Capital Power Corporation

Good day. Thank you for standing by. Welcome to the Capital Power Second Quarter 2025 Analyst Conference Call. At this time, all participants are on the listen-only mode. After this speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. Please note that today's conference may be recorded. I will now hand the conference over to your speaker host, Roy Arthur. Vice President, Strategy 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 to review Capital Power's second quarter 2025 results, which we published earlier today. Our second quarter report and presentation for this conference call are available on our website. During today's call, our President and CEO, Adam Day, will provide an update on our business. Following that, Sandra Haskins, SVP Finance and CFO will review the quarter end and year-to-date financials for the company in addition to our revised guidance for 2025. Abbott will then conclude the formal part of the presentation before we open the floor to questions from analysts in our interactive Q&A. 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 material from the company's expectations due to material risks and uncertainties associated with our business. Please refer to the cautionary statement on forward-looking information on slide three or our regulatory filings available on CDAR+. In today's discussion, we'll 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 by other enterprises. These measures are provided to complement the gap measures, which are provided in the analysis of the company's financial results from management's perspective. Reconciliations of these non-gap financial measures to their nearest gap measures can be found in our quarterly financial statements. We acknowledge that Capital Power's head office in Edmonton is located within the traditional and contemporary home of many Indigenous peoples of Treaty 6 region. and the Métis Nation of Alberta Region 4. We acknowledge the diverse Indigenous communities that are in these areas, whose presence continues to enrich the community and our lives as we learn about the Indigenous history of the land on which we live and work. With that, I will hand it over to Abik.

Thank you, Roy. Good morning, everyone, and thank you for joining us today. In the second quarter of 2025, we announced and closed our largest acquisition to date, adding 2.2 gigawatts of capacity. This transaction is part of a significant transformation of our business over the past three years, which we will explore in more detail throughout the presentation. Key highlights from Q2 2025 include reaching commercial operation on our Goreway upgrade project with an extended contract term to 2035, progressing growth projects totaling approximately 610 megawatts of capacity, delivering 9 terawatt hours of power across our strategically positioned portfolio, including contributions from our newly acquired PGM assets. And lastly, continuing to deliver operational excellence by optimizing and maintaining our assets, completing 62% of our scheduled outage days for the year. This includes 18 planned turnarounds, 14 on our flexible generation assets, and four on our renewable fleet. In summary, we continue to make tangible progress in delivering on our strategy. None of this would be possible without the enormous contribution of our people, from our exceptional operational staff to our corporate services team and everyone in between. Capital Power is truly a leading North American independent power producer of scale. Our recent transformation has created a more resilient, diversified, and growth-oriented business, anchored by one of the most efficient gas fleets in North America. This, combined with our ability to operate, expand, and optimize safely, efficiently, and economically, continues to set us apart from our peers. We now have operations across five core markets, which means our portfolio is less exposed to the volatility of any single market, enhancing the stability of our cash flows and reinforcing our investment grade credit rating. During the past three years, we've maintained our track record of delivering compelling risk-adjusted returns and are better positioned than ever to grow and create long-term shareholder value. Between 2022 and 2025, we have delivered impressive growth in our U.S. flexible generation portfolio, positioning us as one of the top five natural gas independent power producers in North America. We have expanded our flexible generation asset base by approximately 5 gigawatts and now have over 10 gigawatts of flexible generation capacity in Canada and the U.S. Our growth has largely been through M&A and concentrated in core markets with strong fundamentals. We continue to see opportunities to acquire generation capacity for significantly less cost than new builds. As a result of our significant growth and entry into new markets, we now have 12 gigawatts of total capacity with no single market representing more than 30% of our portfolio. In each of our core markets, we continue to see strong fundamentals. Growing demand has outpaced additions of new supply, driving increased capacity and energy prices in regions such as PJM and MISO. And continued growth demand in Ontario has resulted in more calls for power. Across our portfolio, recontracting continues to be a strong priority for our business. As we strive to maximize the value of the existing generation, current fundamentals give us confidence in the ability to re-contract at compelling prices for longer duration than we have seen in the past. We are engaged in multiple negotiations to extend our current contracts given the growing need for reliable and affordable power across North America. In PJM, where we have recently added 2.2 gigawatts of generation, there is strength in both capacity and energy pricing. Capacity payments typically represent about one-third of the total gross margin from our PJM business, with the remainder coming from energy sales. PJM is the most liquid power trading market globally, an important factor for maximizing value for an organization like ours. This liquidity means access to a broad, high-quality set of counterparties and enables us to transact across a wide range of durations in this rising price environment. Since closing the acquisition, we've moved quickly to implement significant hedges and other contracts covering the balance of 2025 and beyond. We've executed these at pricing levels aligned with our business case and at a pace far exceeding what would be possible in Alberta. The benefits of a diversified portfolio are especially clear when we examine single variable sensitivity to energy price changes in our merchant markets. For example, if we were fully unhedged, a $5 per megawatt hour change in PJM prices would result in a 4% to 5% change in full year adjusted EBITDA. In contrast, the same price movement in Alberta would have a smaller impact, approximately 3% to 4% going forward. This is a significant move down from approximately 7% to 8% in 2023. Our other merchant markets in the US are smaller and contribute even less to overall volatility. So despite having greater merchant capacity in the portfolio, we expect reduced volatility of our cash flows. We have already taken steps and will continue to do so to actively manage risk through hedging in both Alberta and TJM. Our Genesee repowering project is an excellent example of how our growth efforts have contributed to our superior portfolio positioning. Since 2023, Alberta pool pricing has declined by approximately 70%. Despite this decline, Our 2025 year-to-date clean spark spreads at Genesee 1 and 2 have increased through a combination of improved efficiency, lower carbon intensity, and hedging. Our repowered units are now the most efficient in Canada. We've also reduced their carbon intensity below the Alberta tier benchmark threshold, which means we currently pay no carbon tax on these units. Finally, we continue to actively hedge power pricing and input costs to stabilize returns. Overall, through our resilient asset base, Alberta remains a market where we can harvest returns in the short and long term. This includes data center opportunities. Genesee is well positioned to benefit from any data center demand that comes to the province. That said, We continue to believe it represents one of the most compelling sites in North America for a gigawatt-scale data center to be co-located. It offers a comprehensive solution that balances affordability and reliability concerns and allows for a gigawatt-scale data center to move forward in a timely fashion, which is critical in the market today. Under ASO's large load interconnection process, a one gigawatt project is not viable under phase one. However, we will continue to pursue the one gigawatt scale option through phase two and further consultation with government. In addition, we chose not to pursue a smaller project at Genesee. However, we will pursue opportunities to provide PPAs to other DC projects that require a generation partner with available dispatchable power today. The Genesee repowering project, which moved us off pole and our accretive acquisitions have reinforced our strong asset positioning relative to industry peers. We operate a younger, more efficient fleet an important advantage in merchant markets where higher efficiency translates into stronger returns across the cycle. Further, the younger age of our assets implies a longer remaining useful life, which enhances our competitiveness for long-term contracting opportunities. These contracts are key to driving both improved returns and greater stability of our cash flows. With that, I will hand it over to Sandra to walk through our funding considerations and financial results before I conclude the call and open the floor to questions.

