Algonquin Power & Utilities Corp (AQNU) 2007 Q4 法說會逐字稿

Good morning ladies and gentlemen thank you for standing by. Welcome to the Algonquin Power fourth quarter 2017 year and 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. (OPERATOR INSTRUCTIONS). I would like to remind everyone that this conference call is being recorded today Friday March 7 2008 at 10 AM Eastern time. I would now like to turn the conference over to Mr. Dave Kerr, Executive Director. Please go ahead, sir.

Thank you. Good morning. My name is Dave Kerr and I'm the Executive Director of Algonquin Power. I would like to welcome you to Algonquin Power's fourth quarter 2007 conference call. With me today are Chris Jerrett, the Executive Director of the Fund; David Bronicheski, the Chief Financial Officer; Luisa Reed, the Controller; Kelly Castledine, Manager of investor relations; and Andrew Ingram, our Treasurer. As a housekeeping issue, Kelly will quickly review our forward-looking statement disclaimer.

Certain statements contained in the information discussed today are forward-looking and reflect the views of the Fund and Algonquin Power management with respect to future events. Since forward-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 functions such as those relating to the performance of the Fund's assets, commodity market prices, 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.

Thanks, Kelly. Today I will provide a review of the overall results of the fourth quarter and year end 2007, a discussion of the divisional results for the quarter and then provide an outlook for the divisional performance. First a review of the Q4 2007 and year-end results for the Fund.

The revenue for the quarter was C$44.3 million and for the year C$186.2 million. Distribution channel holders were C$17.5 million for the quarter and C$69.9 million for the year. Cash available for distributions for the quarter was C$19.9 million and C$72.3 million for the year.

Distribution unit holders for the quarter was C$0.23 per unit and for the year C$0.92 per unit. Cash available for distribution for the quarter was C$0.26 per unit and C$0.95 per unit for the year.

During 2007, the Fund experienced production equal to 91% of long-term averages in the hydroelectric division and results in line with the overall expectations in the cogeneration and alternative fuels division. The infrastructure division fell slightly below management's expectations mainly due to the stronger Canadian dollar.

The Fund received a payout ratio of 9620% for the year 2007, slightly improved over 2006. Overall for the year 2007 Algonquin Power produced sufficient energy to supply 52,000 homes with renewable power and operations at the (inaudible) waste plant deferred about 100,000 tons of waste from landfill sites. The Fund also sold about 700 million gallons of treated (inaudible) from its wastewater treatment facilities which is primarily used for irrigation of the nearby golf courses.

Now, some divisional highlights for Q4 2007. In the hydroelectric division for the first quarter of 2007, the Fund's hydro assets generated electricity equal to 81% of long-term averages compared to 115% for the fourth quarter of 2006. During the quarter the Fund's hydroelectric assets experienced below long-term average hydrology in all regions where the Fund operates hydro assets. Operation expenses increased when compared to the same period in 2006 due to the increasing property taxes and an increase in variable operating costs which was partially offset by a decrease in repair and maintenance costs and the stronger Canadian dollar.

On December 28, 2007 based on a review of a smaller hydroelectric generating facility, the Fund completed the sale of six smaller hydroelectric generating facilities in the New England regions for proceeds of approximately C$1.5 million. These facilities no longer fit the Fund's preferred asset profile.

In the cogeneration division in December of 2007, the Fund announced the successful on-time, on-budget commissioning of its 42 MW natural gas power generating station in Sanger, California following a major repowering project that commenced in October 2006.

Fourth quarter protections decreased compared to the fourth quarter of 2006 mainly due to the loss of 11,000 MW hours of production as a result of the closure of the Crossroads facility in December 2006 and a decrease of 9000 MW hours at the Sanger facility resulting from the plant outage related to the repowering project. This is partially offset by an increase in production at the Windsor Locks facility.

Revenue from energy sales in the cogeneration division also decreased compared to the same period of 2006 due to the closure of Crossroads, the Sanger repowering project and the stronger Canadian dollar. This was partially offset by increased energy rates at the Sanger facility resulting from higher fuel costs and are passed on to the customers in the energy crisis.

