Company Quick10K Filing
Quick10K
Calpine
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-10 Other Events, Other Events
8-K 2019-05-10 Earnings, Earnings, Exhibits
8-K 2019-04-05 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-03-08 Earnings, Earnings, Exhibits
8-K 2018-08-29 Officers, Exhibits
8-K 2018-07-02 Officers, Exhibits
8-K 2018-05-18 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-04-09 Amend Bylaw, Shareholder Vote, Exhibits
8-K 2018-03-16 Officers
8-K 2018-03-08 Enter Agreement, M&A, Shareholder Rights, Control, Officers, Amend Bylaw, Regulation FD, Exhibits
8-K 2018-02-23 Other Events
SNY Sanofi 103,070
GM General Motors 54,550
PLYA Playa Hotels & Resorts 1,110
TXMD TherapeuticsMD 856
QCRH QCR Holdings 544
SCVL Shoe Carnival 520
HMLP Hoegh Lng Partners 373
DIT Amcon Distributing 56
MKGI Monaker Group 36
CADC China Advanced Construction Materials Group 17
CPN 2019-03-31
Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 cpn_exhibit311x03312019.htm
EX-31.2 cpn_exhibit312x03312019.htm
EX-32.1 cpn_exhibit321x03312019.htm

Calpine Earnings 2019-03-31

CPN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cpn_10qx03312019.htm CALPINE 10-Q FOR QUARTERLY PERIOD ENDED MARCH 31, 2019 Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
____________________
Form 10-Q
(Mark One)
[X]
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the quarterly period ended March 31, 2019
 
 
 
 
Or
 
 
 
[    ]
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
 
 
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 001-12079
______________________
image0a08.jpg
Calpine Corporation
(A Delaware Corporation)
I.R.S. Employer Identification No. 77-0212977
717 Texas Avenue, Suite 1000, Houston, Texas 77002
Telephone: (713) 830-2000
Not Applicable
(Former Address)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes [ ]    No [X]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X]    No [    ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
[   ]
 
Accelerated filer            
[    ]
Non-accelerated filer
[X]
 
Smaller reporting company 
[    ]
Emerging growth company
[   ]
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [    ]    No [X]

Securities registered pursuant to Section 12(b) of the Act: None
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 105.2 shares of common stock, par value $0.001, were outstanding as of May 10, 2019, none of which were publicly traded.
 





CALPINE CORPORATION AND SUBSIDIARIES
REPORT ON FORM 10-Q
For the Quarter Ended March 31, 2019
INDEX
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

i



DEFINITIONS
As used in this report for the quarter ended March 31, 2019 (this “Report”), the following abbreviations and terms have the meanings as listed below. Additionally, the terms “Calpine,” “we,” “us” and “our” refer to Calpine Corporation and its consolidated subsidiaries, unless the context clearly indicates otherwise. The term “Calpine Corporation” refers only to Calpine Corporation and not to any of its subsidiaries. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.
ABBREVIATION
 
DEFINITION
 
 
 
2018 Form 10-K
 
Calpine Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 28, 2019
 
 
 
2019 First Lien Term Loan
 
The $400 million first lien senior secured term loan, dated February 3, 2017, among Calpine Corporation, as borrower, the lenders party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent and MUFG Union Bank, N.A., as collateral agent, repaid on April 5, 2019
 
 
 
2022 First Lien Notes
 
The $750 million aggregate principal amount of 6.0% senior secured notes due 2022, issued October 31, 2013
 
 
 
2023 First Lien Term Loans
 
The $550 million first lien senior secured term loan, dated December 15, 2015, among Calpine Corporation, as borrower, the lenders party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent and Goldman Sachs Credit Partners L.P., as collateral agent, repaid on April 5, 2019, and the $562 million first lien senior secured term loan, dated May 31, 2016, among Calpine Corporation, as borrower, the lenders party thereto, Citibank, N.A., as administrative agent and MUFG Union Bank, N.A., as collateral agent
 
 
 
2023 Senior Unsecured Notes
 
The $1.25 billion aggregate principal amount of 5.375% senior unsecured notes due 2023, issued July 22, 2014
 
 
 
2024 First Lien Notes
 
The $490 million aggregate principal amount of 5.875% senior secured notes due 2024, issued October 31, 2013
 
 
 
2024 First Lien Term Loan
 
The $1.6 billion first lien senior secured term loan, dated May 28, 2015 (as amended December 21, 2016), among Calpine Corporation, as borrower, the lenders party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent and Goldman Sachs Credit Partners L.P., as collateral agent
 
 
 
2024 Senior Unsecured Notes
 
The $650 million aggregate principal amount of 5.5% senior unsecured notes due 2024, issued February 3, 2015
 
 
 
2025 Senior Unsecured Notes
 
The $1.55 billion aggregate principal amount of 5.75% senior unsecured notes due 2025, issued July 22, 2014
 
 
 
2026 First Lien Notes
 
Collectively, the $625 million aggregate principal amount of 5.25% senior secured notes due 2026, issued May 31, 2016, and the $560 million aggregate principal amount of 5.25% senior secured notes due 2026, issued on December 15, 2017
 
 
 
2026 First Lien Term Loan
 
The $950 million first lien senior secured term loan, dated April 5, 2019, among Calpine Corporation, as borrower, the lenders party thereto, Morgan Stanley Senior Funding, Inc., as administrative agent and MUFG Union Bank, N.A., as collateral agent
 
 
 
Accounts Receivable Sales Program
 
Receivables purchase agreement between Calpine Solutions and Calpine Receivables and the purchase and sale agreement between Calpine Receivables and an unaffiliated financial institution, both which allows for the revolving sale of up to $250 million in certain trade accounts receivables to third parties
 
 
 
AOCI
 
Accumulated Other Comprehensive Income
 
 
 
Average availability
 
Represents the total hours during the period that our plants were in-service or available for service as a percentage of the total hours in the period

ii



ABBREVIATION
 
DEFINITION
 
 
 
Average capacity factor, excluding peakers
 
A measure of total actual power generation as a percent of total potential power generation. It is calculated by dividing (a) total MWh generated by our power plants, excluding peakers, by (b) the product of multiplying (i) the average total MW in operation, excluding peakers, during the period by (ii) the total hours in the period
 
 
 
Btu
 
British thermal unit(s), a measure of heat content
 
 
 
Calpine Receivables
 
Calpine Receivables, LLC, an indirect, wholly-owned subsidiary of Calpine, which was established as bankruptcy remote, special purpose subsidiary and is responsible for administering the Accounts Receivable Sales Program
 
 
 
Calpine Solutions
 
Calpine Energy Solutions, LLC, an indirect, wholly-owned subsidiary of Calpine, which is a supplier of power to commercial and industrial retail customers in the United States with customers in 20 states, including presence in California, Texas, the Mid-Atlantic and the Northeast
 
 
 
CCFC
 
Calpine Construction Finance Company, L.P., an indirect, wholly-owned subsidiary of Calpine
 
 
 
CCFC Term Loan
 
The $1.0 billion first lien senior secured term loan entered into on December 15, 2017 among CCFC as borrower, the lenders party thereto, and Credit Suisse AG, Cayman Islands Branch, as administrative agent and collateral agent
 
 
 
CDHI
 
Calpine Development Holdings, Inc., an indirect, wholly-owned subsidiary of Calpine
 
 
 
Champion Energy
 
Champion Energy Marketing, LLC, which owns a retail electric provider that serves residential, governmental, commercial and industrial customers in deregulated electricity markets in 14 states and the District of Columbia, including presence in California, Texas, the Mid-Atlantic and Northeast
 
 
 
Cogeneration
 
Using a portion or all of the steam generated in the power generating process to supply a customer with steam for use in the customer’s operations
 
 
 
Commodity expense
 
The sum of our expenses from fuel and purchased energy expense, commodity transmission and transportation expense, environmental compliance expenses, ancillary retail expense and realized settlements from our marketing, hedging and optimization activities including natural gas and fuel oil transactions hedging future power sales
 
 
 
Commodity Margin
 
Measure of profit reviewed by our chief operating decision maker that includes revenue recognized on our wholesale and retail power sales activity, electric capacity sales, REC sales, steam sales, realized settlements associated with our marketing, hedging, optimization and trading activities, fuel and purchased energy expenses, commodity transmission and transportation expenses, environmental compliance expenses and ancillary retail expense. Commodity Margin is a measure of segment profit or loss under FASB Accounting Standards Codification 280 used by our chief operating decision maker to make decisions about allocating resources to the relevant segments and assessing their performance
 
