EDMONTON, Alberta – Capital Power Corporation (“Capital Power” or “the Company”) (TSX: CPX) announced today that it has executed an agreement to acquire a 50.15% ownership interest in the Frederickson 1 Generating Station (“Frederickson 1” or “the Facility”) from Atlantic Power & Utilities (“AP&U”) for US$100 million (CAD$137 million). The other 49.85% is owned by Puget Sound Energy (“PSE”). Capital Power will finance the transaction using cash on hand and its credit facilities. The transaction is expected to close in the fourth quarter of 2023, subject to customary regulatory approvals and other closing adjustments and conditions.
Frederickson 1 is a 265 MW natural gas-fired combined-cycle generating facility in Pierce County, Washington. The facility is well-positioned as a flexible and dispatchable resource that provides reliable power in support of the continuing energy transition to renewables in the region. Capital Power will operate and maintain the facility and bring to bear its deep knowledge and experience in plant operations and optimization and will receive an annual management fee under the operating arrangement with PSE.
“We are pleased to acquire this high-quality facility in the Pacific Northwest,” said Avik Dey, President and CEO of Capital Power. “Consistent with our mid-life natural gas strategy, this acquisition expands our portfolio of dispatchable assets in key markets that support the energy transition by providing reliable, affordable and flexible power while renewables grow and decarbonization solutions develop.”
“Frederickson 1 is a strategically located mid-life natural gas asset in the growing load centre of the Puget Sound Region and will provide accretive near-term cash flows,” said Bryan DeNeve, SVP, Chief Commercial Officer of Capital Power. “The facility is supported by long-term contracts out to October 2030 with credit-worthy counterparties and is well-positioned for re-contracting as a key dispatchable, baseload asset in the region. Additionally, the facility and adjacent lands provide ample room and infrastructure for future non-emitting, flexible generation developments co-located with the Facility.”
- Financial projections (Capital Power’s portion): expected average contracted EBITDA of US$15 million (CAD$21 million) per year during the 5-year period of 2024-2029.
- Accretive transaction: expected to deliver accretive near-term cash flows.
- Long-term contracts with credit-worthy counterparties:
- Morgan Stanley Capital Group Inc. guaranteed by Morgan Stanley (rated P-1/A-2/F1) – tolling agreement for 100% capacity to September 2025.
- Puget Sound Energy (rated BBB/Negative/A-2) – tolling agreement for 100% capacity from October 2025 to October 2030.
- Development opportunities: Located southeast of Tacoma in the Puget Sound Region load centre, the Facility sits on approximately 7 acres of land and is adjacent to additional lands owned by Capital Power. Current layout and additional space allow for future development such as battery installation or a hybrid opportunity.
Overview of Frederickson 1:
- Nameplate capacity: 265 MW
- Location: Pierce County, Washington
- Commercial operation date: 2002
- Equipment: Utilizes a 1X1 combined-cycle configuration with a GE 7FA combustion turbine, a Nooter Eriksen three-pressure heat recovery steam generator and a GE A-11 condensing steam turbine and steam turbine generator
- Availability: 98% PPA availability over the last five years, excluding scheduled planned outages
- Natural gas source: Northwest Pipeline via Scott Lateral (part owned by AP&U, PSE and Capital Power)
- Interconnection: Interconnected through the Bonneville Power Administration in the Western Electricity Coordinating Council (WECC) region, which is expected to see significant legacy coal retirements and accelerating renewable deployment
Non-GAAP Financial Measures and Ratios
The Company uses (i) earnings before net finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, finance expense and depreciation expense from its joint venture interests, gains or losses on disposals and unrealized changes in fair value of commodity derivatives and emission credits (adjusted EBITDA) and (ii) AFFO as financial performance measures.
The Company also uses AFFO per share as a performance measure. This measure is a non-GAAP ratio determined by applying AFFO to the weighted average number of common shares used in the calculation of basic and diluted earnings per share.
These terms are not defined financial measures according to GAAP and do not have standardized meanings prescribed by GAAP and, therefore, are unlikely to be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, net cash flows from operating activities or other measures of financial performance calculated in accordance with GAAP. Rather, these measures are provided to complement GAAP measures in the analysis of the Company’s results of operations from management’s perspective.
See Non-GAAP measures and ratios in the Company’s second quarter 2023, and Company’s 2022 Integrated Annual Report for further discussion of these metrics and reconciliations of adjusted EBITDA and AFFO to net income and net cash flows from operating activities, respectively.
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.
Material forward-looking information in this press release around the acquisition of the Facility includes expectations regarding: (i) financing plans, (ii) transaction close timing, (iii) financial impacts including expected near term cash flows and adjusted EBITDA contributions, (iv) re-contracting of the Facility following contract expiration in 2025 and 2030, (v) the potential of the Facility to support the energy transition and growth of renewable capacity in the region, (vi) receipt of required regulatory approvals, and (vii) future site development opportunities.
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, expected future developments, and other factors it believes are appropriate, including its review of the Facility and re-contracting opportunities. 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 Facility, (iii) re-contracting opportunities, (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 the region, (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 as well as the receipt and timing thereof of required regulatory approvals, (iv) generation facility availability and performance including maintenance of equipment, (v) ability to fund current and future capital and working capital needs, (vi) changes in market prices and availability of fuel, (vii) ability to realize the anticipated benefits of the Facility, (viii) limitations inherent in the Company’s review of the Facility, and (ix) changes in general economic and competitive conditions. See Risks and Risk Management in the Company’s 2022 Integrated Annual Report for further discussion of these and other risks.
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.
In the spirit of reconciliation, Capital Power respectfully acknowledges that we operate within the ancestral homelands, traditional and treaty territories of the Indigenous Peoples of Turtle Island, or North America. Capital Power’s head office is located within the traditional and contemporary home of many Indigenous Peoples of the Treaty 6 Territory and Métis Nation of Alberta Region 4. We acknowledge the diverse Indigenous communities that are located in these areas and whose presence continues to enrich the community.
About Capital Power
Capital Power is a growth-oriented North American wholesale power producer with a strategic focus on sustainable energy. Our balanced approach to net zero by 2045 includes natural gas with emerging technologies to achieve decarbonization alongside the growth of renewables to deliver affordable, clean power generation that communities can rely on.
Capital Power owns approximately 7,500 MW of power generation capacity at 29 facilities across North America. Projects in advanced development and construction include 224 MW of renewable generation in Alberta and North Carolina, 512 MW of incremental natural gas combined cycle capacity from the repowering of Genesee 1 and 2 in Alberta, and approximately 350 MW of natural gas and battery energy storage systems in Ontario.