EDMONTON, Alberta – Building on the corporate priorities and 2011 targets presented at Investor Day and publicly reported on December 9, 2010, Capital Power Corporation (TSX: CPX) (Capital Power or the Company) today announced its 2011 financial targets. The financial targets are based on Canadian generally accepted accounting principles (GAAP) and will be updated under International Financial Reporting Standards (IFRS) in the second quarter of 2011.
“As we reported in December, Capital Power’s 2010 performance exceeded growth targets. At the end of the third quarter, the Company was on track to deliver 91% operating availability at its plants, with normalized earnings and cash flow meeting or exceeded our targets for 2010,” said President & CEO Brian Vaasjo. “Our targets for 2011 build on this momentum, reflecting expected contributions from new operations such as Island Generation and Keephills 3, strong and growing discretionary cash flow, and a stable base of earnings with potential for significant upside as power prices recover.”
“Capital Power’s financial performance is impacted significantly by Alberta power prices,” said Stuart Lee, Capital Power’s Chief Financial Officer. “Entering 2010, our guidance was that Capital Power would generate normalized earnings per share (NEPS) of about $1.20 based on a forecasted average Alberta power price of $55 per megawatt hour (MW/h), slightly higher than the average actual $52/MWh spot price for 2010. Our 2011 forecast, using an Alberta power price forecast of $50/MWh, is NEPS in the same range as our 2010 original guidance of $1.20 per share. At this forecast power price, both funds from operations and cash flow per share in 2011 would be modestly higher than 2010 levels. At the existing dividend level, the dividend coverage ratio of approximately 2.6 times is expected to modestly improve in 2011.”
“Capital Power is currently generating strong discretionary cash flow net of dividends and maintenance capital expenditures, despite bottom-of-the-cycle commodity conditions. A significant increase in cash flow is expected when Keephills 3 comes on-line in the second quarter of 2011,” Lee continued. “We see positive signs for a recovery in the Alberta power market in 2012, and Capital Power is well-positioned to realize the benefit of power price increases. We expect that a $1/MWh change in Alberta power prices would impact Capital Power’s operating margin by +/- $2 million in 2011, or approximately $0.02 per share. Improving power prices would positively impact the company’s unhedged position, increase profitability from peaking facilities such as Clover Bar, and improve availability incentive revenues from Genesee units 1 and 2.”
Capital Power also continues to create value through its portfolio optimization activities. Prior to the start of 2010, the Company’s Alberta Commercial Portfolio was 100% hedged with an average realized power price in the mid-$60/MWh range. For 2011, approximately 65% of the Alberta Commercial Portfolio is hedged at an average price in the mid-$60/MWh range.
Outlook for 2011
NEPS in 2011 is expected to be comparable to 2010 original NEPS guidance of $1.20 per share at a forecast Alberta power price of approximately $50/MWh in 2011, while funds from operations and cash flow per share in 2011 are expected to be modestly higher than 2010 levels due to the following items:
- The forecast average Alberta pool price in 2011 is expected to be moderately lower than in 2010, which would lead to lower realized prices on Company’s unhedged position, lower profitability from peaking facilities, and lower availability incentive revenues from Genesee units 1 and 2;
- The Keephills 3 plant is expected to come on-line in the second quarter of 2011 with Alberta power prices near the bottom of the cycle. Keephills 3 is expected to generate positive incremental cash flow but be dilutive to earnings per share at forecast power price levels; and
- The Company was effectively 100% hedged on its Alberta Commercial Portfolio entering 2010 compared to 65% hedged at the start of 2011.
These reductions to NEPS are expected to be mostly offset by improved earnings from:
- A full year of operations from the Island Generation facility acquired in October 2010; and
- One scheduled maintenance outage for the Genesee units compared to two scheduled outages in 2010.
The following is a summary of other 2011 targets that were previously announced at the Company’s annual Investor Day event in December 2010 and concurrently through a news release:
|Construction / Development|
Key Assumptions and Sensitivities
The 2011 targets are based on numerous assumptions including power and natural gas price forecasts, but do not include assumptions regarding:
- The outcome of the strategic alternatives review of Capital Power Income L.P.;
- Potential impacts from future acquisitions or development activities; or
- Potential impacts from unplanned plant outages including outages from other market participants and the related impacts on power prices.
Non-GAAP Financial Measures
Cash flow, normalized earnings per share, funds from operations, cash flow per share, and dividend coverage ratio are not defined financial measures according to Canadian GAAP and do not have a standardized meaning prescribed by GAAP. Therefore, these financial measures may not be comparable to similar measures presented by other enterprises.
