Q2 2024 Capital Power Corp Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the 2024 Second Quarter Capital Power Analyst Conference Call. At this time, all participants are in listen-only mode.
Good day and thank you for standing by welcome to the 2024 second quarter capital Power Analyst Conference call.
Operator: After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: At this time, all participants are in listen only mode.
Speaker Change: After the Speakers' presentation there'll be a question answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising your Hana race.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would like to hand the conference over to your first speaker today, Roy Arthur, Vice President of Investment Relations. Please go ahead.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Advised that today's conference is being recorded.
Roy Arthur: Roy Arthur, Vice President of Investment Relations Roy Arthur, Vice President of Investment Relations, Good morning, and thank you for joining us to review Capital Power's second quarter 2024 results, which we released earlier today. Our second quarter report and the presentation for this conference call are posted on our website at CapitalPower.com. First, our call will feature business highlights that will be presented by Avik Dey, President and CEO. Then Sandra Haskins, our Senior Vice President of Finance and CFO, will provide a review of the financial performance of the company. Once we have finished discussing the quarter for capital power, Pauline McLean, our Senior Vice President, External Relations and Chief Legal Officer, will provide a brief Alberta Regulatory update. At that time, Avik will provide some closing remarks, and we will then welcome questions from the analysts in our interactive Q&A session.
Speaker Change: Like to hand, the conference over to your first speaker today, Arthur Vice President of Investor Relations. Please go ahead.
Arthur: Good morning, and thank you for joining us to review capital Power's second quarter, 2024 results, which we released earlier today.
Speaker Change: Our second quarter report and the presentation for this conference call are posted on our website at capital power Dot com.
Speaker Change: First our call will feature business highlights that will be presented by epic day, President and CEO.
Brian Vaasjo: And then central Hopkins, our senior Vice President of Finance and CFO will provide a review of the financial performance of the business.
Pauline Mcclain: Once we have finished discussing the quarter for capital power Pauline Mcclain, our senior Vice President external relations and Chief legal officer.
Speaker Change: I'll provide a brief alberto regulatory update at that time <unk> will provide some closing remarks, and we will then welcome questions from the analysts and our interactive Q&A session.
Speaker Change: 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.
Roy Arthur: Before we start, I'd 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. However, actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward-looking information on slide three or our regulatory filings available on CDAR Plus. Today's discussion will be referring to various non-GAAP financial measures and rates, also noted. These measures are not defined financial measures according to GAAP and do not have standardized meetings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other entities.
Speaker Change: Actual results could differ materially from the companys expectations due to <unk>.
Speaker Change: Various risks and uncertainties associated with our business. Please.
Speaker Change: Please refer to the cautionary statement on forward looking information on slide three or our regulatory filings available on SEDAR plus.
In today's discussion, we will be referring to various non-GAAP financial measures and ratios also noted on slide three these.
Speaker Change: These measures are not defined financial measures. According to GAAP and do not have standardized meetings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other enterprises. These.
Speaker Change: These measures are provided to complement the GAAP measures, which are provided in the analysis of the company's results from management's perspective.
Speaker Change: Reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our 2023 integrated annual report.
Roy Arthur: These measures are provided to complement the gap measures which are provided in the analysis of the company's results from management's perspective. Reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our 2023 Integrated Annual Report. Before we begin the presentation, I would like to acknowledge that Capital Power's head office in Edmonton is located within the traditional and contemporary home of many Indigenous peoples of the Treaty 6 region and the Métis Nation of Alberta region.
Speaker Change: Before we begin the presentation I would like to acknowledge that capital Power's head office in Edmonton is located within the traditional and contemporary home of many indigenous people of the Treaty six region and the Metis nation of Alberta region for <unk>.
Roy Arthur: We acknowledge the diverse Indigenous communities that are in these areas and whose presence continues to enrich the community and our lives as we learn more about the Indigenous history of the lands on which we live and work. With that, I will turn it over to Avik for his remarks. Thanks, Roy. And good morning, everyone.
Speaker Change: We acknowledge the diverse indigenous communities that are in these areas and whose presence continues to enrich the community and our lives as we learn more about the indigenous history of the land on which we live and work with.
Speaker Change: With that I will turn it over to Eric for his remarks.
Avik Dey: During the second quarter of 2024, we continued to make significant strides across our three strategic areas of focus, as we continue our journey of powering change by changing power. In this quarter, we delivered nine terawatt hours of reliable and affordable power across our strategically positioned fleet of assets. Adding to the generation delivered for the quarter are the megawatts from our newly acquired assets that continue to perform well and enhance the diversification of our. As part of our ongoing commitment to investing in and optimizing our assets to maximize their operational efficiency in their lifetime, we have progressed our prescribed asset maintenance schedule.
Eric: Thanks, Roy and good morning, everyone. During the second quarter of 2024, we continued to make significant strides across our three strategic areas of focus as we continue our journey of powering change by changing power.
Eric: In this quarter, we delivered nine terawatt hours of reliable and affordable power across our strategically positioned fleet of assets, adding to the generation delivered for the quarter or the megawatts from our newly acquired assets.
Speaker Change: <unk> to perform well and enhance the diversification of our fleet.
Avik Dey: Year to date, we have finished approximately half of our 295 scheduled outage days for 2024 on our fleet and remain on track to our guided range of $180 to $200 million of sustaining capital. We are proud of our significant milestone of being 100% off coal five years ahead of the government mandate, achieving simple cycle commercial operation on Genesee 1 and 2 this quarter. As we will talk about, our Ontario portfolio continues to generate steady cash flows and is proceeding with respect to our five projects that, upon completion, will add 350 megawatts to our portfolio.
Speaker Change: As part of our ongoing commitment to investing in and optimizing our assets to maximize our operational efficiency and life. We have progressed, our prescribed asset maintenance schedule year to date. We have finished approximately half of our 295 scheduled outage days for 2024 on our fleet and remain on track to our guided range.
<unk> of $180 million to $200 million of sustaining capex.
Speaker Change: We are proud of our significant milestone of being 100% off call. Five years ahead of the government mandate, achieving simple cycle commercial operation on Genesee, one and two this quarter as we will talk about our Ontario portfolio continues to generate steady cash flows and is proceeding with respect to our five.
Speaker Change: Projects that upon completion will add 350 megawatts to our portfolio.
Avik Dey: In addition, we entered into a PPA with Duke Energy for the North Carolina solar projects as part of our ongoing effort to de-risk the cash flows in our business and create value for our customers. Lastly, we continue to pursue the creation of end-to-end solutions for our customers, as we are actively pursuing data center opportunities in Canada and the US, although this effort has been more focused on the US until recently.
Speaker Change: In addition, we entered into a PPA with Duke energy for the North Carolina solar projects as part of our ongoing effort to do.
Speaker Change: Derisk the cash flows in our business and create value for our customers.
Speaker Change: Lastly, we continue to pursue the creation of end to end solutions for our customers as we are actively pursuing datacenter opportunities in Canada and the U S. This effort has been more focused on the U S. Until recently however for reasons Pauline will discuss later in the call our confidence level is.
Avik Dey: However, for reasons Pauline will discuss later in the call, our confidence level is growing for this type of load coming to Alberta. Regarding Genesee, we are continuing to advance this project, and we'll briefly touch on a significant milestone. In Q2, we achieved simple cycle commercial operations on both Unit 1 and Unit 2, resulting in 411 megawatts of capacity for each of Unit 1 and Unit 2.
Pauline: Growing for this type of load coming to Alberta.
Pauline Mcclain: Regarding Genesee, we're continuing to advance this project and we will briefly touch on the significant milestone in Q2, we achieved simple cycle commercial operations on both unit, one and unit two resulting in 411 megawatts of capacity for each of unit, one and unit two.
Avik Dey: You will have seen these units, Genesee Repower 1 and 2, contributing base load megawatts to the grid on the ASO website. We are now advancing toward combined cycle operation of Unit 1, which could occur as early as October, and aiming for Unit 2 shortly thereafter. This will take us to 466 megawatts of total capacity. Finally, in the new year, we will aim to implement a technical solution allowing us to exceed the current MSCC set by the ASO, taking us to 566 megawatts.
Pauline Mcclain: You will have seen these units Genesee repower, one and two contributing baseload megawatts to the grid on the <unk> website. We are now advancing toward combined cycle operation of unit one occurring as early as October and aiming for unit two shortly thereafter.
Pauline Mcclain: This will take us to 466 megawatts of total capacity.
Pauline Mcclain: Finally in the new year, we will aim to implement a technical solution, allowing us to exceed the current MCC that by the Asl, taking us to 566 megawatts. As a reminder, total capacity for these units is close to 666 megawatts, meaning the total capacity.
Avik Dey: As a reminder, total capacity for these units is close to 666 megawatts, meaning the total capacity for G1 and G2 is about 1300 megawatts, or 512 megawatts higher than the combined capacity of the legacy dual fuel. As we discussed at Investor Day, we see upside and look forward to working with the ASO on a solution to unlock the total capacity of Genesee 1 and 2 for Alberta. Our Ontario asset base continues to contribute stable contracted revenues, in addition to compelling risk-adjusted return potential for our growth projects. At Goreway, we saw generation of 552 gigawatt hours due to the execution of scheduled turnarounds.
Speaker Change: For <unk>, one and <unk> two is about 1300 megawatts or 512 megawatts higher than the combined capacity of the legacy dual fuel units.
Pauline Mcclain: As we discussed at Investor Day, we see upside and look forward to working with the Ace, though on a solution to unlock the total capacity of Genesee, one and two for Alberta.
Pauline Mcclain: Our Ontario asset base continues to contribute stable contracted revenues. In addition to compelling risk adjusted return potential for our growth projects.
Pauline: Norway, we saw generation of 552 gigawatt hours due to execution of scheduled turnarounds when combined with our Q1 generation of 799 gigawatt hours. We are on pace for a generation close to what we saw in 2023, which was a record year for generation at this facility.
Avik Dey: When combined with our Q1 generation of 799 gigawatt hours, we are on pace for a generation close to what we saw in 2020, which was a record year for generation at this facility. The battery energy storage solutions at York and Goreway will mobilize and commence construction in Q3 of 2024. We now have greater visibility into the total cost, which is why we're able to reduce our total cost estimate for the two best projects and the East Windsor expansion to 600 million from 650 million, as we indicated in Q1.
Speaker Change: The battery energy storage solutions at York in GOR away, while mobilizing commenced construction in Q3 of 2024, we now have greater visibility to the total cost which is why we're able to reduce our total cost estimate for the two best projects in the East Windsor.
Speaker Change: Janssen to $600 million from $650 million as we indicated in Q1.
Avik Dey: Lastly, our uprate projects at Goreway and York are proceeding on time and favorably relative to budget. I would like to provide an update on our U.S. business, which has continued to grow and demonstrate the resilience of our business model. As a result of our recent M&A, this business currently comprises 10 generation facilities and just over 50% of our total capacity. This is up from approximately 39% in Q2 of 2023.
