Atlantic Power Corporation
Q3 2014 Earnings Call Transcript

Published: 7 Nov 2014

[Operator:]

Good day and welcome to Atlantic Power Corporation Third Quarter 2014 Earnings Call and Webcast. All participants will be in a listen-only mode. (Operator instructions) Please note this event is being recorded. I’d now like to turn the conference over to Amanda Wagemaker, Investor Relations Associate. Please go ahead ma'am.

[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 three months. Our results for the three and nine months ended September 30, 2014 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 US 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 the press release and annual 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 not all of the information necessary for a quantitative reconciliation is available to the company without unreasonable efforts, primarily as a result of the variability and difficulty in making accurate forecasts and projections. We also have not reconciled non-GAAP financial measures relating to individual projects to the directly comparable GAAP measures due to the difficulty in making the relevant adjustments on an individual project basis. 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 Ken Hartwick, Interim President and CEO of Atlantic Power.

[Kenneth Hartwick:]

Good morning. I’d like to welcome you to our Q3 call today. With me are Ned Hall, our COO; and Terry Ronan, our CFO. I will cover the highlights of our results this quarter, discuss recent developments at a few of our projects, and then provide an update on the direction of Atlantic Power. Ned will discuss our operational performance and our asset optimization initiatives, and then Terry will review our financial results in more detail, address 2014 guidance, and provide an update on other financial matters. Our operational and financial results for the third quarter were generally in line with expectations. We are pleased to have an availability of 95%, which is more in line with our historic performance and represents an improvement over the first half of the year, when we were affected by a number of unplanned outages earlier in the year. Generation declined during the quarter primarily because a few of our gas projects had lower dispatch due to the mild summer weather in many regions of the country. For the quarter, we had a modest decrease of $2.8 million in project adjusted EBITDA compared to the third quarter of 2013 but this result still puts us at about the midpoint of our guidance range when we consider the overall strong performance year-to-date from our wind projects, Ontario projects and lower maintenance and administrative expenses. Based on those results, as well as our expectations for the balance of the year we have narrowed our project adjusted EBITDA guidance range to $285 million to $300 million, though the midpoint is unchanged from the previous guidance. We had positive cash flow in this quarter of $12.6 million consistent with our comments on the previous call that we expected an improvement in the second half of this year. We are tempering this expectation a bit for the fourth quarter. As you can see from the earnings release during the quarter we accrued 4.2 million in severance charges and we expect to accrue additional severance charges in the fourth quarter. These are associated with recent management changes as well as steps that we have taken to improve our cost structure. All of the cash payments will occur in the fourth quarter and total approximately $6 million. Although these do not affect project adjusted EBITDA, they are included in free cash flow. We have lowered our free cash flow guidance to a range of $0 million to $10 million, down from $0 million to $25 million previously, and these payments account for most of the reductions. We do not expect this level of cost to recur and expect a savings attributable to these actions to benefit our 2015 cash flow expectations. Although our free cash flow generation is modest, I will remind you that it is after significant debt repayment. During the quarter we repaid another 14 million of term loans, and project level debt and are on track to amortize approximately 85 million of debt this year. Turning to a few recent developments. We reached a settlement of the arbitration with the EPC contractor at our Piedmont project. The project will pay Zachry $5 million out of an $8 million retainage that was accrued for potential amounts owed. This will come out of Piedmont’s restricted cash, and will not require any cash from the parent. We are pleased to see this matter resolved and view the settlement amount as favorable. As you know the PPA at our Selkirk project expired on August 31. Since then Selkirk has been operating as a 100% merchant facility and will operate only when power prices make it profitable to do so. As we have indicated on past calls, we expect a significant reduction in the project adjusted EBITDA and cash distributions from this project going forward. The PPA for our Tunis project is scheduled to expire on December 31. As we disclosed in our 10-Q although we are continuing discussions with the off-taker, the Ontario Power Authority, we have taken steps to minimize plant cost following expiration of the PPA, including giving notice to the affected employees. I would also mention that the board has retained an executive search firm to assist in the evaluation of candidates for the permanent CEO position. We are moving forward as fast as possible and considering both internal and external candidates. On Slide 5, I would like to address the outcome of the strategic review and what we see as the important priorities for us through 2015. As we announced in September as part of the strategic review process, our board concluded that it was in the best interest of the company and its stakeholders to remain independent and execute on our business plan with the goal of maximizing long-term value for shareholders. In the near to medium term we see two primary levers by which to increase value. First increasing the value of our assets by investing in our businesses to improve the returns, extending PPAs where economically feasible in order to extend the visibility of project cash flows, and improving our cost structure, and second, achieving significant improvement in our credit metrics in order to regain access to the capital market. Putting the company in a stronger position on this front is key to our long-term objective of being able to pursue value accretive acquisition and development opportunities and to refinance our debt maturities in 2017 and beyond. Our near-term strategy priorities reflect these two value drivers. Let me walk you through these. First we continue to invest in projects that we can earn attractive accretive returns, five year payback or 20% returns, and we expect that the $27 million we have invested in 2013 and 2014 will exceed that threshold. Next year we are targeting $5 million to $10 million of such investments. We expect to fund this level of investments out of our free cash flow. Second the other capital allocation priority will be reducing our debt. We believe that this is critical to reducing our financial risk, achieving a competitive cost of capital and regaining access to the capital markets. Terry will discuss our specific goals on this front in a bit more detail. We are active in examining our asset portfolio and the options to monetize assets to improve our capital structure and allow for focused investments. Third we have sharpened our cost focus. We have taken the steps necessary to reduce G&A expense by another $7 million annually in 2015 and by a total of at least $15 million annually relative to 2013. Cost savings are mostly in the area of personnel and development expense. We also continue to evaluate the level of our costs and will take additional steps as appropriate. Fourth, we are continuing to pursue commercial opportunities to enhance the value of our projects, including extending PPAs where economically feasible or looking for opportunities to modify the PPAs in ways that benefit our customers as well as the bottom line. Ned will discuss a couple of these that we have made recent progress on. These steps consistent with achieving – are consistent with achieving increased shareholder value, reducing overhead, divesting assets that are a better fit with or of greater value to others and using the proceeds to delever. We believe that successfully executing on our cost reduction and deleveraging goals will put the company in a much better position to access and deploy capital in the future. At this point I would like to turn the call over to Ned.

