Commercial operation of Bloom Wind and closing of the Decatur Energy Center and two B.C. waste heat facility acquisitions increases contracted cash flow and portfolio diversification
EDMONTON, Alberta – Capital Power Corporation (Capital Power or the Company) (TSX: CPX) announced its Bloom Wind project, located in Kansas began commercial operation on June 1, 2017. The construction of the 178 megawatt (MW) facility was completed ahead of schedule and construction costs were below budget.
“The completion of Bloom Wind is a significant milestone for Capital Power as it is our first wind development project in the United States,” said Brian Vaasjo, President and CEO Capital Power. “We expect this to be the first of many U.S. wind development projects to reach completion.”
Bloom Wind was developed using an innovative 10-year proxy revenue swap agreement with Allianz Risk Transfer, a subsidiary of Allianz SE, the worldwide insurance and asset management group. Capital Power is among the first independent power producers in North America to utilize a proxy revenue swap agreement, which received award recognition from IJGlobalas the North American Wind Deal of the Year.
Closing of acquisitions
Further supporting its contracted growth strategy, the Company successfully completed the acquisition of the Decatur Energy Center (Decatur Energy) for U.S. $448 million from an affiliate of LS Power Equity Partners III (LS Power) that was previously announced on April 12, 2017. The 795 MW combined-cycle facility located in Alabama, operates under a tolling agreement and is fully contracted until 2022. The purchase price was partially financed by the net proceeds from a public offering of 7,375,000 subscription receipts (the Subscription Receipts). The public offering raised total gross proceeds of approximately $183 million and closed on April 24, 2017. In accordance with their terms, each Subscription Receipt was converted for one common share of Capital Power on June 13, 2017 upon the closing of the Decatur Energy acquisition. No dividend record date occurred during the period when the Subscription Receipts were outstanding and as such, no obligation to make any cash dividend equivalent payment has been triggered. Holders of the Subscription Receipts are not required to take any action in order to receive the common shares to which they are entitled.
“The completion of Bloom Wind and the acquisition of the Decatur Energy demonstrates that Capital Power is executing on its contracted U.S. growth plans,” added Mr. Vaasjo.
On June 1, 2017, the Company also closed the acquisition of 10 MW of zero-emissions waste heat generation from two facilities (5 MW each) located in Savona and 150 Mile House, British Columbia. The waste heat facilities are under 20-year Electricity Purchase Agreements with BC Hydro with original terms expiring in 2028. These facilities were announced as part of the acquisition of Veresen Inc.’s contracted thermal portfolio on February 21, 2017.
Decatur Energy is estimated to be accretive to adjusted funds from operations (AFFO) by 18 cents per share in the first full year of operations. Combined with the assets acquired from Veresen, the Company increased its annual 2017 AFFO target by 12%, from a range of $305 to $345 million to $340 to $385 million.
“The addition of Decatur Energy, along with the gas-fired and waste heat generation facilities from the Veresen acquisition, has further diversified our generation fleet throughout North America,” said Mr. Vaasjo. “The addition of 1,267 MW of contracted assets since the beginning of 2017 has increased the scale of the company’s operations and aligns with our financial strategy of increasing our contracted cash flow and diversifying our portfolio.”
Non-GAAP Financial Measure
Commencing in 2017, the Company uses adjusted funds from operations (AFFO) as a financial performance measure to measure the Company’s ability to generate cash from its current operating activities to fund growth capital expenditures, debt repayments and common share dividends to the Company’s shareholders. This term is not a defined financial measure according to GAAP and does not have a standardized meaning prescribed by GAAP and, therefore, is unlikely to be comparable to similar measures used by other enterprises. AFFO should not be considered as an alternative to net cash flows from operating activities which is calculated in accordance with GAAP. Rather, this measure is provided to complement the nearest GAAP measure in the analysis of the Company’s results of operations from management’s perspective. The AFFO performance measure is FFO reduced by sustaining capital expenditures, distributions received from the Company’s joint venture interests and preferred share dividends and adjusted to include the Company’s share of the adjusted funds from operations of its joint venture interests and cash from coal compensation that will be received annually.
Certain information in this news release is forward-looking within the meaning of Canadian securities law as it relates to anticipated financial and operating performance, events or strategies. The forward-looking information or statements are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for other purposes. The forward-looking information in this press release is generally identified by words such as will, anticipate, believe, plan, intend, target, and expect or similar words that suggest future outcomes.
Forward-looking information in this press release includes expectations regarding financial impacts including expected accretion in AFFO from the acquisition of Decatur Energy. Such expectations are subject to the assumptions, risks, limitations and qualifications set out below. All forward-looking information contained in this press release was made as of the date of this press release and readers are cautioned that the forward-looking information in this press release should not be used for purposes other than for which it is disclosed herein.
The forward-looking information is based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate, including its review of the purchased businesses and assets. The material factors and assumptions used to develop these forward-looking statements relate to: (i) electricity and other energy prices, (ii) anticipated performance of the businesses, (iii) business prospects and opportunities including expected growth and capital projects, (iv) status of and impact of policy, legislation and regulations, and (v) effective tax rates.
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 material risks and uncertainties are: (i) changes in electricity prices in markets in which the Company operates, (ii) changes in energy commodity market prices and use of derivatives, (iii) regulatory and political environments including changes to environmental, financial reporting, market structure and tax legislation, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) acquisitions and developments including timing and costs of regulatory approvals and construction, (vii) changes in market prices and availability of fuel, (viii) ability to realize the anticipated benefits of the Decatur Energy acquisition, (ix) limitations inherent in the Company’s review of the purchased businesses and assets, and (x) changes in general economic and competitive conditions. Readers are cautioned that the foregoing list is not exhaustive, and are directed to review additional information on these risks under the heading Risks and Risk Management in the Company’s 2016 Management’s Discussion and Analysis which may be accessed through the SEDAR website.
Readers are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the specified approval date. 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.
About Capital Power
Capital Power (TSX: CPX) is a growth-oriented North American power producer headquartered in Edmonton, Alberta. The company develops, acquires, operates and optimizes power generation from a variety of energy sources. Capital Power owns approximately 4,500 megawatts of power generation capacity at 24 facilities and is pursuing contracted generation capacity throughout North America.