EDMONTON, ALBERTA -- (Marketwired) -- 11/10/15 -- EPCOR Utilities Inc. (EPCOR) today filed its quarterly results for the three months and year-to-date period ended September 30, 2015.
"EPCOR's results in the third quarter were in line with expectations, marked by a strong performance from our Canadian water operations," said Stuart Lee, EPCOR President & CEO. "EPCOR's Ontario growth strategy also gained momentum as we were selected to bring natural gas to the Southern Bruce region, in addition to receiving approval from the Town of Innisfil to negotiate a 50% stake in their electric distribution utility." In the quarter, the Company recorded a $50 million non-cash impairment charge related to its remaining investment in Capital Power Corporation (Capital Power) which fully offset the gains related to the Capital Power investment recorded in the second quarter.
Highlights of EPCOR's financial performance are as follows:
-- Net loss was $13 million on revenues of $511 million for the three
months ended September 30, 2015, compared with net income of $23 million
on revenues of $506 million for the corresponding period in the previous
year. Net income was lower in part due to the impairment of the
available-for-sale investment in Capital Power and higher unfavorable
fair value adjustments related to financial electricity purchase
contracts, partially offset by higher approved water and electricity
customer rates.
-- Net income was $195 million on revenues of $1,473 million for the nine
months ended September 30, 2015, compared with net income of $116
million on revenues of $1,405 million for the corresponding period in
the previous year. Net income was higher in part due to higher approved
customer rates and higher Capital Power net income recorded in the first
quarter.
-- Net cash flows from operating activities was $304 million for the nine
months ended September 30, 2015, compared with $253 million for the
corresponding period in the previous year. The increase was primarily
due to higher funds from operations.
-- Investment in capital projects was $135 million for the three months
ended September 30, 2015, compared with $111 million for the
corresponding period in the previous year.
-- Investment in capital projects was $326 million for the nine months
ended September 30, 2015, compared with $265 million for the
corresponding period in the previous year.
Management's discussion and analysis (MD&A) of the quarterly results are shown below. The MD&A and the unaudited condensed consolidated interim financial statements are available on EPCOR's website (corp.epcor.com) and SEDAR (www.sedar.com).
EPCOR's wholly owned subsidiaries build, own and operate electrical transmission and distribution networks, water and wastewater treatment facilities and infrastructure in Canada and the United States. The Company's subsidiaries also provide electricity and water services and products to residential and commercial customers. EPCOR, headquartered in Edmonton, is an Alberta top 70 employer. EPCOR's website address is www.epcor.com.
EPCOR Utilities Inc.
Interim Management's Discussion and Analysis
September 30, 2015
This management's discussion and analysis (MD&A) dated November 10, 2015, should be read in conjunction with the condensed consolidated interim financial statements of EPCOR Utilities Inc. for the three months and nine months ended September 30, 2015, including significant accounting policies (note 3) and financial instruments (note 7), the consolidated financial statements and MD&A for the year ended December 31, 2014, including standards and interpretations not yet applied (note 3(x)), related party transactions (note 28) and financial instruments (note 29), and the cautionary statement regarding forward-looking information at the end of this MD&A. In this MD&A, any reference to "the Company", "EPCOR", "it", "its", "we", "our" or "us", except where otherwise noted or the context otherwise indicates, means EPCOR Utilities Inc., together with its subsidiaries and joint arrangements. In this MD&A, Capital Power refers to Capital Power Corporation and its directly and indirectly owned subsidiaries including Capital Power L.P., except where otherwise noted or the context otherwise indicates. Financial information in this MD&A is based on the September 30, 2015, condensed consolidated interim financial statements, which were prepared in accordance with International Financial Reporting Standards (IFRS), and is presented in Canadian dollars unless otherwise specified. In accordance with its terms of reference, the Audit Committee of the Company's Board of Directors reviews the contents of the MD&A and recommends its approval by the Board of Directors. This MD&A was approved and authorized for issue by the Board of Directors on November 10, 2015.
Overview
EPCOR is wholly-owned by The City of Edmonton (the City). EPCOR, through wholly-owned subsidiaries, builds, owns and operates electrical transmission and distribution networks, water and wastewater treatment facilities and infrastructure in Canada and the United States (U.S.) and provides Regulated Rate Option and default supply electricity related services and also sells electricity and natural gas to Alberta residential consumers under contracts through its Encor brand. EPCOR's water business provides water purification, water distribution, wastewater treatment and related management services within the city of Edmonton and serval other communities in Western Canada and the Southwestern US, and provides similar services and water and wastewater plant financing and construction services to industrial customers in Western Canada.