 
 
Commodity revenue
 
The sum of our revenues recognized on our wholesale and retail power sales activity, electric capacity sales, REC sales, steam sales and realized settlements from our marketing, hedging, optimization and trading activities
 
 
 
Company
 
Calpine Corporation, a Delaware corporation, and its subsidiaries
 
 
 
Corporate Revolving Facility
 
The approximately $2.02 billion aggregate amount revolving credit facility credit agreement, dated as of December 10, 2010, as amended on June 27, 2013, July 30, 2014, February 8, 2016, December 1, 2016, September 15, 2017, October 20, 2017, March 8, 2018, May 18, 2018 and April 5, 2019 among Calpine Corporation, the Bank of Tokyo-Mitsubishi UFJ, Ltd., as successor administrative agent, MUFG Union Bank, N.A., as successor collateral agent, the lenders party thereto and the other parties thereto
 
 
 
CPN Management
 
CPN Management, LP, which owns 100% of the common stock of Calpine Corporation
 
 
 
Exchange Act
 
U.S. Securities Exchange Act of 1934, as amended

iii



ABBREVIATION
 
DEFINITION
 
 
 
FASB
 
Financial Accounting Standards Board
 
 
 
FERC
 
U.S. Federal Energy Regulatory Commission
 
 
 
First Lien Notes
 
Collectively, the 2022 First Lien Notes, the 2024 First Lien Notes and the 2026 First Lien Notes
 
 
 
First Lien Term Loans
 
Collectively, the 2019 First Lien Term Loan, the 2023 First Lien Term Loans, the 2024 First Lien Term Loan and the 2026 First Lien Term Loan
 
 
 
Greenfield LP
 
Greenfield Energy Centre LP, a 50% partnership interest between certain of our subsidiaries and a third party which operates the Greenfield Energy Centre, a 1,038 MW natural gas-fired, combined-cycle power plant in Ontario, Canada
 
 
 
Heat Rate(s)
 
A measure of the amount of fuel required to produce a unit of power
 
 
 
IRS
 
U.S. Internal Revenue Service
 
 
 
ISO(s)
 
Independent System Operator which is an entity that coordinates, controls and monitors the operation of an electric power system
 
 
 
ISO-NE
 
ISO New England Inc., an independent, nonprofit RTO serving states in the New England area, including Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont
 
 
 
KWh
 
Kilowatt hour(s), a measure of power produced, purchased or sold
 
 
 
LIBOR
 
London Inter-Bank Offered Rate
 
 
 
Lyondell
 
LyondellBasell Industries N.V.
 
 
 
Market Heat Rate(s)
 
The regional power price divided by the corresponding regional natural gas price
 
 
 
Merger
 
Merger of Volt Merger Sub, Inc. with and into Calpine pursuant to the terms of the Merger Agreement, which was consummated on March 8, 2018
 
 
 
Merger Agreement
 
Agreement and Plan of Merger, dated, August 17, 2017, by and among Calpine Corporation, Volt Parent, LP and Volt Merger Sub, Inc.
 
 
 
MMBtu
 
Million Btu
 
 
 
MW
 
Megawatt(s), a measure of plant capacity
 
 
 
MWh
 
Megawatt hour(s), a measure of power produced, purchased or sold
 
 
 
NOL(s)
 
Net operating loss(es)
 
 
 
North American Power
 
North American Power & Gas, LLC, an indirect, wholly-owned subsidiary of Calpine, which was acquired on January 17, 2017 and is a retail energy supplier for homes and small businesses primarily concentrated in the Northeast U.S.
 
 
 
OCI
 
Other Comprehensive Income
 
 
 
OMEC
 
Otay Mesa Energy Center, LLC, an indirect, wholly owned subsidiary that owns the Otay Mesa Energy Center, a 608 MW power plant located in San Diego County, California
 
 
 
OTC
 
Over-the-Counter
 
 
 
PJM
 
PJM Interconnection is a RTO that coordinates the movement of wholesale electricity in all or parts of Delaware, Illinois, Indiana, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia
 
 
 

iv



ABBREVIATION
 
DEFINITION
PPA(s)
 
Any term power purchase agreement or other contract for a physically settled sale (as distinguished from a financially settled future, option or other derivative or hedge transaction) of any power product, including power, capacity and/or ancillary services, in the form of a bilateral agreement or a written or oral confirmation of a transaction between two parties to a master agreement, including sales related to a tolling transaction in which the purchaser provides the fuel required by us to generate such power and we receive a variable payment to convert the fuel into power and steam
 
 
 
REC(s)
 
Renewable energy credit(s)
 
 
 
Risk Management Policy
 
Calpine’s policy applicable to all employees, contractors, representatives and agents, which defines the risk management framework and corporate governance structure for commodity risk, interest rate risk, currency risk and other risks
 
 
 
RTO(s)
 
Regional Transmission Organization which is an entity that coordinates, controls and monitors the operation of an electric power system and administers the transmission grid on a regional basis
 
 
 
SDG&E
 
San Diego Gas & Electric Company
 
 
 
SEC
 
U.S. Securities and Exchange Commission
 
 
 
Securities Act
 
U.S. Securities Act of 1933, as amended
 
 
 
Senior Unsecured Notes
 
Collectively, the 2023 Senior Unsecured Notes, the 2024 Senior Unsecured Notes and the 2025 Senior Unsecured Notes
 
 
 
Spark Spread(s)
 
The difference between the sales price of power per MWh and the cost of natural gas to produce it
 
 
 
Steam Adjusted Heat Rate
 
The adjusted Heat Rate for our natural gas-fired power plants, excluding peakers, calculated by dividing (a) the fuel consumed in Btu reduced by the net equivalent Btu in steam exported to a third party by (b) the KWh generated. Steam Adjusted Heat Rate is a measure of fuel efficiency, so the lower our Steam Adjusted Heat Rate, the lower our cost of generation
 
 
 
U.S. GAAP
 
Generally accepted accounting principles in the U.S.
 
 
 
VAR
 
Value-at-risk
 
 
 
VIE(s)
 
Variable interest entity(ies)
 
 
 
Whitby
 
Whitby Cogeneration Limited Partnership, a 50% partnership interest between certain of our subsidiaries and a third party, which operates Whitby, a 50 MW natural gas-fired, simple-cycle cogeneration power plant located in Ontario, Canada

v



Forward-Looking Statements

This Report 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 Report, including without limitation, the “Management’s Discussion and Analysis” section. 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 businesses, 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 other 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, Commodity Futures Trading Commission, FERC and other regulatory bodies; and
Other risks identified in this Report, in our 2018 Form 10-K 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 Report. 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.

vi



Where You Can Find Other Information
Our website is www.calpine.com. Information contained on our website is not part of this Report. Information that we furnish or file with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to, or exhibits included in, these reports are available for download, free of charge, through our website. Our SEC filings, including exhibits filed therewith, are also available directly on the SEC’s website at www.sec.gov.

vii



PART I — FINANCIAL INFORMATION
Item 1.
Financial Statements

CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
(in millions)
Operating revenues:
 
 
 
 
Commodity revenue
 
$
2,538

 
$
2,396

Mark-to-market gain (loss)
 
56

 
(391
)
Other revenue
 
5

 
4

Operating revenues

2,599

 
2,009

Operating expenses:
 
 
 
 
Fuel and purchased energy expense:
 
 
 
 
Commodity expense
 
1,758

 
1,790

Mark-to-market (gain) loss
 
10

 
(20
)
Fuel and purchased energy expense

1,768

 
1,770

Operating and maintenance expense
 
239

 
275

Depreciation and amortization expense
 
174

 
201

General and other administrative expense
 
32

 
60

Other operating expenses
 
34

 
37

Total operating expenses

2,247

 
2,343

(Income) from unconsolidated subsidiaries
 
(6
)
 
(6
)
Income (loss) from operations

358

 
(328
)
Interest expense
 
149

 
151

Gain on extinguishment of debt
 
(4
)
 

Other (income) expense, net
 
23

 
7

Income (loss) before income taxes

190

 
(486
)
Income tax expense
 
10

 
108

Net income (loss)

180

 
(594
)
Net income attributable to the noncontrolling interest
 
(5
)
 
(4
)
Net income (loss) attributable to Calpine

$
175

 
$
(598
)

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

1



CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
(in millions)
Net income (loss)
 
$
180

 
$
(594
)
Cash flow hedging activities:
 