Thanks, Avik. We are proud of our growth and how we have funded it. Our approach has been balanced and based on our ability to access multiple pools of low-cost capital. Most recently, we proudly executed our inaugural U.S. debt issuance on the back of getting our third investment grade credit rating from Fitch at BBB minus. This $1.2 billion private offering was multiple times oversubscribed for both the three-year and 10-year tranches. Our debt maturity profile continues to be well-laddered, which reduces refinancing risk in any given year. From an equity perspective, We have been highly successful in accessing discrete common equity. Our ability to deliver sustainable growing dividends while maintaining a low risk capital structure and investing in high quality growth sets us apart from our IPP peers. Reflecting on our recent efforts, we're proud to have completed and achieved commercial operation of our largest growth project, closed the largest acquisition in our history and expanded into a new U.S. market, increased our dividend by 6%, all while remaining within our guardrails from a payout and leverage perspective. These achievements underscore our strong positioning for continued growth. Now let's dive into our Q2 2025 results. Capital Power delivered strong financial and operational performance. Adjusted EBITDA was $322 million, which was flat year over year, driven by the diversification of our U.S. flexible generation contributions, offset by the sell-down of PDN and Quality Wind in Q4 2024, and lower renewable resource in 2025. AFFO reached $235 million, up $57 million from Q2 2024, driven by lower income tax, reduced sustaining capital and settlement of coal compensation. These gains were partially offset by higher financing costs from recent debt issuances and lower joint venture contributions. Overall, the quarter reflects our ability to execute our strategic priorities amid macroeconomic uncertainty. This slide breaks down adjusted EBITDA variance across our four new reporting segments. Our US flexible generation is up 10% in Q2 2025, driven by partial contributions from PGM assets and strong dispatch performance. Our Canadian flexible generation is up 2%, supported by strong Alberta dispatch and lower emissions costs. Repowered Genesee units, which incurred minimal carbon tax, enabled margin expansion despite a $5 per megawatt hour drop in captured price. And finally, our renewables portfolio continues to contribute meaningfully, though adjusted EBITDA declined year over year due to lower wind resource in Canada and the US. The values in this table are fully consolidated for comparability purposes with prior periods. For the first half of 2025, adjusted EBITDA was $689 million, up $77 million from the same period in 2024. Key drivers included stronger contributions from our U.S. flexible generation portfolio, reflecting full period results from La Paloma and Harkawalla, which closed February 2024, and the addition of Hummel Station and Rolling Hills, which closed June 2025. lower emissions costs from our Canadian flexible generation portfolio driven by the Genesee repowering, and reduced corporate expenses primarily driven by lower salary costs. AFFO totaled $454 million, up $126 million year-over-year, driven by the same factors noted in the Q2 variance, most notably tax recovery, lower sustaining capital, and coal compensation settlement, partially offset by higher financing costs. Due to the addition of Hummel and Rolling Hills to our portfolio, we have updated our 2025 full-year guidance. The revised adjusted EBITDA range is now projected to be between $1.5 billion and $1.65 billion, reflecting nearly seven months of contributions from the newly acquired PGM assets. The range continues to be supported by our strong long-term contracts and prudent risk management activities across our uncontracted assets. The revised AFFO range is expected to be between $950 million and $1.1 billion, a significant increase from original guidance due to the favorable tax impacts and the newly acquired assets. Sustaining capital is now forecast between $215 million and $245 million, covering over 40 planned outages. These revisions reinforce our confidence in the strategy and our ability to deliver strong financial performance. With that, I will hand it back to Avik to conclude the call.