In the alternative fuels division in October 2007, we were extremely pleased to announce the achievement of commercial operation of Saint Leon wind energy project, our 99 MW wind farm in Manitoba. Commercial operation pursuant to the power purchase agreement with Manitoba Hydro was attained in 2006 and Saint Leon has been successfully generating renewable energy since that time enjoying a substantial improvement in wind resources.

Overall production in the alternative fuels division decreased when compared to the same period last year partly as a result of repair and maintenance being performed at the St. Leon wind energy facility. Revenue from energy sales increased in the fourth quarter when compared to the same period in 2006 due to the St. Leon facility achieving commercial operation.

During the fourth quarter, 40,000 tons of waste was processed at the energy-from-waste facility which is our best operating quarter since owning the facility. Improvement was a direct result of the performance enhancement projects that were underway last year.

In December 2007, Algonquin Power announced the sale of six landfill gas power generating stations and other related landfill gas assets owned by the Fund for US$11.34 million. Landfill gas assets were comprised of six facilities representing approximately 18 MW of installed capacity. These facilities no longer were considered strategic to the ongoing operation of the Fund and were disposed (inaudible) deposition was accretive.

In the infrastructure division at the end of the fourth quarter 2007 both the Fund's wastewater business and water distribution business showed year-over-year growth of approximately 3% since the fourth quarter of 2006. Although the division is still experiencing growth in both the water distribution and wastewater customers, there is a trend toward slowing growth in the area serviced by the Fund's facilities.

Revenue in the division was slightly lower than the comparable period in 2006 mainly due to a stronger Canadian dollar. This was offset by an increase in revenue from the Gold Canyon facility where 72% rate increase came into effect in July 2007. In cash terms this increased amounts to about C$1.8 million a year.

Looking out to 2008 in the hydroelectric division, the Fund's facilities are expected to experience at or above long-term average hydraulic divisions in the first quarter of 2008 and the Fund' New England region facilities are expected to benefit from improved market rates when compared to 2007.

For 2008 assuming long-term average hydrologic conditions are achieved the Fund will produce sufficient energy to supply 36,000 homes through renewable power for a year. The finances face incurring about C$600,000 in 2008 to complete the required technical assessments of its owned or leased dam structure associated with its Quebec region hydro facilities.

Barring these assessments, the plan will (inaudible) regarding any remedial (inaudible) that may be required to comply with legislation. We have initially identified remedial measures estimated at approximately C$8.2 million and we are exploring cost sharing with other stakeholders and potential revenue enhancements that can be achieved with (inaudible) being made. During 2008, several projects aimed at increasing production are scheduled and include automatic trash rack cleaning equipment and an inflatable (inaudible) at the one of the US facilities both of which are expected to allow increased production.

In the cogeneration division in 2008, management expects the Windsor Locks facility to continue operating in line with expectations with no planned outages is in the first quarter of 2008. At the Sanger facility management is expecting an annual fuel requirement reduction of approximately 23% or C$2 million as a result of Sanger repowering project and expects lower maintenance and repair costs due to a broad (inaudible) on the new [turbo].

As a result of the repowering the facility has 14 MW of additional capacity and management is now focusing on securing a market for this additional energy. Crossroads facility management is reviewing potential opportunities to contract the output to the New Jersey power market, a strategy that is expected to be completed during the second quarter of 2008.

In the alternative fuels division, the Fund will continue to focus on operational improvements and equipment availability at the energy-from-waste facility and anticipates the recent improvements in availability will continue through 2008. The Fund continues to move forward with the steam [cells] project at the energy-from-waste facility with an expected completion date in the first quarter of this year.

On April 2 2008, the labor agreement with, CAW Local 252 representing approximately 45 employees at the energy-from-waste facility will expire. Contract negotiations with CAW commenced in February and management will provide updates if the process is necessary.

The St. Leon facility is expected to perform at or above 97% available targets throughout 2008. The alternative fuels division is expected to generate enough energy to supply the equivalent of 21,000 homes with renewable power.