 
 
 
Gain (loss) on cash flow hedges before reclassification adjustment for cash flow hedges realized in net income (loss)
 
(23
)
 
48

Reclassification adjustment for (gain) loss on cash flow hedges realized in net income (loss)
 
(2
)
 
7

Foreign currency translation gain (loss)
 
2

 
(6
)
Income tax expense
 

 
(11
)
Other comprehensive income (loss)
 
(23
)
 
38

Comprehensive income (loss)
 
157

 
(556
)
Comprehensive (income) attributable to the noncontrolling interest
 
(5
)
 
(6
)
Comprehensive income (loss) attributable to Calpine
 
$
152


$
(562
)

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


2



CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
 
 
March 31,
 
December 31,
 
 
2019
 
2018
 
 
(in millions, except share and per share amounts)
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents ($35 and $43 attributable to VIEs)
 
$
184

 
$
205

Accounts receivable, net of allowance of $6 and $9
 
794

 
1,022

Inventories
 
515

 
525

Margin deposits and other prepaid expense
 
380

 
315

Restricted cash, current ($187 and $90 attributable to VIEs)
 
265

 
167

Derivative assets, current
 
136

 
142

Current assets held for sale
 
372

 

Other current assets
 
51

 
43

Total current assets
 
2,697

 
2,419

Property, plant and equipment, net ($3,902 and $3,919 attributable to VIEs)
 
12,048

 
12,442

Restricted cash, net of current portion ($37 and $33 attributable to VIEs)
 
69

 
34

Investments in unconsolidated subsidiaries
 
67

 
76

Long-term derivative assets
 
165

 
160

Goodwill
 
242

 
242

Intangible assets, net
 
391

 
412

Other assets ($98 and $30 attributable to VIEs)
 
472

 
277

Total assets
 
$
16,151

 
$
16,062

LIABILITIES & STOCKHOLDER’S EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
720

 
$
958

Accrued interest payable
 
120

 
96

Debt, current portion ($211 and $201 attributable to VIEs)
 
258

 
637

Derivative liabilities, current
 
224

 
303

Current liabilitites held for sale
 
25

 

Other current liabilities ($126 and $36 attributable to VIEs)
 
518

 
489

Total current liabilities
 
1,865

 
2,483

Debt, net of current portion ($1,925 and $1,978 attributable to VIEs)
 
10,533

 
10,148

Long-term derivative liabilities
 
113

 
140

Other long-term liabilities ($74 and $36 attributable to VIEs)
 
427

 
235

Total liabilities
 
12,938

 
13,006

 
 
 
 
 
Commitments and contingencies (see Note 11)
 

 

Stockholder’s equity:
 
 
 
 
Common stock, $0.001 par value per share; authorized 5,000 shares, 105.2 shares issued and outstanding
 

 

Additional paid-in capital
 
9,584

 
9,582

Accumulated deficit
 
(6,367
)
 
(6,542
)
Accumulated other comprehensive loss
 
(100
)
 
(77
)
Total Calpine stockholder’s equity
 
3,117

 
2,963

Noncontrolling interest
 
96

 
93

Total stockholder’s equity
 
3,213

 
3,056

Total liabilities and stockholder’s equity
 
$
16,151

 
$
16,062


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

3



CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
For the Three Months Ended March 2019 and 2018
(Unaudited)
(in millions)
 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
Stockholder’s
Equity
Balance, December 31, 2018
$

 
$

 
$
9,582

 
$
(6,542
)
 
$
(77
)
 
$
93

 
$
3,056

Net income

 

 

 
175

 

 
5

 
180

Other comprehensive loss

 

 

 

 
(23
)
 

 
(23
)
Other

 

 
2

 

 

 
(2
)
 

Balance, March 31, 2019
$

 
$

 
$
9,584

 
$
(6,367
)
 
$
(100
)
 
$
96

 
$
3,213


 
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interest
 
Total
Stockholder’s
Equity
Balance, December 31, 2017
$

 
$
(15
)
 
$
9,661

 
$
(6,552
)
 
$
(106
)
 
$
79

 
$
3,067

Treasury stock transactions

 
(7
)
 

 

 

 

 
(7
)
Stock-based compensation expense

 

 
41

 

 

 

 
41

Effects of the Merger

 
22

 
(100
)
 

 

 

 
(78
)
Dividends

 

 
(20
)
 

 

 

 
(20
)
Contribution from the noncontrolling interest

 

 

 

 

 
2

 
2

Distribution to the noncontrolling interest

 

 

 

 

 
(2
)
 
(2
)
Net income (loss)

 

 

 
(598
)
 

 
4

 
(594
)
Other comprehensive income

 

 

 

 
36

 
2

 
38

Balance, March 31, 2018
$

 
$

 
$
9,582

 
$
(7,150
)
 
$
(70
)
 
$
85

 
$
2,447


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


4



CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in millions)
Cash flows from operating activities:
 
 
 
 
Net income (loss)
 
$
180

 
$
(594
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 

 

Depreciation and amortization(1)
 
199

 
223

Gain on extinguishment of debt
 
(4
)
 

Deferred income taxes
 
7

 
69

Mark-to-market activity, net
 
(45
)
 
369

(Income) from unconsolidated subsidiaries
 
(6
)
 
(6
)
Return on investments from unconsolidated subsidiaries
 
11

 
3

Stock-based compensation expense
 

 
57

Other
 
19

 
6

Change in operating assets and liabilities:
 

 

Accounts receivable
 
228

 
164

Accounts payable
 
(229
)
 
(77
)
Margin deposits and other prepaid expense
 
(65
)
 
(72
)
Other assets and liabilities, net
 
27

 
(107
)
Derivative instruments, net
 
(81
)
 
(150
)
Net cash provided by (used in) operating activities
 
241

 
(115
)
Cash flows from investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(143
)
 
(114
)
Other
 
(9
)
 
(1
)
Net cash used in investing activities
 
(152
)
 
(115
)
Cash flows from financing activities:
 
 
 
 
Repayment of CCFC Term Loan and First Lien Term Loans
 
(10
)
 
(10
)
Repurchases of Senior Unsecured Notes
 
(44
)
 

Borrowings under Corporate Revolving Facility
 
170

 
325

Repayments of Corporate Revolving Facility
 
(50
)
 

Repayments of project financing, notes payable and other
 
(43
)
 
(43
)
Distribution to noncontrolling interest holder
 

 
(2
)
Financing costs
 

 
(6
)
Stock repurchases
 

 
(79
)
Shares repurchased for tax withholding on stock-based awards
 

 
(7
)
Dividends paid(2)
 

 
(20
)
Net cash provided by financing activities
 
23

 
158

Net increase (decrease) in cash, cash equivalents and restricted cash
 
112

 
(72
)
Cash, cash equivalents and restricted cash, beginning of period
 
406

 
443

Cash, cash equivalents and restricted cash, end of period(3)
 
$
518

 
$
371


The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.

5



CALPINE CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS — (CONTINUED)
(Unaudited)

 
 
Three Months Ended March 31,
 
 
2019
 
2018
 
 
(in millions)
Cash paid during the period for:
 
 
 
 
Interest, net of amounts capitalized
 
$
115

 
$
110

Income taxes
 
$

 
$
4

 
 
 
 
 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
 
Change in capital expenditures included in account payable
 
$
13

 
$
(6
)
Plant tax settlement offset in prepaid assets
 
$
(4
)
 
$

Asset retirement obligation adjustment offset in operating activities
 
$
(13
)
 
$

Garrison Energy Center and RockGen Energy Center property, plant and equipment, net, classified as current assets held for sale
 
$
(363
)
 
$

Garrison Energy Center capital lease liability classified as current liabilities held for sale
 
$
22

 
$

____________
(1)
Includes amortization recorded in Commodity revenue and Commodity expense associated with intangible assets and amortization recorded in interest expense associated with debt issuance costs and discounts.
(2)
Subsequent to the consummation of the Merger on March 8, 2018, we paid certain Merger-related costs incurred by CPN Management, our direct parent.
(3)
Our cash and cash equivalents, restricted cash, current and restricted cash, net of current portion are stated as separate line items on our Consolidated Condensed Balance Sheets.

The accompanying notes are an integral part of these Consolidated Condensed Financial Statements.


