Atlantic Power Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 9.13 | About: Atlantic Power (AT)

Atlantic Power (NYSE:AT)

Q1 2013 Earnings Call

May 09, 2013 8:30 am ET

Executives

Amanda Wagemaker

Barry E. Welch - Chief Executive Officer, President and Director

Edward Hall

Paul H. Rapisarda - Executive Vice President of Commercial Development

Terrence Ronan - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Corporate Secretary

Analysts

Robert Catellier - Macquarie Research

Nelson Ng - RBC Capital Markets, LLC, Research Division

Jeffrey Kramer

Sean Steuart - TD Securities Equity Research

Matthew Akman - Scotiabank Global Banking and Markets, Research Division

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Ian Tharp - CIBC World Markets Inc., Research Division

Operator

Good morning, and welcome to the Atlantic Power Corporation Q1 2013 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I now would like to turn the conference over to Amanda Wagemaker, Investor Relations Associate of Atlantic Power. Ms. Wagemaker, please continue.

Amanda Wagemaker

Welcome, and thank you for joining us this morning. Please note that we have provided slides to accompany today's call and webcast, which can be found in the Investor Relations section of our website, www.atlanticpower.com. This call will be available for replay on our website for a period of 3 months. Our results for the 3 months ended March 31, 2013, were issued by press release yesterday afternoon and are available on our website and on EDGAR and SEDAR. Financial figures that we'll be presenting are stated in U.S. dollars unless otherwise noted.

The financial results in yesterday's press release and the matters we will be discussing today include both GAAP and non-GAAP measures. GAAP to non-GAAP reconciliation information for our historical results is appended to our press release and interim report on Form 10-Q, each of which can be found in the Investor Relations section of our website. We have not provided a reconciliation of forward-looking non-GAAP measures to the directly comparable GAAP measures because due primarily to variability and difficulty in making accurate forecasts and projections. Not all of the information necessary for the quantitative reconciliation is available to the company without unreasonable effort.

We have not reconciled non-GAAP financial measures relating to the projects held-for-sale to the directly comparable GAAP measures due to the difficulty in making the relevant adjustments on an individual project basis. Joining us on today's call are Barry Welch, President and CEO of Atlantic Power; Ned Hall, our Executive Vice President and Chief Operating Officer; Paul Rapisarda, our Executive Vice President of Commercial Development; and Terry Ronan, our Executive Vice President and Chief Financial Officer.

Before we begin, let me remind everyone that this conference call may contain forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our various securities filings. Actual results may differ materially from such forward-looking statements.

Now let me turn the call over to Barry Welch.

Barry E. Welch

Good morning. I'd like to extend my thanks as well to all of you for joining us today. First, I'd like to review the 1Q highlights in recent developments, and provide an update on progress with our strategic initiatives.

Ned Hall, our new COO, will discuss how our newest wind project performed this quarter, and also provide an update on our recently completed Piedmont project. Paul will address the recontracting environment for a few of our projects, and provide an update on growth opportunities. Terry will conclude the call by reviewing first quarter financial performance and 2013 guidance. We are reaffirming all of our guidance metrics. Also, beginning this quarter, we are providing you with additional disclosures and reconciliations that we hope will provide greater transparency around our financial reporting, as well as help you in developing your models.

Moving to Slide 4, operating cash flow, Project Adjusted EBITDA and Cash Available for Distribution were all up strongly, largely due to contributions from our newest businesses, specifically Canadian Hills, Meadow Creek and the other Ridgeline operating projects, all of which were added at the end of December and performed well in the first quarter. The latest addition to our capacity is our Piedmont biomass project, which reached commercial operation on April 19. We now have net ownership of almost 2,100 megawatts in operation, which excludes 2 further projects in the process of being divested. Since the end of the quarter, we also completed the disposition of several non-core assets, including our Florida projects and our interests in Path 15, resulting in $173 million of net cash proceeds. We reached an agreement to sell our interest in the Gregory project in Texas, and expect this sale to close in the third quarter and result in $33 million of net cash proceeds. Successful completion of these asset sales has been key in our continued progress toward our mid-year objective of having approximately $140 million to $150 million of net available cash to invest in accretive growth projects beginning later this year.

This indication of our tax equity investment in Canadian Hills in early May has been another important step. In addition, we've been paying down short-term debt, including using a portion of the asset sale proceeds to fully repay outstanding borrowings of $64 million under our revolver.

The receipt of a federal cash grant for our Meadow Creek project in April allowed us to reduce short-term debt at that project by $56.5 million. And we expect to pay down $51 million of short-term debt at Piedmont when we receive the proceeds from the grant for that project.

Lastly, I'd like to note that although we did have a strong first quarter and are on track to reach our objective of cash to redeploy, we are still continuing to increase our focus on finding ways to produce additional earnings and cash flow from our existing businesses. Ned will touch on a few of the things we're looking at on the plant operation side. On the commercial front, we continue to look at ways to improve fuel contracts, put hedges in place or arrange better commercial or contractual terms to the sale of output. One example included the 10-year extensions of both the PPA and fuel supply agreements at our Nipigon project that we achieved last spring. On the corporate front, we've used our integration efforts with Ridgeline as a catalyst to decrease cost for insurance, health care, all the way down to IT, phone and travel with more to come. We expect to have more to say on our performance improvement efforts over the balance of this year. Now I'd like to turn the call over to Ned.

Edward Hall

Thank you, Barry, and good morning. I'm very excited to join the Atlantic Power team. I'll start on Slide 5, which shows our -- that we had a strong quarter operationally. Generation increased 28%, driven by the additions in late December of Canadian Hills, Meadow Creek and the other operating project interests associated with the Ridgeline acquisition. Our availability factor remains high for the first quarter, above 95%. So slight decline year-over-year, but that's due to planned outages at Morris and Curtis Palmer. Both Canadian Hills and Meadow Creek experienced higher availability factors than we have budgeted. Overall, their financial performance is in line, driven by lower wind conditions at Meadow Creek than we budgeted, and somewhat higher at Canadian Hills. On our previous quarterly conference calls, we had indicated that we plan to undertake a significant outage at our Nipigon project later this year to perform an elective growth CapEx project upgrading the heat recovery steam generator. The process to obtain a modification to the air permits for this project is taking longer than we anticipated, so we will not undertake that investment this year. And it's unclear when the project will be moving forward since we are working to get a new air permit.