EPCOR's net loss was $13 million for the three months ended September 30, 2015, compared with net income of $23 million for the comparative period in 2014. The decrease of $36 million for the three months ended September 30, 2015, was primarily due to the impairment of the available-for-sale investment in Capital Power and higher unfavorable fair value adjustments related to financial electricity purchase contracts, partially offset by higher approved water and electricity customer rates. EPCOR's net income was $195 million for the nine months ended September 30, 2015, compared with net income of $116 million for the comparative period in 2014. The increase of $79 million for the nine months ended September 30, 2015, was in part due to higher approved water and electricity customer rates, higher equity share of income and dividend income from our investment in Capital Power, and lower tax expense due to the re-organization of Energy Services in 2014. Partially offsetting these increases was higher delivery service charges in our Distribution and Transmission segment.
EPCOR's core operations performed well in the third quarter without any significant issues or disruptions to customers. Net income from core operations was $34 million and $176 million, respectively, for the three and nine months ended September 30, 2015, compared with $33 million and $115 million, for the respective comparative periods in 2014, as described in the net income table on page 3. The increase in income from core operations for the three months ended September 30, 2015, as mentioned above, was driven in part by improved rates, partially offset by higher unfavorable fair value adjustments related to financial electricity purchase contracts. The increase in income from core operations for the nine months ended September 30, 2015, was driven in part by improved rates and higher favorable fair value adjustments related to financial electricity purchase contracts. Income from core operations is a non-IFRS financial measure as described in Net Income on page 3 of this MD&A.
At September 30, 2015, the quoted market price of the common shares of Capital Power was $18.88 per share. Management has used judgment to determine that the fair value of its investment in Capital Power has declined significantly since April 2, 2015, when it was initially reclassified as an available-for-sale asset at $24.11 per share. Accordingly, management has concluded that due to the significant decline in share price, the available-for-sale investment in Capital Power is impaired. As a result, the Company has recognized an impairment and reclassified the accumulated loss of $50 million before tax from other comprehensive income to net income.
On September 11, 2015, Nizar Somji was appointed to the Board of Directors of the Company.
In April 2015, EPCOR exchanged 9,450,000 limited partnership units for an equal number of common shares of Capital Power Corporation which were immediately sold at an offering price of $23.85 per share for aggregate gross proceeds of $225 million. As a result of this transaction, the Company recognized a net gain before income tax of $21 million in net income, including $9 million on items previously recognized in other comprehensive income. In addition, EPCOR exchanged all of its remaining 9,391,000 exchangeable limited partnership units for common shares of Capital Power Corporation. Following the completion of the offering, EPCOR directly owns 9% of Capital Power and as a result, the Company lost significant influence over Capital Power. Accordingly, the Company reclassified its remaining investment in Capital Power as an available-for-sale asset on April 2, 2015 at the market value of $24.11 per share. On initial recognition of investment in Capital Power as an available-for-sale asset, the Company recognized a net gain before income tax of $32 million in net income including $9 million on items previously recognized in other comprehensive income.
In April 2015, David Stevens, EPCOR President & CEO, announced he would be retiring from EPCOR. Mr. Stevens remained in his position until September 1, 2015. In August 2015, the Board of Directors announced the appointment of Stuart Lee as the new EPCOR President & CEO effective September 1, 2015.
In February 2015, Suncor gave the Company notice that it will exercise its contractual rights to buy back the leased assets and terminate the related financing and operating agreements. The transfer of assets and operations back to Suncor is to take place over an 18-month period. The first lease repayment of $26 million was completed in September 2015 and the remaining assets will be transferred by September 2016 unless otherwise agreed by the parties. Based on the above, the Company has reclassified its finance lease receivables and other financial assets from Suncor under trade and other receivables. This is not expected to have a material impact on the Company or its operations.
Consolidated results of operations
Revenues
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Three Nine
(Unaudited, $ millions) months months
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Revenues for the periods ended September 30, 2014 $ 506 $ 1,405
Higher Water Services segment revenues 20 88
Higher electricity Distribution and Transmission
segment revenues 7 38
Lower Energy Services segment revenues (14) (46)
Other (8) (12)
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Increase in revenues from core operations 5 68
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Revenues for the periods ended September 30, 2015 $ 511 $ 1,473
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Consolidated revenues were higher by $5 million and $68 million for the three and nine months ended September 30, 2015, respectively, compared with the corresponding periods in 2014 primarily due to the net impact of the following:
-- Water Services segment revenues were higher for the three and nine
months ended September 30, 2015, compared with the corresponding periods
in 2014 primarily due to higher construction revenues, approved customer
rates and volumes, foreign exchange translation gains, and commercial
revenues.