6



CALPINE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 2019
(Unaudited)
1.
Basis of Presentation and Summary of Significant Accounting Policies
We are a power generation company engaged in the ownership and operation of primarily natural gas-fired and geothermal power plants in North America. We have a significant presence in major competitive wholesale and retail power markets in California, Texas and the Northeast and Mid-Atlantic regions of the U.S. We sell power, steam, capacity, renewable energy credits and ancillary services to our customers, which include utilities, independent electric system operators, industrial and agricultural companies, retail power providers, municipalities and other governmental entities, power marketers as well as retail commercial, industrial, governmental and residential customers. We continue to focus on providing products and services that are beneficial to our wholesale and retail customers. We purchase primarily natural gas and some fuel oil as fuel for our power plants and engage in related natural gas transportation and storage transactions. We also purchase power for sale to our customers and purchase electric transmission rights to deliver power to our customers. Additionally, consistent with our Risk Management Policy, we enter into natural gas, power, environmental product, fuel oil and other physical and financial commodity contracts to hedge certain business risks and optimize our portfolio of power plants.
Basis of Interim Presentation — The accompanying unaudited, interim Consolidated Condensed Financial Statements of Calpine Corporation, a Delaware corporation, and consolidated subsidiaries have been prepared pursuant to the rules and regulations of the SEC. In the opinion of management, the Consolidated Condensed Financial Statements include the normal, recurring adjustments necessary for a fair statement of the information required to be set forth therein. Certain information and note disclosures, normally included in financial statements prepared in accordance with U.S. GAAP, have been condensed or omitted from these statements pursuant to such rules and regulations and, accordingly, these financial statements should be read in conjunction with our audited Consolidated Financial Statements for the year ended December 31, 2018, included in our 2018 Form 10-K. The results for interim periods are not indicative of the results for the entire year primarily due to acquisitions and disposals of assets, seasonal fluctuations in our revenues and expenses, timing of major maintenance expense, variations resulting from the application of the method to calculate the provision for income tax for interim periods, volatility of commodity prices and mark-to-market gains and losses from commodity and interest rate derivative contracts.
Use of Estimates in Preparation of Financial Statements — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures included in our Consolidated Condensed Financial Statements. Actual results could differ from those estimates.
Reclassifications We have reclassified certain prior period amounts for comparative purposes. These reclassifications did not have a material effect on our financial condition, results of operations or cash flows.
Cash and Cash Equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents. We have cash and cash equivalents held in non-corporate accounts relating to certain project finance facilities and lease agreements that require us to establish and maintain segregated cash accounts. These accounts have been pledged as security in favor of the lenders under such project finance facilities, and the use of certain cash balances on deposit in such accounts is limited, at least temporarily, to the operations of the respective projects.
Restricted Cash — Certain of our debt agreements, lease agreements or other operating agreements require us to establish and maintain segregated cash accounts, the use of which is restricted, making these cash funds unavailable for general use. These amounts are held by depository banks in order to comply with the contractual provisions requiring reserves for payments such as for debt service, rent and major maintenance or with applicable regulatory requirements. Funds that can be used to satisfy obligations due during the next 12 months are classified as current restricted cash, with the remainder classified as non-current restricted cash. Restricted cash is generally invested in accounts earning market rates; therefore, the carrying value approximates fair value. Such cash is excluded from cash and cash equivalents on our Consolidated Condensed Balance Sheets.

7



The table below represents the components of our restricted cash as of March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
December 31, 2018
 
Current
 
Non-Current
 
Total
 
Current
 
Non-Current
 
Total
Debt service
$
17

 
$
7

 
$
24

 
$
13

 
$
8

 
$
21

Construction/major maintenance
24

 
29

 
53

 
23

 
24

 
47

Security/project/insurance
203

 
31

 
234

 
120

 

 
120

Other
21

 
2

 
23

 
11

 
2

 
13

Total
$
265

 
$
69

 
$
334

 
$
167

 
$
34

 
$
201

Property, Plant and Equipment, Net — At March 31, 2019 and December 31, 2018, the components of property, plant and equipment are stated at cost less accumulated depreciation as follows (in millions):
 
March 31, 2019
 
December 31, 2018
 
Depreciable Lives
Buildings, machinery and equipment
$
16,538

 
$
16,400

 
1.5
50
 Years
Geothermal properties
1,503

 
1,501

 
13
58
 Years
Other
264

 
286

 
3
50
 Years
 
18,305

 
18,187

 
 
 
 
 
Less: Accumulated depreciation
6,764

 
6,832

 
 
 
 
 
 
11,541

 
11,355

 
 
 
 
 
Land
121

 
121

 
 
 
 
 
Construction in progress
386

 
966

 
 
 
 
 
Property, plant and equipment, net
$
12,048

 
$
12,442

 
 
 
 
 
Capitalized Interest — The total amount of interest capitalized was $7 million and $7 million during the three months ended March 31, 2019 and 2018, respectively.
Goodwill — We have not recorded any impairment losses or changes in the carrying amount of our goodwill during the three months ended March 31, 2019 and 2018.
New Accounting Standards and Disclosure Requirements
Leases — On January 1, 2019, we adopted Accounting Standards Update 2016-02, “Leases” (“Topic 842”). The comprehensive new lease standard superseded all existing lease guidance. The standard requires that a lessee should recognize a right-of-use asset and a lease liability for substantially all operating leases based on the present value of the minimum rental payments. For lessors, the accounting for leases under Topic 842 remained substantially unchanged. The standard also requires expanded disclosures surrounding leases. We adopted the standards under Topic 842 using the modified retrospective method and elected a number of the practical expedients in our implementation of Topic 842. The key change that affected us relates to our accounting for operating leases for which we are the lessee that were historically off-balance sheet. The impact of adopting the standards resulted in the recognition of a right-of-use asset and lease obligation liability of $191 million on our Consolidated Condensed Balance Sheet on January 1, 2019, exclusive of previously recognized lease balances. The implementation of Topic 842 did not have a material effect on our Consolidated Condensed Statement of Operations or Consolidated Condensed Statement of Cash Flows for the three months ended March 31, 2019. See Note 3 for a discussion of the practical expedients we elected and additional disclosures required by Topic 842.
Derivatives and Hedging — In August 2017, the FASB issued Accounting Standards Update 2017-12, “Targeted Improvements to Accounting for Hedging Activities.” The standard better aligns an entity’s hedging activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results in the financial statements. The standard will prospectively make hedge accounting easier to apply to hedging activities and also enhances disclosure requirements for how hedge transactions are reflected in the financial statements when hedge accounting is elected. We adopted Accounting Standards Update 2017-12 in the first quarter of 2019 which did not have a material effect on our financial condition, results of operations or cash flows.

8



Fair Value Measurements — In August 2018, the FASB issued Accounting Standards Update 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement.” The standard removes, modifies and adds disclosures about fair value measurements and is effective for fiscal years beginning after December 15, 2019. The changes required by this standard to remove or modify disclosures may be early adopted with adoption of the additional disclosures required by this standard delayed until their effective date. We do not anticipate a material effect on our financial condition, results of operations or cash flows as a result of adopting this standard.
2.
Revenue from Contracts with Customers
Disaggregation of Revenues with Customers

The following tables represent a disaggregation of our revenue for the three months ended March 31, 2019 and 2018 by reportable segment (in millions). See Note 13 for a description of our segments.
 
Three Months Ended March 31, 2019
 
Wholesale
 
 
 
 
 
 
 
West
 
Texas
 
East
 
Retail
 
Elimination
 
Total
Third Party:
 
 
 
 
 
 
 
 
 
 
 
Energy & other products
$
292

 
$
302

 
$
203

 
$
412

 
$

 
$
1,209

Capacity
35

 
32

 
177

 

 

 
244

Revenues relating to physical or executory contracts – third party
$
327

 
$
334

 
$
380

 
$
412

 
$

 
$
1,453

 
 
 
 
 
 
 
 
 
 
 
 
Affiliate(1):
$
11

 
$
14

 
$
27

 
$
3

 
$
(55
)
 
$

 
 
 
 
 
 
 
 
 
 
 
 
Revenues relating to leases and derivative instruments(2)
 
 
 
 
 
 
 
 
 
 
$
1,146

Total operating revenues
 
 
 
 
 
 
 
 
 
 
$
2,599


 
Three Months Ended March 31, 2018
 
Wholesale
 
 
 
 
 
 
 
West
 
Texas
 
East
 
Retail
 
Elimination
 
Total
Third Party:
 
 
 
 
 
 
 
 
 
 
 
Energy & other products
$
199

 
$
304

 
$
132

 
$
443

 
$

 
$
1,078

Capacity
19

 
26

 
149

 

