Capital Power acquires 294 MW of power facilities in Canada

Capital Power Corporation has announced that it has entered into an agreement to acquire the thermal power business of Veresen Inc., consisting of two gas-fired generation facilities and two waste heat assets.

Under the terms of the agreement, Capital Power will acquire 284 MW of generation from two natural gas-fired power assets in Ontario consisting of the 84 MW East Windsor Cogeneration Centre (East Windsor) and a 50% interest in the 400 MW York Energy Centre (York Energy), and will operate both facilities. Both East Windsor and York Energy are under long-term power purchase agreements (PPAs) with the Ontario Independent Electricity System Operator (IESO) with original terms expiring in 2029 and 2032, respectively. Both assets earn revenue through fixed capacity payments partly indexed to inflation and are compensated for operations and maintenance, and fuel (commodity and transportation) as well as start-up costs. Additionally, East Windsor is under a long-term steam supply agreement with Ford Motor Company.

The transaction also includes 10 MW of zero-emissions waste heat generation from two facilities, 5 MW each, located at Westcoast Energy’s BC Gas Pipeline compressor stations in Savona and 150 Mile House, British Columbia. The waste heat facilities are under 20-year Electricity Purchase Agreements (EPAs) with BC Hydro with original terms expiring in 2028. The EPAs provide for partial inflation indexation as well as premium pricing under peak load hours. Spectra Energy provides operations and maintenance services for the assets under a long-term agreement.

Capital Power’s President and CEO, Brian Vaasjo, said:

“These young, high-quality assets have an excellent operating history and will strengthen and diversify our existing fleet of assets. The long-term contracts associated with these assets have a weighted average remaining PPA life of 14 years that will enhance our contracted cash flows out to the end of the next decade.

This transaction helps reduce our overall risk, enhance our ability to pay dividends and build shareholder value. Given Capital Power’s deep experience in operating thermal facilities and the ability to optimize value, these assets are an ideal addition to our fleet and an excellent strategic fit.”

The purchase price for the acquisition is CAD225 million (US$168 million) in total cash consideration, subject to working capital adjustments and other closing adjustments, and the assumption of CAD275 million (US$205 million) of project level debt (proportionate basis). Capital Power expects to finance the transaction through existing cash and its credit facilities. The transaction is expected to close in the second quarter of 2017, subject to regulatory approvals and satisfaction of closing conditions. 

The acquisition is expected to increase adjusted funds from operations (AFFO) by an estimated CAD24 million in the first full year of operations, which will be accretive by 25 cents (19 cents) per share reflecting a 7% increase. The acquisition is expected to be accretive to earnings by 11 cents (8 cents) per share during its first full year of operations. The projected annual EBITDA generated by the assets is estimated to be CAD55 million (US$41 million) per year.

With the acquisition, the company has updated two of its corporate targets for 2017 that were originally announced in December 2016.

• Facility operating and maintenance expense of CAD205 million (US$153 million) to CAD230 million (US$172 million) (CAD195 million (US$156 million) to CAD215 million (US$161 million) previously), and
• AFFO of CAD320 million (US$239 million) to CAD365 million (US$273 million) (CAD305 million (US$228 million) to CAD345 million (US$258 million) previously). 

CIBC Capital Markets is acting as exclusive financial advisor to Capital Power on the transaction.