million.
We have revised the target to $130 million to $140 million due to higher L. TSA costs from increased generation and spend on work shutdown work as well as be in additional sustaining capex for the Midland co Gen facility.
We have also increased our 2022 financial guidance ranges that are driven by higher year to date results. The acquisition of Midland co Gen and our outlook for the remainder of the year, including the optimization of the Alberta offset credits inventory that I previously discussed.
This results in a 16% increase to adjusted EBITDA based on the midpoint of the guidance ranges.
The revised guidance range is $1 3 billion to $1 345 billion.
As we start looking into ahead into 2023. The current forward prices would project adjusted EBITDA to be generally in line with our revised 2022 guidance.
More information about our 2023 financial targets will be shared at our coming Investor day.
Yes.
Lastly, I'll review, our updated <unk> guidance as shown on slide 12.
Year to date.
Seven.
And $8 million.
We have revised our annual guidance range to 770 to 80 million.
Which represents a 31% increase when compared.
So our original guidance.
We have provided a chart to illustrate the main drivers between the higher <unk>.
<unk>.
Overall, we expect operational performance to once again be very strong in the fourth quarter with adjusted EBITDA in line with Q4 2021 prior to the increase in carbon compliance costs discussed on slide 10.
Therefore, it has been revised to 770 810 million, which also include <unk>.
Any capex in the fourth quarter.
I'll now turn the call back to Randy.
Okay. Thanks, Andrew.
Operator, we're ready to start the journey.
Thank you.
I'll begin the question and answer session.
To join the question queue you mean.
Why don't.
On your telephone keypad.
You'll hear a tone.
Your request.
You are using a speakerphone please pick up your handset before pressing any keys.
Withdraw your question Please press star.
<unk>.
We will pause for a moment.
Join the queue.
The first question comes from David.
Raymond James.
Please go ahead.
Okay.
Good morning, everyone Congrats on that.
My first question I Wonder if you have any.
Okay.
Or thoughts around.
Capital allocation or anytime soon.
Freedom is a strong possibility that you've shown so far this year.
Well obviously.
Yes.
Strong results in an increasingly strong results.
Strong results, we had last year.
Pretty strong balance sheet.
Us too.
Moving forward with capital commitments.
Otherwise it would've been a little bit more concerned about in terms of capital allocation.
We look forward, we do see.
A number of projects.
There are very.
Very high potential.
Yes.
For them as well.
The various renewable projects that we have.
Please.
We do see that.
We have adequate capital to pretty much cover.
Looking at today as we've said before.
The initiatives that we have likely will require.
Equity capital from from the markets, but as always we look for the best opportunities for capital power shareholders.
We've driven to one particular.
They are form of generation.
Particular type of market.
A very good position today.
Look for the best opportunities for the company.
Excellent. Thank you for that and maybe just one more for me.
As it relates to your natural gas generation and obviously now that you have.
The Midland acquisition just curious.
Do you have any thoughts you can provide.
The opportunities that you can get around having a fleet of power plants.
Are there any efficiencies or opportunities got providers.
Well, it's certainly there.
Sure.
As you are a larger and larger fleet year knowledge becomes greater and greater.
Great.
Flexibility.
Okay.
Bargaining power so to speak with the Oems.
We're certainly seeing those.
Positive attributes coming into play, but in addition to that.
Although.
A number of our assets.
Seem to be built in different regions.
Yeah.
Definitely the Midland facility.
Fairly heavily.
<unk>.
Different opportunities.
And Ontario, particularly on the natural gas side, when you think of that.
The transportation storage.
Et cetera of natural gas between I'll call it.
Our four facilities.
That region.
Very positive implication.
Longer term for carbon mitigation strategies on either side of the border we think of those assets.
Work together very very well in our portfolio.
We're seeing a tremendous amount of benefits of having.
Number of natural gas facilities.
Similar to what we have.
Operating in Alberta.
Excellent thanks for that Bryan I'll turn it over.
The next question comes from Rob Hope Scotiabank.
Please go ahead.
Good morning, everyone.
First question is just on the change in timing.
But the transcription delay can you give us a little bit more color on what drove that as well as when in 2024, you could see Tennessee returned to service and does that change the.
Generation plant at all.
So.
Uh huh.
The delay is being driven by.
The timing on the interconnection and the <unk>.
