EDMONTON, Oct. 7 /CNW/ - EPCOR Power L.P. (TSX: EP.UN) (the Partnership) and EPCOR Power Equity Ltd. (TSX: EPP.PR.A) announced today that the Partnership's current financial expectations for 2009 will be approximately 5 per cent lower than its previous 2009 financial guidance provided in March 2009. The 2009 financial guidance provided in March 2009 was based on the expectation that cash provided by operating activities before working capital changes plus dividends from Primary Energy Recycling Holdings would be approximately $147 million.
The revised expectations primarily reflect lower expected operating margins at the North Carolina generation facilities (Southport and Roxboro). As disclosed in the Partnership's second quarter report in July 2009, the North Carolina facilities are experiencing a lack of dispatch, which is a direct result of low natural gas prices. These facilities are fuelled by coal, wood waste and tire-derived fuel. Low natural gas prices result in lower operating costs for natural gas-fired power generation relative to other types of thermal generation, including those used at the North Carolina facilities. With natural gas prices expected to remain low at least through 2009, the North Carolina facilities are expected to be dispatched at minimal levels for the remainder of the year.
The Partnership also provided an update on the negotiations of new power purchase agreements (PPAs) for the North Carolina facilities, where the current PPAs expire on December 31, 2009. The Partnership and Progress Energy Carolinas, Inc. (Progress) have been in negotiations but, to date, have been unable to finalize new PPAs that are acceptable to both parties. As a result, the Partnership will be applying to the North Carolina Utilities Commission (NCUC) to arbitrate.
"By regulation, Progress is required to offer contracts to any certified Qualifying Facility (QF) at Progress' avoided cost," said Stuart Lee, President of the General Partner for EPCOR Power L.P. "The Southport facility is currently certified as a QF and the Roxboro facility is expected to be re-certified as a QF by the end of 2009."
The Partnership noted that in August 2009, Progress applied to the NCUC to replace 397 megawatts of coal-fired generation with 950 megawatts of new gas-fired generation, a net add of over 550 megawatts, with an expected in service date of early 2013. On October 1, 2009 the NCUC issued a notice of decision that requires Progress to submit for NCUC approval, its plans to retire additional coal generation reasonably proportionate to the additional 550 megawatts as a condition to the approval of the new 950 megawatt plant. The Partnership believes that the retirement of additional generation creates a gap in Progress' resource plan which the cost competitive generation offered by the Partnership's North Carolina facilities can help fill.
In its new build application, Progress indicated that its full cost of generation from this re-powered facility would approximate $147 per megawatt-hour. By comparison, the PPA pricing terms under discussion between the Partnership and Progress are considerably less costly than those proposed for Progress' re-powered facility.
"In light of these considerations, the Partnership remains optimistic that either a NCUC arbitration ruling or further negotiations with Progress will result in new PPAs for the Roxboro and Southport facilities," added Mr. Lee. "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. Our long term outlook for the North Carolina plants remains positive as current modifications to the facilities are nearing completion that will significantly reduce coal use and replace it with more wood waste that will substantially reduce greenhouse gas emissions and increase the production of renewable energy to meet North Carolina's renewable energy requirements."
About EPCOR Power Equity Ltd.
The Corporation was incorporated under the laws of the Province of Alberta on June 26, 1998 and is a wholly-owned subsidiary of the Partnership. The Corporation operates as a holding company and indirectly holds all of the Partnership's business and power generation and other assets in the United States, including the Partnership's Curtis Palmer, Manchief, Frederickson, Naval Station, North Island, Naval Training Center, Oxnard, Greeley, Kenilworth, Roxboro, Southport and Morris power generating facilities. These facilities have a total generating capacity of approximately 1,080 megawatts (representing approximately 77 per cent of the total generating capacity of the Partnership's assets) and approximately four million pounds per hour of thermal energy (representing 100 per cent of the total thermal energy capacity of the Partnership's assets).
About EPCOR Power L.P.
Established in 1997, EPCOR Power L.P. is a limited partnership organized under the laws of the Province of Ontario. The Partnership's portfolio includes 19 wholly-owned power generation assets located in Canada and the United States and a 50 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: www.epcorpowerlp.ca.
Certain information in this press release is forward-looking and related to anticipated financial performance, events and strategies. When used in this context, words such as "will", "anticipate", "believe", "plan", "intend", "target" and "expect" or similar words suggest future outcomes. By their nature, such statements are subject to significant risks, assumptions and uncertainties, which could cause the Partnership's actual results and experience to be materially different than the anticipated results.
In particular, forward-looking information and statements include: (i) the Partnership's financial expectations for 2009, including cash provided by operating activities, before working capital changes plus dividends from Primary Energy Recycling Holdings LLC, (ii) expectations with respect to operating margins and dispatch levels at the Roxboro and Southport facilities, (iii) that the Partnership will be applying to the NCUC to arbitrate, (iv) with respect to the Partnership's long term outlook for the North Carolina plants, (v) management's expectations in respect of new power purchase agreements ("PPAs") for the Roxboro and Southport facilities, (vi) anticipated completion of the Roxboro and Southport facility modifications and the impact thereof on the operation of the facilities, and (vii) the expectation that the Roxboro facility will be re-certified as a Qualifying Facility ("QF") by the end of 2009.
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: (i) the Partnership's operations, financial position and available credit facilities, (ii) the Partnership's assessment of commodity, currency and power markets, (iii) the markets and regulatory environment in which the Partnership's facilities operate, (iv) the state of capital markets, (v) management's analysis of applicable tax legislation, (vi) the assumption that the currently applicable and proposed tax laws and emissions regulations will not change and will be implemented, (vii) the assumption that counterparties to fuel supply and PPAs will continue to perform their obligations under the agreements, (viii) that current third party expectations regarding throughput on the TransCanada Canadian Mainline will continue, (xi) the level of plant availability and dispatch, * the performance of contractors and suppliers, (xi) the renewal or replacement of PPAs and terms of PPAs, (xii) the ability of the Partnership to successfully integrate and realize the benefits of its acquisitions, (xiii) the ability of the Partnership to implement its strategic initiatives and whether such initiatives will yield the expected benefits, (xiv) expected water flows, and (xv) the ability of the Partnership to adequately source alternative sources of supply of wood waste.
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) ongoing compliance by the Partnership with its current debt covenants, (viii) developments within the North American capital markets, (ix) the availability and cost of permanent long term financing in respect of acquisitions and investments, * unanticipated maintenance and other expenditures, (xi) the Partnership's ability to successfully realize the benefits of acquisitions and investments, (xii) changes in regulatory and government decisions including changes to emission regulations, (xiii) waste heat availability and water flows, (xiv) changes in existing and proposed tax and other legislation in Canada and the US and including changes in the US tax treaty, (xv) the tax attributes of and implications of any acquisitions, (xvi) the availability and cost of equipment, (xvii) changing demand for natural gas in northern Ontario and areas further to the east and levels of natural gas supply in western Canada available for shipping on the TransCanada Canadian Mainline, (xviii) the ability of the Partnership to adequately source alternative sources of supply of wood waste, (xix) the regulatory process by which the Roxboro facility gets re-certified as a QF may not result in such re-certification, and (xx) the NCUC arbitration or negotiations with Progress 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. 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.
SOURCE EPCOR POWER L.P.
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