Thanks, Sandra. To recap, the transformation of our business has created a more resilient, diversified economy and growth-oriented platform with one of the most efficient natural gas fleets in North America. Our ability to operate safely, efficiently, and economically is what distinguishes us from our peers. As we look forward, we have multiple ways to win from both organic and inorganic growth perspective. Our business is comprised of a young and efficient fleet strategically positioned in markets with strong fundamentals. We have a proven ability to deliver rooted in disciplined capital allocation and a strong balance sheet, which has driven our compelling 10-year total shareholder returns of approximately 15% per year. We are a leading North American independent power producer positioned to capture value in markets that are expanding. We are excited about the future and the opportunities we see unfolding in this sector. Before we start Q&A, I'm pleased to announce that we will be hosting our 2025 Investor Day event on December 9th and 10th in Toronto. We will provide more details in due course. Capital Power's leadership team is excited to connect with our investors at this event. We appreciate your continued support of our business. I will now hand it over to the operator to start Q&A.

Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, you will need to press Star 1-1 on your touch-tone telephone and wait for your name to be announced. To withdraw your question, simply press Star 1-1 again. Please stand by while we compile the Q&A roster. Our first question, coming from the line of Robert Hope with Scotiabank, your line is now open.

Morning, everyone. Just regarding the Genesee commentary on the data centers, they're not pursuing a smaller opportunity there. Are you able to monetize your allocation there? And as part of that, can you make a contingent that is included with some sort of PPA with the eventual build out there? And I guess secondly, how should we think about kind of the timing of phase two there?

Hi, Rob. Thanks. Let me just start by saying our business in Alberta is Genesee and Genesee is capital power. And if I was to characterize our Alberta business, I would say two things. It's resilient and it's positioned for growth when growth comes to Alberta. And, you know, the slide showed just in terms of our ability to capitalize on lower prices while increasing spark spread. why that's important for this data center conversation. We started on this data center journey two years ago in the US. We've been incredibly fortunate that we've been able to learn from our partners amongst data center providers, hyperscalers of what's required to build hyper data centers. And so that as a preamble, we have incredible flexibility on the Genesee site. As a leading generator in Alberta, our core business is to provide power. And so with this phase one, we do expect to be able to monetize our capacity by providing power to other data center projects, because that's our role in the province. And thereby actually preserving optionality on our site. Our physical site at Genesee is incredibly advantaged for a large hyper data center. We chose not to use that 375 megawatts for a smaller data center project because our site has the advantage of redundant access to fiber, which is critical for a large data center. Our site has access to transmission and distribution that would require no bulk system upgrades, thereby reducing costs for power for Albertans. And so preserving that optionality was important, but make no mistake, we will be a participant because we are a preeminent generator in the province, and those data center projects that require generation partners through PPAs, we will likely be a player there. So hopefully that answers the question. But, you know, it's an important positioning point for us because for us, data centers are a new customer for our generation capacity on both sides of the border. In Alberta, it's unique because we happen to have a very unique physical site.

I appreciate that. And then maybe to switch gears, there's a lot going on in the organization with integration of PGM and as well as data centers. When we think about incremental M&A, do you think you have enough horsepower to focus on transacting in the near term? And what does that market look like?

Just in PGM or more broadly?

more broadly?

Look, I think we have a 15-year track record of acquiring plants, integrating them, optimizing them, finding upgrades and expansions. Nothing has changed. This journey for us in terms of expansion, we identified this as an opportunity at our January 2024 Investor Day, and we've executed against it. I made this comment to our team this week, In my career, having been a serial acquirer and investor in assets and companies, I've never been involved in a transaction where we announced, financed, and closed the transaction of this size all in the same quarter. So our ability to execute, I think, is well established. In terms of forward opportunity, we're continuing to see inbounds, both bilateral and auctions. And I think what's really separating us is our ability to execute and operate efficiently and safely. Because what's underpinning the opportunity to acquire assets today is two things. The relative arb between the cost to purchase these assets and what the cost of new entry is continues to widen. But to be able to capture that value, you need to be able to come in, take ownership of these assets, and steward operational efficiencies, upgrades, expansions, and recontracting. And the broader universe of investors does not currently, it's not to say they can't build it, but they don't currently have the same capability and capacity, i.e. the people, to go execute that. So we feel pretty good about the acquisition pipeline, the expansion pipeline, the recontracting pipeline. All of that continues to get more favorable for us as a company. Thank you.