-- Electricity Distribution and Transmission segment revenues were higher
for the three and nine months ended September 30, 2015, compared with
the corresponding periods in 2014 primarily due to higher approved
electricity rates
-- Energy Services segment revenues were lower for the three and nine
months ended September 30, 2015, compared with the corresponding periods
in 2014 primarily due to lower electricity prices and volumes partially
offset by higher rates.
Net Income
We use income from core operations to distinguish operating results from the Company's water and electricity businesses from results with respect to its investment in Capital Power. It is a non-IFRS financial measure, which does not have any standardized meaning prescribed by IFRS and is unlikely to be comparable to similar measures published by other entities. However, it is presented since it provides a useful measure of the Company's core operations and it is referred to by debt holders and other interested parties in evaluating the Company's financial position and in assessing its creditworthiness.
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Three Nine
(Unaudited, $ millions) months months
----------------------------------------------------------------------------
Net income for the period ended September 30, 2014 $ 23 $ 116
2014 equity share of loss (income) from Capital Power
(net of income tax) 10 (1)
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2014 income from core operations 33 115
Higher Water Services segment operating income 12 26
Higher electricity Distribution and Transmission
segment operating income 6 18
Higher (lower) Energy Services segment operating income (22) 11
Higher net financing expense (1) (2)
Other 6 8
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Increase in income from core operations 1 61
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2015 income from core operations 34 176
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2015 equity share of income from Capital Power (net of
income tax recovery) - 14
2015 dividend income from available-for-sale investment
in Capital Power 3 6
2015 gain on sale of a portion of investment in Capital
Power (net of income tax) - 19
2015 gain on reclassification of investment in
Capital Power as available-for-sale investment (net of
income tax) - 30
2015 impairment of available-for-sale investment in
Capital Power (50) (50)
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Net income (loss) for the period ended September 30,
2015 $ (13) $ 195
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Net income was lower for the three months and higher for the nine months ended September 30, 2015, compared with the corresponding periods in 2014 primarily due to the following:
-- Changes in each business segment's operating results for the three and
nine months ended September 30, 2015, compared with the corresponding
periods in 2014 are described under Segment Results below.
-- Net financing expense was higher for the three and nine months ended
September 30, 2015, compared with the corresponding period in 2014
primarily due to a higher unfavorable fair value adjustments related to
interest rate swaps.
-- Other was higher for the three months ended September 30, 2015, compared
with the corresponding period in 2014 primarily due to lower income tax
expense on the fair value adjustments to the available-for-sale asset
recognized in other comprehensive income.
-- Other was higher for the nine months ended September 30, 2015, compared
with the corresponding period in 2014 primarily due to lower taxes due
to the re-organization of the Energy Services segment (see below).
-- EPCOR's equity share of income of Capital Power was lower for the three
months ended September 30, 2015, compared with the corresponding period
in 2014. This was due to the change from equity accounting to fair value
accounting for the investment in Capital Power as a result of the loss
of significant influence.
-- EPCOR's equity share of income of Capital Power was higher for the nine
months ended September 30, 2015, compared with the corresponding period
in 2014. This was primarily due to the Company's equity share of higher
Capital Power net income earned in the first quarter of 2015 compared to
lower Capital Power net income earned in the first nine months of 2014.
Also, there was an income tax recovery in 2015 compared to income tax
expense in 2014.
-- EPCOR's dividend income from the available-for-sale asset in Capital
Power was higher for the three and nine months ended September 30, 2015,
compared with the corresponding periods in 2014. This was due to
accounting for the investment in Capital Power as an available-for-sale
asset in 2015, as described above, with no comparable accounting
treatment in 2014.
-- EPCOR recognized a gain on sale of a portion of its investment in
Capital Power in 2015 with no corresponding transaction in 2014. A gain
on sale resulted from proceeds received less direct expenses that were
higher than the carrying amount of the portion of the Company's
investment in Capital Power sold. A proportionate share of items
initially recognized in other comprehensive income were reclassified to
net income which also contributed to the gain.
-- EPCOR recognized a gain on the initial recognition of the investment in
Capital Power as an available-for-sale asset in 2015 with no
corresponding transaction in 2014. All remaining items initially
recognized in other comprehensive income were reclassified to net income
which contributed to the gain.
-- EPCOR recognized an impairment of the available-for-sale investment in
Capital Power in 2015 with no corresponding transaction in 2014. The
fair value loss on the available-for-sale investment in Capital Power
recognized in other comprehensive income was reclassified to net income.
