Algonquin Power & Utilities Corp (AQNU) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Algonquin Power second-quarter results conference call. At this time all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded Friday, August 10, 2007 at 10 AM Eastern time.

I will now turn the conference over to Dave Kerr, Executive Director. Please go ahead.

Thanks, Terran. Good morning. My name is Dave Kerr and I'm an Executive Director of the Algonquin Power Income Fund. I would like to welcome you to Algonquin Power's second-quarter 2007 conference call. With me today is Chris Jarratt, who is the Executive Director of the Fund; Luisa Paniconi-Read, who is the interim Chief Financial Officer; [Andrew Ingram], who is the Treasurer of Fund; and Kelly Castledine, the Manager of Investor Relations.

As a housekeeping issue, I would like to quickly review our forward-looking statement disclaimers. Certain statements contained and the information discussed today are forward-looking and reflect the views of the Fund at Algonquin Power management with respect to future events. Since forward-looking looking statements address future events and conditions by their very nature they involve inherent risks and uncertainties.

Forward-looking statements are not guarantees of the Fund's future performance or results and are subject to various factors including but not limited to assumptions such as those relating to the performance of the Fund's assets, the modeling marketplaces, interest rates and environmental and other regulatory requirements. Although the Fund and its managers believe that the assumptions inherent in these forward-looking statements are reasonable, undue reliance should not be placed on these statements.

Today I will provide a review of the overall results of the second quarter of 2007 followed by the discussions of the divisional results and an outlook for each division and I will finish off with some additional information about the Fund.

First, a review of the Q2 2007 results for the Fund. Revenues for the quarter were $50 million which compares to $47.1 million for Q2 2006. Distributions to unitholders were $17.5 million which compares to $16 million in the same quarter 2006. Cash available for distributions was $8.9 million which compares to $16 million for Q2 2006.

The per unit distributions to unitholders was $0.23 which was the same in Q2 2006. The cash available for distributions was $0.25 per unit compares to $0.23 per unit in 2006. These results show a successful second quarter for Algonquin Power in line with our overall expectations for the quarter.

During the second quarter, the Fund experienced production equal to long-term averages in the Hydroelectric Division, increased production in the Cogeneration Division, and increase production in the Alternative Fuels division primarily due to the addition of the St. Leon Wind Energy Facility. Of note for the quarter, the Fund's net earnings decrease from the same period in 2006 due to increased future income tax expenses resulting from a onetime non-cash charge of $27.9 million which was relating to the implementation of Bill C-52. This had a $0.38 per unit impact on earnings for the quarter.

Now I will discuss some of the divisional highlights for Q2 2007. In the Hydroelectric Division for the second quarter of 2007, the Fund's Hydro assets generated electricity equal to 100% of long-term averages compared to 93% for the second quarter of 2006. The Fund's Hydroelectric assets experienced above long-term average hydrology in Ontario and western regions and at or near long-term average hydrology in the New England and Quebec regions during the quarter. Operating expenses increased when compared to the same quarter 2006 due to an increase in costs directly related to the energy production.

In the Cogeneration Divisions, second-quarter production increased compared to the second quarter of 2006 primarily due to a 20% increase in the production of the Windsor Locks facility and increased production at the Sanger facility which has involuntarily shut down for part of Q2 2006 in favor of selling natural gas.

Revenue from energy sales in the Cogeneration Division was consistent with the same period of 2006 due to an increase in production at the Windsor Locks facility and Sanger facilities for the quarter. This was offset by lower energy rates at the Windsor Locks facility compared to the same period in 2006. At Windsor Locks, decreased fuel costs are passed on to customers in the form of lower energy prices.

Also reflected in the comparable results in the Cogeneration Division is the closure of the Crossroads facility which occurred in December 2006. In November of 2006, the Fund announced plans to retrofit the Sanger facility with a General Electric LM6000 turbine. The project is expected to result in improved fuel efficiency, increased facility output, improved maintenance, and an extension of the useful life of the facility. The project is progressing on schedule with commissioning targets for the fourth quarter of 2007.

In the Alternative Fuels Division, production increased primarily due to the inclusion of the production of the St. Leon Facility which was acquired at the end of Q2 2006. The inclusion of St. Leon also positively impacted revenue for the second quarter 2007 when compared to the second quarter of 2006. Higher revenue was partially offset by lower production of the landfill gas facilities and Energy-from-Waste facility compared to the same period last year.