Thank you. Our next question, coming from the lineup, Hi, this is Tanner on for Julian.

How are you guys doing?

Great, Tanner.

Hi. So thank you for your commentary on the recontracting opportunity. Just a follow-up to that. Has the tenor of conversations with existing customers at all shifted given the recent inflationary data points for electricity prices? I know last quarter, Avik, you mentioned the you're always balancing options and that perhaps in the event you can't reach agreements on commercial terms, you could weigh options for expansion or co-location. Has that line of thinking evolved?

It has evolved only from the standpoint that we're seeing more interest in re-contracting and more parties coming to the table at our different facilities. But the context that's changing is we're able to have more comprehensive conversations around what a re-contracting looks like, whether it's term, it's pricing, it's how do we talk about further partnerships with potential off-takers, how do we parlay those conversations into broader discussions, whether it's through expansions or upgrade projects. So I think the tailwinds of increasing demand, reducing reliability, and the importance of addressing near-term grid firming requirements is opening up a broader opportunity set for recontracting. All of that is subject to utilities and their IRPs, and most importantly, us having strong working relationships with those utilities and load-serving entities, but we're excited about the opportunity set. We're not in a position to announce something now, but I would say things are progressing and we're having more conversations and they're moving forward in a positive direction.

Great. And switching gears here. On the PJM acquisition, now that you have the PJM assets in the portfolio, you've had a better look at them, are there further opportunities for upside to the accretion figures you initially provided? Perhaps specifically here, given the age and the composition of Rolling Hills, could there be some opportunity or some form of optimization or improvement relative to your initial expectations?

Thanks for the question, Tanner. What we're seeing right now is having owned the assets for just over six weeks is that they are performing in line with business case currently, but as we noted at the time of the acquisition is that we do see the ability for us to optimize and improve and then be able to do upgrades on the site as well. While nothing there is scheduled to occur in the immediate term here, we do expect that there will be the same opportunities with those assets as what we saw with other acquisitions where we're able to find some improvements and increase the accretion on those. And when we think about, you know, capital allocation to upgrades, expansions, whatnot, as we go into 2026 and the integration continues to go extremely well with these assets, is that the current development projects, now that repowering is done, Halkirk 2 and our solar projects in Ontario upgrades, is that we're going into 2026 with the expectation of having over $1 billion of discretionary cash flow that we'll be able to deploy to upgrades, to acquisitions, to expansion. So with that and leveraging that up allows us to do $2 billion in growth opportunities next year without even accessing the equity market. So expect that there's a lot of opportunity for us over the next 18 months to announce highly accretive growth initiatives.

Fantastic. Thank you very much.

Thank you. Our next question, coming from the line of Mark Jarvie with CIBC, Yolanis Melvin.

Hi, everyone. Just coming back to the comments, Rob's question, Genesee, sort of the path forward, the decision not to take the allocation to Phase 1, was that just the view that you couldn't get enough capacity initially to meet a customer demand or was it on the customer side where you didn't feel like you're getting traction and you decided to forego the opportunity for now, at least in taking that allocation?

Thanks, Mark. We and our partner did not see a path to securing 1,000 megawatts through Phase 1 that was required to go forward with our project. So I think, as I said, we're going to continue to advocate and pursue it together with our partner through Phase 2 and subsequent to that. But that was why we elected to go down the path that we did.

In terms of, I think you mentioned you could provide power to other data center operators. How do you balance that in terms of maybe locking in some offtake versus keeping the optionality open for a bigger gigawatt type opportunity at Genesee?

Great question. There's 1,200 megawatts that was accounted for by the ASO as available for generation for large loads starting in 2027. That does not include the capacity that we currently have installed at Genesee that's above the 466 MSCC limit. So it goes back to the original point I made around resilience and position for growth in Alberta. We, as a large generator with the most efficient and largest power plant in Alberta are in the middle of providing critical baseload power and have the flexibility to contract that capacity. So in our view, given where we stand on T&D and the fact that there isn't a significant investment in T&D required to co-locate a data center at our site, we believe we've got significant flexibility to not just provide PPAs to others in the short to medium term, but also to pursue the larger project on our site with a partner. I think the key point in all of this is it's not about the data center. It's about providing power generation to customers. This has been our core competency for 15 years in all the markets that we play and predominantly in our home market, which is Alberta. So for us, that was our calculus in making that decision to either elect, pursue more megawatts, and the decision we've ultimately made, which is we have an opportunity to provide a PPA and participate in Phase 2 just as a straight-up power provider, which requires no capital on our behalf, just the monetization of megawatts. while continuing to work with government and pursue what we think would be a transformative project, not just for Alberta, but for the country.

