Calpine Reports Fourth Quarter and Full Year 2015 Results

OREANDA-NEWS. Calpine Corporation (NYSE: CPN):

Summary of 2015 Financial Results (in millions, except per share amounts):

		Three Months Ended December 31,											Year Ended December 31,
		2015				2014				% Change			2015				2014				% Change
Operating Revenues		$	1,436			$	1,939			(25.9	)%		$	6,472			$	8,030			(19.4	)%
Commodity Margin		$	620			$	538			15.2	%		$	2,786			$	2,759			1.0	%
Adjusted EBITDA		$	390			$	345			13.0	%		$	1,976			$	1,949			1.4	%
Adjusted Free Cash Flow		$	97			$	95			2.1	%		$	842			$	830			1.4	%
Per Share (diluted)		$	0.27			$	0.24			12.5	%		$	2.31			$	2.03			13.8	%
Net Income (Loss)1		$	(47	)		$	210						$	235			$	946
Per Share (diluted)		$	(0.13	)		$	0.54						$	0.64			$	2.31
Net Income (Loss), As Adjusted2		$	67			$	(50	)					$	385			$	309

Reaffirming 2016 Full Year Guidance (in millions, except per share amounts):

		2016
Adjusted EBITDA		$1,800 - 1,950
Adjusted Free Cash Flow		$710 - 860
Per Share Estimate (diluted)		$2.00 - 2.40

Recent Achievements:

• Power Operations:
  — Generated approximately 115 million MWh³ in 2015
  — Achieved top quartile⁴ safety metrics: 0.73 total recordable incident rate in 2015
  — Delivered strong fleetwide starting reliability: 98.3%

• Customer-Oriented Origination Efforts:
  — Entered into new ten-year contract with the Tennessee Valley Authority to provide 615 MW of energy and capacity from our Morgan Energy Center commencing in February 2016
  — Extended contract by ten years beyond 2021 to provide South Texas Electric Cooperative with approximately 500 MW of energy annually
  — Entered into new three-year contract with the San Francisco Public Utilities Commission to provide, on average, approximately 43 MW of energy and renewable energy annually, commencing in May 2016

• Portfolio and Balance Sheet Management:
  — Completed acquisition of Granite Ridge Energy Center for $500 million⁵
  — Entered into $550 million First Lien Term Loan due 2023, intended to fund a portion of Granite Ridge acquisition, to repay project and corporate debt and for general corporate purposes
  — Redeemed approximately $120 million of our 7.875% First Lien Notes due 2023 at a price of 103
  — Extended revolver maturity by two years to 2020; increased capacity by $178 million to $1.678 billion into 2018

Calpine Corporation (NYSE: CPN) today reported fourth quarter 2015 Adjusted EBITDA of $390 million, compared to $345 million in the prior year period, and Adjusted Free Cash Flow of $97 million, or $0.27 per diluted share, compared to $95 million, or $0.24 per diluted share, in the prior year period. The increases in Adjusted EBITDA and Adjusted Free Cash Flowwere primarily due to higher Commodity Margin driven by higher contribution from hedges and hedging through our retail subsidiary acquired in October 2015, the acquisition of our Fore River Energy Center in November 2014, the commencement of operations at our Garrison Energy Center in June 2015 and higher regulatory capacity revenue in PJM. Net Loss¹ for the fourth quarter of 2015 was $47 million, or $0.13 per diluted share, compared to Net Income¹ of $210 million, or $0.54 per diluted share, in the prior year period. The decrease in Net Income¹ was primarily due to lower unrealized gains on power hedges in the fourth quarter of 2015 compared to the prior year period. Net Income, As Adjusted², for the fourth quarter of 2015 was $67 million compared to Net Loss, As Adjusted², of $50 million in the prior year period. The increase in Net Income, As Adjusted², was largely driven by an income tax benefit in the fourth quarter of 2015 primarily related to a legal entity restructuring and the recognition of a future tax benefit related to a tax credit.

