Analyst Actions: Credit Suisse on Fall Out From Genesee
G3 Outage Takes Toll on TransAlta's Production. "After market close, TransAlta Corporation announced the expected impact of an extended outage at the Genesee 3 generation facility (495 MW) in Alberta. G3 initially suffered the start of the current outage on 11 November 2011. TA expects the G3 outage to be extended to 1 January 2012. That date is slightly longer than the initial estimate given by Capital Power Corporation on 15 November 2011. TA expects Q4 2011 production to be reduced by approximately 275 GWh and net income to be reduced by approximately C$20m-C$25m (roughly C$0.09/shr to C$0.11/shr). Positively, TA reaffirmed guidance on funds from operations in the C$800m to C$900m range for the full year in 2011. In our view, the outage clearly highlights the tightness in Alberta's power market and the resulting economic impact."
CPX says Clover Bar Energy Center could offset lost production from G3. "As operator of G3, CPX announced the outage on November 15. Initially CPX stated the unit would return to service by mid-December 2011. At that time, CPX stated the root cause of the outage was being investigated and "a turbine bearing inspection is ongoing at that time." The company's production from the plant would be reduced by roughly 180GWh. The company believes that its 243MW Clover Bar Energy Centre peaking facility would "materially offset the lost production from the Genesee 3 facility."
Impact could be Greater on TransAlta. "CPX's Alberta portfolio was 70% contracted at the end of Q3 2011 at prices in the mid-C$60s/MWh, which gives the company some flexibility. TransAlta, on the other hand, has 95% of its generation subject to contracts for the remainder of 2011 at prices of C$60/MWh to C$65/MWh, as stated on their Q3 2011 MD&A. Currently, Alberta power pricing's 30-day Rolling Average Price stand at roughly C$108/MWh. Given the higher contracted position at the lower price than the 30-day RAP, we expect the impact would be greater for TransAlta versus Capital Power."
Selected stock themes: "Stock themes arising from Alberta's power market include: (a) the G3 outage weighs on both CPX and TA shares and, clearly, attention turns to the timeline for returning to service; (b) Alberta power market exposure can be achieved via CPX, TA, TRP on a merchant basis in our coverage universe; (c) other players with Alberta power market exposure include: ALA, CU and MXG; (d) TRP has the most profitable exposure in the current market environment as a result of the Power Purchase Agreements (PPAs); (e) uncertainty with the Sundance 1 & 2 weighs on both TA and TRP at this time; (f) CPX's Clover Bar facility is well positioned in the market, but the unit is currently covering the company's G3 exposure."
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