Calpine Reports First Quarter 2017 Results, Reaffirms 2017 Guidance; Announces Cancellation of New Texas Power Plant, Replaces with 10-Year Supply Contract

Source Press Release
Company Calpine Corporation 
Tags Power, Upstream Activities, Hedging, Financial & Operating Data
Date April 28, 2017

Calpine Corporation (NYSE: CPN):

Summary of First Quarter 2017 Financial Results (in millions):

      Three Months Ended March 31, 
      2017      2016      % Change 
                   
Operating Revenues      2,281        1,615        41.2 
Income from operations      72              NM   
Cash provided by operating activities      94        31        203.2 
Net Loss1      (56      (198      71.7 
Commodity Margin2      558        580        (3.8  )% 
Adjusted EBITDA2      326        374        (12.8  )% 
Adjusted Free Cash Flow2      43        102        (57.8  )% 
Net Loss, As Adjusted2      (114      (104      (9.6  )% 
Weighted Average Shares Outstanding (diluted)      355        354         
                       

Reaffirming 2017 Full Year Guidance (in millions):

      2017 
       
Adjusted EBITDA2      $1,800 - 1,950 
Adjusted Free Cash Flow2      $710 - 860 
       

Recent Achievements:

  • Power and Commercial Operations:
    — Generated more than 21 million MWh3 in the first quarter of 2017
    — Delivered strong fleetwide starting reliability: 97.5%
  • Portfolio Management:
    — Signed a 10-year PPA with Guadalupe Valley Electric Cooperative for 200 MW beginning in 2019, concurrently canceling construction of a 418 MW natural gas-fired peaking power plant in Texas
    — Retired 400 MW Clear Lake Power Plant due to lack of adequate compensation in Texas
    — Monetizing legacy site through an agreement to construct and sell an approximately 360 MW natural gas-fired peaking power plant to Entergy Louisiana after commercial operation, expected in early 2021
    — Negotiating Reliability Must Run contracts with CAISO for two natural gas-fired peakers in California
    — Closed on the sale of Osprey Energy Center to Duke Energy for $166 million4
    — Acquired growing residential retail provider North American Power for approximately $105 million4, representing an attractively priced portfolio addition to our Champion Energy retail platform
  • Balance Sheet Management:
    — As part of our $2.7 billion plan to delever and reduce interest expense, we paid down approximately $233 million of debt (net) in the first quarter of 2017 out of $850 million paydown planned for 2017

Calpine Corporation (NYSE: CPN) today reported Net Loss1 of $56 million, or $0.16 per diluted share, for the first quarter of 2017 compared to $198 million, or $0.56 per diluted share, in the prior year period. The period-over-period decrease in Net Loss was primarily due to the favorable variance in our net mark-to-market activities driven by changes in forward commodity prices and the positive effect of our retail hedging activities. Cash provided by operating activities for the first quarter of 2017 was $94 million compared to $31 million in the prior year. The increase in cash provided by operating activities was primarily due to a decrease in working capital employed resulting from the period over period change in net margining requirements associated with our commodity hedging activity, partially offset by a decrease in income from operations, adjusted for non-cash items.

Adjusted EBITDA2 for the first quarter was $326 million compared to $374 million in the prior year period, and Adjusted Free Cash Flow2was $43 million compared to $102 million in the prior year period. The decreases in Adjusted EBITDA and Adjusted Free Cash Flowwere primarily due to lower Commodity Margin2, largely driven by lower energy margins due to decreased contribution from wholesale hedges and weaker market conditions, lower regulatory capacity revenue in our East segment and the sales of Mankato Power Plant in October 2016 and Osprey Energy Center in January 2017. These changes were partially offset by our retail acquisitions of Calpine Energy Solutions in December 2016 and North American Power in January 2017.

Net Loss, As Adjusted2, for the first quarter of 2017 was $114 million compared to $104 million in the prior year period. The increase in Net Loss, As Adjusted, was primarily due to lower Commodity Margin, as previously discussed, as well as increases in plant operating expense and depreciation and amortization expense primarily due to our retail acquisitions, partially offset by a higher income tax benefit resulting primarily from changes in estimated tax benefits and a favorable adjustment to our reserve for uncertain tax positions.

“This year’s first quarter results reflect our ability to meet our financial commitments despite a very mild winter in Texas and the East and above-normal hydroelectric generation in the West,” said Thad Hill, Calpine’s President and Chief Executive Officer. “We are reaffirming our full year guidance range of $1.8 to $1.95 billion of Adjusted EBITDA, given upside in the back half of the year from our retail acquisitions and higher regulatory capacity payments in the East.