At the Fund's Energy-from-Waste facility, 24,000 tons of waste was processed in Q2 2007 which is a significant reduction from the comparable period in 2006 and is due to a planned 14-day major maintenance outage that occurred in May along with some unplanned repairs to the cooling towers that were completed during the quarter.

In the Infrastructure division, at the end of the second quarter of 2007, the Fund's wastewater business showed a year-over-year growth of 4% where the water distribution business grew by 8% since Q2 2006. Although the division is still experiencing growth in both the water distribution and wastewater and customers, there is a trend toward slowing growth in areas served by the facilities in the Infrastructure Fund.

Revenue in the division was slightly lower than the comparable period of 2006 primarily due to a stronger Canadian dollar and revenue also included realized gains in financial instruments for that period. Subsequent to the end of the quarter, the Fund began charging customers at the Gold Canyon facility according to the new approved rates resulting in a 73% increase in wastewater rates for the facility.

Looking out to Q3 of 2007 and beyond, in the Hydro division, the Fund's facilities are expected to perform as expected based on long-term average hydrology conditions anticipated for the third quarter and the remainder of 2007. The Fund anticipate incurring about $500,000 over the remainder of 2007 and into 2008, complete the required technical assessments on its owned and leased dam structures associated with its Quebec region Hydro facilities.

Following these assessments, a plan will be made according to any remedial work that may be required to comply with the legislation. We have initially identified remedial measures estimated at approximately $8.5 million and we are exploring cost sharing with other stakeholders and potential revenues enhancements that could be achieved with the modifications being made.

In the Cogeneration division at the Windsor Locks facilities, decreased fuel costs are passed on to its customers in the form of lower energy prices. This contract reduces but does not eliminate the facility's exposure to natural gas price risk. Management expects lower than anticipated natural gas prices to reduce operating profits from the Windsor Locks facilities for the remainder of 2007.

(inaudible) facilities is expected to meet management's expectations throughout the remainder of 2007 and the repowering project will continue throughout the year concurrently with regular operations. The expected completion date remains on target for the fourth quarter 2007.

In the Alternative Fuel division, the Fund will continue to focus on operational improvements and equipment availability at the Energy-from-Waste facility. Operation improvement projects were completed in the first half of the year are expected to provide increased availability for the remainder of the year.

The Fund continues to move forward with steam sales projected at the Energy-from-Waste facility with an expected completion date of the end of fourth quarter 2007. The Fund continues to review the LFG facilities and is taking initiatives to reduce operating costs at these facilities.

The performance of the St. Leon Wind Energy Facility is expected to meet management expectations during the remainder of 2007. The Fund continues to work toward resolving the outstanding items under the turnkey construction contract with Vestas, and has entered into contractual arbitrations to resolve the remaining issues. Liquidated damages are being paid to the Fund by Vestas are expected to reach the maximum level by the end of the third quarter.

During the third quarter, the Fund will continue to pursue additional opportunities in Quebec, Saskatchewan and Manitoba with the St. Leon Wind Facility has a 66 megawatt expansion capacity. During the second quarter, the Fund has submitted proposals for four separate wind projects totaling 366 megawatts under the Manitoba 300 megawatt RFP which is currently underway.

In the Infrastructure division, a reduction in the organic growth rate is expected during the remainder of 2007 due to the general slowdown of the residential housing market in the United States. The Infrastructure division is expected to continue contributing to the overall performance of the Fund in part because the division services one of the fastest-growing counties in the United States. The rate case for the Gold Canyon facility reached an outcome at the beginning of the third quarter 2007 and the Fund began charging our customers at the new 73% increased rate on July 1, 2007.

Planned capital projects are expected to continue at Litchfield Park to meet growth in the new government regulations in Arizona.

There is one additional item that we'd like to mention about the Fund today. On December 21, 2006, the Canadian Minister of Finance introduced drop legislation to impose a tax on distributions from specific investment flowthrough trusts or SIFTs. Bill C-52, which implements the SIFT rules received royals (inaudible) on June 22, 2007. The SIFT rules will apply to the Fund in the year 2011.