Speaker Change: Lastly, our uprate projects that go away in York are proceeding on time and favorable relative to budget.
Speaker Change: I would like to provide an update on our U S business, which has continued to grow and demonstrate the resilience of our business model as a result of our recent M&A. This business currently comprises patent generation facilities and just over 50% of our total capacity. This is up from approximately.
Speaker Change: 39% in Q2 of 2023.
Avik Dey: From an adjusted EBITDA standpoint, we have seen the U.S. contribution rise from 26% in Q2 of 2023 to 43% in Q2 2024. While our strong contractual underpinning drives cash flow stability near term, longer term, the strong fundamentals continue to support the thesis of natural gas fire generation playing an essential role in reliable and affordable grids for North America. The specific trends we continue to see are, one, strong demand growth that we expect to continue long term, such as reshoring EV mandate data centers; two, continued retirement of coal-fired facilities; and three, further advancement of renewable generation capacity.
Speaker Change: From an adjusted EBITDA standpoint, we have seen in the U S contribution rise from 26% in Q2 of 2023% to 43% in Q2 2024, while our strong contractual underpinning drives cash flow stability near term longer term the strong.
Speaker Change: Rental continue to support the thesis of natural gas fired generation, playing an essential role in reliable and affordable grids for North America specific trends, we continue to see our one strong demand growth that we expect to continue long term such as re shoring EV mandates.
Speaker Change: Ada centers to continued retirements of coal fired facilities and three further advancement of renewable generation capacity.
Avik Dey: Now I would like to zoom in a bit and provide some additional data points that we believe reaffirm our long-term strategy and outlook for natural gas fire generation. Our U.S. thermal portfolio now encompasses 4.2 gigawatts of capacity, resulting in nearly four terawatt hours of generation in Q2 2024.
Speaker Change: Now I would like to zoom in a bit and provide some additional data points that we believe reaffirm our long term strategy and outlook for natural gas fired generation. Our U S. Thermal portfolio now encompasses four two gigawatts of capacity, resulting in nearly four terawatt hours of generation in Q2.
Avik Dey: For this quarter, I would like to highlight the performance of Midland Cogeneration Vent, which we acquired in 2022. This asset has contributed seven full quarters to our portfolio and has seen steadily rising utilization during that time. In Q2 2024, MCV achieved 1.45 terawatt hours of generation, implying a capacity factor of just over 80 percent, making it a record in this asset's 34-year history.
Speaker Change: 2024 for this quarter I would like to highlight the performance of Midland Cogeneration venture.
Speaker Change: We acquired in 2022.
Speaker Change: Asset has contributed seven full quarters in our portfolio and it has seen steadily rising utilization during that time in Q2 2020 for MTV achieved 145, terawatt hour of generation, implying a capacity factor of just over 80%, making it.
Speaker Change: A record in this asset 34 year history. This is a tangible example of the strong fundamentals, we have thawed out in our M&A strategy coming to fruition.
Avik Dey: This is a tangible example of the strong fundamentals we have thought out in our M&A strategy coming to fruition. Looking more broadly at our U.S. thermal portfolio, we have six facilities with approximately 5,000 acres of surplus land. We believe the strong fundamentals we continue to see strengthen the case for recontracting, optimization, and expansion of existing facilities in the near to medium term. In the long term, our surplus land can be used for other balanced energy solutions up to and including greenfield growth.
Speaker Change: Looking more broadly at our U S thermal portfolio, we have six facilities with approximately 5000 acres of surplus lab. We believe the strong fundamentals, we continue to see strength in the case for re contracting optimization and expansion of existing facilities in the near to medium term long.
Speaker Change: Term our surplus land can be used for other balance energy solutions up to and including Greenfield growth. We look forward to providing further updates as we advance commercial dialogue on these fronts.
Avik Dey: We look forward to providing further updates as we advance commercial dialogue on these fronts. And with that, I will hand it over to Sandra to provide a financial update for the quarter. Thank you, Avik. Overall, second quarter financial results were modestly lower year over year due to lower generation and captured prices from the Alberta commercial segment.
Speaker Change: And with that I will hand, it over to Sandra to provide a financial update for the quarter.
Sandra: Thank you Eric I will start by touching on the financial highlights for the second quarter of 2024.
Sandra: Overall second quarter financial results were modestly lower year over year due to lower generation and captured prices from the Alberta commercial segment.
Sandra Haskins: However, the Q2 results benefited from increased U.S. facility contributions, with Q2 2024 being the first full quarter where we realized the favorable impacts from the acquisitions of Harkawala and La Paloma. The quarter also realized lower emissions costs driven by lower emission intensity at our Genesee facility, which is now fully off coal. For the quarter, adjusted EBITDA of $323 million was down approximately $4 million period over period.
Sandra: However, the Q2 results benefited from increased U S facility contribution with Q2 2020 for being the first full quarter, where we realized the favorable impacts from the acquisition of Hart Koala and La Paloma.
Speaker Change: The quarter also realized lower emissions cost driven by lower emission intensity at our Tennessee facility, which is now fully off coal.
Speaker Change: For the quarter adjusted EBITDA of 323 million was down approximately 4 million period over period.
Sandra Haskins: AFFO of $178 million in the quarter was up $27 million from a year ago, primarily due to lower income tax expense, higher contributions from our joint venture investments in Harkawala, and partially offset by higher finance expense. For the first half of 2024, adjusted EBITDA was $126 million lower year-over-year due to the same factors impacting Q2 results. AFFO, with a 41 million lower than the corresponding period in 2023 driven by lower adjusted EBITDA and finance expense.
Speaker Change: <unk> of $178 million in the quarter was up $27 million from a year ago, primarily due to lower income tax expense higher contributions from our joint venture investments and hard koala, and partially offset by higher finance expense.
Speaker Change: For the first half of 2024, adjusted EBITDA was $126 million lower year over year due to the same factors impacting Q2 results.
Speaker Change: So with $41 million lower than the corresponding period in 2023, driven by lower adjusted EBITDA and finance expense.
Sandra Haskins: Higher sustaining CapEx from our recent acquisitions and larger outage scope, and finally, higher preferred shared dividends. This is partially offset by decreased income tax expenses and higher contributions from our joint venture investment in Harkawala. We have provided a simplified breakdown of our quarterly adjusted EBITDA by region.
Speaker Change: Sustaining capex from our recent acquisitions and larger outage scope and finally higher preferred share dividends.
Speaker Change: This was partially offset by decreased income tax expenses and higher contributions from our joint venture investment in Hart Koala.
Speaker Change: We have provided a simplified breakdown of our quarterly adjusted EBITDA by region.
Sandra Haskins: The period-over-period 78% increase in adjusted EBITDA from the U.S. is largely driven by the acquisitions of Fredrickson One at the end of 2023 and La Paloma and Harkawala in the first quarter of 2024. This increase in U.S. adjusted EBITDA, combined with the 27% lower contribution from Alberta, reduced the relative contribution from Canada overall, as compared with last year. As discussed, the lower contribution from Alberta was driven by lower prices and lower generation from our legacy dual fuel Genesee units, which we have since retired.
Speaker Change: The period over period, 78% increase in adjusted EBITDA from the U S is largely driven by the acquisitions of Frederickson one at the end of 2023 and lots of alarm on hard koala in the first quarter of 2024.
Speaker Change: This increase in the U S. Adjusted EBITDA combined with a 27% lower contribution from Alberta reduce the relative contribution from Canada overall as compared with last year.
Speaker Change: As discussed the lower contribution from Alberta was driven by lower prices and lower generation from our legacy dual fuel Genesee units, which we have since retired.
Sandra Haskins: Q2 2024 was consistent to Q2 2023 for the rest of Canada, demonstrating the stability of the contribution from these assets. Essentially, we are seeing the benefits of our diversification efforts through the reduced adjusted EBITDA volatility from our portfolio outside of Alberta Commercial, which is in a transition year as we advance the Genesee Repower project towards combined cycle operation. To put those results into perspective, I would like to touch on our dividend payout track record. Since 2013, we have delivered annual dividend increases with a compound average growth rate of 7%. This year marks the 11th consecutive annual increase.
Speaker Change: Q2, 2024 with consistent to Q2 2023 for the rest of Canada, demonstrating the stability of the contribution from these assets.
Speaker Change: Essentially we are seeing the benefits to our diversification efforts through the reduced adjusted EBITDA volatility from our portfolio outside of Alberta, commercial which is in transition year as we advance the Genesee Repower project towards combined cycle operations.
Speaker Change: To put those results into perspective, I would like to touch on our dividend payout track record.
Speaker Change: Since 2013, we have delivered annual dividend increases with a compound average growth rate of 7%.
Speaker Change: This year marks the 11th consecutive annual increase.
Sandra Haskins: Our ability to deliver sustainable and growing dividends to our shareholders while maintaining a low-risk capitalization and investing in attractive growth opportunities remains a core part of our disciplined capital allocation strategy. As a reminder, at Investor Day in May this year, management announced targeted dividend growth guidance of 2 to 4% beyond 2025, with our increased focus on investing in our growth opportunities over yield. Now I'd like to highlight the success realized during our most recent financing.
Speaker Change: Our ability to deliver sustainable and growing dividends to our shareholders, while maintaining a low risk capitalization and investing in attractive growth opportunities remains a core part of our disciplined capital allocation strategy.
Speaker Change: As a reminder, at Investor day in May This year management announced I've targeted dividend growth guidance of 2% to 4% beyond 2025.
Speaker Change: With our increased focus on investing in our growth opportunities over yield.
Speaker Change: Now I'd like to highlight the success realized during our most recent financing.
Sandra Haskins: Capital Power was the first issuer in Canada to adopt a new 30-year hybrid structure with no coupon step-ups or automatic conversion to preferred shares, successfully closing a $450 million hybrid bond in June, which matures on June 5, 2054. In addition to being successful in placing a larger-sized deal than anticipated, this transaction was more than two times oversubscribed. In this case, the economic savings of replacing the $150 million Series 11 preferred shares are approximately $3.4 million per year on an after-tax basis for the initial 10 years compared to the reset rates of the preferred shares.
Speaker Change: Capital Power was the first issuer in Canada to adopt a new 30 year hybrid structure with no coupon step ups are automatic conversion to preferred shares successfully closing a 450 million hybrid bond in June which matures on June 10th 2054.
Speaker Change: In addition to being successful in placing a larger size deal than anticipated this transaction with more than two times oversubscribed.
Speaker Change: In this case, the economic savings of replacing the 150 million series 11 preferred shares or approximately $3 $4 million per year on an after tax basis for the initial 10 years compared to the reset rates of the preferred shares.
Sandra Haskins: Prior to the bond offering, we entered interest rate swap hedges on the underlying with a positive mark-to-mark settlement of the hedges. The effective interest rate of the bond is 7.7%, which is 50 basis points below the coupon rate of 8.125%.