Certain 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) expectations that Capital Power’s 2010 NEPS will be in the same range as or comparable to $1.20; (ii) expectations that 2011 operating availability at Capital Power’s facilities will be 94%; (iii) Capital Power’s 2011 corporate priorities and business targets; (iv) expectations that, for 2010, the Company will deliver 91% operating availability at its plants and normalized earnings and cash flow meeting or exceeding targets; (v) expectations regarding contributions from new operations in 2011 (including, without limiting the generality of the foregoing, contributions from Island Generation and Keephills 3); (vi) expectations regarding cash flow and earnings in 2011; (vii) expectations regarding power prices and the impact of power prices on the Company’s financial performance (including, but not limited to, contributions from operations, cash flow and earnings); (viii) expectations regarding forecasted average Alberta spot power prices; (ix) expectations regarding Capital Power’s normalized earnings per share, and the impact of power prices thereon (including, but not limited to, impacts on the Company’s unhedged position, the profitability of peaking facilities, availability incentive revenues and cash flow from the Keephills 3 facility); (x) expectations that funds from operations and cash flow in 2011 will be higher than in 2010; (xi) expectations that the dividend coverage ratio will improve; (xii) expectations regarding the impact of Keephills 3 coming on-line, and expectations that Keephills 3 will come on-line in the second quarter of 2011; (xiii) expectations that the Alberta power market will recover and regarding when such recovery will occur; (xiv) expectations that power prices will increase or improve and that the Company will benefit therefrom; (xv) expectations regarding the impact of power price changes on Capital Power’s operating margin; (xvi) expectations regarding the impact of power prices on the Company’s unhedged position, the profitability of peaking facilities, and availability incentive revenues from Genesee units 1 and 2; (xvii) expectations that the Company will continue to create value through portfolio optimization activities; (xviii) expectations regarding the hedging of the Company’s Alberta Commercial Portfolio; (xix) expectations that Alberta power prices will be near the bottom of the market when Keephills 3 comes on-line; (xx) expectations that Keephills 3 will generate positive incremental cash flow but will be dilutive to earnings per share; (xxi) expectations regarding the impact on earnings of a full year of operations of the Island Generation facility and one scheduled maintenance outage for the Genesee units; (xxii) expectations that improved earnings will mostly offset reductions to normalized earnings per share; (xxiii) expectations that there will only be one maintenance outage, scheduled or unscheduled, in 2011; and (xiv) expectations regarding the updating of the Company’s 2011 financial targets pursuant to IFRS.
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 the Company’s facilities; (ii) power plant availability and dispatch; (iii) the Company’s financial position and credit facilities and sources of funding; (iv) the Company’s assessment of commodity and power markets, including forecast Alberta power prices; (v) the Company’s assessment of the markets and regulatory environments in which it operates; (vi) the Company’s assessment of economic conditions; (vii) weather; (viii) availability and cost of labour and management resources; (ix) performance of contractors and suppliers; (x) availability and cost of financing; (xi) foreign exchange rates; (xii) management’s analysis of applicable tax legislation; (xiii) the currently applicable and proposed tax laws will not change and will be implemented; (xiv) currently applicable and proposed environmental regulations will be implemented; (xv) counterparties will perform their obligations; (xvi) renewal and terms of PPAs; (xvii) ability to successfully integrate and realize benefits of its acquisitions; (xviii) ability to implement strategic initiatives which will yield the expected benefits; (xix) ability to obtain necessary regulatory approvals for development projects; (xx) the Company’s assessment of capital markets and ability to complete future share and debt offerings; (xxi) locations of projects and the areas of which they will be developed, including the availability and use of certain optioned lands; (xxii) costs of construction and development; (xxiii) no change in Capital Power’s investment in Capital Power Income L.P.
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 and uncertainties relating to: (i) operation of the Company’s facilities; (ii) power plant 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) economic and market conditions, including in the markets served by Capital Power’s facilities; (xx) construction; (xi) availability and cost of financing; (xii) foreign exchange rates; (xiii) availability and cost of labour, equipment and management resources; (xiv) performance of counterparties, partners, contractors and suppliers in fulfilling their obligations to the Company, (xv) developments in the North American capital markets; (xvi) compliance with financial covenants; (xvii) ability to successfully realize the benefits of acquisitions and investments; (xviii) the outcome of the strategic alternatives review of Capital Power Income L.P., and any transaction that may result therefrom; and (xix) the tax attributes of and implications of any acquisitions. 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.
About Capital Power Corporation
Capital Power is a growth-oriented North American independent power producer, building on more than a century of innovation and reliable performance. The Company’s vision is to be recognized as one of North America’s most respected, reliable and competitive power generators. Headquartered in Edmonton, Alberta, Capital Power has interests in 32 facilities in Canada and the U.S. totaling nearly 3,800 megawatts of generation capacity. Capital Power and its subsidiaries develop, acquire and optimize power generation from a wide range of energy sources.