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

Northland Power Income Fund

November 08, 2006 18:09 ET

Northland Power Income Fund Reports Third Quarter; 2006 Distributable Cash Increases with Sales Volume; Distributions Per Unit Up 5%

TORONTO, ONTARIO--(CCNMatthews - Nov. 8, 2006) - Northland Power Income Fund (the "Fund")(TSX:NPI.UN)(TSX:NPI.DB) reported its financial results today for the period ended September 30, 2006. Total distributable cash increased 27% in the third quarter and 10% in the first nine months of the year, whereas distributable cash per unit (basic) remained unchanged in the third quarter; distributions declared per unit, however, were 5% higher than in 2005.



FINANCIAL AND OPERATING HIGHLIGHTS FOR THE PERIODS ENDED SEPTEMBER 30, 2006

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3 Months Ended Sept. 9 Months Ended Sept.
30 30
2006 2005 2006 2005
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FINANCIAL (thousands, except per
unit amounts)
Sales $40,463 $31,707 $116,855 $91,525
Net income $5,770 $5,217 $21,403 $32,126

Funds from operations before
changes in working capital (1) $16,484 $14,978 $50,093 $48,150
Distributable cash (1) $17,692 $13,947 $52,715 $47,807

Distributions declared to
Unitholders $16,625 $12,250 $47,016 $36,911

Units Outstanding at Quarter End 62,194 49,308 62,194 49,308
Average Number of Units
Outstanding - basic 62,107 48,932 58,306 48,289
Average Number of Units
Outstanding - diluted 64,676 53,116 61,204 53,116

Per Unit - basic
Funds from operations before
changes in working capital (1) $0.2654 $0.3061 $0.8591 $0.9971
Distributable cash (1) $0.2849 $0.2850 $0.9041 $0.9900
Distributions declared to
Unitholders $0.2675 $0.2550 $0.7925 $0.7625
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OPERATIONS
Electricity sales volume
(megawatthours) 302,642 256,798 893,870 761,640
Steam sales volume (thousands of
pounds) 263,517 223,289 956,365 825,594
Fuel consumption (thousands of
gigajoules) 2,543 2,076 7,565 6,708
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(1) These are non-GAAP financial measures. Please refer to schedule of Distributable Cash and Distributions to Unitholders in the Fund's third quarter Management's, Discussion and Analysis ("MD&A") for the calculations of funds from operations before changes in working capital and distributable cash.

Sales of $40.5 million and net income of $5.8 million in the quarter increased by $8.8 million and $0.6 million respectively compared to the third quarter of 2005. Distributable cash of $17.7 million was higher by $3.7 million while distributable cash of $0.2849 per unit was equivalent to last year. These results include the contribution from the remaining 50% ownership interest in the Kingston facility, which the Fund acquired on March 23, 2006, and the investment in the German wind farms in the second quarter. Electricity production at Iroquois Falls was adversely affected during the quarter by: i) curtailment of lower-priced off-peak production due to reduced availability of contract natural gas, ii) downtime required for a scheduled steam turbine inspection and overhaul, and iii) lower sales made outside the power purchase agreement due to poor wholesale prices compared to last year. In addition, the third quarter of 2005 included a favourable retroactive price adjustment at Iroquois Falls. Production at the Mont Miller wind farm fell short of last year due to the continuation of low winds in the Gaspesie region. On the positive side, the Kingston facility performed well and the contribution from the German wind farms was consistent with expectations.

Distributable cash generated in the third quarter exceeded distributions declared to Unitholders by $1.1 million. Readers should refer to the schedule of Distributions to Unitholders and Distributable Cash in the Fund's Q3 Management's Discussion and Analysis for the calculation of distributable cash (a non-GAAP financial measure).

Distributions to Unitholders declared for the quarter were $0.2675 per unit, 5% higher than in 2005.

On October 16, 2006 the Fund announced that it will provide a $35 million loan, subordinated to the senior project debt, for the Thorold Cogeneration Project being developed by an entity owned by Northland Power Inc. (the parent of the Fund's Manager). The loan is repayable over five years from completion of the project and has an effective annual interest rate of 12.5%; the Fund expects to finance the loan under its existing line of credit. The transaction is expected to close in the first quarter of 2007 and is subject to a number of conditions including closing of the non-recourse senior secured debt financing for the project and completion of documentation.

The financial results for 2006 include the financial contribution of 100% of the Kingston project from March 23, 2006 (compared to 50% in 2005), including the impact of the subsequent repayment of the levelization account and reduction in management fees; operation of the Mont Miller project for the entire period (compared to the 114 days from June 9 to September 30 in 2005); and results from the German wind farms effective from April 1, 2006. The one-time impact of the sale of the Panda-Rosemary project in the first quarter of 2005 is included in the results for the first nine months of 2005.

