(HOUSTON, Texas) March 8, 2019 – Calpine Corporation today reported Net Income¹ of $10 million for the year ended December 31, 2018, compared to a Net Loss of $339 million in the prior year. The year-over-year increase in Net Income was primarily due to an increase in Commodity Margin² in each of our wholesale regional segments and a decrease in operating and maintenance expense driven by the timing of maintenance outage costs for the year ended December 31, 2018, when compared to 2017. Cash provided by operating activities for 2018 was $1,101 million compared to $949 million in the prior year. The increase in cash provided by operating activities in 2018 was primarily due to an increase in income from operations, adjusted for non-cash items, partially offset by an increase in working capital employed resulting from the year-over-year change in net collateral margining requirements associated with our commodity hedging activity. 

REGIONAL SEGMENT REVIEW OF RESULTS

Table 1: Commodity Margin by Segment (in millions)

West

Commodity Margin in our West segment increased by $90 million in 2018 compared to the prior year. Primary drivers were:

+    new contracts at our Metcalf and Sutter Energy Centers that became effective in 2018,

+    higher spark spreads and

+    higher generation, partially offset by

–    lower contribution from hedges.

Texas 

Commodity Margin in our Texas segment increased by $94 million in 2018 compared to the prior year. Primary drivers were:

+    higher spark spreads in ERCOT and

+    higher revenue associated with the sale of environmental credits in the first quarter of 2018 with no similar activity in 2017, partially offset by

–    lower contribution from hedges.

East 

Commodity Margin in our East segment increased by $180 million in 2018 compared to the prior year. Primary drivers were:

+    higher regulatory capacity revenue in PJM and ISO-NE,

+    higher spark spreads in ISO-NE and

+    a gain recorded during the first quarter of 2018 associated with the cancellation of a contract, partially offset by

–    lower contribution from hedges and

–    lower spark spreads in PJM.

Retail 

Commodity Margin in our Retail segment decreased by $39 million in 2018 compared to the prior year, primarily due to higher purchased energy and capacity supply costs in Texas and the Northeast.

LIQUIDITY, CASH FLOW AND CAPITAL RESOURCES

 Table 2:  Liquidity (in millions)

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Liquidity was approximately $1.4 billion as of December 31, 2018. Cash and cash equivalents decreased in 2018 primarily due to net repayments of debt, consistent with our announced plan to reduce leverage, partially offset by cash provided by operating activities.

Table 3:  Cash Flow Activities (in millions)

Cash provided by operating activities in 2018 was $1,101 million compared to $949 million in the previous year. The year-over-year increase was primarily due to an increase in income from operations, adjusted for non-cash items, partially offset by an increase in working capital employed resulting from the period-over-period change in net collateral margining requirements associated with our commodity hedging activity. 

Cash used in investing activities was $392 million during 2018 compared to $211 million in the prior year. The increase was primarily driven by increased capital expenditures associated with additional capitalization of seasonal maintenance outage costs, partially offset by a distribution received in 2018 from an unconsolidated subsidiary. 

Cash used in financing activities was $746 million during 2018 compared to $901 million in the prior year. Cash usage in both 2017 and 2018 is primarily driven by normal debt service payments during each respective period as well as the pay down of the $550 million 2017 First Lien Term Loan in 2017 and the repurchase of $390 million in aggregate principal Senior Unsecured Notes during 2018. Further, in 2019, through the date of this release, we repurchased an additional $48 million in aggregate principal of our Senior Unsecured Notes.

PG&E Bankruptcy

On January 29, 2019, PG&E and PG&E Corporation each filed voluntary petitions for relief under Chapter 11. We currently have several power plants that provide energy and energy-related products to PG&E under PPAs, many of which have PG&E collateral posting requirements. Since the bankruptcy filing, we have received all material payments under the PPAs, either directly or through the application of collateral. We also currently have numerous other agreements with PG&E related to the operation of our power plants in Northern California, under which PG&E has continued to provide service since its bankruptcy filing. We cannot predict the ultimate outcome of this matter and continue to monitor the bankruptcy proceedings.