Just based on the phase one allocations, your choice to not move forward right now and maybe a bit longer timeline at Genesee, what's sort of the confidence level that you'll actually see that 1200 megawatts, that excess generation be absorbed by data centers by 28, 29 timeframe in Alberta?

I can't comment on what others are doing. I think we've been in the midst of a number of commercial organizations and feel confident that others are going to be able to execute smaller projects, which we welcome and think is great news for the province and the industry. And look, all new demand coming in and new industry coming in to create jobs and bring capital into Alberta is positive for The Alberta power industry, and with Genesee specifically, is positive for consumers around electricity pricing, which is where our focus is. So I think there will be projects done. We'll see where it comes out relative to the $1,200. But our business in Alberta is resilient. And I go back to the point that 60% of our business is focused in thriving and growing U.S. markets. So as we've demonstrated in 2025, our business, we increased our spark spread amongst the 70% drop-in price in 2025. And why that's important is it positions us well to provide off-takes to new customers in this province.

Maybe just moving to the U.S. business, talked about recontracting opportunities. We're also seeing on the gas supply, some of the producers and infrastructure firms become more involved on the power side of things. How do you think that's shaping in terms of gas supply, spark spread realization? Are you thinking more longer term if you lock in on the power supply that you sort of match that with gas supply or the sort of active dialogue there?

There's absolutely active dialogue across the entire gas to molecule to computed megabyte value chain. It's something that we're a huge advocate of because, as we said in January 2024, this is all going to be about balanced energy solutions and how you bring that value chain together. I think specifically around gas supply, midstream contracts, and firming up the infrastructure to provide gas generation capacity. That's more tied to IRP requests or around new generation capacity. We're not seeing that being as relevant to upgrades and expansions. So if you look at our business, which is primarily focused on acquiring mid-merit CCGTs and peakers and finding ways to uprate, expand, recontract those. The gas supply, for the most part, because our historic strategy for 15 years has been go in where there's firm gas supply, go in where there's existing T&D, it's less of a concern in the plants that we're targeting. but I think it's going to be a critical component to the broader ecosystem as it develops. Midstreamers are going to have to be part of the conversation for new build. Upstream companies are going to have to be part of the conversation as we continue to look at new builds, and utilities are considering that right now as they're looking at their IRPs and trying to firm up infrastructure build-out over the next decades. It's a critical point. That's the conversations that are happening amongst load-serving entities and RTOs right now.

Understood. Okay, thanks for your time today.

Thank you. And our next question, coming from the lineup, Maurice Choi with RBC Capital Markets. Your line is now open.

Thank you, and good morning, everyone. I just want to come back to the Alberta Data Center theme here. It's clear that Phase 2 is the focus for you and your stock, and you previously wrote that there were things in Phase 1 that were suboptimal. When you look at Phase 2, what tangibly do you think needs to be changed for your gigawatt scale data center opportunities to materialize?

Hey, Maurice. Thanks for the question. I think Phase 2 is really going to be dependent upon two things. One, how much capacity remains available from Phase 1 to be discussed in Phase 2, because Phase 2 will really be a conversation around what the glide path is to installed capacity. Phase 1 is where data centers and data center providers are going to have to put up a deposit to execute projects. But the long-term opportunity is how do we create an ecosystem that allows for new generation build and large-scale data centers to be installed and built in the province. Why we are so focused on our site as a hyper data center is all the ingredients exist for the customer. At the end of the day, this opportunity only exists because it's an economic one with access to market in a timely fashion. It's not a business we can create without creating the economic conditions for those customers to come in at scale and for duration. for an investment that'll be in the tens of billions of dollars. So we will be an active participant in phase two. The government and the ASO have been clear that in their allocation process that they thought the smaller allocations were the better way to go about it. We're supportive of that by virtue of us participating the way we hope to participate, but it doesn't take our foot off the gas of advocacy for this 1,000 megawatt site. So whether it's phase two or it's through further conversations and dialogue to identify a pathway for that 1,000 megawatt site, we'll continue down that path. And I think it's important also to recognize that we are not a data center provider. We're not in the data center business. What we're trying to do is firm up, bringing in new demand for the market in Alberta. Whether it's on our site or someone else's, we believe that having these large sites is in the best interest of all market participants.

Thanks. And just a quick follow-up to that. I know the system operator is beginning its engagement on a long-term framework perhaps later this year. Is it fair to say that given that timing, any gigawatt scale DC announcement you may make is possibly more of a mid-2026 onwards event?

Well, I think there's different elements to this, Maurice. I think the advantage Alberta has today, and I've said this publicly and at conferences and at multiple meetings with investors, the advantage Alberta has today is is we have a pathway to a large data center that can be in service by 2028. We've been incredibly fortunate with deep dialogue with a number of hyperscalers and data center providers over the last two years as this business is maturing rapidly. And what's been clear to us is the market is not focused on in-service states that are 2029, 2030, 2031. all of the attention of hyperscalers and data center providers as it relates to AI related compute is laser focused on 2027, 2028, and maybe first half of 2029. So that's why for us preserving the option value and continuing this advocacy is important because we've got, you know, a 12 gigawatt fleet across North America. we're seeing this play out in different markets. And we believe the best play for us is to continue to advocate for a quick in-service date because we've got the ingredients at Genesee to advocate for that. But again, I would go back to the point in terms of materiality for us and our business. Alberta is resilient and it's positioned for this growth whether it's our data centers or someone else's.