Importance of the interconnection is that signal.
Yeah.
Visibility of energy for commissioning associated with.
With our facility. So that's the that's the primary driver behind that and again as.
Interconnection.
Turning out to have.
Yeah.
A bit more of them.
Character to it.
It has caused.
And the project.
The actual timing.
Recall that there is actually four.
These associated with that activity.
Combined cycle.
Later ones in the original schedule had a combined cycle one combined cycle completed in 2023 and the other one in early 2024.
It has to move.
Later.
Yeah.
2024.
Yeah.
The initial 400 megawatts of unit.
Plays through.
23.
No.
For all of 2023 and there will be.
Some timing implications for 2024.
Precise timing.
Okay.
And outages et cetera associated with moving to combined cycle.
Still.
Investigation, and we should have some.
Additionally, information for you on Investor Day.
Alright, Thank you for that and then maybe just.
The previous Investor day, as we take a look at 2024.
I would look for as we look out to 2023 guidance of being flat with 2022.
Can you maybe just walk us through the main drivers of our imaging.
Just kind of keep track records.
Based on the numbers. It does look like you should continue to do it.
Just kind of utilization.
Alberta merchant plants.
Revenue after that.
Yeah. So we'll certainly have more details when we when we come to Investor day on December 1st Youre, correct, a big driver of that.
Our results next year.
Sure.
Forward prices in Alberta, as well as the full year from Midland to the full year from enchant solar.
At the end of this year, so those would be the key drivers, but more details to come.
In a month's time.
Alright. Thank.
Thank you.
The next question comes from John Mould with TD Securities.
Please go ahead.
Hi, good morning, everyone.
Going to the CCU initiatives.
Question of carbon pricing certainty there bobs talking about.
Carbon contracts with defense, but also perhaps a need to further augment the existing legislative support for <unk>, given the what's being offered in the U S.
Are you still thinking that the broader question.
As it pertains to your initiatives can be resolved.
2020, maybe early 2023.
What kind of structure.
Pricing certainty.
Right now from your perspective.
So.
In terms of in terms of broad timing.
We do.
Conversations with the government.
I do believe that.
They are.
We're working on it.
Yes.
<unk> strategies and processes in place to move forward.
Basically provide support.
The carbon pricing.
Yeah.
What seems to be gaining traction.
The utilization of something like Cfd contract for differences associated with a carbon price floor for a longer period of time.
I understand.
Points of.
Reference.
Conference last week before last.
Prime Minister in two minutes.
Two the C C C.
So believe that it's absolutely the trial that there.
Ron.
We are hopeful that we will see more.
Information.
Yes.
More indication of the federal government direction.
In the fall economic update.
So more to come but we're.
Assuming everything continues to be on track in.
<unk>.
Very positive.
Okay, great. Thanks for that and then maybe just moving to the ISO procurement given its competitive I. Appreciate you want to talk too much about your bidding plan.
More high level.
Are you expecting that wanted to ask you what gas cap is going to be just given the system situation do you see more opportunity for capital power.
Yeah.
Gas storage solutions side of things.
Sure.
Factors such as the operator.
Existing sites.
Insights.
Hi.
Sure.
So.
We're actually looking at that.
We will endeavor to do.
We've been talking about so far is actually provide.
So some choices.
Yes.
We see natural gas opportunities and battery opportunities for battery opportunities at every site.
We see natural gas.
Opportunities.
Two sites for a significant increase in generation so that we see.
Upgrades potentially across all three sites.
There is a lot of options.
The real issue will be.
Each of these auctions.
The ISO strategy is what's optimal.
The regions and the capacity requirements they have.
So we're taking.
But we're very optimistic that between the flexibility.
The competitiveness of our sites.
Our sites being in those regions require increase.
The increase in capacity.
Feeling pretty optimistic about.
Right.
Chances even though.
Okay.
In a competitive situation.
Positioned extremely well from our perspective.
Okay, great. Thank you for that.
One housekeeping question on onshore for aegis.
It seems to be happening.
Great.
October looks like.
But a lot of sales.
The grid. So far can you provide any insights on how that asset is performing so far in the quarter.
So we'll have to get back to you on that.
They did have.
Okay.
Was there.
Extended but mainly event.
We'll get back to you with some more detail on that.
Okay, great. Thanks, I'll leave it there.
Yeah.
