EDMONTON, Alberta – Capital Power Corporation (“Capital Power”, or the “Company”) (TSX: CPX) today released its results for the quarter and year ended December 31, 2010. Normalized net income attributable to common shareholders, after adjusting for one-time items and fair value adjustments, was $6 million, or $0.26 per share, in the fourth quarter of 2010, compared with $4 million, or $0.18 per share, in the comparable 2009 period. Funds from operations, excluding non-controlling interests in CPILP, totaled $62 million in the 2010 period, up 19% from $52 million in 2009.
For the full year ended December 31, 2010, normalized net income attributable to common shareholders was $31 million or $1.40 per share, with funds from operations excluding non-controlling interests in CPILP, of $263 million.
“We’re pleased with our results in the fourth quarter of 2010, which slightly exceeded management’s expectations,” said Brian Vaasjo, President and CEO of Capital Power. “For the year as a whole, our results were solid, representing a good performance in a difficult pricing environment. Generation volume in our facilities excluding CPILP plants increased 3.5%, with average availability at 90%, despite the six-month shut down at Clover Bar Energy Centre’s Unit 2.”
“In line with our stated objective of reaching 10,000 megawatts (MW) of capacity by the year 2020, 2010 was characterized by a number of new growth initiatives,” added Mr. Vaasjo. “This included the acquisition of Island Generation and the initiation of two wind power projects, totaling 522 MW of capacity. We built on this with the announcement last month of the pending acquisition of the Tiverton, Rhode Island and Rumford, Maine gas-fired facilities, and the announcement today of the pending acquisition of the Bridgeport Energy facility in Connecticut, which together represent more than 1,000 MW of combined cycle natural gas fired generation capacity in the New England region. Including these acquisitions, approximately 2,000 MW of new production has been added or placed into development since our initial public offering in mid-2009.”
|Operational and Financial Highlights(1)||Three months ended
December 31 (unaudited)
|Twelve months ended
December 31 (unaudited)
|(millions of dollars except per share and operational amounts)||2010||2009||2010||2009(3)|
|Electricity generation (GWh)||3,867||3,481||14,218||13,857|
|Generation plant availability (excluding CPILP plants) (%)||91%||92%||90%||96%|
|Normalized net income attributable to common shareholders (2)||6||4||31||N/A|
|Normalized earnings per share(2)||$.026||$0.18||$ 1.40||N/A|
|Net income (loss) attributable to common shareholders||(1)||7||11||51|
|Earnings (loss) per share||$(0.04)||$0.33||$0.50||N/A|
|Dividends declared per share||$0.315||$0.315||$1.26||N/A|
|Funds from operations(2)(4)||82||75||354||N/A|
|Funds from operations excluding non-controlling interests in CPILP(2)(4)||62||52||263||N/A|
(1) The operational and financial highlights in this press release should be read in conjunction with Management’s Discussion and Analysis and the audited Consolidated Financial Statements for the year ended December 31, 2010.
(2) Gross margin, Operating margin, Normalized net income attributable to common shareholders, Normalized earnings per share, Funds from operations, and Funds from operations excluding non-controlling interests in CPILP are non-GAAP financial measures and do not have standardized meanings under Canadian GAAP, and therefore, may not be comparable to similar measures used by other enterprises. Reconciliations of these non-GAAP financial measures to net income are included in the Company’s Management’s Discussion and Analysis dated March 8, 2011.
(3) Financial highlights for the year ended December 31, 2009 are unaudited pro forma consolidated financial information included in the Pro forma Consolidated Financial Information section in the Company’s Management’s Discussion and Analysis dated March 8, 2011. Certain financial highlights are not applicable (N/A) for the year ended December 31, 2009 as the unaudited pro forma financial information does not include a balance sheet, a statement of cash flows or earnings per share.
(4) Amounts for previous quarters have been reclassified to conform to the presentation adopted in the fourth quarter of 2010.
