EDMONTON, Alberta – November 3, 2008 – EPCOR Power L.P. (TSX: EP.UN) (the Partnership) and EPCOR Power Equity Ltd. (TSX: EPP.PR.A) (the Corporation), a subsidiary of the Partnership announce completion of the acquisition of Morris Cogeneration LLC (the Morris facility) from Diamond Generating Corporation and MIC Nebraska, Inc., both wholly-owned subsidiaries of Mitsubishi Corporation. The acquisition was previously announced on September 11, 2008.
The acquisition closed on October 31, 2008 with a purchase price of U.S. $72.7 million, after preliminary closing adjustments. The purchase price of the acquisition is being financed under the Partnership’s existing credit facilities.
Overview of the Morris facility
The Morris facility which began commercial operations in November 1998, is a 177 megawatt (MW) natural gas-fired cogeneration facility located on Equistar Chemicals LP’s (Equistar) chemical plant in Morris, Illinois, near Chicago. Equistar, a wholly-owned subsidiary of Lyondell Chemical Company, produces ethylene and its co-products and derivatives including polyethylene plastic, at the Morris facility. The facility has three General Electric (GE) Frame 6B combustion turbine-generators, three Deltak supplementary fired heat recovery steam generators and one GE steam turbine generator. The facility is located on 4.6 acres of land which is being leased from Equistar through 2023. Equistar has a right to purchase the facility at fair market value at the end of 2013, 2018 and 2023. The facility is a qualifying facility or “QF” under the Public Utility Regulatory Policies Act of 1978.
Selected financial information of Morris facility (1,2)
|
(US$ in thousands)
|
9 months
ended
Sept. 30, 2008
(unaudited)
|
Year ended
Dec. 31, 2007
|
Year ended
|
|
Revenues
|
$67,440
|
$71,484
|
$67,698
|
|
Operating margin(3)
|
$9,451
|
$14,236
|
$12,863
|
|
Management and administration
|
$2,485
|
$3,318
|
$3,182
|
(1) The selected financial information is taken from financial statements of Morris Cogeneration LLC which have been prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP) and using United States dollars as the reporting currency.
(2) The Partnership prepares its financial statements in accordance with accounting principles generally accepted in Canada (Canadian GAAP), and using Canadian dollars as the reporting currency. The differences in accounting principles used and the reporting currencies should be considered when comparing selected financial information for Morris Cogeneration LLC with similar information the Partnership may have disclosed about its other facilities.
(3) Non-GAAP Measure – Operating margin, which includes deferred revenues, is not a defined recognized measure under Canadian or U.S. GAAP and does not have a standardized meaning. Therefore, operating margin may not be comparable to similar measures presented by other companies.
Power purchase and thermal supply agreements
The facility has an energy services agreement with Equistar through 2023 providing for capacity and energy payments for 100 per cent of Equistar’s steam needs and up to 77 MW of electricity. The annual capacity payments from Equistar consists of two payments, a non-escalating payment that expires in November, 2013, and a payment that escalates with materials and labour indices that runs through November, 2023. The non-escalating capacity payment is fixed at U.S. $8.3 million per year. In addition, the facility earns energy payments based on electricity and steam delivered that is adjusted monthly for natural gas prices. Based on the energy payment formula, there is a small portion of energy costs that are not recovered through the energy payments, and this non-recoverable amount fluctuates with the price of natural gas. Most of this natural gas price exposure has been hedged through 2011 and the Partnership is considering adding additional natural gas forward contracts past 2011 to further mitigate this future price risk.
In addition, the facility has a power purchase agreement with Exelon Generation Company, LLC covering 100 MW of electrical capacity. The annual capacity revenue earned under this contract has averaged just over U.S. $6 million per year, including bonus payments for peak availability that exceeds 98 per cent. This PPA expires in April, 2011. The Partnership is evaluating opportunities to either enter into new power purchase arrangements with a third party, contract capacity into the Pennsylvania, New Jersey, and Maryland (PJM) market or sell electricity on a merchant basis following the expiry of the existing PPA term in 2011.
Fuel supply agreement
The majority of the required natural gas for Morris is purchased from Tenaska Power Services Co. at an indexed price under an Energy Services Agreement (ESA) that expires in January 2016. Under the ESA, Tenaska also provides power market trading services, through a year-to-year agreement that can be cancelled on 90 days notice.
About EPCOR Power L.P.
Established in 1997, EPCOR Power L.P. is a limited partnership organized under the laws of the Province of Ontario. The Partnership’s portfolio consists of 20 wholly-owned power generation assets located in Canada and the United States, a 50 per cent interest in a power generation asset in Washington State, and a 15.4 per cent interest in Primary Energy Recycling Holdings LLC (PERH). The Partnership’s assets have a total net generating capacity of 1,464 megawatts and more than three million pounds per hour of thermal energy. PERH wholly owns four recycled energy assets in the United States with an aggregate generation capacity of 283 megawatts and nearly two million pounds per hour of thermal energy, and has a 50 per cent interest in a pulverized coal facility. EPCOR USA Ventures LLC, formerly Primary Energy Ventures LLC, a wholly-owned subsidiary of the Partnership, manages and operates these facilities for PERH.
About EPCOR Power Equity Ltd.
The Corporation was incorporated under the laws of the Province of Alberta on June 26, 1998 and is a wholly-owned subsidiary of the Partnership. The Corporation operates as a holding company and indirectly holds all of the Partnership’s business and power generation and other assets in the United States, including the Partnership’s Castleton, Curtis Palmer, Manchief, Frederickson, Naval Station, North Island, Naval Training Center, Oxnard, Greeley, Kenilworth, Roxboro, Southport and Morris power generating facilities. These facilities have a total generating capacity of approximately 1,144 megawatts (representing approximately 78 per cent of the total generating capacity of the Partnership’s assets) and approximately three million pounds per hour of thermal energy (representing 100 per cent of the total thermal energy capacity of the Partnership’s assets). In addition, the Corporation holds, through a wholly-owned subsidiary, the Partnership’s overall 15.4 per cent equity interest in PERH.
For more information
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