 

 
194

Revenues relating to physical or executory contracts – third party
$
218

 
$
330

 
$
281

 
$
443

 
$

 
$
1,272

 
 
 
 
 
 
 
 
 
 
 
 
Affiliate(1):
$
8

 
$
4

 
$
21

 
$
1

 
$
(34
)
 
$

 
 
 
 
 
 
 
 
 
 
 
 
Revenues relating to leases and derivative instruments(2)
 
 
 
 
 
 
 
 
 
 
$
737

Total operating revenues
 
 
 
 
 
 
 
 
 
 
$
2,009

___________
(1)
Affiliate energy, other and capacity revenues reflect revenues on transactions between wholesale and retail affiliates excluding affiliate activity related to leases and derivative instruments. All such activity supports retail supply needs from the wholesale business and/or allows for collateral margin netting efficiencies at Calpine.
(2)
Revenues relating to contracts accounted for as leases and derivatives include energy and capacity revenues relating to PPAs that we are required to account for as operating leases and physical and financial commodity derivative contracts, primarily relating to power, natural gas and environmental products. Revenue related to derivative instruments includes

9



revenue recorded in Commodity revenue and mark-to-market gain (loss) within our operating revenues on our Consolidated Condensed Statements of Operations.
Performance Obligations and Contract Balances
At March 31, 2019 and December 31, 2018, deferred revenue balances relating to contracts with our customers were included in other current liabilities on our Consolidated Condensed Balance Sheets and primarily relate to sales of environmental products and capacity. We classify deferred revenue as current or long-term based on the timing of when we expect to recognize revenue. The balance outstanding at March 31, 2019 and December 31, 2018 was $19 million and $14 million, respectively. The revenue recognized during the three months ended March 31, 2019 and 2018, relating to the deferred revenue balance at the beginning of each period was $2 million and $5 million, respectively, and resulted from our performance under the customer contracts. The change in the deferred revenue balance during the three months ended March 31, 2019 and 2018 was primarily due to the timing difference of when consideration was received and when the related good or service was transferred.
Performance Obligations not yet Satisfied
As of March 31, 2019, we have entered into certain contracts for fixed and determinable amounts with customers under which we have not yet completed our performance obligations which primarily includes agreements for which we are providing capacity from our generating facilities. We have revenues related to the sale of capacity through participation in various ISO capacity auctions estimated based upon cleared volumes and the sale of capacity to our customers of $430 million, $492 million, $441 million, $223 million and $47 million that will be recognized during the years ending December 31, 2019, 2020, 2021, 2022 and 2023, respectively, and $25 million thereafter. Revenues under these contracts will be recognized as we transfer control of the commodities to our customers.
3.
Leases
Accounting for Leases – Lessee
We evaluate contracts for lease accounting at contract inception and assess lease classification at the lease commencement date. For our leases, we recognize a right-of-use asset and corresponding lease obligation liability at the lease commencement date where the lease obligation liability is measured at the present value of the minimum lease payments. For our operating leases, the amortization of the right-of-use asset and the accretion of our lease obligation liability result in a single straight-line expense recognized over the lease term.
We determine the discount rate associated with our operating and finance leases using our incremental borrowing rate at lease commencement. For our operating leases, we use an interest rate commensurate with the interest rate to borrow on a collateralized basis over a similar term with an amount equal to the lease payments. Factors management considers in the calculation of the discount rate include the amount of the borrowing, the lease term including options that are reasonably certain of exercise, the current interest rate environment and the credit rating of the entity. For our finance leases, we use the interest rate commensurate with the interest rate for a project finance borrowing arrangement with a similar collateral package, repayment terms, restrictive covenants and guarantees.
Our operating leases are primarily related to office space for our corporate and regional offices as well as land and operating related leases for our power plants. Additionally, one of our power plants is accounted for as a long-term operating lease. Payments made by Calpine on this lease are recognized on a straight-line basis with capital improvements associated with our leased power plant deemed leasehold improvements that are amortized over the shorter of the term of the lease or the economic life of the capital improvement. Several of our leases contain renewal options held by us to extend the lease term. The inclusion of these renewal periods in the lease term and in the minimum lease payments included in our lease liabilities is dependent on specific facts and circumstances for each lease and whether it is determined to be reasonably certain that we will exercise our option to extend the term. Our office, land and other operating leases do not contain any material restrictive covenants or residual value guarantees.
We have entered into finance leases for certain power plants and related equipment with terms that range up to 37 years (including lease renewal options). The finance leases generally provide for the lessee to pay taxes, maintenance, insurance, and certain other operating costs of the leased property.
In connection with our adoption of Topic 842 on January 1, 2019, we elected certain practical expedients that were available under the new lease standards including:
we elected not to separate lease and nonlease components for our current classes of underlying leased assets as the lessee;

10



we did not evaluate existing and expired land easements that were not previously accounted for as leases prior to January 1, 2019; and
we did not reassess the classification of leases, the accounting for initial direct costs or whether contractual arrangements contained a lease for all contracts that expired or commenced prior to January 1, 2019.
Further, upon the adoption of Topic 842, we made an accounting policy election to not recognize lease assets and liabilities for leases with a term of 12 months or less. We do not have any material subleases associated with our operating and finance leases.
The components of our operating and finance lease expense are as follows for the period presented (in millions):
 
Three Months Ended March 31,
 
2019
Operating Leases
 
Operating lease expense
$
11

 
 
Finance Leases
 
Amortization of the right-of-use assets
$
3

Interest expense
2

Finance lease expense
$
5

 
 
Variable lease expense
$
1

 
 
Total lease expense
$
17

The following is a schedule by year of future minimum lease payments associated with our operating and finance leases together with the present value of the net minimum lease payments as of March 31, 2019 (in millions):
 
Operating Leases(1)
 
Finance Leases(2)
2019
$
44

 
$
12

2020
19

 
18

2021
19

 
18

2022
18

 
18

2023
17

 
21

Thereafter
191

 
72

Total minimum lease payments
308

 
159

Less: Amount representing interest
105

 
58

Total lease obligation
203

 
101

Less: current lease obligation
40

 
11

Long-term lease obligation
$
163

 
$
90

____________
(1)
The lease liabilities associated with our operating leases as of March 31, 2019 are included in other current liabilities and other long-term liabilities on our Consolidated Condensed Balance Sheet.
(2)
The lease liabilities associated with our finance leases as of March 31, 2019 are included in debt, current portion, current liabilities held for sale and debt, net of current portion on our Consolidated Condensed Balance Sheet.

11



Supplemental balance sheet information related to our operating and finance leases is as follows as of March 31, 2019 (in millions, except lease term and discount rate):
 
 
March 31, 2019
Operating leases(1)
 
 
Right-of-use assets associated with operating leases
 
$
182

 
 
 
Finance leases(2)
 
 
Property, plant and equipment, gross
 
$
390

Accumulated amortization
 
(177
)
Property, plant and equipment, net
 
$
213

 
 
 
Weighted average remaining lease term (in years)
 
 
Operating leases
 
15.7

Finance leases
 
12.1

 
 
 
Weighted average discount rate
 
 
Operating leases
 
5.3
%
Finance leases
 
7.5
%
____________
(1)
The right-of-use assets associated with our operating leases as of March 31, 2019 are included in other assets on our Consolidated Condensed Balance Sheet.
(2)
The right-of-use assets associated with our finance leases as of March 31, 2019 are included in current assets held for sale and property, plant and equipment, net on our Consolidated Condensed Balance Sheet.
We did not obtain any right-of-use assets in exchange for lease liabilities associated with operating or finance leases during the three months ended March 31, 2019. Supplemental cash flow information related to our operating and finance leases is as follows for the period presented (in millions):
 
Three Months Ended March 31,
 
2019
Cash paid for amounts included in the measurement of lease liabilities
 
Operating cash flows from operating leases
$
8

Operating cash flows from finance leases
$
2

Financing cash flows from finance leases
$
5

As of March 31, 2019, we have executed agreements that contain a lease with a future lease commencement date and future lease commitments of $1 million primarily related to an office lease which commences in September 2019.
Accounting for Leases – Lessor
We apply lease accounting to PPAs that meet the definition of a lease and determine lease classification treatment at commencement of the agreement. We currently do not have any contracts which are accounted for as sales-type leases or direct financing leases and all of our leases as the lessor are classified as operating leases. As part of the implementation of Topic 842, we elected the practical expedient to not reassess leases that have commenced prior to January 1, 2019.
Revenue from contracts accounted for as operating leases, such as certain tolling agreements, with minimum lease rentals (capacity payments) which vary over time must be levelized. Generally, we levelize these contract revenues on a straight-line basis over the term of the contract. Our operating leases that have commenced contain terms extending through December 2034. These contracts also generally contain variable payment components based on generation volumes or operating efficiency over a period of time. Revenues associated with the variable payments are recognized over time as the goods or services are provided to the lessee. Our operating leases generally do not contain renewal or purchase options or residual value guarantees. We have elected to not separate our lease and non-lease components as the lease components reflect the predominant characteristics of these agreements.