Understood. Maybe just to finish up on a strategy question, in your prepared remarks, you mentioned that you continue to see opportunities to acquire generation capacity for significantly less cost than new build. There clearly are some more PGM assets out there today. So just your view as to what the gating factors are when assessing these opportunities. For example, how big do you see PJM being as a percentage of your portfolio, or whether you need to see the thesis on Hummel and Rolling Hills play out before moving forward with more?

Look, I think, as I've said before, our capital allocation process, we've been very clear around how we allocate capital, what our return thresholds are, that above all else is driving where we deploy capital. We saw the strategic opportunity in PGM because of the market's construct, the size of the market, the complexity of the market with 13 jurisdictions, and then the tailwinds from multiple ways to win in terms of demand increased. That clearly has played out and we've been fortunate in our ability to negotiate and close a bilateral transaction of scale in that market. We continue to see opportunities to grow there. But I would not say that we're sitting here saying PJM will be four gig or five gig. We're sitting here saying let's go find those opportunities of high quality assets know young ccgts with a good heat rate or peaker sites with significant optionality where they've got existing gas supply access to t d and an opportunity for us to wholesale that's what we're looking for and so as we've high graded over time i think we continue to see those opportunities in pjm miso and lack obviously we think the opportunity is getting better in pjm The market signals there are excellent, but what's driving our capital allocation is going to be plant-level economics and our outlook against delivering against three things, upgrades, expansions, and recontracting. Simple.

Got it. Thank you very much.

Thank you. Our next question coming from the line of Patrick Kenny with NBF, Yolanda Smallman.

Thank you. Good morning. Ava, just back on the recent PGM capacity auction, you know, clearing above the price cap. Do you still see a risk in the cap coming down over the next two to three auctions through 26? Or, you know, perhaps would you see, would you have a bias towards the price cap continuing to move higher? And also, if you had an update on the unit at Rolling Hills coming back online later this year and just how that facility is positioned to participate in future capacity auctions.

Yeah, thanks for the question, Pat. Look, I think our answer hasn't changed from last quarter to this quarter in terms of our expectation for the PGA market. Obviously, this last auction coming out at the high end of the range was a surprise to many, but I think the market signals from the last auction, the delay, and what we're seeing on the demand side, certainly, as we said last year, we were comfortable with the bookends of the floor and the And I think this auction demonstrated that that floor and the cap was reasonable. At this point, I don't expect to see a change in that range. And I think we're in the same market construct of that 175 to 325. Now, you know, respect to the second part of your question, whether it's to the mid or to the high, you know, mid to high, I would reaffirm where we were. Like that midpoint when we gave our guidance on five-year average, we think is reasonable when you parlay all of the market factors, design factors around what's happening in the market. We on rolling hills, I would say six weeks into closing, we continue to maintain the same schedule that we had We've now had a chance to assess the plant and the opportunity set around it. Our balanced energy solution team has already put forward DC packages and are out to market on those. We feel pretty good about what our underwrite was. I think when we announced the transaction, we said it would take one to two quarters for us to figure out and quantify and qualify what the growth opportunities that at rolling Hills was. Um, so I'm not in a position to say definitively, you know, we expect, you know, this level, you know, how we'll participate in auction versus offtake or, you know, future expansions, but you know, all, all indications are, are things are looking favorable for us there.

Okay, great. I appreciate the update there. And then, um, switching to Alberta Power.

One last point I'd make on that, Pat, is we got to start early. I don't think we expected to be able to close in the same quarter we announced. So I think we've got a head start on integration versus our previous timelines and being able to frame up the opportunity set.

Yeah, good point. And then switching to Alberta Power prices, despite the small market remaining relatively weak here. It looks like the forward curve has at least rebounded somewhat recently. I'm not sure if that's solely a function of some of the REM design changes that were confirmed last month, or if perhaps you're seeing other market dynamics at play. And then as a follow-up, if you can comment on whether or not the REM design changes increases your desire to continue to diversify your portfolio outside of Alberta, or do these changes incentivize you to maintain your current exposure to the Alberta market?