The president of the Fund's Manager, John Brace, said, "We expect the Fund's overall financial performance during the remainder of 2006 to continue to exceed that of 2005 as a result of the increased investment in the Kingston facility in March and repayment of its levelization account, the additional contribution from the German wind farm acquisition, increased contracted electricity rates at Iroquois Falls due to the three-year averaging mechanism in its power purchase agreement, and higher natural gas resale margins at Kingston as a result of forward sales contracts entered into in previous years."

On October 31, 2006, the federal government announced tax proposals pertaining to taxation of distributions paid by income trusts and the personal tax treatment of trust distributions. Based on the information available, the Manager understands that for Canadian investors holding their units outside an RRSP or other tax deferred plans there will be essentially no impact from these changes as a new tax payable by the Fund will be offset by a reduced rate of tax payable personally on the distributions. However, registered pension plans, RRSPs and other tax deferred plans which are not liable for current tax (their tax obligation is deferred) would receive distributions after provision by the Fund for the new tax, as will investors located outside Canada. If enacted, the proposals will apply to the Fund and its Unitholders effective January 1, 2011. The Manager and the Trustees of the Fund are currently assessing the proposals and the potential implications to the Fund.

Based on the current information available to the Manager, the potential impact of the proposed new measures on tax exempt entities such as Canadian registered pension plans, RRSPs and RRIFs and on taxable entities would be as follows:



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Tax Exempt Entities Taxable Entities
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CDN $ per unit, except Current Tax Proposed Tax Current Tax Proposed Tax
otherwise noted Treatment Treatment Treatment Treatment
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2006 forecasted
distribution $1.08 $1.08 $1.08 $1.08
Taxability of
distributions (1) 66% 66% 66% 66%
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Forecasted taxable
distributions $0.71 $0.71 $0.71 $0.71
Proposed taxes to be paid
by the Fund (2) - $0.22 - $0.22
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Forecasted distributions
after the Fund's tax $1.08 $0.86 $1.08 $0.86
Estimated tax paid by
Unitholder (3) - - $0.33 $0.11
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Net amount $1.08 $0.86 $0.75 $0.75
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(1) The Manager's current forecast for the taxable portion of 2006 distributions.

(2) Based on the taxation rate of 31.5% under the proposed legislation.

(3) Based on the highest marginal tax rate of 46% for Ontario residents under the current tax treatment. Under the proposed tax treatment, taxable distributions would be considered eligible dividends and taxed at the lower rate of 22%.

Investors should contact their financial advisor or broker on the tax implications of this proposed legislation with respect to their investment in the Fund.

A copy of the Fund's third quarter report and related MD&A is available at www.sedar.com and the Fund's web site at www.NPIFund.com.

ABOUT THE FUND

Northland Power Income Fund indirectly owns interests in six power generating facilities: three natural gas-fired combined-cycle cogeneration power plants that efficiently and cleanly produce electricity and steam for sale, and three wind farms. Two cogeneration plants are located in Ontario: the 120 megawatt (MW) Iroquois Falls facility which has been wholly-owned by the Fund since its inception in 1997, and the 110 MW Kingston facility which has been wholly-owned by the Fund since it acquired the remaining 50% interest in March 2006. Through its 19% equity interest in Panda Energy Corp. (PEC) and loan to a PEC subsidiary, the Fund has an interest in the 230 MW Panda-Brandywine cogeneration plant located outside Washington, D.C. Electricity produced from the cogeneration plants is sold under long-term power purchase agreements (PPAs) with creditworthy entities to ensure revenue stability, and long-term contracts assure the supply and price of natural gas, which is the Fund's largest cost. The 54 MW Mont Miller wind farm in the Gaspesie region of Quebec supplies electricity to Hydro-Quebec under the terms of a 21-year PPA. The Fund also owns two wind farms in Germany with a total capacity of 21.5 MW, where the electricity is sold to regional power utilities under the provisions of German renewable energy legislation.

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.

FORWARD LOOKING STATEMENTS

The above disclosure contains certain forward-looking statements. Although these forward-looking statements are based upon Northland Power Income 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 2005 annual report and in the Fund's Annual Information Form dated March 7, 2006, certain of which are beyond the Manager's control. For this purpose, any statements that are contained herein that are not statements of historical fact may be forward-looking statements. 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.
    Barb Bokla
    Manager, Investor Relations
    (416) 962-6262 x156
    or
    Northland Power Income Fund Management Inc.
    Tony Anderson
    Chief Financial Officer
    (416) 962-6262 x120
    (416) 962-6266 (FAX)
    Email: info@NPIFund.com
    Website: www.NPIFund.com