Speaker Change: Prior to the bond offering we entered interest rate swap hedges on the underlying with a positive mark to Mark settlements of the hedges the effective interest rate of the bond is seven 7%, which is 50 basis points below the coupon rate of eight 5%.
Sandra Haskins: In short, hybrid bonds continue to provide cost-effective financing relative to preferred shares, making them an integral part of our capital structure. I'll conclude my remarks by reviewing our six-month performance relative to our 2024 guidance and providing an update on where we expect to land for the year. On average, facility availability was 92% in the first half of the year, just below our target of 93%. Sustaining CapEx was $81 million in the first six months, and it is on track to meet the 2024 target of $180 million to $200 million.
Speaker Change: In short hybrid bonds continue to provide cost effective financing relative to preferred shares making them an integral part of our capital structure.
Speaker Change: I'll conclude my remarks by reviewing our six month performance relative to our 2020 for guidance and provide an update on where we expect to land for the year.
Speaker Change: On average facility availability was 92% in the first half of the year just below our target of 93%.
Speaker Change: Sustaining capex was $81 million in the first six months and is on track to meet the 2024 target of 180 million to $200 million.
Sandra Haskins: Our guidance presentation in January 2024 provided financial guidance for 2024 AFFO in the range of $770 to $870 million and 2024 adjusted EBITDA in the range of $1405 million to $1505 million. Based on the company's results for the first half of 2024 and forecast for the balance of the year, we expect 2024 full-year AFFO at the midpoint of the original guidance range. Regarding adjusted EBITDA, we are revising the range to be between $1310 million and $1410 million.
Speaker Change: Our guidance presentation in January 2024 provided financial guidance for 2024 <unk> in the range of 770 to 80 $70 million and 2024 adjusted EBITDA in the range of $14 5 million to $15 5 million.
Speaker Change: Based on the company's results for the first half of 2024 and forecast for the balance of the year. We expect 2020 for full year <unk> at the midpoint of the original guidance range regarding adjusted EBITDA. We are revising the range to be <unk> 10 million to 14 $10 million.
Pauline McLean: The updated adjusted EBITDA guidance range is driven most notably by the impact of lower Alberta power prices in addition to the impact of the outages at Genesee during the first half of the year. Overall, we remain pleased with the financial performance of the business during a pivotal year where we have achieved some significant milestones that have positioned it from a financial perspective as larger, lower risk, more diverse, and more competitive. Now that Avik and I have concluded the quarterly update on Capital Power, I will now hand it over to Pauline McLean, our SVP External Relations and Chief Legal Officer, to provide an Alberta regulatory update. Thank you, Sandra. And good morning, everyone.
Speaker Change: <unk> adjusted EBITDA guidance range is driven most notably by the impact of lower Alberta power prices. In addition to the impact of the outages at Genesee during the first half of the year.
Speaker Change: Overall, we remain pleased with the financial performance of the business during a pivotal year, where we have achieved some significant milestones that have positioned it from a financial perspective, as larger lower risk more diverse and more competitive.
Speaker Change: Now that <unk> and I have concluded the quarterly update on capital power I will now hand, it over to Pauline Mcclain, our SVP external relations and Chief legal officer to provide an Alberta regulatory update.
Pauline Mcclain: Thank you Sandra and good morning, everyone.
Pauline McLean: As many are well aware, Alberta's grid has been transforming significantly with the phase out of coal, increased penetration of renewables, decarbonization, electrification, and the potential for load expansion. In response to this, Alberta's government has embarked on an effort to modernize its electricity grid to ensure that it is affordable, reliable, and sustainable over the long term. On July 11, 2024, the Minister of Affordability and Utilities, the Honourable Nathan Newdorf, announced major policy decisions concerning the future direction of Alberta's restructured energy market. If you recall, this was the design originally announced by the ISO on March 11th earlier this year.
Pauline Mcclain: As many are well aware, Alberta grid has been transforming significantly with the phase out of coal increased penetrations of renewables decarbonization electrification and the potential for load expansion in.
Pauline Mcclain: In response to the Alberta government has embarked on an effort to modernize Alberta electricity grid to ensure that it is affordable reliable and sustainable over the long term.
Pauline McLean: With the recent July announcement, the government has provided clarity on key market and transmission policy issues that will evolve the market, support investment, and most importantly, deliver on customer needs for both reliable and affordable LSE. In the announcement, the government confirmed that Alberta's competitive energy-only market, where price signals are based on market participant competitive and strategic offers, rather than administrative actions, will be preserved. In addition, the government committed to moving to a day ahead market, which will provide enhanced price and operational certainty for generators, as well as the broader system.
Nathan Neudorf: On July 11, 2020 for the minister of affordability and utility the honorable Nathan Nucor announced major policy decisions concerning the future direction of Alberta, REIT structure to energy markets.
Pauline McLean: These decisions mark a critical evolution in the market design that was originally presented by the ISO in March, and Capital Power views these changes positively with respect to maintaining confidence and stability in the market. Another aspect of the announcement was that there will be further consideration of the market power mitigation measures that went into effect in Alberta on July 1, 2024, in order to ensure that customer affordability is maintained. On transmission policy, there were two key changes announced. The first was the move away from congestion-free planning of the grid to an optimal transmission planning approach.
Speaker Change: You recall this was the design originally announced by the ISO on March 11th earlier this year.
Speaker Change: With the more recent July announcement, the government has provided clarity on key market and transmission policy issues that will involve the market support investments and most importantly deliver on customer needs for both reliable and affordable electricity.
Speaker Change: In the announcement the government confirmed that Alberta competitive energy only market, where price signals there based on market participant competitive and strategic offers rather than administrative actions will be preserved.
Speaker Change: In addition, the government committed to moving to a day ahead market, which will provide enhanced price and operational certainty for generators as well as the broader system.
Speaker Change: These decisions Mark a critical evolution in the market design that was originally presented by the ISO in March.
Capital Power: And capital power views these changes positively with respect to maintaining confidence and stability in the market.
Speaker Change: Another aspect of the announcement was that there will be further consideration of the market power mitigation measures that went into effect in Alberta on July <unk> 2024 in order to ensure that customer affordability is maintained.
Pauline McLean: The second announcement was that the future cost of new bulk transmission would be allocated on a cost-causation basis. Both of these decisions provide clarity on what has been a long running set of discussions on these topics over the past four years. The ISO will be consulting on the technical implementation of these policy changes, and we will be fully participating in the stakeholder engagement process this fall. It's expected that detailed designs will be set out by the end of this year, if not early 2025.
Pauline Mcclain: On transmission policy there were two key changes announced the first was the move away from a congestion free planning of the grid to an optimal transmission planning approach.
Pauline Mcclain: The second announcement was that the future cost of new bulk transmission would be allocated on a cost causation basis.
Pauline Mcclain: Both of these decisions provide clarity on what has been a long running set of discussions on these topics over the past four years.
Speaker Change: The Isa will be consulting on the technical implementation of these policy changes and we will be fully participating in the stakeholder engagement process. This fall.
Speaker Change: It is expected that detailed designs will be set out by the end of this year if not early 2025.
Pauline McLean: Now, when we look at what these key large P policy decisions mean for the province, we see an evolution and modernization of Alberta's market that maintains the successful nature of Alberta's openly competitive market, namely one that minimizes administrative complexity and regulatory risk while also introducing operational changes to the market that are features in many other markets across North America. The ICE's initial market design materials indicated that they were considering an increase to the price cap in the neighborhood of $2,000 to $3,000 per megawatt hour.
Speaker Change: Now when we look at what these key large P policy decisions mean for the province, we see an evolution in modernization of Albertas market that maintains the successful nature of Alberta is openly competitive market.
Pauline Mcclain: Namely one that minimises administrative complexity and regulatory risk while also introducing operational changes to the market that are featured in many other markets across North America.
Speaker Change: <unk> initial market design materials have indicated that they are considering an increase of the price cap in the neighborhood of two to $3000 per megawatt hour.
Pauline McLean: If this change is ultimately implemented, this would bring Alberta into line with neighboring jurisdictions on pricing in the market, which would support trade when the market tightens and encourage generators to be available when they are needed most. While these design elements may be new to Alberta, they do exist in numerous other markets across North America. And Capital Power is very familiar with operating in these markets where the features exist, and therefore, we view their implementation in Alberta.
Pauline Mcclain: If this changes ultimately implemented this would bring Alberta into line with neighboring jurisdictions on pricing in the market, which would support trade when the market tightens and encourage generators to be available when they are needed most.
Speaker Change: While these design elements may be new to Alberta, They do exist and numerous other markets across North America and capital power is very familiar operating in these markets, where that's been triggered this and.
Speaker Change: And therefore, we view their implementation in Alberta positively.
Pauline McLean: For Capital Power, maintaining the essence of the energy-only market by preserving the use of strategic options supports our trading activities in Alberta, where we have a longstanding deep, This further supports investor certainty as it will keep the pricing framework closest in line with the existing market. The pace of the planned engagement and plans for implementation in a compressed timeline also support investment in Alberta, and while it is early days for seeing incremental load like data centers locate in the province, driving to a detailed design on an expedited timeline to get to clarity will deliver on certainty for both ourselves and the load.
Unknown Executive: For capital power, maintaining the essence of the energy only market by preserving equal strategic offers supports our trading activities in Alberta, where we have a long standing deep expertise.
Speaker Change: This further supports investor certainty as it will keep the pricing framework closest in line with the existing market.
Speaker Change: The pace of the planned engagement and plans for implementation in a compressed timeline also support investment in Alberta.
Speaker Change: While it is early days on seen incremental load like data centers located in the province.
Speaker Change: Arriving to a detailed design on an expedited timeline to get to clarity will deliver uncertainty for both ourselves and the load.
Pauline McLean: Overall, the changes, particularly on the price cap and day ahead market, are favourable to a portfolio like ours that is comprised of numerous dispatchable assets and is not wholly made up of renewables. We plan on continuing to work with the ISO and government to progress the implementation of the many policy decisions. And we are keen and excited to see clarity on the horizon for Alberta. Now, I will turn things back over to Avik. Thank you, Pauline.
Speaker Change: Overall, the changes, particularly on the price cap and day ahead market are favorable to a portfolio like ours that is comprised of numerous with basketball assets and does not wholly made up of renewable.
Speaker Change: We plan on continuing to work with the ISO and government to progressive.
Speaker Change: Implementation of the many policy decisions and we are keen and excited to see clarity on the horizon for the Alberta market.
Speaker Change: And now I will turn things back over to Amit.
Avik Dey: I would like to conclude this call by reiterating that we remain steadfast in our focus to deliver reliable and affordable power today while building clean power systems for tomorrow and creating real net zero power solutions for our customers. We look forward to continuing to provide updates on our strategic areas of focus as we move towards the end of this transition year. With that, I'll now turn the call back over to Roy.