Starting with the 2011 taxation year, a SIFT trust will be subject to tax in respect to non-portfolio earnings which it distributes at a rate that is equivalent to the federal general corporate tax rate plus 13% on account of provincial tax. Any non-portfolio earnings distributed by the Fund will be taxable to the unitholders as if it was distributed -- as if the distributions were a taxable dividend from the taxable Canadian corporation and will be deemed to be ineligible dividend eligible for the enhanced gross up in tax credit.

When the SIFTs rules applied into the Fund in 2011 and provide the corporate rate reductions are enacted as proposed, it is anticipated that generally the tax paid by the Fund and a unitholder who is taxable Canadian resident individual -- distributable -- distributed non-portfolio earnings will be substantially equivalent to the tax that will be payable on distributions by unitholders if the SIFT rules were not enacted. Nonresident unitholders and Canadian resident unitholders which are exempt from tax would be negatively affected by the application of the SIFT rules based on the Fund's current investments.

The Fund is reviewing all of our options to reduce the tax impact to its unitholders.

With that, I will now open the lines for any questions.

(OPERATOR INSTRUCTIONS) Tony Courtright, Scotia Capital.

Thanks very much. I have a number so I will start with a few. The Hydro segment, you indicate that notwithstanding long-term average Hydro production you -- its performance was below your expectation. Can you elaborate?

Well, the cost of energy production was higher than we anticipated.

And I don't get a sense of that because it says the increase in operating expenses is due to an increase in operating costs. Can you elaborate?

Well, we have costs in terms of people, in terms of repairs that were higher than we expected.

So how can this improve? If it is below your expectations what -- you're getting as much as you expect in terms of waterflow.

Long-term average, so yes.

So, are these costs out of line or do you just have to reassess your contribution margin from the segment?

Well, I think the operating -- Tony, it's Chris Jarratt. I think the operating expenses were a little bit higher but not dramatically higher than what we had last year. I don't think it is a very significant issue.

Yes, it's like $400,000 over the quarter.

Okay. Does the reference to the fact that you had some proceeds of the sale of a generating asset relate to the Hydro segment?

No, that was related to the sale of the equipment at our Burnsville LFG facility. So that was with the Landfill Gas and Alternative Fuels.

All right. In terms of the Alternative Fuel segment which encompasses Energy-from-Waste landfill gas and wind. What is -- you're looking to reduce costs at Landfill Gas but I mean it -- what is your longer-term take on your investment there?

Last quarter they were doing a strategic review of our LFG facilities because they have been performing as anticipated. So we are looking at all options available for LFG and we're expecting to have some sort of finality to that before the end of the year.

In terms of the Energy-from-Waste, you mentioned you did some repairs to cooling towers. Was that a primary bottleneck from what previous below expectation performance at the EFW facility?

No, it wasn't really a bottleneck. No, that one was -- it was an unplanned outage. It was -- it's kind of hard to go into over a conference call -- but there was an incident where there was a blockage in the cooling tower and the blockage had to be cleared. To clear it you have to kind of take it apart a little bit.

Right. And in terms of the potential to expand the Energy-from-Waste facility, where are you at in terms of any preliminary discussions? Is there an appetite? Is there a possibility from an air emissions compliance point of view and other issues?

Yes, we are proceeding with our engineering and environmental studies in terms of capital costs and different technologies. We've had discussions with our main customer, [Reisner Fuel] that has an interest in expanding the facility. So we are excited about the opportunity of expanding the EFW and addressing some of the concerns that we presently have will be done through an expansion project.

And you'd only undertake this if you had a long-term contract in hand?

We like long-term contracts. In this current environment for municipal waste, we don't think finding a supply stream would be an issue. But again, we've had many discussions with our current customer who are very interested in pursuing an expansion. So that is not one of the areas that we are concerned about.

Right. In terms of the wind generation in the Alternative segment, am I correct in the deducing that you had phenomenal capacity utilization factors there at that site averaging like 42% year-to-date or somewhere in that order?

Yes, we are somewhere in that order. No, it's a very good wind site and we are very pleased with the wind resources at St. Leon and we're excited about our expansion capability. We've applied for -- our current RFP to put another 66 megawatts at the St. Leon site which we are getting good results.