$221 million secondary offering of Capital Power common shares by EPCOR
In December 2010, a subsidiary of EPCOR exchanged 9,209,000 of its exchangeable limited partnership units in CPLP for common shares of Capital Power on a one-for-one basis and sold 9,209,000 common shares of Capital Power to the public pursuant to a secondary offering at $24.00 per common share. Capital Power did not receive any of the approximate $221 million of proceeds from EPCOR’s sale of common shares. This transaction reduced EPCOR’s ownership interest in CPLP to approximately 60.5% from its initial interest of 72.2% and reduced EPCOR’s indirect ownership of the common shares of Capital Power on a fully diluted basis to 60.5% from 72.2%. EPCOR has advised the Company that it intends to eventually sell all or a substantial number of its common shares underlying its exchangeable partnership units of CPLP, subject to market conditions and its requirement for capital in the future.
The common shares were offered in all provinces of Canada by way of a prospectus supplement to a base shelf prospectus of Capital Power. The offering was also extended to qualified institutional buyers in the U.S. pursuant to the exemptions from registration provided by Rule 144A of the Securities Act of 1933, as amended, and internationally where permitted.
$125 million offering of 4.60% Cumulative Rate Reset Preferred Shares
On December 16, 2010, Capital Power Corporation issued 5 million Cumulative Rate Reset Preference Shares, Series 1 (Series 1 Shares) at $25 per share for aggregate gross proceeds of $125 million less issue costs of $4 million. The net proceeds were lent to CPLP pursuant to a subordinated debt agreement. CPLP used the funds to repay a portion of the balance outstanding under its credit facilities which was used to fund the acquisition of Island Generation and for general corporate purposes.
The Series 1 Shares will pay fixed cumulative dividends of $1.15 per share per annum, yielding 4.60% per annum, payable on the last day of March, June, September and December of each year, as and when declared by the Board of Directors of Capital Power, for the initial five-year period ending December 31, 2015. The first quarterly dividend of $0.3308 per share is expected to be paid on March 31, 2011. The dividend rate will be reset on December 31, 2015 and every five years thereafter at a rate equal to the sum of the then five-year Government of Canada bond yield and 2.17%. The Series 1 Shares are redeemable by Capital Power, at its option, on December 31, 2015 and on December 31 of every fifth year thereafter.
Holders of Series 1 Shares will have the right to convert all or any part of their shares into Cumulative Floating Rate Preference Shares, Series 2 (Series 2 Shares), subject to certain conditions, on December 31, 2015 and on December 31 of every fifth year thereafter. Holders of Series 2 Shares will be entitled to receive a cumulative quarterly floating dividend at a rate equal to the sum of the then 90-day Government of Canada Treasury Bill yield plus 2.17%, as and when declared by the Board of Directors of Capital Power.
Standard & Poor’s, a division of the McGraw Hill Companies, Inc. (S&P) has assigned a rating of P-3 (High) for the Series 1 Shares and DBRS Limited (DBRS) has assigned a rating of Pfd-3 (low) for the Series 1 Shares.
$300 million debt offering
On November 16, 2010, CPLP completed a public offering in Canada of unsecured medium term note debentures with a principal amount of $300 million. The notes have a coupon rate of 5.276% and mature on November 16, 2020. The net proceeds of the offering were used to finance a portion of the purchase price for Island Generation, repay amounts owing under the Company’s credit facilities and for general corporate purposes.
The notes have been rated BBB by S&P and BBB by DBRS.
Acquisition of Island Generation Facility
CPLP’s acquisition of Island Generation from Kelson Canada Inc. closed on October 19, 2010. Island Generation is a 275 MW gas-fired combined cycle power plant at Campbell River, British Columbia. The Company initially financed the purchase price of $205 million with funds drawn on credit facilities.
Island Generation is fully contracted to April 2022 under an electricity purchase arrangement where BC Hydro is responsible for the fuel supply to the facility. Commissioned in 2002, Island Generation is consistent with Capital Power’s fleet of young assets that deploy efficient technologies. Based on the terms of the energy purchase arrangement, the Island Generation facility is expected to be modestly and immediately accretive to earnings, and more significantly accretive to cash flow.
Review of strategic alternatives for CPILP
On October 5, 2010, Capital Power Corporation and CPILP jointly announced that CPILP would initiate a process to review its strategic alternatives. Capital Power Corporation will support the review of strategic alternatives, and if the process results in a determination to proceed with a sale of CPILP, Capital Power Corporation does not intend to participate as a prospective buyer.
