Q1 2025 Capital Power Corp Earnings Call
You'll need to press star one on your telephone if your question has been answered and you'd like to remove yourself from the queue simply press Star One again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Arthur Vice President strategic planning and Investor Relations. Please go ahead Sir.
Good morning, everyone. My name is Roy Arthur Vice President strategy planning and Investor Relations. Thank you for joining us for Applebee's Power's first quarter 2025 results, which we published earlier today.
Our first quarter report and presentation for this conference call are available on our website.
During today's call are president and CEO of a day and will provide an update on our business following that Sandra Hopkins, our SVP finance and CFO will present, a review of the quarterly financials for the company.
I think we'll wrap up with a review of our 2025 strategic priorities after which we will open the floor to questions from analysts and our interactive Q&A session.
Before I start I would like to remind everyone that certain statements about future events made on the call are forward looking in nature and are based on certain assumptions and analysis made by the company.
Actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward looking information on slide three of our regulatory filings available on SEDAR.
In today's discussion, we will be referring to various non-GAAP financial measures and ratios also noted on slide three.
These measures are not defined financial measures. According to GAAP and do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used in other enterprises. These measures are provided for to complement the GAAP 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 integrated annual report.
We acknowledge that capital powers.
Office in Edmonton is located within the traditional and contemporary home of many indigenous peoples of Treaty six region and the Metis nation of Alberta region for.
We acknowledge the diverse indigenous communities that are in these areas and his presence continues to enrich the community and our lives as we learn more about the <unk> history of the lands on which we live and work with that I will hand, it over to <unk>.
Thanks, Roy Good morning, everyone and thank you for joining us today in the first quarter of 2025, we created value and delivered on our strategy on multiple fronts. We delivered nine six terawatt hours of reliable power across our strategically positioned portfolio with strong contributions from all four of our <unk>.
<unk> segment, which we will describe in more detail later in the presentation. We continue to deliver operational excellence by optimizing and maintaining our assets completing 43% of our scheduled outage days for the year. After the end of the quarter, we announced the largest acquisition in our company's history and entered nor.
With America's most meaningful and liquid power market PJM.
We are delivering balanced energy solutions for our customers, while advancing development projects and new opportunities, including data centers in Canada, and the U S and exploring small modular reactors in Alberta in summary, we continue to make tangible progress in delivering on our strategy our biz.
<unk> remains resilient and continues to offer compelling risk adjusted return potential.
Amid considerable market turmoil, we have continued to invest in natural gas y <unk>.
The answer is simple the demand growth potential we see is insensitive to economic and other forms of disruption.
Over the past 25 years U S natural gas power generation has grown at a 5% compound annual growth rate.
Far outpacing the total power generation and real U S GDP.
During this time in the U S experienced three recessions and significant renewables growth. Despite these events natural gas has continued to grow and since 2015 has been the number one source of U S power generation with no real competition for this title looking forward.
We remain encouraged by the long term fundamentals that underpin the need for natural gas fired power generation.
Just as the broader natural gas dramatic as resilient so as our business.
We procure our feedstock and monetize our power domestically in both Canada and the U S.
Our strategically positioned assets are in regions with strong fundamentals and disproportionate C&I demand.
Our cash flows are highly contracted with high quality counterparties with over 90% of our Ppas with AA rated entities.
In summary, our business is largely insulated from tariffs and other macro impacts. This was demonstrated this quarter. When we grew our portfolio and delivered strong results during a period of extreme uncertainty.
One notable growth area highlighting the need for natural gas power is data centers in Alberta, and beyond our proactive engagement seeks to achieve mutually beneficial outcomes.
In Alberta, we have completed and continue to pursue proactive and extensive engagement with the ISO to understand their concerns and communicate the needs of our target market of off takers.
Simultaneously, we are working with potential commercial counterparties and have conducted detailed engineering to understand the key parameters for a co located data center at the Genesee site.
Regarding our broader U S portfolio, we are evaluating a wide variety of potential site configurations and commercial construct with the addition of assets in PJM, we will have greater than two gigawatts of incremental capacity available to be contracted.
The data center opportunity remains robust for our business.
As part of our growth and evolution, we are revising the way we report on our business going forward, we intend to disclose in four segments U S. Flexible generation, Canada flexible generation U S renewables and Canada renewables as we continue to grow and diversify we believe that these cat.
<unk> better capture the composition of our business and how we manage it internally.
Let's zoom in on our flexible generation segments key pillars of our significant value creation, starting with Canada. Our strong flexible generation portfolio is seeing growth and improvement across multiple areas. We've added capacity through repowering and have five ongoing optimization projects.
In Ontario, these efforts increased scale and efficiency across the segment lowering the portfolio's average age and lengthening its weighted average contract life exemplifying the strategic positioning of these assets is the recent performance of Gore way. This facility had a record quarterly.
Capacity factor, providing reliability for the Ontario grid during major outages at a large nuclear facility in the region. We expect the combination of nuclear outages and growing demand to drive strong utilization of this facility and our other assets in the province for years to come.
Turning to the U S. We are using our strategic and highly accretive acquisitions and drive value.
Our U S portfolio is growing in scale efficiency and lowering its age after adding these two new assets in PJM Rolling Hills and humble.
Two our Canadian flexible generation assets strong demand in our key markets continues to drive elevated capacity factors with Arlington Valley, and MTV seeing record quarterly capacity factors in the past 12 months.
Focusing in on the quarter, we saw significant year over year increase in generation applicator driven by nuclear outages in the area.
<unk> high availability during the quarter allowed the plan to fully capture the upside from the TVA dispatch these portfolio improvements and overall asset performance reflect our shareholder value creation priorities and action and highlight the benefits they create.
