Atlantic Power Corporation (AT-NYSE, ATP.TO-TSX)

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February 25, 2011 Issue

The Most Powerful Name In Corporate News and Information


From about $370 million Canadian at their IPO in 2004 to $1 Billion Through a Series of Capital Raises and Acquisitions, Atlantic Power Corporation is Well Positioned as a Growing Business Providing a Relatively High Dividend in The 7% Range

Company Profile:

Atlantic Power Corporation is an independent power producer with power projects located in major markets in the United States. The Company’s current portfolio consists of interests in 13 operational power generation projects across ten states, a 500-kilovolt 84-mile electric transmission line located in California, one biomass project under construction in Georgia, and a number of development projects in five states. The Company’s power generation projects in operation have an aggregate gross electric generation capacity of approximately 1,961 megawatts (or "MW"), in which the Company’s ownership interest is approximately 876 MW.

Barry Welch: President and Chief Executive Officer

Mr. Welch has been President and Chief Executive Officer of Atlantic Power since October 2004 and a Director of the Company since June 2007. Prior to joining Atlantic Power Corporation, Mr. Welch was the Senior Vice President and co-head of the Bond & Corporate Finance Group of John Hancock Financial services, Boston, Massachusetts, from 2000 to 2004. Mr. Welch served on several committees at John Hancock, including its Pension Investment Advisory Committee and Investment Operating Committee. Mr. Welch was Chairman of John Hancock's Bond Investment Committee and reported monthly on investment portfolio, strategy and activity to the Committee of Finance of John Hancock's board of directors. Mr. Welch also led the development and approval of Hancock's involvement with ArcLight Capital Partners' Fund I and served as a member of ArcLight Energy Partners Fund I's Investment Committee. Previously at John Hancock, Mr. Welch headed the Bond and Corporate Finance Group's Power and Energy investment team. From 1989 to 2004, he was involved directly or oversaw $25 billion of investments in more than 1,000 utility, project finance and oil and gas transactions. Prior to joining John Hancock, Mr. Welch spent more than three years as a developer of power projects at Thermo Electron Corporation's Energy Systems Division (later known as Thermo Ecotek). There, he was involved in greenfield development of natural gas, wood and waste-to-energy projects, as well as asset management roles for operating plants. Mr. Welch received a Bachelors of Science in Mechanical and Aerospace Engineering from Princeton University, Princeton, New Jersey, and an M.B.A. from Boston College, Boston, Massachusetts. Mr. Welch serves on the Board of Directors of the Walker Home and School in Needham, Massachusetts.

Electric Utilities

Atlantic Power Corporation
200 Clarendon Street, Floor 25
Boston, MA 02116
Phone: 617-977-2400


Interview conducted by: Lynn Fosse, Senior Editor,, Published – February 25, 2011

Mr. Welch, how has Atlantic Power changed under your leadership?

Mr. Welch: I have been with Atlantic since its IPO in late 2004, and during that time, we have grown from a market cap of about $370 million Canadian, to an approximately $1 billion market cap as a result of a series of capital raises and a number of significant acquisitions. I am happy to say that we have positioned ourselves nicely as a business with a growing track record for acquisitions that are accretive and satisfy our investors’ interest in the stability and sustainability of our dividend, which is somewhere in the 7% range right now.


CEOCFO: What is Atlantic Power all about; what is happening day to day?

Mr. Welch: Atlantic Power owns and operates interests in 13 power plants and one transmission line in California. Our power projects were built with the intention of selling power under contracts to mostly utilities and in some cases other counter parties, but predominately investment grade utility credits. One critical goal that we have is to reduce as much as possible the volatility of our projects’ operating margins. When we are re-contracting our assets or looking for potential acquisitions, we try to pass through changes in the cost of fuel, which is one of the largest expenses for projects generally, to power purchasers. Additionally, while all of our projects are currently in the U.S., we have also been looking in Canada to see if there are some good assets that would expand our portfolio, and further diversify our cash flows in terms of currency as well.