“During the quarter, we began executing on our deleveraging plan while continuing to make progress on controlling costs and integrating our retail platform. We have completed $233 million of our full year target of $850 million in debt reduction, and we are on track to complete our $2.7 billion of planned debt paydown by the end of 2019.

“We also continued our relentless focus on managing our portfolio for long-term value. Specifically, I am pleased to announce three great examples of how our customer-focused efforts helped us find mutually beneficial solutions. First, we have signed a 10-year PPA with Guadalupe Valley Electric Cooperative to supply 200 MW of power from our existing Texas fleet, replacing our prior agreement to construct a new 418 MW peaking power plant. Secondly, we are announcing the monetization of a legacy development site in Louisiana, where we have entered into a construction and sale agreement with Entergy Louisiana for a natural gas-fired peaking power plant. Finally, we completed the sale of our Osprey Energy Center to Duke Energy Florida.

“We also took further action to economically optimize our portfolio by filing to retire four of our natural gas-fired peakers in California at the beginning of 2018 when their contracts expire. The California Independent System Operator has since declared that two of the units are required for reliability, and we are currently negotiating Reliability Must Run contracts that will appropriately compensate us for providing critical reliability to the grid.

“Finally, we have been advocating for competitive power markets, including opposing out-of-market nuclear bailouts that are being debated or implemented in multiple states. We fundamentally disagree with adding more subsidies into functioning wholesale markets and are actively challenging them at the state level and in the courts. Regardless of those outcomes, we are optimistic that independent system operators and the new FERC will move through tariff reform to protect the integrity of their markets from state intervention. Competitive wholesale power markets need to provide non-discriminatory forward price signals that result in market-driven solutions that ensure reliable power. Calpine’s clean, modern and flexible fleet is integral to maintaining reliability in each of our wholesale power markets.”

________

1 Reported as Net Loss attributable to Calpine on our Consolidated Condensed Statements of Operations.

2 Non-GAAP financial measure, see “Regulation G Reconciliations” for further details.

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

4 Excluding working capital and other adjustments.

SUMMARY OF FINANCIAL PERFORMANCE

First Quarter Results

Adjusted EBITDA for the first quarter of 2017 was $326 million compared to $374 million in the prior year period. The year-over-year decrease in Adjusted EBITDA was primarily related to a $22 million decrease in Commodity Margin and $24 million increase in plant operating expense5, which was largely driven by net portfolio changes including our retail acquisitions, as previously discussed. The decrease in Commodity Margin was primarily due to:

            –    lower energy margins due to decreased contribution from wholesale hedges and weaker market conditions due to milder weather in the Texas and East segments and increased hydroelectric generation in the West segment, 
            –    lower regulatory capacity revenue, primarily in the East segment and 
            –    the net impact of our portfolio management activities, including the sales of Mankato Power Plant in October 2016 and Osprey Energy Center in January 2017, partially offset by 
              increased contribution from our retail hedging activity following our retail acquisitions, as previously discussed, and 
              the positive effect of a new PPA associated with our Morgan Energy Center in the East segment, which became effective in February 2016. 
                 

Adjusted Free Cash Flow was $43 million in the first quarter of 2017 compared to $102 million in the prior year period. Adjusted Free Cash Flow decreased due to lower Adjusted EBITDA, as previously discussed, and higher major maintenance capital expenditures primarily due to improvements of our Geysers assets.

__________

5 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 March 31, 2017 and 2016.

REGIONAL SEGMENT REVIEW OF RESULTS

Table 1: Commodity Margin by Segment (in millions)

      Three Months Ended March 31, 
      2017      2016      Variance 
West      221        197        24   
Texas      148        153        (5 
East      189        230        (41 
Total      558        580        (22 
                               

West Region

First Quarter: Commodity Margin in our West segment increased by $24 million in the first quarter of 2017 compared to the prior year period. Primary drivers were:

              increased contribution from the expansion of our retail portfolio following the acquisition of Calpine Energy Solutions in December 2016, 
              higher resource adequacy payments and 
              increased generation at our Geysers assets, which were recovering from the effects of a wildfire in the first quarter of 2016, partially offset by 
            –    lower contribution from wholesale hedging activity and lower spark spreads driven by higher hydroelectric generation in the region. 
                 