Amit: Thank you Pauline I would like to conclude this call by reiterating that we remain steadfast in our focus to deliver reliable and affordable power today, while building clean power systems for tomorrow, and creating real net zero power solutions for our customers, we look forward to continuing to.
Amit: Provide updates on our strategic areas of focus as we move towards the end of a transition year with that I'll now turn the call back over to Roy.
Roy Arthur: Thanks, Avik. Operator, we are now ready to take questions. Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 1 more on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 one again.
Roy: Thanks, Eric Operator, we're now ready to take questions.
Speaker Change: Okay.
Speaker Change: Thank you at this time, we will conduct a question and answer session.
Speaker Change: A reminder to ask a question you will need to press star one more on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.
Operator: Please stand by while we compile the Q&A roster. Our first question comes from the line of Patrick Kenny of MBF. Your line is now open. Thank you. Good morning.
Patrick Kenny: Avik, you touched on the undeveloped land position that you have in the U.S. Could you just expand on how you're thinking about crystallizing additional value of your existing footprint and perhaps provide an update on what sort of discussions you might be having with various data customers for, say, co-location opportunities over the near term? Thanks for the question, Pat. As we mentioned in the call, we're excited about the opportunity around data centers.
Speaker Change: Our first question comes from the line of Patrick Kenny of MDF. Your line is now open.
Patrick Kenny: Thank you good morning.
Patrick Kenny: You touched on the undeveloped land position that you have in the U S. Could you just expand on how youre thinking about crystallizing additional value of your existing footprint.
Speaker Change: Perhaps provide an update on what sort of discussions you might be having with various data customers for co location opportunities over the near term.
Speaker Change: Thanks for the question Pat.
Speaker Change: As we mentioned in the call. We're excited about the opportunity around data centers in terms of monetizing that opportunity on behalf of our shareholders.
Patrick Kenny: In terms of monetizing that opportunity on behalf of our shareholders, what I would say is that the opportunity is multifaceted. And the opportunity in front of us as a generator who's focused on natural gas for the last 15 years is one where we can work with and collaborate with load serving entities, ISOs, and offtakers, be it data centers directly or hyperscalers. And so for us, the opportunity is, one, to operate at existing facilities to accommodate new loads, one, to evaluate expansion opportunities at existing sites to accommodate additional loads, and then three, the one you referred to, which is potentially co-locating for additional loads that you would bring behind the fence.
Speaker Change: I would say is is that.
Speaker Change: The opportunity is multi faceted.
Speaker Change: And the opportunity in front of us as a generator who is focused on natural gas in the last 15 years is one where we can work with and collaborate with load serving entities isos and off takers.
Speaker Change: Data centers directly or hyper scaler.
Speaker Change: And so for us the opportunity is.
Speaker Change: One two up right.
Speaker Change: At existing facilities to accommodate new load one to evaluate expansion opportunities exist.
Speaker Change: Existing sites to accommodate additional load in.
Speaker Change: And then three the one you referred to which is potentially co locating.
Speaker Change: For additional load that you would bring behind the fence.
Patrick Kenny: So we see those opportunities across the portfolio, and as we noted in the call, we're now seeing those opportunities on both sides of the border. But they're ones that we have to collaborate on and work with ISOs, load serving entities, and offtakers.
Speaker Change: So we see those opportunities across the portfolio and as we noted in the call.
Speaker Change: We're now seeing those opportunities on both sides of the border, but they're ones that we have to collaborate and work with.
Speaker Change: ISO as load serving entities and the off takers so to be specific we do see those opportunities as we've mentioned in previous calls we have an aggregate.
Avik Dey: So to be specific, we do see those opportunities. As we've mentioned in previous calls, we have an aggregate of north of 50,000 developable acres inside the fence of our existing fleet. And we see multiple opportunities across the US for that opportunity. We have not been specific about existing sites on either side of the border, but I would say, you know, regionally, there's a lot of activity in data centers, generally in Arizona, and we're seeing increasing interest in Michigan as well. Okay, great. Thanks for that.
Speaker Change: North of 50000 developable acres.
Speaker Change: Inside defense of our existing fleet.
Speaker Change: And we see multiple opportunities across the U S for for that opportunity, we have not been specific about our existing sites.
Speaker Change: On either side of the border.
Speaker Change: But I would say regionally, there's a lot of activity.
Speaker Change: In data centers generally.
Speaker Change: In Arizona.
Speaker Change: We're seeing increasing interest in Michigan as well.
Avik Dey: And maybe shifting to Alberta, I guess, based on the recent transmission policy update, any comments on which of your assets here in the province might be well positioned to, you know, capitalize on opportunities to attract new load to the province? Well, you know, I would just point to our, our, Crown Jewel Asset, which is Genesee. So, as we complete repowering, we will have the most efficient plant. And, in addition, we've got significant acreage there. So there are 30,000 acres in and around Genesee that we control.
Speaker Change: Okay, great. Thanks for that.
Speaker Change: Maybe shifting to Alberta, I guess based on the recent transmission policy update.
Speaker Change: Any comments on which of your assets here in the province might be well positioned to capitalize on.
Speaker Change: Opportunities to attract new load to the province.
Speaker Change: Well I would just point towards R.
Speaker Change: Our <unk>.
Speaker Change: Crown Jewel asset, which is genesee so as we complete repowering, we will have the most of it.
Speaker Change: Okay.
Speaker Change: Shouldn't gap.
Speaker Change: Post repowering.
Speaker Change: And that asset is a large asset.
Speaker Change: As we described in the call we've got significant capacity there.
Speaker Change: And in addition, we've got significant acreage there.
Speaker Change: So there's a 30000 acres in and around the Genesee that we control.
Avik Dey: But the opportunity, more importantly, isn't about a single site. It's about presenting Alberta as a viable jurisdiction for data centers and presenting it as an attractive market to hyperscalers for building out long-term capacity. So there will be multiple sites in Alberta that are attractive, but obviously, we feel very strongly about Genesee being a cornerstone asset for us, but also for the province as we present this opportunity globally, and I appreciate the update on the regulatory front, but maybe just at a high level on the Alberta REM design process, you know, sticking with strategic bidding on a day ahead basis.
Speaker Change: The opportunity more importantly isn't about a single site, it's about presenting Alberta as a viable jurisdiction for data centers and presenting it as an attractive market.
Speaker Change: To the Hyperscale or for building out long term capacity. So there will be multiple sites in Alberta that are attractive, but obviously, we feel very strongly about genesee being a cornerstone asset for us.
Speaker Change: But also for the province, as we present this opportunity globally.
Speaker Change: Okay.
Speaker Change: I appreciate the.
Speaker Change: The update on the regulatory front, but.
Speaker Change: Maybe just at a high level on the Alberta Ram design process still.
Speaker Change: Sticking with strategic bidding on a day ahead basis.
Avik Dey: You know, new offer and price caps coming, potentially looking at new interties. Maybe you could comment as well on, you know, which of your assets might be best positioned to perform within this new market design once implemented, perhaps what other concerns you might have with this proposed market framework at the asset level. Yeah, so maybe I'll start, and then I'd invite Pauline McLean to offer her comments as well.
Speaker Change: New offer and price caps coming potentially looking at new enterprise.
Speaker Change: Maybe you can comment as well on which of your assets might be best positioned to perform.
Speaker Change: Within this new market design once implemented.
Speaker Change: Perhaps what other concerns.
Speaker Change: You might have with this proposed market framework.
Speaker Change: At the asset level.
Pauline Mcclain: Yeah, So maybe I'll start and then I'll invite only in Mclean to offer her comments as well, but I think most importantly is Pauline mentioned in her comments.
Avik Dey: But, most importantly, as Pauline mentioned in her comments, we are preserving the energy-only market and the substance of that market focused on strategic bidding. And that element of the market design is being kept whole. I think with the introduction of the day-ahead market premise, I think what we've seen in other markets we've been in is what that ultimately does is affords a premium to dispatchable, reliable generation, and what it does is facilitates the balance between intermittent and reliable dispatch.
Pauline Mcclain: We are preserving the energy only market and the substance of that market.
Speaker Change: Just on strategic strategic bidding.
Speaker Change: And that element of the market design is being kept whole I think with the introduction of the day ahead market premise.
Speaker Change: I think what we've seen in other brand is what that ultimately does is affords a premium to dispatch more reliable generation.
Speaker Change: And what it does is it facilitates the balance between.
Speaker Change: Intermittent and reliable dispatch and so the government and their decision was really looking to find that balance between encouraging de carbonization and the grid, but maintaining reliability. So what that naturally biases towards is large.
Avik Dey: And so the government, in their decision, was really looking to find that balance between encouraging decarbonization in the grid but maintaining reliability. So what that naturally biases towards is large, efficient generation, providing critical base load power. And so for us, that's obviously Genesee, given its size and scale in the province.
Speaker Change: Efficient generation, providing critical baseload power and so for us that's obviously.
Speaker Change: <unk> given its size and scale in the province.
Avik Dey: So, you know, at a high level, that's what we're comfortable with and confident in. I think in terms of the concerns that we have, it's really just how we put through all of the – work through all of the details over the course of the next year to implement the system. You know, there will be some growing pains as we implement market structure design changes. There always are.
Speaker Change: So at a high level, that's what we're comfortable with and confident in.
Speaker Change: I think in terms of the concerns that we have it's really just how we put through.
Speaker Change: All of the work through all of the details over the course of the next year to implement the system there will be some growing pains as we implement market structure design changes there always is but I think we've got a.
Avik Dey: But I think we've got a strong market here in Alberta. We are currently oversupplied, and medium to long term, we see strong growth attributes in this market, in particular if we, in Alberta, can catalyze the data center opportunity. So maybe, Pauline, if you have anything you'd like to add.
Speaker Change: Our strong market here in Alberta, we are currently oversupplied.
Speaker Change: And medium to long term, we see strong growth attributes in this market.
Speaker Change: In particular, if we in Alberta can capitalize on the data center opportunity.
Speaker Change: So maybe pulling if you have anything you'd like to add.
Pauline McLean: Thanks, Avik. I think that was a very comprehensive response. The only additional color I would add is that, First of all, I think the fundamentals of the energy-only market will continue. And so all of what's being proposed, you know, we consider to be sort of tweaks around the edges. But it is important, again, that the fundamentals of the energy-only market are going to be maintained. And I think because the guardrails have been set, that will very much focus the stakeholder consultation and speed up the process.
Vivek: Thanks Vivek.
Vivek: That was a very comprehensive response, the only maybe additional color I would add is that.
Vivek: First of all I think the fundamentals of the energy only market will continue and so all of what's being proposed.
Speaker Change: We consider to be tweaks around the edges, but it is important again at the fundamentals of Warner generally markets are going to be maintained and I think because it's the guardrails had been set that will very much our focus.
Speaker Change: Corporate consultation.
Speaker Change: And speed up the process and so as I mentioned in my remarks earlier, when you think about the initial timeframe that the government was looking at on March they were predicting a new market design by the 2027 period and at this point, we're driving to probably mid 2025, if not earlier.
