Algonquin Power attempts to reduce risk
OnOctober9,2014 Algonquin Power released a press release that said the Maine Public Utility Comminssion gave approval to Emera(a Canadian utility) to have an investment in Northeast Wind Partners and to have an investment in Algonquin Power.Emera , based in the Maritime provinces,has more than $1 billion in investments in Maine.It's newest transaction is a $225 million investment which is a joint venture with First Wind in Northeast Wind Partners.It will have 419 MW of wind power.As previously noted MPUC also approved the 25% ownership of Algonquin Power(AQN).The agreement signed with AQN allows for the purchase of 25% of the shares but no more;anything beyond this would be a hostile bid.Emera purchased subscription rights that will be converted to 7.9 million AQN common shares.
Acquisitions
Algonquin has purchased a few American regulated utilities lately.The last was Park Water which was acquired at $327 million;it owns water utilities in California and Montana.
The money that AQN got from Emera will be used to fund this purchase and another proposed acquisition called the Odell project.The proceeds from the Emera subscription rights will be $70 million.The Odell project will get $190 million of equity from tax credits and the remainder from AQN bonds.It has 100 Vesta wind turbines in Minnesota that produce 200MW of power to be commissioned in Q4 2015.And it has a 20 year purchase agreement with Excel Energy for 200 MW.
A new equity issue
Algonquin had a secondary offering in the late summer that sold 16.8 million shares at $8.90 per share with 2.5 million shares in overalottment also at $8.90 per share.This produced $150 million in funds that could be used primarily for the Odell project but also for future projects.These new shares will dilute earnings until the new projects come onstream.However AQN has new projects coming onstream and money will not be spent on Odell until 2015.
Reducing risk
Any company is exposed to a number of risks and the job of management is to reduce overall risks.Algonquin Power has enlargened it's revenue stream from two years ago but at a risk.A large percentage of it's new revenue has come from American regulated utilities.This puts a large percentage of it's total revenues in jeopardy.For example, the regulators may give small or no approved rate increases for a period of up to two years.This will affect any revenue increases for up to a three year period.However at the same time AQN has reduced other risks.It has increased total assets so that it is approaching the total asset size of Capital Power.Furthermore it has sold off a chunk of shares to Emera in order to stabilize ownership;Emera now owns 25% of outstanding shares.Also AQN has increased it's earnings dramatically,at least in the short term.Transalta, for example, has more than double the total assets but it has negative earnings.AQN has earnings of almost $.50 per share.Transalta trades at $11.00 per share and Algonquin at only $9.00 per share.
It is true that in the short term Algonquin has taken on more risk for it's revenues but it has reduced overall risk by increasing it's assets that almost all have positive earnings.It also has it's American assets with a variety of different regulators in different states.But the main thing it has done to reduce risk, is increase it's assets with positive earning power so that total earnings have increased.An increase in earnings allows AQN to acquire other assets that have less exposure to American regulators in any state.
Acquisitions
Algonquin has purchased a few American regulated utilities lately.The last was Park Water which was acquired at $327 million;it owns water utilities in California and Montana.
The money that AQN got from Emera will be used to fund this purchase and another proposed acquisition called the Odell project.The proceeds from the Emera subscription rights will be $70 million.The Odell project will get $190 million of equity from tax credits and the remainder from AQN bonds.It has 100 Vesta wind turbines in Minnesota that produce 200MW of power to be commissioned in Q4 2015.And it has a 20 year purchase agreement with Excel Energy for 200 MW.
A new equity issue
Algonquin had a secondary offering in the late summer that sold 16.8 million shares at $8.90 per share with 2.5 million shares in overalottment also at $8.90 per share.This produced $150 million in funds that could be used primarily for the Odell project but also for future projects.These new shares will dilute earnings until the new projects come onstream.However AQN has new projects coming onstream and money will not be spent on Odell until 2015.
Reducing risk
Any company is exposed to a number of risks and the job of management is to reduce overall risks.Algonquin Power has enlargened it's revenue stream from two years ago but at a risk.A large percentage of it's new revenue has come from American regulated utilities.This puts a large percentage of it's total revenues in jeopardy.For example, the regulators may give small or no approved rate increases for a period of up to two years.This will affect any revenue increases for up to a three year period.However at the same time AQN has reduced other risks.It has increased total assets so that it is approaching the total asset size of Capital Power.Furthermore it has sold off a chunk of shares to Emera in order to stabilize ownership;Emera now owns 25% of outstanding shares.Also AQN has increased it's earnings dramatically,at least in the short term.Transalta, for example, has more than double the total assets but it has negative earnings.AQN has earnings of almost $.50 per share.Transalta trades at $11.00 per share and Algonquin at only $9.00 per share.
It is true that in the short term Algonquin has taken on more risk for it's revenues but it has reduced overall risk by increasing it's assets that almost all have positive earnings.It also has it's American assets with a variety of different regulators in different states.But the main thing it has done to reduce risk, is increase it's assets with positive earning power so that total earnings have increased.An increase in earnings allows AQN to acquire other assets that have less exposure to American regulators in any state.
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