EPCOR Power Services Ltd., the general partner of EPCOR Power L.P. (the Partnership), today released the Partnership's quarterly results for the period ended September 30, 2008.
"Cash provided by operating activities of $21.5 million in the third quarter was in line with our expectations," said Brian Vaasjo, President of the General Partner of EPCOR Power L.P. "Excluding working capital changes of $19.5 million, cash provided by operating activities was $41.0 million. The net loss in the quarter was a result of fair value changes, primarily on our natural gas contracts, substantially offsetting previous gains in the first two quarters of the year. We expect that we will continue to see volatility in our earnings due to the accounting requirements around fair value measurement which is not representative of the underlying economic performance of the business. During the quarter, we have continued to execute on our strategic objectives, announcing the acquisition of the Morris cogeneration facility and the commencement of a sales process for our interest in Primary Energy Recycling Holdings (PERH)."
"Pending successful completion of these transactions, we believe the Morris acquisition will strengthen our portfolio of high quality contracted power assets and the sale of PERH will allow redeployment of cash to other potential investments. The current market turmoil impacting global capital markets has negatively impacted our unit price, however our business remains financially sound. The Partnership has strong liquidity with access to $300 million on existing credit lines and no significant near-term debt maturities."
The Partnership reported cash provided by operating activities of $21.5 million or $0.40 per unit for the quarter ended September 30, 2008 compared to $26.5 million or $0.49 per unit for the same period in 2007. Cash provided by operating activities per unit is defined below under Non-GAAP Measures. The $5.0 million decrease in cash provided by operating activities for the third quarter of 2008 compared to the third quarter of 2007 is primarily due to the following:
- A $19.5 million increase in working capital in the third quarter of 2008 compared to a $8.2 million increase in same period in 2007. The three months ended September 30, 2008 include the receipt of two months of sales at Oxnard compared to the receipt of three months of sales in the third quarter of 2007. In addition, the Partnership reduced an accrual for natural gas purchases in Ontario in third quarter of 2008;
- A decrease in operating margin of $7.1 million at the Northwest US plants due to a milestone payment at Frederickson under its long-term service agreement with the turbine manufacturer, lower revenue and generation at Manchief due to higher natural gas prices in Colorado and higher fuel costs at Greeley to meet minimum generation requirements in its power purchase contract (PPA); and
- Operating margin at Castleton was $2.4 million lower compared to the same quarter last year as margins have been lower after its PPA expired in June 2008, consistent with previously disclosed expectations.
Decreases were partially offset by the following:
- In the third quarter of 2007, net losses of $8.1 million were realized on foreign exchange and interest rate contracts that were entered into in anticipation of permanent financing of acquisitions completed in 2006;
- Operating margin at the Ontario plants was $3.3 million higher compared to the prior year's quarter as a result of a $3.4 million reduction in natural gas costs as we updated our estimate of the cost for natural gas supplied under contract. These increases were partially offset by a 19% increase in the natural gas prices in 2008 at Kapuskasing and North Bay under the 20 year supply agreements;
- Operating margin at the California plants was $2.6 million higher due to increased electricity prices driven by higher natural gas prices, partially offset by higher fuel costs and higher maintenance costs due to turbine repairs at North Island;
- Revenues at the hydro facilities were $1.2 million higher compared to the third quarter of 2007 due to higher water flow at Curtis Palmer, partially offset by a planned maintenance outage at one of the Curtis Palmer units and lower water flow at Mamquam. Water flow at Mamquam was lower than the prior year, but above historic levels; and
- Lower interest expenses of $0.6 million primarily due to the replacement of capital lease obligations with lower cost long-term debt in the third quarter of 2007.
The Partnership reported cash provided by operating activities of $104.8 million or $1.94 per unit for the nine months ended September 30, 2008 compared with $95.0 million or $1.84 per unit for the same period in 2007. Cash provided by operating activities per unit is defined below under Non-GAAP Measures. The $9.8 million increase in cash provided by operating activities compared to 2007 is primarily due to the items described above for the current quarter, as well as the following items:
- Lower interest expenses of $8.7 million primarily due to the pay down of debt with the proceeds from the issue of Partnership units and preferred shares in the second quarter of 2007; and
- A maintenance outage at the Mamquam facility to effect tunnel repairs in the second quarter of 2007 resulted in higher maintenance costs of approximately $2.2 million compared to the same period in 2008.
Increases were partially offset by the following:
- Operating margin at the Ontario plants was $2.5 million lower due to the items discussed above for the current quarter as well as: (i) lower generation and revenue at Calstock due to high moisture levels in the waste wood inventory and lower inventory levels which caused Calstock to scale back production in 2008 to optimize available waste wood, (ii) lower waste heat availability and higher waste heat optimization costs due to lower throughput on TransCanada Corporation's (TransCanada) Canadian Mainline, and (iii) the settlement of natural gas supply contract disputes at Tunis in July 2007 and January 2008;
- Arbitration awards against the previous owners of Mamquam and Queen Charlotte in respect of claims by the Partnership in the purchase and sale agreement were $2.3 million in the second quarter of 2007 compared with $0.5 million awarded in the first quarter of 2008; and
- Dividends on preferred shares issued in May 2007 by a subsidiary company of the Partnership were $4.9 million for the nine months ended September 30, 2008 compared to $2.2 million for the same period in 2007. -- www.cnxmarketlink.com
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