Pauline McLean: And so, as I mentioned in my remarks earlier, when you think about the initial timeframe that the government was looking at in March, they were predicting a new market design by the 2027 period. And at this point, we're driving to probably mid-2025, if not early 2026, by the time all the implementation details are worked through.
Speaker Change: 2026.
Speaker Change: By the time all the implementation details are worked through so from our perspective are very positive.
Pauline McLean: So from our perspective, very positive because we, as well as others, will have clarity moving forward on all of those design details. But certainly, from a high level, you know, we're comfortable with this direction and think this provides a lot of certainty to others in the market. Okay, that's great. Thanks, Pauline and Avik.
Speaker Change: As well as other well, we'll have clarity moving forward on all of those defined detail, but certainly from a high level. We're comfortable with this direction and think it provides a lot of sense to others in the market as well.
Patrick Kenny: I appreciate your comments. We'll jump back into queue. Thank you, one moment, for our next question. Our next question comes from the line of Benjamin Pham of BMO. Your line is now open.
Vic: Okay. That's great. Thanks, Paul Internet Vic I appreciate your comments I'll jump back in the queue.
Speaker Change: Thank you one moment for next question.
Speaker Change: Our next question comes from the line of Benjamin Pham with BMO. Your line is now open.
Benjamin Pham: Alright. Thanks.
Benjamin Pham: All right, thanks. On your solar projects, you announced, Could you share, or actually...where the power price ended up at or any sort of guidance on EBITDA contributions? So thanks, Ben.
Speaker Change: On your your solar projects are announced.
Benjamin Pham: Could you share <unk>.
Benjamin Pham: Where to par price ended up at or any sort of guidance on EBITDA contributions.
Avik Dey: Yeah, we haven't given EBITDA contribution guidance on those, just given that the economics are tied up in some of the ITCs that are part of that project. But from a return perspective, it would hit our return hurdles for an equity project. So we will look to provide more guidance maybe in the future to help you with your consideration from a modeling perspective, but we haven't given guidance specifically to EBITDA. As I said, that's only part of the economics of those projects. Okay, I got it.
Speaker Change: So thanks, Ben Yes.
Speaker Change: We haven't.
Speaker Change: Even EBITDA contribution guidance on those just given that the economics are tied up in.
Speaker Change: Some of the Itc's that are that are part of that that project back from a return perspective, it would hit our return hurdles for for an equity project. So.
Speaker Change: We will look to provide more guidance maybe in the future to help you from.
Speaker Change: Your consideration from a modeling perspective, but haven't.
Speaker Change: We haven't given guidance specifically to EBITDA as I said, that's only part of the economics of those projects.
Speaker Change: Okay got it.
Benjamin Pham: And maybe going back to some of the comments you had on data centers. Can you comment at a high level when you're speaking with potential customers, whether it's Michigan, Arizona, or even Alberta? What are they most looking for?
Speaker Change: And then maybe going back to that.
Speaker Change: Some of the comments you had them in better centers.
Speaker Change: Can you comment high.
Speaker Change: High level, one year speaking with these.
Speaker Change: These potential.
Speaker Change: Customers, whether it's Michigan, Arizona brighter.
Speaker Change: What are they most looking for.
Speaker Change: At this point in time.
Speaker Change: Just kind of also just framework, Alberta too in terms of some of the pros and cons of that region.
Speaker Change: Hey.
Avik Dey: at this point in time. And maybe just kind of also just frame Alberta, too, in terms of some of the pros and cons of that region. Sure. I'm happy to address that, Ben. When we're having the conversations currently, the focus is on, one, near-term reliable generation that is utility scale, to near-term reliable generation at utility scale that is scalable in the short to medium term, meaning that there's critical access to transmission and distribution, and that there's line-of-sight to scaling that capacity. And then, I would say, thirdly, just the general market requirements for large-scale data centers. So, proximity to fiber, proximity to major population centers, and access to reliable airports.
Speaker Change: Sure happy to address that then.
Speaker Change: When when we're having the conversations currently the focus is on one.
Speaker Change: Near term.
Speaker Change: Reliable generation that's utility scale.
Speaker Change: Two.
Speaker Change: Near term reliable generation at utility scale that it is scalable.
Speaker Change: In the short to medium term.
Speaker Change: Meaning that there's a critical access to transmission and distribution.
Speaker Change: And that there's line of sight to scaling that capacity and then I would say third is just the general market requirements for large scale data centers, so proximity to fiber proximity to major population centers.
Speaker Change: Is access too.
Avik Dey: And then, the intrinsic or intangibles are ones that are affordable electricity and markets that actually have the right geographic footprint, the right temporal climate, and the right dynamic with respect to climate events or weather events or lack thereof. So, it's a multifaceted approach. I think as we were entering into this late last year, the focus was very much on proximity to existing infrastructure and trying to leverage the existing footprint of hyperscalers to scale out their positions.
Speaker Change: Reliable airports and then the.
Speaker Change: Intrinsic or intangibles are ones that are <unk>.
Speaker Change: Portable electricity and market markets that actually have.
Speaker Change: The right geographic footprint right temporal climate.
Speaker Change: And rate dynamic with respect to climate events or weather events or lack thereof.
Speaker Change: It is a multifaceted approach I think as we were entering into this.
Speaker Change: Late last year.
Speaker Change: Focus was very much on proximity to existing infrastructure and trying to leverage our existing footprint of hyperscale.
Speaker Change: To scale out their positions, but I think as this is playing out.
Avik Dey: But I think as this is playing out, the requirement to get a large load and scalable load in the short term is a key priority. And then, I think lastly, each hyperscaler is emphasizing continued focus on providing clean electricity over time. So, that's where natural gas is disadvantaged relative to hydro or nuclear, in particular, but is advantaged in terms of ability to scale quickly. And so, finding solutions where we can provide a decarbonization pathway over time, whether it's on existing generation or finding solutions to support them, those are the conversations we're having currently.
Speaker Change: The requirement to get large load and scalable load.
Speaker Change: Yeah sure in in short term is a key priority.
Speaker Change: And then I think lastly, each hyper scalar is emphasizing continued.
Speaker Change: <unk> focus on providing clean electricity overtime.
Speaker Change: So that's where natural gas.
Speaker Change: Is.
Speaker Change: Disadvantaged.
Speaker Change: Relative to hydro or nuclear in particular, but is advantaged in terms of ability to scale quickly and so finding solutions, where we can provide a de carbonization pathway overtime.
Speaker Change: Whether it's on existing generation are finding.
Speaker Change: Solutions to support them those are the conversations we're having currently.
Avik Dey: And with regard to the second question on Alberta, what I would say is, when we talk about the generative AI data center load for hyperscalers, it's important to note that as these language learning models are being built up, those are being built up by the hyperscalers on their own balance. And so, that first wave of scaling up for these hyperscalers is to build up that capacity so that they can go sell that capacity to commercial users and consumers
Speaker Change: And with regard to the second question on Alberta.
Speaker Change: What I would say is.
Speaker Change: And when we talk about the generative AI.
Speaker Change: Data center load for Hyperscale.
Speaker Change: It is important to note that as these language learning models are being built up those are being built up by the hyper scaler on their own balance sheets, and so that first wave of scaling up for these hyperscale is to build up that capacity so that they can go.
Speaker Change: Sell that capacity to commercial commercial users and consumers and so there was a discrete focus on building out that capacity in the U S now Alberta.
Avik Dey: And so, there is a discrete focus on building out that capacity in the U.S. Now, Alberta, if you were to take an objective lens and say, where could you build out new generation capacity, Alberta has existing transmission and distribution capacity. Alberta has an energy-only market where you can go behind the fence. Alberta has attractive long-term access to natural gas as a feedstock and affordable electricity. And then, the climate is extremely well-positioned to be a data center load center of excellence, given the relative cold and the less energy that's required to support it.
Speaker Change: You were to take an objective lens and say where could you build out new generation capacity, Alberta have existing transmission distribution capacity, Alberta has a energy only market where you can go behind the fence, Alberta has attractive long term access to.
Speaker Change: Natural gas as a feedstock and affordable electricity and then the climate is extremely well positioned.
Speaker Change: To date.
Speaker Change: Data center load.
Speaker Change: Center of excellence, given the relative cold.
Speaker Change: And the less energy that's required to support it so what it is incumbent upon us as an industry is to go sell Alberta to those hyperscale or.
Avik Dey: So, what it is incumbent upon us as an industry is to sell Alberta to those hyperscalers to bring that capacity north of the border because the focus is pretty heavily on building that capacity in the U.S. today. But if you remove the 49th parallel from the equation, Alberta would be exceptionally well-positioned.
Speaker Change: To bring that capacity north of the border because the focus is pretty heavily on building that capacity out in the U S. Today, but if you remove the 49th parallel from the equation.
Speaker Change: Britta would be exceptionally well positioned so that's where our effort is.
Benjamin Pham: So, that's where our effort is focused on going to those end users and saying, you know, come to Alberta, because we believe it is a fantastic jurisdiction to build out capacity. So it sounds like Avik, Alberta has similar or even better characteristics to house data centers than some other regions, but it sounds like it's more a lack of understanding or marketability. Yeah, I think that's a fair characterization, Ben.
Speaker Change: <unk> is focused on.
Speaker Change: Going to those.
Speaker Change: And users and saying.
Speaker Change: Come to Alberta, because we believe it is a fantastic jurisdiction to build out capacity.
Speaker Change: So it sounds like.
Patrick Barrett: Patrick Barrett as.
Speaker Change: Similar or even better characteristics to the house data centers and some other regions, but it sounds like it's more lack of understanding or marketed building.
Speaker Change: Yes, I think Thats a fair characterization then.
Avik Dey: And you know, it's why we don't we don't want to overstate how imminent it is, but we don't want to understate the potential of it. So it's really upon us to go market the aggregate opportunity and why this is the place we should build out this capacity. Okay, got it. That's useful. Thank you. Thank you.
Speaker Change: It's why we don't we don't we don't want to overstate.
Speaker Change: How are eminent to this but we don't want to understate the potential of it. So it is really upon us to go market.
Speaker Change: Aggregate opportunity and why this is the place we should build out this capacity.
Speaker Change: Okay got it thank you.
Operator: One moment for the next question. Our next question comes from the line of Maurice Choy of RBC Capital Markets. Your line is now open. Thank you and good morning, everyone.
Speaker Change: Thank you gentlemen for next question.
Speaker Change: Our next question comes from the line of Maurice Choy of RBC capital markets. Your line is now open.
Maurice Choy: I want to speak about the Alberta fundamentals here. Foil prices haven't really moved, and your power hedges remain priced around the same as your last disclosure. However, I noticed that the gas hedges for the next three years are priced about $1 per gigajoule higher than your last disclosure, although this could very well be rounding. But given where you are on your gas hedges, is your expectation that power prices will rise from here in tandem, or will spark spreads just accordingly? Thanks, Maurice.