During December 2007, the Fund announced two projects having been selected to proceed to the next phase of the Manitoba Hydro's request (inaudible) for potential purchase of output for Manitoba wind power and electric generating facilities. These two projects consist of a 99 MW plant wind energy project and a 66 MW St. Leon wind energy two project. This achievement is both exciting and significant to Algonquin Power's renewable energy project development pipeline in Canada. Manitoba Hydro is expected to announce the next phase of the process in the spring of 2008.

The infrastructure division continues to serve one of the fastest-growing counties in the United States. However, the slowing organic growth rate experienced recently in the division is expected to continue to the remainder of 2008. The Fund anticipates initiating rate (inaudible) at the Litchfield Park Service Company (inaudible) and Bella Vista facilities during 2008 and a rate case at the Sunrise facility in late 2008 or early 2009. It is anticipated that a regulatory review of these rates and tariffs for these facilities will be complete in the second half of 2009.

[Ample] projects are planned at the Litchfield Park Service area during 2008 and are expected to increase water distribution capacity and wastewater treatment capacity within the utility's jurisdiction in order to meet the demand of existing customers as well as expected growth.

As an update to the Fund's US currency position, the Fund as part of its risk management strategy has a formal hedging policy for its US dollar cash flow exposure. At December 31, 2007 the Fund has effectively hedged 89% of the expected 2008 US dollar cash flow at $1.22 and 41% of its expected 2009 US dollar cash flow at $1.19.

The Fund has a total forward contract to sell US dollars for fiscal 2011 totaling US$68.6 million carrying an average rate of $1.17. Subsequent to the end of the year, the Fund entered into US$35.2 million for additional forward contracts, increased the Fund's hedge position of its 2008 and 2009 expected US dollar cash flow to 92% and 61%, respectively. An increase is total forward contracts US$103.8 million carrying an average rate of $1.12.

Subsequent to the year-end in January 2008 the Fund announced that it's renewed its combined C$175 million senior secured credit facility for a new three-year term. The renewal calls for a three-year extension of the facility and the core unit feature allowing an increase to C$225 million. This renewal lowers the cost of financing and provides a secure source of financing to achieve future renewable energy and infrastructure goal targets both organically and through acquisitions. With that, I would like to open lines for questions.

(OPERATOR INSTRUCTIONS) Tony Cartwright, Scotia Capital Inc.

Thank you for letting me get it off mute. CapEx guidance for 2008 and '09, could you give us some color there?

Certainly. In the MD&A we opened broadly our (technical difficulty) capital expenditures for 2008 and it's approximately C$30 million. C$20 million of that will be in the infrastructure division. We don't at this time provide guidance for 2009.

Could you tell me what headroom is available under your credit facility? You indicated the amount drawn. I don't know how much is backstopping -- is used as LC backstop.

We have approximately C$26 million of LCs out there. So that brings basically the room under -- up to the 175 (inaudible) C$23 million as at December 31. But subsequent to the year-end we now renewed our credit facilities and we have an accordion feature that allows our C$175 million to be increased to to C$225 million.

Can you elaborate on what (inaudible) accordion works? What sort of specific application of the Fund's qualify for accordion feature?

The accordion feature is triggered at our request and the funds can be used in the same manner as the funds would be used under the current credit facilities for growth, acquisitions and working capital purposes.

And why this structure rather than just commit to a 225?

It's simply a matter -- it's an efficient way to raise money. We in effect don't have to incur any standby fees until we decide to exercise the accordion but there is no barriers in our way basically at any time to increasing the facility up to the 225.

In your calculation of distributable cash on Page 17 there is an other nonrecurring C$5.318 million referenced as being final adjustments for the funds invested in St. Leon and gain on sale of capital assets. Can you just split that out?

We have -- in the discontinued operations note we have shown what the gain is on the discontinued operations so you can basically reference from that.

And the settlement or adjustments to the Fund's investment in the St. Leon wind farm?

The precise number we're not at this time providing as public information. But suffice it to say that it's included in the other nonrecurring number as adjusted on the distributable cash.