Yeah, thanks. So on the first part of your question, I mean, clearly 26, 27, 28, we all saw the strip come up on the back of the large load allocation. So I think our view is that was the primary driver of pricing coming up and we continue to look to ways to hedge out as we historically have in that market. Our position on the market overall is on REM we need clarity. So we do have concerns around locational marginal pricing and transmission rights. That continues to be a focus for us. We've provided our full submission on feedback to the government on that, which will highlight that, and that will ultimately become the specifics of our feedback. It will become public sometime next quarter, but I think the market broadly knows that that's a concern amongst generators. And in terms of our position on Alberta is, we've got a resilient business. We've got the most efficient, largest gas plant in the province that's critical for baseload power. We take that responsibility very seriously. And it is a resilient portfolio that allows us to maximize and optimize the value that may go up over the medium to long term. And so from a capital allocation perspective, as we've demonstrated, we're clearly directing our capital towards those markets that we can convert investment into megawatts produced quickly, efficiently, and economically. So for us, playing that arb of buying capacity at a much lower cost than the cost of new entry, investing in it to upgrade, expand, and repower or repower or recontract, That's where our focus is, which today means PJM, MISO, and WECC. But for Alberta, we've got a very important business here. It's very resilient because of the investment we made in repowering it. And it's well positioned for upside when new demand comes into this market. But I would emphasize the point that we need to get through REM We need to address some of the concerns that we and others have so that we can give clarity to the broader market on how you invest in new generation in Alberta. And I think this ties back to the data center point. The data centers that will get built in Alberta before 2029 will be ones that leverage existing installed generation in the province. because new generation can't be built until REM gets resolved.

Yeah, that makes sense. What about on the U.S. renewable development front? So adding some horsepower with Roger coming on board, which is great, but with the sunset on U.S. tax credits, I'm wondering how that might change your 20% capital allocation target through 2029, at least until... You know, you have more clarity on government subsidies. Or on the flip side, does your decision not to pursue the Phase 1 Alberta data center opportunity perhaps open up a bit more dry powder to allocate towards U.S. renewables?

So I think, you know, Roger, our new head of U.S. renewables and corp dev, joined in early June. We are going through an assessment of the opportunity set in front of us in the U.S. right now. I think, as I've said in past orders, I think we see the opportunity as the bid-ask spread closes on renewables, in particular on the operating asset side, that it could be a competitive market for us to participate in because we can leverage our expertise for repowering and development and contracting. We have not seen that bid-ask spread close. So for me, the question around renewables is really around can we hit our return thresholds or not? And does it positively benefit shareholder value creation or not for us as a company? So I think that's something we'll have more clarity on between now and the end of the year. But I would say generally, where you have volatility in markets, it generally creates opportunity for investors. And where we have the advantage of understanding market structure, being able to trade and originate short, medium, and long-term, and the ability to develop and operate, it should bring compelling opportunities. But I think we've tremendously benefited over our history of being very disciplined around renewables. We didn't chase installed gigawatts. We only pursued projects that hit our return thresholds and that hasn't changed. So I can't comment today if our capital allocation will change or not because directionally it could go either way depending on what the market affords us as opportunities. If operating renewable assets that are 12 to 14 years in average contract length that have good transmission distribution access are miraculously trading at eight to nine times, which is probably where I think they should trade, given their margin relative on an EBITDA for KW basis relative to gas, then we might be a purchaser. So I've probably gone into more detail than you expected, but just that's a window into how I think about value.

Okay. No, that's great. I appreciate it. I'll leave it there. Thanks, Abigail.

Thank you. Our next question, coming from the line of John Mottwood, TD Cowan. Your line is now open.

Hi. Morning, everybody. Maybe going back to your partner for Genesee, you stressed the need for speed to market in this broader data center opportunity for the province. And I'd just like some clarity on the timeline of your partner. Appreciate you. you probably don't want to speak for them, but what timeline do they need for a one gigawatt facility, a Genesee to remain viable? Presumably at some point they'll, they'll look at a flare and you know, this one gigawatt opportunity doesn't have an, you know, an unlimited expiry date. Can you comment on that?

Well, I think the way to think about it, John is it's a, you know, if we can't build capacity in North America, that timeline keeps extending. So, Next year, 28 becomes 29. So, so long as the economic cost and our ability to bring something online within that two to three year timeframe, I think we'll continue to have that opportunity in Alberta. It's just, you know, the opportunity, the risk is is that other markets figure this out and provide incentives and make investments in infrastructure to facilitate large-scale investment. So it's not like there's a cliff in 2028. It's just those that can bring capacity on. And part of this issue is the following. When you're signing, if you have a million square foot hyper data center those data centers are phased it's not like you go build a you know it's all modular and clusters so it's not like you build a million square foot you know hall and then you're piling in racks you know starting starting COD what happens is and what's required is the hyperscaler requires the right to have access up to that total capacity or the commensurate power because on a rolling basis, they're ordering and procuring the chips and the racks to scale with the requirement. So this is the chicken and the egg of the data center opportunity, which is if you need this requirement for scale of 1,000 megawatts or a million square feet, You need to know that you've got the transmission and distribution and generation to meet that timeline and that ramp schedule. This is really all about the ramp and the guarantee for access to power and how you match capital and equipment coming in on a timely basis. So I don't think it goes away in 28. It's just we have this advantage because of how much generation we as the market participants have collectively installed and what access we have on the installed transmission distribution infrastructure in the province.