[Ned Hall:]

Thanks Ken, and good morning. Starting on Slide 6, during the third quarter we achieved 95% availability, which is a very strong performance and we achieved that result while sustaining our commitment to an environmentally responsible and injury free workplace. Most of our projects earned their expected level of capacity payments during the quarter and overall we achieved 96% of our budgeted capacity revenue. Although our Piedmont project had a forced outage in July, which I discussed on our second quarter call, it did have availability 99.5% in August and 98% in September. Mild summer weather in many parts of the US and Canada contributed to an 8.5% decrease in generation across our portfolio. We experienced reduced dispatch at Manchief, Williams Lake and Selkirk mostly due to mild weather and then at Chambers we had lower generation due to scheduled maintenance. Our Hydro businesses were also lower this quarter with generation down at Curtis Palmer and Mamquam by 10% and 5% respectively. However, our wind segment had a 9% increase in generation primarily due to favorable winds at Canadian Hills, where generation increased 22%. We also had increased waste heat levels in Ontario, which resulted in higher generation at our [Indiscernible] and North Bay projects. Turning to Slide 7, on a year-to-date basis our availability factor was 93% and we achieved 94% of our budgeted capacity revenue. Lower availability in the first quarter are our Ontario projects, Piedmont and Cadillac and to a lesser degree in the third quarter at Piedmont affected our results. Generation for the year to date was approximately flat with the year ago period. Looking at the results of our business year-to-date, our wind projects are ahead of budget with generation up 4.5% with even stronger performance from our wind businesses in Idaho. Our hydro projects are ahead of budget with Curtis Palmer generation up 4.5% year-to-date. Our other hydro projects are also up for the year. Our thermal businesses are below budget due to the first quarter outages. However this has been partially offset by consistently higher Ontario waste heat levels for the year-to-date. Turning to Slide 8, our discretionary optimization initiatives are on track to invest 27 million in ’13 and ’14 and we expect these investments will contribute at least $4 million in 2014 and at least $8 million in 2015 for a yield of approximately 30%. We recently completed the largest of these projects planned for this year, [significant] steam generator replacement and upgrade. The work was completed in August on budget a week ahead of schedule and the initial performance has been better than budget with an improvement in both reliability and efficiency expected. The capital cost to date is $11 million including about $8 million invested in 2014. Power from this project is sold under Nipigon’s PPA, which runs through 2022. Also during the third quarter we completed installation of two power phased air compressor systems at our Morris project. This will increase the generation capability during periods of high temperature by 7 MW. The capital cost was $3 million. In addition we expect the ability to meet the pay for performance requirements for PJM ancillary services markets to increase the project’s revenues. I would like to mention another recent example of how we are enhancing the values of our projects by working with our customers to meet their needs. In the second quarter together with our partners in Idaho Wind, we reached an agreement with a customer to amend the terms of the PPA to reduce the risk of penalties to the project associated with lower energy production during low wind availability. The amendment was retroactive to the beginning of the year and has already had a positive impact on the project’s EBITDA and cash flow generation. Turning to Slide 9, I would like to provide an update on our major maintenance and Capex budget. Last quarter we indicated that we expected to be in the range of $35 million to $40 million, but we now expect to be in the lower end of that range. Year-to-date we have spent approximately $23 million. Our preliminary 2015 budget for major maintenance and Capex is $30 million to $35 million, with routine major maintenance and Capex of approximately $25 million and discretionary investments of approximately $5 million to $10 million. At this time we have identified at least $5 million of high return in executable investments and are moving these projects forward, and would expect to share more details with you on our next conference call. We have other projects under consideration as well that are in earlier stage of evaluation, but also look to have attractive returns. Now I will turn the call over to Terry.

[Terrence Ronan:]