Maurice Choy: Thank you and good morning, everyone.
Speaker Change #108: We can speak about.
Speaker Change #112: Fundamentals here.
Speaker Change: Oil prices have been really moved in your power hedges remain price through on our statements your last disclosure.
Speaker Change: However, I noticed that the gas hedges for the next three years are priced about a dollar per gigabit dual hired in your last disclosure. Although this could clear there'll be rounding, but given where you are on your gas hedges is your expectation that pulp prices will rise from here.
Speaker Change #100: In tandem or spark spreads Jesse accordingly.
Sandra Haskins: Yeah, so our practice on hedging natural gas is to look at locking in the margin when we do some of the hedging on the power side or lock in C&I customers. So as market prices went up, we would have been pricing those contracts or those hedges based on where we wanted to be from a spark spread perspective and locking that in. And that's why you'll see that it has gone up. And to your point, rounding does play a factor in it.
Speaker Change: Thanks, Maria Acs so our practice on hedging natural gas is to look at locking in the margin when we do some of the hedging on the power side or lock in C&I customers. So.
Speaker Change: As as market prices went up we would have been pricing those contracts are those hedges based on where we want it to be from a spark spread perspective in and Lockheed Martin and Thats why Youll see see that has gone up and to your point rounding does does play a factor in it so when youre looking at the dollar give.
Sandra Haskins: So when you're looking at the dollar, given how we report, it probably overstates it somewhat. But the activity there is really locking in the margin at the time, as opposed to playing a speculative view on gas going forward. And maybe it's a quick follow-up to that, obviously, power prices have progressively come down for the older years. Can you kind of just refresh us on your view as to how you see the trend for 2025 power prices moving forward? Obviously, we just completed our first month under the new mitigation measures. What impact that may have when y'all look? Yeah, exactly.
Speaker Change: How we report it probably overstates it somewhat but it's the activity. There is is really locking in the margin at the time as opposed to claim.
Speaker Change: Clean between a speculative view on gas is going forward.
Speaker Change: And maybe as a quick follow up to that obviously power prices.
Speaker Change: Progressively come down for the outer years.
Speaker Change: Can you kind of just refresh us on your view as to how you see.
Speaker Change #105: The trend for 2025 power prices moving forward, obviously, we just completed our first month under the new mitigation measures what impact they may have on your outlook.
Sandra Haskins: I think, you know, in the short term, you've seen sort of a reaction from the market based on, you know, the market reform views of what could be announced there, but also just on where prices have been settling this year. So we've seen lower prices, less volatility in the near term, as well as some, you know, unseasonable weather to set the beginning of the year. And so I think that as you continue to see volatility, our view really hasn't changed.
Speaker Change: Yeah, exactly I think.
Speaker Change #110: In the short term you've seen sort of a reaction from the market based on the market reform and views of what could be announced there, but also just on where prices had been settling this year. So we've seen lower prices and less volatility in the near term as well as.
Speaker Change: Some unseasonal weather it is set at the beginning of the year and so I think that as as is.
Speaker Change: <unk> continued to see volatility so our view really hasn't changed you're seeing that supply coming to the market that does drive prices down lower but you will still continue to see periods of volatility, which are very hard to sort of factor in order to forecast when those periods might be but.
Sandra Haskins: You are seeing supply come into the market that does drive prices down, but you will still continue to see periods of volatility, which are, you know, very hard to sort of factor in or to forecast when those periods might be.
Sandra Haskins: But as we've said before, it'll be driven by weather, driven by the performance of assets in the market that will cause those periods of price spiking. So I think that, you know, what you're seeing in $50 forwards is probably on the low end of what you would expect for 2025. But that's relatively unchanged. And as you know, it's a market that can change quite quickly if you start to see movement in prices in the immediate vicinity. Thanks for the call.
Speaker Change: As we've said before it will be driven by weather driven by performance of assets in the market that will cause those those periods of price spiking. So I think that what youre seeing in $50 forwards, it's probably on the on the low end of what you would expect for 2002.
Speaker Change: 25.
Speaker Change: That's relatively relatively unchanged and as you know it's a market that can change quite quite quickly you start to see movement in prices and in the immediate settles.
Maurice Choy: And maybe just to finish up, Avik, I know you mentioned that you would provide further updates on Greenfield opportunities as they advance in terms of commercial dialogue. What tends to be the gating factor for these counterparties to move ahead? Obviously, you've spoken about a lot of positives on Alberta's side. Is policy certainty one of it? Is price one of it? What stops them from signing one right now?
Speaker Change #113: Understood. Thanks for the color and maybe just to finish up.
Speaker Change #106: I know you mentioned that you will provide further update on greenfield opportunities associate events in terms of commercial dialogue.
Speaker Change: What tends to be like.
Speaker Change: For these counterparties to move ahead, obviously, you've spoken about a lot of positives on Alberta side.
Speaker Change:
Speaker Change: Policy certainty one of it one of it is price one of it.
Speaker Change: Stops them from signing one right now.
Speaker Change: So.
Avik Dey: So I think you characterized Alberta correctly. I think in the U.S., the challenge is actually very interesting. If we were having this conversation a year ago, prior to the growth around data centers being the hot topic, we would have said the single biggest issue is interoperability and working through that interconnect queue with ISO's load serving. And so now when you roll forward to the data center opportunity, that continues to be the number one bottleneck, identifying where you can actually add capacity and have access to transmission and distribution and meet the needs of the load market.
Speaker Change #109: Thank you characterized Alberta correctly I think in the U S. The challenge, it's very interesting actually.
Speaker Change #109: If we were having this conversation a year ago previous prior to the.
Speaker Change: The growth around data centers being the hot topic, we would've said the single biggest issue is interconnects.
Speaker Change: And working through that interconnect Q.
Speaker Change: With ISO load serving entities and so now when you roll forward to the data center opportunity that continues to be done number one bottleneck is identifying where you can actually add capacity and have access to transmission and distribution and meet the needs.
Speaker Change: Of the.
Speaker Change: The loan market.
Avik Dey: So what the single biggest barrier today, in addition to the commercial terms, because that's table stakes to be able to walk through the door, but that's only step one. Once you have an arrangement with an off-taker, then you have to go hand-in-hand to the other counterparties, the load serving entities and the ISOs, and identify how to bring that capacity into the market, because in many cases you're looking to find ways to do that outside of the existing, and that's the pressure that you're seeing in the U.S. market and the conversations around should we be bringing on this much load into specific electricity markets.
Speaker Change: So what the single biggest barrier today. In addition to the commercial terms because that's that's table stakes to be able to walk through the door, but that's the only step one.
Speaker Change: Once you have an arrangement with an off taker then you have to go hand in hand with <unk>.
Speaker Change: To the other counterparties the load serving entities in the isos and identify how to bring that capacity.
Speaker Change: Into the market because in many cases youre looking to find ways to do that outside of the existing queue.
Speaker Change: And that's the pressure that youre seeing in the U S market and the conversations around should we be bringing on this much load into specific electricity markets. It's around what's the burden on consumer for having this new capacity come on.
Avik Dey: It's around what the burden is on the consumer for having this new capacity come on and the transmission and distribution costs being borne by that consumer. So, it's one of the key reasons we wanted to provide the Alberta market structure update as well because, historically, these energy-only markets are having to face some of these challenges first and are most well-positioned to address those changes because you can do it from a single point rather than having to have a multi-party negotiation where you've got competing interests between load-serving entities, the regulator, and market participants.
Speaker Change: And the transmission and distribution costs being borne by that consumer. So it's one of the key reasons, we wanted to provide the Alberta market structure update as well because what we've seen historically is these energy only markets are having a face some of these challenges first and our most.
Speaker Change: Well positioned to address those changes because you can do it.
Speaker Change: A single point.
Speaker Change: Rather than having to have a multiparty negotiation.
Speaker Change: You've got competing interests between load serving entities regulator and market participants.
Avik Dey: Here we have, in places like Texas and Alberta, you've got another level of flexibility because you can have direct engagement with all the parties to get to an outcome. So hopefully that provides a little bit of clarity to your question. It's not a straightforward answer, but, you know, I think that's where we see the opportunity to really roll up our sleeves and be the collaborator of choice to make some of these projects happen.
Speaker Change: Here, we have in places like Texas, and Alberta, you've got another level of flexibility because you can have a direct engagement with all the parties to get to an outcome. So hopefully that provides a little bit of clarity to your question. It's not a straightforward answer but I think that's where we see the opportunity is to really rollout.
Speaker Change: Our sleeves and B the collaborator of choice.
Speaker Change: To make some of these projects happen.
Avik Dey: Just as a quick follow-up, does that mean that we have to wait till mid 2025 or early 2026, as Pauline alluded to, on the timing of the new market design before we can see something meaningfully signed? I don't think so.
Speaker Change: Just as a quick follow up does that mean that we have to wait till mid 2025 or early 2026 as Paul alluded to on the timing of the new market design before we can see something meaningfully sign.
Speaker Change: Don't think so.
Avik Dey: I think, in particular, because going into the market structure reform in Alberta, we already had the market conditions to be able to accommodate new load. I think what happened on March 11th was we introduced significant ambiguity around how the market would look, and now that that's been clarified, I think we've got a clear road map to be able to introduce that new load. We're not waiting for those rules to get ratified and codified to be able to act. I don't think that's a... That's, it's a critical path item at this point.
Speaker Change #103: I think in particular, because going into the market structure reform and Alberta, we already had the market conditions.
Speaker Change: To be able to accommodate new load I think what's happened on March 11th as we introduced.
Speaker Change #118: Significant ambiguity around how the market would look and now that that's been clarified I think we've got a clear roadmap to be able to introduce.
Speaker Change #118: That new load so I don't.
Speaker Change: We're not waiting for those rules don't get ratified and quantified to be able to act I don't think that's a.
Speaker Change: That's a that's.
Speaker Change: That's a critical path item at this point.
Maurice Choy: And that's it. Thank you very much. Thank you. One moment for the next question. Our next question comes from the line of Mark Jarvi of CIBC. Your line is now open. Yeah, good morning, everyone.
Speaker Change: Understood. Thank you very much.
Speaker Change #120: Thank you Amit for next question.
Speaker Change: Our next question comes from the line of Mark Jarvi CIBC. Your line is now open.
Mark Thomas Jarvi: So I've been coming back to the comments around having to build awareness and get out in the market to explain the opportunity how Alberta can serve the data centers. Where are those discussions now? How do you present that opportunity? Is that coordinated with government? Is there anything you need to see from government to step up to help entice data centers to show up in Alberta? Thanks, Mark.
Mark Thomas Jarvi: Yes, good morning, everyone.
Speaker Change #136: I think maybe coming back to the comments around having to build awareness and get out in the market.
Speaker Change #114: And the opportunity.
Mark Thomas Jarvi: Or to consider the data centers, where are those discussions now how do you present that opportunity as it accordingly with government is there anything you need to see from government to step up to help entice datacenters to show up in Alberta.