Texas Region

First Quarter: Commodity Margin in our Texas segment decreased by $5 million in the first quarter of 2017 compared to the prior year period. Primary drivers were:

            –    lower contribution from hedges, 
            –    lower generation driven by weaker ERCOT-wide off-peak spark spreads, primarily due to an increase in coal-fired generation in the state and 
            –    milder weather in the first quarter of 2017. 
                 

East Region

First Quarter: Commodity Margin in our East segment decreased $41 million in the first quarter of 2017 compared to the prior year period. Primary drivers were:

            –    lower contribution from wholesale hedges and lower realized spark spreads, particularly in New England, 
            –    lower regulatory capacity revenue in PJM and 
            –    the net impact of portfolio management activities, including the sales of Mankato Power Plant in October 2016 and Osprey Energy Center in January 2017, partially offset by 
              higher contribution from our retail hedging activity in 2016 following the acquisition of Calpine Energy Solutions in December 2016 and North American Power in January 2017 and 
              the positive effect of a new PPA associated with our Morgan Energy Center, which became effective in February 2016. 
                 

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

Table 2: Liquidity (in millions)

      March 31, 2017      December 31, 2016 
Cash and cash equivalents, corporate(1)      153        345 
Cash and cash equivalents, non-corporate      90        73 
Total cash and cash equivalents      243        418 
Restricted cash      177        188 
Corporate Revolving Facility availability(2)      1,294        1,255 
CDHI letter of credit facility availability      63        50 
Total current liquidity availability(3)      1,777        1,911 

____________

(1) Includes $9 million and $16 million of margin deposits posted with us by our counterparties at March 31, 2017, and December 31, 2016, respectively.

(2) Our ability to use availability under our Corporate Revolving Facility is unrestricted.

(3) Our ability to use corporate cash and cash equivalents is unrestricted. Our $300 million CDHI letter of credit facility is restricted to support certain obligations under PPAs and power transmission and natural gas transportation agreements.

Liquidity was approximately $1.8 billion as of March 31, 2017. Cash and cash equivalents decreased in the first quarter of 2017 primarily due to the acquisition of North American Power, capital expenditures on construction projects and outages, and net repayments of debt, partially offset by cash provided by the sale of Osprey Energy Center, as well as from operating activities.

Table 3: Cash Flow Activities (in millions)

      Three Months Ended March 31, 
      2017      2016 
Beginning cash and cash equivalents      418        906   
Net cash provided by (used in):             
Operating activities      94        31   
Investing activities      (13      (611 
Financing activities      (256      (82 
Net decrease in cash and cash equivalents      (175      (662 
Ending cash and cash equivalents      243        244   
                     

Cash provided by operating activities in the first quarter of 2017 was $94 million compared to $31 million in the prior year period, as previously discussed.

Cash used in investing activities was $13 million during the first quarter of 2017 compared to $611 million in the prior year period. The decrease was primarily related to acquisitions, divestitures and capital expenditures. In the first quarter of 2017, we closed on the acquisition of North American Power for $111 million and closed on the sale of Osprey Energy Center, receiving net proceeds of $162 million. In the first quarter of 2016, we purchased Granite Ridge Energy Center for $527 million. There was also a decrease of $42 million for capital expenditures primarily due to lower expenditures on construction projects and outages during the first quarter of 2017 as compared to 2016.

Cash used in financing activities was $256 million during the first quarter of 2017 and primarily related to net repayment of debt in accordance with our deleveraging plan.

CAPITAL ALLOCATION

Our capital allocation philosophy seeks to maximize levered cash returns to equity while maintaining a strong balance sheet. We seek to enhance shareholder value through a diverse and balanced capital allocation approach that includes portfolio management, organic or acquisitive growth, returning capital to shareholders and debt reduction. The mix of this activity shifts over time given the external market environment and the opportunity set. In the current environment, we believe that paying down debt and strengthening our balance sheet is a high-return investment for our shareholders. We also consider the repurchases of our own shares of common stock as an attractive investment opportunity, and we utilize the expected returns from this investment as the benchmark against which we evaluate all other capital allocation decisions. We believe this philosophy closely aligns our objectives with those of our shareholders.

Managing Our Balance Sheet

We further optimized our capital structure during the quarter ended March 31, 2017, as follows:

2023 First Lien Notes:

— As part of our commitment to reduce debt and interest expense, on March 6, 2017, we redeemed the remaining $453 million of our 7.875% First Lien Notes due in 2023 using cash on hand along with the proceeds from a new $400 million, three-year First Lien Term Loan priced at LIBOR + 1.75% per annum. We intend to repay the 2019 First Lien Term Loan in full by the end of 2018. This accelerates debt reduction and results in substantial annual interest savings of more than $20 million in the interim.