Of course, we'll proceed only if the economics of this discretionary investment continue to make sense. Following up on Barry's comments regarding steps we're taking to improve our operating and financial results, I know that we have -- we've just begun to review at a regional level how best to continue to optimize and continuously improve our plant performance. We'll be evaluating investments that we can make to improve efficiency and performance across our platform. The goal is to identify projects that apply broadly to a number of projects.

For example, last year, we installed inlet fogging at our Tunis facility in Ontario, and increased our output by 4.4 megawatts in the summer months. Based on this success, we've now installed inlet fogging at our Kapuskasing and our North Bay projects and continue to review other opportunities.

Turning to Slide 6, as you know, Piedmont was originally scheduled to enter commercial operation in the fourth quarter of last year, but delays occurred due to repairs to the project's steam turbine from damage sustained during late-stage testing last November. The project achieved commercial operation under the terms of its PPA, our power purchase agreement, on April 19. However, we have some issues with the EPC contract regarding the condition and performance of the project. So while this dispute is pending, we withheld paying certain amounts to them. We're continuing to optimize the project's performance and anticipate making modest additional expenditures in that effort. We're also making changes in fuel supply and procurement, primarily by expanding to a larger number of suppliers. We've experienced higher-than-expected operating costs for certain consumables, such as ammonia, although we've already begun to tune the boiler and reduce those consumptions. We expect to show -- continue to show improvement over time. We still expect project distributions from Piedmont to average $68 million annually on a full-year run-rate basis, although we will revisit this guidance as necessary as we gain additional operating experience. EBITDA and cash flow results for Piedmont in 2013 will be below full-year levels due to the delay in commercial operation and the costs associated with the optimization efforts that I've discussed. Now I'd like to turn the call over to Paul.

Paul H. Rapisarda

Thank you, Ned, and good morning, everyone. I'm going to provide an update on the market environment for several of our projects, as well as discuss what we're looking at on the development and acquisition front. As you all know, 4 of our projects have PPAs that will expire either later this year or in 2014, as we've outlined on Slide 7.

At our Kenilworth project in New Jersey, the energy services agreement, under which we sell power and steam to Merck, expired last July. Both parties have been extending it on a month-to-month basis while discussions on a new agreement continue. The current extension runs through the end of May. Although there are still issues to be resolved and the process has taken far longer than we expected, we do remain optimistic about coming to an agreement to renew the contract for a new 5-year period on reasonable terms, sometime in the second quarter of this year. Next, the contract for our Greeley project expires in August of this year. Although we are continuing to pursue all our options with respect to the plant, based on the requirements of the latest RFP from public service at Colorado, which suggest there's no need, at least for them, for additional capacity until 2018, as well as discussions we've had with other potential off-takers, our most likely scenario now that we will shut the plant down when the contract expires. The EBITDA contribution and cash distributions from this project are very small though. We also have 2 PPAs expiring in 2014, Selkirk, in upstate New York, where we have an 18.5% interest; and Tunis in Ontario. Approximately 23% of the capacity at Selkirk has been merchant and therefore, exposed to current NYISO market prices since its old contract expired in 2008. The remainder of the capacity is sold to Con Ed under a contract that expires September 1, 2014. Based on market projections for that part of New York, we are providing information in a later slide in this presentation, showing an expected reduction of approximately $3 million in EBITDA from 2013 to 2014, based on the contract with Con Ed rolling off on September 1. Together with the other co-owners of Selkirk, we're in the process of updating our market analysis and reviewing alternatives for that asset. We hope to have more clarity on our options here by the end of this year. As we discussed in our last conference call, the recontracting discussions in Ontario continue to move very slowly. No new node contracts have been extended yet. Our Tunis project has a PPA expiring at the end of 2014, but it is not in the first group of projects for which negotiations are currently underway.

We have, however, put together a very strong team, including both power markets and governmental affairs consultants, and we certainly are prepared to immediately enter discussions with the OPA just as soon as they are ready. In terms of our markets, more broadly, we have seen some price improvement in the markets, where we currently do sell some uncontracted power. For example, PJM-East, where our chambers plant is located, prices are up approximately 20% year-over-year; and in the Selkirk market, which is the New York ISO-Zone F, prices are up about 16%. Although these represent a relatively small portion of the power we sell, it is encouraging and I think reflective of improving general economic conditions, as well as the retirement of older units to see these trends. Moving now to Slide 8, I'd like to provide a brief update on how we're thinking about acquisitions and development. As we indicated on our last call, we continue to evaluate 2 basic types of opportunities, acquisitions of operating projects that are already producing cash flow and renewable energy projects that are either in construction or more likely advanced development that would add cash flow when placed in service.

Although we generally have favored operating projects with long-term PPAs, as they typically produce immediate accretion, we recognize that in the current highly competitive market for such transactions, we are likely to invest more capital in development opportunities. On the operating side, our focus has been on projects that have more complex structures or commercial arrangements as returns on plain vanilla, highly contracted gas or hydro projects are too low for us to be competitive.

While we are broadly targeting roughly a 50-50 mix between operating assets and earlier stage projects, certainly this mix will vary from year-to-year. At this time, we're also likely to try to leverage our existing capital by teaming up with other market participants who have similar views on assets, markets and risk profile. Most immediately, our goal with respect to investing the $140 million to $150 million is to achieve as much near-term accretion as possible. Having said that, we're very focused on making the right acquisitions that fit our business model, complement the rest of our portfolio and yield attractive risk-adjusted returns. We believe these considerations are more important in the long run than how quickly we put the cash to work. Finally, we also continue to evaluate our development pipeline, including those projects brought over with the Ridgeline acquisition. Coming out of this week's WEA Conference in Chicago, which is the major Wind Energy Association Annual Conference, we will certainly be prioritizing those wind projects that may qualify for the production tax credit, which is based on their getting into construction by year end 2013. We have recently signed a PPA for a 20-megawatt solar project in California, although it still has several development milestones to achieve and a long lead time to commercial operation. In addition to advancing our own development projects in the pipeline, we currently have approximately 180 megawatts of additional solar projects identified by Ridgeline under consideration as potential acquisitions. Thank you very much. And now, I'll turn the call over to Terry.