The addition of Hummel enrolling hill to our portfolio also increases diversification of cash flows and lowers market specific risks with no single market, representing more than 30% of our total pro forma capacity of 11 eight gigawatts once the transaction closes.
In addition, this transaction Diversifies, our merchant generation capacity outside of Alberta, and creates additional opportunities to contract with commercial counterparties and access new demand centers.
Sandra Hopkins: Now pass it to Sandra.
Sandra Hopkins: Thank you Eric and good morning, everyone before I talk about our first quarter 2025, Brazil, I would like to highlight our ability to finance our growth as demonstrated with the acquisitions of hommel enrolling Hill.
We have a strong track record of maintaining financial flexibility and discipline, while optimizing our cost of capital and enhancing shareholder value.
Sandra Hopkins: The consideration for our most recent acquisition with a mix of cash on hand, new corporate debt and a discrete common equity offering.
Sandra Hopkins: Discrete common offering consisted of $667 million in common equity and a concurrent private placement with <unk>.
Sandra Hopkins: We are proud to be solidifying our pro forma capital structure with this financing while enhancing the institutional support for our business with this high quality investor.
Sandra Hopkins: We are especially proud to have this level of institutional backing during a period, where so few entities were able to access capital markets to fund their growth.
Sandra Hopkins: Outside of M&A and the completion of the Tennessee, Repowering project and 2025, we will continue to invest approximately $600 million in development capex advancing the projects that make our portfolio larger.
Sandra Hopkins: Lower carbon younger and more efficient.
Sandra Hopkins: We have a history of 11 years of consecutive dividend growth with a low dividend payout ratio.
Sandra Hopkins: Our ability to deliver sustainable dividends to our shareholders, while maintaining a low risk capitalization structure and investing in attractive growth opportunities drives our value for our shareholders.
Sandra Hopkins: Now to dive into our first quarter of 2025 results.
Sandra Hopkins: Capital power delivered a strong quarter of financial and operational performance.
Sandra Hopkins: For the quarter adjust.
Sandra Hopkins: Adjusted EBITDA of $367 million was $88 million higher period over period.
<unk> driven by lower emission costs from the Genesee Repowering and Gore ways record quarterly dispatch in the Canada flexible generation portfolio.
Sandra Hopkins: U S flexible generation contributions driven by favorable performance of our desert southwest portfolio and overall higher generation for our portfolio relative to 2024.
Sandra Hopkins: <unk> for the quarter was $218 million up $76 million from Q1, 2024, primarily driven by higher adjusted EBITDA as described above and decreased current income tax expense.
Sandra Hopkins: This was partially offset by increased financing expenses and higher sustaining capital expenditure.
Sandra Hopkins: Overall, the quarter is evidence of our ability to progress on our strategic initiatives despite uncertainty in the macro environment.
Sandra Hopkins: The slide highlights the period over period, adjusted EBITDA variance for each of our four new reporting segments.
Sandra Hopkins: Q1, 2025 to <unk>, 42% increase in the contribution of adjusted EBITDA from our U S flexible generation fleet.
Sandra Hopkins: This was driven by a full first quarter contribution from Hart Koala, and La Paloma, which we added to our portfolio Midway through Q1, 2024, and strong dispatch from our U S flexible generation assets.
Sandra Hopkins: There was a 16% increase in the contribution from our Canadian flexible generation portfolio with core way seen record dispatch.
Sandra Hopkins: Higher generation at our Repower Genesee units, which did not incur carbon tax in the quarter allows for margin expansion year over year, despite capture price declining by $9 per megawatt hour.
Sandra Hopkins: Our renewable portfolio continues to meaningfully contribute to our overall adjusted EBITDA with minimal variance year over year.
Sandra Hopkins: After the sell down of 49% of quality wind in PD and in December 2024, Canadian renewables are down in Q1, 2000 $25 million to $33 million compared to $44 million in 2024.
Sandra Hopkins: The results shown here are fully consolidated to east comparison to the prior period.
Sandra Hopkins: Uplift in adjusted EBITDA through asset recycling of these assets will be reflected in the U S. Flexible generation segment post closing of the recent acquisition.
Sandra Hopkins: We are on track relative to our 2025 guidance and are reaffirming it for the year we.
Sandra Hopkins: We will provide revised guidance, including the previously announced PGM acquisition closer to the closing of the transaction.
Sandra Hopkins: Altogether the results from Q1, and our recent acquisition underscores the resilience and effectiveness of our strategy and our ability to create meaningful long term shareholder value through a variety of market conditions.
Abbott: I'll now pass it back to Abbott.
Abbott: We are immensely proud of our accomplishments year to date, our team is delivering excellence and driving results across our business as demonstrated by our significant portfolio growth and strong quarterly results from our existing assets in our January guidance call, we outlined our strategic priorities for <unk>.
Abbott: The year, and we are making meaningful progress on all our priorities, including fully executing on expanding our flexible generation portfolio. We look forward to providing further updates on the other priorities as the year progresses, and with that I will hand, it back to Roy.
Roy Arthur: Thanks Vivek.
Roy Arthur: We are now ready to take questions.
Speaker Change: Certainly and our first question comes from the line of Thomas <unk> from Janney Montgomery Scott Your question. Please.
Speaker Change: Good morning team. Thanks for the time two questions for me on the U S assets.
Thomas: With kind of PJM capacity question, and then follow up on La Paloma, but.
Thomas: What are your thoughts on the auction results upcoming this July and then.
Thomas: Part of that is when do you think <unk> will get back on schedule for running the auction's kind of relative to the three year forward look.
Thomas: Thanks for the question Thomas So on the second one.
Thomas: I think Thats an open question I think we expect that resolution on scheduling.
Thomas: To occur over the coming 12 months.