And then finally you guys -- the manager qualified and was paid or was accrued an incentive fee this year. In part it was because of the higher distributable cash which was largely a function in some regards of these nonrecurring items. But the Fund also took a write-down on some of the notes that although not directly associated with the assets sold were part of an overall package.

How is that sort of justified? I mean I am curious to know you have nonrecurring items coming in but you also wrote off a total of somewhere 3 to C$4 million on the notes receivable from across America.

The management contract allows for a bonus to be paid of 25% of the distributable cash flow over C$0.92. We were able to achieve C$0.95 per unit of distributable cash and that is where the bonus is paid from.

I know that mechanically but I just wonder whether from a governance point of view this -- I mean how successful has your investment been in landfill gas? I mean has it met your expectations? You have sold it and would it not have been appropriate to sort of net some of these write-downs which you know are non-cash against the proceeds and notional gain that you got on the sale of the fixed assets?

I mean I think from our purposes if we look at this thing on a whole, I mean you're right. Landfill gas probably didn't work out quite so well. St. Leon worked out very well. At the end of the day, as Dave said, we had above C$0.95 net of the bonus of the manager and the trustees felt that was what justified the bonus.

Michael McCowan, BMO Capital Markets.

Can you discuss the production figures from St. Leon? I didn't see them in the earnings release.

Just over the quarter -- is that what your question is, just on the quarter?

Over the quarter and the year if you have it handy.

Okay I don't have the annual numbers handy because I don't think it would make a lot of sense from the point of view that the facility wasn't fully operational for most of the year. But over the quarter we attained COD on September 18 effectively and the budgeted capacity factor was about 46%. The actual for the quarter was 42% and just in terms of numbers a budget of 102,000 MW hours versus the actual 93 and that difference is roughly equivalent to about C$400,000.

But I think there's two components you've got to think about when you look at those numbers. The first is because of the issues associated with some of those outstanding deficiencies a significant portion of the plant was shut down in the last quarter as they were making these repairs. And the second thing you have to think about is because we have this extended warranty agreement (inaudible) warrant the availability of the facility up to 97% availability. So while the facility was slightly under compared to budget, that shortfall will be made up by Vestas. And those situations that caused the shut down which was the repairs to the collection system have been finished.

I noticed in the release I think you may have talked about this in the third quarter. But there is a cash payment from Vestas made during the year in respect of the liquidated damages. Have you disclosed that?

I don't think we have disclosed the amount, no. I don't think that number is a secret. It's all contained in the Turnkey construction contract which is a public document as well.

Can you provide a status update of still what needs to be done in order to have all the outstanding issues at St. Leon completed?

Sure. When the COD was reached on September 18 there were roughly four outstanding items. Two of those items have been completed, those being the blade repairs and the collection system and there remains two other outstanding issues. One is relatively minor one which will be done and is required to be done by the summer of '08 and it's a bit of a technical thing but as I say it's relatively minor. So I will leave that one.

The other one which is a little bit more significant is the main bearing replacement and that is the issue where Vestas is required to replace the main bearings in each turbine and that will take some time. They have approximately two years to complete that facility. And we're holding security in the form of a letter of credit from Vestas to ensure that work gets done.

And just to follow up on that, we don't expect any of those repairs primarily the main bearings to shut the machine down. It's a question of premature wear in the bearing. But we don't expect it to cause any downtime and even if it did Vestas has the extended warranty agreement.

I noticed there is a large working capital draw about C$31 million during the year. What was that in relation to?

That working capital draw primarily was a result of once we achieved commercial operations agreement with Vestas under the Turnkey construction contract there were certain outstanding amounts that needed to be paid for the construction of the (inaudible) and a few other payments associated with that. So that is by far the largest portion of that.

Regarding your landfill gas facilities, have all those been disposed of now or are any of them still operating?

We still have one facility left in New Jersey.

Is it running right now?

Let me correct myself. It's actually two side-by-side and yes, they are running right now.

I guess you talked a little bit about your hedging program and how you put on additional hedges subsequent to the quarter end. I didn't catch the rates for 2008 and 2009. Do you have those?

