During the quarter, the Company remained focused on executing our plans to achieve the major milestones for 2009, commented Jeffry M. Myers, president and chief executive officer. Since year end, at our East Windsor site, we have started commissioning and expect to fire the first turbine next month. Progress to date has been on track and we remain confident that the plant will become commercially operational on time and on budget. On our newest project, York Energy Centre, we continue to make tangible progress in our negotiations with an EPC contractor, equipment suppliers and environmental permitting.
While we remain focused on maximizing the value of our existing assets, we also continue to seek new areas for growth. During the quarter we submitted four bids to build four 200 MW plants in Colorado and New Mexico.
Overview
Currently, the company operates two 5 MW energy recovery generation (ERG) plants, Savona and 150 Mile House, along the Spectra Energy natural gas transmission system in British Columbia. Pristine Power is also managing the construction of the East Windsor Cogeneration Centre (EWCC), an 84 MW natural gas-fired cogeneration facility that will generate electricity and steam from the combustion of natural gas. This project is expected to commence commercial operations in the third quarter of 2009. Pristine Power has a 25% effective interest in all three of these projects.
The company is also managing the development of the York Energy Centre (YEC), a 393 MW natural gas fired peaking generation facility. The construction is expected to start in 2010 with commercial operations to commence in late 2011. The company is expected to have a 50% interest in this project.
Highlights
Higher expenditures on development activities and salaries, reflecting increased staffing levels, primarily attributed to the increased loss in the first quarter of 2009 over the comparable period in 2008. Increased costs were partially offset by revenues of CAD549,000 from power generated at the Company’s two operating plants. Cash used in operations during the first quarter of 2009 was CAD1,651,000 (CAD0.05 per share, basic and fully diluted) compared to CAD1,258,000 (CAD0.07 per share, basic and fully diluted) in 2008. During the quarter, the company spent CAD7,712,000 on property, plant and equipment compared to CAD16,743,000 in the comparable period in 2008. Cash used in investing activity was offset by the receipt of funds totaling CAD2,320,000 previously held in trust and release of funds from restricted cash. Proceeds from restricted cash were CAD638,000 in the first quarter of 2009 compared to CAD10,417,000 in the first quarter of 2008. Proceeds from restricted cash consist of funds released for construction of East Windsor Cogeneration Centre. In the first quarter of 2009 this was offset by cash collateral posted as security for CAD6,980,000 letters of credit. The majority of such letters of credit were issued in support of the York Energy Centre project. As a consequence, at the end of the quarter, the company’s cash position totaled CAD30,936,000 compared to CAD37,700,000 at year end.
Results of Operations
During the first quarter of 2009, the company’s net interest in electricity generated from the two plants at Savona and 150 Mile House totaled 6,487 MWh with a combined capacity factor of 62% compared to an expected capacity factor of 82%. Power generated from these two plants is sold to BC Hydro at fixed prices under the terms of a twenty-year contract. Production at the beginning of 2009 was negatively affected by post-commissioning issues related to quality control that is primarily the responsibility of the major equipment supplier. While lost revenues are not recoverable, the cost to rectify a significant portion of these issues is recoverable under warranty and both plants returned to full capacity in the third week of January. Production was also negatively impacted by lower gas flows on the Spectra Energy natural gas transmission system due to warmer than normal weather. These plants were under construction in the first quarter of 2008.
Project under Construction
Construction of the CAD207 million 84 MW East Windsor Cogeneration Centre continued in the first quarter of 2009, remaining on schedule and on budget. All major equipment is now on site and installed. During the quarter, work on piping and the plant’s electrical systems was undertaken along with the start of initial commissioning. Commencement of commercial operations is anticipated in the third quarter of 2009.
In December 2008, the company was awarded a 20 year contract by the Ontario Power Authority to construct and operate the York Energy Centre, a 393 MW natural gas fired peaking generation facility, located in the Township of King, Region of York, Ontario. Pristine Power expects to hold a 50% interest in the project with total project costs expected to be up to CAD365 million. The Company has received confirmation from municipal and regional authorities that the facility complies with Official Plan and zoning by-law requirements. During the quarter, the Ontario Ministry of the Environment denied all requests for elevation of the project to a full environmental assessment. Subsequent to the quarter end, and during the normal appeal period, appeals of this decision were received by the Ministry of the Environment which are currently under review by the Minister. Currently, the company is completing the necessary provincial environmental assessment, permitting and site plan process to obtain the necessary approvals required for construction, with completion of the permitting process expected in the last half of 2009. The Company is also in the process of finalizing agreements with the preferred engineer procure and construct (EPC) contractor and gas turbine supplier. Preliminary discussions have commenced with potential lenders for long-term non-recourse financing, with such financing expected to be in place following receipt of all necessary environmental permits. Construction is expected to commence in mid 2010 with completion anticipated late in 2011.
The Mackenzie Green Energy Centre is a proposed 65 MW (thermal equivalent) biomass fired project to be located in Mackenzie, British Columbia. Recently, the British Columbia Ministry of Forests and Range advised Pristine Power that Mackenzie Green Energy Inc.’s current energy supply contract with BC Hydro, dated August 31, 2006, was designated as a bioenergy supply contract under the Forest Act and accordingly could apply for a non-replaceable forest license, supplying a portion of the necessary fuel requirements. This is an important step in securing adequate fuel supplies for the project. However, before this project can proceed, certainty of the project site and mitigation of fuel price risk requires resolution.