Thomas: But we don't have we don't we don't have a view as of yet when we'll get back on specifically.
Thomas: But we understand that.
Thomas: Being worked out as.
As we speak.
Thomas: With regards to forward outlook.
Thomas: When we looked at these assets what underpinned our underwrite was the high quality nature of both assets on Hummel.
Thomas: Low heat rate.
Thomas: And underpinning our view on the market was a.
Thomas: <unk> view on what capacity markets will do and as we said on the call when we announced the transaction.
Thomas: Outlook is within the range of the floor in the cap on market outlook.
Thomas: Thanks for that.
Thomas: <unk>.
Thomas: Follow up on Mako Loma I appreciate the color on Decatur, and Midland Co. Gen that you made I'm just curious if you could dig in to la Paloma as well for the quarter looks like pretty strong results out of that asset.
Thomas: And that's it for me thanks for the time.
Thomas: Okay.
Speaker Change: Yes. Thanks. Thanks for the question on lymphoma in terms of generation, we saw strong generation out of the first quarter and overall performance.
Thomas: It was.
Thomas: Better than expected, but.
Speaker Change: Just really speaks to the positioning of the asset within queso.
Thomas: Just the optimization that are.
Thomas: Team was able to deliver on the trading side, but overall as we we like <unk> because of its positioning.
Thomas: Given its.
Thomas: Specific gas supply and then our ability to hedge and optimize that asset with strong deliverability. So you can see the results on our generation on that quarter over quarter, but.
Thomas: That's what was reflected in the market, but I would say it was asset specific more than it was market specific.
Thomas: Yes.
Speaker Change: Thank you and our next question comes from the line of Robert Hope from Scotia Bank. Your question. Please.
Robert Hope: Good morning.
Speaker Change: There's been a couple of changes in the Rem in Alberta over the last couple of weeks, maybe just kind of your thoughts on the changes of DSO is making and the implications for your business.
Speaker Change: Yes, thanks, Rob.
Speaker Change: Obviously theres been a few additional changes here over the last four weeks in particular.
Speaker Change: The removal of the day ahead market.
Speaker Change: I think in the aggregate.
Speaker Change: The fundamentals of the market being in energy only market.
Speaker Change: <unk> heavily towards efficient units.
Speaker Change: And so the fundamentals of where we are on pricing and outlook that we're oversupplied.
Speaker Change: I think ultimately.
Speaker Change: Putting a premium on dispatch of coal generation and efficient generation is what will carry the day and the government is really trying to pinpoint the policy that allows for that but still intense newbuild.
Speaker Change: And sending the right price signal is key so from a capital power perspective.
Speaker Change: We support the changes that the government is trying to put in place in <unk>.
Speaker Change: High level engagement that was a CEO forum, where where these changes were discussed a little over a month ago.
Speaker Change: But it's really important.
Speaker Change: The price signals remain too.
Speaker Change: One incent new builds.
Speaker Change: And it looks as though the government is looking to put those in place so.
Speaker Change: We werent expecting the change on.
Speaker Change: The removal of the day ahead market, but the replacement of that with.
Speaker Change: <unk>.
Speaker Change: Dispatch ability products.
Speaker Change: <unk> is a positive indication and one that I think benefits our fleet in particular and Genesee in particular.
Speaker Change: Alright, good to hear.
Speaker Change: And then just taking a look at the presentation for the quarter like in the 2025 strategic priorities acquisitions and expanding the generation portfolio is still listed as a strategic priority.
Speaker Change: Are you still looking at assets or does the focus now turn to integrating the PGM assets and then maybe take a look again in 2026.
Speaker Change: The priority is definitely focused on integrating the PJM assets.
Speaker Change: But I would say on M&A, it's not something you can start and stop.
Speaker Change: I think our our company in particular over a decade has demonstrated that we can maintain a deep pipeline of opportunities both bilateral and participate in broad auctions.
Speaker Change: And hopefully we've demonstrated.
Speaker Change: Strong capability to execute and so we will continue looking at opportunities, but make no mistake. The priority for this year will be to one closed the transaction and to integrate these two assets.
Speaker Change: In particular, because we're in a new market.
Speaker Change: Thank you.
Speaker Change: Thank you and our next question comes from the line of Patrick Kenny from MBS. Your question. Please.
Patrick Kenny: Thank you good morning, I guess, just with respect to the ACO approving really any data center interconnections in the province.
Speaker Change: It sounds like based on the Premier's comments yesterday.
Speaker Change: The federal government now is about a six month window to withdraw or at least revise the CER to align with the provinces net zero timeline. So.
Speaker Change: I just wanted to confirm if Q4 is still a realistic timeline for potentially.
Speaker Change: Securing a colocation agreement Genesee.
Speaker Change: And also any color on how your commercial discussions have been progressing.
Relative to your initial expectations coming into the year.
Patrick Kenny: Thanks, Pat we continue to progress on the data Center initiative in Alberta continues.
Speaker Change: To be very compelling for our customers and as I've mentioned before in particular because of.
Speaker Change: In service dates being attractive coming in at 2028 or earlier and given our positioning.
Speaker Change: Of having excess capacity.
Speaker Change: Our highly efficient unit.
Speaker Change: And where we where the grid is in Alberta nothing's changed in that regard. So we continue to advance.
Speaker Change: Discussions and negotiations there.
With regard to CER.
Speaker Change: I would say.
Speaker Change: <unk> does not impact our ability to contract.
Speaker Change: In Alberta, specifically at Genesee today, because the capacity is built out.
Speaker Change: It will obviously have a clear <unk>.
Speaker Change: Packed on any new build that occurs in the province.
Speaker Change: Has a later in service date.
Speaker Change: But at Genesee, specifically, we don't see that as a barrier, but I would emphasize.
