Northland Power Income Fund
TSX : NPI.UN
TSX : NPI.DB

Northland Power Income Fund

September 09, 2008 20:09 ET

Northland Power Income Fund Announces Expected Receipt of US$10 Million in Cash Proceeds Related to New Power Purchase Agreement at Panda-Brandywine Facility

TORONTO, ONTARIO--(Marketwire - Sept. 9, 2008) -

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Northland Power Income Fund (the "Fund") (TSX:NPI.UN)(TSX:NPI.DB) announced today that it expects to receive within the next few weeks a dividend of approximately US$8.5 million from Panda Energy Corporation ("PEC") and a restructuring fee of US$1.3 million related to its loan to Panda Interfunding Company, LLC ("PIC"), a wholly-owned subsidiary of PEC. These payments are associated with transactions being entered into by Panda-Brandywine, L.P., a wholly-owned subsidiary of PEC that owns the Panda-Brandywine power-generating facility, that include replacement of the existing power purchase agreement at the facility. The Fund acquired a 19% equity interest in PEC and extended a loan to PIC in 2003 indirectly through a subsidiary.

The Panda-Brandywine facility is a 230 MW combined-cycle cogeneration power plant located outside Washington, D.C. that uses natural gas as its primary fuel. The facility has been operating since 1996 and has sold electrical capacity and energy since inception to Potomac Electric Power Company ("PEPCO") pursuant to a power purchase agreement that terminates in 2021. The profit and cash flow of the plant are primarily determined by the contractual fixed capacity payments as variable revenues received under the power purchase agreement closely match variable costs when the plant operates.

Under the terms of transactions that have been entered into among Panda-Brandywine, L.P., PEPCO and Sempra Energy Trading LLC ("Sempra"), the PEPCO power purchase agreement ("PPA") has been replaced by a new PPA with Sempra. The Sempra power purchase agreement retains many of the characteristics of the PEPCO PPA, including pre-defined fixed capacity payments, variable payments when the plant operates designed to match variable operating costs, and a term extending to 2021. The Sempra fixed capacity payments are similar to those under the PEPCO PPA until 2016, but somewhat lower thereafter. As a result of the transactions, Panda-Brandywine, L.P. is receiving an upfront cash payment from Sempra as well as proceeds from selling its fixed-price natural gas supply contract that was needed by the facility to meet a portion of its electricity supply obligations to PEPCO but is no longer required under the new PPA with Sempra.

In addition to the immediate cash proceeds, the benefits to Panda-Brandywine, L.P. from today's transactions are:

1. Sempra has a stronger credit rating (Sempra's Standard & Poor's credit rating is BBB+; PEPCO's rating is BBB-).

2. Operations at the Panda-Brandywine facility will be improved:

- The facility will become an "exempt wholesale generator" under U.S. federal energy legislation and will no longer be required to maintain its status as a "qualifying facility." As a result, the distilled water plant located adjacent to the facility and owned indirectly by PEC will be closed with material benefits in costs and operational flexibility.

- The Panda-Brandywine facility will operate at higher efficiency as it is expected to be fully dispatchable by Sempra into the PJM electricity market; historically the facility has often operated inefficiently at part load.

3. Certain potential future costs related to greenhouse gases will be absorbed by Sempra.

In addition to the Fund's receiving approximately US$9.8 million in upfront cash, a debt service reserve account of US$2.5 million has been established by PIC exclusively for the Fund's loan. The other terms of the existing loan to PIC, including the interest rate of 10.9% and repayment by 2021, are unchanged. The Fund continues to retain its 19% equity interest in PEC.

"We are pleased to have supported our partner, Panda Energy International Inc., in freeing up value from the Panda-Brandywine facility through the new agreement with Sempra that better reflects the technical capabilities of the facility and its location in the heart of the Pennsylvania-New Jersey-Maryland power market area" stated John Brace, CEO of the Fund's Manager. "Today's transaction provides us with immediate benefits while retaining the Fund's long-term economic interests in this attractive, strategically-located facility."

Under the provisions of the Fund's loan to PIC, the Fund's approval is required to the new power purchase agreement with Sempra. The Manager has recommended and the trustees of NPIF Commercial Trust have unanimously approved the Sempra PPA. The transaction is consistent with the Fund's investment objective of producing stable and sustainable levels of cash available for distribution to Unitholders from energy-related projects. Management expects to retain the cash received to help meet the Fund's previously announced commitments to provide subordinated loans to Northland Power Inc.'s Thorold and Jardin d'Eole projects.

About Northland Power Income Fund

Northland Power Income Fund is a Canadian income trust that indirectly owns equity interests in six power projects, which efficiently and cleanly produce electricity and steam for sale under long-term contracts. The Fund's combined-cycle cogeneration power plants and wind farms are located in Canada, the United States and Germany. The Fund is also providing $30 million as subordinated debt to Northland Power Inc.'s 265 MW Thorold Cogeneration Project that is under construction near the Town of Thorold, Ontario and $35 million to the Jardin d'Eole wind project under construction near Matane, Quebec.

The Fund's trust units and convertible debentures, which trade on the Toronto Stock Exchange under the symbols NPI.UN and NPI.DB respectively, are qualified investments for RRSPs and DPSPs under the Canadian Income Tax Act. The Fund has in place a distribution re-investment plan that allows unitholders who are residents of Canada to automatically have their monthly cash distributions reinvested in additional units. Participants do not pay any costs associated with the plan, including brokerage commissions. For further information or to join the plan, contact your financial advisor or broker.

Symbol: TSX: NPI.UN and NPI.DB

September 9, 2008

FORWARD LOOKING STATEMENTS

Certain statements in this News Release, other than statements of historical fact, are forward-looking statements based on certain assumptions and reflect the Fund's and its subsidiaries' current expectations. Forward-looking statements are provided for the purpose of presenting information about management's current expectations and plans relating to the future and readers are cautioned that such statements may not be appropriate for other purposes. These statements may include, without limitation, statements regarding the operations, business, financial condition, priorities, ongoing objectives, strategies and outlook of the Fund's and its subsidiaries' for the current fiscal year and subsequent periods. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "plans", "believes", "estimates", "intends", "targets", "projects", "forecasts" or negative versions thereof and other similar expressions, or future or conditional verbs such as "may", "will", "should", "would" and "could". This information is based upon certain material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking statements, including the perception of historical trends, current conditions and expected future developments, as well as other factors that are believed to be appropriate in the circumstances. Although these forward-looking statements are based upon the Fund's Manager's current reasonable expectations and assumptions, they are subject to numerous risks and uncertainties, including those set out in the management's discussion and analysis section of the Fund's 2007 annual report and in the Fund's Annual Information Form dated March 28, 2008, certain of which are beyond the Manager's control. The Fund's actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or what benefits, including the amount of distributions, the Fund and Unitholders will derive therefrom.

Contact Information

  • Northland Power Income Fund Management Inc.
    Boris Balan
    Director, Communications & Business Development
    (416) 962-6262 x116
    (416) 962-6266 (FAX)
    or
    Northland Power Income Fund Management Inc.
    Barb Bokla
    Manager, Investor Relations
    (416) 962-6262 x156
    (416) 962-6266 (FAX)
    Email: info@NPIFund.com
    Website: www.NPIFund.com