Our power plants that sell energy and energy-related products to PG&E through PPAs, include Russell City Energy Center and Los Esteros Critical Energy Facility which both achieved commercial operations in 2013. As of December 31, 2018, our Consolidated Balance Sheet included $1.1 billion (including $169 million attributable to the noncontrolling interest) and $504 million (including $85 million attributable to the noncontrolling interest) in net long lived assets and non-recourse project finance debt, respectively, associated with these two power plants. Since the bankruptcy filing, we have received all material payments under both PPAs, either directly or through the application of collateral. We cannot predict whether the PPAs will be assumed through the bankruptcy proceeding, however, we believe that even if the contracts were not to be assumed, the undiscounted future cash flows of the power plants would exceed the carrying values of each of the facilities. We continue to monitor the bankruptcy proceedings for any changes in circumstances that would impact the carrying value of either power plant.

As a result of PG&E’s bankruptcy, we are currently unable to make distributions from our Russell City and Los Esteros projects in accordance with the terms of the project debt agreements associated with each related project. If PG&E does not seek to assume our PPAs through their bankruptcy proceedings, unless otherwise modified, we will incur an event of default under the Russell City and Los Esteros project debt agreements 180 days after the date of PG&E’s bankruptcy filing. We continue to monitor the bankruptcy proceedings and are assessing our options.

ABOUT CALPINE

Calpine Corporation is America’s largest generator of electricity from natural gas and geothermal resources with operations in competitive power markets.  Our fleet of 79 power plants in operation or under construction represents approximately 26,000 megawatts of generation capacity. Through wholesale power operations and our retail businesses Calpine Energy Solutions and Champion Energy, we serve customers in 24 states, Canada and Mexico.  Our clean, efficient, modern and flexible fleet uses advanced technologies to generate power in a low-carbon and environmentally responsible manner. We are uniquely positioned to benefit from the secular trends affecting our industry, including the abundant and affordable supply of clean natural gas, environmental regulation, aging power generation infrastructure and the increasing need for dispatchable power plants to successfully integrate intermittent renewables into the grid.  Please visit www.calpine.com to learn more about how Calpine is creating power for a sustainable future. 

Calpine’s Annual Report on Form 10-K for the year ended December 31, 2018, will be filed with the Securities and Exchange Commission (SEC) and will be available on the SEC’s website at www.sec.gov.

FORWARD-LOOKING INFORMATION 

In addition to historical information, this release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act, and Section 21E of the Exchange Act. Forward-looking statements may appear throughout this release. We use words such as “believe,” “intend,” “expect,” “anticipate,” “plan,” “may,” “will,” “should,” “estimate,” “potential,” “project” and similar expressions to identify forward-looking statements. Such statements include, among others, those concerning our expected financial performance and strategic and operational plans, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. We believe that the forward-looking statements are based upon reasonable assumptions and expectations. However, you are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause actual results to differ materially from those anticipated in the forward-looking statements. Such risks and uncertainties include, but are not limited to: 

• Financial results that may be volatile and may not reflect historical trends due to, among other things, seasonality of demand, fluctuations in prices for commodities such as natural gas and power, changes in U.S. macroeconomic conditions, fluctuations in liquidity and volatility in the energy commodities markets and our ability and extent to which we hedge risks;
• Laws, regulations and market rules in the wholesale and retail markets in which we participate and our ability to effectively respond to changes in laws, regulations or market rules or the interpretation thereof including those related to the environment, derivative transactions and market design in the regions in which we operate;
• Our ability to manage our liquidity needs, access the capital markets when necessary and comply with covenants under our Senior Unsecured Notes, First Lien Notes, First Lien Term Loans, Corporate Revolving Facility, CCFC Term Loan and other existing financing obligations;
• Risks associated with the operation, construction and development of power plants, including unscheduled outages or delays and plant efficiencies;
• Risks related to our geothermal resources, including the adequacy of our steam reserves, unusual or unexpected steam field well and pipeline maintenance requirements, variables associated with the injection of water to the steam reservoir and potential regulations or other requirements related to seismicity concerns that may delay or increase the cost of developing or operating geothermal resources;
• Extensive competition in our wholesale and retail business, including from renewable sources of power, interference by states in competitive power markets through subsidies or similar support for new or existing power plants, lower prices and other incentives offered by retail competitors, and risks associated with marketing and selling power in the evolving energy markets;
• Structural changes in the supply and demand of power resulting from the development of new fuels or technologies and demand-side management tools (such as distributed generation, power storage and other technologies);
• The expiration or early termination of our PPAs and the related results on revenues;
• Future capacity revenue may not occur at expected levels;
• Natural disasters, such as hurricanes, earthquakes, droughts, wildfires and floods, acts of terrorism or cyber-attacks that may affect our power plants or the markets our power plants or retail operations serve and our corporate offices;
• Disruptions in or limitations on the transportation of natural gas or fuel oil and the transmission of power;
• Our ability to manage our counterparty and customer exposure and credit risk, including our commodity positions or if a significant customer were to seek bankruptcy protection under Chapter 11;
• Our ability to attract, motivate and retain key employees;
• Present and possible future claims, litigation and enforcement actions that may arise from noncompliance with market rules promulgated by the SEC, CFTC, FERC and other regulatory bodies; and
• Other risks identified in this press release, in our Annual Report on Form 10-K for the year ended December 31, 2018, and in other reports filed by us with the SEC.