Speaker Change: We still do believe CER as its currently contemplated.
Speaker Change: Does not.
Speaker Change: Meet the needs of Alberta is grids.
Speaker Change: The repeal of it or a significant modification of it.
Speaker Change: That would be required to.
Speaker Change: Enable a safe efficient and reliable grid for Albertsons.
Speaker Change: And I guess until we see data center load come into the province.
Speaker Change: Just looking at your Alberta power hedging profile.
Speaker Change: It doesn't look like.
Speaker Change: Theres been much opportunity to add significant positions for 2026 or beyond.
Speaker Change: And with the forward curve down call it $10 a megawatt hour since the beginning of the year.
Speaker Change: How are you thinking about mitigating.
Speaker Change: What was your beyond next year.
Speaker Change: Or perhaps do you see a disconnect between where the forwards are at and your own internal forecast.
Patrick Kenny: Yeah. Thanks, Pat I think that when you look at our hedging profile out.
Patrick Kenny: Couple of years, it is actually more hedged than historically, we would have and thats just because of the longer contracts.
Patrick Kenny: That we put in place before so we are able to be somewhat patient before locking in.
Patrick Kenny: More hedges I think what we saw with some of the depression in the forward purchase some uncertainty around carbon tax pricing and where that will settle out post election, So I think with.
Patrick Kenny: The Liberals being in.
Patrick Kenny: Remaining in power that you might see some rebound there, but from our perspective I think we would continue to to hedge out that book, probably when we get a little more closer to 2026 and you have had.
Patrick Kenny: Have some of the retail load looking to hedge out so we're comfortable with the level of hedges that we have now and not feeling any urgency. So we can be somewhat flexible in terms of our position.
Speaker Change: Okay. That's great I appreciate the comments I will jump back in the queue.
Mark Jarvi: Thank you and our next question comes from the line of Mark Jarvi from CIBC. Your question. Please.
Mark Jarvi: Yes. Thanks for the time this morning, maybe send you're picking up on your last comment with the forward curve and maybe the market pricing and sort of a flat course change in industrial carbon price. What are you guys hearing in terms of that.
Mark Jarvi: Is that holding you all from doing any additional hedging in the near term in terms of your expectation on what happens there.
Mark Jarvi: I don't think it would be I would say, it's holding us off but certainly it is one that we think that there is a little bit more clarity now in terms of what that policy is likely to be so as I said, we still look for opportunities in the curve to step into physicians and we'll continue to do that but.
Mark Jarvi: I'm not expecting a material shift until we get a little farther into the year.
Mark Jarvi: Stopped at the forward curve is softer given that we are seeing softer prices now so to the extent there is any kind of volatility in prices or clarity on policies I think we'll get a clearer view as this year progresses as to where the forward for 2006 will we will see in our ability to transact.
Mark Jarvi: In an opportunistic fashion.
Speaker Change: Your assumption at this point, our continued $15 a ton increases annually or are you hearing some indication that we're hearing from government potentially a pause or potentially revisiting sort of the.
Mark Jarvi: What's going to happen in terms of the.
Mark Jarvi: The forward increases on the carbon price.
Mark Jarvi: Not hearing anything different from them.
Mark Jarvi: The baseline assumption.
Mark Jarvi: We'll continue to grow 50 million a year up to 170, <unk>, we'll see whether or not.
Mark Jarvi: Anything else forthcoming on that it's always been our expectation that.
Mark Jarvi: Large emitters would continue to see carbon taxes, and if there was a change in government or a change in thinking on carbon pricing it would be more at the consumer level. So we've always anticipated this level I would just note that.
Mark Jarvi: Genesee for example, we did.
Mark Jarvi: This quarter.
Mark Jarvi: Ignore.
Mark Jarvi: We're able to.
Mark Jarvi: B below the intensity benchmark for for carbon tax so I think for us the most meaningful story in the quarter around carbon taxes. The fact that our repower units have hit a level of efficiency that we were expecting and seen a fair bit of uplift in our results in the quarter as a result of the Repowering units performed.
Mark Jarvi: As expected.
Mark Jarvi: Got it and then going back to the topic of capacity price and maybe the MISO auctions that came out recently.
Mark Jarvi: Your perspective on that what that means for that market.
Mark Jarvi: What that means maybe for counterparties or sense of urgency to contract at Midland and then maybe even just going broadly at three other U S.
Mark Jarvi: In terms of opportunities to secure contracts is that a 2025 expectation or is that more 2026.
Mark Jarvi: Yes, Thanks, Marc with respect with respect to the summer auction at MISO, It's a trend that we've been seeing over the course of the last two years.
Mark Jarvi: As you'll recall last year, we had a record quarter of generation out of MTV as well.
Mark Jarvi: So we're seeing the same dynamic play out in multiple markets, whether it's queso for reliability.
Mark Jarvi: Desert southwest for ongoing generation demand.
Mark Jarvi:
Mark Jarvi: Kate are we experienced positive uplift because of nuclear outages.
Speaker Change: And the thematic that we've been chasing over the last decade of finding really strong mid merit gas plants are proven gas supply where gas is a critical product for reliability that thematic has played out in each and every one of our plants. So implications on MISO for all set at EM.
Mark Jarvi: TV mtv's contracted so there'll be no immediate.
Mark Jarvi: Uplift to that market, but we are having multiple conversations there as well as other plants around re contracting and data centers.
Mark Jarvi: So it's.
Mark Jarvi: We expected that we continue seeing pressure.
Mark Jarvi: <unk> continues to be challenged with the cost of new entry so.
Mark Jarvi: And that's what you're seeing play out in multiple markets.
Mark Jarvi: Existing dispatch will generation is becoming more and more valuable when you have it on an existing interconnect.