Full year 2015 Adjusted EBITDA was $1,976 million, compared to $1,949 million in the prior year, and Adjusted Free Cash Flow was $842 million, or $2.31 per diluted share, compared to $830 million, or $2.03 per diluted share, in the prior year. The increases in Adjusted EBITDA and Adjusted Free Cash Flow were primarily due to higher Commodity Margin mainly driven by higher contribution from hedges and increased generation. Net Income¹ in 2015 was $235 million, or $0.64 per diluted share, compared to $946 million, or $2.31 per diluted share, in the prior year. The decrease in Net Income¹ was primarily driven by a gain on the sale of six power plants in July 2014 that did not recur in 2015. Net Income, As Adjusted², was $385 million in 2015 compared to $309 million in the prior year. The increase in Net Income, As Adjusted², was largely driven by an income tax benefit in 2015 associated primarily with a legal entity restructuring and a tax credit, as previously discussed, as well as higher Commodity Margin, as previously discussed, partially offset by an increase in plant operating expense related to higher major maintenance expense resulting from our plant outage schedule.

“Calpine has become known for delivering on its financial commitments, and I am pleased to report that 2015 was no exception,” said Thad Hill, Calpine’s President and Chief Executive Officer. “Despite the most volatile commodity markets in recent memory, in 2015 we achieved record Adjusted EBITDA and Adjusted Free Cash Flow Per Share, successfully meeting our guidance for the year. We did this by reinforcing our commitment to our longstanding values of operational excellence, customer focus and financial discipline. I could not be prouder of the Calpine team for its efforts.

“With respect to our capital allocation program, we continue to make progress. Since October, we have balanced our expenditures between funding growth, including the acquisitions of Champion Energy and Granite Ridge Energy Center, and repaying debt, including the redemption of $120 million of our higher-interest notes. Overall, our capital allocation philosophy remains intact and will continue to include a mix of growth, share repurchases and debt reduction, the balance of which will vary over time depending upon the opportunity set. Fortunately, our strong cash flows continue to provide us with capital allocation flexibility as we consider the current environment and the opportunities it may present.

“Power markets are evolving more today than at any point since deregulation, primarily due to sustained low natural gas prices, continued subsidization of renewable generation, a growing focus on resource reliability and the proliferation of environmental regulations. This evolution has weighed upon the public equity markets as investors consider its impacts. Our message in that debate is clear: a modern, flexible and clean fleet like Calpine’s is essential in each of our markets today and will be even more so in the power generation sector of the future. As a team, we are intently focused on capitalizing on the opportunities before us.

“Looking at our 2016 financial guidance, we expect to achieve Adjusted EBITDA of $1.8 - $1.95 billion and Adjusted Free Cash Flow of $2.00 - $2.40 per share. I believe that our efforts in 2016 will further differentiate Calpine from the rest of the sector through the higher generation levels we are able to achieve in low gas price scenarios, the unparalleled quality of our assets which are capable of serving our markets for decades to come and the exercise of financial discipline.”

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^{1 Reported as Net Income (Loss) attributable to Calpine on our Consolidated Statements of Operations.}

^{2 Refer to Table 1 for further detail of Net Income (Loss), As Adjusted.}

^{3 Includes generation from power plants owned but not operated by Calpine and our share of generation from unconsolidated power plants.}

^{4 According to EEI Safety Survey (2014).}

^{5 Excluding working capital adjustments.}

SUMMARY OF FINANCIAL PERFORMANCE

Fourth Quarter Results

Adjusted EBITDA for the fourth quarter of 2015 was $390 million compared to $345 million in the prior year period. The year-over-year increase in Adjusted EBITDA was primarily related to an $82 million increase in Commodity Margin, partially offset by a $34 million increase in plant operating expense⁶. The increase in plant operating expense was primarily related to costs associated with the wildfire that damaged our Geysers assets in September 2015. The increase in Commodity Margin was primarily due to:

						+		higher contribution from hedges and hedging through our retail subsidiary acquired in October 2015
						+		higher regulatory capacity revenue in PJM and
						+		the acquisition of our 731 MW Fore River Energy Center in November 2014 and commencement of commercial operations at our 309 MW Garrison Energy Center in June 2015, partially offset by
						–		lower on-peak spark spreads due to milder weather and lower natural gas prices.