2017 First Lien Term Loan:

— We repaid approximately $150 million of our 2017 First Lien Term Loan using cash on hand during the first quarter of 2017.

Expanding Our Customer Sales Channels

We continue to focus on getting closer to our customers through expansion of our retail platform, which began with the acquisition of Champion Energy in 2015 and was followed by the acquisitions of Calpine Energy Solutions in late 2016 and North American Power in early 2017. Our retail platform geographically and strategically complements our wholesale generation fleet by providing forward liquidity with sufficient margins. The combination of our wholesale origination and retail platform provides Calpine access to both direct and mass market sales channels. Our direct sales efforts aim to provide our larger customers with customized products, leveraging both our successful wholesale origination efforts and Calpine Energy Solutions’ presence among large commercial and industrial organizations to secure new contracts. Our mass market approach relies upon our expanded Champion Energy retail platform to serve the needs of both residential and smaller commercial and industrial customers across the country. We believe that our retail platform is strategically complete and are now focused on integrating it into our business and optimizing its financial performance.

Acquisition of North American Power & Gas, LLC

On January 17, 2017, we completed the purchase of North American Power for approximately $105 million, excluding working capital and other adjustments. North American Power is a growing retail energy supplier for homes and small businesses and is primarily concentrated in the Northeast U.S., where Calpine has a substantial power generation presence and where Champion Energy has a substantial retail sales footprint that is enhanced by the addition of North American Power, which has been integrated into our Champion Energy retail platform. With this acquisition, we now serve residential load in 63 utility service territories as compared to 51 in 2016.

Portfolio Management

East:

Washington Parish: On April 21, 2017, we entered into an agreement with Entergy Louisiana (Entergy), a subsidiary of Entergy Corporation, to construct an approximately 360 MW natural gas-fired peaking power plant on a partially developed site that we own near Bogalusa, Louisiana. Within a short period of time subsequent to the plant commencing commercial operations and meeting certain performance objectives, Entergy will purchase the plant for a fixed payment, including a fair market return. Construction on the facility will not commence until 2019 with COD expected in early 2021. The agreement contains conditions precedent to effectiveness including, but not limited to, approval of the Louisiana Public Service Commission. We plan to fund the project with a construction loan that will be repaid upon receipt of sale proceeds.

York 2 Energy Center: York 2 Energy Center is an 828 MW dual-fuel, combined-cycle project that is co-located with our York Energy Center in Peach Bottom Township, Pennsylvania. Once complete, the power plant will feature two combustion turbines, two heat recovery steam generators and one steam turbine. The project is under construction, and the initial 760 MW of capacity cleared PJM’s last three base residual auctions with the 68 MW of incremental capacity clearing the last two base residual auctions. Due to construction delays, we are now targeting COD in early 2018.

Osprey Energy Center: On January 3, 2017, we completed the sale of Osprey Energy Center to Duke Energy Florida, Inc. for approximately $166 million, excluding working capital and other adjustments. This transaction supports our effort to divest non-core assets outside our strategic concentration.

Texas:

Clear Lake Power Plant: On February 1, 2017, we retired our 400 MW Clear Lake Power Plant due to a lack of adequate compensation in Texas. Built in 1985, Clear Lake utilized an older, less efficient technology.

Guadalupe Peaking Energy Center: In April 2017, we canceled an agreement with Guadalupe Valley Electric Cooperative (GVEC) related to the construction of a 418 MW natural gas-fired peaking power plant to be co-located with our existing Guadalupe Energy Center. In lieu of building the facility, we will now serve GVEC with 200 MW of generating capacity under a 10-year PPA beginning in June 2019.

West:

California Peakers: As a result of the pending expiration of a PPA in December 2017, we informed CAISO of our intent to suspend operations at four of our California peaking natural gas-fired power plants with capacity totaling 186 MW. CAISO has determined that two of these power plants, Yuba City and Feather River energy centers, are needed to continue reliable operation of the power grid. We are currently negotiating Reliability Must Run contracts for these two power plants.

South Point Energy Center: As a result of the denial by the Nevada Public Utility Commission of the sale of South Point Energy Center to Nevada Power Company in February 2017, we terminated the corresponding asset sale agreement in the first quarter of 2017. We are currently assessing our options related to South Point Energy Center.