What we disclosed publicly is the blended rates that take into account all of the FX contracts that we have in place. There's a specific note in the financial statements under derivative assets and in that note we do spell out year by year the amount of the contracts and the average exchange rate that they will be settled at.

And that is in this set of financial statements?

Yes, the notes to financial statements which you can find on our website. It's under note seven.

Last question -- you're going to be undertaking a lot of or a number of rate cases for your water and wastewater facilities. Can you talk about what sort of return on equity you're targeting?

It's a regulated rate of return on our investment and it changes over time depending on what the market rate is for return on equity. So it's really hard to give you any type of guidance what it is.

You mentioned when you're -- approximately when you'll be filing those. Do you have any guidance on how long you expect the proceedings to take?

We're thinking the middle of 2009 probably when we'll start seeing the results of those rate cases.

Okay, then sort of middle 2009 throughout 2010 maybe for some of the ones that are filed in the later years?

Bob Hastings, Canaccord Adams.

Just a few maybe general overview questions. We're seeing a little bit of debt issues out there, liquidity crisis. You mentioned you're out looking at acquisitions. Do you see any opportunity as the result of this? Are you looking at anything currently? Are prices getting a little bit better out there?

We're finding the market is still pretty busy. There's a lot of people out looking at assets and that's for sure. (inaudible) talking about if there's acquisitions out there. But there's still lots of activity in the acquisition business.

Okay, so nothing is getting any better?

Nothing that we have noticed anyway. There's no assets falling out of the trees right now.

Okay and of the capital you are deploying, the C$30 million this year, do you think you're able to get your 13% hurdle rate on that given where your units are?

We will get it as best we can from the rates maker in our higher utility areas. 13% probably is high I would think.

You used to always say your benchmark was where your yield was. So the yield has gone up a bunch so I wondered how you were changing or if you were changing your strategy at all there.

We're looking at different things to improve the rate of return on our equity.

Bob, I think as well the rate you just quoted is on our stock versus the factoring in debt as well. If you blend the two it's a slightly lower rate.

That's what we're saying. There's several things you can do and increase leverage is one of them.

How much room do you think you have to increase leverage on your balance sheet currently?

Right now we have our credit facility is available to go up to C$225 million and there's interest from the banking syndicate to take it higher if we need to. Clearly they know that we would be doing that when we have attractive opportunities out there. So we're not going to run up debt just for the sake of running up debt. We tend to match the debt with the opportunities that present.

Thank you. You mentioned in one of your notes about the (inaudible) tax one of your subsidiaries may not pass the test but you can't say for sure yet. Can you give us an idea as to the importance of that particular subsidiary? Is that a large one? Does it have a material impact on a change in your tax in 2011 or whenever you start paying tax?

That comment is driven by a very technical interpretation of the SIFT rules that came out in 2007 and clearly the federal government intended for the SIFT rules really to capture the publicly traded SIFT at the top of the chain. Then what happened, in December the minister of finance made an announcement that said oh by the way it looks like our legislation may have captured basically SIFTs inside of a SIFT. We did not intend for that to happen so we are going to be introducing amendments to the legislation we passed in June in order to make sure that doesn't happen. However, we're sitting sort of in this no man's land right now where we have this legislation enacted in June which everybody thought didn't catch SIFT success and the finance minister says well we think it might so we're going to change it.

So we really felt obligated since the amended legislation really hasn't been enacted yet we really felt an obligation simply to draw that to people's attention because we haven't seen the enacted legislation. But we believe that at this point in time the risks are fairly low. The other thing we will say for that as well is that there is sufficient tax shelter within the SIFT to shelter any actual taxes that would have to be paid. So clearly we wouldn't want to draw down on CCA before we have to. But certainly there is enough sitting in the future tax that we can draw upon to make sure we actually will not to pay any current tax.

I would agree with that. I thought maybe you were sort of maybe signaling that his new pronouncement caused problems as opposed to fixing the problem. In terms of the management piece just going back to that for a little clarity does that start afresh every year or is there a pool that has to be met? So if next year or this year you don't achieve the C$0.92 if it was let's say it C$0.90 next year would you have to hit C$0.94 before you can get the incentive?