Net Loss¹ was $47 million for the fourth quarter of 2015, compared to Net Income¹ of $210 million in the prior year period. The year-over-year decline in Net Income¹ was primarily due to a decrease in unrealized gains on power hedges compared to the prior year period. As detailed in Table 1, Net Income, As Adjusted², was $67 million in the fourth quarter of 2015 compared to a Net Loss, As Adjusted², of $50 million in the prior year period. The year-over-year improvement in Net Income, As Adjusted², was primarily driven by an income tax benefit related to a legal entity restructuring that resulted in a partial release of our valuation allowance associated with our net operating losses, as well as the recognition of a future tax benefit related to a tax credit associated with our capital expenditures.

Adjusted Free Cash Flow was $97 million in the fourth quarter of 2015 compared to $95 million in the prior year period. Adjusted Free Cash Flow increased during the period primarily due to an increase in Adjusted EBITDA, as previously discussed, partially offset by an increase in major maintenance expense resulting from our plant outage schedule.

Full Year Results

Adjusted EBITDA in 2015 was $1,976 million compared to $1,949 million in the prior year. The year-over-year increase in Adjusted EBITDA was primarily related to a $27 million increase in Commodity Margin. The increase in Commodity Margin was primarily due to:

						+		higher contribution from hedges in our West and East regions and hedging through our retail subsidiary, which more than offset lower on-peak spark spreads across all of our regions, excluding the impact of the polar vortex events experienced during the first quarter of 2014, and
						+		higher generation from our power plants in Texas and the East resulting from lower natural gas prices that drove lower systemwide coal-fired generation from our competitors, partially offset by
						–		a significant decrease in power and natural gas prices in our East region in the first quarter of 2015 compared to the prior year period, given the unusually high price levels experienced during the polar vortex events in the first quarter of 2014
						–		the net impact of our portfolio management activities, including the sale of six power plants with a total capacity of 3,498 MW in our East region in July 2014, the acquisition of our Guadalupe and Fore River Energy Centers in February and November 2014, respectively, the completion of our Deer Park and Channel Energy Center expansions in June 2014 and the commencement of commercial operations at our Garrison Energy Center in June 2015, and
						–		lower regulatory capacity revenue in PJM during the first five months of 2015, partially offset by higher regulatory capacity revenue in PJM during the remaining seven months of 2015.

Net Income¹ was $235 million in 2015, compared to $946 million in the prior year. The year-over-year decrease in Net Income¹ was primarily due to a gain on the previously mentioned sale of the six power plants in our East region in July 2014 that did not recur in 2015. As detailed in Table 1, Net Income, As Adjusted², was $385 million in 2015, compared to $309 million in the prior year. The year-over-year increase was driven largely by:

						+		an income tax benefit associated primarily with a legal entity restructuring and the recognition of a future tax benefit related to a tax credit, as previously discussed, and
						+		higher Commodity Margin, as previously discussed, partially offset by
						–		higher plant operating expense driven by higher major maintenance expense associated with our plant outage schedule.

Adjusted Free Cash Flow was $842 million in 2015, compared to $830 million in the prior year. Adjusted Free Cash Flow increased during the period primarily due to an increase in Adjusted EBITDA and a decrease in interest expense, partially offset by higher major maintenance expense, as previously discussed.

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^{6 Increase in plant operating expense excludes changes in major maintenance expense, stock-based compensation expense, non-cash loss on disposition of assets and other costs. See the table titled "Consolidated Adjusted EBITDA Reconciliation" for the actual amounts of these items for the three months ended December 31, 2015 and 2014.}

ABOUT CALPINE

Calpine Corporation is America’s largest generator of electricity from natural gas and geothermal resources. Our fleet of 84 power plants in operation or under construction represents more than 27,000 megawatts of generation capacity. Through wholesale power operations and our retail business, Champion Energy, we serve customers in 20 states and Canada. We specialize in developing, constructing, owning and operating natural gas-fired and renewable geothermal power plants that use advanced technologies to generate power in a low-carbon and environmentally responsible manner. Our clean, efficient, modern and flexible fleet is uniquely positioned to benefit from the secular trends affecting our industry, including the abundant and affordable supply of clean natural gas, stricter environmental regulation, aging power generation infrastructure and the increasing need for dispatchable power plants to successfully integrate intermittent renewables into the grid.