|
 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. |
Utilities
Electric Utilities
(AT-NYSE, ATP.TO-TSX)
Atlantic Power Corporation
200 Clarendon Street, Floor 25
Boston, MA 02116
Phone: 617-977-2400
|
|
Interview
conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published –
February 25, 2011
CEOCFO: 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.
disclaimers
Any reproduction or further distribution of this
article without the express written consent of CEOCFOinterviews.com is prohibited. |