And in relation to those submissions under the request for proposal, how do you in view that in terms of a risk reward for the Income Fund to undertake construction? There's been a lot of issues with other wind farm developers say in Ontario, particular, with local permitting delays that may dramatically alter their economics. How would you square those risks with the risk profile of and income trust?

I think, Tony, it's Chris Jarratt. I don't think we have to cross that bridge on the Manitoba projects quite yet. I mean right now we put bids in. We will see if we win and if we win, then we can cross that bridge. And I think in terms of that risk reward for a project like an expansion of St. Leon, I think the risks are quite low for something like that. Approval is very easy to expand versus build something new.

You say if you win. I mean what happens? You get selected and then you have to negotiate a contract? I mean in other words have you not already put your cards on the table?

Well we made a submission under the RFP process and they're looking for -- they, meaning Manitoba Hydro -- are looking for an additional 300 megawatts. What we understand is about 1000 megawatts have been bid into the process. So they are going to make the shortlist selection in September of this year and then they will enter into negotiations for a contract after that.

But on what basis -- like in other words have you not had to sort of put a price out there in order for them to adjudicate your bid against other people's bids?

Yes, the answer is yes.

And has the Fund not therefore essentially undertaken cost overrun risk by you putting out a bid?

No, the Fund hasn't taken that until the Fund elects to go ahead with it. If we were successful, we would be awarded a contract and we would have the option of proceeding or not. There is no exposure to the Fund in the form of security, there is nothing like that.

All right, so if you do elect -- if you are successful and then do elect to pursue the option to proceed, how have you protected yourself? Against say cost overruns on equipment sourcing?

I mean, at some point in time, we will reach financial close of a project like this. It could be financed a number of ways. It could be done the same way that St. Leon was done with a [SRCE] investor. It could be done any number of ways. But the Fund is not exposed until the Fund wants to be exposed. And we're just not there yet.

It is very early days on these RFPs, Tony.

Yes, but what I'm -- in other words, there is not a third party who has bid on your behalf? You as the Fund have bid -- that is my -- I'm just trying to understand that sort of agency versus principal role.

I understand your point, but I guess at rates day, it is a nonbinding bid.

All right. We will leave it at that. Okay, I will let other people ask some questions. Thanks.

Bob Hastings, Canaccord Adams.

Thank you. Just a follow-up on Tony's question. It is the Fund that made the nonbinding bid. Is that correct?

That is correct, yes.

Okay. So it hasn't been approached like the previous one?

Not at this point, no.

Okay, fair enough. Going to -- on the wind side, you still got to settle with Vestas on everything. What do you think the Fund's sort of outside risk is in terms of financial? Or first of all, do you see that all the existing problems whether if they're significant and can they be fixed? And secondly, what is the outside cost of making those amends?

It's Chris Jarratt responding to you, Bob. As you point out that there are three main issues that remain outstanding between now and the completion of the turnkey construction contract. I think it's important to point out that we're holding security under the turnkey construction contract to the tune of about $40 million. And Vestas are responsible for fixing these problems. But we are holding $40 million which under the outside worst case, we could use to fix these problems ourselves.

And I think along those lines, the three problems that are outstanding are not unknown problems to us. We know exactly what they are, we know what the root cause is, we know what the fix is and we believe that the cost of fixing them is nowhere near $40 million.

And I think the second line of defense is the fact that we've got a parent company guarantee from Vestas Denmark. But as I said, I believe strongly that the $40 million is more than enough to fix the problems.

Okay, so there is -- these are not unusual industry problems per se because we've seen lots of wind problems and they are all fixable? And you have the money?

Yes, yes. And Vestas right today have been very good about standing up for their product and as of right now, have platoons of people on-site working as hard as they can to fix these problems so they can get the $40 million.

Excellent. So there should be -- it's performing well -- I'm sorry your utilization looks pretty darn good and the money is sort of there. It seems other than these problems which are getting fixed, it's performing well and there shouldn't be any added costs to the Fund?

That is correct.

Okay great, I understand that then. Thank you. In terms of the 1000 megawatts that has been bid into that market and you bid in 350, is there -- can you give us some dates around decisions and sort of who you've teamed up with if anyone?