Okay, thanks for that. And maybe just apologies if this is repetitive, but just going back to the phase two timelines, you commented on that You're seeking to preserve your option value and continuing your advocacy there and advocating for a quick in-service date. Based on your conversations with ASO and the government so far, what's your confidence level that phase two could result in that relatively quick in-service date with the glide path that would be needed for something of a larger scale?

I don't think I could answer that with a confidence interval, but what I would say is I think we all want the same thing here. In the conversations with government, yes, we disagree on the allocation process for large loads in phase one. But I think all parties in this, whether it's the ASO or the Utilities Commission or the government more broadly, are keen to bring this industry to the province. We have a different view on how that should be allocated. But I think everyone's trying to work to the same end game here. And I will concede the ASO and the utilities ministry and the government are balancing multiple needs and considerations. So we are looking... at it through the lens of optimizing for ourselves and also to the benefit of consumers because of this advantage we have at Genesee. But I think everyone's keen to bring the industry here. So I'm optimistic, but we were on a timeline before this large load allocation that could have delivered. 27 or early 28. And so now, you know, we've got to go back to the drawing board, not based on the technical requirements of the project, but, you know, in terms of negotiating how we get a customer access to co-locate a 1,000 megawatt site at Genesee.

Okay, thanks for that. And maybe just apologies if I misheard this. The clarification on the allocation, which I think you may have said is about 370 megawatts, Are you not accepting it so it goes back into the pool for other proponents or selling it to another party that you believe will best put it to work and bring that load to the province?

What I would say at this point is we are looking to ensure that that load gets utilized and our monetization of it will be providing power. So we're keen to see the industry get going. So we're trying to be a constructive player within this phase one process. The benefit to us will be providing power.

Got it. Okay, maybe I'll just sneak one more in because you said new generation can't be built until the REM gets revolved. I'm wondering about the clean electricity regulations, what kind of dialogue you've had there with government since we've had a change in leadership and how that plays into your willingness to invest in gas in Canada currently.

Look, I think for Alberta, the question mark is equally around REM and clean electricity regs. Federally, it's obviously clean electricity regs. So that constraint exists nationally for new gas generation. Our concerns remain the same on clean electricity regs. We support the notion of CER, but we still have to see critical changes to the CER that allows for offsets that addresses emissions caps and specifically addresses end of life, end of prescribed life. So we have had conversations. I think our current government understands what the constraints around CER are, but I think we'll see how and if that translates into legislative change. But, you know, I think we've got an engaged and willing federal government that is listening and understanding what the concerns are, for sure.

Okay, I'll leave it there. Thank you for taking my questions.

Thank you. And as a reminder, to ask a question, please press star 1-1. Our next question, coming from the line of Benjamin Pham with BMO, your line is now open.

Hi, thanks. Good morning. A couple of clarification questions. I know a lot's been asked on phase one, phase two, and just a couple ones from me. On the one gig that you're targeting, is there an expectation you'll be phasing that in over a number of years? You expected to pop in right away?

Yeah, specifically for Alberta? That's right. It was always phased. I mean, it's why I mentioned to John's question, this whole process on hyper data centers, not one of them is COD day one, 100% deliverable. It's always a ramp schedule that's negotiated on behalf of and in coordination with the customer and their requirements. So it's not like they're going out and buying half a million NVIDIA chips. all for delivery for racks on day one. And each customer has different requirements based on location and use. But it's a ramp that could be over, you know, two years, three years, four years, depending on what the customer's needs are. So even in this, and that's the same for actually all data centers pretty much.

Okay. So I guess theoretically, in a sense, you had some good visibility on the first phase of this build, the plus 400 megawatts. It's more your lack of visibility on subsequent phases, what you needed to see.

Correct.

Okay. And then on phase two, how competitive do you think it could materialize? Because there's a lot of large-scale projects in the queue, which I think 20 gigawatts now, you give time for your competitors to catch up to you in a sense. But is really your key advantage here is really speed to market. Is that still your main primary benefit?

So, you know, if we are successful, there will be space for many projects. That's the objective here from a market perspective. You know, the scale requirements for AI and what's going to be required for inference computing, quantum computing, cloud and edge computing to support that inference computing, that rising tide will lift all boats. We are not concerned about other large projects because ultimately, location, location, location. the cheapest, quickest one will get built first. And we today believe that's our site because of largely transmission and distribution and the way the fiber is laid out in Alberta to be able to meet redundancy requirements. But that could be different two years from now. But great. Someone builds a 1,000 megawatt center and it's not at Genesee and they can do it before us or within a timeframe, I mean, that ultimately benefits us. But the long-term growth of this business is going to be predicated on building new generation alongside that new capacity. So this is why we come back to this point that where capital power has built and established generation with capacity and a T&D connect, while we're going through this REM process, our project is one that can be underwritten and we can get shovels in the ground for a customer while REM is getting sorted.

Okay, got it. Thank you. I'll leave it there.

Thank you. And I'm showing no further questions in the queue at this time. I will now turn the call back over to Roy Arthur for any closing remarks.

There are no more questions. This will conclude our conference call.

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