The next question comes from Mark Jarvi with CIBC capital markets. Please go ahead.
Thanks, Good morning, everyone.
Brian .
Yeah.
Yeah.
Honestly the stringency.
Standards is a big item, but what else is there.
Framework.
And consultations that are a real focus for you and things that might change potentially.
So in terms of the tier.
As you can appreciate it.
There's a lot of different elements and different moving pieces that could happen.
But the focus so far.
Our focus has been around those two issues as it relates to the cap.
Capital power so.
We're not saying that theres other issues actually on the table at this point, but again.
It is a complex.
Negotiation.
Most certainly.
Looking to two.
Drivers of this significant reduction in emissions in Alberta, So again from that capital power power generation perspective.
It's looking.
Very favorably and there is it something else.
I'm pleased that impacts on us today.
And just a follow up what are you expecting clarity on that.
Hum.
Yes.
Second clarity over the next month or so directionally, but no.
Alberta government.
It's focused on navigating actually in place by the end of this year.
Okay.
Hi.
And if you just look at that.
I'm not sure if this is for.
Andrew or someone else.
Some of your hedges for 2024, but the pricing hasn't moved.
Can you maybe reconcile those two.
Does that imply that you think the $82 four as you show in the.
In the presentation, maybe a little lofty or maybe just some commentary on that.
Yeah. So when you look at the hedges.
Stepped into since the last update they are well.
Our average contract price of are seeing that the new hedges.
At a higher higher level, which would be consistent with our view.
But the percentage hedge is also driven by the.
Expectation around generation, which has been tempered a little bit as well. So that's also driving up your hedge position.
From a percentage perspective.
Yes, we do.
Prices to be more in line with the forwards as opposed to below.
Okay, and then can you just clarify that comment about the generation levels. When you look at 'twenty two 'twenty three 'twenty four Genesee goes through its evolution here.
Can you kind of clarify what piece of it looks like in terms of generation assumptions.
Yeah. So we do expect that our baseload plants will still be generating at high levels overall.
Capacity factors are somewhat below what we have used in our previous forecast.
Not a material change, but it does it does drive that.
That ratio to some extent.
I think windows.
Yes, sorry about that go ahead.
At Investor Day, we'll have.
Our most recent view, which will be refined through our budget process here.
Realize too.
Current thinking around.
Our.
Production levels in our history.
Okay.
Okay.
Last follow up was just on the Genesee one in terms of the delay.
Okay.
Two months from four to six I am not sure how long the surge.
And the combined cycle and it would be for these projects.
It's more on the order of four or five.
Five months.
Okay. Thanks, Brian Thanks, Andrew.
The next question comes from Maurice Choy with RBC capital markets. Please.
Please go ahead.
Thank you and good morning.
First question on <unk>.
Capital allocation comment you made Brian .
You have adequate capital for what Youre looking.
Looking at two things.
Yes.
Requiring capital analysis.
Looking at the U S right now.
Just to clarify.
First of all within each market.
You need capital for that.
Or does it depend on.
Yeah.
Looked like from the federal government and how cash flow looks like next year.
So.
Yeah.
Around <unk> as a broad comment about the kinds of projects.
See coming forward.
In respect to that.
The U S itself actually don't see a lot of.
Capital.
Being deployed in that direction next year.
We're looking at.
A final investment decision around next summer.
And based on that again, we'll see some capital being deployed next year, but certainly that.
That would be requiring any equity capital.
Currently deal with.
The scope of our existing balance sheet.
My comment was more.
Along the lines of.
<unk> tried to suggest which is obviously.
Mr Mark <unk>.
From time to time as well.
As we've evolved there are times when we're actually very focused on.
Natural gas are very focused on renewables or long term contracts.
Yeah.
Where we're sitting right now.
We have the luxury that we.
We don't have.
David.
The nature of investment.
We could look for the one that provides the greatest value to shareholders and stakeholders.
Yes.
To clarify your comment about having sufficient capital and that relates to the increase.
The capital that you put in.
And Matt just tackle that.
That's correct.
Perfect.
And second question is as follows.
The LTE opportunity.
The U S.
Can you talk a bit more about your pipeline.
Sure.
Okay.
Got it.
Need to acquire renewable platform come with development projects.
No we don't.
We don't see a need.
Need to be.
Acquiring.
Pipelines.