OPERATIONS UPDATE

First Quarter Power Operations Achievements:

  • Availability Performance:
    — Delivered strong fleetwide starting reliability: 97.5%
  • Power Generation:
    — Generated more than 21 million MWh3
    — Texas fleet: Record low first quarter forced outage factor
    — Westbrook Energy Center: 100% starting reliability across 215 starts

2017 Operating Event at our Delta Energy Center

On January 29, 2017, we experienced an operating event at our Delta Energy Center that resulted in an emergency shutdown of the power plant and significant damage to the steam turbine and steam turbine generator. Our current plan is to return the unit to service in simple-cycle steam bypass configuration in June 2017 and full combined-cycle configuration in the fourth quarter of 2017. We anticipate that insurance will cover a significant portion of our losses, after applicable deductibles.

2017 FINANCIAL OUTLOOK

(in millions)      Full Year 2017 
Adjusted EBITDA      1,800 - 1,950   
Less:           
Operating lease payments        25   
Major maintenance expense and maintenance capital expenditures(1)        435   
Cash interest, net(2)        620   
Cash taxes        10   
Other        —   
Adjusted Free Cash Flow      710 - 860   
           
Debt amortization and repayment (3)      (850 
Growth capital expenditures      (220 

____________

(1) Includes projected major maintenance expense of $315 million and maintenance capital expenditures of $120 million in 2017. Capital expenditures exclude major construction and development projects.

(2) Includes commitment, letter of credit and other fees from consolidated and unconsolidated investments, net of capitalized interest and interest income.

(3) Amount includes $200 million of recurring amortization, as well as the $550 million repayment of the 2017 First Lien Term Loan, a portion of the $453 million of our callable 7 7/8% 2023 Senior Secured Notes and the buyout of the Pasadena lessor interest.

As detailed above, today we are reaffirming our 2017 guidance range. We expect Adjusted EBITDA of $1.8 billion to $1.95 billion and Adjusted Free Cash Flow of $710 million to $860 million. We expect to invest $220 million in our ongoing growth-related projects during 2017, primarily the construction of York 2 Energy Center.

INVESTOR CONFERENCE CALL AND WEBCAST

We will host a conference call to discuss our financial and operating results for the first quarter on Friday, April 28, 2017, at 10 a.m. Eastern time / 9 a.m. Central time. A listen-only webcast of the call may be accessed through our website at , or by dialing (800) 446-1671 in the U.S. or (847) 413-3362 outside the U.S. The confirmation code is 44658283. A recording of the call will be made available for a limited time on our website or by dialing (888) 843-7419 in the U.S. or (630) 652-3042 outside the U.S. and providing confirmation code 44658283. Presentation materials to accompany the conference call will be posted on our website on April 28, 2017.

CALPINE CORPORATION AND SUBSIDIARIES 
 
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS 
(Unaudited) 
       
      Three Months Ended March 31, 
      2017      2016 
      (in millions, except share and per share amounts) 
Operating revenues:             
Commodity revenue      2,063        1,585   
Mark-to-market gain        214          25   
Other revenue                 
Operating revenues        2,281          1,615   
Operating expenses:             
Fuel and purchased energy expense:             
Commodity expense        1,533          1,006   
Mark-to-market loss        159          120   
Fuel and purchased energy expense        1,692          1,126   
Plant operating expense        282          255   
Depreciation and amortization expense        206          180   
Sales, general and other administrative expense        40          38   
Other operating expenses        20          20   
Total operating expenses        2,240          1,619   
(Gain) on sale of assets, net        (27        —   
(Income) from unconsolidated subsidiaries        (4        (7 
Income from operations        72           
Interest expense        159          157   
Debt extinguishment costs        24          —   
Other (income) expense, net                 
Loss before income taxes        (113        (159 
Income tax expense (benefit)        (61        35   
Net loss        (52        (194 
Net income attributable to the noncontrolling interest        (4        (4 
Net loss attributable to Calpine      (56      (198 
             
Basic and diluted loss per common share attributable to Calpine:             
Weighted average shares of common stock outstanding (in thousands)        354,682          353,501   
Net loss per common share attributable to Calpine — basic and diluted      (0.16      (0.56 
                 

 
CALPINE CORPORATION AND SUBSIDIARIES 
 
CONSOLIDATED CONDENSED BALANCE SHEETS 
(Unaudited) 
             