Terrence Ronan

Thank you, Paul, and good morning, everyone. I'll start on Slide 9, which provides an overview of our first quarter financial results. Project Adjusted EBITDA increased $14 million or 21% to $80.6 million, and cash flows from operating activities increased 11% to $74.2 million. The increases were primarily attributable to the additions of new projects, as well as higher contributions from equity method projects. Cash Distributions from Projects is basically flat, $54 million, primarily because our 2 newest projects made little or no direct contribution -- while it's not unusual in the first quarter of operations as the projects [indiscernible] debt service requirements, being tuned to determine the right amount of working capital. We expect distributions for both later this year. Cash Available for Distribution increased $6 million or 10.5% on the back of higher operating cash flows. Our dividend payout ratio for the quarter was 38% versus 55% a year ago, in part due to the higher levels of Cash Available for Distribution, but primarily due to the lower dividend level beginning in March. However, I would note that we expect the second and fourth quarter Payout Ratios to exceed 100%, and significant semiannual corporate debt payments are made in those quarters. In addition, the first and third quarters typically generate a higher level of cash flow due to the seasonality of demand in the winter and summer seasons, respectively. Our full year 2013 Payout Ratio guidance of 65% to 75% is unchanged. As a reminder, this guidance includes the cash flow from our discontinued operations.

As you can see from Slide 10, the biggest driver of the $14 million increase in Project Adjusted EBITDA this quarter was the addition of new projects in December, specifically Canadian Hills, Meadow Creek and the other operating projects required in the Ridgeline transaction. With respect to our existing portfolio, the positive factors included higher generation of efficiency at some of our Ontario plants, driven by colder weather and the ability to take advantage of greater waste heat, as well as capacity revenue escalations under the PPAs. Williams Lake benefited from higher margins from increased generation and lower fuel costs. Gregory benefited from lower maintenance expense, as it had an outage in the year-ago quarter. On the negative side, Morris declined due to higher maintenance costs, higher fuel costs and lower capacity revenues, primarily due to a plant outage to replace the HRSG economizers. Curtis Palmer experienced lower revenues from low water flows and planned maintenance to replace a turbine in the first quarter.

Next, I'd like to turn to our 2013 guidance metrics on Slide 11.

We are affirming all these guidance metrics, which we initially provided on our previous quarterly call. There have been a few puts and takes to the numbers that I'd like to walk you through now. As Ned previously mentioned, we're not proceeding with our elective project to upgrade the HRSG at Nipigon this year because we have not received approval to modify the air permit.

We have previously budgeted $11 million of CapEx for this project. Not making this expenditure increases our Cash Available for Distribution this year, although this is a one point -- onetime benefit that would go the other way in 2014 should we move forward with the project next year.

In April, we terminated certain 2013, 2014 and 2015 foreign currency forward contracts because we were over-hedged as a result of the dividend reduction beginning in March. That resulted in a $9.4 million of cash proceeds that will increase Cash Available for Distribution in the second quarter, but is obviously a onetime benefit. We're assuming somewhat lower projected Project Adjusted EBITDA and higher CapEx associated with the Piedmont project attributable to delayed commercial operation of the project and some expenditures that we will be making to optimize this performance. Specifically, we project about $5 million less EBITDA in 2013 than previously projected. On a net basis, these factors, as well as a couple of others that are less significant, still keep us within our guidelines range for 2013 Project Adjusted EBITDA, Cash Available for Distribution and Payout Ratio. However, if we did proceed with the Nipigon HRSG replacement project next year, we would expect our Payout Ratio in 2014 to be higher than our guidance range of 75% to 85%. And in fact, it would approach 100%. At this time, we have deferred our decision to proceed with the project until we have clarity on the permits and have reexamined our economic assumptions. Therefore, our 2014 Payout Ratio guidance is unchanged. Slide 12 bridges our 2012 Project Adjusted EBITDA to our 2013 guidance for Project Adjusted EBITDA of $250 million to $275 million. Key drivers of the expected improvements have not changed what we provided you last year quarter, although we have reduced expected contribution from Piedmont to reflect the issue that Ned discussed earlier. The Nipigon maintenance outage is not expected to be as much of a drag on results as previously anticipated, because the outage will not include the equipment replacement. We remain in the range of $250 million to $275 million, which includes approximately $4 million from the Delta Person and Gregory projects expected prior to the closing dates of those asset sales to the third quarter. Slide 13, we reconciled Project Adjusted EBITDA to Cash Available for Distribution for the first quarter, as well as for full 2013 guidance. As a reminder, this cash metric includes cash flow from discontinued operations, specifically the Florida assets and our interest in Path 15, which were sold in April. Few items worth noting. About 60% of the cash flow from the discontinued operations that we expect for the full year was received in the first quarter, with the remainder expected to receive in the second and third quarters. The capitalized portion of maintenance CapEx no longer includes $11 million for the replacement project at Nipigon, but now includes a modest amount of potential additional CapEx at Piedmont. We have included the benefit of a foreign currency in line, in the other row. This row also includes approximately $17 million of cash deposits returned to us in early January, associated with our Canadian Hills and Meadow Creek projects. Our full-year guidance of $85 million to $100 million remains the same with approximately $41 million to $56 million from businesses that are being retained by the company. Slide 14 provides some additional disclosures that we hope you'll find useful in modeling 2014 Project Adjusted EBITDA and Cash Available for Distribution. We have highlighted the significant changes that we anticipated resulting from asset sales, contract changes, PPA expirations and planned outages, although we have not listed every possible factor that may change. This is not intended as a formal guidance, but rather is designed to help you in building models for 2014.