 Given the risks and uncertainties surrounding forward-looking statements, you should not place undue reliance on these statements. Many of these factors are beyond our ability to control or predict. Our forward-looking statements speak only as of the date of this release. Other than as required by law, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events, or otherwise.

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2018 and 2017

(Unaudited)

CALPINE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2018 and 2017

(Unaudited)

__________

REGULATION G RECONCILIATIONS 

In addition to disclosing financial results in accordance with U.S. GAAP, the accompanying 2018 earnings release contains non-GAAP financial measures. Commodity Margin, Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are non-GAAP financial measures that we use as measures of our performance and liquidity. These non-GAAP measures should be viewed as a supplement to and not a substitute for our U.S. GAAP measures of performance and liquidity, and the financial results calculated in accordance with U.S. GAAP and reconciliations from these results should be carefully evaluated. 

Commodity Margin includes revenues recognized on our wholesale and retail power sales activity, electric capacity sales, renewable energy credit sales, steam sales, realized settlements associated with our marketing, hedging, optimization and trading activity less costs from our fuel and purchased energy expenses, commodity transmission and transportation expenses, environmental compliance expenses and ancillary retail expense. We believe that Commodity Margin is a useful tool for assessing the performance of our core operations and is a key operational measure of profit reviewed by our chief operating decision maker. Commodity Margin is not a measure calculated in accordance with U.S. GAAP and should be viewed as a supplement to and not a substitute for our results of operations presented in accordance with U.S. GAAP. Commodity Margin does not intend to represent income (loss) from operations, the most comparable U.S. GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. 

Adjusted Free Cash Flow represents cash flows from operating activities including the effects of maintenance capital expenditures, adjustments to reflect the Adjusted Free Cash Flow from unconsolidated investments and to exclude the noncontrolling interest and other miscellaneous adjustments such as the effect of changes in working capital.  Adjusted Unlevered Free Cash Flow is calculated on the same basis as Adjusted Free Cash Flow but excludes the effect of cash interest, net, and operating lease payments, thus capturing the performance of our business independent of its capital structure.  Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are presented because we believe they are useful measures of liquidity to assist in comparing financial results from period to period on a consistent basis and to readily view operating trends, as measures for planning and forecasting overall expectations and for evaluating actual results against such expectations and in communications with our Board of Directors, owners, creditors, analysts and investors concerning our financial results. Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow are liquidity measures and are not intended to represent cash flows from operations, the most directly comparable U.S. GAAP measure, and are not necessarily comparable to similarly titled measures reported by other companies.

Adjusted Unlevered Free Cash Flow Reconciliation 

In the following table, we have reconciled our cash flows from operating activities to our Adjusted Free Cash Flow and Adjusted Unlevered Free Cash Flow for the years ended December 31, 2018 and 2017 (in millions). 

_________

Commodity Margin Reconciliation 

The following tables reconcile income (loss) from operations to Commodity Margin for the years ended December 31, 2018 and 2017 (in millions):

_________

(1) Includes nil and $(8) million of lease levelization and $104 million and $178 million of amortization expense for the years ended December 31, 2018, and 2017, respectively.