We're pretty pleased with the resources, we have in the U S.
We are expanding.
And the site that we have in place.
We will have.
Definitely.
Represents a tremendous platform for growth and that doesn't mean that we won't be acquiring sites or looking at sites.
It's a pretty competitive market out there.
We achieved.
Acquired sites that are either complete or getting close to.
Yes.
Moving forward.
Forward in terms of having.
Contract et cetera.
Other values.
Is going to other people.
We can do.
<unk> is developing.
Yes.
It really is practical.
Great.
Greater and greater shareholder value and Thats.
The position we have now in the U S.
In particular.
That's a great opportunity for growth over the next number of years.
Understood. Thank you very much.
The next question comes from Ben Pham with BMO.
Please go ahead.
Hi, good morning.
I'm wondering.
So you wanted to.
Maybe three.
What's the.
Max percentage of gas.
Fair enough.
Maybe just a quick reminder on that.
Yeah, so while theres still on call it about 25% of their generation.
They can burn natural gas.
<unk> is actually going through lease outage, now where it'll be converting to be 100% natural gas going forward.
Okay.
I know you said you had one.
Kitchen collection point for it.
Yeah.
Late 'twenty four and service.
Yes.
It's certainly a 'twenty four.
Oh, So you guys.
Okay. So you don't want us to win.
Yeah.
Earlier.
That's right it used to be late 2020, 341 unit and the other one was early 'twenty four as Brian mentioned those have shifted about four to five months.
So they're both expected to hit combined cycle in 2024, but in the early part.
Okay Gotcha and then.
And more and more of a housekeeping item.
I'm looking at your slide on.
Commission expense was 23 and in particular I noticed that.
That's actually up quite a bit.
Presentation looks like it doubled.
$300 million.
It just seems like such a big number given some of the factors.
The factors that you called in today.
2023.
So sorry for 2023 or 2022 are you looking at this is.
2023.
<unk> expense.
That's $200 million.
Right now I think that's what I've seen here.
Yeah.
This presentation is only 150 <unk>.
It seems like a big change.
With.
Ah fortify if my timing change on Jan one.
So a couple of things.
Timing change Theres also.
Expectations around higher generation as we've seen coming through 2022 argued.
Running a fair bit more than that.
Had been expected so we do expect that next year.
We are in the merit order that will be.
Baked into that as well as the expectation of.
Hum.
Reduction in the stringent standards here that could come into effect in 2023. So that has been included as well and that drives it up.
Carbon compliance obligation as well.
And of course.
Okay.
Matt.
Yeah.
We would see an increase in carbon.
Power prices as low as we can.
With our unit.
Prices reflect higher cost of carbon and being more efficient units it ends up being a net.
Benefit.
Also in there just with the delay in Genesee, one and two we will be burning more coal for part of 2023 relative to our initial forecast.
Powering is pushed out a bit and that would be.
Part of that increase as well that youre seeing for 2023.
Okay, that's really helpful.
Okay.
Thanks, Patrick.
Yeah.
The next question comes from <unk>.
<unk> capital markets.
Please go ahead.
Hi, Good morning, just wanted to start on.
On the growth outlook, you've talked a lot about the Ontario market.
If you can give us an update on that.
Okay.
We acquired last year.
Thanks.
Some of those projects forward.
In the next few years.
Okay.
Yeah.
So.
Yeah.
<unk> continues to be the same.
Sure.
Moving a number of those projects forward.
We haven't.
A number of opportunities that are.
In process and I think in our last.
I suggested that we were.
Looking to potentially have something move forward or something.
Yeah.
Likely that right now is a little bit optimistic.
Those opportunities have fallen off the table, it's more that there just simply taking a little bit longer so.
Actually quite bullish on.
Our development pipeline.
But we.
We will bring to fruition over the next little while.
Okay got it.
Just a question of timing Thats helpful.
And then just wanted to.
Okay.
Paul question hedging strategy.
Couple of years.
Although the market.
To be a bit more.
Okay.
Do you think.
It makes sense to maybe be a bit less had short term.
Prices are still.
Just wondering if that changes kind of inputs.
Sure.
Yes.
Consistently take a view on where we think prices will be hedged around our expectations.
What we've seen in 2022 is very high power prices, we think that.
Look into the early part of 2023 Youre going to see the same fundamentals.
Fundamentals in the market, but.