It's Dave talking. We made our submission earlier in the quarter. We understand they are going to have a shortlist which is greater than 300 megawatts they are looking for coming in September, enter into discussions over the fall and we understand they're going to award contracts early in 2008 which I understand is to be commissioned for 2009.

Okay. Good, thank you. And then going over to the Hydro, you've done some sub studies, they're not all quite complete. You said it cost you about $500,000 for the studies and you think you might have to spend another $8.5 million to fix. Could you give us -- since the studies aren't complete -- can you give us your confidence level that it is just going to be 8.5 or could it be a lot more?

Sure, Bob. Just go back up one second. Bill C-93 is -- I think it is kind of important to point out, that affects anybody who operates a dam in the province of Quebec. So anyone who's got a dam has this problem. And really what the government of Quebec wants to do is go through and evaluate all the dams about two main things. One is hydraulic conveyance; can these dams pass a certain size flood? And second of all, the safety factors with respect to stability and things like that.

So that is what the government wants us to investigate. And we went through our list of dams and I think we've got -- I want to say 12. And out of a 12 we picked the worst two, worst being the ones that we felt had to have the most work done on the dam to comply with the new regulations. And we've done those. And those are Belleterre and Rawdon were probably the two worst and we've done those.

And the lion's share of our issue we believe is -- sorry I said Belleterre -- I meant Donnacona is the one that has got the largest problems from our point of view. And that is probably a $4 million problem. We've also just about finished Mont-Laurier which was another older dam. The other dams that we own or lease are relatively small and we don't anticipate the same magnitude of issue. As a matter of fact, we don't anticipate any issue with many of the dams. For example Cote Ste-Catherine, we don't even own the dam. It's owned by the government of Canada.

So we see the total exposure for our problems at about $8.5 million and as I think we mentioned in the press release, we're anticipating a couple of strategies. One is to involve other stakeholders to see if we can get them to share some of the costs. There's also a number of technical solutions that we have yet to run to ground that may reduce that number down and there's also some revenue enhancement potential associated with these dam repairs.

I'll give you an example. Donnacona, it's an old wooden dam. It's 100 year old wooden crib dam. There's a fair amount of leakage through it. With a new dam, that goes away and the additional revenues would offset the capital costs.

So you get some additional revenues from that. And have you been spending a lot of money annually on maintaining these older dams that would go away as well?

In Donnacona's case, yes. It's an old, as I said a wooden crib dam. Its 100 years old. We spend a fair amount of money on an annual basis restoring it and repairing it and things like that.

Okay. The third point I guess is the Energy-from-Waste ongoing disappointments for you and the investors in that one. And now you are looking at expanding or potentially expanding it and there seems to be a lot of interest from the municipalities because they certainly have a garbage issue. Can you give us some comfort as to what you would require to do an expansion there? And do you feel like you've got -- know what the issues are so if you're doing an expansion that you would be getting an appropriate return on your investment?

Yes, it's Dave, Bob. Yes, we've done a lot of preliminary engineering, capital cost reviews, environmental assessment review. We have a high level of confidence that if we did in expansion, we can address many of the issues that we have at the plant right today as well as increase the capacity through the plant (multiple speakers).

Is that because of design changes you'd make?

Yes, we would probably change the type of technology that we are currently using into what we refer to as a mass burn type technology which is well-known and well-used in Europe. It's a little different from what we're doing now at EFW but it would address a lot of the throughput issues that we have with the plant.

And in terms of rates, would you be able to secure a better rate so that if you were using -- getting lower operating rates or similar operating rates as what you got today it would still give you good return?

Yes, our analysis says it would, yes.

Is there a lot of appetite by the municipalities to do something here?

In that GTA area, the municipal waste handling is a very big issue and our current customer which is the (inaudible), we take about 65%, 70% of their current waste and they are looking for us to take all their waste. So there is an appetite.

Now as I recall a while back when people were talking about municipalities and the garbage issue, they wanted to do things but you were -- you wanted to do the studies done first, etc., so you wouldn't be taking on sort of permitting risk, etc. Have we gone well beyond that stage now where you don't see that there is -- you wouldn't be taking much risk?

Well we are always looking at the risk but we are progressing positively. We're addressing our initial concerns were approval risk and I think we're getting comfortable with that because we are in an existing site within their existing footprint. And it is an interest by both the province and the municipalities to expand the facility. So I think we are over our initial concerns about approval risk.