Segment results
Water Services
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(Unaudited, $ millions,
including intersegment Three months ended Nine months ended
transactions) September 30, September 30,
-------------------- --------------------
2015 2014 2015 2014
------------------------------------------------------- --------------------
Revenues $ 191 $ 171 $ 518 $ 430
Expenses (128) (120) (371) (309)
------------------------------------------------------- --------------------
Operating income $ 63 $ 51 $ 147 $ 121
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Water Services' operating income increased by $12 million and $26 million for the three and nine months ended September 30, 2015, respectively, compared with the corresponding periods in 2014 primarily due to higher approved customer rates, increased volumes, higher construction activity and a Suncor termination fee. This was partially offset by higher depreciation.
Distribution and Transmission
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(Unaudited, $ millions,
including intersegment Three months ended Nine months ended
transactions) September 30, September 30,
-------------------- --------------------
2015 2014 2015 2014
------------------------------------------------------- --------------------
Revenues $ 148 $ 141 $ 433 $ 395
Expenses (128) (127) (368) (348)
------------------------------------------------------- --------------------
Operating income $ 20 $ 14 $ 65 $ 47
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Distribution and Transmission's operating income increased $6 million for the three months ended September 30, 2015, compared with the corresponding period in 2014 due to higher provincial system access fee revenue collections, distribution access rates and lower provincial system access fee expenses partially offset by higher depreciation.
Distribution and Transmission's operating income increased by $18 million for the nine months ended September 30, 2015, due to higher provincial system access fee revenue collections and distribution access rates. This was partially offset by higher provincial system access fee expenses and depreciation.
Energy Services
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(Unaudited, $ millions,
including intersegment Three months ended Nine months ended
transactions) September 30, September 30,
-------------------- --------------------
2015 2014 2015 2014
------------------------------------------------------- --------------------
Revenues $ 219 $ 233 $ 650 $ 696
Expenses (248) (240) (616) (673)
------------------------------------------------------- --------------------
Operating income (loss) $ (29) $ (7) $ 34 $ 23
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Energy Services' operating loss increased by $22 million for the three months ended September 30, 2015, compared with the corresponding periods in 2014 primarily due to higher unfavorable fair value adjustments related to financial electricity purchase contracts. This was partially offset by higher billing charge rates and higher Energy Price Setting Plan margins.
Energy Services' operating income increased by $11 million for the nine months ended September 30, 2015, compared with the corresponding periods in 2014 primarily due to higher billing charge rates, higher favorable fair value adjustments related to financial electricity purchase contracts and higher Energy Price Setting Plan margins.
In March 2014, EPCOR completed its re-organization of Energy Services. The services formerly offered directly by EPCOR Energy Alberta Inc. are now provided by EPCOR Energy Alberta Limited Partnership, through its general partner EPCOR Energy Alberta GP Inc.
Capital Spending and Investment ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Nine months ended September 30, 2015 2014 ---------------------------------------------------------------------------- Water Services $ 153 $ 121 Distribution and Transmission 165 138 Energy Services 1 2 Corporate 7 4 ---------------------------------------------------------------------------- Total capital spending and investment $ 326 $ 265 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Total capital spending and investment was higher for the nine months ended September 30, 2015, compared with the corresponding period in 2014 primarily due to increased spending in the Water Services segment and Distribution and Transmission segment. The Water Services segment had increased capital spend at the Gold Bar wastewater treatment plant, new reservoirs at the Walker and Big Lake booster stations in Edmonton, and on the White Rock Total Water Quality Management project. This was partially offset by decreased water main relocations. The Distribution and Transmission segment had increased capital spend on lifecycle replacement, growth, and performance improvement projects. This was partially offset by decreased construction activity as the Heartland Transmission Project was completed in 2014.
Consolidated statements of financial position - assets
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(Unaudited, $
millions) Explanation of
September 30, December 31, Increase material
2015 2014 (decrease) changes
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Cash and cash $ 34 $ 37 $ (3) Refer to
equivalents Consolidated
Statements of
Cash Flows
section.
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Trade and other 585 333 252 Increase
receivables primarily due
to an increase
in current
portion of
finance lease
receivables due
from Suncor and
other financial
assets (see
below) and
higher customer
water rates and
volumes,
partially
offset by lower
electricity
accruals and
billings
resulting from
lower
electricity
volumes.
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Inventories 15 14 1
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Finance lease 1 118 (117) Decrease
receivables primarily due
to re-
classifying
non-current
lease
receivables to
current
(recorded in
trade and other
receivables
above)
resulting from
the Suncor buy-
back decision
and repayment
of Suncor lease
receivable.