      March 31, 2017      December 31, 2016 
      (in millions, except share and per share amounts) 
ASSETS             
Current assets:             
Cash and cash equivalents      243        418   
Accounts receivable, net of allowance of $8 and $6        765          839   
Inventories        535          581   
Margin deposits and other prepaid expense        364          441   
Restricted cash, current        162          173   
Derivative assets, current        1,387          1,725   
Current assets held for sale        —          210   
Other current assets        65          45   
Total current assets        3,521          4,432   
Property, plant and equipment, net        13,009          13,013   
Restricted cash, net of current portion        15          15   
Investments in unconsolidated subsidiaries        92          99   
Long-term derivative assets        670          543   
Goodwill        233          187   
Intangible assets, net        635          650   
Other assets        401          378   
Total assets      18,576        19,317   
LIABILITIES & STOCKHOLDERS’ EQUITY             
Current liabilities:             
Accounts payable      655        671   
Accrued interest payable        125          125   
Debt, current portion        608          748   
Derivative liabilities, current        1,273          1,630   
Other current liabilities        459          528   
Total current liabilities        3,120          3,702   
Debt, net of current portion        11,344          11,431   
Long-term derivative liabilities        550          476   
Other long-term liabilities        280          369   
Total liabilities        15,294          15,978   
             
Commitments and contingencies             
Stockholders’ equity:             
Preferred stock, $0.001 par value per share; authorized 100,000,000 shares, none issued and outstanding        —          —   
Common stock, $0.001 par value per share; authorized 1,400,000,000 shares, 361,833,256 and 359,627,113 shares issued, respectively, and 360,797,377 and 359,061,764 shares outstanding, respectively        —          —   
Treasury stock, at cost, 1,035,879 and 565,349 shares, respectively        (13        (7 
Additional paid-in capital        9,633          9,625   
Accumulated deficit        (6,269        (6,213 
Accumulated other comprehensive loss        (139        (137 
Total Calpine stockholders’ equity        3,212          3,268   
Noncontrolling interest        70          71   
Total stockholders’ equity        3,282          3,339   
Total liabilities and stockholders’ equity      18,576        19,317   
                 

 
CALPINE CORPORATION AND SUBSIDIARIES 
 
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS 
(Unaudited) 
       
      Three Months Ended March 31, 
      2017      2016 
      (in millions) 
Cash flows from operating activities:             
Net loss      (52      (194 
Adjustments to reconcile net loss to net cash provided by operating activities:             
Depreciation and amortization(1)        265          226   
Debt extinguishment costs                —   
Income tax expense (benefit)        (61        35   
Gain on sale of assets, net        (27        —   
Mark-to-market activity, net        (55        94   
(Income) from unconsolidated subsidiaries        (4        (7 
Return on investments from unconsolidated subsidiaries        13          —   
Stock-based compensation expense                 
Other        —          (4 
Change in operating assets and liabilities, net of effects of acquisitions:             
Accounts receivable        82          87   
Derivative instruments, net        (21        (12 
Other assets        24          (19 
Accounts payable and accrued expenses        (104        (202 
Other liabilities        20          18   
Net cash provided by operating activities        94          31   
Cash flows from investing activities:             
Purchases of property, plant and equipment        (91        (133 
Proceeds from sale of Osprey Energy Center        162          —   
Purchase of Granite Ridge Energy Center        —          (527 
Purchase of North American Power, net of cash acquired        (111        —   
Decrease in restricted cash        11          43   
Other        16           
Net cash used in investing activities        (13        (611 
Cash flows from financing activities:             
Borrowings under First Lien Term Loans        396          —   
Repayment of CCFC Term Loans and First Lien Term Loans        (161        (13 
Repurchase of First Lien Notes        (453        —   
Borrowings under Corporate Revolving Facility        25          —   
Repayments of project financing, notes payable and other        (44        (56 
Distribution to noncontrolling interest holder        (6        (2 
Financing costs        (8        (7 
Shares repurchased for tax withholding on stock-based awards        (6        (5 
Other                 
Net cash used in financing activities        (256        (82 
Net decrease in cash and cash equivalents        (175        (662 
Cash and cash equivalents, beginning of period        418          906   
Cash and cash equivalents, end of period      243        244   
             
Cash paid during the period for:             
Interest, net of amounts capitalized      141        150   
Income taxes             
             
Supplemental disclosure of non-cash investing activities:             
Change in capital expenditures included in accounts payable      —        15   

Net Loss, As Adjusted Reconciliation

The following table reconciles our Net Loss, As Adjusted, to its U.S. GAAP results for the three months ended March 31, 2017 and 2016 (in millions):

      Three Months Ended March 31, 
      2017      2016 
Net loss attributable to Calpine      (56      (198 
(Gain) on sale of assets, net(1)        (27        —   
Debt extinguishment costs(1)        24          —   
Mark-to-market (gain) loss on derivatives(1)(2)        (55        94   
Net Loss, As Adjusted      (114      (104 

__________

(1) Assumes a 0% effective tax rate for these items.

