Atlantic Power's (AT) CEO James Moore on Q1 2015 Results - Earnings Call ...

Category: Credit Matters Published: Thursday, 14 May 2015 Written by Admin


Good morning, and welcome to the Atlantic Powers First Quarter 2015 Earnings Conference Call. [Operator Instructions], Please note this event is being recorded.

I would now like to turn the conference over to Amanda Wagemaker, Investor Relations Associate. Please go ahead, maam.

Amanda Wagemaker

Welcome, and thank you for joining us this morning. Please note that we have provided slides to accompany todays call and webcast, which can be found in the Investor Relation section of our website, This call will be available for replay on our website for a period of 3 months.

Our results for the 3 months ended March 31, 2015, were issued by press release yesterday afternoon and are available on our website and on EDGAR and SEDAR. Financial figures that well be presenting are stated in US dollars unless otherwise noted.

The financial results in yesterdays press release and the matters we will be discussing today include both GAAP and non-GAAP measures. GAAP to non-GAAP reconciliation information for our historical results is appended to the press release and quarterly report on Form 10-Q, each of which can be found in the Investor Relations section of our website.

We have not provided a reconciliation of forward-looking non-GAAP measures to the directly comparable GAAP measures because not all of the information necessary for a quantitative reconciliation is available to the company without unreasonable efforts, primarily as a result of the variability and difficulty in making accurate forecasts and projections.

We also have not reconciled non-GAAP financial measures relating to individual projects, projects in discontinued operations or the APLP projects to the directly comparable GAAP measures, due to the difficulty in making the relevant adjustments on an individual project basis.

Before we begin, let me remind everyone that this conference call may contain forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are more fully described in our various security filings. Actual results may vary materially from such forward-looking statements.

Now let me turn the call over to Jim Moore, President and CEO of Atlantic Power.

James J. Moore

Good morning, and thank you for joining the call today. With me are Terry Ronan, our CFO; and Dan Rorabaugh, our Senior Vice President of Asset Management as well as several other members of the Atlantic Power management team.

Following my remarks, Terry will discuss 2015 guidance. And then Dan will discuss operations with a focus on our optimization and asset management activities.

On our previously quarterly call, I outlined our priorities for the company. This morning, Id like to provide a progress report on our long-term strategic plan to create value for all our shareholders.

As I think youll agree, during the first quarter, we were able to execute well on these priorities.

First priority was asset divestiture. After concluding a strategic process for the entire company last year, the board determined that it would not maximize shareholder value, accordingly, the board terminated that process in September and decided to move forward with the business.

We refocused our efforts on the asset divestiture process in the fourth quarter of last year and the entire first quarter of this year. We evaluated our assets and tested market pricing on the various types of plans. We focused on market price relative to our estimates of long-term asset values. We determined early on that our renewable projects with long-term PPAs were likely to produce the best prices relative to our estimates of value in the current environment. We concluded this asset divestiture process with an agreement to sell our 521-megawatt wind portfolio for $350 million cash, which we announced on April 1.

We believe the transaction represents a compelling valuation in excess of 13x the estimated 2015 cash distributions from the wind projects.

The successful completion of the asset divestiture process, which is expected in June, will provide the company with good options to delever the balance sheet and improve our credit profile, all of which is in keeping with the priorities we announced on the February call.

Two, balance sheet and capital allocation. The net proceeds from the wind sale are expected to be approximately $338 million. Our plan is to use the proceeds to redeem $311 million of our 9% senior unsecured notes. The interest savings from redeeming these notes would more than offset the loss of cash distributions from the wind projects on an annualized basis.

This year, with the sale occurring only in the June, we realized the savings for half year, so theres a reduction to our free cash flow, as Terry will discuss.

Beyond the wind transaction, we expect to take advantage of the favorable refinancing conditions in the current market to reshape our balance sheet in a manner that will reduce our annual interest expense, address our medium-term debt maturities and enhance our creditworthiness.

In our business, credit is highly important in contracting with third-parties for power sales, fuel purchases, transportation, transmission and other purposes.

Credit matters. In addition, an improved credit profile reflecting lower leverage and better coverage of our debt service obligations should also result in lower cost to capital over time. Id also mention that during the quarter, we continued to make discretionary purchases of our debt, where attractive. Year-to-date through the end of April, weve bought back $9 million of our unsecured notes and $17 million of convertible debentures with cash on hand. Weve also repaid $24 million of term loan and project debt using project level cash flows.

We are also focused on returning excess cash to shareholders where and when it make sense, in balance with the need for financial stability and plans for disciplined growth. We continually review the optimal balance and method of doing so.