Mark Jarvi: That's what you're seeing play out in the market. So we expected the <unk>.
Mark Jarvi: Any other market in MISO.
Mark Jarvi: And we continue to see.
Mark Jarvi: More and more demand in those key markets.
Mark Jarvi: And just in terms of timing of for re contracting our conversations continue to progress well do you think there's something in the cards in next couple of quarters. He ran an update around those.
Mark Jarvi: I can't comment on that what I would say like I said last quarter.
Mark Jarvi: We've got multiple conversations on re contracting.
Mark Jarvi: And I think it's.
Mark Jarvi: Think the opportunity for us to re contract is there.
Mark Jarvi: I think the decision for us.
Mark Jarvi: Specific negotiations is weather.
Mark Jarvi: Whether we can agree on commercial terms.
Mark Jarvi: Sides are satisfied with and we have to look at those options relative to our other alternatives, whether it's expansion or.
Mark Jarvi: Doing something with the data center.
Mark Jarvi: So these are there ongoing conversations they are all favorable in nature, we're not having one conversation where we're looking out and we're not getting better returns than where we currently are the demand is.
Mark Jarvi: Generally working in our favor on this so I can't comment when will we.
Mark Jarvi: We will be able to deliver it but given that we are having many of these conversations at facilities much earlier.
Mark Jarvi: And much further away from the expiry of the existing contracts.
Mark Jarvi: They take time, but I think constructive dialogue on multiple facilities.
Mark Jarvi: Engage counterparties.
Mark Jarvi: And.
Mark Jarvi: It feels like.
Mark Jarvi: Both sides are working towards.
Mark Jarvi: Mutually beneficial outcomes so.
Mark Jarvi: Going in the right direction can't say, whether it will we'll announce something in the next two quarters or not.
Speaker Change: Makes sense and then maybe last quick question just Alberta data centers are you only looking at co location style agreements for Genesee or are there other options on the table based on some of the.
Customers Youre talking to.
Speaker Change: So just generally across North America, we're looking at multiple options.
Speaker Change: I would say in Alberta.
Speaker Change: As is indicated by our interconnect.
Speaker Change: Applications.
Speaker Change: Priority is definitely told location that is.
Speaker Change: We have.
The inter connect we have capacity within the framing of what the government Minister New Dorf Minister Globish have telegraphed to the market in terms of appetite for.
Speaker Change: Behind the fence co located or fully.
Speaker Change: Behind the meter alternatives Genesee is just very well positioned for that and I think as I said last quarter, our big advantage in this conversation is.
Speaker Change: Our in service date being sooner than almost anywhere in North America, so that benefits from co location. If we can work through the regulatory aspects of that with the ACO and <unk>.
Speaker Change: I think everyone in Alberta is working hard to getting to that outcome for the province.
Speaker Change: And.
Speaker Change: And we're focused on delivering a product that meets the needs of our customer.
Smith: And also as Premier Smith.
Speaker Change: And time again.
Speaker Change: Having a project that doesn't compromise reliability and affordability to consumers is paramount. So we're trying to work within those bookends, but.
Smith: Things are things are continuing to move forward in.
Speaker Change: Right now, it's just getting the rulebook for Alberta to bring this industry to bear in the province, and we're trying to work within that framework got it. Thanks for the time today.
Speaker Change: Thank you and our next question comes from line of Maurice Choy from RBC capital markets. Your question. Please.
Maurice Choy: Thank you and good morning, everyone.
Speaker Change: I know you mentioned that you have 90% of the EBITDA.
Speaker Change: Contract to a hedge for 2025.
Speaker Change: But if I look beyond this year and look at your pro forma portfolio the PJM assets.
Speaker Change: See mostly merchant cash flows. So my two part question is this when you exclude hedges.
Speaker Change: What percentage of your assets are contracted pre and post the PJM acquisition.
Speaker Change: Second part question is big picture when you think about the positive outlook for power growth across North America.
Speaker Change: How do you see taking on incremental merchant power exposure.
Speaker Change: Fully recognizing it as iridium <unk> quite have a minimum level.
Speaker Change: Here too.
Speaker Change: So thanks, Bruce when we talk about our level of contracted and as we do exclude hedges that are put on in the year or a short term duration hedges. So when we're looking at.
Speaker Change: Being contracted or our long term hedges.
Speaker Change: Above our 60% threshold for this year, excluding the PGM acquisition, we were well in the high 70% contracted.
Speaker Change: For the year when you add in PGM, we still remain.
Speaker Change: As a cushion above that 60%. So that's part of the process that we would have gone through with the rating agencies looking out over the course of our plan and what our contracted level was so the exposure we take on in PGM does bring us more in line with that with that threshold of 60% to 65% contract.
Speaker Change: And we expect that that will that will remain the level for the for the next number of years absent more acquisition.
Speaker Change: And your thoughts on.
Speaker Change: The benefits are of taking on incremental merchant power exposure given yes.
Speaker Change: Yes, so I think what we've been talking about for some time now is that we are seeing rising prices that Tam when you contract definitely derisk your.
Speaker Change: Our cash flows, but you are giving up some of the upside and so where we're looking to capture that upside would be when we look to re contract assets, where we think that we can contract and at higher prices than would have been would have been anticipated looking back a couple of years ago as far as that merchant exposure for us the question becomes what <unk>.
Speaker Change: Markets do you want to have that merchant exposure and how much to take advantage of of the upside you can realize from from the returns in a merchant market with.
Speaker Change: With higher pricing than what you would contract floor. So we would be looking at.
Speaker Change: Near term fundamentals of the various merchant exposure that we have and deciding where to allocate that 40% exposure to optimize.
Speaker Change: Returns, but as you know our view has always been to de risk our cash flows to maintain.
Speaker Change: Of cushion to make sure that we are resilient so we.