Thank you, Ted and good morning everyone. First, I’ll review our financial results for the third quarter and year-to-date and then provide an update of our 2014 guidance. I’ll also review changes to our debt liquidity positions during the quarter, discuss our plans to improve our credit metrics, and then close by addressing a few issues discussed in our 10-Q. Turning to Slide 11, for the quarter our project adjusted EBITDA decreased $2.8 million to $72.2 million. Although we benefited from higher waste heat at some of our Ontario projects and favorable wind conditions, particularly at Canadian mills, as well as improved margins at our Orlando project, these positive factors were more than offset by the impact of mild weather and reduced dispatch at a few of our gas projects, as well as lower water at Curtis Palmer, and scheduled outages at Calstock and Chambers. Also in the comparable quarter of last year our results included Delta-Person and Gregory projects that were subsequently sold. Year-to-date project adjusted EBITDA increased $10.2 million to $221.6 million. The increase was driven primarily by strong contributions by our wind projects, particularly in Idaho, increased waste heat and lower maintenance expenses at our Ontario projects, favorable maintenance comparisons at a few other projects, including Morris and NTC, higher margins at our Orlando project and a reduction in our G&A cost and development expenses. These positive factors were partially offset by lower results from Selkirk due to lower dispatch and the expiration of the PPA, several projects in the West due to higher maintenance expense, outages at several of our projects in the east, particularly in the first quarter and the sale of Delta-Person and Gregory. Turning to Slide 12, reported free cash flow for the quarter was approximately $13 million. This result was consistent with our expectations, which we conveyed on the second quarter call for positive free cash flow results in the second half of this year after a negative result in the first half. Results declined $26 million from last year’s third quarter, primarily due to lower cash flows from operating activities, higher Capex and increased debt repayment, particularly at APLP term loan. Turning to Slide 13, on a year-to-date basis, free cash flow was negative $48 million. However, as you may recall in the first quarter of this year we had significant cost that we recorded in conjunction with our debt repayment and repurchase transactions. Excluding those costs consistent with how we present guidance, free cash flow for the year-to-date was positive $9 million. Although our free cash flow is modest it is after paying down a considerable amount of debt and making discretionary investments in our projects that we expect to earn attractive returns. On Slide 13, you can see that we have paid down $47 million of APLP term loan and approximately $20 million of project level debt year-to-date. We have also made $10 million of capitalized investments in our projects, almost all of which were discretionary this year. Turning to Slide 14, we have already taken the required steps to ensure that we can achieve at least $15 million reduction in G&A expense in 2015 relative to 2013. As you can see our total G&A expense was approximately $54 million in 2013, including both project level G&A and development expenses as well as corporate G&A. In 2013, we implemented administrative and development expense reductions totaling $8 million on a run rate basis and we are on target to exceed that this year. This fall we took additional steps with regard to our personnel cost that together with announced management changes resulted in severance costs of approximately $6 million that were booked late in this year. However, we believe these actions position us well to achieve or exceed the $15 million run rate savings target for 2015 versus 2013. One other comment that I would make on this slide in response to questions we have provided additional color on the components of both our project level, as well as our corporate level G&A expense. Turning to our 2014 guidance, on Slide 15, our results year-to-date and our expectations for the fourth quarter put us on track to meet the mid-point of our project adjusted EBITDA guidance, which we are narrowing from our previous range of $280 million to $305 million to $285 million to $300 million. We have included here an updated bridge of our 2013 project adjusted EBITDA of $269 million to our 2014 guidance of $285 million to $300 million. The changes since our previous call have been relatively minor and largely offsetting. Slide 16 provides a bridge from our project adjusted EBITDA guidance to our free cash flow guidance. We have lowered our 2014 free cash flow guidance to a range of $0 million to $10 million from the previous range of $0 million to $25 million. Most of that reduction is attributable to severance payments that have been made or will be made in the fourth quarter, which I have discussed. We expect that these payments will total approximately $6 million, of which $4 million was accrued in the third quarter. The majority of this expense is included in corporate G&A and therefore not included in project adjusted EBITDA. However these payments do reduce free cash flow. Most of you are familiar with [Indiscernible] table, so I will not cover it in detail, but I do want to note a few items. Some of you may ask what is meant by the adjustment for equity method projects. Our project adjusted EBITDA includes proportional EBITDA of equity method projects. This line represents the difference between the EBITDA and the cash distributions we received from those projects in order to reconcile the cash flow from operating activities. Corporate G&A expense number is higher than our previous guidance, reflecting the severance charges that I have discussed partially offset by other expenses that have come in lower. Changes in working capital are expected to be a negative for the year, [applying a] swing in the fourth quarter from a positive impact on cash flow in the first nine months of the year. There is two reasons for that. The severance payment that have been approved through September, but are being paid in the fourth quarter and interest payments on our debt which is approved throughout the year but tend to be heaviest on a cash basis in the second and fourth quarters of the year. As you can see from the table, our reported free cash flow is expected to be negative this year. However our guidance excludes the $49 million of additional interest expense and the Piedmont debt repayment, and on that basis we expect 2014 free cash flow in the $0 million to $10 million. Our nine-month result on the same basis was $9 million. So our expectation for the fourth quarter is approximately neutral to slightly negative. Slide 17 provides an update on our liquidity, which increased by approximately $11 million to $272 million as of September 30, from $261 million at June 30. We have no borrowings outstanding under our revolver, although we have posted $106 million to letters of credit. We have also shown you liquidity on a pro forma basis to reflect the recent repayment of our Canadian $44.8 million convertible debenture at maturity on October 31 to be repaid using $41 million US of cash. Relative to our cash balance of approximately $127 million we believe that maintaining a cash reserve of approximately $80 million to $100 million for working capital needs for the business is appropriate. Although we do have unused credit facility capacity, the facility is at the APLP level rather than the parent. Our ability to use the credit facility outside of APLP is limited to $25 million of borrowings and/or LCs, and only at other subsidiaries or projects not at the Atlantic Power parent. Thus a somewhat larger cash reserve as we have indicated in the past is warranted compared to our prior credit facility. Slide 18 summarizes the changes to our outstanding debt from year-end 2013 through September 30, 2014 and projected changes that the company expects to occur in the fourth quarter of 2014. For the year we expect to reduce total debt including our share of equity method projects by approximately $85 million excluding the unrealized impact of foreign currency on our debt, which has been positive year-to-date. The $85 million includes $53 million of APLP term loan amortization, $26 million of consolidated project debt amortization, including an $8 million repayment of Piedmont principal at conversion, and $7 million of equity method project debt, including $6 million that went with the sale of Delta-Person. The recent repayment of convertible debentures at maturity on October 31 did not actually reduce overall debt levels year-over-year and that it was essentially funded out of excess proceeds from the $600 million term loan raised earlier this year. We expect annual interest savings from the repayment and repurchase transaction completed earlier this year and the recent convertible repayment to average $10 million annually, some of which has already been realized this year. On average, the amortization of the term loan should produce an additional $3 million of annual interest expense savings. Turning to Slide 19, I would like to expand a bit on our plans to improve our credit metrics. We believe that reducing our leverage in order to lower our financial risk is necessary to achieving a competitive cost of capital and regaining ready access to the capital markets on reasonable terms. To accomplish these important goals, we are targeting a credit profile consistent with the following metrics; consolidated debt to adjusted EBITDA ratio in the range of 5 to 5.75 times, consolidated debt to total capitalization ratio of approximately 60%, and adjusted EBITDA to interest coverage multiple of 2.5 times or better. Together with continued amortization of our project debt and APLP term loan in the amount of $80 million to $85 million annually, we plan to take additional steps to improve our ability to achieve these credit metrics by the end of 2016, and including additional debt reduction using proceeds from selective asset sales or joint ventures currently under consideration, repurchasing outstanding debt securities where economically attractive. Yesterday we announced the implementation of a normal course issuer bid program for at least $15 million, and up to 10% of our outstanding convertible debentures or $35 million. These securities [Indiscernible] traded have been trading below par. Lastly turning to Slide 20, there were few developments disclosed in our third-quarter 10 Q I would like to note. First we indicated on our previous earnings call that we would be required an impairment analysis for the third quarter because of the decrease in our market capitalization. In the third quarter, we recorded non-cash goodwill impairment at three of our projects totaling $91.8 million, primarily driven by adverse [fuels] and forward power prices at the time we acquired the assets in 2011. Because this was an internal analysis we will still be required to do our annual impairment analysis for the fourth quarter. Second, Piedmont remains in non-compliance with the debt service coverage ratio, which went into effect after term conversion in February due to a number of factors, primarily outages experienced in the earlier part of this year that reduced expected capacity payments, and fuel costs that have been higher than expected. We do not expect the process to pass its debt service coverage ratio test for at least the next 18 months. Therefore we do not expect…