(2) In addition to changes in market value on derivatives not designated as hedges, changes in mark-to-market (gain) loss also include hedge ineffectiveness and adjustments to reflect changes in credit default risk exposure.

Commodity Margin Reconciliation

The following tables reconcile Income (loss) from operations to Commodity Margin for the three months ended March 31, 2017 and 2016 (in millions):

      Three Months Ended March 31, 2017 
                                Consolidation           
                                And           
      West      Texas      East      Elimination      Total 
Income (loss) from operations      88        (60      44        —        72   
Add:                                             
Plant operating expense      97          96          96          (7        282   
Depreciation and amortization expense      91          62          53          —          206   
Sales, general and other administrative expense      13          17          10          —          40   
Other operating expenses                              (1        20   
(Gain) on sale of assets, net      —          —          (27        —          (27 
(Income) from unconsolidated subsidiaries      —          —          (4        —          (4 
Less: Mark-to-market commodity activity, net and other(1)      77          (30        (8        (8        31   
Commodity Margin      221        148        189        —        558   
                                             
      Three Months Ended March 31, 2016 
                                Consolidation           
                                And           
      West      Texas      East      Elimination      Total 
Income (loss) from operations      65        (114      52        —         
Add:                                             
Plant operating expense        91        86          84        (6        255   
Depreciation and amortization expense        69        53          58        —          180   
Sales, general and other administrative expense        10        16          12        —          38   
Other operating expenses                      10        —          20   
(Income) from unconsolidated subsidiaries        —        —          (7      —          (7 
Less: Mark-to-market commodity activity, net and other(1)        46        (110        (21      (6        (91 
Commodity Margin      197        153        230        —        580   

_________

(1) Includes $(22) million and $(22) million of lease levelization and $60 million and $27 million of amortization expense for the three months ended March 31, 2017 and 2016, respectively.

Consolidated Adjusted EBITDA Reconciliation

In the following table, we have reconciled our Adjusted EBITDA and Adjusted Free Cash Flow to our net income attributable to Calpine for the three months ended March 31, 2017 and 2016, as reported under U.S. GAAP (in millions):

      Three Months Ended March 31, 
      2017      2016 
Net loss attributable to Calpine      (56      (198 
Net income attributable to the noncontrolling interest                 
Income tax expense (benefit)        (61        35   
Debt extinguishment costs and other (income) expense, net        26           
Interest expense        159          157   
Income from operations      72         
Add:             
Adjustments to reconcile income from operations to Adjusted EBITDA:             
Depreciation and amortization expense, excluding deferred financing costs(1)        205          179   
Major maintenance expense        64          64   
Operating lease expense                 
Mark-to-market (gain) loss on commodity derivative activity        (55        95   
(Gain) on sale of assets, net        (27        —   
Adjustments to reflect Adjusted EBITDA from unconsolidated investments and exclude the noncontrolling interest(2)                 
Stock-based compensation expense                 
Loss on dispositions of assets                 
Contract amortization        60          27   
Other        (15        (16 
Total Adjusted EBITDA      326        374   
Less:             
Operating lease payments                 
Major maintenance expense and capital expenditures(3)        115          105   
Cash interest, net(4)        156          158   
Cash taxes                 
Other                 
Adjusted Free Cash Flow(5)      43        102   
Weighted Average Shares Outstanding (diluted)        355          354   

_________

(1) Excludes depreciation and amortization expense attributable to the non-controlling interest.

(2) Adjustments to reflect Adjusted EBITDA from unconsolidated investments include (gain) loss on mark-to-market activity of nil for each of the three months ended March 31, 2017 and 2016.

(3) Includes $65 million and $65 million in major maintenance expense for the three months ended March 31, 2017 and 2016, respectively, and $50 million and $40 million in maintenance capital expenditures for the three months ended March 31, 2017 and 2016, respectively.

(4) Includes commitment, letter of credit and other bank fees from both consolidated and unconsolidated investments, net of capitalized interest and interest income.