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Other financial 292 408 (116) Decrease
assets primarily due
to portions of
Capital Power
and Regina
long-term
receivables and
Suncor unbilled
construction
becoming
current and
reclassified to
trade and other
receivables
above,
partially
offset by
higher
construction
revenue
recognized.
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Deferred tax 70 69 1
assets
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Investment in - 393 (393) Decrease due to
Capital Power the sell-down
of a portion of
EPCOR's
investment in
Capital Power,
and ceasing
equity
accounting and
re-classifying
the investment
in Capital
Power to an
available-for-
sale asset
(recorded in
available-for-
sale investment
below).
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Available-for-sale 177 - 177 Increase
investment in primarily due
Capital Power to ceasing
equity
accounting and
re-classifying
the investment
in Capital
Power to
available-for-
sale investment
(see above).
Partially
offsetting
these increases
were mark-to-
market
adjustments of
the available-
for-sale
investment in
Capital Power.
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Property, plant 4,463 4,112 351 Increase
and equipment primarily due
to capital
expenditures
and foreign
currency
valuation
adjustments,
partially
offset by
depreciation
expense and
higher
disposals.
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Intangible assets 280 254 26 Increase
and goodwill primarily due
to capital
expenditures
and foreign
currency
valuation
adjustments,
partially
offset by
amortization
expense on
assets with
finite lives.
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Consolidated statements of financial position - liabilities and equity
----------------------------------------------------------------------------
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(Unaudited, $ September December Increase Explanation of
millions) 30, 2015 31, 2014 (decrease) material changes
----------------------------------------------------------------------------
Trade and other 264 248 16 Increase primarily
payables due to Regina
construction,
partially offset
by lower
electricity
purchase accruals
as a result of
lower wholesale
electricity prices
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Loans and borrowings 2,025 2,080 (55) Decrease primarily
(including current due to repayment
portion) of short-term
debt, partially
offset by foreign
currency valuation
adjustments on
U.S. debt.
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Deferred revenue 941 870 71 Increase primarily
(including current due to contributed
portion) assets received
and favorable
foreign currency
valuation
adjustments,
partially offset
by revenue
recognized.
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Provisions (including 137 135 2 Increase primarily
current portion) due to
contributions from
developers,
partially offset
by lower employee
benefit
obligations.
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Derivative liabilities 12 9 3 Increase primarily
(including current due to higher fair
portion) value loss on
interest rate
swap.
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Other liabilities 37 37 -
(including current
portion)
----------------------------------------------------------------------------
Deferred tax 32 19 13 Increase due to
liabilities change in net
taxable temporary
differences and
foreign currency
valuation
adjustments.
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Equity attributable to 2,469 2,340 129 Increase due to
the Owner of the increase in net
Company income, partially
offset by
dividends paid.
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Consolidated statements of cash flows
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(Unaudited, $ millions)
Cash inflows (outflows)
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Three months ended Increase
September 30, 2015 2014 (decrease) Explanation
----------------------------------------------------------------------------
Operating $ 21 $ 71 $ (50) Decrease primarily
due to lower non-
cash operating
working capital
primarily resulting
from larger decrease
in trade and other
payable.
Investing (118) (120) 2 Increase primarily
due to higher
payments received on
finance lease
receivables from
Suncor and other
financial assets,
higher non-cash
investing working
capital, and higher
proceeds on disposal
of capital,
partially offset by
higher capital
expenditure, and
lower distributions
from Capital Power.
Financing (26) (11) (15) Decrease primarily
due to lower
issuance of short-
term loans,
partially offset by
repayment of short-
term loans and
borrowings.
Opening cash and cash 157 101 56
equivalents
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Closing cash and cash $ 34 $ 41 $ (7)
equivalents
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(Unaudited, $ millions)
Cash inflows (outflows)
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Nine months ended 2015 2014 Increase Explanation
September 30, (decrease)
----------------------------------------------------------------------------
Operating $ 304 $ 253 $ 51 Increase primarily
reflects higher
funds from
operations,
partially offset by
lower non-cash
operating working
capital. The lower
non-cash working
capital is a result
from a lower
increase in trade
and other
receivables,
partially offset by
a larger increase in
accounts payable.
Investing (103) (251) 148 Increase primarily
due to proceeds on
sale of portion of
the investment in
Capital Power,
higher non-cash
investing working
capital, higher
payments received on
finance lease
receivables from
Suncor, lower
payments for Gold
Bar transfer, and
higher proceeds on
disposal of capital,
partially offset by
higher capital
expenditure, higher
advances on
financial lease
receivables and
other assets, and
lower distributions
from Capital Power.