[Operator:]

Pardon me. (Operator instructions) This is the conference operator. Sir, you can go ahead and begin your call. [Indiscernible] Please go ahead. You are in the call ma'am.

[Terrence Ronan:]

Okay. Pardon the interruption. I will start with the paragraph over again. Second, Piedmont remains in non-compliance with the debt service coverage ratio, which went into effect after term conversion in February due to a number of factors, primarily outages experienced in the earlier part of this year that reduced expected capacity payments, and fuel costs that have been higher than expected. We do not expect the process to pass its debt service coverage ratio test for at least the next 18 months. Therefore we do not expect any distribution from the project through the first quarter of 2016. Third, as I have mentioned on previous calls, the company is not in compliance with the fixed charge coverage ratio test included in the restricted payments covenant of the 9% senior unsecured notes. However, the significant charges we recorded in the first quarter of 2014 associated with our debt refinancing and repurchase transactions will roll out of the calculation in the first quarter of 2015. Assuming no further debt prepayment penalties are incurred, we expect to be back in compliance with this test in the first half of 2015. Now I would like to turn the call back to Ken.

[Kenneth Hartwick:]

Thanks Terry. In closing, we have a well diversified portfolio of projects, our weighted average remaining PPA term is approximately 10 years with about 80% of our capacity covered by PPAs that do not expire until 2020 or later, we are working to extend or renew PPAs where economically feasible. We are committed to delevering the company to achieve the target metrics that we had set out. We have the opportunities to make attractive discretionary investments in our existing fleet that will generate strong returns. We are executing on our cost reduction objectives and seeking additional savings, and our dividend is supported by existing free cash flow generation, and the current yield of 5.1% is an important component of our shareholder return. That concludes our prepared remarks. We are now pleased to answer any questions that you may have.

[Operator:]

[Operator Instructions] And we have a question from Nelson Ng from RBC Capital Markets. Please go ahead.

[Nelson Ng:]

Great. Thanks. Quick question in terms of your target metrics. I am just wondering what is your expected time frame in achieving this and also does it rely on any asset sales to achieve the targets?

[Barry Welch:]

Well, Nelson we tend to achieve that over time and if you look at the metrics it certainly does anticipate that there would be some assets sales in order for us to reach those metrics and what we have talked about here in the call this morning was by year end 2016 and we are certainly hoping to do sooner than that.

[Nelson Ng:]

Okay. Thanks. And then, just one other question on the class action lawsuit, so the press release indicates that the insurance will cover any additional cost incurred in relation to the suit. I am just wondering what the maximum covered by insurance would be and is there a time table to get the results?

[Terrence Ronan:]

No, and I think, you are correct in the cost that are now being covered by the insurance program and I think from a timetable standpoint and again if you call those actions both on the Canadian and US side, both are on slightly different timetables but it gets realistic given just the normal process it's going to run through but it's going to be under the spring or early summer of 2015.

