Capital Power Corporation

Thank you for standing by. This is the conference operator. Welcome to Capital Power's second quarter 2023 results conference call. As a reminder, all participants are in listen-only mode, and the conference call is being recorded today, August 2nd, 2023. I will now turn the call over to Mr. Randy Ma, the Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to review Capital Power's second quarter 2023 results, which we released earlier this morning. Our second quarter report and the presentation for this conference call are posted on our website at CapitalPower.com. Joining me this morning are Avik Day, President and CEO, and Sandra Haskins, Senior Vice President, Finance and CFO. We will start with opening comments and then open the lines to take your questions. Before we start, I would like to remind everyone that certain statements about future events made on the call are forward-looking in nature and are based on certain assumptions and analysis made by the company. Actual results could differ maturely from the company's expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward-looking information on slide two. In today's discussion, we will be referring to various non-GAAP financial measures and ratios as noted on slide three. These measures do not define financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and therefore are unlikely to be comparable to similar measures used by other enterprises. These measures are provided to complement the GAAP measures which are provided in the analysis of the company's results for management's perspective. Reconciliations of these non-GAAP financial measures to their nearest GAAP measures can be found in our second quarter 2023 MV&A. Before I turn it over to Abak, I want to acknowledge that Capital Powers head office in Edmonton is located within the traditional and contemporary home of many Indigenous peoples of the Treaty 6 region and the Métis Nation of Alberta Region 4. We acknowledge the diverse Indigenous communities that are in these areas and whose presence continues to enrich the community and our lives as we learn more about the Indigenous history of the lands on which we live and work. Okay, over to Abak for his remarks starting on slide four.

Thanks, Randy, and good morning. I am now three months into my tenure as CEO for the organization, and I'm grateful for the warm welcome and enthusiastic engagement from my colleagues around North America. I've also had the opportunity to meet several of you from the analyst community and look forward to connecting with those of you I have not met in the future. In my introductory comments to my colleagues a few months ago, I spoke of capital power embarking on an evolution not revolution. The company's historic success has been underpinned by a determined focus on delivering reliable, affordable, and sustainable power generation solutions. This strategy has been historically grounded in a belief that owning and optimizing critical natural gas generation, building new renewables capacity, and delivering low-carbon solutions through batteries and applying decarbonization technology to our existing fleet would deliver attractive growth. This was, is and will continue to be the bedrock of our future forward strategy. During the second quarter, we were negatively impacted by an untimely outage. In addition, we had a number of developments, all of which are firmly aligned with our long term strategy and approach. In the slides ahead, Sandra and I will discuss these updates now. Firstly, The Genesee 1 and 2 repowering project is a material and impactful project for our company. Our June 29th news release outlined our update on a cost increase and schedule delay. Notwithstanding that update, the project continues to be highly attractive as the repowering project will significantly improve performance and reduce emissions. Secondly, our midlife natural gas strategy continues to deliver results. With the award of a long-term contract at East Windsor and contract extension at York Energy Center, Capital Power has now secured extensions and or expansions at all three of our gas power generation facilities in Ontario. This is in addition to two new battery storage awards at our existing plant sites. Combined with our existing capacity, The company will have more than 1,500 megawatts of capacity in Ontario. On the renewable energy side, we continue our growth of solar. We executed a 25-year PPA for our Maple Leaf solar project in North Carolina and have well-positioned solar projects we're bidding into competition. To increase our competitiveness and support our solar development growth pipeline, we have secured a strategic sourcing solar module contract with First Solar. Notably, this solar PPA, along with the newly awarded Ontario contracts, has extended the average remaining contract term of our contracted facilities. And lastly, we remain steadfast in our ambition to decarbonize our natural gas fleet. We continue to advance decarbonization technologies with our Genesee carbon capture project. Let's go into the details. A key example of our leadership in the energy transition, our Genesee 1 and 2 repowering project is one of the largest commercial scale projects of its kind. The repowering project delivers incremental capacity of 500 megawatts to a total capacity of 1,388 megawatts, an increase of 63%. In addition, The pro forma site will benefit from the extension of the asset useful life and deliver long-term cash flow growth. The repowered units will have improved emission intensity, performance, and competitiveness. It will be utilizing the best-in-class natural gas combined cycle technology