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Calpine Reports Third Quarter Results, NARROWS 2015 GUIDANCE AND PROVIDES 2016 GUIDANCE

The following excerpt is from the company's SEC filing.

Summary of Third Quarter 2015 Financial Results

(in millions, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

% Change

Operating Revenues

Commodity Margin

Adjusted EBITDA

Adjusted Free Cash Flow

Per Share (diluted)

Net Income

Net Income, As Adjusted

Narrowing 2015 and Providing 2016 Full Year Guidance

$1,965 - 2,000

$1,800 - 1,950

$825 - 860

$710 - 860

Per Share Estimate (diluted)

$2.25 - 2.35

$2.00 - 2.40

Recent Achievements:

Power Operations:

Generated a third quarter record of more than 33 million MWh

Achieved low third quarter fleetwide forced outage factor: 1.8%

Delivered strong fleetwide starting reliability: 98.6%

Customer-Oriented Origination Efforts:

Completed acquisition of leading retail provider Champion Energy for $240 million

Executed a 238 MW one-year resource adequacy contract with Southern California Edison for our Pastoria Energy Center

Capital Allocation Progress:

Announced acquisition of Granite Ridge Energy Center, a combined-cycle power plant in New Hampshire with a nameplate capacity of 745 MW, for $500 million

, or approximately $671/kW

Completed approximately $529 million of share repurchases year-to-date, reducing our share count by approximately 7%; an incremental $54 million since last call

Issued notice of intent to redeem 10% of our 2023 First Lien Notes

_________

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

Refer to Table 1 for further detail of Net Income, As Adjusted.

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

Excluding working capital adjustments.

Calpine Reports Third Quarter 2015 Results

(HOUSTON, Texas) October 30, 2015 – Calpine Corporation (NYSE: CPN) today reported third quarter 2015 Adjusted EBITDA of $791 million, compared to $745 million in the prior year period, and Adjusted Free Cash Flow of $576 million, or $1.61 per diluted share, compared to $506 million, or $1.26 per diluted share, in the prior year period. Net Income

for the third quarter of 2015 was $273 million, or $0.76 per diluted share, compared to $614 million, or $1.52 per diluted share, in the prior year period. Net Income, As Adjusted

, for the third quarter of 2015 was $347 million compared to $306 million in the prior year period. The increases in Adjusted EBITDA, Adjusted Free Cash Flow and Net Income, As Adjusted

were primarily due to higher Commodity Margin driven by the acquisition of our Fore River Energy Center in November 2014 and the commencement of operations at our Garrison Energy Center in June 2015, as well as higher regulatory capacity revenue in PJM.

Year-to-date 2015 Adjusted EBITDA was $1,586 million, compared to $1,604 million in the prior year period, and Adjusted Free Cash Flow was $745 million, or $2.02 per diluted share, compared to $735 million, or $1.77 per diluted share, in the prior year period. Net Income

for the first nine months of 2015 was $282 million, or $0.77 per diluted share, compared to $736 million, or $1.77 per diluted share, in the prior year period. Net Income, As Adjusted

, for the first nine months of 2015 was $318 million compared to $359 million in the prior year period. The decreases in Adjusted EBITDA and Net Income, As Adjusted

, were primarily due to lower Commodity Margin driven largely by a significant decrease in power and natural gas prices in our East region in the first quarter of 2015, given the unusually high price levels experienced during the polar vortex events in the prior year period, as well as net portfolio changes and lower regulatory capacity revenue in PJM. The increase in Adjusted Free Cash Flow was due to lower interest expense compared to the prior year period, which more than offset the decline in Adjusted EBITDA.

“I am pleased to report another solid quarter, with record generation volume of 33 million MWh, top quartile safety performance and continued commercial success,” said Thad Hill, Calpine’s President and Chief Executive Officer. “As a result, we are narrowing our 2015 Adjusted EBITDA guidance to a range of $1.965 billion to $2.0 billion. This is within our prior guidance range and reflects an adjustment for the projected impact of the Valley wildfire in Northern California on The Geysers geothermal facilities, which we previously announced. I would like to recognize our team at The Geysers whose extraordinary efforts have resulted in production already reaching approximately 575 net MW, or nearly 80% of full capacity.