CEOCFO: Are you project types and geographic diversity by design or opportunistic?

Mr. Welch: Generally opportunistic, but we are driven when we look at every acquisition by a number of key questions. First, the question of stability of operating margin, which I mentioned earlier; secondly, the length of the contract in order to have good visibility around those operating margins on a go-forward basis. Then as an additional set of considerations, we are looking for the other factors that you mentioned, such as diversification, both geographically as well as by fuel type. The opportunistic aspect comes into play where, for example, last year we invested in a number of renewable development projects, two biomass and one wind, driven in part by incentives that became available under the federal stimulus bill.


CEOCFO: With a far-flung range, how do you assure quality operations at each location?

Mr. Welch: We are in regular contact in a number of different ways. First, on a daily basis our head of operations receives regular emails with outputs and efficiencies. If anything unusual happens, the plant manager tends to let us know immediately, so we are aware if there is an outage and what is going on. There are regular monthly reports and there are regular partnership meetings for the owners. We may be the only owner, but there may be partners as well and we will have one of our staff there at the meetings, usually held at the project site. This keeps us current with the details. Of course it is the job of our head of operations and his staff to ask a lot of questions about what is going on, which intensifies as we close and report our quarterly results. The emphasis includes not just operating margins, but obviously health, safety, and environmental areas, so not just compliance but having a strong record in those areas that do not show up so explicitly in our financial numbers, but they are very important to us as well.


CEOCFO: What might people not realize about the challenges of running power plants?

Mr. Welch: There is a lot of important but not very sexy work in the nature of blocking and tackling at each of the projects. I divide the work into the physical asset as well as the contracts that both provide for purchasing the inputs and then of course to sell the output. In the case of the physical asset every year we have a budget discussion and it involves conventional expenses expected for the year, but also in terms of possible Capex. We look for both offensive and defensive investments. An example of an offensive investment would be in the case of three of our turbine projects in Florida, which is basically a jet engine that is harnessed to turn a generator and also put its hot exhaust into a waste recovery steam boiler. We upgraded the efficiency and output of those jet engines. The last one we did was a $10 million investment, so now we have a more efficient unit and we have more output to sell. A defensive investment would be looking at critical spares without much downtime from a possible outage from that part would be much longer than we would find acceptable. I guess what people do not always think about is all the details of a physical asset. These are very complex pieces of equipment and they have to all work together, so you have preventative maintenance on an ongoing basis and regular maintenance Capex. On the contract side, there is an equal but different amount of energy that needs to be used to look at those agreements. You have to make sure they are working well, keep an eye on counter parties and in the sort of proactive way, decide if there is a basis for a change in agreements and a win/win with the counter parties or when they expire how will we renew them in the best fashion for our business goals of the ongoing operating margins.


CEOCFO: Would you tell us more about your renewable energy projects?

Mr. Welch: Our first wind power investment is a $40 million equity investment, along side of about $100 million from GE, in a project in Idaho called Idaho Wind Partners, and it has just reached commercial operation recently. It takes advantage of a location with a very good wind resource. As I mentioned earlier, it also takes advantage of the federal stimulus program, which helps to supplement the capital required to build the project. We were not interested in taking much technical risk, so the project utilizes a workhorse, GE’s 1.5 MW turbine, with over 12,000 in service around the world. These types of projects are desired both by utilities and by individuals who are interested in paying more on their electricity bill sometimes to know that their power is coming from a renewable source. About thirty-two different states have their own renewable portfolio standard, which basically dictates that by a certain date a specified percentage of all of the power generated by the utilities needs to be from either renewables or perhaps energy efficiency improvements. Another renewable project, Piedmont Green Power, is a 53-megawatt biomass power plant under construction in Georgia. It will sell its output to Georgia Power under a 20-year agreement. It will take approximately twenty-two months to construct and it will use a variety of wood waste material that is trucked into the site. From a carbon point of view, this is basically releasing in a controlled combustion as Co2 the same carbon that would otherwise be released by the tree decomposing after it dies and falls. As biomass decomposes, it gives off a lot of methane as opposed to Co2, which is a much more damaging greenhouse gas, so biomass is viewed as carbon neutral at worst.


