EDMONTON, Alberta – Capital Power Corporation (TSX: CPX) (Capital Power) today announced that it has entered into an agreement to acquire the Island Generation Facility (Island Generation), a 275 megawatt (MW), gas-fired combined cycle power plant at Campbell River, British Columbia. The transaction is expected to close in the fourth quarter of 2010, subject to regulatory and other approvals.
The Purchase and Sale Agreement (PSA) for the transaction is between Capital Power LP, the legal entity that directly and indirectly holds Capital Power’s assets, and Kelson Canada Inc. Subject to market conditions, Capital Power expects to permanently finance the purchase price of approximately $207 million, plus closing costs and normal working capital adjustments, with a combination of debt and equity.
The acquisition meets the minimum nine per cent hurdle rate (unlevered, after-tax) for Capital Power’s contracted assets. The acquisition is expected to be modestly and immediately accretive to earnings, and more significantly accretive to cash flow, based on Electricity Purchase Arrangement (EPA) terms and our expectations on accounting treatment.
“Since Capital Power’s launch in July 2009, approximately 700 MW of new capacity has been added or placed into development, including 247 MW in new wind power projects,” said Capital Power’s President and CEO, Brian Vaasjo. “The Island Generation facility will be the first addition to our fleet made via acquisition, and it demonstrates our commitment to significant growth under strategies encompassing both diversity of fuel types and conservative financial structure.”
Island Generation is fully-contracted from April 1, 2010 to April 2022 under a tolling arrangement with BC Hydro, a AAA-rated counterparty by Standard and Poors. BC Hydro is responsible for the fuel supply to the facility. Commissioned in 2002, the Island Generation facility is consistent with Capital Power’s fleet of young assets that deploy efficient technologies.
Overview of the Island Generation facilityIsland Generation is located on the eastern side of Vancouver Island in Campbell River, BC, approximately 200 km northwest of Vancouver. The facility operates an Alstom GT24B gas turbine and an Alstom steam turbine with total capacity of 275 MW. It commenced commercial operations in 2002 and has 21 operating staff.
Electricity Purchase Arrangement (EPA) Counterparty: BC HydroTerm: April 12, 2010 to April 12, 2022EPA Structure: Payments are based on facility availability. BC Hydro supplies and delivers all fuel required to operate Island Generation.
Selected operating statistics of Island Generation
Operations and maintenance agreementThe Facility is operated and maintained under a contract with NAES Canada, Ltd., a wholly owned subsidiary of NAES Corporation.
Power market descriptionGeneration capacity on Vancouver Island is approximately 750 MW, with the Island Generation facility as the single largest plant. BC Hydro’s demand forecast projects approximately 2,400 MW of peak demand for the Island. While the Vancouver Island transmission system is capable of providing the necessary energy imports from the mainland to meet Vancouver Island’s normal load, Island Generation is currently an important reliability resource at peak demand periods and during transmission outages. Load growth on Vancouver Island is expected to outpace new generation additions.
Forward-looking informationCertain information in this news release is forward-looking within the meaning of Canadian securities laws as it relates to anticipated financial and operating performance, events or strategies. When used in this context, words such as will, anticipate, believe, plan, intend, target, and expect or similar words suggest future outcomes.
Forward-looking information includes, among other things, information relating to: (i) the financing of the Island Generation acquisition (Acquisition), (ii) the estimated unlevered return and after-tax return of the Acquisition (iii) the expected accretion from the Acquisition, (iv) expectations regarding future operating performance of Island Generation, (v) expectations regarding peak demand, load and power generation growth on Vancouver Island and its impact on Island Generation’s future value, (vi) the expected timing of the closing of the purchase transaction for the Acquisition, and (vii) expectations regarding BC Hydro maintaining its credit rating.
These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate. The material factors and assumptions used to develop these forward-looking statements include, but are not limited to: (i) the operation of Island Generation; (ii) Island Generation availability; (iii) the Company's financial position and credit facilities and sources of financing; (iv) the Company's assessment of commodity and power markets; (v) the Company's assessment of the markets and regulatory environments in which Island Generation operates; (vi) weather; (vii) availability and cost of labour and management resources; (viii) performance of contractors and suppliers; (ix) availability and cost of financing; (x) management's analysis of applicable tax legislation; (xi) the currently applicable and proposed tax laws will not change and will be implemented; (xii) currently applicable and proposed environmental regulations will be implemented; (xii) counterparties will perform their obligations; (xiv) renewal and terms of EPAs; (xv) ability to successfully integrate and realize benefits of the acquisition of Island Generation; and (xvi) the Company's assessment of capital markets and ability to complete future securities offerings.
Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results and experience to differ materially from the Company's expectations. Such risks and uncertainties include, but are not limited to, risks relating to: (i) operation of Island Generation; (ii) Island Generation availability and performance; (iii) unanticipated maintenance and other expenditures; (iv) availability and price of energy commodities; (v) electricity load settlement; (vi) regulatory and government decisions including changes to environmental, financial reporting, and tax legislation; (vii) weather and economic conditions; (viii) competitive pressures; (ix) availability and cost of financing; (x) availability and cost of labour, equipment and management resources; (xi) performance of counterparties, partners, contractors and suppliers in fulfilling their obligations to the Company; (xii) developments in North American capital markets; (xiii) compliance with financial covenants; (xiv) ability to successfully realize the benefits of the acquisition of Island Generation; and (xv) the tax attributes of the acquisition of Island Generation.
If any such risks actually occur, they could materially adversely affect the Company's business, financial condition or results of operations. In that case the trading price of the Company's common shares could decline, perhaps materially. Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Forward-looking statements are provided for the purpose of providing information about management's current expectations, and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. The Company does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.
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