The current dividend policy returns $12 million in common dividends to shareholders annually. This should be measured in the context of our 0 to $20 million adjusted free cash flow guidance for this year.

The third priority, overhead. On February call, we outlined on ongoing reductions in our general and administrative expense, which had taken the company from $54 million, including $7 million of development expense in 2013, to $45 million in 2014 with guidance of $38 million or lower for 2015.

We said then we would provide an update on those efforts. Last month, we completed the move of our headquarters from Boston to Dedham, Massachusetts, at an annual savings in rent of more than 40% beginning in 2016. Through the balance of this year, we will also be closing our offices in Seattle, Portland and outside of Chicago, while also downsizing in Toronto. Including the staff associated with the wind assets, the company will have reduced its corporate staff by 25% this year, more than 50% from 2013. As a result of those efforts, we are now expected to make a further $10 million reduction in our corporate GA expense to $28 million in 2016. This process has been a challenging one, but weve taken the necessary steps in a decisive manner.

Fourth, optimization investments. We continue to see the potential for strong returns from discretionary investments in our own fleet, higher than anything we think we could achieve externally. We view this as a low-risk way to grow our cash flows and our intrinsic value per share. After the summer is over, well provide an update on the cash flow contribution for the major projects we completed last year at Nipigon and Morris. This year, we expect to invest another $10 million in several good projects. By the end of the year, we expect to have invested $28 billion cumulatively over the past 3 years, which we expect will contribute at least $10 million of annual incremental cash flow beginning in 2016.

Fifth, PPA renewals. In my letter to shareholders this year, I indicated were focused on addressing the companys challenges in 3 major areas: cost, the balance sheet and PPA aspirations. As I detailed already this morning, weve made significant progress in tackling the first 2 of these. We believe that our PPAs are very valuable in the current market. Spot market prices are low and volatile. The combination of low power prices and lower interest rates have caused market values for assets with long-term PPAs to soar, which worked to our advantage in our recent asset sale process.

However, these PPAs expire over time. Approximately 31% of our 2015 project adjusted EBITDA is attributable to projects with PPAs that expire between December 17 to -- excuse me, December 2000 -- 2017 and mid-2020.

We have 2 ways to mitigate the impact of these expirations. On a macro level, our assets are in some of the strictest NIMBY, Not in My Backyard, anti-development states and provinces in the United States and Canada. Intermittent sources of power, such as wind and solar are much easier to build in those areas, but a low-cost reliable electric grid requires other sources of power as well. We believe that these macro considerations eventually should be reflected in the value of baseload and cyclic plants as well as in the price received for power from those plants.

The other way to mitigate the financial impact of PPA expirations is to ensure that we operate our plants safely, reliably and at the lowest cost possible, and that we take advantage of opportunities to invest in them to produce incremental cash flow. Our excellent operation teams are doing outstanding work at running our plants and identifying attractive optimization investments, as outlined above.

They are focused on providing reliable, clean power to our customers and safe work environments for our employees. Our plants and our employees are major servants in the local communities. I just visited one of our hydro facilities in upstate New York, where more than 40% of the villages tax revenue comes from our plant. Our plant operations are supporters of things like Little League and youth hockey in the local communities across America and Canada.

Although all of our customers prize reliability and service, we are in a commodity business. Its mostly about low cost. We have an ongoing effort to reduce our annual $24 million fuel budget, for example, through our fuel-igality program. Fuel-igality, Im surprised that I got that right, where we are trying to save money and reduce fuel use, whether the contract calls for us to keep the cost savings or for them to be passed directly to the customers.

The key for us is to have low-cost and financial stability to get through down markets, and then extend or add PPAs in up markets. In a soft market, we want to focus on the plants where we can add value for customers that would justify improved or extended PPA terms rather than being focused -- forced into aggressively hedging or signing low-return PPAs in a soft pricing environment.

Sixth, growth. Once weve completed the wind sale and made progress reshaping our balance sheet, consistent with the long-term plan, we expect to be able to move more of our focus on growing the business again and creating additional value for all the shareholders and this sector, I think, its fair to say that IPPs have had their share of bad investments. One way we want to try to avoid that is to focus on growth in intrinsic value per share as opposed to absolute growth in size of the business.

A second mistake is making promises about robust rates of growth. The IPP business is generally cyclical with modest returns across the cycle, and its capital-intensive. The most successful investors in this space have been disciplined and allowed growth to be a residual of the values available in the market as opposed to trying to meet predetermined growth targets.