CEOCFO: What effect has listing on the NYSE had for Atlantic Power?

Mr. Welch: There are two main benefits from listing on the NYSE. When we discovered that our U.S. retail investor base had grown significantly through followers of various investment newsletters and that they were investing in us on the over-the-counter market, we wanted to provide a more comfortable venue for them to trade our security in the U.S. After the listing, we have seen that our retail investor base has responded very favorably to being able to trade on the NYSE. Secondly, with the SEC registration that was required for us to list on the NYSE, we have the opportunity to meet with potential U.S. institutional shareholders to discuss our value proposition. The immediate effect that we have seen on our liquidity is that it has more than doubled the daily volume that we are seeing in our shares when you add the Toronto and the New York exchanges. That is of course good from the point of view of drawing the interest of institutional investors who need to see certain levels of liquidity to be comfortable investing in our company. All those things, in addition to a good trajectory on our share price, allow us to raise capital at a lower dividend yield effectively. All of these factors combine to put us in a position to be more profitable with our acquisitions going forward.


CEOCFO: What is the financial picture like for Atlantic Power today?

Mr. Welch: The analysts and investors look to us mostly to understand our ability to meet our ongoing dividend and how long can comfortably we meet it. This involves looking for safety factors, meaning a cash measure and EBITDA measure as opposed to earnings per share for example, which other companies tend to use. Currently, the opinions that we see and hear indicate a great comfort level that we will continue to be able to meet that dividend. What we have provided for long-term guidance is that even if we find no further acquisitions and no further organic growth, we can still continue to meet the current dividend into 2016. Of course that is not our strategic plan and it is not indicative of our acquisition track record. In 2010 for example, we invested $150 million into three projects, all of which will be accretive for shareholders. Our guidance provides a “what if” downside analysis for our investors, so there can be some foresight into potential consequences of not finding and executing good acquisitions on the horizon.


CEOCFO: Why should potential investors pay attention to Atlantic Power?

Mr. Welch: People get interested in Atlantic Power because what they are looking for is safety, a good yield, but with a modest amount of risk. Therefore, they analyze our ability to contain the risks of our business model through what we do actively with each of the individual assets, through the portfolio diversification and through the growing portfolio that we establish when we continue to find acquisitions each year. These are investors who tend to invest in MLPs and in REITs, relatively higher yielding utility and cable type companies. So they are looking at our business model and wanting to understand how our risk stacks up and they are finding that it is a pretty attractive proposition relative to many of the alternatives in particular if they have been scared away from growth investments that have not played out as well as they might have liked.


CEOCFO: What should people remember most when they read about Atlantic Power?

Mr. Welch: If people look at our website, they will see a lot of great information about the projects, our management and our board of directors. We think that understanding our assets as well as the experience and credibility of the management team, helps to frame our focus on not only the business of taking care of the assets that we own now for the long-term, but also finding good growth opportunities that we think are prudent for the company. An important thing for potential investors to consider is that our strategic decisions are made with the sustainability of our dividend in mind. Our team welcomes any questions that investors may have as they begin to look at our value proposition.


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I have been with Atlantic since its IPO in late 2004, and during that time, we have grown from a market cap of about $370 million Canadian, to an approximately $1 billion market cap as a result of a series of capital raises and a number of significant acquisitions. I am happy to say that we have positioned ourselves nicely as a business with a growing track record for acquisitions that are accretive and satisfy our investors’ interest in the stability and sustainability of our dividend, which is somewhere in the 7% range right now. - Barry Welch does not purchase or make
recommendation on stocks based on the interviews published.