Capital Power aims to reward investors through the reliable delivery of attractive dividends and share price appreciation resulting from profitable growth.
Capital Power believes there are significant opportunities to generate increased cash flows by expanding its initial portfolio of owned or operated generating assets in both Canada and the United States.
Corporate Strategy
Capital Power’s corporate strategy seeks to balance maintaining a strong financial position with the pursuit of targeted growth. The company is committed to maintaining a stable dividend, operating as an investment-grade entity supported by contracted cash flows, and pursuing a prudent expansion strategy supported by its development pipeline and construction expertise.
The key components of Capital Power’s corporate strategy are as follows:
Financial Discipline
Capital Power is committed to a policy of financial discipline founded upon operational success, long-term contracting and targeted growth while seeking to maintain an investment-grade credit rating.
Capital Power believes that, by maintaining a strong financial position with an appropriate dividend yield on its common shares, it will remain well positioned to access the capital markets to finance acquisitions or take advantage of strategic development opportunities. To help achieve these objectives, Capital Power expects to continue to sell forward a significant portion of its generation output and capacity under long-term contracts.
Capital Power L.P.’s preliminary corporate credit rating by S&P is BBB and its provisional senior unsecured debt rating provided by DBRS is BBB.
Strong but Sustainable Growth
Capital Power has a pipeline of projects currently in construction or development. Building on the success of Genesee 3, the company isbuilding the Keephills 3 facility, representing 495 MW of new generation capacity under construction, in which Capital Power has a 248 MW ownership interest. Keephills 3 is expected to be fully operational in 2011.
The company has a number of projects currently in various stages of development, and it continues to evaluate acquisition prospects, primarily in the U.S., to strengthen its regional footprint and current portfolio. As market conditions create new opportunities, the company will seek to capitalize on its experience to acquire high-quality assets.
The U.S. and Canadian governments have identified a need for additional investment in power generation. These types of infrastructure investments have the potential to represent attractive growth opportunities for companies with experience and financial capacity. Capital Power believes it has the requisite background and ability to execute on these opportunities.
Technology Preference
Capital Power plans to limit its selection of future power generation technologies to capture economies of scale, accommodate emerging market supply and demand trends and further develop distinctive competencies. The company expects to focus primarily on larger-scale, fossil fuel-fired technologies, supplemented by renewable facilities that are economically attractive and supportive of the company’s long-term contracting position.
Fossil fuel-fired facilities will remain a core component of the company’s portfolio, and Capital Power remains committed to being a leader in the development of technologies that establish or maintain economic or environmental advantages over other power generators.
Regional Footprint
Capital Power currently intends to confine its regional footprint to Canada and the U.S. The company will seek to enhance its regional diversification by focusing on a select group of target markets across Canada and the U.S. Capital Power uses a disciplined approach to selecting target regions, with a preference for markets with favourable reserve margins and spark spreads, regulatory frameworks conducive to competitive power generation, sufficient scale to support the establishment of a networked hub of power facilities and liquid trading markets.
Based on these criteria, Capital Power intends initially to maintain its strong position in Alberta with initial focus on developing additional hubs in the following regions: the mid-Atlantic U.S., including the PJM Interconnection and the Virginia-Carolinas; the northeastern U.S., including the New York Independent System Operator and the New England Power Pool; and the southwestern U.S., including California and the Desert Southwest (Arizona and Nevada). To date, the company has made a limited investment in each of these three regions.
In addition, if there are specific opportunities for development of contracted renewable facilities or for the replication of Capital Power’s supercritical coal plant hubs with an attractive counterparty in a supportive regulatory environment, other markets will also be considered on a case-by-case basis. For example, Capital Power expects that long-term contracts will continue to be achievable from renewable projects in both the Ontario and British Columbia markets.
Continued Focus on Operational Excellence, Environmental and Safety Leadership
Capital Power’s operational strategy is to manage, operate and maintain its power generation facilities safely and in a manner that maximizes efficiency, productivity and reliability and which minimizes costs while reducing environmental impact. Capital Power is committed to maintaining its record of strong operational performance by continuing to plan and monitor the maintenance requirements of assets to ensure high fleet availability. The company also remains committed to a culture of zero injury and occupational illness.
Capital Power is also working with federal and provincial governments to develop technologies that are expected to enhance the feasibility of near-zero-emission coal-fired power generation.
Growth Strategies
Development
In addition to Keephills project under construction that is expected to add 248 MW of generating capacity by 2011, the company has a pipeline of Canadian projects totaling approximately 1,300 MW in various stages of development.
Capital Power has developed a differentiated and competitively advantaged approach to stakeholder relations that encompasses and addresses regulators and elected politicians, as well as community residents and media. This proven approach enables Capital Power to bring new capacity into commercial production faster and, therefore, at lower total cost than its competitors.
Acquisition
In the United States electricity market, short-term opportunities for which Capital Power is well positioned are expected to consist primarily of acquisitions of natural gas-fired generating assets which are operationally or financially challenged. The company’s strategy is to acquire such assets at advantageous prices and then apply its expertise to deliver sound operational performance and attractive investment returns for shareholders.
As just one example, Capital Power has recently delivered a 10% improvement in the operating performance of the Capital Power Income L.P. (CPILP) North Island, California facility through re-powering, as well as cash flow increases of $0.02 to $0.03 per unit at CPILP’s Southport facility, by moving away from coal and towards wood waste and tire-derived fuels.
Networked Hub Strategy
The company’s Networked Hub strategy manages power generation assets at the hub level rather than at the individual facility level in order to be a cost-effective provider of electricity in the company’s markets. The foundation of this strategy is to establish generation hubs by acquiring larger-scale, fossil fuel-based power plants in the company’s markets. These plants best support hub efficiencies and electricity dispatch requirements.
To reduce purchasing, warehousing, inventory and other costs, the company seeks to standardize these plant types by fuel type and technology. The company then seeks to enter into non-unit-specific contracts to provide it with the most flexibility to deploy generation assets. The availability of physical generation from multiple generation sources in a market area provides flexibility to Capital Power to meet its customers’ requirements from more than one generation plant. The proximity of generation allows the company to optimize its portfolio of assets in the networked hub in response to factors such as heat rate, commodity, and inter-market optionality. The company believes that its approach of managing assets at the hub level improves efficiency and reduces risk through portfolio diversification.
About Capital Power Income L.P. (formerly EPCOR Power 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 consists of 19 wholly owned power generation assets located in Canada and the United States, a 50.15 per cent interest in a power generation asset in Washington State, and an overall 15.4 per cent equity interest in Primary Energy Recycling Holdings LLC (PERH). The Partnership’s assets have a total net generating capacity of 1,400 MW and more than four million pounds per hour of thermal energy. PERH wholly owns four recycled energy assets in the United States with an aggregate generation capacity of 283 MW and nearly two million pounds per hour of thermal energy, and has a 50 per cent interest in a pulverized coal facility. EPCOR USA Ventures LLC, formerly Primary Energy Ventures LLC, a wholly owned subsidiary of the Partnership, manages and operates these facilities for PERH.
In addition to contributing to the size of Capital Power’s power generation portfolio, CPILP:
- Provides a significant U.S. presence for Capital Power with which to gain understanding of state and regional market operations.
- Provides a platform for further growth in U.S. assets.
- Contributes to the stability of Capital Power’s cash flows and earnings through long-term power sale contracts.
CPILP’s plants generate electricity and steam principally from natural gas and, to a lesser extent, from waste heat, hydro, biomass, coal and tire-derived fuel.
For more information on the Partnership, please visit: www.capitalpowerincome.ca