I'd like to point out a couple of specific items.

With respect to our Orlando project, the increase that we expect in 2014 attributable to the roll-off of an above-market gas supply contract at the end of this year, as well as a more favorable PPA arrangement that will kick in for a portion of the capacity beginning in January.

Last year, we had indicated that we expected an overall increase for the project on the order of $14 million to $18 million. But based on the current level of forecast prices and incorporating our current hedged prices for 74% of required purchases for 2014 and 2015, the increase is expected to be closer to $12 million.

A $0.50 change in the price of natural gas impacts cash by approximately $900,000. Nipigon and Tunis outages that are scheduled for later this year will reduce margins due to higher maintenance expenses and lower generation levels. But this drag should reverse in 2014.

We are expected to undertake an outage at Williams Lake in 2014, which will result and attract next year. There are a few significant factors affecting the 2014 outlook that we have listed here, but not in an attempt to provide any sensitivity around. I think you can make your own assumptions. This includes the potential capital outlay for Nipigon should we undertake it in 2014, and the potential contributions from the buildout of the Ridgeline pipeline and the investment of $140 million to $150 million of available cash. Looking at Slide 15, our liquidity at March 31 was $253.5 million, up approximately $45 million from year-end 2012. However, in April and May, we executed several liquidity-enhancing transactions, including the sale of our Florida assets and our interest in Path 15, as well as the syndication of the company's tax equity interest in Canadian Hills. We also paid down a revolver with the portion of the asset sale proceeds, and is now currently undrawn except for letters of credit.

Slide 15 provides a walk through from our current unrestricted cash balance of $86 million to our projected available cash balance of $140 million to $150 million as of June 30, 2013, the primary adjustments of the transactions that I've mentioned that occurred subsequent to the end of the quarter.

In addition, we have estimated the impact on our cash balance of a number of items in aggregate for the second quarter, including our dividend payment, as well as other factors.

As I mentioned previously, the second quarter is relatively weaker from a cash flow generation standpoint. However, we remain confident in our midyear available cash projection of $140 million to $150 million net of planned -- of our planned $50 million cash reserve. In addition, we would expect to have $175 million to $185 million of availability under our revolving credit facility.

Turning to Slide 16 to our balance sheet of March 31, 2013, we had $1.66 billion of debt, excluding the liabilities associated with assets held for sale, in addition to $418 million of convertible debt matures. Approximately 89% of the debt is long term. We also have $221 million of preferred equity at the corporate level. We've also shown on the slide our capitalization on a pro forma basis reflecting the repayment of a revolver using asset sale proceeds and repayment of short-term debt recently completed or anticipated at Meadow Creek and Piedmont using the proceeds of the federal 1603 cash grants. In aggregate, those transactions reduced our debt by $172 million. I'd like to address this in a little more detail in the next slide.

With respect to Meadow Creek, we received the 1603 cash grant in April. We applied the proceeds to the grant together with a contribution by the original owner to cover the impact of the federal sequester and a modest contribution by us to repay the $56.5 million cash grant loan at Meadow Creek. Thus, this loan will drop off our balance sheet in the second quarter.

The project's $173 million construction loan was converted to a term loan in March. The average interest rate on this loan reflecting that 75% of the floating rate exposure has been fixed. It's 4.6%, very attractive for us. Piedmont will submit an application this month under the 1603 grant program to recoup approximately 30% of its total capital costs, plus the impact of the federal sequester on spending. Proceeds from the grant will be applied to repay the project's $51 million bridge loan with a possible contribution by us of approximately $2 million to cover the impact of the federal sequester. Once repaid, this $51 million loan will drop off our balance sheet as well. In addition, we expect the project's $82 million construction loan to convert to a term loan. We are working closely and productively with our project lenders and independent engineer while we resolve some of the issues regarding the condition and performance of the project. We're confident that Piedmont construction loan of up to $82 million will convert to a term loan in the second quarter of 2013. Lastly, I'd like to note that Canadian Hills do not have any project debt outstanding. You may recall, it was financed with $193 million of equity from us, which was funded in part with $130 million of convertible debentures. In addition, we raised $225 million of tax equity from institutional investors and contributed $44 million of tax equity, which we syndicated in April to another institutional investor. Plus, the debt to cap ratio for this project is only 28%. Turning to Slide 18, as we indicated on our last call, we plan to reduce our leverage over time. Some of this will occur on a scheduled basis through amortization and project level debt. We also intend to refinance partnership level debt of the parent on a 50-50 debt-to-equity basis. As we evaluate potential acquisitions or development projects, an important criterion is that they'd be helpful to our leverage metrics. In terms of our plans for addressing our 2014 debt maturities, we have 2: $190 million of senior unsecured notes at Curtis Palmer, which is a corporate-guaranteed financing in July of 2014; and $45 million of convertible debentures on October 2014. With respect to Curtis Palmer, our plan is to refinance this with 50-50 corporate debt equity. If that option is not available to us on reasonable terms, we would pursue a project-level refinancing. Curtis Palmer is a 60-megawatt hydro project in upstate New York, with a strong PPA that runs through 2027. It is currently modestly levered for the cash that it generates. We believe it would attract strong interest in the project finance market. We intend to refinance the debenture in the convertible market. Our contingent plan will be to reopen our high-yield issue and increase the size if necessary to redeem the security. Considering its relatively modest size of $45 million, we see this as a straightforward refinancing.

Our senior revolving credit facility is the primary source of liquidity, and it matures at November 2015. As disclosed in our 10-Q, based on our current projections, it now appears likely we will not be able to meet the interest coverage ratio test in our credit facility beginning in the third quarter of this year.

This was driven by revisions to the timing and return on the anticipated investment of $140 million to $150 million in proceeds from asset divestitures we have discussed previously, uncertainties surrounding the timing and level of 2013 financial results at Piedmont and a correction to our forward-looking model with respect to EBITDA to interest.