[Nelson Ng:]

Okay. And then just on that so in terms of the amounts covered by insurance what's the maximum that the insurance covers.

[Barry Welch:]

Yes, for I think for obvious reasons we have not disclosed that and but again we look at from two perspectives. First we think we have a very strong case both U.S. and the Canadian side on what the company did from a disclosure standpoint and meeting the obligations which is the primary factor but at this point we are – we don't I guess advantageous to disclose in terms for rep.

[Nelson Ng:]

Okay. Thanks. Then one other question just I guess there is more for Terry, but in terms of the, I was just wondering what the minimum level of unrestricted cash you feel comfortable operating with, I was just trying to get sense of how much of the $127 million can practically be applied towards debt reduction?

[Terrence Ronan:]

Well, I think I mentioned during my portion in the call that we are comfortable maintaining a range of 80 to 100 million for working capital purposes to run the business and that's really driven by our revolver being at the APLP level and being with it for about 25 million of that capacity outside the APLP level and that's compared to the prior credit facility which was at the top of the house.

[Nelson Ng:]

Okay. Thanks a lot. Those are my questions.

[Barry Welch:]

Thanks Nelson.

[Operator:]

And our next question is from Sean Steuart from TD. Please go ahead.

[Sean Steuart:]

Thanks good morning. Couple of questions. With respect to the CEO search I appreciate that you have hired an executive search, can you give us any idea on time frame and in the interim are you guys actively pursuing asset sales or is that program on hold as you wait to determine the CEO successor?

[Barry Welch:]

Yes, maybe starting with your second question first and then I will come back to the first one but we as a organization we are not on hold on anything we are doing pending the appointment of a permanent CEO whether it is looking at assets opportunities which we have been active on whether it is changes in our cost structure or other things the mandate from the board is very clear, get on with the business do the things that are going to improve sort of the overall performance of the company. So, none of it is contingent on an individual coming in, I think from the timing perspective we are in the – we have struggle is the search firm that is working with us and our hope would be that we would have do you want a candidate towards the end of the year or early into the new year, and then there is just practical realities on when someone can start obviously different for internal candidate than an external but we are very active in the process right now and are moving along as quickly as we can.

[Sean Steuart:]

Okay. And then with respect to asset opportunities, I think the previous bias was towards looking at JVs for the wind and asset sales it would be some of the assets you have not controlling interest as a part of the structure, is that still the strategy from that perspective?

[Barry Welch:]

I think it's – we look at from a couple of different lenses. First, is premised on our commitment to hit the deleveraging goals that we want and hopefully before the end of 2016 but it's to move on that and secondly I think one thing we want to recognize that we have a very strong operational platform for our assets and so when we look at it it's very much where do we think an asset might have a greater value in somebody else's portfolio than it does in ours and meets what our expectations of value might be so. I don't think there is any biased towards a particular asset or particular type of asset and only practical one practical element that we do look at which Terrence has mentioned is that there is certain benefits if the asset is outside of the term loan B structure from the ability to redeploy the money towards perhaps higher cost debt but yes I think there is – I say we have a very open view of what assets we would consider but also a very good view as to where we think we have a strong core capability to achieve a lot of the optimization that Ned has talked about.

[Sean Steuart:]

Okay. Understood. Thanks very much.

[Operator:]

And our next question is from Mark (inaudible) National Bank Financials, please go ahead.

[Unidentified Analyst:]

Good morning.

[Barry Welch:]

Morning.

[Unidentified Analyst:]

What hurdles do you look at for your discretionary investments I guess 2015 you are targeting 5 million to 10 million.

[Ned Hall:]

Yes. Mark, its Ned Hall. We have held ourselves to obviously a high standard starting out set of targets at least to 20% yield. Going forward I think we will expect to continue will achieve that so far the $27 million we have invested has a about 30% yield on yearly basis. So we have been very attractive. You would anticipate overtime we are going to do the high turn projects really and overtime it might migrate down but obviously it could below 20% yield because that would still be a good investments but we have set that as a benchmark to try and motivate people to focus on the early opportunities for the return.

[Unidentified Analyst:]

Okay. Great. And then looking at the $7 million in further G&A savings, how much of this do you anticipate will be made in the back end of 2014?

[Barry Welch:]

Well I would say that – that's fall was head count related some of them were development related I think that we should be pretty close to run rate January 1 on the numbers that we are talking about.

[Unidentified Analyst:]

Okay. Great.

[Operator:]

And our next question is from Matt Farwell from Imperial Capital. Please go ahead.

[Matt Farwell:]

Hey good morning. Question on the guidance it seemed like there were some changes to project EBITDA equity method projects and working capital that affect in the guidance rather than some of the severance issues that you mentioned in fact the corporate G&A appears to be for the fourth quarter appears to be much lower than the third quarter if I am doing my math right, it seems like your guiding to about $4 million for the fourth in corporate G&A is that accurate and is that the run rate that we should be working from when we calculate the changes in the corporate G&A that you have guided to?

[Barry Welch:]

Matt, I am not sure where you coming up with your numbers. I don't think that it's based on the items you talked about earlier. I think that you should be looking at assuming 15 million of savings versus 2015 that G&A is going to be in the between 35 million and 40 million in 2015 versus the 54 million that we saw in 2013 probably closer to the lower number than higher number.