The initiation of the strategic review is not in response to any proposed transaction for CPILP, nor can there be any assurance that it will lead to a transaction.
The process to review strategic alternatives is expected to continue into the second quarter of 2011. During this period it is business as usual for CPILP and Capital Power Corporation and it is anticipated that CPILP will continue to provide the same amount of monthly distributions to its unitholders, and maintain the same investor proposition that it offers today. Capital Power Corporation, through wholly owned subsidiaries, will continue to manage CPILP assets.
New wind projects
On March 11, 2010, the Company’s Quality Wind project was selected by BC Hydro for the award of an Energy Purchase Agreement, which was signed by the two parties in April 2010. The project is for the development of a 142 MW wind farm near Tumbler Ridge, British Columbia and is expected to cost approximately $455 million. The Environmental Assessment Certificate for the project was received from the Government of British Columbia in July 2010 and construction of the project commenced in the fourth quarter of 2010. The Company anticipates that the plant will commence commercial operation by the end of the fourth quarter of 2012, ahead of the deadline (second quarter of 2013) for power from the plant to be on the grid as required by the Energy Purchase Agreement.
On April 8, 2010, the Ontario Power Authority (OPA) selected the Company’s Port Dover & Nanticoke Wind development project for the award of a contract through the OPA’s FIT program. The 105 MW project will be located in an area in southern Ontario where the Company has optioned lands totaling over 8,900 acres. The project has an expected cost of up to $340 million and is anticipated to enter commercial operation in the fourth quarter of 2012. The contract to sell power has since been signed and under the terms of the OPA’s FIT program, the contracted price for power at commercial operation of the project will be $135 per MWh escalated by inflation between the contract signing date and commercial operation date. Thereafter, 20% of the contract price will escalate annually at inflation throughout the 20-year contract term. Construction of the Port Dover & Nanticoke Wind project is subject to regulatory approvals, including Ontario’s Renewable Energy Approval process which is currently in progress for the project.
The Company selected Vestas (NASDAQ OMX Copenhagen:VWS) for the supply and maintenance of wind turbines for both projects, as well as for the Kingsbridge II project in Ontario.
Sale of interest in Battle River PSA
On January 15, 2010, the Company sold its remaining 15% interest in the Battle River Power Syndicate Agreement (PSA) for cash proceeds of $64 million resulting in a gain of $28 million. This sale was pursuant to the agreement entered into in June 2006 whereby the Company agreed to sell its Battle River Power Purchase Arrangement (PPA) and related interest in the Battle River PSA to ENMAX Corporation over a four-year period ending in January 2010. An initial interest of 55% was sold for cash proceeds of $343 million in June 2006, followed by the sale of 10% interests on each of January 1, 2007, January 15, 2008 and January 15, 2009 for cash proceeds of $59 million, $53 million and $47 million, respectively.
Corporate Responsibility Report
Capital Power received an A+ rating for its 2009 Corporate Responsibility Report, “Moving in the Right Direction.” The report documents the impacts that Capital Power has on the environment, employees, shareholders, and communities. The internationally-recognized A+ standard, defined by the Global Reporting Initiative, has been independently verified by Pricewaterhouse Coopers LLP. The full report can be downloaded from Capital Power’s web-site at www.capitalpower.com.
Acquisition of two New England power plants
In February 2011, CPLP entered into an agreement to acquire two generating facilities from Brick Power Holdings LLC, one facility located in Tiverton, Rhode Island (Tiverton) and one facility located in Rumford, Maine (Rumford). Both plants are natural gas-fired combined cycle power generation facilities serving the New England region in the U.S. Northeast, and have a maximum combined capacity of 549 MW.
The transaction is expected to close in April 2011, subject to regulatory approvals and satisfaction of other customary closing conditions. The purchase price for the acquisition is US$315 million subject to working capital adjustments and other closing adjustments.
The acquisition is expected to exceed the targeted rate of return Capital Power seeks from merchant assets, and be accretive to earnings both immediately and over the life of the facilities. Depending on the permanent financing alternative selected for the acquisition, Capital Power expects the acquisition to add on average $0.02 to $0.07 in earnings per share per year in the first two years. Earnings from the facilities are expected to increase significantly following the expected recovery of power prices in the New England market as the U.S. economy strengthens.
