EPCOR Announces Quarterly Results
EDMONTON, May 8 /CNW/ - EPCOR Utilities Inc. (EPCOR) today released its
quarterly results for the period ended March 31, 2009.
"EPCOR reported solid first quarter operating results in both our power
and water operations," said EPCOR President & CEO Don Lowry. "The availability
and performance of our Genesee power plants was above target and higher than
last year, and we continue to execute our capital plan, including construction
of power generation at Keephills 3 and Clover Bar Energy Centre, and water and
wastewater treatment facilities at the Suncor Voyageur site. A major step in
building our water and wastewater treatment expertise was completed this
quarter with the transfer of the Edmonton Gold Bar Wastewater Treatment Plant
to EPCOR. As a result, we are now better able to develop opportunities inside
and outside of Edmonton."
Highlights of EPCOR's financial performance:
- Cash flow from operating activities for the three months ended
March 31, 2009 was $147 million compared with $99 million for the
corresponding period in the previous year.
- Net income was $104 million on revenues of $890 million for the three
months ended March 31, 2009 compared with $68 million on revenues of
$799 million for the corresponding period in the previous year.
- Other comprehensive income was $22 million for the three months ended
March 31, 2009 compared with $23 million for the corresponding period
in the previous year.
- Investment in capital projects for the three months ended March 31,
2009 was $136 million compared with $108 million for the
corresponding period in the previous year.
Management's discussion and analysis (MD&A) of the quarterly results are
shown below. The MD&A and the unaudited interim financial statements are
available on EPCOR's website (www.epcor.ca) and will be available on SEDAR
(www.sedar.com).
EPCOR's wholly-owned subsidiaries build, own and operate power plants,
electrical transmission and distribution networks, water and wastewater
treatment facilities and infrastructure in Canada and the United States.
EPCOR, headquartered in Edmonton, Alberta, has been named one of Canada's Top
100 employers for nine consecutive years, and was selected one of Canada's 10
Most Earth-Friendly Employers. EPCOR's website is www.epcor.ca.
EPCOR Utilities Inc.
Interim Management's Discussion and Analysis
March 31, 2009
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This management's discussion and analysis (MD&A), dated May 7, 2009,
should be read in conjunction with the unaudited interim consolidated
financial statements of EPCOR Utilities Inc. and its subsidiaries for the
three months ended March 31, 2009 and 2008, the audited consolidated financial
statements and MD&A for the year ended December 31, 2008 and the cautionary
statement regarding forward-looking information on page 21. In this MD&A, any
reference to "the Company", "EPCOR", "we", "our" or "us", except where
otherwise noted or the context otherwise indicates, means EPCOR Utilities
Inc., together with its subsidiaries. Financial information in this MD&A is
based on the unaudited interim consolidated financial statements, which were
prepared in accordance with Canadian generally accepted accounting principles
(GAAP), and is presented in Canadian dollars unless otherwise specified. In
accordance with its terms of reference, the Audit Committee of the Company's
Board of Directors reviews the contents of the MD&A and recommends its
approval by the Board of Directors. The Board of Directors has approved this
MD&A.
OVERVIEW
EPCOR is wholly-owned by The City of Edmonton (the City). EPCOR's results
from operating activities for the first quarter were on plan as our power and
water operations across the regions delivered good results. The availability
of our Genesee plants was above target and higher than last year as they did
not experience any major outages in the current quarter. The higher
availability at Genesee 1 and 2 resulted in net availability incentive income
for those units under the terms of the Genesee Power Purchase Arrangement
(PPA). In January 2009, we sold another 10% interest in the Battle River PPA.
The decrease in generation from the Battle River PPA and lower average Alberta
spot power prices resulted in lower margins from Energy Services' Alberta
electricity portfolio in the quarter compared with the first quarter of 2008.
The impact was reduced by effective management of the trading portfolio. Our
water and electric distribution and transmission businesses performed well
without any significant operating issues arising during the quarter.
EPCOR Power L.P. (Power LP), a 30.6% subsidiary of EPCOR, contributed a
net loss in the quarter primarily due to changes in the fair value of natural
gas supply and foreign exchange contracts. Fair value changes can cause
volatility in Power LP's earnings but are not representative of the underlying
economic performance of Power LP's business. Operating income, excluding fair
value changes, from Power LP's plants was $3 million lower in the first
quarter of 2009 compared with the first quarter of 2008.
The economic and credit crises continued through the first quarter of
2009. This contributed to a $4 million fair value write-down of the notes
which EPCOR received in exchange for its Canadian non-bank sponsored
asset-backed commercial paper (ABCP). In addition, during this period of
credit uncertainty we relied on our existing credit facilities and ability to
issue commercial paper to fund our capital expenditures. Similarly, Power LP
relied upon its credit facilities to finance capital expenditures during the
period. Power LP's cash distribution for the first quarter of 2009 of $0.63
per unit did not change from recent quarters.
Progress continued on our capital expenditure program, particularly the
Keephills 3 generation plant, two units at Clover Bar Energy Centre and Power
LP's Southport, Roxboro and North Island plant enhancements. The Gold Bar
Wastewater Treatment Plant (Gold Bar) assets and wastewater treatment
professionals on staff were officially transferred from the City to EPCOR on
March 31, 2009. EPCOR will not only benefit from future earnings from the
facility, but is now better able to develop opportunities outside Edmonton
with its combined water and wastewater treatment expertise. In addition, EPCOR
signed an agreement with the Town of Banff to provide operation services for
the town's wastewater treatment plant for the period from March 24, 2009 to
June 30, 2011.
On March 26, 2009, the Government of Canada, under Natural Resources
Canada, selected EPCOR, Enbridge Inc. and the Alberta Saline Aquifer Project
(ASAP), acting in partnership, to receive funding under the ecoENERGY
Technology Initiative for the Genesee post-combustion demonstration plant
project. The project focuses on the development of amine scrubbing technology
to remove carbon dioxide from the flue-gas leaving the stack of a coal-fired
generation plant. The amount of funding that the EPCOR-Enbridge-ASAP
partnership will receive will be finalized during the contribution agreement
stage. EPCOR and Enbridge also submitted this project to the Alberta
Government under the $2 billion Carbon Capture Storage funding program.
SIGNIFICANT EVENTS
Transfer of Gold Bar Wastewater Treatment Plant
On March 31, 2009, the City transferred its Gold Bar assets to EPCOR.
Gold Bar handles wastewater treatment requirements for 700,000 residents of
the City and has a current treatment capacity of 310 megalitres per day. The
Edmonton City Council will continue to regulate wastewater treatment services
and rates for the combined drainage utility, which includes the wastewater
collection and transmission system owned by the City and the Gold Bar plant
owned by EPCOR.