Speaker Change: Would be employing all of those fundamentals in deciding on on how much exposure, we would take in a given year and how much we'd be looking to to hedge out or to contract.
Speaker Change: Understood and just to finish off in.
Speaker Change: Other strategies you question I guess so.
Made your.
Speaker Change: The initial entry into the PJM market with this deal that you've announced.
Speaker Change: Just thoughts on how do you leverage that initial position too.
Speaker Change: <unk> improved our returns beyond just holding it there a contemplation that.
Speaker Change: You would seek a more portfolio approach to that market and then or would you want to enter a new market look at the.
Speaker Change: The market is like a record for example.
Maurice Choy: Thanks Maurice.
Speaker Change: One of the reasons, we're so excited about these two assets.
Speaker Change: Is it large enough and the combination of <unk> and a large peak or <unk>.
Allows us to take our portfolio.
Speaker Change: Leo positioning in PJM.
Speaker Change: So for US the priority is first and foremost.
Speaker Change: To go in and take over.
Speaker Change: Ownership and stewardship of those assets and find ways to optimize those assets I think hummel in particular, it's a 2018 vintage CGT. So it's.
Speaker Change: One of the most efficient.
Speaker Change: Our plants in the whole market, but at Rolling Hills, we see significant opportunities there that we have not modeled and are not baked into the models that over the course of the first two to four quarters of ownership will look to find those opportunities.
Speaker Change: In terms of our market assessment across North America.
Speaker Change: We highlighted in our 2024 Investor day that PJM and ERCOT are two interesting markets for us.
Speaker Change: PJM.
Speaker Change: We prioritized over the course of 2024.
Speaker Change: As of the market dynamics because of.
Speaker Change: The capacity market and just because of the size and scale of that market as we looked at ERCOT.
Speaker Change: I would say at the beginning of 2024, we looked at both of those on an equal playing field.
Speaker Change: And as we think about portfolio construction.
We are diversified now where no single market post closing, we'll be more than 30%.
Speaker Change: And as we look at ERCOT relative to our own position in Alberta.
Speaker Change: We're it's a similar market structure, we think we have comparative advantages in Alberta.
Speaker Change: Whereas in ERCOT, given the competitiveness of it we like the market. If there were something opportunistic that we would evaluate it.
Speaker Change: But we think in terms of portfolio construction contract and mass merchant exposure.
Speaker Change: Those dollars are more appropriately allocated towards Alberta.
Speaker Change: And when opportunities exist there, so I would say continuing to expand and optimize our business in PJM through upgrades trading and origination contracting opportunities potential expansion of the fleet over time.
Speaker Change: As a focus and we see those same opportunities in MISO desert southwest.
Speaker Change: And potentially Ontario as well.
Speaker Change: Okay. That's great color. Thank you very much.
Speaker Change: Thank you and our next question comes from the line of Benjamin Pham from BMO. Your question. Please.
Benjamin Pham: Hi, Thanks, Good morning, just looking at your new segmenting.
Benjamin Pham: Renewables in particular.
Speaker Change: Can you comment on the outlook there for those two segments.
Benjamin Pham: And then can you also comment on <unk>.
Speaker Change: Renewables is it better to buy right now are to build.
Speaker Change: Okay.
Speaker Change: Just in terms of outlook.
Speaker Change: As you know between our Canadian and U S business, it's mostly contracted.
Speaker Change: We are seeing more broadly mulch.
Speaker Change: Multiple compression.
Speaker Change: And valuation pressure on the renewable side.
Speaker Change: I would say.
Speaker Change: To buy versus build.
Speaker Change: I think on the build side, if you've got existing security of supply.
Speaker Change: In particular on the U S side as the tariff conversation continues.
Speaker Change: I think there's compelling returns to be had I think we last year going into the second half of 2024, we were expecting valuation to acquire assets to start being more compelling and more in line with our own multiples.
Speaker Change: And that was really the noise, we were hearing in the market that didn't transpire.
Speaker Change: As quickly as we thought but I do suspect that over the course of this year in particular lower contracted assets. So I would say sub 15.
Speaker Change: Over 10 year contract and this on operating renewables.
Speaker Change: There continues to be more market pressure on the segment, we think there could be some compelling opportunities in renewables there.
Speaker Change: In particular ones, where you have to apply the expertise that we have.
Speaker Change: In terms of understanding construction repowering opportunities contracting opportunities in and working with regulators. So I think if if there was something interesting there and compelling that would meet our return threshold that would be it would be those assets that don't naturally fit.
Speaker Change: Infrastructure firms or the big renewable players because they don't have quite the length of contract business that they would like.
Speaker Change: But it would be accretive to us on contracted newness and require.
Speaker Change: Operational engineering and construction expertise to go realize that so I'm actually.
Speaker Change: It's a space where I think.
Speaker Change: We've always been and we have found it hard to acquire.
Speaker Change: Thats ever been a focus but we're definitely monitoring it.
Speaker Change: Yeah understood and Santa acquisition side, if you have mentioned.
Speaker Change: And it's something that's going to continue to evaluate maybe.
Maybe if you can share on iOS 12, 24 months you shared some some good tidbits on and.
Speaker Change: The opportunity remains robust your target geographies and whatnot.
Speaker Change: Are you seeing any change there in terms of the amount of volumes Youre seeing on your your das.
Speaker Change: Is there more of a $3 billion.
Speaker Change: Deals that are.
Speaker Change: All of that size out there.
Speaker Change: There is definitely opportunities that are multibillion in nature.
Speaker Change: Obviously constellation and transacting on Calpine.
Speaker Change: Census, significant market signal, but the number of players that are corporate in nature or pools of assets that are owned by single owners as few and far between so I would say third quarter going into fourth quarter last year significant pick up in terms of number of assets.