Both plants are merchant facilities and sell their output into the New England Power Pool (NEPOOL). The plants began commercial operations in 2000 and have similar design configurations that utilize a single fuel GE 7FA power island. The Company commissioned and operates similar technology at the Frederickson power facility in Washington State.
Tiverton and Rumford supply electricity to the New England Independent System Operator (ISO-NE). Both plants are exempt wholesale generators and have Federal Energy Regulatory Commission (FERC) authorization to sell capacity, energy, and ancillary services at market-based rates. The plants are operated as mid-merit generation units and sell their outputs on an hourly basis into the NEPOOL. The NEPOOL serves six New England states: Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont which contain approximately 14 million people and over 6 million households and businesses. The NEPOOL is subject to FERC jurisdiction and has more than 400 participants, over 8,000 miles of transmission lines, and 13 interconnections to the New York and Canadian power systems. It is one of the most advanced and liquid markets in the U.S. and has a peak demand of approximately 28,000 MW.
Acquisition of a third New England power plant
The Company has entered into an agreement to acquire Bridgeport Energy, LLC, which owns the Bridgeport Energy facility (Bridgeport Energy), from affiliates of LS Power Equity Advisors, LLC. Bridgeport Energy is a natural gas-fired combined cycle power generation plant located in Bridgeport, Connecticut, with a nominal capacity of 520 MW. It is an efficient, young, mid-merit generation plant that can maximize energy and ancillary services revenue through operational flexibility.
Under the purchase and sale agreement, CPLP is acquiring one hundred per cent of the equity interests in Bridgeport Energy, LLC. The transaction is expected to close in May 2011, subject to regulatory approvals and satisfaction of other customary closing conditions. The purchase price for the acquisition is US$355 million subject to working capital adjustments and other closing adjustments.
The Company expects to permanently finance both New England acquisitions using a combination of debt and equity. The Company has entered into an agreement to sell 8,100,000 common shares of Capital Power on a bought deal basis at a price of $24.90 per share to a syndicate of underwriters, co-led by TD Securities Inc. and CIBC World Markets Inc., for gross proceeds of $202 million. In addition, Capital Power has granted the syndicate an over-allotment option, exercisable for a period of 30 days following closing, to purchase up to an additional 1,215,000 shares which, if exercised, would increase the gross offering size to $232 million. The offering is scheduled to close on or about March 17, 2011, and is subject to TSX approval and other customary conditions.
As part of the NEPOOL, Bridgeport Energy dispatches into the premium Southwest Connecticut Zone of the ISO-NE market, and has historically received payments for energy, capacity and ancillary services. Bridgeport Energy is a modern, efficient plant that has among the lowest heat rates in ISO-NE. The site has adequate space to develop a peaking facility when market conditions warrant.
Bridgeport Energy entered commercial operation in July 1999. It is equipped with two Siemens V84.3A gas turbines, which are the same design as those used at CPILP’s facility in Colorado, and produces additional output from two Heat Recovery Steam Generators and one single-reheat condensing steam turbine. Electrical interconnection into the United Illuminating system is made via the Singer 345kV substation, and natural gas is supplied through a lateral to the Iroquois Gas pipeline system. The facility was designed to minimize environmental impacts and utilizes advanced emission control technologies, including selective catalytic reduction nitrogen oxide controls.
Analyst Conference Call and Webcast
Capital Power will be hosting a conference call and live webcast with analysts on March 9, 2011 at 1:00 pm (ET) to discuss fourth quarter and year-end results. The conference call dial-in numbers are:
(403) 532-8075 (Calgary)
(604) 681-0262 (Vancouver)
(647) 837-0597 (Toronto)
(877) 353-9586 (toll-free from Canada and USA)
Participant access code for the call: 21543#
A replay of the conference call will be available following the call at: (877) 353-9587 (toll-free) and entering pass code 536068. The replay will be available until midnight on April 6, 2011.
Interested parties may also access the live webcast on the Company’s website at www.capitalpower.com with an archive of the webcast available following the conference call.
