Capital Power profits surge on summer outages

Edmonton-based Capital Power had a solid third quarter, thanks to higher electrical prices between July and September, when they jumped to $78 per megawatt hour.

The utility earned $38 million in the past three months, a sharp improvement over performance in the first half of 2012, when electricity rates were just $50/MWh.

The earnings compare to $21 million for the same period in 2011. Electricity prices are expected to stay in the $78 range for the rest of 2012.

“Certainly during the summer, weather-related issues, and planned and unplanned outages were among the things which drive up prices,” said chief executive Brian Vaasjo.

“But there is a fair amount of seasonality in the marketplace, so looking ahead at modest increases in natural gas prices, we feel prices will settle to roughly where they are now.”

Capital Power earned 55 cents per share in the third quarter, compared with 29 cents for the same period last year, and now expects to hit the low end of its target of about $1.50 earnings per share for 2012.

With the expected return of the TransAlta Utilities’ Sundance generating units late next year after major repairs, Vaasjo expects the additional power to keep a lid on rates.

“Alberta’s growth in power demand is between 300 and 400 megawatts per year, so Sundance’s return represents a year and a half of growth.

The big success story this fall is wind power, with the Quality wind project in British Columbia set to come on line in a few weeks, and the Halkirk project southeast of Red Deer on track to begin commercial operation in mid-December. Two large projects in Ontario have also been green-lighted.

The Quality project came in 10 per cent below its $455 million budget, thanks to negotiations with turbine-builder Vestas and Capital’s tight control on construction and design, said Vaasjo.

He added “there was some very good engineering and design work,” and staff were continually looking at ways to lower costs during construction — things like crane movement and temporary roads.

Capital currently has no acquisition targets in the United States, but always keeps an eye on the market.

“We still look, but we tend not be competitive against financial players — hedge funds, insurance and pension funds — with low cost capital to deploy.”

Capital’s large solar power proposal in Arizona, just west of Phoenix, will be going to bid this year. Capital will be meeting the local utility’s requirement for renewable power.

“They are procuring for 2016 to 2017, so it is a long process. There are also some possibilities in California,” he said.

Edmonton-owned Epcor Utilities retains a 29 per cent economic interest in Capital Power.