12



Revenue recognized related to fixed lease payments on our operating leases for the period presented is as follows (in millions):
 
Three Months Ended March 31,
 
2019
Operating Leases(1)
 
Fixed lease payments
$
69

____________
(1)
Revenues associated with our operating leases are included in Commodity revenue and other revenue on our Consolidated Condensed Statement of Operations.
The total contractual future minimum lease rentals for our contracts that have commenced and are accounted for as operating leases at March 31, 2019, are as follows (in millions):
2019
$
276

2020
265

2021
261

2022
226

2023
144

Thereafter
277

Total
$
1,449

We do not recognize lease receivables associated with our operating leases as the long-lived assets related to the power plants subject to the tolling contracts are recorded on our Consolidated Condensed Balance Sheets and are being depreciated over their estimated useful lives. Amounts recorded on our Consolidated Condensed Balance Sheet associated with the long-lived assets subject to our operating leases as of March 31, 2019 are as follows (in millions):
 
March 31, 2019
Power plants subject to tolling contracts accounted for as operating leases
 
Property, plant and equipment, gross
$
3,055

Accumulated depreciation
(880
)
Property, plant and equipment, net
$
2,175

We also record lease levelization assets and liabilities for any difference between the timing of the contractual payments made related to our tolling contracts and revenue recognized on a straight-line basis. These balances are included in current and long-term assets and liabilities on our Consolidated Condensed Balance Sheet.

13



Disclosures for periods prior to the adoption of Topic 842
Lessee    
The following is a schedule by year of future minimum lease payments under operating and capital leases as of December 31, 2018 (in millions):
 
Operating Leases
 
Capital Leases(1)
2019
$
50

 
$
40

2020
19

 
40

2021
20

 
38

2022
18

 
33

2023
17

 
27

Thereafter
192

 
92

Total minimum lease payments
$
316

 
270

Less: Amount representing interest
 
 
89

Present value of net minimum lease payments
 
 
$
181

____________
(1)
Includes a failed sale-leaseback transaction related to our Pasadena Power Plant.
At December 31, 2018, the asset balance for our assets under capital leases totaled approximately $715 million with accumulated amortization of $353 million.
Lessor
The total contractual future minimum lease rentals for our contracts accounted for as operating leases at December 31, 2018, are as follows (in millions):
2019
$
342

2020
261

2021
257

2022
224

2023
141

Thereafter
239

Total
$
1,464

4.
Divestitures
Sale of Garrison Energy Center and RockGen Energy Center
On April 8, 2019, we, through our indirect, wholly-owned subsidiaries Calpine Holdings, LLC and Calpine Northbrook Project Holdings, LLC, entered into an agreement with Cobalt Power, L.L.C. to sell 100% of our ownership interests in Garrison Energy Center LLC (“Garrison”) and RockGen Energy LLC (“RockGen”) for approximately $360 million, subject to certain working capital adjustments and the execution of contracts. Garrison is an indirect, wholly-owned subsidiary that owns the Garrison Energy Center, a 309 MW natural gas-fired, combined-cycle power plant located in Dover, Delaware and RockGen is an indirect, wholly-owned subsidiary that owns the RockGen Energy Center, a 503 MW natural gas-fired, simple-cycle power plant located in Christiana, Wisconsin. We expect the sale, which is subject to regulatory approvals, to close in the third quarter of 2019 and we will use the sale proceeds for our capital allocation activities and general corporate purposes.
At March 31, 2019, we have reclassified the assets and liabilities of Garrison Energy Center and RockGen Energy Center, which are part of our East segment, to current assets and liabilities held for sale on our Consolidated Condensed Balance Sheet consisting primarily of property, plant and equipment, net, and finance leases, respectively, and recorded an immaterial adjustment to the carrying value to reflect fair value less cost to sell.

14



5.
Variable Interest Entities and Unconsolidated Investments
We consolidate all of our VIEs where we have determined that we are the primary beneficiary. There were no changes to our determination of whether we are the primary beneficiary of our VIEs for the three months ended March 31, 2019. See Note 7 in our 2018 Form 10-K for further information regarding our VIEs.
VIE Disclosures
Our consolidated VIEs include natural gas-fired power plants with an aggregate capacity of 7,880 MW and 7,880 MW at March 31, 2019 and December 31, 2018, respectively. For these VIEs, we may provide other operational and administrative support through various affiliate contractual arrangements among the VIEs, Calpine Corporation and its other wholly-owned subsidiaries whereby we support the VIE through the reimbursement of costs and/or the purchase and sale of energy. Other than amounts contractually required, we provided support to these VIEs in the form of cash and other contributions of nil during each of the three months ended March 31, 2019 and 2018.
OMEC — OMEC has a ten-year tolling agreement with SDG&E which commenced on October 3, 2009. Under a ground lease agreement, OMEC held a put option to sell the Otay Mesa Energy Center for $280 million to SDG&E, pursuant to the terms and conditions of the agreement, which was exercisable until April 1, 2019 and SDG&E held a call option to purchase the Otay Mesa Energy Center for $377 million, which was exercisable through October 3, 2018. The call option held by SDG&E expired unexercised.
OMEC has executed a new 59-month Resource Adequacy (“RA”) contract with SDG&E which would commence on October 3, 2019. The RA contract received initial regulatory approval by the California Public Utilities Commission (“CPUC”) on February 21, 2019. This approval was subject to a 30 day appeal period from the date of the issuance of the CPUC decision. On March 27, 2019, an appeal of the CPUC decision was filed with the CPUC. We continue to work to commence the RA contract. However, in the event that we are not successful and another alternative is not reached with SDG&E prior to October 3, 2019, OMEC expects to close on the put and transfer the Otay Mesa Energy Center to SDG&E for $280 million on or about October 3, 2019, which transaction could result in a write down of the carrying value of the asset.
On December 19, 2018, we refinanced the project debt associated with OMEC which lowered the aggregate debt balance to $220 million and extended the maturity to August 2024. In the event that the exercise of the OMEC put option is not rescinded, the OMEC project debt will become payable on November 3, 2019.
We have concluded that we are the primary beneficiary of OMEC as we believe the activity that has the most effect on the financial performance of OMEC is operations and maintenance which is controlled by us. As a result, we consolidate OMEC.
Unconsolidated VIEs and Investments in Unconsolidated Subsidiaries
We have a 50% partnership interest in Greenfield LP and in Whitby. Greenfield LP and Whitby are VIEs; however, we do not have the power to direct the most significant activities of these entities and therefore do not consolidate them. Greenfield LP is a limited partnership between certain subsidiaries of ours and of Mitsui & Co., Ltd., which operates the Greenfield Energy Centre, a 1,038 MW natural gas-fired, combined-cycle power plant located in Ontario, Canada. We and Mitsui & Co., Ltd. each hold a 50% interest in Greenfield LP. Whitby is a limited partnership between certain of our subsidiaries and Atlantic Packaging Ltd., which operates the Whitby facility, a 50 MW natural gas-fired, simple-cycle cogeneration power plant located in Ontario, Canada. We and Atlantic Packaging Ltd. each hold a 50% partnership interest in Whitby.
Calpine Receivables is a VIE and a bankruptcy remote entity created for the special purpose of purchasing trade accounts receivable from Calpine Solutions under the Accounts Receivable Sales Program. We have determined that we do not have the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance nor the obligation to absorb losses or receive benefits from the VIE. Accordingly, we have determined that we are not the primary beneficiary of Calpine Receivables because we do not have the power to affect its financial performance as the unaffiliated financial institutions that purchase the receivables from Calpine Receivables control the selection criteria of the receivables sold and appoint the servicer of the receivables which controls management of default. Thus, we do not consolidate Calpine Receivables in our Consolidated Condensed Financial Statements and use the equity method of accounting to record our net interest in Calpine Receivables.
We account for these entities under the equity method of accounting and include our net equity interest in investments in unconsolidated subsidiaries on our Consolidated Condensed Balance Sheets. At March 31, 2019 and December 31, 2018, our equity method investments included on our Consolidated Condensed Balance Sheets were comprised of the following (in millions):

