EDMONTON, Alberta – December 11, 2008 – EPCOR Power L.P. (TSX: EP.UN) (the Partnership) will be hosting its first annual Investor Day event in Toronto starting at 9:00 am eastern time today, where its executive leadership team will provide investors with a comprehensive review of its operations, strategy and financial outlook.
“The Partnership continues to deliver solid, stable performance”, said Brian Vaasjo, President of EPCOR Power Services Ltd. “With the large and well diversified portfolio by geography, fuel types and counterparties, the Partnership continues to generate stable cash flows. Performance for 2008 is tracking to expectations and as we head into 2009, there are a number of enhancement projects that will contribute positively to cash flow.”
Corporate Updates
Sale of Castleton facility
On December 4, 2008 the Partnership signed a definitive agreement to sell its 64 megawatt combined-cycle, natural gas and oil fired Castleton power plant, located in the state of New York, to Castleton Energy Center, LLC (CEC) for approximately U.S. $10 million, subject to closing adjustments. CEC is wholly owned through an investment fund managed by Wayzata Investment Partners of Minnesota. The sale is expected to close in the first quarter of 2009, subject to certain closing conditions and regulatory approvals.
“The Castleton plant has been a solid contributor to the Partnership’s portfolio since it was acquired in 1999”, said Mr. Vaasjo. “The plant has been operating on a merchant basis since the expiry of its power purchase contract in June of this year and economically we felt the capital could best be redeployed to support our priority growth initiatives.”
North Island Project
The Partnership is upgrading its gas turbine at the North Island naval facility in southern California from a GE LM5000 to a GE LM6000 unit for an estimated cost of U.S. $18.5 million. The project, which is scheduled to be completed by May 2009, is expected to improve the operating efficiency of the facility from its current net heat rate of approximately 10,500 British thermal units (btu)/kilowatt hour (kWh) to approximately 9,300 btu/kWh. This 11 per cent increased efficiency in natural gas usage is expected to increase operating margin at the plant by approximately U.S. $3.3 million per annum assuming continued base load running of the facility, current SRAC pricing formulas and an average NYMEX natural gas price of approximately U.S. $6.50/million btu.
Based on theoretical capital funding of the project of 60 per cent equity and 40 per cent debt, the project is expected to be three to four cents accretive to cash flow over the life of the project. The project economics have been based on the remaining term of power purchase arrangement (PPA), which expires in 2019; which may be conservative based on an expected operating life of the gas turbine of 25 years. The existing LM5000 unit will either be placed into service at the Oxnard facility or used as a spare gas turbine for the Partnership’s other LM5000’s.
Projects like North Island and previously announced Southport and Roxboro upgrades continue to demonstrate the Partnership’s focus on operational and commercial excellence.
Appointment of New Director
The Board of Directors of EPCOR Power Services Ltd., the general partner of EPCOR Power L.P. announced the appointment of Graham Brown as a new Board member. Graham is currently Senior Vice President, EPCOR U.S. Graham replaces Board member Douglas Topping, effective December 8, 2008.
“Graham’s extensive operational and technical expertise will be an asset to the Board”, said Don Lowry, Chairman of the Board. “I would also like to thank Doug Topping for his efforts and strong contribution to the Partnership during his period as a director.”
Graham Brown has more than 30 years of experience in power plant development, operations and management. In 2005, Graham joined EPCOR Regional Power Services LP as Director of Eastern Operations where his chief role encompassed maximizing plant revenues while improving efficiency, safety and environmental compliance. In 2006, the Partnership purchased Primary Energy Ventures, LLC where Graham’s experience in managing hydro, solid fuel, gas turbine and renewable energy plants proved highly valuable as he assumed the role of Vice President of Operations for EPCOR U.S. in 2007. Graham is a graduate of Mechanical Engineering from Leicester Polytechnic, Leicester, England as well as a Certified Professional Engineer since 1988.
2009 Outlook
The overall cash flow profile for the Partnership is expected to strengthen in 2009 from 2008. The more significant changes that are expected include:
Additions
- Full year of cash flow from the Morris facility that was acquired October 31, 2008
- Higher operating margin from the North Island turbine upgrade
- Lower maintenance capital expenditures of $18 million to $22 million in 2009
- 18% pricing increase in the Curtis Palmer PPA
- Non-recurrence of the milestone maintenance payment for the Frederickson facility
Reductions
- Full year loss of Castleton operations from divestiture
- Lower settlements on foreign exchange contracts
Overall, the Partnership is estimating that its 2009 cash provided by operating activities plus dividends from Primary Energy Recycling Holdings less maintenance capital spending and scheduled debt repayments will be approximately equal to existing annual distributions of $2.52 per unit. Based on this expectation as well as its current 5-year projections, the Partnership expects to maintain its existing annual $2.52 per unit distribution level in 2009 subject to any unforeseen material changes in the business and/or capital markets. The Partnership continues to monitor existing market and credit conditions and any impacts they may have on the business in light of the significant events that have developed over the last six months.