with a heat rate advantage over all currents and announced natural gas facilities that repositions it low on the merit curve. In late June, we provided an update on the Genesee 1 and 2 repowering project schedule and costs. Due to construction delays, we have revised the commissioning timelines. As shown on the slide, the start of simple cycle commissioning will begin in December of this year for Unit 1 and in March 2024 for Unit 2. This will be followed by the start of combined cycle commissioning of Unit 1 in April 2024 and June 2024 for Unit 2. We expect to continue blending natural gas with coal to align with the repowering commission schedule in 2024 and ensure reliability and affordability of the Alberta power grid. Turning to slide 6, I'll touch on the Genesee repowering project cost. The revised budget for the project is now $1.35 billion. This is a $73 million net increase from the $1.277 billion cost that we provided at our Investor Day last December, which included the cost of repowering and the addition of battery storage. The changes from then to now include a $268 million increase from cost escalations and increased labor costs at the repowering project. On batteries, we have developed an innovative alternate solution to meet the MSSC limit, which received conditional ASO approval, thus saving the $195 million through cancellation of the battery storage. That results in a $73 million increase from $1.277 billion that we communicated at Investor Day in 2022 to to the $1.35 billion, which we communicated at the end of June. From an equipment perspective, the majority of materials are onsite, and based on the progress made to date on Unit 1, we have substantially locked down the scope of project as the learnings from Unit 1 will be applied to Unit 2. However, the project costs have been impacted by a shortage of skilled labor that is industry-wide. We are addressing this issue through competitive attraction and retention packages, which will secure the resources we need through to the completion of the project. We also continue to work with our contractors to maximize labor productivity and address absenteeism, which we believe will be effective in mitigating further labor cost increases on the project. Despite the higher project costs, the returns continue to be strong. Turning to slide seven, in Ontario, we have been an active participant in ISO's expedited call for new power generation and capacity in high priority areas to help address ISO's forecasted shortfall. We have been successful on five projects that will add approximately 350 megawatts of capacity to our Ontario operations with the start of commercial operations in 2025 for all projects. The successful projects include 106 megawatt natural gas expansion at our East Windsor facility and battery storage projects at both York Energy and Gorway. The combined cost of these three projects are estimated at $655 million. The contract terms are approximately 15 years for the East Windsor expansion and approximately 22 years for the battery storage projects. In addition, we were successful with capacity upgrades of 40 and 38 megawatts at Gorway and York Energy that resulted in contract extensions. Overall, the achievements in Ontario continues to validate our midlife natural gas strategy of acquiring well-positioned assets in markets with strong fundamentals, enhancing, upgrading, and expanding the facility and extending their contracts. Furthermore, the deployment of battery storage on existing natural gas sites demonstrates the strategic value of these sites and incumbent market position to deliver low carbon growth. Moving to slide eight, we see attractive growth opportunities for solar in North Carolina. As I mentioned earlier, we executed a 25-year fixed price renewable PPA for our Maple Leaf solar project with Duke for 100% of the output. The project cost is approximately 219 million with expected commercial operations in the fourth quarter of 2026. We also have three well-positioned solar projects totaling 160 megawatts that we are bidding into Duke's 2023 solar procurement RFP in September. To support our U.S. solar development pipeline, totaling nearly 2.4 gigawatts, we have secured our first order for one gigawatt of responsibly produced ultra-low carbon solar modules. This will help increase the competitiveness of the solar projects as the use of U.S.-made products will qualify for domestic content under the Inflation Reduction Act. Turning to slide nine, Decarbonizing Genesee with our Genesee carbon capture project. We have now completed our technical assessment, including the feed study, with positive results. We continue to advance the commercial and financing components of the carbon capture project. Productive discussions with government entities are ongoing, and there is strong support for the project to advance the decarbonization of Alberta's grid. There is also supportive funding through various programs. Discussions continue on a carbon assurance mechanism to de-risk our project from future government carbon legislation. A final investment decision will be made when the carbon assurance mechanism has been negotiated. An update on FID timing will be provided once there is a material update to commercial negotiation. Turning to slide 10, this morning we announced our 10th consecutive year of dividend growth with a 6% dividend increase effective for the third quarter 2023 dividend. Over the past decade, we have delivered an annual compounded dividend growth of approximately 7%, and our dividend growth guidance continues at 6% per year out to 2025. I'll now turn it over to Sandra to discuss our second quarter results and outlook for 2023.