Okay. One last general question. When you are looking at new projects whether it's this one or wind, how would you look at structuring them? And I know that you've got lots of different ways you could do it and you did the wind one way before. But how would you look at structuring these things? Would the Fund come up with the money? Would you do some kind of financing? Or would you do it through a third party and vend it in later?

Bob, it's Chris. I think it's pretty early to be concluding how we would finance something. I meant I think you know we're not -- we don't like to see the Fund take any additional risk. We will do whatever we can to pass that risk on to other people whether it be the turnkey constructor or the [region appeal] or whoever. But it is not a risk that the Income Fund -- it's a risk that the Income Fund considers very carefully.

I know you have but the way that income funds have been sort of changing particularly since the SIFT taxes, greenfield projects give much better returns than vending and something afterwards that only accretes a penny or two.

Well, I guess we look at all options and put it in the new -- the tax regime will be part of it but we haven't -- it's early days, Bob. We haven't committed ourselves to any structures right now.

Okay, thank you very much.

Alda Pavao, CIBC World Markets.

Good morning. Just following on the greenfield opportunities in wind. I was wondering to the extent there are several provinces where you can -- there's opportunities for bids, have you secured like turbine orders or negotiations with one or more turbine suppliers?

We haven't entered into any commitments with turbine suppliers but we are talking to them all the time.

In terms of the bid put force into Manitoba, can you disclose who was a turbine or who have you partnered with on the turbine side?

No, I don't think we can disclose that right yet.

Is it Vestas?

We really can't say.

Okay.

Even if we are -- we haven't made any commitments to them anyway.

Okay.

So it is open to whoever we want to use at the time we're successful.

Okay. Bigger picture question -- to the extent you do have some greenfield opportunities before you in wind and Energy-from-Waste expansions, would you say that acquisition opportunities are kind of off the table or is there still opportunities particularly in water distribution?

Yes, there is opportunities for acquisitions and we continue to look for acquisitions all the time. But actually, no, the infrastructure space is pretty crowded these days for acquisitions, mergers and acquisitions. So it is more difficult to buy existing assets at a rate of return that suits our Fund. We are continuing but we are also looking at these greenfield developments as well as opportunities for growth.

Okay, great. Last question, as it relates to your capital, growth capital spending, I estimate for 2007 it's going to come in at around $54 million. Is there a point or a range you can provide for 2008?

It's Chris Jarratt. I think you quoted 54; that sounds way higher than what it is.

So that was for the full year. That is too high?

You know we have to get back to you on that exactly. I don't know that number. It is probably not too far off then, sorry. I thought you were talking the balance of the year.

No, no, the balance is 40 million, then year-to-date I guess six months to date you've incurred 14 million?

Yes, everyone is nodding here, yes,

Okay but for 2008, I was wondering if we could get a range?

I don't think we have one right now.

Would it be the similar type ballpark?

I would say not. I mean we are just going through our 2008 budget process right now. We're well into it but it's a bit early for us to be -- giving guidance on that right this minute.

Okay. Can we look for that I guess for the next quarter?

Yes.

Yes, we will have answers for you in the next quarter.

Thank you. Those are my questions.

Michael McGowan, BMO Capital Markets.

Good morning. Question about -- you sold some assets during the quarter. Just wondering what account the gain was booked in?

What was it?

There's a gain that showed up in your statement of cash flow in the assets that you sold. Just wondering where you booked it?

On the statement of cash flows, it shows as a non-cash item -- of $1 million.

Okay, but where would the gain be in the income statement?

The income statement is under interest income -- interest dividend income and other income.

Okay. Regarding your wind facility in Manitoba, I'm calculating the realized price of about $68.65 per megawatt hour. It seems to be a bit higher than the $62 I would have expected based on the contract on the [WIPI]. Just wondering where the discrepancy is?

That is because right today we are entitled to liquidated damages under the turnkey construction contract and Vestas are entitled to the revenues. So right now we book the revenues as liquidated damages and you are right, they are a little higher but they are close.

Okay. Is there an offset anywhere in the financial statements?

I'm sorry, is there a what?

Is there an offset -- you must be accruing a balance somewhere for the delta.