We are in discussions with our bank group, with whom we have worked very well in the past. And we are confident that we'll reach an agreement with our lenders on a waiver or an amendment to the credit facility. We also plan to discuss an amendment to address the leverage ratio of test under the credit facility. As I mentioned on the previous call, we expect to remain in compliance through at least the end of this year. But instead of late 2014, we may have an issue with the leverage ratio as soon as early 2014. This change has been driven by revisions to the timing and level of returns on our anticipated investment of $140 million to $150 million, as well as other less aggressive growth assumptions going forward.

I would note that our revolver is currently undrawn. Barry mentioned previously, we are providing additional disclosure this quarter in an effort to be responsive to requests for greater transparency in the company's financial reporting. These are outlined on Slide 19 and include Cash Distributions from Projects by segment. We have further separated those results by consolidated and equity method projects in Tables 8a and 8b of our earnings release, bridge from Project Adjusted EBITDA to Cash Distributions from Projects also in Tables 8a and 8b in our earnings release and the Project Adjusted EBITDA of selected projects in Table 10 of our earnings release. This table identifies those projects that are expected to be top contributors based on the company's 2013 budget, and in aggregate are expected to represent approximately 75% to 80% of total Project Adjusted EBITDA for 2013. We plan to update these 3 additional disclosure measures on a quarterly basis, which will reflect year-to-date results. In addition, we provided some additional guidance from the presentation accompanying our earnings call and our quarterly investor presentation. This includes the 2014 modeling assumption slides that I reviewed earlier, as well as the slide in the appendix of this deck that provides guidance on Project Adjusted EBITDA and Cash Contributions from our newer projects. We'll update these disclosures as necessary. I'd also like to note that we have provided additional slides in the appendix of the presentation accompanying this earnings call that pulls together information of the company's cash flows by segment, Project Adjusted EBITDA by project capital structure, corporate debt maturities, project level debt amortization and a few other measures at one location. This concludes our prepared remarks. And I'd like to thank you for your time and attention this morning. And now, we're pleased to answer any questions that you may have. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Robert Catellier from Macquarie.

Robert Catellier - Macquarie Research

Just a couple of questions here. First on the financial situation and the covenants. I'm curious, given that a couple of your assets appear to be undercapitalized, if you have the capacity to maybe increase the debt on those projects to help with the other maturities? And in particular, I'm referring to Canadian Hills.

Terrence Ronan

Well, Canadian Hills has tax equity investors. We're really trying to reduce our leverage rather than increase it. At this moment in time, we paid the revolver down to 0. Most of the other leverage that we have today is fixed, and has some sort of a make whole associated with it. I said our overall goal is to ratchet down leverage, so there really isn't something that we can do right now to transfer, to pay the other leverage down.

Robert Catellier - Macquarie Research

Right. The spirit of the question is, though, is that if there's a difficulty obtaining a waiver on the senior credit facility even though it's not -- you don't plan to draw it, isn't there credit available through perhaps leveraging some of the project level debt, some of the project assets?

Terrence Ronan

Well, one time, and I think as you heard earlier, we have paid down the revolver fully. We're building cash toward having excess beyond the $50 million cash cushion of $140 million, $150 million. So it's not that we're worried about availability of credit right now, and it's -- those are good facts actually in terms of facilitating a discussion with the lenders.

Robert Catellier - Macquarie Research

Okay. And then in the guidance for distributable cash, there is a source of cash generated from working capital. Is that related to the drawdown or the closing out of some of the FX hedges or the natural gas hedges? Or what's the source of that working capital contribution to your distributable cash?

Terrence Ronan

Most of it is -- there's a timing difference on some deposits we had in place at year end on the Canadian Hills project that were not returned to us before year end. That came in, in January. You're also correct in saying we did have this FX unwind that resulted in positive cash of $9 million that also flows through the Payout Ratio.

Robert Catellier - Macquarie Research

Okay. And then are there any costs that you anticipate for shutting Greeley?

Terrence Ronan

I think the current estimate, if we do go forward and shut it down, is the salvage value of the equipment on site will roughly correspond to whatever shutdown cost we have.

Robert Catellier - Macquarie Research

Okay. And then finally, if I understood the comment correctly in your discussion, there's a view of perhaps teaming with others in developing or acquiring assets. If I heard that correctly, I just want to put that in context given that company strategy recently has been to sell off minority interest, and it appears that, that teaming strategy might be juxtaposed because I might be in a conflict with that previous strategy? So can you just [indiscernible]

Barry E. Welch

Yes, sure, absolutely. No, we think we can be consistent with that by bringing in people potentially along side of this. Our intention would be still to be majority owners and operators. But to fill out or amplify our capital impact with the partners. These are people who have lots of capital, but don't have an organization like ours to boast, access, evaluate, execute acquisitions and operate. And so that's sort of the nature of the partnership.

Operator

And the next question comes from Nielsen Ng from RBC.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Just in terms of Piedmont, what's the total expected project cost? Or yes, what's your expected total project cost after all the, I guess, disputes are settled with the EPC contractor?

Barry E. Welch

Yes, it's a tough question to answer at this point, Nelson. It's a good question, but we're in the middle of this discussion with the contractor. We've withheld some payments to them. And so we'll be able to sort it out, but we just can't really give you a clean number at this point until we get through that discussion.

Nelson Ng - RBC Capital Markets, LLC, Research Division

And is the variance potentially quite large given that's like in terms of the dispute, is it like part of the reason that there are, I guess, lower-than-expected operating efficiencies? Or like what are some of the potential changes that could take place?

Barry E. Welch

Right. Well, again, I have to be careful, Nelson. What we have said and what we're comfortable saying is that the discussion involves the condition and performance of the project. And that's all we want to say about the nature and the details, and we really can't comment more on how much we withheld and so on. Overall, I'd make a comment that we do not, but we use the word modest CapEx, and we meant that this is not a large amount that we would anticipate. But we really can't give you book in beyond that.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Okay. And then just kind of moving onto some of the shareholder lawsuits. I'm not sure whether you're able to provide any more color, but are there any kind of key dates that we should be aware of? Or like are there any key milestones or key dates to highlight?