[Matt Farwell:]

Okay. And then you commenced the process to repurchase the convertible notes at what point are you going to also look at the bonds and would you consider that if they can roll moving up price?

[Barry Welch:]

Well let me just give you a broad view of that. We are putting the NCIB in place with respect to the converts in Canada because under Canadian regulatory rules that’s the requirement which is it can't go up by them like we could the high yield notes in the US so really it's opportunistic we are in different, we are going to try and take out the ones that have the best yield or have the ease of take out the converts are obviously selling below par. There is an opportunity there. The high yield is callable this month at 104.5 so if you look at that and you look at the converts where some of them are selling the yield is in that 8% - 8.5% range. So this is all opportunistic. We are not favoring one over the other. We are going to make modest investment and trying to take out some of those pieces with some cash that we have on hand and then anything in a larger scale, would as a result of some of the potential assets sales we are looking at.

[Matt Farwell:]

Would you consider repurchasing the 595s a long dated note at APLP?

[Barry Welch:]

I mean I think it all comes down to value but those are maturing and after 2030 I think we are going to really focus on those pieces of paper that have an earlier maturity and that have the yield that we are looking for.

[Matt Farwell:]

Now you maintained the dividend if you are in the process of de-leveraging one would ask why maintain the dividend at all? So what do you think about that?

[Barry Welch:]

Well that is something that management and the board has spent a lot of time considering and we came out with the priority that leverage reduction is the main priority but we do have approximately 70% of our shareholder bases retail and that dividend is important to them. It does provide some return. So adjusted the dividend levels to a fairly modest amount supported by our free cash flow.

[Matt Farwell:]

And you provide some more detail in the press release regarding the process that you are in last summer or last year earlier this year and you have given some information on bids that company had received essentially no bids higher than 304, why not provide some more detail in terms of the range of results of that process?

[Barry Welch:]

Yes, I think it's when we look at it we put out that press release to begin with response to a other public information that we thought was erroneous to begin with and I think there is enough clarity in what we put out as far as indicating where a level that we didn’t get above on the bids and again for perspective on the question we get asked or usually in addition to it is what is the view on bids that were at or below that 304 number. And for us if we had couple of practical things that bidders may have considered one being the shareholder litigation that is out in the market certainly is somewhat of an uncertainty. One we think have a very strong position up and have a certain viewers accompany as to relative impact which again we feel very confident in what we did as a company and then secondly I think that any bidder would look at is we have a broad range and mix of assets some of which are more appealing to certain parties than others and that really drove what other peoples view of the value of the company was. So but I don't think if we precise in that press release I think we need to be under the circumstances.

[Matt Farwell:]

Okay. I mean, I guess the question is that share prices significantly below $3 that I think some color in terms of what potential bidders might be willing to value the company at would be helpful would be helpful for investors in order to value the shares.

[Barry Welch:]

I think it's a good point. I think that the indication from the board and certainly in what we put out in the press release is that we clearly have a view that if we can be successful in realigning our cost structuring in making in type of investments that Ned has talked about in the respective return on those extending PPAs and improving the structure of certain PPAs that we have and then taking some steps to on the de-leveraging side the board concluded that the value of the company is in access of that number so and again we are not in the business of saying it should be a different, it should be a number but we obviously feel fairly confident that it was in access of any bids we had received including the number that we put in the press release.

[Matt Farwell:]

Okay thanks and just two other things one is on the yield that was mentioned you are looking forward in the internal projects is that essentially IRR on the investment and based on cash flow of the investment?

[Ned Hall:]

No it's a current return Matt and one of the things we are trying to avoid is accepting we are really trying to focus on getting cash into the company near term and the IRRs we don't want to have projects that come through it give low yields for a lot of years to high yield in future years so we are focused on current yield. And they vary project to project on the IRR but roughly or approximately they are in access of 15% IRRs in most – in almost every instance. They are still good investments from the longer term perspective but we focus on yield to motivate the projects that have the biggest impact in near term.

[Matt Farwell:]

Okay so essentially cash flow divided by project cost?

[Barry Welch:]

Yes.

[Matt Farwell:]

Okay. And then on (inaudible) what was the impact of any charges related to the roll off of that contract in the quarter because I think we had two months of sort of open EBITDA if you will? Where there any impacts from I mean is that basically a number that we can work from or can you provide more color on --?

[Barry Welch:]

Well, I think it's actually one month the contract expired, and then we are expecting the obviously the returns to go down not that it's fully merchant as far as distribution to the parent goes.

[Matt Farwell:]

Okay. Okay that's enough for me. Thanks a lot.

[Barry Welch:]

Thanks Matt.

[Operator:]

And our next question is from (inaudible) please go ahead.

[Unidentified Analyst:]

Okay, thank you and good morning everybody. I wanted to go back to your comments about tuners in Ontario and we have seen contracts re-negotiated in Ontario with some of that nags and I am just wondering is curious just in what makes so much more challenging in terms of not being able to gaining any more pre-contracting on the PPA there?

[Ned Hall:]

Yes Ben, its Ned. I don't know that we are any more challenged than other projects on re-contracting. Obviously schedule have been challenged for all of us with some of the changes that are being contemplated but we are still actively engaged and trying to come to terms and so obviously because we are engaged we don't want to give significant detail or set expectations to fulfill, it's reached appropriate point in those negotiations but we are still somewhat optimistic that we will work something out. We have to take the steps in accordance with the procedures to be as a member of the ISO to tell our people and plan to shut the facility down at the end of the year if we don't reach agreement but we are still working on it.