Financing (204) (91) (113) Decrease primarily
due to repayment of
short-term loans and
borrowings,
partially offset by
lower repayment of
long-term loans and
borrowings.
Opening cash and cash 37 130 (93)
equivalents
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Closing cash and cash $ 34 $ 41 $ (7)
equivalents
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Liquidity and capital resources
The Company maintains its financial position through rate-regulated utility and contracted operations which generate stable cash flows.
Capital Requirements and Contractual Obligations
During the third quarter of 2015, there were no material changes to the Company's capital requirements or purchase obligations, including payments for the next five years and thereafter as previously disclosed in the December 31, 2014, annual MD&A.
Financing
The Company has bank credit facilities, which are used principally for the purpose of backing the Company's commercial paper program and providing letters of credit, as outlined below:
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Banking
(Unaudited, $ millions) Total commercial
September 30, 2015 Expiry facilities paper issued
----------------------------------------------------------------------------
Committed
Syndicated bank credit facility(1) December
2017 $ 200 $ -
Syndicated bank credit facility December
2019 350 15
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Total committed 550 15
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Uncommitted
Bank line of credit No expiry 25 -
----------------------------------------------------------------------------
Total uncommitted 25 -
----------------------------------------------------------------------------
Total credit facilities $ 575 $ 15
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Letters of
credit and
(Unaudited, $ millions) other facility Net amounts
September 30, 2015 draws available
-----------------------------------------------------------------
Committed
Syndicated bank credit facility(1) $ 57 $ 143
Syndicated bank credit facility - 335
-----------------------------------------------------------------
Total committed 57 478
-----------------------------------------------------------------
Uncommitted
Bank line of credit - 25
-----------------------------------------------------------------
Total uncommitted - 25
-----------------------------------------------------------------
Total credit facilities $ 57 $ 503
-----------------------------------------------------------------
-----------------------------------------------------------------
(1) Restricted to letters of credit.
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Banking
(Unaudited, $ millions) Total commercial
December 31, 2014 Expiry facilities paper issued
----------------------------------------------------------------------------
Committed
Syndicated bank credit facility(1) December
2017 $ 200 $ -
Syndicated bank credit facility December
2019 350 103
----------------------------------------------------------------------------
Total committed 550 103
----------------------------------------------------------------------------
Uncommitted
Bank line of credit No expiry 25 -
----------------------------------------------------------------------------
Total uncommitted 25 -
----------------------------------------------------------------------------
Total credit facilities $ 575 $ 103
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Letters of
credit and
(Unaudited, $ millions) other facility Net amounts
December 31, 2014 draws available
-----------------------------------------------------------------
Committed
Syndicated bank credit facility(1) $ 82 $ 118
Syndicated bank credit facility - 247
-----------------------------------------------------------------
Total committed 82 365
-----------------------------------------------------------------
Uncommitted
Bank line of credit - 25
-----------------------------------------------------------------
Total uncommitted - 25
-----------------------------------------------------------------
Total credit facilities $ 82 $ 390
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( 1) Restricted to letters of credit.
Letters of credit are issued to meet the credit requirements of energy market participants and conditions of certain service agreements.
The Company has a Canadian base shelf prospectus under which it may raise up to $1 billion of debt with maturities of not less than one year. At September 30, 2015, the available amount remaining under this base shelf prospectus was $1 billion (December 31, 2014 - $1 billion). The base shelf prospectus expires in December 2015. The Company is presently preparing a new Canadian base shelf prospectus that it expects to file in the fourth quarter of 2015.
The Company expects to have sufficient liquidity to finance its plans and fund its obligations for the remainder of 2015 with a combination of cash on hand, cash flow from operating activities, dividend income from its available-for-sale investment in Capital Power, the issuance of commercial paper and drawings upon existing credit facilities. The Company has an adequate contractual liquidity position with credit available under various bank lines as described above. Cash flows from operating activities would be impaired by events that cause severe damage to our facilities and would require unplanned cash outlays for system restoration repairs. Under those circumstances, more reliance would be placed on our credit facilities for working capital requirements until a regulatory approved recovery mechanism was in place or insurance proceeds were received.
EPCOR plans to eventually sell all or a substantial portion of its remaining interest in Capital Power subject to market conditions, based on its requirements for capital and other circumstances that may arise in the future.
Commercial paper was issued and outstanding at September 30, 2015, of $15 million (December 31, 2014 - $103 million).
