Capital Power Income L.P. announces arbitration ruling on its North Carolina facilities

EDMONTON, Jan. 27 /CNW/ - Capital Power Income L.P. (TSX.CPA.UN) (the Partnership) announced today that the North Carolina Utilities Commission (NCUC) has issued an Order on Arbitration (Order) relating to Power Purchase Agreements (PPAs) for the Partnership's North Carolina facilities with Progress Energy Inc. (Progress).  The PPAs for the Partnership's two North Carolina facilities expired on December 31, 2009 and the Partnership initiated an arbitration process with the NCUC in October 2009, seeking long-term PPAs including pricing terms reflecting Progress' full avoided costs, including both capacity and energy components.

"The arbitration ruling supported the majority of our positions including our request for long-term PPAs," said Stuart Lee, President of CPI Income Services Ltd., the General Partner of the Partnership. "Under the Order, our two North Carolina facilities will have 10-year PPAs that will provide the Partnership with long-term contracted cash flows. With some significant elements still to be negotiated, we expect to provide updated financial guidance relating to the PPAs once they have been finalized."

The NCUC Order ruled on four fundamental issues in the arbitration:

1) The time at which a legally enforceable obligation was created between the two parties:

  • NCUC ruled in favour of the Partnership's position that a legally enforceable obligation was created in July 2008 and that, accordingly, it is appropriate to use Progress' June 2008 fuel forecasts as the basis for determining the avoided cost fixed energy rates for the new PPAs.

2) Whether the Partnership is entitled to capacity payments for the years 2010-2014:

  • NCUC ruled in favour of the Partnership's position by indicating that it is just and fair for the Partnership to receive full capacity payments in respect of the full term of the PPAs.  Progress had suggested that the Partnership should not be entitled to receive any value for capacity for the years 2010-2014, and as a consequence, the levelized capacity payments over the full term would have been significantly reduced.

3) Whether and to what extent economies of scale should be used to determine capacity costs for Progress' planned combustion turbine resource additions:

  • NCUC ruled in favour of Progress' position of using the average unit cost to construct four combustion turbines at a plant site to determine Progress' avoided cost capacity rate. The Partnership had suggested that capacity costs should be determined based on a single combustion turbine at a plant site.

4) The appropriate term for the new PPAs:

  • NCUC ruled that a 10-year term would be fair and appropriate for the new PPAs with the term starting from the time when the new PPAs are signed.  The Partnership requested a 15-year contract term while Progress requested a maximum of a 2-year term for PPAs with fixed energy rates.

The NCUC Order did not set a deadline at this time for the completion of negotiations but requires the Partnership and Progress to report on the status of negotiations within 30 days, if no agreement is reached sooner.

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 in this news release include information and statements with respect to: (i) expectations that the Order will result in the Partnership obtaining a 10-year PPA for each of the North Carolina facilities that will provide the Partnership with long-term contracted cash flows.

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 Partnership's operations, financial position, available credit facilities and ability to access capital markets, (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, (v) the assumption that counterparties to fuel supply and power purchase agreements will continue to perform their obligations under the agreements taking account of the matters described herein, (vi) the level of plant availability and dispatch, (vii) the performance of contractors and suppliers, (viii) the renewal or replacement of PPAs and terms of PPAs, (ix) the length of time that negotiations with Progress regarding PPAs for the Partnership's North Carolina facilities may take, whether or not such negotiations will be successfully concluded, and whether or not the terms of those PPAs will be favourable to the Partnership, * the ability of the Partnership to successfully integrate and realize the benefits of its capital projects, (xi) the ability of the Partnership to implement its strategic initiatives and whether such initiatives will yield the expected benefits, (xii) expected water flows, (xiii) the ability of the Partnership to adequately source alternative sources of supply of wood waste, and (xiv) the Partnership's assessment of the strategic alternatives that may be available to it.

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, (v) competitive factors in the power industry, (vi) economic conditions, including in the markets served by the Partnership's facilities, (vii) changing demand for natural gas transportation on the TransCanada Canadian Mainline, (viii) ongoing compliance by the Partnership with its current debt covenants, (ix) developments within the North American capital markets, * 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 its capital projects, (xiii) changes in regulatory and government decisions including changes to emission regulations in Canada and the US, (xiv) waste heat availability and water flows, (xv) the availability and cost of equipment, (xvi) the ability of the Partnership to adequately source alternative sources of supply of wood waste, (xvii) the Order of the NCUC may not result in PPAs with satisfactory or favourable financial or other terms, (xviii) the length of time that negotiations with Progress regarding PPAs for the Partnership's North Carolina facilities may take and whether or not such negotiations will be successfully concluded, and (xix) the strategic review process announced by the Partnership and Capital Power Corporation on October 5, 2010 could take more or less time than anticipated.

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.

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. For more information on the Partnership, please visit:

SOURCE Capital Power Income L.P.

For further information:

Media inquiries:    Mike Long    (780) 392-5207
Unitholder and analyst inquiries:   Randy Mah   (780) 392-5305
        (866) 896-4636 (toll free)

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