Yes, it is under -- it's like a working capital number [ARET].

Okay. So presumably when you -- I guess when you settle with Vestas sometime maybe in the remainder of the year, the difference will follow? Will there be a gain or loss we should be looking for there?

It should probably be pretty flat.

Probably be pretty flat? Okay. The RFPs that you are bidding in in Manitoba, have you partnered with anybody there or a wind developer? Are those in-house and develop projects?

No, on the St. Leon project, we are on there by ourselves because we have the expansion capacity and the Fund owns the rights to the land. The other three projects we partnered with a developer that put the land packages together.

Can you name the developer?

No, I don't think we can. No, right today we haven't announced that.

Okay. Your CapEx guidance for 2006, is it still -- I mean, you gave a balance of about $54 million so I guess there has been no change since the first quarter?

No, there has been no change. I mean I think the rate of spending has been below what we expected it to be in the first half of the year. So I guess as guidance, it might be a little bit less. You could probably expect it to be a little less than that.

But generally consistent?

Yes.

And have you decided on timing for a rate case at Litchfield there since you are going to be spending some money doing facility upgrades?

Yes, we are planning the rate case right now and we're not quite sure about the timing but it is going to be close to when we are spending the money.

Okay. So 2008 type thing?

I would expect so but we are not committed on that.

Okay. Those are my questions. Thanks a lot.

Tony Courtright, Scotia Capital.

Just in terms of liquidity, I think you'd outlined what you borrowed under your credit facility but I'm not sure how much is outstanding by way or by way of letters of credit. I'm trying to find out what your head room is.

Do you have an answer, Andrew?

Yes, it's Andrew. We have about $46 million of availability on our credit facility.

And you have $40 million of CapEx to spend in the balance of the year?

Approximately, yes.

And so it will just be an opportunistic approach to the capital markets (inaudible) maybe?

That is correct, yes.

Okay. Debt covenants, how are you -- are you complying with them and are there any ones that are particularly restrictive or constraining and if so, which one would that be?

We are in compliance with all of our debt covenants and we don't anticipate any issues for 2007.

And have there been any changes in terms of pricing or other issues with the extension renewal of your credit facility?

We are currently in discussion right now on those issues.

Can you elaborate in terms of you indicate that you've extended the credit facility I think to some time in 2008. But I mean -- is there a desire from creditors to seek more security or to have tighter covenants?

No, no, we extended the facility on the same terms but we are currently negotiating an improvement in those terms. But that is underway.

Okay. Any desire to increase -- negotiate an increase in the size of the facility?

I guess we're looking at all the different options right now, Tony. But we haven't committed to anything right yet.

Okay. Those are my questions. Thanks.

Alda Pavao, CIBC World Markets.

Just was hoping to get an update as to the process to secure or put in place a CFO. I guess can you update us on that search?

Yes, that is a process that as we mentioned, is underway. We are in the home stretch right now, and that is about all I can say on that.

Okay. We'll look for an announcement on that. Great, thank you.

Michael McGowan, BMO Capital Markets.

This is just a follow-up question on some of the credit arrangements. One of the conditions I think on your credit facilities regarding St. Leon Wind Farm was that you reached a substantial completion of that facility. Do you anticipate needing to renegotiate that now that you are in discussions with Vestas or arbitration with them?

We have until I think it's October 31st to reach COD with Vestas and be in compliance with our debt facility. We're hoping to hit that but in the event that we don't, we have the option I suppose of trying to go for an extension with the lenders.

What -- I guess what recourse do the lenders have if potentially that milestone isn't reached?

They do have some recourse but it is really just to request the loan be paid off. They don't have the right to scoop all the cash or anything like that.

So they could require repayment?

Yes, with a certain advance notice and all that.

Would there be any penalties?

No.

Okay, that's it. Thanks.

And just as a follow-on. We've obviously had discussions with them. We keep them apprised of the process. I wouldn't anticipate anything that drastic.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Mr. Kerr, there are no further questions at this time.

Thanks, Terran. I'd like to thank everyone for joining us this morning and we look forward to informing you of our future performance of Algonquin Power. Have a good day.

Ladies and gentlemen, this concludes the conference call for today. Thank you for participating and please disconnect your lines.