[Unidentified Analyst:]

Okay and then you have also mentioned the terming of the staff at (inaudible) and I am just wondering about employee -- plants and they went through pretty massive transition with the capital in terms of transaction a few years back and you have also taken a big hit on your market caps so how do you guys keep them motivated up to stage and I’m on the same page and I mean how is the moral of that your operational side of the stage?

[Barry Welch:]

Yeas, obviously the period that we have been going through creates for lot more communication and I like to believe the culture that employee here and the way we empower our people and the effect we’re investing in the businesses is actually significant improvement in moral relative to historic ownership we probably have some of our people but my view is we are very committed to the long term we are investing in our projects, people see that they understand the realities of business that something we emphasize with all of our people we make sure they understand the business both commercial and technical so that we can get optimized results across all dimensions and it's tuners coming off PPA into the market in the current situation I think is well understood by people by people as the reality all of our other projects with ten years of life, I think people feel pretty good and I think they enjoyed the culture that we have developed here in Atlantic Power.

[Unidentified Analyst:]

Okay. And the last thing I wanted to check in and just your commentary about assets sales outside that entity attached to term loan the LP level does that mean that you guys are prioritizing asset sales and if it does occur outside to ALPL level over those assets inside?

[Barry Welch:]

I wouldn't phrase it as prioritization I just think as the when you look to the factors of the relative value of a plant we look as I mentioned where does it fit operationally and what our core skills and expertise is then also we do look one of the factors obviously would be if we were to come to a value agreement with someone on our assets what do we employee the capital towards and as Terrence mentioned in his remarks obviously we have a couple one piece of depth particularly that's very high cost so there might be a I won't say biased but certainly it's a criteria that we look at to say that might make it more advantageous to look at one particular asset than another because of the nature of the cost we can remove from the company and the process. But there is a series of criteria so it's not precluding items from inside the TLB but there is that secondary – there is that second level of criteria that we look at to say what’s best to Atlantic power to where we need to be over the next medium period of time.

[Unidentified Analyst:]

Okay thank you. Those were my questions

[Barry Welch:]

Thank you.

[Operator:]

And our next question is from Jason Mandel from RBC Capital Markets. Please go ahead.

[Jason Mandel:]

Hi guys. Thanks for taking the question. I just want to understand a little more about the strategic sale process that went on and I guess still considering looking at asset sales and JVs. Given how strong some of the yield course have been and they are interesting contracted assets seems surprising that where we haven’t be able to see any progress in the asset sale side I am curious if – I am curious to the rational for that is it more that the focus up until now had been on selling the whole company rather than individual assets or is it more are you seeing sort of capital structure limitations on some of the assets that you are seeing best interest in?

[Barry Welch:]

Yes I would say it's the former. When we are going through the strategic process which again we put the announcement out on September 16, our focus was on the entire company. We thought it was not constructive to be trying to do entire sale, partial sale etc. So that was the focus there. I think going through that process the company has as you would expect both pre and post process had lots of discussions around individual assets from different parties and reference yield course but others as well on some of the assets so I don't think this is a case of we finished one process, now let's start to think about the next, thing we might do. It has been from an internal standpoint part of what we have been looking and also as you would expect through the process that we did go through certain people being more interested in selective assets than the entire company. So I think we have a very good basis to move in an expiated manner on this as opposed to we are starting over again which is not the case.

[Jason Mandel:]

Okay that’s helpful and then as follow-up that I guess you mentioned the shareholder litigation is potentially one of the hindrances people had in looking at the whole company I assume that's less of an issue for those who would look at individual assets. Is that fair to say?

[Barry Welch:]

It would be no issue from an asset sales standpoint.

[Jason Mandel:]

Okay and then from the sort of one side of the structure versus the other side of the structure obviously with the APLP term loan on top of kind of half of the assets, with the focus be more so on the other side where there isn’t sort of limitation under the APLP term loan as to what to do with those proceeds and where to apply them?

[Barry Welch:]

Right and that's sort of what I mentioned that's definitely one of the criteria as we go through both internal and discussing with people around certain assets. It's one of the criteria we look at it. The flexibility to redeploy the proceeds towards thing that matter the less and obviously that high yield debt element is an important part of it or the converts so it's a criteria we use as we go through the assessment.

[Jason Mandel:]

Okay. Thanks very much guys.

[Jason Mandel:]

Thank you.

[Operator:]

Our next question is from (inaudible)

[Unidentified Analyst:]

Good morning and thanks for taking my call. Just couple of questions. So have you been talks with rating agencies since the management has been changed and your new plan for, more expensive plan for debt reduction and strengthening your credit metrics.

[Barry Welch:]

We have been in contact with the rating agencies, we have had our annual review with both rating agencies subsequent to September 16. And I think we had a very good conversation with Moody’s they haven’t come out with any information regarding their meeting. We don't expect them to – we also had a good meeting with S&P they did put us on negative watch I think my personal view was more than a funded precaution, when they saw that we have reduced the dividend second time about the CEO and also departed the company as I said we had very constructive meeting with them and we should be able to get that negative watch resolved here before the end of the year. The radiated seasonal come out the way they come out on that negative watch my own view is that we have shown them but what we are going to do going forward and that we are comfortable with that and our assumption is they will be comfortable with it too but at the end of the day they will make their own decision.