Speaker Change: <unk> to market through auctions.
Speaker Change: And we largely didn't play in most of those options.
Speaker Change: And I think as we rolled into this year before the tariffs were announced I think there was an expectation of a number of assets coming to market. This.
Speaker Change: This year, so definitely more assets in the market definitely more players in the market.
Speaker Change: Would say debt capital markets have not materially improved for the sector in terms of.
Speaker Change: Borrowing base capacity for merchant natural gas assets.
And as a result, I think it's more difficult for private equity or infrastructure funds to play so I do think in the.
Speaker Change: <unk>.
Speaker Change: In the greater than $1 billion transaction size. There is still a limited number of buyers that have the capability and capacity to operate optimize trading originated around the assets and so I do think that will continue to be.
Speaker Change: Our niche area for us to exploit relative to the.
Speaker Change: The universe is getting more and more competitive.
Speaker Change: Understood and then maybe just one last one on the balance sheet.
Speaker Change: Sort of things.
Speaker Change: Do you think that.
Speaker Change: That is nimble enough to take advantage of it.
Speaker Change: Just given your recent history with equity offerings.
Speaker Change: Partnerships and whatnot.
Speaker Change: Okay.
Speaker Change: I think if anything then we've demonstrated that we can be flexible and creative in finding capital and we've been incredibly fortunate to have it.
Speaker Change: Investors support.
Speaker Change: Our strategy and approach to the market.
Speaker Change: Which is underpinned by a decade long consistent approach to underwriting.
Speaker Change: So I think we have to continue to be creative.
Speaker Change: We are committed to maintaining our investment grade status and our existing balance sheet strength.
Speaker Change: It means we've got to find more partners and be more creative and.
Speaker Change: Stick to our knitting of doing what we do well. So we'll continue to do that I think we are.
Speaker Change: And that's one of the reasons why the priority is integrating these assets but.
Speaker Change: We will continue to be in the market looking for interesting opportunities that fit what we do well.
Speaker Change: And maybe one last point there is we continue to see we continue to get inbounds.
Speaker Change: From parties wanting to partner with us on opportunities. So I don't think there is a shortage of capital available to us to go pursue these.
Speaker Change: Okay.
Speaker Change: That's very useful thank you vivek.
Thank you. Thank you and our next question comes from the line of Julien Dumoulin Smith from Jefferies. LLC. Your question. Please.
Speaker Change: This is turner on for Julien Good morning.
Speaker Change: Maybe I'll follow up on the M&A angle here.
Speaker Change: Following the PJM acquisition is this M&A digestion period more reflection of financing considerations or is it really just about enabling strategic integration.
Speaker Change: For instance is there sort of episode of debt or leverage target that would signal you've properly digested the acquisition and we will look to become active again or if it's an operational consideration what milestone would indicate you're satisfied with the integration and ready for another phase of inorganic growth.
Speaker Change: Yes. Thanks for the question 10, or I would say the latter is the first priority I think we have clear glide guidelines.
Speaker Change: And indications from rating agencies on what what's required and we feel we're with them.
Those parameters, but you know for US table Stakes is ensuring we integrate these assets safely and efficiently and position them well.
Speaker Change: Inside our organization, so I think for us.
Speaker Change: I don't want to telegraph, a timing of when we would do the next thing.
Speaker Change: Other than to say, we have an active pipeline, we continue to expand that pipeline and obviously with this transaction.
Speaker Change: We were able to transact with a formidable.
Speaker Change: And industry, leading counterparty like LLS.
Speaker Change: We're just honored to have been able to transact and take these assets on them. So.
Speaker Change: I think we're.
Speaker Change: The phones definitely ringing.
Speaker Change: But we want to be prudent about our approach here. So we're not we're not in a rush to do the next thing we are evaluating the market and priority is to integrate these assets.
Speaker Change: Great and from a portfolio construction standpoint, I think you've touched on this earlier on a market by market standpoint, but zooming out.
Speaker Change: What is the ideal U S, Canada mix going forward and then.
Speaker Change: Is there a threshold, perhaps to cross where it makes increasing sense to begin looking into formally pursuing a dual listing.
Speaker Change: Thanks Tanner, yeah. So from our perspective, we've always considered that the timing of a U S listing would be.
Speaker Change: Timed with with an acquisition. So we haven't really set a threshold in terms of the mix of business, Canada U S.
Speaker Change: A number of different considerations, including your overall market cap investor interest and we certainly see very strong momentum.
Speaker Change: In all of those areas. So I was thinking that the time to do a list out that opportunity could be available to us certainly there are.
Speaker Change: Sox requirements as well and we are focused on ensuring that we align with those requirements before going down that path. So we continue to monitor that and expect that it would be something that we would have in our financing toolkit.
Potentially the next couple of transactions out.
Speaker Change: Not sooner, but we'll continue to monitor it.
Speaker Change: Great. Thank you.
Thank you and our next question comes from the line of John Mould from TD Cowen Your question. Please.
John Mould: Hi, Thanks, good morning, everybody.
John Mould: Going back to the Alberta data center opportunity.
Speaker Change: I was wondering if you can give us maybe a bit of a preview of what you're hoping for for me. So next months in terms of how they're going to approach that methodology for allocating available available capacity and how your view on available capacity.
John Mould: The market.
Speaker Change: For data centers has evolved.
John Mould: What you based on what you've seen in the power markets. So far this year.
Speaker Change: Thanks, John.
Speaker Change: Look I think the <unk> has been very clear in their approach to the allocation and trying to find objective measures in how to fairly.
Speaker Change: Allocate that capacity.
Speaker Change: We've continued to provide input to that is all producers have an generators have in the province.