“With respect to capital allocation, during the past quarter we completed the acquisition of retailer Champion Energy, announced the acquisition of the Granite Ridge Energy Center in New England, and continued to return capital to shareholders through share repurchases. These are further examples of our ability to source and execute accretive transactions.

“Looking to next year, we are pleased to introduce 2016 Adjusted EBITDA of $1.8 billion to $1.95 billion. Despite a decrease in year-over-year hedge value and lower capacity prices, through diligent cost control and operational excellence, we expect to deliver $2.00 to $2.40 of Adjusted Free Cash Flow Per Share. Based on the midpoint of our 2016 guidance range, our Free Cash Flow yield of approximately 15% at the current share price is attractive by comparison to the past three years’ average of 9%. While the Free Cash Flow yield is ultimately subject to market forces outside of our control, we believe that as macro commodity concerns ease and investors differentiate between companies, our currently high yield should return to the norm, making today an attractive entry point.

“I believe that the Calpine value proposition is even more compelling when taking into account our outlook over the next several years and the evolution of our business. First, there is as much as $250 million of known favorable drivers on the horizon between 2016 and 2018, without taking into account changes in natural gas and power markets — including a recovery in the Texas market — or new hedges. Secondly, our increased production this quarter affirms a clear trend over the near- to mid-term toward greater need for and utilization of our flexible and reliable natural gas-fired fleet. This trend is supported by abundant natural gas and penetration of renewables putting pressure on coal and nuclear baseload generation, increasingly stringent environmental regulation further challenging coal generation, the need to maintain reliability of supply to support the integration of intermittent renewables, and the emergence of pay-for-performance initiatives like the PJM Capacity Performance reform. In

conclusion, as I look at the opportunities before us, I am excited about the outlook for Calpine and its shareholders as we take steps toward long-term value creation.”

SUMMARY OF FINANCIAL PERFORMANCE

Third Quarter Results

Adjusted EBITDA for the third quarter of 2015 was $791 million compared to $745 million in the prior year period. The year-over-year increase in Adjusted EBITDA was primarily related to a $30 million increase in Commodity Margin, as well as an $11 million decrease in plant operating expense

. The increase in Commodity Margin was primarily due to:

the acquisition of our 731 MW Fore River Energy Center in November 2014 and the commencement of commercial operations at our 309 MW Garrison Energy Center in June 2015

higher regulatory capacity revenue, and

higher settled spark spreads in Texas in July and August 2015 compared to the same months in 2014, partially offset by

lower contribution from hedges and

lower spark spreads in the West due to lower natural gas prices during the third quarter of 2015 compared to the third quarter of 2014.

was $273 million for the third quarter of 2015, compared to $614 million in the prior year period. As detailed in Table 1, Net Income, As Adjusted

, was $347 million in the third quarter of 2015 compared to $306 million in the prior year period. The year-over-year improvement in Net Income, As Adjusted, was driven largely by higher Commodity Margin and lower plant operating expense, as previously discussed.

Adjusted Free Cash Flow was $576 million in the third quarter of 2015 compared to $506 million in the prior year period. Adjusted Free Cash Flow increased during the period primarily due to the increase in Adjusted EBITDA, as previously discussed.

Year-to-Date Results

Adjusted EBITDA for the nine months ended September 30, 2015, was $1,586 million compared to $1,604 million in the prior year period. The year-over-year decrease in Adjusted EBITDA was primarily related to a $55 million decrease in Commodity Margin, partially offset by a $29 million decrease in plant operating expense

as a result of net portfolio changes as well as lower equipment failure costs related to outages. The decrease in Commodity Margin was primarily due to:

a significant decrease in power and natural gas prices in our East region in the first quarter of 2015 compared to the prior year period, given the unusually high price levels experienced during the polar vortex events in the first quarter of 2014

the net impact of our portfolio management activities, including the sale of six power plants with a total capacity of 3,498 MW in our East region in July 2014, the acquisition of our Guadalupe and Fore River Energy Centers in February and November 2014, respectively, the commencement of commercial operations at our Garrison Energy Center in June 2015 and the completion of the expansions of our Deer Park and Channel Energy Centers in June 2014, and

lower regulatory capacity revenue in PJM, partially offset by

higher contribution from hedges that more than offset lower on-peak spark spreads across all of our regions, excluding the impact of the polar vortex events experienced during the first quarter of 2014, and

higher generation in Texas resulting from lower natural gas prices, which drove lower systemwide coal-fired generation during the nine months ended September 30, 2015.