In August 2015, DBRS confirmed it's A (low) stable senior unsecured debt and issuer ratings for EPCOR. In September 2015, Standard & Poor's confirmed it's A- stable long-term corporate credit and senior debt ratings for EPCOR.
Financial Covenants
EPCOR is currently in compliance with all of its financial covenants in relation to its bank credit facilities, Canadian public medium-term notes and U.S. private-debt notes. Based on current financial covenant calculations, the Company has sufficient borrowing capacity to fund current and long-term requirements. Although the risk is low, breaching these covenants could potentially result in a revocation of EPCOR's bank credit facility causing a significant loss of access to liquidity.
If the economy were to deteriorate in the longer term, particularly in Canada and the U.S., the Company's ability to extend the maturity or revise the terms of its bank credit facilities, arrange long-term financing for its capital expenditure programs and acquisitions, or refinance outstanding indebtedness when it matures could be adversely impacted. If market conditions worsen and / or if cash flows and operating results deteriorate significantly for a sustained period of time, the Company may suffer a credit rating downgrade. We believe that these circumstances have a low probability of occurring, however, we continue to monitor our capital programs and operating costs to minimize the risk that the Company becomes short of cash or unable to honor its obligations. If required, the Company would look to reduce capital expenditures and operating costs and / or sell a portion of its investment in Capital Power as market conditions permit.
Critical accounting estimates
In preparing the condensed consolidated interim financial statements, management necessarily made judgments and estimates in determining transaction amounts and financial statement balances. Management made a judgment that its available-for-sale asset was impaired through a significant decline in market value. The following are the items for which significant estimates were made in the condensed consolidated interim financial statements: electricity revenues and costs, unbilled consumption of electricity and water, fair values and income taxes. Although the current condition of the economy has not impacted our methods of estimating accounting values, it has impacted the inputs in those determinations and the resulting values. Interim results will fluctuate due to the seasonal demands for electricity and water, changes in electricity prices, and the timing and recognition of regulatory decisions. Consequently, interim results are not necessarily indicative of annual results.
For further information on the Company's other critical accounting estimates, refer to the 2014 annual consolidated financial statements and 2014 annual MD&A.
Risk management
This section should be read in conjunction with the Risk Management section of the 2014 annual MD&A. EPCOR faces a number of risks including operational risks, regulatory risk, political and legislative risk, electricity price and volume risk, strategy execution risk, risk related to investment in Capital Power, health and safety risk, information technology related security risks, environment risk, project risk, weather risk, financial liquidity risk, availability of people, counterparty credit risk, foreign exchange risk, conflicts of interest, and general economic conditions, business environment and other risks. The Company employs active programs to manage these risks.
As part of ongoing risk management practices, the Company reviews current and proposed transactions to consider their impact on the risk profile of the Company. The risk related to its investment in Capital Power is lower in the condensed consolidated interim financial statements for the nine months ended September 30, 2015, compared to the risk profile or risk management strategies of EPCOR as described in the 2014 annual MD&A.
Outlook
In 2015, we intend to continue to focus on growth in rate-regulated water and electricity infrastructure. We expect this growth to come from new infrastructure to accommodate growth and operational improvements primarily related to the Edmonton based operations. We also intend to expand our water and electricity commercial services activity.
Demand for water is expected to continue to increase and we anticipate increased requirements for better water management practices including watershed management and conservation. We will pursue expansion of our portfolio of commercial water contracts, particularly in Canada.
EPCOR has been selected as the preferred proponent to build and operate a natural gas distribution system for three municipalities in the Southern Bruce region of Ontario near Kincardine. An environmental impact assessment and public consultation needs to occur prior to an application to the Ontario Energy Board for approval. If approved, construction is expected to begin in 2017.
The Company is also in negotiations with the Town of Innisfil to purchase a 50% share of its electrical distribution company, InnPower. The sale will require regulatory approval from the Ontario Energy Board. InnPower will continue to serve as the Town's electricity distributor to approximately 12,000 sites.
In September 2015, the City of White Rock signed an agreement with EPCOR to purchase the water utility that services the community. The agreement received regulatory approval and the City of White Rock will take over full operations of the water utility effective October 30, 2015. The disposition of the assets is not expected to have a material impact on the Company or its operations.