Barry E. Welch

No. It's very hard for us to estimate the timeframe. I think we can certainly say that we're still in the early stages. But it's not something that one can -- unfortunately, it's not something that we can project on a clean timetable exactly how the thing rolls through. We obviously made the statement that we're going to vigorously defend these, and we're in the process of doing so.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Okay. And then just moving back to, I guess, changes in working capital items. I think in the Q4 presentation, there's a, I think, the continued operations, working capital items expected. Contributions are roughly $12 million to $20 million, whereas I think the current updated Q1 guidance call for about 0 to $11 million? I was just wondering what some of the key changes were for the working capital items?

Terrence Ronan

Yes. Let's see, we've got a narrow range there. It had been $12 million to $20 million, and it now includes that $9 million for the FX received that we got. I don't know if I -- I'll have to get back to you with any more details beyond that, Nelson.

Nelson Ng - RBC Capital Markets, LLC, Research Division

Okay, sure thing. And then just one last question, in terms of the run rate maintenance CapEx, what are your expectations like going forward?

Barry E. Welch

Well, I don't think that we've given a '14 number. We're sort of in the $30 million, $34 million is the range this year. That obviously excludes the project we talked about at Nipigon because it's a different kind of project. It's elective CapEx. I don't guess that we think it will be very much different from that on a go-forward run rate basis.

Operator

And the next question comes from Jeff Kramer from Morgan Stanley.

Jeffrey Kramer

Obviously, a good start to the year operationally and moving forward on the asset sales. Just wanted to get your thoughts though on keeping the 2013 guidance as it is following the performance during the quarter. Were there maybe some onetime items during the quarter, other areas in '13 that I guess -- maybe are you kind of at the upper end of that guidance? Or can you just kind of talk to that a little bit?

Barry E. Welch

Sure. I think Nipigon being deferred at least for this year certainly improves the Payout Ratio, but our view is that we have some uncertainty surrounding Piedmont right now. It's early in the year. We think by the end of the second quarter, we'll have a lot more visibility into the final resolution of Piedmont, and we can probably consider -- we'll obviously be considering what we'll do with the guidance then, but we thought it prudent to leave it where it is right now.

Jeffrey Kramer

Got it. And then that kind of a similar situation on the cash flow availability between Nipigon and the FX proceeds, wait until come midyear possibly for that? Or is this a kind of similar situation with Piedmont, I know, but anything else there?

Barry E. Welch

Yes. We're going to wait until midyear for that also.

Jeffrey Kramer

Okay. And just on your discussions with the banks, I guess were you waiting for some of these asset sales to close before you move forward more materially on those discussions? Or should we expect that to be beginning pretty soon here?

Barry E. Welch

Yes. That's already commenced, and we anticipate a resolution in the next 60 days.

Jeffrey Kramer

Okay. And then just finally on the pipeline that came in at Ridgeline. If you could just kind of maybe talk a little more in-depth on that? And as you consider more early-stage projects, I guess presumably, those would be more of a priority? Or I guess maybe or opportunities in the market is possibly superior to that? Just some thoughts there?

Barry E. Welch

Yes. I think with respect to the nonoperating projects, I think what we wanted to emphasize was really more just development stage, not necessarily early stage. And so to the second part of your question, while Ridgeline has a number of projects that they brought over that we're continuing to work on, they've also identified some of these other solar projects, which other developers have taken fairly far along, but don't have the capital to get over the goal line. So those would be opportunities more similar to our investment in the Canadian Hills project last year.

Operator

And the next question comes from Sean Steuart from TD Securities.

Sean Steuart - TD Securities Equity Research

I guess a follow-up on the covenant question. You mentioned 60 days for resolution. Can you speak to -- I mean, if you do get waivers on those covenants, any anticipated cost increase you might be looking at for the cost on that revolver?

Barry E. Welch

We can't anticipate that right now. We're working closely with our lenders. Undoubtedly, there will be some sort of discussion about that, but we can't quantify what that is right now.

Sean Steuart - TD Securities Equity Research

Okay. And then maybe I'm missing something, but on the bridge getting to the $140 million to $150 million in cash available for growth by midyear, I guess that's a June anticipated number? Gregory is not in that number, is that correct?

Terrence Ronan

That's correct.

Sean Steuart - TD Securities Equity Research

Okay. So another $33 million on top of that? And then, I guess just finally, when you were going through, in the slide deck, in some of the growth opportunities you touched on California solar project that you have a PPA for, and I noted a long lead time. Can you just speak to some of the characteristics around that project and when we might look at that contributing?

Barry E. Welch

Yes. So I think the first step there, Sean, is the PPA still needs to get final approval by the municipal government, and that's anticipated to happen in June. And assuming that moves forward, then there's still some remaining citing work to do. I think the real question there is going to be more as we start to talk more directly with PV vendors in terms of where prices are on the panels. And we'll make a decision later this year in terms of whether we would start construction this year for 2014 in service date or defer it to 2014 for 2015 in service date.

Operator

And the next question comes from Tuc Tuncay from Scotiabank.

Matthew Akman - Scotiabank Global Banking and Markets, Research Division

It's Matthew Akman. My question is around your -- the covenants you talked about around your senior credit facility, and it's an EBITDA interest ratio and consolidated EBITDA. So can I assume that, that is after development expense?

Terrence Ronan

Yes.

Matthew Akman - Scotiabank Global Banking and Markets, Research Division

How much leverage do you guys have or ability do you guys have to reduce the development expense if push came to shove instead of cutting the dividend to maintain this covenant if the banks were inflexible?