Avik Dey: I'll have to say the Alberta government has been unequivocal in its support to bring this industry to Alberta. So, whether it's from the Premier herself, the Ministry of Affordability and Utilities, the Ministry of Technology, the Ministry of Energy, the support is there, the willingness to collaborate is there, the willingness to engage with counterparties to show the province's interest in bringing this load to the province is there in spades. So where we're focusing our attention is demonstrating how Alberta, relative to other markets, is positioned to bring that load in on an expedited basis.
Mark Thomas Jarvi: Thanks Mark.
Speaker Change #133: I'll I'll hop.
Speaker Change #115: I have to say the Alberta government has been unequivocal in their support to bring.
Speaker Change #122: This industry to Alberta, so well.
Speaker Change #102: Whether it's from the Premier herself, the ministry of affordability and utilities.
Speaker Change #102: The Ministry of technology of the Ministry of Energy.
Speaker Change #102: Support is there the willingness to collaborate is there the willingness to engage with counterparties.
Speaker Change: Show.
Speaker Change: The provinces interest in bringing this loan to the <unk>.
Speaker Change #104: Robyn it's there in spades.
Speaker Change #101: So where we're focusing our attention on is demonstrating how alberta relative to other markets is positioned to bring that load in.
Speaker Change #101: At a on an expedited basis.
Avik Dey: So if you want scalable generation that you can scale over the next two to five years, then Alberta is the place to do it, and you can do it reliably, you can do it affordably, and there's a pathway to doing it in a decarbonized fashion given, you know, notwithstanding our own cancellation of the CC and Genesee CCF projects, but the CCF infrastructure in Alberta is well down the path of commercialization. So the medium to long-term potential is there. And, you know, I'll also note that Amazon Web Services has a major data center, a super center, just outside of Calgary. So Alberta is a well-known jurisdiction, an established jurisdiction for data centers.
Speaker Change #141: So if you want scalable generation.
Speaker Change #101: That you can scale over the next two to five years than Alberta is the place to do it and you can do it reliably you can do it affordably and there is a pathway to doing it in a decarbonize fashion given notwithstanding our own.
Speaker Change #101: Canceling the CCA and Genesis ECS project, but the Ccs infrastructure in Alberta, as well down the path of commercializing.
Speaker Change: So the medium to long term potential is there.
Speaker Change: And I'll note also you know Amazon Web services has a major datacenter Super Center, just outside of Calgary, Alberta is a well known jurisdiction and established jurisdiction for data centers, but when you go down the path of looking at Hyperscale.
Avik Dey: But when you go down the path of looking at hyperscalers, it's a little bit of a different trade given how early we are in the build out of that capacity on behalf of the hyperscalers. So we do have to market it, and we have to market it as a jurisdiction. It's not so much about the plant or the site.
Speaker Change: It's a it's a little bit of a different trade given how early we are in the build out of that capacity on behalf of the Hyperscale are so we do have to market it and we have to market. It as a jurisdiction. It's not so much about the plant or the site. It's about why Alberta is well positioned.
Mark Thomas Jarvi: It's about, you know, why Alberta is well positioned to capitalize on the opportunity. Okay. Have you been able to get in front of the hyperscalers to present your case yet?
Speaker Change: To capitalize on the opportunity.
Speaker Change: Have you been able to get in front of the Hyperscale is presenting your case yet yes.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change:
Avik Dey: Yes. Maybe just turning to the U.S. market, you know, you've shown an ability to execute on M&A in the last several years. Just curious what the market looks like now when you think about where the last couple of deals were done at, you know, sub-seven times DVD. But any view in terms of where you see the opportunity to acquire more assets in the U.S.? Is that still a priority?
Speaker Change #111: Maybe just turning to the U S market.
Speaker Change: We've shown our ability to execute on M&A. The last several years just curious what the market looks like now when you think about where the last couple of deals were done sub.
Speaker Change #125: Sub seven times EV to EBITDA any view in terms of where you see the opportunity to acquire more assets in the U S is that still a priority and any sort of indications of where you think pricing and transactions can be completed today relative to the last couple of years.
Mark Thomas Jarvi: And any sort of indications of where you think pricing and transactions could be completed today relative to the last couple? Yeah, I think, you know, what we benefit from Mark is there's not many strategic buyers of natural gas-fired power generators.
Speaker Change #143: Yeah, I think just generally we continue to see opportunities in the M&A market.
Speaker Change: I think.
Speaker Change: Sure.
Speaker Change: We benefit from Mark is there's not many strategic buyers of <unk>.
Speaker Change: Natural gas fired power generation.
Avik Dey: We've historically competed against private equity-backed entities, and they are continuing to be formidable components in acquiring assets and providing the majority of the liquidity and asset markets for those assets, but we haven't seen large public companies or public IPP competitors competing in that space yet. So, we continue to see compelling opportunities in the space. I think our approach to M&A hasn't changed. We've been very consistent in how we screen for assets.
Speaker Change: Historically competed against.
Speaker Change #135: Rivet equity back to entities.
Speaker Change #135: And they are continuing to be formidable components in acquiring.
Speaker Change #135: I think acquiring assets and provide the majority of liquidity and asset markets for those assets, but we haven't seen large public companies.
Speaker Change: Or are public IPP competitors competing in that space yet.
Speaker Change: So we continue to see compelling opportunities in this space.
Speaker Change: Think of our approach to M&A hasn't changed we've been very consistent in how we screen for assets. We look for those assets that are reliant on.
Avik Dey: We look for those assets that are reliant on thermal, natural gas for base load. We look at market structures that allow for commercial and industrial customer offtake, and we look to those markets that have really leaned in on renewables, creating that market opportunity where we can play the reliability gap. All of those thematics are amplified when you now overlay that with electricity demand growth. So, we continue to see those opportunities, we continue to see compelling value, and the value is coming mostly because we don't see a much broader universe of buyers for these assets because you need the operating skills that we have to extract that value.
Speaker Change: On thermal and natural gas for Baseload, we look at market structures that allow for commercial and industrial customer offtake.
Speaker Change: And we look to those markets that have really leaned in on renewables, creating that market opportunity, where we can play the reliability gap.
Speaker Change: All of those thematic are amplified when you know overlay that with.
Speaker Change: Electricity demand growth. So we continue to see those opportunities we continue to see compelling value.
Speaker Change: And the value is coming mostly because we don't see a much broader universe of buyers for.
Speaker Change: For these assets because you need the operating skills that we have to go extract that value. It is hard to do that passively through passive interest in these assets you need to have the operators you need to have the maintenance.
Avik Dey: It's hard to do that passively through a passive interest in these assets. You need to have the operators, you need to have the maintenance and sustaining CapEx teams in place to be able to execute, you have to be able to trade around existing generation, and you have to be able to commercialize and work with it. We keep coming back to the same theme around the importance of working with the ISO regulators and loan serving entities.
Speaker Change: The maintenance and sustaining capex teams in place to be able to execute you have to be able to trade.
Speaker Change: Around the existing generation.
Speaker Change: You've got to be able to commercialize and work with you know, we keep coming back to the same thematic around the importance of working with.
Speaker Change: So our.
Speaker Change: Regulators and load serving entities well that requires boots on the ground and that requires a core competency and expertise.
Mark Thomas Jarvi: Well, that requires boots on the ground; that requires core competencies and expertise. We are the only public company in North America who's been actively acquiring natural gas-fired facilities across North America on both sides of the border and optimizing them, and operating them. So, we have that credibility in front of ISOs to have those conversations. A couple follow-up questions: just given your track record, are you getting more inbounds from... [inaudible] Yeah, taking the last question first, I think we've been and remain committed to maintaining our investment grade status. And so maintaining our minimum level of contractiveness to meet that threshold has been a key priority.
Speaker Change: We are the only public company in North America, who has been actively acquiring natural gas fired facilities across North America on both sides of the border and optimizing them operating them. So we have that credibility in front of isos to have those conversations.
Speaker Change: Couple of questions just given your track record or are you getting more inbounds from.
Speaker Change #126: Firms with capital that want to get into this space need an operator, because unfortunately looking for.
Speaker Change #126: Financial support and then second.
Speaker Change #129: Given the success over the years with re contracting and potential tightness in American last couple of years are you willing to take a little bit more about open position of shorter contract terms with the view that there'll be an opportunity to locking in contracts over the next three or four years.
Avik Dey: And I think what we've observed that's been interesting in the market on the contracted side is, you know, so I think we've always struck that right balance, but I would say the governor has been maintaining our investment grade balance. What's interesting on the recontracting piece is that historically, you would start those conversations two to three years before the expiration of the contract for recontracting. And what we're seeing now is that we're being approached for recontracting much further out.
Speaker Change #119: Yeah, taking the last question first I think we've we've been we've been and remain committed to maintaining our investment grade status and so maintaining our minimum level of contracted this to meet that threshold has been a key priority.
Speaker Change: And I think what's been what we've observed that's been interesting in the market on the contracted side is so I think we've always struck that right balance, but I would say the governor has been maintaining our investment grade balance sheet what's interesting.
Speaker Change: And start those conversations two to three years before the expiration of the contract for recontracting. And what we're seeing now is we're being approached for recontracting much further out.
Avik Dey: So I think our ability to commercialize those market opportunities like we do in Alberta on a regular basis is our ability to contract rather than necessarily be completely open. But when it's open, that's where you can go contract and bring in load to medium, long-term offtakers like data centers. So there's a balancing act there that we're very careful to maintain. But because we've got the footprint to be able to operate and expand, you know, those conversations get a little bit blurry. And then remind me, what was the first part of your question?
Speaker Change: So, I think our ability to commercialize those market opportunities like we do in Alberta on a regular basis is our ability to contract rather than necessarily be completely open.
Speaker Change: But on the on being open, that's where you can go contract and bring in load to, you know, long, medium, long-term offtakers like like data centers. So there's a balancing act there that we're we're very careful to maintain.
Speaker Change: But because we've got the footprint to be able to go operate and expand, you know, those conversations become a little bit easier.
Mark Thomas Jarvi: Just whether or not you're getting inbounds from partners to look at deals versus you maybe looking for financial partners to help you decide a deal correctly. I think, in fairness, Mark, we were getting those inbounds previously, and we've got a good track record of partnering with others, whether it's Manulife or BlackRock or bringing Inco in on the private placement. So that's consistently been an inflow for the company and continues to do so. But I wouldn't say it's any more or less today than it was a year ago.
Speaker Change #127: And then remind me, what was the first part of your question? Just whether or not you're getting inbounds from partners to look at the deal versus you may be looking for financial partners to help you size a deal correctly.
Speaker Change #127: And we've got a good track record of partnering with others, whether it's Manulife or BlackRock or bringing...
Speaker Change #117: MQN and the private placement.
Speaker Change #117: So that, that's...
Avik Dey: I think those parties that want to partner with us are keen to partner with us for that operating capability. So we continue to see a deep, deep inventory of potential partners. That's great.
