Stephen H. White, president and chief executive officer commented, The first quarter performance of each of our businesses was consistent with our expectations. We are pleased that NGL market conditions began to improve in February, resulting in Aux Sable generating CAD4.7 million in margin-based lease revenues during the first quarter, although these revenues are not yet reflected in net income or distributable cash.
Alliance pipeline and AEGS, which comprise the pipeline business, continued their steady performance, generating aggregate net income before tax of CAD28 million. Alliance’s first quarter earnings also benefited from the effect of the weaker Canadian dollar.
Pipeline earnings for the same period previous year comprise CAD10.3 million of revenues (CAD6.8 million after-tax) related to the settlement of Alliance’s claim against Calpine Energy Services Canada partnership.
The NGL business generated a pre-tax net loss of CAD2.5 million for the first quarter of 2009, compared with the pre-tax net income of CAD10.7 million in the year-ago quarter. NGL market conditions, which experienced a severe downward shift in the fourth quarter of 2008, started to improve in February 2009. Besides to the ongoing recovery of all operating and capital costs associated with its Channahon facility and receipt of the fixed fee, as provided for under the NGL sales agreement with BP, Aux Sable generated CAD4.7 million in margin-based lease revenues under the profit-sharing mechanism of the agreement.
However, under generally accepted accounting principles, the margin-based lease revenues can only be recognized to the extent its realization is certain. Accordingly, no portion of this revenue was recognized or distributed during the first quarter of 2009. By comparison, Aux Sable generated CAD21.2 million of margin-based lease revenues and recognized CAD11.4 million in the year-ago quarter. Also during the first quarter, Aux Sable incurred higher costs related with the purchase, transport and sale of make-up gas compared to the same period previous year. A portion of these costs will be recovered over the course of the year through the recognition of the deferred margin-based lease revenue.
For the three months ended March 31, 2009 the power business generated a pre-tax net loss of CAD2 million, reflecting the company’s decision to transfer a CAD2.4 million non-cash expense (CAD2.3 million after-tax) from other comprehensive income to net income, representing the fair value decline of its investment in Pristine Power Inc. from Pristine’s initial public offering in March 2008. This loss was partly counterbalanced by incremental earnings from Fort Chicago Power’s Brush II facility, acquired in September 2008, and the London cogeneration facility, which started operations in December 2008, as well as the effect of the weaker Canadian dollar. NRGreen also contributed incremental earnings from its four waste heat units. Net income before tax for the same period previous year was CAD5.9 million and included a CAD4.2 million non-cash dilution gain (CAD3.7 million after-tax) relating to the company’s investment in Pristine.
Corporate costs for the first quarter of 2009 were CAD11.4 million compared to CAD17.4 million year-ago quarter, mainly reflecting reduced recognition of foreign exchange losses, earlier deferred and recorded in other comprehensive income, resulting from lower amounts of cash distributed by Fort Chicago Energy’s US businesses and a weaker Canadian dollar.
Distributable cash for the first quarter of 2009 was CAD31 million or CAD0.23 per unit compared to CAD42.8 million or CAD0.33 per unit in the year-ago quarter, reflecting lower Aux Sable distributions in the first quarter of 2009. Aux Sable generated negative CAD0.8 million of distributable cash, representing the first quarter fixed fee, net of raised support payments regarding costs associated with the purchase, transport and sale of make-up gas. The overall decline in distributable cash for the quarter also reflects lower distributions from Alliance, as first quarter 2008 distributions included funds received from the Calpine settlement, partly counterbalanced by the effect of the weaker Canadian dollar. Fort Chicago Power made a strong contribution to distributable cash this quarter, generating CAD4.6 million compared to negative CAD0.4 million year-ago quarter.
This raise reflects incremental cash generated by Brush II and the London cogeneration facility, as well as considerably lower maintenance capital expenditures as major maintenance was performed at the Ripon and San Gabriel facilities during the first quarter previous year. Net corporate costs were CAD7.9 million this quarter, CAD0.8 million lower than the same period previous year as increases in advisory costs were more than equalized by lower borrowing costs associated with Fort Chicago Energy’s credit facilities.
Cash from operating activities for the first quarter of 2009 was CAD44.4 million compared to CAD95.6 million year-ago quarter, reflecting decreased cash generated from Aux Sable and Alliance’s first quarter 2008 settlement with Calpine. This decline also reflects a major decline in changes in non-cash working capital, resulting from the first quarter 2009 payment of income taxes associated with 2008 NGL earnings and accrued at December 31, 2008.
Operating Highlights:
During the three months ended March 31, 2009, the Alliance pipeline continued to operate in a reliable manner, fully meeting its contracted 1.325 billion cubic feet per day of firm-service shipping capacity. Actual transportation deliveries averaged 1.690 bcf/d, a new first quarter record for Alliance and a slight increase from volumes of 1.685 bcf/d delivered during the same period previous year. AEGS first quarter toll volumes of 284.1 thousand barrels per day reduced slightly relative to 307.8 mbbls/d in the same period last year, due mainly to lower ethane receipts from the Empress-area extraction plants during the quarter.
Ethane production in the US Gulf Coast returned to a profitable margin and production at Aux Sable recommenced in early February. NGL average daily volumes were 53.9 mbbls/d during the first quarter of 2009, down from 70.6 mbbls/d year-ago quarter, reflecting ethane reinjection during the first part of the quarter. Fort Chicago Power generated 182,686 megawatt hours of electricity, reflecting ambient weather conditions and plant efficiency increases at the Ripon cogeneration facility and incremental electricity generation at the Brush II and London cogeneration facilities.
NRGreen’s waste heat electrical generation facilities, which experienced outages in December 2008 and January 2009 due to extremely cold weather, were repaired and placed back on line in January and February 2009. Construction of the East Windsor cogeneration facility continues to make good progress. The project is anticipated to be concluded within its original budget of CAD103.5 million and to be placed into commercial service early in the third quarter of 2009.