Overall, liquidity remains adequate to finance the existing business and announced growth opportunities. The Partnership currently has available $300 million of committed credit lines and a $20 million demand facility. Based on current capital and operating plans, the Partnership expects to have utilized approximately $200 million of these facilities by the end of 2009 if additional equity or debt are not issued, leaving approximately $120 million of available liquidity. Any significant further growth opportunities will likely require financing by new equity and/or debt issues or by asset sales.
Investor Day Presentation
Links to the audio webcast and presentation slides for the Investor Day event are available here.
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.
Forward-looking Information
Certain information in this press release is forward-looking and related to anticipated financial performance, events and strategies. When used in this context, words such as “will”, “anticipate”, “believe”, “plan”, “intend”, “target” and “expect” or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause the Partnership’s actual results and experience to be materially different than the anticipated results. In particular, forward-looking information and statements include: (i) expectations regarding the closing of the Castleton facility sale transaction in the first quarter of 2009; (ii) certain expectations in respect of an upgrade to the Partnership's power turbine at the North Island naval facility in southern California, including expectations with respect to (a) certain estimated costs relating to the project of U.S. $18.5 million, (b) the scheduled date of completion of May 2009, (c) certain improvements to the operating efficiency of the naval facility from its current net heat rate of approximately 10,500 British thermal units (btu)/kilowatt hour (kWh) to approximately 9,300 btu/kWh and expectations that an 11 per cent increased efficiency in natural gas usage is expected to increase operating margin at the plant by approximately U.S. $3.3 million per annum, (d) expectations that the project is expected to be three to four cents accretive to cash flow over the life of the project; (iii) certain expectations regarding the cash flow of the Partnership in 2009, including expectations with respect to certain expected significant changes impacting the Partnership's cash flow including (a) full year of cash flow from the Morris facility, (b) higher operating margin from the North Island turbine upgrade, (c) lower maintenance capital expenditures, (d) 18% pricing increase in the Curtis Palmer PPA, (e) non-recurrence of the milestone maintenance payment for the Frederickson facility, (f) no operating margin from Castleton, (g) lower settlements on foreign exchange contracts; (iv) expectations that the Partnership's 2009 cash provided by operating activities plus dividends from Primary Energy Recycling Holdings less maintenance capital spending and scheduled debt repayments will be approximately equal to existing annual distribution of $2.52 per unit and the expectation that the Partnership expects to maintain its existing annual $2.52 per unit distribution level in 2009 (subject to any unforeseen material changes in the business and/or capital markets); (v) expectations with respect to liquidity and the Partnership's utilization of its credit facilities; (vi) expectations that any significant further growth opportunities will likely require financing by new equity and/or debt issues or by asset sales; and (vii) expectations regarding the impact on the Partnership of the capital and credit market turmoil.
These statements are based on certain assumptions and analysis made by the Partnership 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: (i) the Partnership's operations, financial position and available credit facilities, (ii) the Partnership's assessment of commodity, currency and power markets, (iii) the markets and regulatory environment in which the Partnership's facilities operate, (iv) the state of capital markets and the cost to the Partnership of new financing, (v) management's analysis of applicable tax legislation, (vi) the assumption that the currently applicable and proposed tax laws will not change and will be implemented, (vii) the assumption that currently proposed emissions regulations will be implemented as proposed, (viii) the assumption that counterparties to fuel supply and power purchase agreements will continue to perform their obligations under the agreements, (ix) the level of plant availability and dispatch, (x) the performance of contractors and suppliers, (xi) the renewal and terms of PPAs, (xii) the ability of the Partnership to successfully realize the benefits of certain sales, enhancements and upgrades, and (xiii) the ability of the Partnership to implement its strategic initiatives and whether such initiatives will yield the expected benefits, but without taking account of the impact of any sale of PERH that may occur.
Whether actual results, performance or achievements will conform to the Partnership's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ materially from the Partnership's expectations. Such risks and uncertainties include, but are not limited to risks relating to (i) the operation of the Partnership's facilities, (ii) plant availability and performance, (iii) the availability and price of energy commodities including natural gas and wood waste, (iv) the performance of counterparties in meeting their obligations under PPAs and fuel supply contracts, (v) competitive factors in the power industry, (vi) economic conditions, including in the markets served by the Partnership' facilities, (vii) changing demand for natural gas in northern Ontario and areas further to the east and levels of natural gas supply in western Canada available for shipping on the TransCanada Pipeline Mainline, (viii) on-going compliance by the Partnership with its current debt covenants, (ix) developments within the North American capital and credit markets, (x) the availability and cost of permanent long term financing in respect of acquisitions and investments, (xi) unanticipated maintenance and other expenditures, (xii) the Partnership's ability to successfully realize the benefits of dispositions, acquisitions, enhancements and investments, (xiii) changes in regulatory and government decisions including changes to emission regulations, (xiv) changes in existing and proposed tax and other legislation in Canada and the United States and including changes in the Canada-US tax treaty, (xv) the tax attributes of and implications of any acquisitions, and (xvi) the availability and cost of equipment.
Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Forward-looking statements are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. Except as required by law, the Partnership disclaims any intention and assumes no obligation to update any forward-looking statement.
For more information
Media inquiries
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Randy Mah (780) 412-4297 or (866) 896-4636 (toll-free)