Mark Thomas Jarvi: Thanks for your time today. Thank you one moment for our next question. Our next question comes from the line of John Mudd of T-Day Cowen. Your line is now open. Hi, good morning, everybody.
John Mould: Um, maybe just continuing on the M&A theme. You know, you're investor today, you highlighted PJM and ERCOT as, potentially markets you were looking at, I'm just wondering how your evaluation of those markets is proceeding just more on the bigger picture level, just in terms of your comfort with with maybe investing in one of those, how your opportunity set like how the opportunities that you're seeing in the market more broadly is weighted is a weighted more to some of your existing, Footprint regionally, or are you seeing kind of interesting opportunities in those markets?
John Mould: Little bit in the context of the, you know, big jump in PJM and Cassie option prices that we saw yesterday from previous Yeah, thanks for the question, John. I mean, you know, like on PJM, for example, one of the reasons we highlighted that as a market we were interested in is we saw that growing dynamic of increasing need for reliability to support growing electricity demand. I mean, we certainly didn't see what the print would be yesterday, but we saw the trend medium term going in that direction. So, I mean, we're encouraged by it.
Speaker Change #139: Yeah, thanks for the question, John . I mean, you know, like on PJM, for example, one of the reasons we highlighted that as a market we were interested in
Speaker Change #117: [inaudible]
Avik Dey: We continue to like PJM. In terms of M&A activity, we've tried to be very focused in trying to acquire assets in places we want to grow. I think there are many assets that are for sale. There are many owners that are bringing their assets to the market given the shift in market sentiment towards natural gas fire generation, but we continue to see opportunities in WEC, in MISO, and in PJM. And obviously, ERCOT's always a very liquid market, so there are always things trading there, but we see opportunities across all of those markets currently.
Speaker Change #117: in trying to screen assets in places we want to grow.
Speaker Change #117: But we continue to see opportunities in WECC, in MISO, and in PJM. And obviously ERCOT's always a very liquid market, so there's always things trading there. But we see opportunities across all of those markets currently.
John Mould: I think PJM will get more attention now given the recent print, but we continue to see, and still believe in the potential there, medium to long term, and we do think there'll be opportunities that present themselves to us in that market and others. Okay, great. Thanks for that.
Speaker Change #117: I think PJM will get more attention now, given the recent print, but we continue to still believe in the potential there, medium to long term, and we do think there will be opportunities that present themselves to us in that market and others.
Avik Dey: And maybe just one more on your renewable energy kind of ambitions. You know, you announced those PPAs. Today, I'm just wondering what kind of cadence you're hoping you'll be able to advance that first solar panel commitment that you've got in place, sort of where, like, maybe beyond. North Carolina, which is where you've got some, you know, identified development sites, kind of where you're seeing the best opportunities to potentially allocate those panels as we get into I think it's a 2020, 28 time frame and how you're hoping that'll work.
Speaker Change #128: Today, I'm just wondering what kind of cadence you're hoping you'll be able to advance that first solar panel commitment that you've got in place.
Speaker Change #131: and sort of where like maybe beyond.
Speaker Change #131: North Carolina, which is where you've got some, you know, identified development sites, kind of where you're, you're seeing the best opportunities to potentially allocate those panels as we get into I think it's a 2026 to 2028 sort of delivery.
Avik Dey: Yeah, and what I would say is when we entered into the first solar agreement to acquire the gigawatt of panels for delivery in 26, 27, 28, we felt like we had a sufficient pipeline. You know, we've got over two gigawatts of pipeline of development inventory in the U.S. that we would be able to fulfill with a reasonable level of confidence in 26, 27, 28, and that's largely played out. So, you know, I think, you know, we've got an opportunity set across the U.S. We've historically had an opportunistic approach to building out our capacity, but I would say, you know, when we took that step on underwriting that gigawatt of panels, it was really against the existing inventory that was in place at the time.
Speaker Change: Yeah, and what I would say is when we entered into the first solar agreement to acquire the gigawatt of panels for delivery in 26, 27, 28.
Speaker Change: We felt like we had sufficient pipeline, you know, we've got over two gig of pipeline of development inventory in the US, that we would be able to fulfill that with a reasonable level of confidence in 2026, 2027, 2028, and that's largely played out.
Speaker Change: So, you know, I think, you know, we've got our opportunity set is across the U.S.
Speaker Change: We've historically had an opportunistic...
Speaker Change: approach to building out our capacity.
Speaker Change: But I would say, you know, when we took that step on underwriting that gigawatt of panels, it was really against that existing inventory.
Avik Dey: And we're, I would say, today largely on track to fulfilling it against that inventory. So, we really haven't had a shift in our strategy on U.S. solar with regard to placing those panels. So, I wouldn't see an acceleration or a delay.
Speaker Change: that was in place at the time, and we're, I would say, today largely on track against fulfilling it against that inventory.
Speaker Change: So we really haven't had a shift in our strategy.
Speaker Change: on U.S. Solar.
John Mould: I think we're on track to fulfill, you know, our existing plan on renewables and solar in the U.S. Okay, great. Thank you. Those are my questions.
Speaker Change: with regard to placing those panels so I wouldn't see an acceleration.
John Mould: I'll leave it there. Thank you. One moment for our next question. Again, as a reminder to ask a question, you will need to press star 11 on your telephone. Our next question comes from the line of Robert Hope of Scotiabank. Your line is now open.
Speaker Change #137: or a delay. I think we're on track to
Speaker Change: to fulfill our existing plan on renewables.
Speaker Change: on solar in the U.S.
Speaker Change #134: Okay, great. Thank you. Those are my questions. I'll leave it there.
Speaker Change #132: Thank you. One moment for our next question.
Speaker Change #116: Again, as a reminder to ask a question, you will need to press star 11 on your telephone.
Robert Hope: Just with the addition of, we'll call it, the US solar projects does tighten up the capital plan a little bit here, largely in 25 and 26. But can you give an update on how you're thinking about funding the rest of your growth, as well as, you know, it does look like you're tight on an episode of debt basis in 2024. Yeah, thanks, Robert.
Speaker Change #116: Our next question comes from the line of Robert Hope of Scotiabank. Your line is now open.
Robert Hope: Just one question for me. Just with the addition of, we'll call it the US solar projects, does tighten up the capital plan a little bit here, largely in 2025 and 2026, but can you give an update on how you're thinking about funding the rest of your growth?
Speaker Change #140: as well as, you know, it does look like you're tight on an episode of debt basis on 2024.
Sandra Haskins: As far as being tight on FFO to debt, yes, when you look at where we're projecting to be this year, it is right on top of the thresholds for S&P. As you know, last year we were trending, because of higher power prices and higher results in Alberta, to be well above our thresholds, and we always knew that that was a temporary lift in those metrics to be trending to be a notch above our current rating.
Robert Hope: Yeah, thanks Robert.
Speaker Change #107: As far as being tight on FFO to debt, yes, when you look at where we're projecting to be this year, it is right on top of the thresholds for S&P.
Speaker Change #144: As you know, last year we were trending, because of higher power prices and higher results in Alberta, to be well above our thresholds, and always knew that that was...
Speaker Change #107: a temporary lift in in those metrics to be trending to be a notch above our current rating and
Sandra Haskins: We had always expected that this year we would come back down to be more in line, and that's where we're seeing it coming in at this point. That's driven by, as you said, the amount of projects that we have in flight right now that are a drag on the balance sheet and also with it being a transition year at Genesee with repowering, and seeing lower cash flow in the year and lower generation.
Speaker Change #107: We had always expected that for this year we would come back down to be more in line and that's where we're seeing it coming in at this point.
Speaker Change #107: That's driven by, as you said, the amount of projects that we have in flight right now that are a drag on the balance sheet and also with it being a transition year at Genesee with repowering.
Sandra Haskins: As a result of that, we see this year as being the tight point or the tight year on our leverage. Going into next year, we'll have a full year of impact from Harkalala and La Paloma, which for this year, we basically missed the early part of the year with those assets.
Speaker Change #107: [inaudible]
Speaker Change #107: impact from Harkalala and La Paloma, which for this year, we basically missed, you know, the early part of the year with those assets.
Sandra Haskins: We'll also have Genesee back with larger capacity and available to us for the full year. We're starting to see the projects that are coming online start to make contributions over time that will alleviate the strain that we're seeing coming through this year. And from an investment grade perspective, we do, you know, have continual contact with the rating agencies as to where we are and what our forecasts are, and we aren't in a position where we're looking at there being any kind of a problem there with this year being sort of the bottoming out, if you will, of our trend on our credit metrics. As far as funding is concerned, we do have a refinancing coming up That would be the only thing we have coming up this year.
Speaker Change #107: and we'll also have Genesee back with larger capacity and available to us for the full year. So, starting to see the projects that are coming online.
Speaker Change #107: start to make contributions over time that will alleviate the strain that we're seeing coming through through this year and from an investment grade perspective we do, you know,
Speaker Change #107: have continual contact with the rating agencies as to where we are and what our forecasts are and aren't in a position where we're looking at there being any kind of a problem there with this year being sort of that bottoming out, if you will, of our
Speaker Change #107: our trend on on our credit metrics.
Speaker Change #107: As far as funding, we do have a refinancing coming up in September , which we could look to upsize.
Speaker Change #107: As part of that funding, that would be the only thing.
Sandra Haskins: Next year, there is nothing maturing for us that would give us the ability to raise more capital next year. So, we have not signaled anything there, but we will see cash flow, the use of our credit facilities, and then we'll look at that point in time how we best sort of term out any draw that we have on our credit facilities to back the incremental spending that we have on those growth projects. So, expect to see a more detailed financing plan for 2025 and the remaining spend on those projects as we get into our 2025 guidance period.
Speaker Change #107: We have coming up this year. Next year there is nothing maturing for us that would give us the ability to raise more capital next year.
Speaker Change #107: [inaudible]
Speaker Change #142: Thank you very much.
Speaker Change #123: All right. Thank you.
Robert Hope: Thank you. Thank you. I'm showing no further questions at this time. I'd now like to turn it back to our author for closing remarks. If there are no more questions, we will conclude our conference call. Thanks again for joining us and for your continued interest in Capital Power. Today's presentation and webcast will be made available on CapitalPower.com, and we hope you have a great day. Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. [inaudible] Title Microsoft Office Word Document MSWordDoc Word. Document.8
Speaker Change #121: Thank you. I'm showing no further questions at this time. I would now like to turn it back to our author for closing remarks.
Speaker Change #130: If there are no more questions, we will conclude our conference call. Thanks again for joining us and for your continued interest in Capital Power. Today's presentation and webcast we made available on capitalpower.com and we hope you have a great day. Thank you.
Speaker Change #130: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change #145: Music Music Music Music Music Music Music Music Music Music
Speaker Change #145: www.capitalpower.com www.capitalpower.com
Speaker Change #130: [inaudible]