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Ownership Interest as of
March 31, 2019
 
March 31, 2019
 
December 31, 2018
Greenfield LP
50%
 
$
54

 
$
55

Whitby
50%
 
8

 
15

Calpine Receivables
100%
 
5

 
6

Total investments in unconsolidated subsidiaries
 
 
$
67

 
$
76

Our risk of loss related to our investments in Greenfield LP and Whitby is limited to our investment balance. Our risk of loss related to our investment in Calpine Receivables is $60 million which consists of our notes receivable from Calpine Receivables at March 31, 2019 and our initial investment associated with Calpine Receivables. See Note 12 for further information associated with our related party activity with Calpine Receivables.
Holders of the debt of our unconsolidated investments do not have recourse to Calpine Corporation and its other subsidiaries; therefore, the debt of our unconsolidated investments is not reflected on our Consolidated Condensed Balance Sheets. At March 31, 2019 and December 31, 2018, Greenfield LP’s debt was approximately $302 million and $301 million, respectively, and based on our pro rata share of our investment in Greenfield LP, our share of such debt would be approximately $151 million and $151 million at March 31, 2019 and December 31, 2018, respectively.
Our equity interest in the net income from our investments in unconsolidated subsidiaries for the three months ended March 31, 2019 and 2018, is recorded in (income) from unconsolidated subsidiaries. We did not have material income or receive any distributions from our investment in Calpine Receivables for the three months ended March 31, 2019 and 2018. The following table sets forth details of our (income) from unconsolidated subsidiaries for the periods indicated (in millions):
 
Three Months Ended March 31,
 
2019
 
2018
Greenfield LP
$
(2
)
 
$
(2
)
Whitby
(4
)
 
(4
)
Total
$
(6
)
 
$
(6
)
Distributions from Greenfield LP were nil during each of the three months ended March 31, 2019 and 2018. Distributions from Whitby were $11 million and $3 million during the three months ended March 31, 2019 and 2018, respectively.
Inland Empire Energy Center Put and Call Options — We held a call option to purchase the Inland Empire Energy Center (a 775 MW natural gas-fired power plant located in California) at predetermined prices from GE that could be exercised between years 2017 and 2024. GE held a put option whereby they could require us to purchase the power plant, if certain plant performance criteria were met by 2025. On February 1, 2019, we entered into an agreement with GE which, among other things, terminated our call option and GE’s put option related to the Inland Empire Energy Center. As per this agreement, we will take ownership of the facility site and certain remaining site infrastructure and equipment after closure and decommissioning of the facility at a future date, until such time GE continues to own, operate and maintain the power plant, including directing any closure activities. As GE continues to direct all such significant activities of the power plant, we have determined that we no longer hold any variable interests in the Inland Empire Energy Center and it is not a VIE to Calpine.

16



6.
Debt
Our debt at March 31, 2019 and December 31, 2018, was as follows (in millions):
 
March 31, 2019

December 31, 2018
Senior Unsecured Notes
$
2,989

 
$
3,036

First Lien Term Loans
2,972

 
2,976

First Lien Notes
2,401

 
2,400

Project financing, notes payable and other
1,228

 
1,264

CCFC Term Loan
972

 
974

Finance lease obligations
79

 
105

Corporate Revolving Facility
150

 
30

Subtotal
10,791

 
10,785

Less: Current maturities
258

 
637

Total long-term debt
$
10,533

 
$
10,148

Our effective interest rate on our consolidated debt, excluding the effects of capitalized interest and mark-to-market gains (losses) on interest rate hedging instruments, increased to 5.9% for the three months ended March 31, 2019, from 5.6% for the same period in 2018. Since the fourth quarter of 2018, we have cumulatively repurchased $438 million in aggregate principal of our Senior Unsecured Notes for $399 million.
Senior Unsecured Notes
The amounts outstanding under our Senior Unsecured Notes are summarized in the table below (in millions):
 
March 31, 2019
 
December 31, 2018
2023 Senior Unsecured Notes
$
1,228

 
$
1,227

2024 Senior Unsecured Notes
589

 
599

2025 Senior Unsecured Notes
1,172

 
1,210

Total Senior Unsecured Notes
$
2,989

 
$
3,036

During the three months ended March 31, 2019, we repurchased $48 million in aggregate principal of our Senior Unsecured Notes for $44 million. In connection with the repurchases, we recorded approximately $4 million in gain on extinguishment of debt.
First Lien Term Loans
The amounts outstanding under our senior secured First Lien Term Loans are summarized in the table below (in millions):
 
March 31, 2019
 
December 31, 2018
2019 First Lien Term Loan
$
389

 
$
389

2023 First Lien Term Loans
1,057

 
1,059

2024 First Lien Term Loan
1,526

 
1,528

Total First Lien Term Loans
$
2,972

 
$
2,976

On April 5, 2019, we entered into a $950 million first lien senior secured term loan which bears interest, at our option, at either (i) the Base Rate, equal to the highest of (a) the Federal Funds Effective Rate plus 0.50% per annum, (b) the Prime Rate or (c) the Eurodollar Rate for a one month interest period plus 1.0% (in each case, as such terms are defined in the credit agreement), plus an applicable margin of 1.75%, or (ii) LIBOR plus 2.75% per annum (with a 0% LIBOR floor) and matures on April 5, 2026. An aggregate amount equal to 0.25% of the aggregate principal amount of the 2026 First Lien Term Loan is payable at the end of each quarter with the remaining balance payable on the maturity date. We paid an upfront fee of an amount equal to 1.0% of the aggregate principal amount of the 2026 First Lien Term Loan, which is structured as original issue discount and expect to record approximately $7 million in debt issuance costs during the second quarter of 2019 related to the issuance of our 2026 First Lien Term Loan. The 2026 First Lien Term Loan contains substantially similar covenants, qualifications, exceptions and limitations as our First Lien Term Loans and First Lien Notes. We used the proceeds from our 2026 First Lien Term Loan to repay our 2019

17



First Lien Term Loan and a portion of our 2023 First Lien Term Loans with a maturity date in January 2023 and expect to record approximately $3 million in loss on extinguishment of debt during the second quarter of 2019 associated with the repayment.
First Lien Notes
The amounts outstanding under our senior secured First Lien Notes are summarized in the table below (in millions):
 
March 31, 2019
 
December 31, 2018
2022 First Lien Notes
$
744

 
$
743

2024 First Lien Notes
486

 
486

2026 First Lien Notes
1,171

 
1,171

Total First Lien Notes
$
2,401

 
$
2,400

Project Financing, Notes Payable and Other
On January 29, 2019, Pacific Gas and Electric Company (“PG&E”) and PG&E Corporation each filed voluntary petitions for relief under Chapter 11. 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. 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. We plan to work with the lenders to determine a path forward. 
In the event that the exercise of the OMEC put option is not rescinded, the OMEC project debt will become payable on November 3, 2019. See Note 5 for further information related to the OMEC put option.
Corporate Revolving Facility and Other Letter of Credit Facilities
The table below represents amounts issued under our letter of credit facilities at March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
December 31, 2018
Corporate Revolving Facility(1)
$
537

 
$
693

CDHI(2)
225

 
251

Various project financing facilities
243

 
228

Other corporate facilities(3)
196

 
193

Total
$
1,201

 
$
1,365

____________
(1)
The Corporate Revolving Facility represents our primary revolving facility. On April 5, 2019, we amended our Corporate Revolving Facility to increase the capacity by approximately $330 million from $1.69 billion to approximately $2.02 billion.
(2)
Pursuant to the terms and conditions of the CDHI credit agreement, the capacity under the CDHI letter of credit facility will be reduced to $125 million on June 30, 2019. The decrease in capacity will not have a material effect on our liquidity as alternative sources of liquidity are available.
(3)
We have two unsecured letter of credit facilities with third party financial institutions totaling $200 million at March 31, 2019. On May 6, 2019, we entered into a new unsecured letter of credit facility which increased the total capacity available to us by approximately $100 million.