No it's based on the year-to-year distributable cash.

Okay, the clarification on hydro, you have sold some assets. Are there more to come or is that it?

I think we are always reviewing our assets. But right now we don't have anys intention to sell any more of the assets.

You mentioned that there's some rate reductions I think lower rates being achieved in Quebec. Can you give us some idea as to sort of any changes in magnitude of the contract?

We negotiated one TPA that expired last year and we came out with a very slightly lower price per kilowatt-hour. That was only at one facility.

Okay so it would be minor in the greater scheme of things?

Oh yes, very very minor.

Can you tell us -- you mentioned something I hadn't really heard of before -- my ignorance probably. Your inflatable water toy around the dam, what potential is there what kind of investment does that do and what does that accomplish for you?

Okay well it's actually not exactly a toy. But anyway what it is it's the top of a dam and it's just a type of dam which has an inflatable bladder that is filled with air and it just holds back the water at a higher elevation. Right now it is kind of an antiquated system with respect to its wooden flashboards are there now and the problem is when there's a high flow the wooden flashboards get all taken down and washed downstream and you can't replace those wooden flashboards until the water subsides. So you might run for a month with a fair amount of water spilling over the dam and a reduced (inaudible) pond elevation.

So what this allows you to do is when the flood comes you deflate the dam, pass the flood and the second that the flood is gone you inflate the dam back up and so you were able to capture more water. I don't have the -- we already have a couple of them elsewhere in the portfolio. It's not new technology that's been around for a long time. But in terms of the impact of that it is not huge but I'm guessing hundreds of thousands not many millions.

Okay very good think you and Crossroads was an interesting one. We thought that was all closed up and now it looks like you may have an opportunity for it. Do you see that as a good possibility and is it meaningful in terms of incremental operating profits?

Sorry, I missed -- which project?

The Crossroads facility.

Yes, Crossroads. It's just an opportunity where we have a turbine that is idle right now in a market that requires power and we just need to find a home for that power and so it's a potential opportunity. We never fully decommissioned that plant so it's just (inaudible) right now.

But you're seeing interest from parties?

Yes.

Excellent and one last thing is that you gave some guidance that you expect cash flows going forward to be sort of similar levels which you have been able to do in the last few years and I guess last year was C$0.95. And based on -- so that is the guidance and you expect I would assume that there's really not any significant financings required other than what you've got on the debt side?

Just a note on that. We did not provide guidance that we expected to be at C$0.95 into the future. I think we were clear that the C$0.95 included certain onetime items. I think when you look within each of the divisions certainly we provide guidance that we expect continuing operations from hydro to be in line with normal hydrology conditions. Cogeneration should perform as expected. So our reference to performing as expected is really in relation to the continuing operations of the Fund.

Yes, but I was thinking in terms of you made a big point of your cash distributions now three years in a row have been above -- or your cash generation has been above your cash distributions and then when you made that statement that -- I'm desperately trying to find it here -- anticipate the Fund's business units will continue to generate cash available for distribution in line with historical performance, it sounded to me like that was tying the two together. Is that not right?

We are referring specifically to the Fund's business units on a continuing operations basis.

The alternative energy is at C$30 million EBITDA. Is that a good run rate going forward given you've got the wind in there now?

Yes.

Okay. Sorry I didn't catch that.

Albert Pavao, CIBC World Markets.

With the renewal of your revolver has there been any change in the bank covenants?

Yes, actually one of the covenants that was contained within the bank credit facility actually was removed. We didn't seek nor do we need any other increases to bank covenants and within the credit facility amendments we were actually able to achieve minor but still a little bit tighter pricing.

Could you just elaborate as to which term was removed?

Our credit facility is not and the covenants there is not on public record at this time.

Okay, and then as it relates to Crossroads I just want to have some clarification on that entity in that would you look to enter into short-term PPA type arrangements or would you also consider running it on a merchant basis?

I think we are looking at all the different alternatives trying to maximize the value of that plant but we haven't made any decisions one way or the other but I think all the opportunities and all the different things are on the table.