Terrence Ronan

Well, development expense, Matt, with respect to Ridgeline is where we have most of it in terms of the development pipeline and pushing those forward so -- but really -- so I can give you a number and go back to the guidance we gave overall to the end of the year on Ridgeline, which was that we had projects giving us cash of $9 million to $12 million. We were going to reinvest that into the combination of overhead and development expense. So if you think of a high-side number of $12 million and then some kind of split, it's not the majority of that even that's really pure development expense. So it's not huge. And then when we think about the overhead of the people that we got with Ridgeline and the organization. There are a lot of people that are getting involved in things other than development that we're making very, very good use of in the rest of our company. And so I don't think there's a big lever in terms of pulling back development cost that would have a very material impact.

Matthew Akman - Scotiabank Global Banking and Markets, Research Division

But I understand you want to do those things, and they're productive, but I guess what I'm just looking for is have you thought through, if push came to shove, would you cut development expense or cut the dividend again?

Terrence Ronan

Well, we're nowhere close to needing to make that decision, and don't think we ever will because the nature of the rolling expense isn't a place where we get much bang for the buck.

Barry E. Welch

Matt, the dividend isn't included in that calculation.

Matthew Akman - Scotiabank Global Banking and Markets, Research Division

Yes, I know. But I guess you're in discussions with banks. And they want to see cash flow available to them to pay interest expense. So is the dividend part of that conversation anymore? Or are they comfortable with the new level?

Terrence Ronan

Well, the dividend hasn't come up in the discussion. I think what I said earlier was we feel like we have a good and productive relationship with the banks, and I'm moving forward with this. And I'm highly confident that the outcome is we're going to get a waiver and amendments. And there's other things that we could do if we had to. We have cash today, for example.

Barry E. Welch

Yes. It doesn't seem at all likely, Matt, that the discussion with the banks would go that way. And I need to be honest, as a final, final fallback, to the extent that we have an unproductive discussion, which is obviously not what we think will have, we don't have anything drawn. We have about $85 million of LCs, which had never been drawn over the course of 8.5 years in the company. But we can cash collateralize, I mean, cancel the facility. That would be sort of a very unlikely scenario. But just to answer your question in the final sense, if you were worried about it, I mean, we have that capacity if we wanted to.

Operator

And next question comes from Jeremy Rosenfield with Desjardins.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Just to follow on the line of questioning on the covenants, in terms of other options that you have available, could that potentially include the delay of investing sort of the $140 million to $150 million that you're going to be accumulating on the balance sheet so you use some of that, let's say?

Terrence Ronan

Yes. We think it's highly unlikely that we're not going to reach a resolution that both the banks and we are happy with regarding the covenants. The only way I see that happening is if we reach that last step where we had to cash collateralize the LCs and cancel the facility. Obviously, that cash comes from what we have on hand. So in that highly unlikely scenario, it would be a direct reduction against the $150 million or so that we have to invest. But again, we think it's highly unlikely.

Barry E. Welch

And there is, and Jeremy, one other thing to mention, there really isn't anything in '13 where we can go take a chunk of cash and economically pay down given the structure that Terry has mentioned in below the fixed rate with significant make wholes. And so it isn't something that would make a lot of economic sense, just to remind you.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Sure. But what that would do, essentially, correct me if I'm wrong, is that you would not have that cash to then go out and use towards some of the -- some other growth projects that you would be looking at doing?

Barry E. Welch

That's correct. But again, just to frame it, we see it as extremely unlikely. And we understand the question, and it's perfectly reasonable to ask it. Within 60 days, we'll be done with discussion. We'll be able to provide more color, and I think we'll come out in a very reasonable place in terms of our ability to continue on pretty much the planned track that we got.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Excellent. We are looking forward to the next 60 days, then. Other questions, just in terms of maybe the revolver and any of the other debt, are there cross-default provisions in place that might come into effect if for some reason you do default on one of these -- on the revolver or another, let's say, the senior note?

Terrence Ronan

Yes. There are interrelationships amongst those various facilities and pieces of that.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Is there anything specifically related to the Curtis Palmer debt?

Terrence Ronan

Yes. I would say the Curtis Palmer, the U.S. GP notes, the high yield, the revolver, they're tied together with a manner of perspective.

Barry E. Welch

But again, just to be clear, that would -- what you're talking about is something that, that is how it works. We would never let it get to that stage. If we were having that kind of conversation, which is very unproductive, we would cancel the facility. And again, I can't see that happening. But we can prevent that from happening based on the cash position that we have right now, if we really had to.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Sure, right. The line of questioning, just to be clear, was just to make sure that the incentive is there for you to cancel that credit revolver. Just in terms of the solar projects that you have mentioned, there's still a long lead time. I'm just curious what types of hurdles you have to overcome essentially for you to sort of gain more clarity and certainty and conviction and be able to add those to, let's say, your growth forecast?

Terrence Ronan

Jeremy, I think they fall in 2 buckets. One is the project that I was describing in more detail to Sean, which is one that Ridgeline has had in their portfolio and is developing. The other, which I've mentioned in the prepared remarks, is more projects that other people have gotten PPAs, but have not been able to get the financing or finalized development. Those could move forward quickly, and we have offers in front of people to acquire them, but I don't think we, obviously, would be comfortable including them in our growth forecast until we've at least secured the PPAs.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay. Just to be clear, those projects have existing PPAs in place? And here, it's more a question of having Atlantic Power gain an option or actually acquire these projects? Or is it that you have sort of an option to acquire the projects, and they're just waiting to get PPAs?

Paul H. Rapisarda

No, it's the former. They have PPAs, and we're in the process of getting control of the projects.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay, perfect, excellent. Elsewhere, just on the outlook for the Ontario assets, I'm just curious if there has been any change in the forecast related to the restructuring of TransCanada's Canadian mainline tolls, and if you see a potential material impact out of that?

Barry E. Welch

Yes. As I think certainly all of our Canadian brethren on the call know, the decision by the NEB was favorable to us in terms of bringing down the mainline tolls. TransCanada has appealed that, so I think we're reluctant to sort of finalize any updated numbers. But it will have a positive impact on all of those projects.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Can you maybe remind us, I'm not sure if you have it in front of you, but which of the assets have pass-throughs versus which are the ones that it would affect margins?