The assets were transferred from the City at their estimated carrying
amounts which are expected to be finalized in the second quarter of 2009. The
carrying amount of the Gold Bar plant assets at March 31, 2009 was estimated
at $223 million which included $40 million of contributed assets on which
EPCOR cannot earn a return, offset by $40 million of capital contributions.
Under the transfer agreement with the City, EPCOR issued approximately $112
million of long-term debt to the City, bearing a weighted average interest
rate of approximately 5.25%. EPCOR also agreed to pay a transfer fee of $75
million to the City in annual installments commencing in 2009 and ending in
2015 and the first installment of $17 million was paid on March 31, 2009. The
remainder of the asset transfer, representing the difference between the
carrying amount of the assets and the liabilities for the transfer fee and
long-term debt, was reflected on the Company's consolidated balance sheet as a
$36 million equity contribution from the City.
Sale of percentage interest in power syndicate agreement
On January 15, 2009, we sold a 10% interest in the Battle River Power
Syndicate Agreement (PSA) for cash proceeds of $47 million resulting in a
pre-tax gain of $30 million. The associated income taxes were $4 million of
expense, and $5 million of refundable taxes which were charged to retained
earnings. This sale was pursuant to the purchase and sale agreement entered
into in June 2006 whereby EPCOR will 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 on June 5, 2006
followed by sales of 10% interests on each of January 1, 2007 and January 15,
2008 for cash proceeds of $59 million and $53 million, respectively. The
after-tax gain on the sale in the current quarter was $26 million compared
with $30 million in the first quarter of 2008. The year-over-year decreases in
proceeds and after-tax gain were due to the one year shorter term to maturity
for the PPA.
Asset-backed commercial paper exchanged for notes
On January 21, 2009, the restructuring of ABCP took effect. Under the
restructuring, the affected ABCP was exchanged for term floating-rate notes
(notes), maturing no earlier than the scheduled termination dates of the
underlying assets. The exchange was recorded at the estimated fair value of
the notes on January 21, 2009. The key information on EPCOR's notes is as
follows:
(i) EPCOR's allocation of notes under the restructuring was as
follows:
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Pool Series Rating Face amount
($ millions)
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MAV2 Class A-1 AA $ 47 67%
Class A-2 AA 9 13%
Class B Unrated 2 2%
Class C Unrated 2 2%
MAV3 IA Tracking Unrated 11 16%
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$ 71 100%
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(ii) For the Master Asset Vehicle 2 (MAV2) pool notes, the underlying
asset lives are anticipated to average nine years. The remaining
notes come from Master Asset Vehicle 3 (MAV3) in the form of
Ineligible Asset Tracking (IA Tracking) notes. These notes are
expected to amortize over the lives of the underlying assets which
have a weighted average life of approximately 18 years. In certain
limited circumstances, the expected repayment dates could be
longer than the expected asset lives.
(iii) ABCP investors, including EPCOR, were paid the accumulated accrued
interest, net of ABCP restructuring costs, collateral requirements
and other costs, on their existing ABCP from the date of the
standstill in August 2007 to the date of the restructuring. During
the first quarter of 2009, EPCOR received $2 million in respect of
that interest.
At March 31, 2009, the Company held $38 million in notes, all of which
were received in exchange for ABCP which was purchased during the third
quarter of 2007 at an original cost of $71 million. As the notes are
classified as held for trading financial assets, they are subject to ongoing
fair value adjustments at each reporting date. At March 31, 2009, the fair
value of the notes was estimated at $38 million compared with a fair value of
$42 million for the ABCP at December 31, 2008. The $4 million decrease was
primarily due to lower short-term and higher long-term market interest rates.
In the first quarter of 2008, a $9 million reduction in fair value was
recognized.
The estimate of fair value is subject to significant risks and
uncertainties including the timing and amount of future cash payments, market
liquidity, the quality and tenor of the assets and instruments underlying the
notes, including the possibility of margin calls, and the future market for
the notes. Accordingly, the fair value estimate of the notes may change
materially.
CONSOLIDATED RESULTS OF OPERATIONS
Net income
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(Unaudited, $ millions)
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Net income for the quarter ended March 31, 2008 $ 68
Unrealized fair value changes on derivative instruments and
natural gas inventory held for trading, excluding Power LP fair
value changes 33
Higher Genesee PPA availability incentive income 10
Maintenance expenses for Genesee 1 scheduled turnaround in 2008 8
Lower financing expenses, excluding Power LP financing expenses 7
Lower foreign exchange expense, excluding Power LP foreign exchange
expense 6
Lower fair value reduction on notes exchanged for ABCP 5
Lower gain on sale of Battle River PSA (4)
Higher administration expenses, excluding Power LP administration (5)
Lower Alberta electricity margins (5)
Lower income from Power LP (19)
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Increase in net income 36
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Net income for the quarter ended March 31, 2009 $ 104
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Net income was $104 million for the three months ended March 31, 2009,
compared with $68 million for the corresponding period in 2008. The $36
million increase was primarily due to the net impact of the following:
- In the first quarter of 2009, the unrealized changes in the fair
value of our financial contracts that were not designated as hedges
for accounting purposes were favourable compared with the first
quarter of 2008, as discussed under Energy Services later in this
MD&A. This was partly offset by unfavourable unrealized fair value
changes in our forward foreign exchange contracts compared with the
corresponding period in the prior year, as discussed under Generation
later in this MD&A.
- Availability incentive income was earned in the first quarter of 2009
under the terms of the Genesee 1 and 2 PPA compared with a net
availability penalty in the corresponding period in 2008. The net
penalty in 2008 was due to major scheduled turnaround work on Genesee
1.
- Maintenance expenses for Genesee 1 were lower due to the scheduled
turnaround in the first quarter of 2008 whereas there were no outages
in the first quarter of 2009.
- Financing expenses, excluding unrealized fair value adjustments and
Power LP's financing expenses were lower in the first quarter of 2009
compared with the first quarter of 2008 primarily due to higher
capitalized interest and collection of $2 million of interest related
to the ABCP as described under Significant Events. Although the
$400 million medium-term notes issue in April 2008 resulted in higher
interest costs in the current quarter, they were more than offset by
a higher amount of interest that was capitalized. The Company
capitalizes borrowing costs as part of its cost of capital
construction projects and in the first quarter of 2009, construction
work in progress for Keephills 3 and the Clover Bar Energy Centre was
higher compared with the corresponding period in 2008.
- In the first quarter of 2009, foreign exchange gains were realized on
the settlement of forward foreign exchange contracts used to
economically hedge the foreign exchange risk associated with
anticipated purchases of equipment for generation capital projects.
In the first quarter of 2008, foreign exchange losses were realized
on these contracts.
- Administration expenses, excluding Power LP's administration
expenses, were higher due to increased spending in the first quarter
of 2009 on business development activities and on our Genesee
Integrated Gasification and Combined Cycle and Carbon Capture
Technology project.
- In the first quarter of 2009, margins for the procurement, marketing
and sale of electricity in retail and wholesale markets in Alberta
(Alberta electricity margins) were lower compared with the
corresponding period of 2008 primarily due to the impact of lower
Alberta spot power prices on our electricity portfolio. In addition,
power generation was lower in the current quarter due to our reduced
interest in the Battle River PSA.
- Net income from Power LP was lower in the first quarter of 2009
compared with the corresponding period in 2008 primarily due to
unrealized changes in the fair value of natural gas supply contracts.
Other contributing factors were lower plant operating margins, partly
offset by a foreign exchange loss in the first quarter of 2008 on the
translation of U.S. debt. These changes are further discussed under
Generation in this MD&A.
Revenues
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(Unaudited, $ millions)
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Revenues for the quarter ended March 31, 2008 $ 799
Unrealized fair value changes on derivative instruments and
natural gas inventory held for trading, excluding Power LP fair
value changes 89
Higher Genesee PPA availability incentive revenues 15
Higher Water Services' commercial and transportation services
revenues 8
Higher Power LP revenues 7
Higher electricity trading activities in Ontario and the north
eastern U.S. 5
Lower trading activities in the western U.S. (18)
Lower natural gas trading activities (24)
Other 9
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Increase in revenues 91
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Revenues for the quarter ended March 31, 2009 $ 890
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Consolidated revenues were higher for the three months ended March 31,
2009 compared with the corresponding period in 2008 primarily due to the net
impact of the following:
- Unrealized fair value gains were recognized in the first quarter of
2009 due to decreasing forward Alberta power prices applied to our
Alberta financial sales contracts that were not designated as hedges
for accounting purposes. In the first quarter of 2008, unrealized
fair value losses were recognized on these financial sales contracts
due to increasing forward Alberta power prices.
- Power LP revenues were higher primarily due to the Morris facility
which was acquired in the fourth quarter of 2008, partly offset by
lower revenues from other U.S. plants.
- Water Services' commercial and transportation services revenues were
higher primarily due to the water and wastewater treatment facilities
construction project for Suncor Energy Inc., which commenced in the
second quarter of 2008.
Capital spending and investment
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(Unaudited, $ millions)
Three months ended March 31 2009 2008
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Generation $ 104 $ 77
Distribution and Transmission 17 21
Energy Services 4 1
Water Services 9 7
Corporate - other 2 2
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$ 136 $ 108
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Capital expenditures for property, plant and equipment were higher for
the three months ended March 31, 2009 compared with the corresponding period
in 2008 primarily due to increased construction activity on the Keephills 3
and Clover Bar Energy Centre generation projects and Power LP's Southport,
Roxboro and North Island plant enhancements. These increases were partly
offset by capital expenditures in 2008 for the Downtown Edmonton Supply and
Substation project in Distribution and Transmission which was completed in the
third quarter of 2008.
Despite the current economic conditions, major project construction costs
remain under pressure as project work packages, including material and labour
components, are finalized in the normal course of construction.
Keephills 3 is a 495-MW supercritical coal-fired generation plant which
is a joint development of EPCOR and TransAlta Corporation at TransAlta's
Keephills site. We continue to manage the schedule and costs of our Keephills
project with it on track to achieve commercial operations by the end of the
first quarter of 2011.
The Clover Bar Energy Centre will be composed of three natural gas-fired
peaking power generation units. The first unit was commissioned in the first
quarter of 2008, the second unit is expected to be commissioned in the second
quarter of 2009 and construction of the third unit will continue through to
2010.
Power LP's capital expenditures were $17 million in the three months
ended March 31, 2009 compared with $3 million in the corresponding period in
2008. The capital expenditures in the current quarter included enhancements to
the Southport and Roxboro facilities to reduce their environmental emissions
and improve their economic performance. Power LP is also upgrading the natural
gas turbine at the North Island facility to improve the plant's efficiency.
SEGMENT RESULTS
Generation
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Three months ended March 31 2009 2008
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Generation results (including intersegment
transactions)
(Unaudited, $ millions)
Revenues $ 239 $ 221
Expenses 233 132
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Operating income $ 6 $ 89
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(Unaudited, $ millions)
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Operating income for the quarter ended March 31, 2008 $ 89
Higher Genesee PPA availability incentive income 15
Maintenance expenses for Genesee 1 scheduled turnaround
in 2008 11
Lower realized foreign exchange expense 5
Unrealized fair value changes on derivative instruments (6)
Lower Power LP operating income (100)
Other (8)
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Decrease in operating income (83)
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Operating income for the quarter ended March 31, 2009 $ 6
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Generation's operating income for the three months ended March 31, 2009
decreased $83 million compared with the corresponding period in 2008. Further
information on the year-over-year changes is as follows:
- Generation's revenues and operating income increased $15 million due
to availability incentive income earned under the terms of the
Genesee 1 and 2 PPA in the first quarter of 2009 compared with a net
availability penalty in the corresponding period in 2008. There was a
scheduled turnaround for required maintenance at Genesee 1 in the
first quarter of 2008 whereas plant availability at Genesee 1 and 2
was above plan in the first quarter of 2009.
- Foreign exchange gains were realized in the first quarter of 2009 on
the settlement of forward foreign exchange contracts used to
economically hedge the foreign exchange risk associated with
anticipated purchases of equipment for Clover Bar Energy Centre and
Keephills 3 whereas losses were realized on these contracts in the
corresponding period in 2008.
- In the first quarter of 2009, Generation had a lower volume (in terms
of notional amounts) of forward foreign exchange contracts for U.S.
dollars compared with the corresponding period in 2008 as the amount
of anticipated U.S. dollar equipment purchases for the Keephills 3
and Clover Bar Energy Centre construction projects was lower. The
unrealized changes in the fair value of these contracts increased
expenses and decreased operating income by $6 million primarily due
to the unrealized fair value gains recognized in the first quarter of
2008.
- Power LP contributed an operating loss of $36 million in the first
quarter of 2009 compared with $64 million of operating income in the
first quarter of 2008. This $100 million decrease was primarily due
to $102 million of unrealized changes in the fair value of natural
gas supply contracts and a $5 million decrease in plant operating
margins, partly offset by a $13 million foreign exchange loss in the
first quarter of 2008. Plant operating margins decreased due to
higher planned maintenance costs and lower generation at the North
Carolina facilities, lower generation at the Naval Station facilities
in California due to planned outages for inspection and maintenance
work, and higher waste heat optimization costs at the Ontario
facilities.
Power LP's revenues increased $7 million primarily due to current
quarter sales at the Morris facility, which was acquired in the
fourth quarter of 2008. This increase was partly offset by a decrease
in revenues from other U.S. plants primarily due to lower electricity
prices for the California plants which, under the terms of the PPA,
were driven by lower natural gas prices. In addition, generation was
lower at the Naval Station and North Carolina plants due to planned
outages.
Power LP's expenses increased $107 million primarily due to an
unrealized loss of $34 million in the first quarter of 2009 compared
with an unrealized gain of $68 million in the first quarter of 2008
for changes in the fair value of its natural gas supply contracts
which were included in fuel expense. These unrealized fair value
changes were due to decreases in the forward market prices for
natural gas in the first quarter of 2009 compared with increases in
the first quarter of 2008. Operating expenses for the Morris facility
also contributed to the increase in Power LP's expenses. Offsetting
these increases was the $13 million foreign exchange loss recognized
in net income in the first quarter of 2008 on the translation of U.S.
debt due to a weakening of the Canadian dollar relative to the U.S.
dollar. In 2009, a foreign exchange gain on the translation of Power
LP's U.S. operations was recognized in other comprehensive income.
This change in accounting treatment for foreign currency translation
gains and losses resulted from Power LP's re-evaluation of the
functional currency of its U.S. subsidiaries in the fourth quarter of
2008 whereby it determined the functional currency to be U.S. dollars
rather than Canadian dollars.
Distribution and Transmission
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Three months ended March 31 2009 2008
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Distribution and Transmission results (including
intersegment transactions)
(Unaudited, $ millions)
Revenues $ 61 $ 59
Expenses 49 47
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Operating income $ 12 $ 12
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There were no material changes in Distribution and Transmission revenue,
expenses and operating income, for the current quarter compared with the
corresponding period in the prior year.
Energy Services
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Three months ended March 31 2009 2008
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Energy Services results (including intersegment
transactions)
(Unaudited, $ millions)
Revenues $ 589 $ 528
Expenses 518 514
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Operating income $ 71 $ 14
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(Unaudited, $ millions)
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Operating income for the quarter ended March 31, 2008 $ 14
Unrealized fair value changes in derivative instruments
and natural gas inventory 55
Lower Alberta electricity margins (6)
Other 8
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Increase in operating income 57
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Operating income for the quarter ended March 31, 2009 $ 71
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Energy Services' operating income increased $57 million for the three
months ended March 31, 2009 compared with the corresponding period in 2008.
Additional information on the year-over-year changes is as follows:
- The unrealized fair value changes relate primarily to a net short
position in both periods for financial electricity contracts that
were not designated as hedges for accounting purposes. In the first
quarter of 2009, forward Alberta power prices decreased which
increased the fair value of the contracts whereas in the first
quarter of 2008 forward Alberta power prices increased which reduced
the fair value of the contracts. These unrealized fair value changes
increased energy revenues by $89 million and energy purchases by
$34 million compared with the first quarter of 2008.
- Alberta electricity margins were lower in the first quarter of 2009
compared with the corresponding period of 2008 primarily due to the
impact of lower Alberta power prices on our Alberta electricity
portfolio. The Alberta electricity portfolio was in a net long
position for both periods as we had more physical supply from our
generating stations and interests in the Battle River and Sundance
PPAs (acquired PPAs) than we had contracted to sell. In addition,
power generation was lower in the current quarter due to our reduced
interest in the Battle River PSA.
- Energy Services' revenues and expenses, excluding unrealized fair
value changes, decreased $28 million and $30 million respectively,
compared with the corresponding period in 2008. The decreases were
primarily due to lower speculative natural gas trading activity,
lower natural gas consumption due to fewer wholesale and merchant
customers, and decreased trading activity in the western U.S., all of
which had minimal impact on energy margins. Our reduced interest in
the Battle River PSA also contributed to lower revenues and expenses.
These decreases were partly offset by higher Alberta electricity
revenues and purchases for the Regulated Rate Tariff (RRT) business
and higher trading activity in Ontario and the north eastern U.S.
with minimal impact on the respective energy margins.
Water Services
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Three months ended March 31 2009 2008
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Water Services results (including intersegment
transactions)
(Unaudited, $ millions)
Revenues $ 67 $ 58
Expenses 57 47
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Operating income $ 10 $ 11
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Water Services' revenues from water sales were $3 million higher in the
three months ended March 31, 2009 compared with the corresponding period in
2008 primarily due to increased rates effective April 1, 2008 under Water
Services' Performance Based Rate structure as approved by the regulator, The
City of Edmonton.
Transportation and other commercial services revenue and expenses
increased in the three months ended March 31, 2009 compared with the
corresponding period in 2008 primarily due to the water and wastewater
treatment facilities construction project for Suncor Energy Inc. Water
Services' expenses also increased due to a higher incidence and cost of water
distribution main breaks, increased business development activity and costs
associated with executing the Gold Bar transfer in the current quarter.
CONSOLIDATED BALANCE SHEETS
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March 31, December Increase
($ millions) 2009 31, 2008 (decrease) Explanation
-------------------------------------------------------------------------
Cash and cash $ 124 $ 111 $ 13 Refer to liquidity and
equivalents capital resources
section.
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Accounts receivable 453 509 (56) Lower receivables from
(including income RRT customers due to
taxes recoverable) lower rates and
consumption in March
2009 compared with
December 2008. Lower
receivables from
commercial and
industrial customers
due to fewer customers.
Lower receivables from
the Alberta Electric
System Operator and
customers subject to
pool price flow-through
pricing due to lower
spot prices in March
2009 compared with
December 2008.
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Derivative 142 130 12 Increase in fair value
instruments of power derivative
assets (current) sell contracts, partly
offset by decrease in
fair value of Power
LP's natural gas and
forward foreign
exchange contracts.
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Other current assets 89 96 (7)
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Property, plant 4,958 4,639 319 Addition of 2009
and equipment capital expenditures
and Gold Bar assets
partly offset by
depreciation and
amortization expense.
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Power purchase 549 550 (1)
arrangements
(PPAs)
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Contract and 297 296 1
customer rights
and other
intangible assets
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Derivative 87 75 12 Increase in fair value
instruments assets of power derivative
(non-current) sell contracts, partly
offset by decrease in
fair value of Power
LP's natural gas and
forward foreign
exchange contracts.
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Future income 101 103 (2)
tax assets
(non-current)
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Goodwill 163 161 2
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Other assets 228 235 (7)
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Assets held for sale 25 43 (18) Sale of 10% interest
in Battle River PSA.
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March 31, December Increase
($ millions) 2009 31, 2008 (decrease) Explanation
-------------------------------------------------------------------------
Short-term debt $ 384 $ 140 $ 244 Issue of commercial
paper, partly offset by
repayment of short-term
bankers' acceptances in
the first quarter of
2009.
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Accounts payable 508 587 (79) Lower accrued payables
and accrued to the Alberta Electric
liabilities System Operator due to
lower spot prices in
March, 2009 compared
with December, 2008,
lower current
liabilities for
Generation and Water
Services capital
projects and timing of
fuel supply payments
for U.S. Operations,
partly offset by the
current portion of the
transfer fee payable to
the City for the Gold
Bar asset transfer.
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Derivative 155 131 24 Increased liability
instruments associated with the
liabilities fair value of power
(current) derivative buy
contracts and Power
LP's natural gas supply
and forward foreign
exchange contracts.
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Other current 84 58 26 Increased future income
liabilities tax liabilities.
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Long-term debt 2,662 2,728 (66) Repayment of bankers'
(including acceptances issued
current portion) under the syndicated
bank credit facility
and ongoing debt
repayments, partly
offset by the issue of
long-term debt to the
City for the Gold Bar
asset transfer.
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Derivative 101 110 (9) Decreased liability
instruments associated with the
liabilities fair value of power
(non-current) derivative sell
contracts, partly
offset by increased
liability associated
with Power LP's natural
gas supply and forward
foreign exchange
contracts.
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Other non-current 168 125 43 Reflects the non-
liabilities current portion of the
transfer fee owing to
the City for the Gold
Bar asset transfer.
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Future income tax 93 100 (7)
liabilities
(non-current)
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Non-controlling 507 540 (33) Non-controlling
interests interets' share of
Power LP distributions
and net loss, partly
offset by
non-controlling
interests' share of
Power LP's other
comprehensive income.
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Shareholder's 2,554 2,429 125 Net income, other
equity comprehensive income
and the Gold Bar asset
capital contribution,
partly offset by common
share dividends and
refundable income
taxes.
-------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------------------------------------------------
Cash inflows (outflows)
-------------------------------------------------------------------------
Three months
ended March 31
---------------- Increase
($ millions) 2009 2008 (decrease) Explanation
-------------------------------------------------------------------------
Operating $ 147 $ 99 $ 48 Reflects changes in
non-cash working
capital due to the
timing of receipts and
payments, primarily the
payment in 2008 of
income taxes related to
the 2006 gain on sale
of the Battle River PSA
and receipt of Genesee
PPA availability
incentive income in the
first quarter of 2009
compared with payment
of availability
penalties in the first
quarter of 2008.
Investing (128) (76) (52) Reflects payment of a
Gold Bar transfer fee
instalment and higher
capital expenditures,
primarily at the
Roxboro, Keephills 3,
Clover Bar Energy
Centre and North Island
facilities in the first
quarter of 2009, partly
offset by spending on
the Downtown Edmonton
Supply and Substation
project in the first
quarter of 2008.
Financing (11) 2 (13) Reflects higher
repayments of long-term
debt in the first
quarter of 2009 and
issue of $200 million
of medium-term note
debentures in the first
quarter of 2008, partly
offset by the proceeds
from the issue of
commercial paper.
-------------------------------------------------------------------------
The Company's cash from operating activities increased $48 million in the
three months ended March 31, 2009, compared with the corresponding period in
2008. Over the next few quarters, we anticipate working capital requirements
to fluctuate due to normal seasonal changes in operating cash flows and the
effects of plant outages, scheduled or otherwise. No significant increases in
working capital requirements are expected over the long term for existing
operations. The Company plans to finance its working capital requirements with
existing credit facilities and the issuance of commercial paper. At March 31,
2009, the Company had undrawn bank credit facilities of $1,868 million, of
which $376 million is committed for at least two years.
Committed bank lines of credit are also used to provide letters of
credit. At March 31, 2009, the Company had letters of credit of $234 million
(December 31, 2008 - $253 million) outstanding to meet the credit requirements
of energy market participants and conditions of certain service agreements,
and to satisfy legislated reclamation requirements. The committed bank lines
also indirectly back the Company's commercial paper program which has an
authorized capacity of $500 million, of which $384 million was outstanding at
March 31, 2009 (December 31, 2008 - $113 million).
The capital requirements to finance the Company's capital projects are
expected to continue at the current pace until at least the end of 2010. In
2009, the projects include Keephills 3, Clover Bar Energy Centre and Power
LP's Southport, Roxboro and North Island facility enhancements. This capital
spending is expected to be financed with existing credit facilities, the
issuance of commercial paper or medium-term notes.
The Company has a Canadian shelf prospectus under which it may raise up
to $1 billion of debt with maturities of not less than one year. The shelf
prospectus expires in November 2009. At March 31, 2009, the available amount
remaining under this shelf prospectus was $400 million. In addition, Power LP
has a Canadian universal shelf prospectus which expires in August 2010 under
which Power LP may raise up to $1 billion in partnership units or debt with a
maximum debt amount of $600 million. At March 31, 2009, Power LP had not drawn
on the shelf prospectus.
Effects of economic downturn and market uncertainty
Instability in the Canadian and U.S. financial markets continued through
the first quarter of 2009. We secured financing at an interest rate of 0.98%
through the issue of commercial paper to fund our capital expenditures and
working capital requirements and we plan to continue using commercial paper,
existing credit facilities or medium-term notes for our financing requirements
for the balance of the year. Two of the Company's bilateral credit facilities
totaling $200 million expire in the second quarter of 2009 and we are
currently negotiating their renewal. The unstable credit and economic
environment may adversely affect the interest rates at which we are able to
draw on these facilities as they are renewed or extended. To date, indications
are that we will be able to renew these facilities and draws under these
facilities will be at increased effective interest rates.
The market price of Power LP's partnership units declined and remained
relatively low in the first quarter of 2009. Accordingly, under these
conditions Power LP does not expect to rely on public equity markets to
finance asset acquisitions.
Power market liquidity continues to be a concern as energy commodity
trading in our markets continues to be less active. However, due to the
strength of our trading counterparties, we continue to be able to effectively
manage our portfolio.
If the world-wide credit and economic crises continue into the longer
term, particularly as they relate to Canada and the U.S., they may adversely
affect the Company's ability to renew credit facilities, arrange long-term
financing for its capital expenditure programs and acquisitions, or refinance
outstanding indebtedness when it matures. If market conditions worsen, the
Company may suffer a credit rating downgrade and be unable to renew its
bilateral credit facilities or access the public debt markets. Although we
continue to believe that these circumstances have a low probability of
occurring, we are monitoring EPCOR's capital programs and operating costs to
minimize the risk that the Company becomes short of cash or unable to honor
its obligations. Some of these considerations include the preservation of
capital through capital expenditure reduction or deferral, operating cost
reductions and sale of non-strategic assets.
CONTRACTUAL OBLIGATIONS
On March 31, 2009, EPCOR issued $112 million of long-term debt to the
City and incurred a $75 million transfer fee payable to the City, for the Gold
Bar asset transfer as described under Significant Events. The long-term debt
bears interest at a weighted average interest rate of approximately 5.25% and
matures over the period from 2010 to 2033 as follows, subject to adjustments
to be finalized in the second quarter of 2009:
-------------------------------------------------------------------------
(Unaudited, $ millions)
-------------------------------------------------------------------------
2009 $ 6
2010 6
2011 6
2012 5
2013 to 2033 89
-------------------------------------------------------------------------
Total $ 112
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The transfer fee is payable in annual installments over the period from
2009 to 2015 and is included in the table of contractual obligations in
EPCOR's 2008 annual MD&A. The first instalment of $17 million was paid on
March 31, 2009.
During the quarter ended March 31, 2009, the Company financed its capital
expenditures and working capital requirements through its credit facilities
and commercial paper program. The Company's outstanding commercial paper, and
loans and bankers' acceptances issued under credit facilities, increased $61
million in the quarter, including $32 million relating to Power LP debt
issues.
There have been no other material changes to the Company's purchase
obligations, including payments for the next five years and thereafter, during
the first quarter. For further information on the Company's contractual
obligations, refer to the 2008 annual MD&A.
CHANGES IN ACCOUNTING STANDARDS
Accounting changes for 2009
Rate-regulated operations
In December 2007, the Canadian Institute of Chartered Accountants (CICA)
amended Handbook Sections 1100 - Generally Accepted Accounting Principles and
made consequential amendments to Accounting Guideline 19 - Disclosures by
Entities Subject to Rate Regulation. The amendments removed the temporary
exemption from the requirement to apply Section 1100 to the recognition and
measurement of assets and liabilities arising from rate regulation, effective
January 1, 2009.
As permitted by Canadian GAAP, the Company is applying the U.S. Financial
Accounting Standards Board (FASB) standard, Statement of Financial Accounting
Standards No. 71 - Accounting for the Effects of Certain Types of Regulation
(SFAS 71), which provides guidance for the recognition and measurement of
rate-regulated assets and liabilities. These amendments and adoption of the
SFAS 71 guidance effective January 1, 2009, did not have a material impact on
our interim consolidated financial statements and is not expected to have a
material impact going forward.
Intangible assets
In February 2008, the CICA issued Handbook Section 3064 - Goodwill and
Intangible Assets and consequential amendments to Section 1000 - Financial
Statement Concepts. The new section establishes standards effective January 1,
2009 for the recognition, measurement and disclosure of goodwill and
intangible assets. The provisions relating to the definition and initial
recognition of intangible assets, including internally generated intangible
assets, are equivalent to the corresponding provisions in International
Financial Reporting Standards. EPCOR has adopted these amendments commencing
January 1, 2009 and applied them on a retrospective basis, resulting in the
reclassification of $89 million of net assets from property, plant and
equipment to contract and customer rights and other intangible assets in the
comparative December 31, 2008 balance sheet. The adoption of these amendments
had no other material impact on our interim consolidated financial statements.
Credit risk and fair value of financial assets and liabilities
On January 20, 2009, the Emerging Issues Committee of the CICA issued
EIC-173 Credit Risk and the Fair Value of Financial Assets and Liabilities,
which clarifies that an entity's own credit risk and the credit risk of its
counterparties should be taken into account in determining the fair value of
financial assets and liabilities, including derivative instruments. Effective
January 1, 2009, the Company adopted the recommendations of EIC-173 and
applied them retrospectively without restatement of prior periods. Including
counterparty credit risk in the estimate of the fair value of Power LP's
natural gas and foreign exchange contracts on January 1, 2009 had the
following impact on EPCOR's balance sheet on that date:
-------------------------------------------------------------------------
Increase
(Unaudited, $ millions) (decrease)
-------------------------------------------------------------------------
Derivative instruments assets - non-current $ (1)
Derivative instruments liabilities - non-current (6)
Future income tax liabilities - non-current 1
Non-controlling interests 3
Opening retained earnings 1
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Future accounting changes
International financial reporting standards
In February 2008, the CICA confirmed that Canadian reporting issuers will
be required to report under International Financial Reporting Standards
effective January 1, 2011, including comparative figures for the prior year.
In January 2008, we established a core team to develop a plan which will
result in the Company's first interim report for 2011 being in compliance with
International Financial Reporting Standards.
The diagnostic phase of the project was completed in April 2008. For each
international standard, we identified the primary differences from Canadian
GAAP and made an initial assessment of the impact of the required changes for
the purpose of prioritizing and assigning resources. In making the assessment,
the number of businesses impacted, the potential magnitude of the financial
statement adjustment, the availability of policy choices, the impacts on
systems and the impacts on internal controls were all considered.
The information obtained from the diagnostic phase was used to develop a
detailed plan for convergence and implementation. The convergence and
implementation work has five key sections: Financial Statement Adjustments,
Financial Statements, Systems Updates, Policies and Internal Controls, and
Training.
Financial Statement Adjustments
For each international standard, we will determine the quantitative
impacts to the financial statements, system requirements, accounting policy
decisions, and changes to internal controls and business policies. The initial
accounting policy decisions will be brought forward to the Audit Committee for
their information as each standard is addressed. However, final accounting
policy decisions for all standards in effect at the end of 2009 will be made
in the fourth quarter of 2009, as they should not be determined in isolation
of other policy decisions. Policy decisions for any new standards or standards
that are amended in 2010 will be made in conjunction with our analysis of
those standards in 2010.
As the project progresses, the timing of completion of certain items may
change as changes to standards and other external factors such as discussions
with certain stakeholders may result in a change in priorities. However, we
believe the project has sufficient resources to meet the overall project
timeline.
Financial Statements
There are also a number of international standards which relate to
financial statement presentation. Draft financial statements highlighting the
disclosure and presentation requirements were reviewed by and discussed with
the EPCOR Audit Committee in the first quarter of 2009. Recommendations on
certain presentation issues such as whether to present the income statement by
function or nature of expense will be brought forward in the second quarter of
2009. The development of the financial statement presentation will evolve
throughout the project as the impacts of implementing the various standards
are quantified.
Systems Updates
The diagnostic phase of the project identified two key accounting system
requirements. The system must be able to capture 2010 financial information
under both the prevailing Canadian GAAP and International Financial Reporting
Standards to allow comparative reporting in 2011, the first year of reporting
under International Financial Reporting Standards. It must also be able to
accommodate possible changes to foreign currency translation methods,
depending on how certain foreign entities are classified under International
Financial Reporting Standards. EPCOR developed a systems strategy in 2008 and
commenced implementation of this strategy in the first quarter of 2009. This
strategy involves the implementation of a parallel fixed asset subledger and
general ledger, which is planned for completion in the third quarter of 2009.
Policies and Internal Controls
In the determination of the financial statement adjustments, requirements
for changes to Company policies and internal controls will be identified and
documented. As there may be factors other than International Financial
Reporting Standards impacting policies and internal controls, the formal
documentation and approval of revised policies and internal controls will not
occur until the third quarter of 2010.
The impact of International Financial Reporting Standards on certain
agreements, such as debt, shareholder and compensation agreements, has also
been included in the plan. Strategies to address these issues are being
developed and will be completed in the second quarter of 2009.
Training
The Company recognizes that training at all levels is essential to a
successful conversion and integration. Accounting staff have attended two
training sessions with more planned to occur throughout the conversion
process. The Board of Directors and Audit Committee have attended a training
session, and the Audit Committee receives regular updates on the conversion
project. Further training for the Board of Directors and Audit Committee will
occur throughout the project.
Consolidated financial statements and non-controlling interests
In January 2009, the CICA issued Handbook Section 1601 - Consolidated
Financial Statements and Section 1602 - Non-controlling Interests, which
replace Section 1600 - Consolidated Financial Statements. Section 1601
establishes the standards for the preparation of consolidated financial
statements while Section 1602 establishes the standards for accounting for a
non-controlling interest in a subsidiary in consolidated financial statements
subsequent to a business combination. Section 1602 is equivalent to the
corresponding provisions of International Accounting Standard 27 -
Consolidated and Separate Financial Statements.
Sections 1601 and 1602 will apply to EPCOR's interim and annual
consolidated financial statements relating to periods commencing on or after
January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal
year provided Section 1582 - Business Combinations is also adopted at the same
time. The impact of the new standards and the option to adopt them early will
be assessed as part of our International Financial Reporting Standards
project.
Business combinations
In January 2009, the CICA issued Handbook Section 1582 - Business
Combinations, which replaces Section 1581 - Business Combinations and provides
the Canadian equivalent to International Financial Reporting Standard 3 -
Business Combinations. The section will apply on a prospective basis to
EPCOR's business combinations for which the acquisition date is on or after
January 1, 2011. Earlier adoption is permitted as of the beginning of a fiscal
year provided Sections 1601 - Consolidated Financial Statements and 1602 -
Non-controlling Interests are also adopted at the same time. The impact of the
new standard and the option to adopt it early will be assessed as part of our
International Financial Reporting Standards project.
CRITICAL ACCOUNTING ESTIMATES
In preparing the consolidated financial statements, management
necessarily made estimates in determining transaction amounts and financial
statement balances. The following are the items for which significant
estimates were made in the consolidated financial statements: electricity
revenues, costs and unbilled consumption, fair values, allowance for doubtful
accounts, useful lives of assets, income taxes and PPA availability
incentives. For further information on the Company's accounting estimates,
refer to the 2008 annual MD&A.
RISK MANAGEMENT
This section should be read in conjunction with the Risk Management
section of the most recent annual MD&A. EPCOR faces a number of risks
including electricity price and volume risk, natural gas price and volume
risk, operational risk, environment, health and safety risk, political,
legislative and regulatory risk, project risk, credit risk, financial
liquidity risk, supply risk of acquired PPAs, availability of people risk,
weather risk, foreign exchange risk, conflicts of interest risk, and general
economic conditions and business environment risks. The Company employs active
programs to manage these risks.
On March 20, 2009, EPCOR was charged under Alberta's Occupational Health
and Safety Act (the Act) and Occupational Safety Code (the Code) in relation
to the 2007 fatality of a power lineman employee who came in contact with
energized equipment at a job site in south Edmonton. The charge under the Act
relates to failure to ensure, as far as it was reasonably practicable to do
so, the health and safety of the employee. The three charges under the Code
relate to safe work plan provisions, Alberta Electric Utility Code rules and
work process safeguards with respect to energized electrical cables. We are
reviewing the charges and have requested more information from the Solicitor
General's office regarding the specifics of the allegations. A court date of
May 12, 2009 has been set to hear the charges. Each charge could attract a
fine of up to $500,000 upon conviction.
As part of ongoing risk management practices, the Company reviews current
and proposed transactions to consider their impact on the risk profile of the
Company. There have been no material changes to the risk profile or risk
management strategies of EPCOR as described in the annual MD&A for 2008.
OUTLOOK
In the quarter ended March 31, 2009, plant availability at Genesee 1 and
2 improved markedly over the prior year due to the scheduled turnaround work
completed in 2008 and optimal plant operation in the current quarter. This
level of plant performance should continue for the balance of the year and
availability incentive income should be at the level achieved in the first
quarter, unless Alberta power prices change materially.
We expect net income, before the impact of fair value changes, for the
next three quarters to be consistent with that of the first quarter of 2009
subject to the potential impact of the following events. Earnings in the next
three quarters will benefit from the March 31, 2009 addition of the Gold Bar
operation. Earnings from our portfolio of commercial water services contracts
should increase with the addition of the contract for operation services for
the Town of Banff's wastewater treatment plant which commenced on March 24,
2009. Water Services also anticipates substantially completing the
construction of the water and wastewater treatment facilities at the Suncor
Voyageur site in Fort McMurray, Alberta by the end of the second quarter.
EPCOR will own and operate the facilities under a commercial arrangement with
Suncor. Due to the slowdown in oilsands activity, the plant is currently not
expected to commence operations in 2009 as planned. The second unit of the
Clover Bar Energy Centre is expected to start operating and contributing to
net income by the third quarter of 2009.
SUBSEQUENT EVENT
On May 8, 2009 EPCOR announced its plans to create Capital Power
Corporation, a power generation company that will be permanently headquartered
in Edmonton.
Capital Power Corporation and its subsidiaries (Capital Power) will
acquire all the power generation assets and related operations of EPCOR,
including its 30.6% interest in Power LP, and be responsible for operating the
generating plants currently owned by EPCOR and Power LP.
EPCOR may eventually sell all or a substantial portion of its ownership
interest in Capital Power, subject to market conditions, its requirements for
capital and other circumstances that may arise in the future, with proceeds
from share sales to be reinvested in EPCOR's growing utility infrastructure
businesses, including water, wastewater, power transmission and power
distribution.
EPCOR is planning an Initial Public Offering of common shares of Capital
Power representing approximately 25% of the Company's power generation
business. A preliminary prospectus for the offering is expected to be filed
with securities regulators in Canada. EPCOR anticipates that the closing of
the initial public offering of Capital Power shares will be completed in
mid-2009. Employees will move to Capital Power at closing, with transaction
arrangements in place between the companies in order to ensure continuity of
operations and services.
At March 31, 2009, the carrying value of the assets to be sold to Capital
Power was $5 billion (December 31, 2009 - $5 billion) and revenue for the
three months then ended were $708 million (March 31, 2008 - $633 million).
FORWARD-LOOKING INFORMATION
Certain information in this MD&A 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 MD&A includes: (i) Keephills 3
construction will be completed by the end of the first quarter of 2011; (ii)
installation of the remaining two units at the Clover Bar Energy Centre is
planned for completion in the second quarter of 2009 and in 2010,
respectively; (iii) capital requirements to finance the Company's capital
projects are expected to continue at the current pace until at least the end
of 2010 and capital spending in 2009 is expected to be financed with existing
credit facilities, the issuance of commercial paper or medium-term notes; (iv)
the Company plans to continue using commercial paper and existing credit
facilities for its working capital requirements; (v) the Company will be able
to renew its $200 million bilateral credit facility which expires in the
second quarter of 2009 and draws under this facility will be at increased
effective interest rates; (vi) the expected timing and payments of the
long-term debt issued to the City for the Gold Bar asset transfer; (vii)
expectations regarding the impact on the Company of the capital and credit
market instability and expected risk mitigation plans; (viii) Genesee 1 and 2
plant performance will continue for the remainder of the year resulting in
availability income levels similar to those achieved in the first quarter of
2009; (ix) earnings for the remainder of 2009 will benefit from the addition
of the Gold Bar operation; (*) earnings for the next three quarters, before fair
value changes, will be consistent with that of the first quarter of 2009; (xi)
the expectation that the Company will substantially complete the construction
of the water and wastewater treatment facilities at the Suncor Voyageur site
in Fort McMurray, Alberta by the end of the second quarter and will not
commence operation of the facilities in 2009 as planned; and (xii) the Company
is planning to create Capital Power Corporation which, together with its
subsidiaries, will acquire all the power generation assets and related
operations of EPCOR and complete an Initial Public Offering of its common
shares representing approximately 25% of the Company's power generation
business.
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 underlying this
forward-looking information include, but are not limited to: (i) the operation
of the Company's facilities; (ii) power plant availability, including those
subject to acquired PPAs (iii) the Company's assessment of commodity and power
markets; (iv) the Company's assessment of the markets and regulatory
environments in which it operates; (v) weather; (vi) availability and cost of
labour and management resources; (vii) performance of contractors and
suppliers; (viii) availability and cost of financing; (ix) foreign exchange
rates; (*) management's analysis of applicable tax legislation; (xi) the
currently applicable and proposed tax laws will not change and will be
implemented; (xii) proposed environmental regulations will be implemented;
(xiii) counterparties will perform their obligations; (xiv) expected interest
rates, related credit spreads and mortality rates for new notes exchanged for
ABCP; (xv) ability to implement strategic initiatives which will yield the
expected benefits; and (xvi) the Company's assessment of capital markets and
ability to complete the planned Initial Public Offering of Capital Power.
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 EPCOR'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;
(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; (*) availability and cost of
financing; (xi) foreign exchange; (xii) availability of labour and management
resources; (xiii) performance of counterparties, partners, contractors and
suppliers in fulfilling their obligations to the Company; and (xiv) the
capital market's interest in Capital Power's planned Initial Public Offering.
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. Except as required by law, EPCOR disclaims any intention and
assumes no obligation to update any forward-looking statement even if new
information becomes available, as a result of future events or for any other
reason.
QUARTERLY RESULTS
-------------------------------------------------------------------------
Quarter ended Revenues Net income
-------------------------------------------------------------------------
(Unaudited, $ millions)
March 31, 2009 890 $ 104
December 31, 2008 807 15
September 30, 2008 958 76
June 30, 2008 868 16
March 31, 2008 799 68
December 31, 2007 962 59
September 30, 2007 928 67
June 30, 2007 863 53
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Events for 2008 and 2007 quarters that have significantly impacted net
income and the comparability between quarters are:
- December 31, 2008 fourth quarter results reflected impairment charges
on the goodwill associated with the investment in Power LP and on
Power LP's investment in PERH. Power LP also recognized unrealized
fair value losses on its forward foreign exchange contracts used to
economically hedge U.S. cash flows and on its natural gas supply
contracts.
- September 30, 2008 third quarter results reflected gains on the sale
of portfolio investments and unrealized fair value gains on financial
electricity contracts, Joffre contract for differences and forward
foreign exchange contracts. These gains were partly offset by
administration costs resulting from Long-Term Incentive Plan (LTIP)
adjustments, and lower income from Power LP.
- June 30, 2008 second quarter results reflected maintenance costs and
Genesee PPA availability penalties resulting from scheduled
turnarounds on all three Genesee plants partly offset by the
favourable impact of high Alberta power prices on our financial
contract portfolio, and unrealized fair value gains on Power LP's
natural gas supply contracts.
- March 31, 2008 first quarter results included a $30 million gain on
the sale of a 10% interest in the Battle River PSA, the favourable
impact of high Alberta power prices on our financial contract
portfolio which was in a net long position and unrealized fair value
gains on Power LP's natural gas supply contracts. These gains were
partly offset by maintenance costs and Genesee PPA availability
penalties resulting from a scheduled turnaround at Genesee 1, and a
fair value reduction of ABCP.
- December 31, 2007 fourth quarter results included unrealized fair
value gains on derivative financial instruments in our Alberta
merchant and wholesale portfolio which were not designated as hedges
for accounting purposes, and unrealized fair value gains on Power
LP's natural gas supply contracts. These gains were partly offset by
a reduction in the fair value of ABCP and a future income tax charge
for the impact of future tax rate reductions which were substantively
enacted in December 2007.
- September 30, 2007 third quarter results included higher Alberta
electricity margins due to favourable settlements on financial sales
as a result of higher contract prices and lower Alberta power prices.
In addition, the results included favourable unrealized fair value
changes in financial and non-financial derivative instruments, which
were not designated as hedges for accounting purposes, in Alberta
merchant and wholesale positions due to lower forward power prices
combined with a net short position.
- June 30, 2007 second quarter results included unrealized fair value
decreases in derivative financial instruments which were not
designated as hedges for accounting purposes, resulting from
increasing forward market prices. In addition, income from Power LP
included unrealized fair value decreases for the natural gas supply
contracts resulting from decreasing forward natural gas prices and
contract price changes for the Tunis plant.
Additional information
Additional information relating to EPCOR, including EPCOR's annual
information form, is available on SEDAR at www.sedar.com.
For further information: Media inquiries: Tim le Riche, (780) 969-8238;
Shareholder and analyst inquiries: Randy Mah, (780) 412-4297 or toll free
(866) 896-4636
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