Michael McGowan, BMO Capital Markets.

Sorry all my questions have been asked.

(OPERATOR INSTRUCTIONS) Bill Cable, TD Securities.

Just a quick question if you could talk about the employees at the energy-from-waste facility you said 45 of them were represented by the CAW Local. Is that everybody there and how are those negotiations going?

Everyone that is not management is part of the CAW. It's about 45 employees and their contract expires on April 2 of this year and we have just started negotiations with the CAW representatives and it's a bit of a process. It started early in February and it's expected to continue right up to April. We can't really give you much more guidance than that unfortunately.

What happened? Is this the first time that's been renewed or --?

No, on our watch, the second time. We renewed it three years ago successfully.

Bob Hastings, Canaccord Adams.

Thank you. The steam project you referred to in your notes, that is coming on I think in this quarter. Can you give us an idea of exactly when it starts and the kind of revenue stream you expect this year?

That project has come online from the point of view we are producing steam. It's going through a commissioning phase right now so the finish line is in sight. In terms of the impact on an annualized basis, it is around C$2 million year.

Great and you're looking at an expansion of the [VSW] facility. Can you give us an update on where we stand with that opportunity?

Actually we're moving ahead with that project into our engineering and environmental studies looking at different technologies. We're also talking with the (inaudible) how we can extend our contract with them. So we're moving ahead with the investigation. It's going quite well actually.

Do you have any sort of milestones that you can see ahead that maybe where it's going to make or break decision?

I think we will be in a position probably at the end of Q3 to actually give more guidance on that. It's because there's a couple of moving pieces in terms of the economics, the engineering, the technology, environmental approvals and in finding a secure source of waste so we're moving all of those forward -- all at the same time but we have an internal deadline of about June or July about really putting it all together.

And you've got a 5 MW turbine sitting there unused as well don't you?

Actually it's a 7 MW turbine.

Okay and is there any opportunity you'll be using that in the future?

Yes, we're looking at some of the standard offers that are going on in Ontario. There's an energy and heat standard offer that we're talking to with OPA about. We're looking for a home for that as well.

That would be pure incremental because you're not getting anything from that now?

No, it's sitting black now. It's all wired and ready to go but it just doesn't have a power purchase agreement.

Right so it would be positive to the revenue cash flow if you were to sign something.

Yes.

One last thing and then I will get off again. It was very clear in your announcement (inaudible) see in terms of your objectives and strategies going forward it seems like you are a lot more growth focused than maybe you were before or you put a little bit more emphasis on that. You've got the debt ready to back that to back that up if you see opportunities. Am I reading too much into that or are you actually seeing some good opportunities and you think that will add value to the Fund going forward?

I think we do see opportunities in the development area. That's partly because some of the opportunities in the acquisition don't seem to be as plentiful as they once were. So we have kind of in some respects gone back to our roots which is developing power projects and we see lots of opportunities in that and so that's where we're focusing our growth efforts right now.

Tony Courtright, Scotia Capital.

Just two quick points for clarification. Note 21, other revenue indicates hydro mulch sales. Can you elaborate on what hydro mulch is?

In the Sanger facility, it was a qualifying facility (inaudible) under the (inaudible) legislation which means it has to have a gas-fired cogen steam generation and it has to supply heat to some type of manufacturing or take out for the heat. So the developer of that project actually developed what's called a mulch making facility and what does it takes waste wood and uses steam to grind it into small fibers and it's used for landscaping mulch to stabilize slopes and used for [grass] heating and that type of stuff. It's actually not a bad little business but so we own both sides of that facility, both the steam generator gas turbine as well as some of the hydro mulch facility.

And then on Note 4, for there's a note receivable [airlink] advance. Is that in relation to the aircraft you guys have advanced some money to?

Yes, that's right.

Mr. Kerr, there no further questions at this time. Please continue.

Thank you very much. I would like to thank everyone this morning for joining us this morning and we're looking forward to the inform you about Algonquin Power in the future. Have a good day.

Ladies and gentlemen this conclude the conference call for today. Thank you for participating. Please disconnect your lines.