Paul H. Rapisarda

Yes -- no, it's going to affect the margins, I believe, and we can confirm this on all of the plans.

Barry E. Welch

Other than -- I mean, sorry, Calstock is biomass, right? So it's just for start-up fuel.

Paul H. Rapisarda

And by the way, Jeremy, that also includes our Selkirk plant in upstate New York gets gas through that system as well.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

That's right. In terms of corporate level administrative costs and how the lawsuits might increase your legal costs going forward, I think in this quarter you had something like $8 million in administrative expenses. How do you see that playing out maybe just over the balance of 2013?

Barry E. Welch

Yes. We obviously will have costs and do have them coming in, in terms of what's unfortunately required to defend against these. We haven't given a specific number. We certainly have it dialed into our guidance in terms of contingency for that already in '13 and so comfortable keeping the guidance where it is.

Jeremy Rosenfield - Desjardins Securities Inc., Research Division

Okay. And maybe just one final question you had in terms of the cash that you're generating for distributions, I think off the top, you had mentioned that the second quarter and third quarter were going to essentially make up the balance. Correct me if I'm wrong, does that -- you're sort of indicating that the fourth quarter, you're not going to be generating too much cash for distribution?

Terrence Ronan

Well, I think if you look at the year and the ways to divide it up, there's a mismatch on when our interest is paid. So the second and the fourth quarters of the year are very heavy interest, mostly because of the high-yield semiannual payments from those 2 quarters. So interest exceeds interest in the second, and fourth quarter exceeds interest in the first and third quarter by approximately $23 million each. And then I think we also talked a little bit about the first and third quarter of the year from an operational standpoint, generally being the stronger cash flow generators because of winter in the first quarter and the capacity because of summer in the third quarter. The second and the fourth quarter are less strong and cash flow can be or cash from operations after expenses can be negative on those 2 quarters.

Barry E. Welch

We've always had this solitude, and it's dramatically amplified with the high yields, semi-annuals that Terry mentioned.

Operator

And the next question comes from Ian Tharp from CIBC World Markets.

Ian Tharp - CIBC World Markets Inc., Research Division

So just going back to the Curtis Palmer. We talked about, I guess, the options and maybe some of the cross covenants there or collateralization. But I'm curious why, if there are any other reasons why you would elect to use corporate data and equity there versus project financing against what looks like a pretty long PPA duration?

Terrence Ronan

Well, it's really a balancing of the -- I think what you're driving at is the economics will probably be quite attractive and we, of the project financing, we'd agree. But really, we're balancing that against our long-term goal of reducing leverage over time. And that's why we would lean primarily, or as a first option, to do that on a 50-50 of debt and equity basis because it fits with going ahead and reducing leverage over time. That's the basic logic.

Ian Tharp - CIBC World Markets Inc., Research Division

Okay. But it's like -- I guess is there' an option if you chose to do that. Okay. And then -- and so we've talked about a couple of opportunities within Ridgeline. One, it sounds like it's kind of an organic, if you will, opportunity within Ridgeline of the solar in California. You've talked about a new opportunity with an external party that would still have to be brought in-house through some kind of option or acquisition. I'm wondering if you can give more clarity on what you actually bought when you bought Ridgeline? So I think the last number given was a 600-megawatt portfolio, and there were some thoughts of trying to get PPAs against those. So really, what you'd think of now is organic growth. So it really does sound like less of an emphasis now? Or are you just not prepared to give details at this point?

Barry E. Welch

Well, I'll make one comment, and then maybe Paul wants to follow as well. We did try to emphasize all along that, well, first of all, we had 150 megawatts of spending. But more to your question, that there's an organization with a capability to -- both go after the advancement of the development pipeline, which is going on, but of course, we've had as a longer-term lead times. And equally, as effectively, help us go after acquisitions in solar and wind space. And so we continue to address both of those tracks to see where the most effective sort of output's going to be in terms of investment opportunities, and the balance is simply that to another question earlier, we only want to put so much money on the development side and get it very focused and prioritizes around how long it'll take to turn into spending megawatts ultimately. So we're actually pretty excited about having the ability to direct those resources in either and both directions, advancing development projects that are earlier stage and helping us go after the later stage opportunities that Paul talked about.

Ian Tharp - CIBC World Markets Inc., Research Division

Helpful. And then just one final question. We've talked about Piedmont's incremental start-up cost there. So if you take kind of the midrange of the $68 million guidance you give for kind of the full year run rate for Piedmont, you factor that by an April 19 startup. And you get to about $5 million. And then you say there's going to be $5 million less EBITDA in 2013. So I'm just trying to get clear on the numbers. Will startup cost really kind of erode all EBITDA contributions from Piedmont? Or what net of all the startup costs do you actually expect as contribution in 2013?

Paul H. Rapisarda

I think Terry addressed what we gave in terms of reduction of EBITDA. And I think to really get a better analysis is part of why, as Terry mentioned, we didn't want to do anything in terms of adjusting guidance until we get sort of through that process. But I mean I think we dropped the EBITDA in the charts that we gave you guys here by about $5 million. And that's our best guess right now in terms of how it would play out.

Ian Tharp - CIBC World Markets Inc., Research Division

Okay. But just to clarify that, is that $5 million less against the $68 million full year run rate guidance or...

Barry E. Welch

That's $5 million less of EBITDA versus $12 million to $14 million.

Terrence Ronan

Yes. Versus an original, I think it was $12 million to $14 million range. You won't get [indiscernible]. The run rate cash flow was $68 million, and you correctly took the 1/3 off of what we thought would be our original plan. And there are some other costs in there that are uncertain at this point that we'll have better color on next quarter.

Operator

Thank you. And as there are no more questions at the present time, I'd like turn the call back over to Mr. Welch for any closing remarks.

Barry E. Welch

Thanks very much for your time and attention today.

Terrence Ronan

Thank you very much.

Operator

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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