Quarterly results ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (Unaudited, $ millions) Net income Quarters ended Revenues (loss) ---------------------------------------------------------------------------- September 30, 2015 $ 511 $ (13) June 30, 2015 489 139 March 31, 2015 473 69 December 31, 2014 499 75 September 30, 2014 506 23 June 30, 2014 435 55 March 31, 2014 464 38 December 31, 2013 492 23 ----------------------------------------------------------------------------
Events for the past eight quarters compared to the same quarter of the prior year that have significantly impacted net income include:
-- September 30, 2015, third quarter results included the impairment of the
available-for-sale investment in Capital Power and unfavorable fair
value adjustments related to the financial electricity purchase
contracts, partially offset by higher approved water and electricity
customer rates, higher billing charge rates, and higher Energy Price
Setting Plan margins.
-- June 30, 2015, second quarter results included gain on sale of a portion
of investment in Capital Power and gain on reclassification of
investment in Capital Power to an available-for-sale asset. It also
included higher approved water and electricity customer rates, higher
fair value adjustments on financial electricity purchase contracts,
lower income tax expense due to the re-organization of Energy Services,
and favorable fair value adjustments related to the interest rate swap.
-- March 31, 2015, first quarter results included higher approved water and
electricity customer rates, higher fair value adjustments on financial
electricity purchase contracts, higher equity share of income of Capital
Power, and lower income tax expense due to the re-organization of Energy
Services. This was partially offset by a loss on fair value adjustments
related to the interest rate swap.
-- December 31, 2014, fourth quarter results included higher approved water
and electricity customer rates, recovery of deferred income taxes due to
the recognition of loss carry forwards as a result from an increase in
forecasted taxable income in Energy Services, gain on dilution of
interest in Capital Power and higher income from our equity share of
Capital Power, partially offset by higher depreciation on capital assets
in service, lower fair value adjustments on interest rate swap and
financial electricity purchase contracts, and lower capitalized interest
due to lower capital spend during the period.
-- September 30, 2014, third quarter results included higher favorable fair
value adjustments on financial electricity purchase contracts and higher
approved water and electricity customer rates, partially offset by lower
income from our equity share of Capital Power.
-- June 30, 2014, second quarter results included higher favorable fair
value adjustments on financial electricity purchase contracts and higher
approved water and electricity customer rates, partially offset by lower
income from our equity share of Capital Power.
-- March 31, 2014, first quarter results included lower income from our
equity share of Capital Power and higher unfavorable fair value
adjustments on financial electricity purchase contracts, partially
offset by higher approved water and electricity rates.
-- December 31, 2013, fourth quarter results included increased income
primarily due to a lower impairment charge related to the investment in
Capital Power, higher income from our equity share of Capital Power and
increased income from higher approved water and electricity customer
rates, partially offset by a loss on sale of the partial investment in
Capital Power.
Forward-looking information
Certain information in this MD&A is forward-looking within the meaning of Canadian securities laws as it relates to anticipated financial performance, events or strategies. When used in this context, words such as "will", "anticipate", "believe", "plan", "intend", "target", and "expect" or similar words suggest future outcomes.
The purpose of forward-looking information is to provide investors with management's assessment of future plans and possible outcomes and may not be appropriate for other purposes.
Material forward-looking information within this MD&A, including related material factors or assumptions and risk factors, are noted in the table below:
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Forward-looking Material Factors or Risk Factors
Information Assumptions
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The Company expects to EPCOR is able to generate EPCOR's operations do
have sufficient liquidity the expected cash flow not generate the
to finance its plans and from operations and expected level of cash
fund its obligations for various means of funding flow and / or
the remainder of 2015. remain available to the circumstances arise
Company. limiting or restricting
the Company's ability to
access funds through the
various means otherwise
available.
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EPCOR plans to eventually EPCOR is able to find EPCOR is unsuccessful in
sell all or a substantial suitable lower-risk finding suitable
portion of its remaining businesses and / or businesses and / or
interest in Capital assets to invest the assets to invest in,
Power. sell-down proceeds in. therefore negating
further sell downs to
Market conditions permit raise funds.
the sale of Capital Power
shares at a price The market price of
suitable to EPCOR. Capital Power shares
declines to an amount
that EPCOR no longer
deems it feasible to
sell all or
substantially all of its
interest in Capital
Power.
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Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks and uncertainties which could cause actual results to differ from expectations and are identified in the Risk Management section above.
Readers are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Except as required by law, EPCOR disclaims any intention and assumes no obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.
Additional information
Additional information relating to EPCOR including the Company's 2014 Annual Information Form is available on SEDAR at www.sedar.com.
Contacts:
Media Relations:
EPCOR Utilities Inc.
Tim le Riche
(780) 969-8238
tleriche@epcor.com
Corporate Relations:
EPCOR Utilities Inc.
Claudio Pucci
(780) 969-8245 or toll free (877) 969-8280
cpucci@epcor.com