[Unidentified Analyst:]

Okay and I am just second question on the CEO search. It referenced that it would short of internal candidate does that mean you are in consideration for permanent spot?

[Barry Welch:]

No, I am not in consideration for it so I think when we put out the press release I indicated that or the board really indicated in agreement with me that I would not be the permanent candidate so when I talk about internal I think it's other internal members of the executive team but not myself.

[Unidentified Analyst:]

Okay. Thanks.

[Barry Welch:]

To be clear that strictly because I live in Toronto and well I love Boston is that perhaps I am not going to reside.

[Unidentified Analyst:]

Alright. Thanks.

[Operator:]

And our next question is from (inaudible) please go ahead.

[Unidentified Analyst:]

Yes, regarding these internal capital investments that are some of the achievements of 30% yield and going forward in 20s, just curious what is the reason why you are finding these now or is it better to think that you have these all the time but you were just spending too much on the dividend?

[Barry Welch:]

No, I wouldn't draw the second theory conclusion and again I think it's a culture in a view of how you want to run your business, as an operating company looking to the long term we are looking for projects that have return as oppose to some historic owners not specifically the last one by any means that maybe would look more towards trying to maximize cash flow in the short run if they are going to think about selling something. These – lot of these projects have five owners so they had a lot of different philosophies applied to them. I think just as importantly the world changes, the dynamic of the world, the cost of fuel the price of power and the markets that you are in so a lot of this is tied to squeezing extra efficiencies and extra generation out of the existing facilities in the current world environment. It also does include in addition to capital projects, changes that we do on our commercial agreements. So that if we go for example renegotiate the Idaho wind partners PPA and that resulted as an increase in revenue we include that in the return metrics. So we invested 27 million expect to get 8 million of return but that's from where 80 different projects some of which had substantial capital investment like the 11 million into the project but some which will have relatively modest investment like the engineering studies we had to re-rate our boiler stock to get 5% additional output out of it. So it's lot of the high return projects are small things that have an outsized impact relative to their investment.

[Terrence Ronan:]

If I can just maybe just add to that little bit is that I mentioned earlier on in the call we are building and have in place very strong operational group around the plant that we own and to be just an example of some of the strengths that Atlantic Power has led my Ned and his team that the focus on being able to identify these projects run them to ground and get them actually implemented is gives us a great level of confidence. So where we have plants sort of maybe underperforming that we can move those to a similar manner where the performance consistently gets better over time so I think it's just like everything as you build your team you become more focused on those things where you can drive value and this is definitely an area where we have done well so far and I have no reason to believe we won't continue to make the plant group better as we go forward.

[Barry Welch:]

Yes, the key cultural shift that we put in place is that the people running our businesses are expected to both understand the commercial relationship and the technical relationships where lot of companies separate those two function which creates a lack of ability to see opportunity so I think as we running our business is focused on understanding what they can do technically and commercially to create more value which has created a lot of ideas.

[Unidentified Analyst:]

But is it fair to characterize these opportunities for such high cash yield as a bolt of investments I mean we can't just straight-line extrapolate these at 25 million, 27 million and 20% cash yield --

[Barry Welch:]

It’s as much as I wish we could. I think we all agree that and you get higher return because there will be the more obvious in once we bring the people moving forward and I think the other thing that we see happening is we work more as a company and get the businesses talking to each other, good ideas from one plant go to another plant so you get a lot of momentum building that way but I definitely think we all align that this is a period of time where we have a lot of these because in recent history the businesses were starve for capital. We do see another three or four years of these in our current planning so I think we do have some visibility that says this is going to be meaningful for a period of time but I would agree with you in the longer term you ought to find them. Ultimately I think the next evolution of this will be when we have opportunities to re-power our facilities as we hopefully get extensions of PPA or new PPAs as a result of market demand for new power.

[Unidentified Analyst:]

Right. Okay then on the severance cost you accrued 4 million and it's coming at 6, I think – is that the proper way of characterizing it and can you tell us if so, can you tell us why it's coming at 6 are you able to find more cost to be saved or is it something else going on.

[Terrence Ronan:]

The 4 million that was accrue in the third quarter and there will be another 2 million in the fourth quarter and then all the cash will be effectively in the fourth quarter and I wouldn't say that beyond that there is going to be a large number beyond that but we are looking at – we are looking at the cost structure everyday with the particular focus to try and continue to exceed the 15 million versus 2013 that we have talked about.

[Unidentified Analyst:]

Okay. Great and one thing I just I think cash yields are right, your comment about retail investors like in the dividend is due to point but I think they would understand the sort of eliminates them like -- de-leveraging will occur quicker and therefore dividends might increase later. It's a comment and then a question but –

[Barry Welch:]

We’re going through the same commentary and I think there is practical reality that Ned and his team faces. You can do so much of the activities out one time anyway so and with the quick returns getting off them it sort of allows them to feed the next set but I think if we ask Ned to do too much in one year we might have a whole bunch of plant stop operating where we do them all so I think it's prudent plan I think management on the team side.

[Unidentified Analyst:]

Great. Thanks a lot then.

[Barry Welch:]

Thank you.

[Operator:]

Now ladies and gentlemen this will conclude our question-and-answer session. I would like to turn the conference back over to Ken Hartwick, Interim President and CEO for closing remarks.

[Kenneth Hartwick:]

Thank you very much for your time and attention today and your continued interest in Atlantic Power and we look forward to talking to you on our next call. Thank you.

[Operator:]

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