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Fair Value of Debt
We record our debt instruments based on contractual terms, net of any applicable premium or discount and debt issuance costs. The following table details the fair values and carrying values of our debt instruments at March 31, 2019 and December 31, 2018 (in millions):
 
March 31, 2019
 
December 31, 2018
 
Fair Value
 
Carrying Value
 
Fair Value
 
Carrying Value
Senior Unsecured Notes
$
2,996

 
$
2,989

 
$
2,803

 
$
3,036

First Lien Term Loans
2,990

 
2,972

 
2,877

 
2,976

First Lien Notes
2,439

 
2,401

 
2,299

 
2,400

Project financing, notes payable and other(1)
1,132

 
1,152

 
1,209

 
1,188

CCFC Term Loan
975

 
972

 
938

 
974

Corporate Revolving Facility
150

 
150

 
30

 
30

Total
$
10,682

 
$
10,636

 
$
10,156

 
$
10,604

____________
(1)
Excludes a lease that is accounted for as a failed sale-leaseback transaction under U.S. GAAP.
Our Senior Unsecured Notes, First Lien Term Loans, First Lien Notes, CCFC Term Loan and Corporate Revolving Facility are categorized as level 2 within the fair value hierarchy. Our project financing, notes payable and other debt instruments are categorized as level 3 within the fair value hierarchy. We do not have any debt instruments with fair value measurements categorized as level 1 within the fair value hierarchy.
7.
Assets and Liabilities with Recurring Fair Value Measurements
Cash Equivalents — Highly liquid investments which meet the definition of cash equivalents, primarily investments in money market accounts and other interest-bearing accounts, are included in both our cash and cash equivalents and our restricted cash on our Consolidated Condensed Balance Sheets. Certain of our money market accounts invest in U.S. Treasury securities or other obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities. We do not have any cash equivalents invested in institutional prime money market funds which require use of a floating net asset value and are subject to liquidity fees and redemption restrictions. Certain of our cash equivalents are classified within level 1 of the fair value hierarchy.
Derivatives — The primary factors affecting the fair value of our derivative instruments at any point in time are the volume of open derivative positions (MMBtu, MWh and $ notional amounts); changing commodity market prices, primarily for power and natural gas; our credit standing and that of our counterparties and customers for energy commodity derivatives; and prevailing interest rates for our interest rate hedging instruments. Prices for power and natural gas and interest rates are volatile, which can result in material changes in the fair value measurements reported in our financial statements in the future.
We utilize market data, such as pricing services and broker quotes, and assumptions that we believe market participants would use in pricing our assets or liabilities including assumptions about the risks inherent to the inputs in the valuation technique. These inputs can be either readily observable, market corroborated or generally unobservable. The market data obtained from broker pricing services is evaluated to determine the nature of the quotes obtained and, where accepted as a reliable quote, used to validate our assessment of fair value. We use other qualitative assessments to determine the level of activity in any given market. We primarily apply the market approach and income approach for recurring fair value measurements and utilize what we believe to be the best available information. We utilize valuation techniques that seek to maximize the use of observable inputs and minimize the use of unobservable inputs. We classify fair value balances based on the observability of those inputs.
The fair value of our derivatives includes consideration of our credit standing, the credit standing of our counterparties and customers and the effect of credit enhancements, if any. We have also recorded credit reserves in the determination of fair value based on our expectation of how market participants would determine fair value. Such valuation adjustments are generally based on market evidence, if available, or our best estimate.
Our level 1 fair value derivative instruments primarily consist of power and natural gas swaps, futures and options traded on the NYMEX or Intercontinental Exchange.
Our level 2 fair value derivative instruments primarily consist of interest rate hedging instruments and OTC power and natural gas forwards for which market-based pricing inputs in the principal or most advantageous market are representative of

19



executable prices for market participants. These inputs are observable at commonly quoted intervals for substantially the full term of the instruments. In certain instances, our level 2 derivative instruments may utilize models to measure fair value. These models are industry-standard models, including the Black-Scholes option-pricing model, that incorporate various assumptions, including quoted interest rates, correlation, volatility, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.
Our level 3 fair value derivative instruments may consist of OTC power and natural gas forwards and options where pricing inputs are unobservable, as well as other complex and structured transactions primarily for the sale and purchase of power and natural gas to both wholesale counterparties and retail customers. Complex or structured transactions are tailored to our customers’ needs and can introduce the need for internally-developed model inputs which might not be observable in or corroborated by the market. When such inputs have a significant effect on the measurement of fair value, the instrument is categorized in level 3. Our valuation models may incorporate historical correlation information and extrapolate available broker and other information to future periods.
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement at period end. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect our estimate of the fair value of our assets and liabilities and their placement within the fair value hierarchy levels. The following tables present our financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2019 and December 31, 2018, by level within the fair value hierarchy:
 
Assets and Liabilities with Recurring Fair Value Measures as of March 31, 2019
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents(1)
$
175

 
$

 
$

 
$
175

Commodity instruments:
 
 
 
 
 
 
 
Commodity exchange traded derivatives contracts
612

 

 

 
612

Commodity forward contracts(2)

 
343

 
218

 
561

Interest rate hedging instruments

 
23

 

 
23

Effect of netting and allocation of collateral(3)(4)
(612
)
 
(266
)
 
(17
)
 
(895
)
Total assets
$
175

 
$
100

 
$
201

 
$
476

Liabilities:
 
 
 
 
 
 
 
Commodity instruments:
 
 
 
 
 
 
 
Commodity exchange traded derivatives contracts
$
688

 
$

 
$

 
$
688

Commodity forward contracts(2)

 
537

 
115

 
652

Interest rate hedging instruments

 
17

 

 
17

Effect of netting and allocation of collateral(3)(4)
(688
)
 
(313
)
 
(19
)
 
(1,020
)
Total liabilities
$

 
$
241

 
$
96

 
$
337


20



 
Assets and Liabilities with Recurring Fair Value Measures as of December 31, 2018
 
Level 1    
 
Level 2    
 
Level 3    
 
Total    
 
(in millions)
Assets:
 
 
 
 
 
 
 
Cash equivalents(1)
$
168

 
$

 
$

 
$
168

Commodity instruments:
 
 
 
 
 
 
 
Commodity exchange traded derivatives contracts
933

 

 

 
933

Commodity forward contracts(2)

 
338

 
212

 
550

Interest rate hedging instruments

 
40

 

 
40

Effect of netting and allocation of collateral(3)(4)
(933
)
 
(262
)
 
(26
)
 
(1,221
)
Total assets
$
168

 
$
116

 
$
186

 
$
470

Liabilities:
 
 
 
 
 
 
 
Commodity instruments:
 
 
 
 
 
 
 
Commodity exchange traded derivatives contracts
$
932

 
$

 
$

 
$
932

Commodity forward contracts(2)

 
549

 
220

 
769

Interest rate hedging instruments

 
10

 

 
10

Effect of netting and allocation of collateral(3)(4)
(932
)
 
(310
)
 
(26
)
 
(1,268
)
Total liabilities
$

 
$
249

 
$
194

 
$
443

___________
(1)
At March 31, 2019 and December 31, 2018, we had cash equivalents of $19 million and $23 million included in cash and cash equivalents and $156 million and $145 million included in restricted cash, respectively.
(2)
Includes OTC swaps and options.
(3)
We offset fair value amounts recognized for derivative instruments executed with the same counterparty under a master netting arrangement for financial statement presentation; therefore, amounts recognized for the right to reclaim, or the obligation to return, cash collateral are presented net with the corresponding derivative instrument fair values. See Note 8 for further discussion of our derivative instruments subject to master netting arrangements.
(4)
Cash collateral posted with (received from) counterparties allocated to level 1, level 2 and level 3 derivative instruments totaled $76 million, $47 million and $2 million, respectively, at March 31, 2019. Cash collateral posted with (received from) counterparties allocated to level 1, level 2 and level 3 derivative instruments totaled $(1) million, $48 million and nil, respectively, at December 31, 2018.

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At March 31, 2019 and December 31, 2018, the derivative instruments classified as level 3 primarily included commodity contracts, which are classified as level 3 because the contract terms relate to a delivery location or tenor for which observable market rate information is not available. The fair value of the net derivative position classified as level 3 is predominantly driven by market commodity prices. The following table presents quantitative information for the unobservable inputs used in our most significant level 3 fair value measurements at March 31, 2019 and December 31, 2018:
 
 
Quantitative Information about Level 3 Fair Value Measurements
 
 
 
March 31, 2019
 
 
 
Fair Value, Net Asset
 
 
 
Significant Unobservable
 
 
 
 
 
 
 
(Liability)
 
Valuation Technique
 
Input
 
Range
 
 
(in millions)