Speaker Change: We're very confident that Genesee is well positioned for that and are hopeful that we will.
Speaker Change: Bill.
Bill: We will have.
Bill: Material allocation given the fact that we have.
Bill: Just recently Repower and have excess capacity and the positioning of the Genesee relative to the grid. So I.
Speaker Change: Think we have our interconnect.
Bill: Applications in place.
Speaker Change: Got capacity there we've got ongoing dialogue.
Speaker Change: And so.
Speaker Change: So is working hard to find the best objective.
Speaker Change: Approach that also insurers grid reliability and.
Speaker Change: We feel like we're well positioned for that so I can't really comment more than that because we don't know.
Speaker Change: When that will come out we have an expectation that it will be in the next four weeks, but we're not privy to the specifics on how that will rollout but feel.
Speaker Change: Feel good about our positioning.
Speaker Change: With regards to the commercial opportunity in Alberta the conversation.
Speaker Change: It's fantastic that we've got a number of projects in the queue and the prominence of Alberta has emerged as a.
Speaker Change: Industry.
Speaker Change: And industry location.
Speaker Change: For data centers this is not about genus.
Speaker Change: Genesee and capital power building, a data center, it's really about forming the foundation for an industry Super Center.
Speaker Change: And so we welcome all the projects that are coming in.
Speaker Change: But the most important thing is a near term in service date, that's what the hyper scaler we're focused on.
Speaker Change: And those that have the nearest term in service states are the ones that are going to fill first and so the opportunity for Alberta is to come up with the rules of the road that.
Speaker Change: That service the industry. So that we can one build the first one and then sanction all of the others and I'm very excited about where Alberta is in this regard because as I said last share.
Speaker Change: It's one of the only jurisdictions in North America, where you have government the ministry of utilities Ministry of technology industry players all aligned in one thing the industry there.
Speaker Change: And so if we're able to put this framework forward will be one of the first jurisdictions post generative AI, that's actually laid the ground there.
Speaker Change: Our road map for how to go do this while not compromising reliability and affordability. So I think this the next four to eight weeks is very important in terms of how the government and the ISO align on.
Speaker Change: Putting forth that allocation.
Speaker Change: And then the rules coming behind it.
Speaker Change: <unk> is a really big opportunity for the province so.
Speaker Change:
Speaker Change: That's our view and those are the conversations we've been having with not just counterparties by government.
Speaker Change: Okay. Thanks for that detail, that's great and then.
Speaker Change: Maybe on the on the.
Fees low growth approach and you've made that I think comment the last couple of quarters and as you noted you've got early 2027, I think Isps in your applications.
Speaker Change: This.
Speaker Change: Let's say.
Speaker Change: Clarification on on fees low growth is that more of a reflection of customer preference for gradual growth the realities of equipment and labor constraints in terms of what can get built.
Speaker Change: What the what the grid can handle and how much of that is maybe driven by.
Speaker Change: Broader economic considerations just in terms of the pace of potential customer capex.
Speaker Change: Thoughts on all that.
Speaker Change: Great. Thanks.
Speaker Change: Yes.
Speaker Change: John This is a conversation that I had.
Quite a lot over the last two or three quarters.
Speaker Change: I would say.
Speaker Change: It started with <unk>.
Speaker Change: For us anyways, I don't know about other generators and their conversations with hyper scaler, but when we were introduced to this opportunity set in second quarter of 2023. The conversations we've consistently had with Hyperscale data center providers and other interested parties.
Speaker Change: They needed the flexibility to come in at a material level call. It 300 megawatts plus.
Speaker Change: And have the option.
Speaker Change: To scale that to much higher numbers and that was their need.
Speaker Change: Got it.
Speaker Change: Grid restrictions.
Speaker Change: And so as the conversation has evolved and as the Hyperscale orders have.
Speaker Change: Refined their own requirements, then it becomes a local market conversation and so the answer is its actually both its customer need and then on the other side.
Speaker Change: Capacity availability grid reliability.
Speaker Change: Transmission and distribution constraints.
Speaker Change: So that's one of the reasons why all of these deals are taking longer across North America is you're having to.
Speaker Change: Come forward with multi pad multi lateral.
Speaker Change: <unk>.
Agreements that are.
Speaker Change: Bringing to the table stakeholders as well as off takers as well as generators.
Speaker Change: So I think most deals we'll see we'll have some level of contingency and scaling.
Speaker Change: And that is going to accommodate both sides whether it's.
Speaker Change: The system, operator, or that utility and what their needs for.
Speaker Change: The reliability and new generation <unk> as well as the customer having some flexibility as well to scale up.
Speaker Change: I think it's less about supply availability I think it's less about access to chips or about the commercial needs of what the hyperscale is on when and when and how they want to scale.
Speaker Change: Okay. That's great. Thank you and maybe just one last one for Sandra just on the on the year over year EBITDA growth.
Speaker Change: Canadian flexible generation was about 28 million can you give us a sense of how that growth split between the Alberta, and Ontario assets just given the.
Speaker Change: The improved cost structure of Genesee, but again, the increased dispatch with Gore way, which I wouldn't have guessed would have been a huge impact but that that'd be helpful. No. Yes, so I would say probably about 80% of it is.
Speaker Change: Is alberta.
Speaker Change: Ontario would be would be less from core way maybe in the neighborhood of five.
Speaker Change: Five 5 million.
Speaker Change: And the rest of it would be at.
Speaker Change: On the Alberta assets.
Speaker Change: Okay, Great. Those are my questions. Thank you very much.
Roy Arthur: Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to really Arthur for any further remarks.
Roy Arthur: Thank you operator this.
Roy Arthur: This concludes our call for today, we greatly appreciate those of you who dialed in and for your continued interest in our story have a great day.
Roy Arthur: Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.