Decrease 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 and nine months ended September 30, 2015 and 2014.

was $282 million for the nine months ended September 30, 2015, compared to $736 million in the prior year period. As detailed in Table 1, Net Income, As Adjusted

, was $318 million in the nine months ended September 30, 2015, compared to $359 million in the prior year period. The year-over-year decline was driven largely by:

lower Commodity Margin, as previously discussed, and

higher depreciation and amortization expense driven primarily by portfolio changes, partially offset by

as a result of portfolio changes, as well as a decrease in equipment failure costs related to outages and

lower interest expense due to a decrease in our annual effective interest rate.

Adjusted Free Cash Flow was $745 million for the nine months ended September 30, 2015, compared to $735 million in the prior year period. Adjusted Free Cash Flow increased during the period primarily due to lower interest expense, which more than offset the decrease in Adjusted EBITDA.

Table 1: Net Income, As Adjusted (in millions)

Net income attributable to Calpine

Impairment losses

(Gain) on sale of assets, net

Debt modification and extinguishment costs

Mark-to-market (gain) loss on derivatives

(1)(2)

__________

Shown net of tax, assuming a 0% effective tax rate for these items.

In addition to changes in market value on derivatives not designated as hedges, changes in mark-to-market (gain) loss also includes de-designation of interest rate swap cash flow hedges and related reclassification from AOCI into earnings, hedge ineffectiveness and adjustments to reflect changes in credit default risk exposure.

Non-GAAP financial measure, see “Regulation G Reconciliations” for further discussion of Net Income, As Adjusted.

REGIONAL SEGMENT REVIEW OF RESULTS

Table 2: Commodity Margin by Segment (in millions)

Variance

West Region

Third Quarter:

Commodity Margin in our West segment increased by $24 million in the third quarter of 2015 compared to the prior year period. Primary drivers were:

higher contribution from hedges and

increased generation resulting from a decrease in hydroelectric generation in the Pacific Northwest, partially offset by

lower power prices and spark spreads resulting from lower natural gas prices

the expiration of the operating lease related to our Greenleaf power plants in June 2015, and

a wildfire in northern California in September 2015 that negatively impacted our Geysers assets.

Year-to-date:

Commodity Margin in our West segment increased by $52 million for the nine months ended September 30, 2015, compared to the prior year period. Primary drivers were:

increased generation resulting from a decrease in hydroelectric generation in the Pacific Northwest, and

higher renewable energy credit revenue associated with our Geysers assets resulting from more favorable pricing in 2015, partially offset by

lower power prices and on-peak spark spreads resulting from lower natural gas prices

Texas Region

Commodity Margin in our Texas segment decreased by $82 million in the third quarter of 2015 compared to the prior year period. Primary drivers were:

lower contribution from hedges, partially offset by

higher settled spark spreads in July and August 2015 compared to the same months in 2014 and

higher generation due to stronger market conditions and lower natural gas prices that drove lower systemwide coal-fired generation.

Year-to-date:

Commodity Margin in our Texas segment decreased by $61 million for the nine months ended September 30, 2015, compared to the prior year period. Primary drivers were:

lower contribution from summer hedges and

lower on-peak spark spreads resulting from lower natural gas prices, partially offset by

the acquisition of Guadalupe Energy Center in February 2014 and the expansions of our Deer Park and Channel Energy Centers in June 2014, and

East Region

: Commodity Margin in our East segment increased by $88 million in the third quarter of 2015 compared to the prior year period. Primary drivers were:

the acquisition of Fore River Energy Center in November 2014 and the commencement of commercial operations at our Garrison Energy Center in June 2015

higher regulatory capacity revenues, and

a new contract on our Osprey Energy Center, which became effective in the fourth quarter of 2014.

Commodity Margin in our East segment increased by $35 million for the nine months ended September 30, 2015, compared to the prior year period, after excluding a decrease of $81 million resulting from the sale of six power plants with a total capacity of 3,498 MW on July 3, 2014. Primary drivers were:

higher generation driven by lower natural gas prices, and

a new contract on our Osprey Energy Center, which became effective in the fourth quarter of 2014, partially offset by

a significant decrease in power and natural gas prices in the first quarter of 2015 compared to the prior year period, given the unusually high price levels experienced during the polar vortex events in the first quarter of 2014, and

lower...


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