As the year progresses, the expectation is around supply additions and over.
The movement towards the supply demand balance will see over the next.
18 months, following where you've got.
Cascade as well as our Repowering units coming online as well as the number of renewable so expect that.
Youll see prices come down from this high watermark.
Sometime in the back half of next year.
But continue to see a lot of volatility.
We have a fair bit of base load Blackstone.
Do you is that we derisk the portfolio by stepping into hedges and have that.
Stability and Derisk, but still have about 500 megawatts in pekin facilities or not.
Baseload plants to capture that upside so that would be.
Approach to managing the portfolio.
Yeah.
Thank you.
Next question comes from Andrew <unk> with Credit Suisse. Please.
Please go ahead.
Thanks, Good morning.
Maybe if you can just give us some high level context on your thoughts.
Natural gas plant valuations in the U S and I asked the question in part with all the attention.
Great gifts for renewables.
Do you see the market developing or maybe becoming more enhanced for natural gas plants that you've historically gone after whether it be like the caterer Arlington and so on and so forth.
Our view is that.
Yes.
We are very sound investments.
As time is playing out.
They are exceeding our expectations in terms of value.
Large part of that Andrew which is I think it goes to the to the.
The focus of your question.
Increasing <unk> and perception.
And I've been a reality that natural gas is.
<unk> continues to be very critical.
In North America, and we will continue to be necessary.
Depending on the region.
Significant amounts for considerable period of time.
You see that unfolding in Ontario, right now.
There is a need for natural gas and we can see potentially some new natural gas facilities being contracted out to 2040.
You are seeing there.
Federal government in Canada.
Having.
Any evolving view from a few years ago.
For natural gas.
Good too.
Point.
Our focus is on emissions and beliefs.
Clear belief that natural gas is going to be around for a considerable period of time.
Again very similar in the U S.
With the.
Ministration, providing administrations.
Their focus is not on eliminating natural gas there focuses on eliminating emissions and so youre seeing that.
Meredith.
And I would say increasing values around natural gas flows.
So over the long term the long term contracted natural gas and in terms of merchant natural gas again very dependent on the market and very dependent on how your assets are situated in that market. So it's.
Where we were facing headwinds from a natural gas perspective, a few years ago.
The wind tends to be at our back now.
That's helpful color and context, and maybe just looking across your portfolio of natural gas assets.
Do you have selected opportunities to effectively.
Some of the positioning from a market standpoint, whether it be with.
Supplementary solar battery technologies.
Whatever the case may be around specific plants that could drive maybe even more value and really benefit more directly from Iran. In the U S.
So around the specific sites, we do see some opportunities.
We have looked.
From looking at potential.
Batteries on some of the existing.
Yes.
Okay.
Okay.
Natural gas facilities obviously.
Look in batteries.
Existing opportunities today.
In Arizona.
Clinton facility to add capacity without having to go through.
The approval process from a contract perspective.
No.
A tremendous amount of upside there.
The other thing is.
Yes.
Things develop and as we're seeing the landscape getting there.
A number of the sites that I was referring to earlier.
Very well positioned.
Actually.
The appointment of either Badger.
Yeah.
Solar or wind, but also.
The appointment of batteries as well.
The combination of these things come into play quite well.
One of the things, where we have some concentration like Alberta, and we see some possibility in Arizona.
It may be a strike.
To your question, we can see where we can provide.
Complete package not only just renewables.
Yeah.
Combination of batteries.
Renewables can can lead you didn't have maybe as much as 80%.
We agree.
The ability to.
A couple of the other 20%, but further to that.
The training that we do.
With renewable attributes.
April .
To synthesize them basically 100% clean product yield.
There's a lot of moving pieces.
We're looking at other opportunities.
Pulling all levers to see where we can by combining our assets.
Our knowledge.
It's to provide those kinds of opportunities.
The Midland.
Acquisition, we see some opportunities.
Combined with existing facilities.
New facilities as well to provide some of these kinds of some.
Some of these kinds of opportunities.
I appreciate the color. Thank you.
Once again, if you have a question. Please press Star then one.
The next question comes from Patrick Kenny with National Bank financial.
Please go ahead.
Thank you good morning, everybody.
Just wanted to clarify on the proposed changes to the.
As your 0.37 performance standard going down 2% per year.