(5) Adjusted Free Cash Flow, as reported, excludes changes in working capital, such that it is calculated on the same basis as our guidance.

In the following table, we have reconciled our Adjusted EBITDA to our Commodity Margin, both of which are non-GAAP measures, for the three months ended March 31, 2017 and 2016. Reconciliations for both Adjusted EBITDA and Commodity Margin to comparable U.S. GAAP measures are provided above. Amounts below are shown exclusive of the noncontrolling interest (in millions):

      Three Months Ended March 31, 
      2017      2016 
Commodity Margin      558        580   
Other revenue                 
Plant operating expense(1)        (205        (181 
Sales, general and administrative expense(2)        (35        (33 
Other operating expenses(3)        (12        (13 
Adjusted EBITDA from unconsolidated investments        15          16   
Other                —   
Adjusted EBITDA      326        374   

_________

(1) Shown net of major maintenance expense, stock-based compensation expense, non-cash loss on dispositions of assets and other costs.

(2) Shown net of stock-based compensation expense and other costs.

(3) Shown net of operating lease expense, amortization and other costs.

Adjusted Free Cash Flow Reconciliation

In the following table, we have reconciled our cash flows from operating activities to our Adjusted Free Cash Flow for the three months ended March 31, 2017 and 2016 (in millions):

      Three Months Ended March 31, 
      2017      2016 
Cash provided by operating activities      94        31   
Maintenance capital expenditures        (50        (40 
Tax differences        (3        (2 
Adjustments to reflect Adjusted EBITDA from unconsolidated investments and exclude the non-controlling interest        (5         
Cash debt extinguishment cost        18          —   
Capitalized corporate interest        (7        (4 
Changes in working capital(1)        12          118   
Other(2)        (16        (10 
Adjusted Free Cash Flow      43        102   

_________

(1) Adjustment excludes $(13) million and $10 million in amortization of acquired derivatives contracts for the three months ended March 31, 2017 and 2016, respectively.

(2) Adjustment primarily represents miscellaneous items excluded from Adjusted EBITDA that are included in cash flow from operations.

Adjusted EBITDA and Adjusted Free Cash Flow Reconciliation for Guidance (in millions)

Full Year 2017 Range:      Low      High 
GAAP Net Income (1)      78        228   
Plus:                 
Debt extinguishment costs        24          24   
Interest expense, net of interest income        625          625   
(Gain) on the sale of assets, net        (27        (27 
Depreciation and amortization expense        685          685   
Major maintenance expense        310          310   
Operating lease expense        25          25   
Other(2)        80          80   
Adjusted EBITDA      1,800        1,950   
Less:                 
Operating lease payments        25          25   
Major maintenance expense and maintenance capital expenditures(3)        435          435   
Cash interest, net(4)        620          620   
Cash taxes        10          10   
Adjusted Free Cash Flow      710        860   

_________

(1) For purposes of Net Income guidance reconciliation, mark-to-market adjustments are assumed to be nil.

(2) Other includes stock-based compensation expense, adjustments to reflect Adjusted EBITDA from unconsolidated investments, income tax expense and other items.

(3) Includes projected major maintenance expense of $315 million and maintenance capital expenditures of $120 million. Capital expenditures exclude major construction and development projects.

(4) Includes commitment, letter of credit and other bank fees from both consolidated and unconsolidated investments, net of capitalized interest and interest income.

OPERATING PERFORMANCE METRICS

The table below shows the operating performance metrics for the periods presented:

      Three Months Ended March 31, 
      2017      2016 
Total MWh generated (in thousands)(1)(2)      20,824        24,125   
West      5,449        6,418   
Texas      9,398        11,249   
East      5,977        6,458   
             
Average availability(2)      87.3      89.9 
West      86.3      90.3 
Texas      86.9      86.6 
East      88.5      92.8 
             
Average capacity factor, excluding peakers      42.8      47.4 
West      36.3      42.9 
Texas      48.8      56.0 
East      41.5      40.6 
             
Steam adjusted heat rate (Btu/kWh)(2)      7,346        7,264   
West      7,336        7,329   
Texas      7,121        7,049   
East      7,718        7,597   

________

(1) Excludes generation from unconsolidated power plants and power plants owned but not operated by us.

(2) Generation, average availability and steam adjusted heat rate exclude power plants and units that are inactive.

__________

(1) Includes amortization included in Commodity revenue and Commodity expense associated with intangible assets and amortization recorded in interest expense associated with debt issuance costs and discounts.

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd