Capital Power Income L.P. reports second quarter results

EDMONTON, July 27 /CNW/ - (TSX: CPA.UN) - CPI Income Services Ltd., the general partner of Capital Power Income L.P. (the Partnership), today released the Partnership's quarterly results for the period ended June 30, 2010.

"Although power generated was up in the quarter and our plant availability remains stable at 90%, our operating margin, prior to fair value changes, decreased 15.6% from the comparable quarter last year, primarily a result of low water volumes at Curtis Palmer and low waste heat availability at our Ontario plants," said Stuart Lee, President of the General Partner. Operating margin is a non-GAAP financial measure. See "Non-GAAP measures".

"As a result, cash provided by operating activities from continuing operations before working capital changes was $30.3 million in the second quarter of 2010, down from $38.3 million for the same period in 2009. In the six-month period, cash provided by operating activities from continuing operations before working capital changes decreased from $70.2 million in 2009 to $67.2 million in 2010, a decrease of 4.3%. Despite the challenging operating environment, our outlook for the year is still in line with our expectations. On May 21, 2010 we repowered the Oxnard facility in Southern California, in time to capitalize on the peak summer demand, which will contribute to stronger results in the second half of the year. We are also pleased that the Equistar Chemicals L.P. (Equistar) Chapter 11 proceedings have been successfully resolved with full collection of the amounts owed by Equistar and no adverse alteration to the contractual arrangements with Equistar. The payout ratio of 80% for the six months ended June 30, 2010 was in line with our expectations."

Highlights of Capital Power Income L.P.'s operational and financial performance included:

    
    -------------------------------------------------------------------------
                                           Three months         Six months
        Operational and Financial              ended               ended
               Highlights                     June 30             June 30
                                            (unaudited)         (unaudited)
    -------------------------------------------------------------------------
    (millions of dollars except per
     unit and operational amounts)        2010      2009      2010      2009
    -------------------------------------------------------------------------
    Power generated (GWh)                1,128     1,030     2,397     2,331
    -------------------------------------------------------------------------
    Weighted average plant
     availability                          90%       90%       92%       92%
    -------------------------------------------------------------------------
    Revenue excluding fair value
     changes                             116.5     131.3     255.3     275.1
    -------------------------------------------------------------------------
    Cash provided by operating
     activities of continuing
     operations before working
     capital changes                      30.3      38.3      67.2      70.2
    -------------------------------------------------------------------------
      Per unit(1)                        $0.55     $0.71     $1.23     $1.30
    -------------------------------------------------------------------------
    Distributions                         24.2      23.7      48.1      57.7
    -------------------------------------------------------------------------
      Per unit                           $0.44     $0.44     $0.88     $1.07
    -------------------------------------------------------------------------
    Payout ratio(1)(2)                    100%       78%       80%       99%
    -------------------------------------------------------------------------
    Capital expenditures                  13.8      25.9      25.5      42.9
    -------------------------------------------------------------------------
    Weighted average units
     outstanding (millions)               54.7      53.9      54.5      53.9
    -------------------------------------------------------------------------
    (1) Cash provided by operating activities of continuing operations per
        unit and payout ratio are non-GAAP financial measures. See "Non-GAAP
        measures".
    (2) Payout ratio is distributions divided by cash provided by operating
        activities of continuing operations excluding working capital changes
        less maintenance capital expenditures.
    

The June 30, 2010 interim management's discussion and analysis and interim consolidated financial statements are available on the Capital Power Income L.P. website (www.capitalpowerincome.ca) and will be available on SEDAR (www.sedar.com).

Revenue excluding fair value changes for the three and six months ended June 30, 2010 were $116.5 million and $255.3 million compared to $131.3 million and $275.1 million for the same periods in 2009. The decreases were primarily due to lower foreign exchange rates, lower prices on settled foreign exchange contracts and low water volumes at Curtis Palmer in 2010.

The Partnership reported cash provided by operating activities of continuing operations before working capital changes of $30.3 million and $67.2 million for the three and six months ended June 30, 2010 compared to $38.3 million and $70.2 million for the same periods in 2009. The decreases were primarily due to lower contract prices on foreign exchange contracts that settled in 2010 and lower operating margins at Curtis Palmer, Oxnard and the Ontario plants partially offset by the reversal of a provision on the receivable from Equistar and recognition of interest income as Equistar emerged from Chapter 11 protection and higher operating margins at the Naval facilities.

Equistar has emerged from Chapter 11 proceedings with no impact to the operations of the Morris facility. The Partnership has received payment of US$12.4 million for pre-petition services under the Morris ESA along with interest as stipulated in the ESA. Accordingly, net income and cash provided by operating activities for the quarter include the reversal of a $2.1 million provision and interest income of $1.8 million.

The Partnership completed the replacement of the existing GE LM5000 natural gas turbine with a more efficient and reliable GE LM6000 at Oxnard at a cost of approximately US$19.7 million, lower than the original estimated cost of US$20 million. Final capital costs could potentially be even lower if the sale of the used GE LM5000 turbine is successful. The repowering project was completed on May 21, 2010, in time for the summer peak demand season in Southern California. Project costs incurred to June 30, 2010 were US$17.2 million with an additional US$2.5 million investment expected in the remaining six months of 2010 for capital spares and costs associated with final inspections, which will be completed after the summer peak demand season in Southern California.

The Partnership is currently completing the material handling improvements at Southport and now expects to complete these improvements by September 30, 2010.

The power purchase arrangements (PPAs) for the North Carolina facilities expired on December 31, 2009. The Partnership continues to expect that a decision is likely to be made late in the third quarter of 2010. The Partnership remains optimistic that either an arbitration ruling or further negotiations with Progress Energy Inc. will result in new PPAs for the Roxboro and Southport facilities. However, it is not certain at this time whether the final contract terms will result in positive cash provided by operating activities for the facilities or achieve previous expectations of accretion from the North Carolina enhancement project.

Non-GAAP measures

The Partnership uses operating margin as a performance measure, cash provided by operating activities of continuing operations per unit as a cash flow measure and payout ratio as a distribution sustainability measure. These terms are not defined financial measures according to Canadian generally accepted accounting principles (GAAP) and do not have standardized meanings prescribed by GAAP. Therefore, these measures may not be comparable to similar measures presented by other enterprises. See "Non-GAAP Measures" in the Partnership's interim management's discussion & analysis for the six months ended June 30, 2010 filed on SEDAR.

Cash provided by operating activities of continuing operations per unit is cash provided by operating activities of continuing operations divided by the weighted average number of units outstanding in the period.

Payout ratio is defined as distributions divided by cash provided by operating activities of continuing operations excluding working capital changes less maintenance capital expenditures. Working capital changes have been excluded from this measure as short-term changes in working capital are expected to be largely reversed in future periods or represent reversals from prior periods. Non-maintenance capital spending has been excluded from this measure as capital expenditures related to an expansion of the productive capacity of the business represent a long-term investment beyond the maintenance capital requirements of the existing business.

Forward-looking information

Certain information in this news 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 information and statements with respect to: (i), anticipated completion of the Oxnard and Southport facility modifications and the impact thereof on the operation of the facilities and the financial results of the Partnership, and (ii) managements expectations regarding the arbitration process in respect of PPAs at the North Carolina facilities and expectations in respect of new PPAs for the North Carolina facilities.

These statements are based on certain assumptions and analyses 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, but are not limited to: (i) the markets and regulatory environment in which the Partnership's facilities operate, (ii) the performance of contractors and suppliers, (iii) the renewal or replacement of PPAs including terms and timing of new PPAs at the North Carolina facilities, and (iv) the Partnership's assessment of power markets.

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) competitive factors in the power industry, (iv) economic conditions, including in the markets served by the Partnership's facilities, (v) the availability and cost of equipment, (vi) unanticipated maintenance and other expenditures, and (vii) the arbitration proceedings in respect of the North Carolina facilities or negotiations with Progress Energy Inc. may not result in PPAs with satisfactory financial terms.

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, the Partnership disclaims any intention and assumes no obligation to update any forward-looking statement.

About Capital Power Income L.P.

Established in 1997, Capital Power Income L.P. is a limited partnership organized under the laws of the Province of Ontario. The Partnership's portfolio includes 19 wholly-owned power generation assets located in Canada and the United States and a 50.15 per cent interest in a power generation asset in Washington State. The Partnership's assets have a total net generating capacity of 1,400 megawatts and more than four million pounds per hour of thermal energy.

SOURCE CAPITAL POWER INCOME L.P.

For further information: For further information: on the Partnership visit www.capitalpowerincome.ca or contact: Media Inquiries: Mike Long, (780) 392-5207; Unitholder & Analyst Inquiries: Randy Mah, (780) 392-5305, Toll Free (866) 896-4636

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CAPITAL POWER INCOME L.P.

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