Non-GAAP Financial Measures
The Company uses (i) gross margin, (ii) operating margin, (iii) funds from operations, (iv) funds from operations excluding non-controlling interests in CPILP (v) normalized net income attributable to common shareholders, and (vi) normalized earnings per share as financial performance measures. These terms are not defined financial measures according to Canadian GAAP and do not have standardized meanings prescribed by Canadian GAAP, and therefore may not be comparable to similar measures used by other enterprises. These measures should not be considered alternatives to net income, cash flow from operating activities, earnings per share or other measures of financial performance calculated in accordance with Canadian GAAP. Rather, these measures are provided to complement Canadian GAAP measures in the analysis of the Company’s results of operations from management’s perspective. Reconciliations of gross margin and operating margin to net income, funds from operations and funds from operations excluding non-controlling interests in CPILP to cash provided by operating activities, normalized net income attributable to common shareholders to net income (loss) attributable to common shareholders, and normalized earnings per share to earnings per share are contained in the Company’s annual Management’s Discussion and Analysis dated March 8, 2011 for the year ended December 31, 2010.
Certain information in this press release is forward-looking within the meaning of Canadian securities laws as it relates to anticipated financial 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 in this press release includes, among other things, information relating to: (i) expectations regarding the review of strategic alternatives for CPILP, its potential outcome, and the intention of Capital Power to support the review of strategic alternatives but not participate as a prospective buyer if a sale were to occur; (ii) expectations regarding the timing of the CPILP strategic review process and that during the review process CPILP will continue its business as usual, provide the same amount of monthly distributions to its unitholders and maintain the same proposition it offers today; (iii) Capital Power’s intention to continue managing CPILP assets; (iv) expected contracted price for power under the OPA’s FIT program for Port Dover & Nanticoke Wind project; (v) expectations regarding the impact of Island Generation on earnings and cash flow; (vi) expectations regarding amount and timing of future distributions; (vii) expected timing of commercial operations and expected project costs of the Quality Wind and Port Dover & Nanticoke Wind projects; (viii) expectations that the Tiverton and Rumford acquisition will exceed the targeted rate of return Capital Power seeks from merchant assets and expectations regarding accretion to earnings and impact on earnings per share; (ix) expectations regarding the purchase price, timing of closing and financing of the Tiverton, Rumford and Bridgeport acquisitions; (x) expectations regarding the ability to attain the goal of 10,000 MW of assets by 2020; (xi) expectations regarding the impact on earnings from the Tiverton and Rumford plants as a result of the expectation that power prices will recover in the New England market; and (xii) expectations that Bridgeport can maximize energy and ancillary services revenue through operational flexibility.
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, including Sundance which is subject to an acquired PPA; (iii) the Company’s financial position and credit facilities and sources of funding; (iv) the Company’s assessment of commodity and power markets; (v) the Company’s assessment of the markets and regulatory environments in which it 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) foreign exchange rates; (xi) management’s analysis of applicable tax legislation; (xii) currently applicable and proposed tax laws will not change and will be implemented; (xiii) currently applicable and proposed environmental regulations will be implemented; (xiv) counterparties will perform their obligations; (xv) renewal and terms of PPAs; (xvi) ability to successfully integrate and realize benefits of its acquisitions; (xvii) ability to implement strategic initiatives which will yield the expected benefits; (xviii) ability to obtain necessary regulatory approvals for development projects; (xix) the Company’s assessment of capital markets and ability to complete future share and debt offerings; (xx) locations of projects and the areas of which they will be developed, including the availability and use of certain optioned lands; (xxi) costs of construction and development; and (xxii) current risk management strategies including hedges will be in place.
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 the Company’s facilities; (ii) power plant availability and performance, including unplanned plant outages at facilities of other market participants; (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) construction; (x) availability and cost of financing; (xi) foreign exchange; (xii) availability and cost of labour, equipment and management resources; (xiii) performance of counterparties, partners, contractors and suppliers in fulfilling their obligations to the Company; (xiv) developments in the North American capital markets; (xv) compliance with financial covenants; (xvi) ability to successfully realize the benefits of acquisitions and investments; (xvii) the tax attributes of and implications of any acquisitions; (xviii) the outcome of the strategic review of CPILP; and (xix) movements in power prices. 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.
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.