Author Topic: AT - Atlantic Power Corp  (Read 39280 times)

awindenberger

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Re: AT - Atlantic Power Corp
« Reply #150 on: May 06, 2019, 07:53:35 PM »
If anyone was following my capex question - I read in the 2018 10K they expense capital expenditures / run it through the income statement.  Did $35 million in 2018.

Great 2018 letter. THX for alerting us.

Thanks for highlighting this. I didn't catch this in my reading of the 10-K.


awindenberger

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Re: AT - Atlantic Power Corp
« Reply #151 on: May 06, 2019, 08:01:14 PM »
Safety -

This is where I probably do not understand the power plant business.  But, it feels like every power plant operator I've studied spends more per year on capex than depre expense (go down the list from large to small...DUK, EXC, SO...XCEL, Portland General, etc).  That could be due to most public utilities / power companies having distribution sides (power lines, etc.)  So I'm just wondering if I'm missing something with AT.  My sense is nothing is "wrong" with AT, but I just don't understand the economics driving the business, and am hoping someone can help.  Reason I ask is I do not want to wake up with a nasty surprise "we need to spend $XX million per year for the next few years to update / maintain our plants..."  That would significantly reduce free cash flow and debt reduction.

Thank you,

Bryce

Any utility that has a captive territory is going to have larger Capex than depreciation because their returns are typically fixed by the state utilities boards. Since their returns are guaranteed in large part but are fixed, their goal is to continue doing more expensive capex projects, as it allows them to ask the utitilies boards for higher rates to recoup the investments.

It doesnt work that way with IPPs such as AT, because their rates aren't locked in for anything longer than any PPAs they were able to set up.


brycepeterson

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Re: AT - Atlantic Power Corp
« Reply #152 on: May 07, 2019, 09:09:47 AM »
Safety -

This is where I probably do not understand the power plant business.  But, it feels like every power plant operator I've studied spends more per year on capex than depre expense (go down the list from large to small...DUK, EXC, SO...XCEL, Portland General, etc).  That could be due to most public utilities / power companies having distribution sides (power lines, etc.)  So I'm just wondering if I'm missing something with AT.  My sense is nothing is "wrong" with AT, but I just don't understand the economics driving the business, and am hoping someone can help.  Reason I ask is I do not want to wake up with a nasty surprise "we need to spend $XX million per year for the next few years to update / maintain our plants..."  That would significantly reduce free cash flow and debt reduction.

Thank you,

Bryce

Any utility that has a captive territory is going to have larger Capex than depreciation because their returns are typically fixed by the state utilities boards. Since their returns are guaranteed in large part but are fixed, their goal is to continue doing more expensive capex projects, as it allows them to ask the utitilies boards for higher rates to recoup the investments.

It doesnt work that way with IPPs such as AT, because their rates aren't locked in for anything longer than any PPAs they were able to set up.

Thank you :)  That helps me understand. 

AT is so cheap here...love it.  Definitely an advantage to research small businesses large investors won't touch. 

awindenberger

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Re: AT - Atlantic Power Corp
« Reply #153 on: May 09, 2019, 11:06:06 PM »
Safety -

This is where I probably do not understand the power plant business.  But, it feels like every power plant operator I've studied spends more per year on capex than depre expense (go down the list from large to small...DUK, EXC, SO...XCEL, Portland General, etc).  That could be due to most public utilities / power companies having distribution sides (power lines, etc.)  So I'm just wondering if I'm missing something with AT.  My sense is nothing is "wrong" with AT, but I just don't understand the economics driving the business, and am hoping someone can help.  Reason I ask is I do not want to wake up with a nasty surprise "we need to spend $XX million per year for the next few years to update / maintain our plants..."  That would significantly reduce free cash flow and debt reduction.

Thank you,

Bryce

Any utility that has a captive territory is going to have larger Capex than depreciation because their returns are typically fixed by the state utilities boards. Since their returns are guaranteed in large part but are fixed, their goal is to continue doing more expensive capex projects, as it allows them to ask the utitilies boards for higher rates to recoup the investments.

It doesnt work that way with IPPs such as AT, because their rates aren't locked in for anything longer than any PPAs they were able to set up.

Thank you :)  That helps me understand. 

AT is so cheap here...love it.  Definitely an advantage to research small businesses large investors won't touch.

I agree with you here, just be aware that the stock could take years to revalue. Its my 2nd largest position and has been for two years, but obviously hasn't moved yet.

brycepeterson

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Re: AT - Atlantic Power Corp
« Reply #154 on: May 10, 2019, 03:25:21 PM »
Yes, I bet two years ago you were imagining the common stock rising in value in lock-step with their debt pay down.  And today you're looking at two years of solid debt pay down, and zero common stock response.  You've had a lot of patience.  I guess the "good" news is if AT continues to do as they say they'll do, you'll have one or two big years of gains.

I think as long at AT continues to pay down debt and manages to produce $50-$70 million FCF in 2022, the common stock price will materially rise.  Of course, if electricity prices rise, or expiring PPA's get renewed, that's a bonus.  But I'm not counting on either option.


awindenberger

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Re: AT - Atlantic Power Corp
« Reply #155 on: May 18, 2019, 12:53:05 PM »
Yes, I bet two years ago you were imagining the common stock rising in value in lock-step with their debt pay down.  And today you're looking at two years of solid debt pay down, and zero common stock response.  You've had a lot of patience.  I guess the "good" news is if AT continues to do as they say they'll do, you'll have one or two big years of gains.

I think as long at AT continues to pay down debt and manages to produce $50-$70 million FCF in 2022, the common stock price will materially rise.  Of course, if electricity prices rise, or expiring PPA's get renewed, that's a bonus.  But I'm not counting on either option.

Agreed, and the nice thing is that I'm more comfortable adding more shares today given that they have delivered on promises. It's also nice to see the Biomass plant purchases over the past year, which will add to EBITDA and FCF.