Whether or not this could have any material impact on the economics for your <unk> investment.
Maybe you can also provide a quick update on <unk>.
Whether or not these.
Inflationary pressures.
An experienced year to date on construction in the province.
Absorbed within the.
2 billion dollar budget.
So in terms of that.
0.37.
We're putting together the business case.
We were we were anticipating some significant.
And the stringency, so that doesn't really impact on our business case.
To speak.
Or impact the economics come from what we had anticipated.
<unk>.
Sure.
And what was the second part of your question.
Yeah.
Given the inflationary pressures that have been in the province.
So we do expect that.
Well, we are actually in the midst.
Sort of a touch point on the season pass project.
Looking at capital operating where we are in the government.
A number of times about looking to having.
Limited notice to proceed sometime around the end of this year.
At the beginning of next year so.
That will be a touch point and then we will be addressing.
What a revised view of cash.
Oh, sorry.
A number of pluses and minuses certainly.
Yeah.
Inflationary impacts too to take into consideration, but the other side of it is.
With a feed study, but actually looking at.
The design of the system.
So there's where you may.
Macy's some inflationary pressures you may also see some changes to the design parameters may well.
It will result in decreasing capital costs. So we're looking anxiously.
Well it might be.
Effect of some of these elements coming together.
Okay, that's great. Thanks, Brian .
And given the record power prices in the quarter.
And the impact that's having on affordability.
I guess in light of some.
Recent comments by Premier Smith, just looking to reduce electricity costs, Rob Burton.
I know the the.
$999 price cap has been in the market forever, but do you see any political risk on the horizon for generators in the province as it relates to.
You know affordability and potential political interference and how the merchant market currently up rich.
Okay.
So.
There's a there's a couple of things to maybe point out just broadly politically.
If you look at.
Actual Neil actions too in the short term to actually impact on.
On consumer costs.
We've seen both A&D MVP in the UCP under.
Premium.
Kenny and.
And also even.
Now under the new Premier.
What they've looked at it as ways to actually reduce the cost to consumers without necessarily impacting on the wholesale market.
And.
<unk>.
Certainly.
The Premier is voicing concern.
Not any different concern than the than the prior government.
Where she has historically had a strong view is around the regulated rate option.
Which.
You impact on it that that is what directly impacts on the costs to go to consumers the cost too to voters, who haven't hedged there are there.
Our bills through our retail offering so.
We would speculate that.
<unk> given a relatively short time frame than anything could get done that would be politically impactful we would suspect that that's probably something that may well get done.
Or a direction that bill.
Pursue.
Got it okay. Thanks for that.
And then last one for me if I could just on the outlook for 2023, obviously.
The forward market.
For next year, that's tailwind along with the carbon offsets being pushed out into.
Into next year as well, but.
Just thinking longer term here.
Are there any other <unk>.
<unk> that you might point out that could be considered a little bit more structural in nature, whether it's recent.
Our recent asset optimization.
Initiatives or cost reduction achievements such as that.
Your outlook for say run rate EBITDA on a FIFO, even beyond 2023 might also benefit.
Yeah. Thanks, Pat So we continually look at how <unk> commercially improve our assets.
Year over year.
There's a number of things we are looking at on the cost side across the organization through optimization.
Artificial intelligence and automation.
That would help as well.
<unk>.
But I don't think I can point to any any one thing that would be material at this point, but we just sort of continue to look for those those small wins and and.
The biggest piece is probably around what comes out of Ontario, and looking at what we can do with those assets as part of the Ontario process or probably the the biggest opportunity for us in the next couple of years.
Okay. Thanks Sandra.
Looking forward to Investor day in a month or so I'll leave it there. Thanks.
And this concludes the question answer session.
I would like to turn the conference back over to Mr. Randy Mah for any closing remarks.
Okay. Thanks, Sheree please mark your calendars for our annual Investor Day event that we just mentioned it will be held on December one in Brampton, Ontario and will include a tour of our four way power station, Chris Benedetti managing partner of the Sussex strategy group will be the guests luncheon speaker and we will share his views on the outlook for Ontario.
More information on the event, including registration details will be announced later this week. Thanks again for joining us and for your interest in capital power have good day everyone.
Yes.
This concludes today's conference call.
May disconnect your lines.
Thank you for participating and have a pleasant day.
Yes.
Yeah.
Yeah.