We are committed to being disciplined value investors. We will let the market dictate the pace of our investment. Im reminded that legendary value investor, Jean-Marie Eveillard, once said, Id rather lose half my clients than lose half of my clients money. We agree. The good news is that, while the external market is paying very high prices for certain types of assets, which would not be consistent with our value orientation, we believe we have sufficient opportunities to grow cash flow over the next couple of years from internal investment, cost reduction and balance sheet initiatives. Having said that, we are big believers in turning over lots of rocks looking for opportunities. Our efforts to grow externally will require an iron discipline on cost and a focus on capital-light opportunities. Our small size, however, gives us an opportunity to look at things that dont move the needle for larger companies or dont fit a yieldco or merchant model. Over time, we look forward to seeking creative ways, not only to stabilize or preserve value, but to grow it as well.

Lastly, let me say, for the past 7 months or so, weve been focused on the priorities I outlined this morning. Before concluding, I want to emphasize those recent accomplishments have been facilitated by the progress the companys made in the area of corporate governance. In the past 7 months, the board of this company has: one, conducted a strategic review process; two, concluded the process when it determined that a sale or merger of the company was not in the best interest of the company shareholders; three, put an Interim CEO in place who moved with speed and refocused the management on asset divestitures; four, added a shareholders nominated Director to the Board in November; five, added another independent Director with significant IPP experience to the board in December; six, named a new CEO in January with experience in IPP turnarounds. Thus, 3 of the 8 board members are now new since November. Of the 4 senior management executives we had last year, only one remains with the company. Its been 7 months of intense change and action. I believe our shareholders are beginning to reap the benefits.

I will now turn the call over to our CFO, Terry Ronan.

Terrence Ronan

Thanks, Jim, and good morning, everyone. Slide 8 presents a summary of our financial results for the first quarter of 2015. Before discussing these in greater detail, Ill make a few comments that might be helpful as you review our results.

First, the wind businesses were included in discontinued operations this quarter. First quarter results for 2014 have been recast to include them in discontinued operations. The project adjusted EBITDA excludes the results of discontinued operations, so the $58.6 million that we reported does not include our wind businesses. However, weve disclosed the results of our discontinued operations separately. Project adjusted EBITDA for the wind businesses was down $4.5 million from 1 year ago, mostly because of lower winds in Idaho this quarter versus the first quarter of last year. Adjusted cash flows from operating activities and adjusted free cash flow also exclude the results of the wind businesses. Both also exclude the impact of changes in working capital, severance and restructuring charges and asset acquisition and disposition costs.

Cash flow from operating activities, which is a GAAP metric, includes the operating cash flows of the winds businesses, which were $10.8 million in the first quarter of 2015 versus $8.8 million in the first quarter of 2014. Operating cash flow was up despite project adjusted EBITDA showing a decline in the quarter, because of the buildup of accounts receivable in the fourth quarter of 2014, which was a strong quarter for the business. These receivables were then collected in the first quarter of 2015.

Turning to Slide 9. We reported $58.6 million of project adjusted EBITDA this quarter, which was up $2.2 million from the year-ago figure presented to exclude the discontinued operations. This increase occurred despite a couple of significant headwinds in the quarter, including: One, Tunis and Selkirk. Tunis was mothballed in February, as we discussed in our previous call, and Selkirk experienced significantly reduced dispatch due to merchant market unfavorability. Together, these accounted for nearly a $10 million reduction in project adjusted EBITDA; two, the stronger US dollar versus the Canadian dollar hurt results by approximately $3 million as results of our Canadian businesses were translated into more expensive US dollars.

Ill talk a bit more about this later, but the point I want to emphasize is that, although were expecting adverse impact on EBITDA, the impact on our cash position overall is pretty close to neutral because of the benefit weve received on translating the interest payments on our Canadian denominated debt and our preferred and common dividend payments to US dollars from Canadian dollars.

On the positive side, project adjusted EBITDA benefited from about $8 million of lower maintenance expenses due to more favorable year-over-year outage comparisons at a number of our projects; second, the absence of the $4 million swap termination costs at Orlando that we incurred in the year-ago period, and in addition, Morris was up as margins benefited from lower gas pricing.

Slide 10 reconciles project adjusted EBITDA to cash flow from operating activities and then reconciles operating cash flow to our adjusted cash flow metrics. One comment Id make at the outset, our semiannual interest payments on our senior unsecured notes, medium-term notes and 3 of our 4 convertible debentures, occur in the second and fourth quarters of the year and thus our operating cash flow and free cash flow measures are typically higher in the first and third quarters of the year. In addition, the first quarter tends to be the most significant of our Canadian projects, whereas for the third quarter is generally the most important for our US projects.

Now turning to our results. GAAP cash flow from operating activities of $35.1 million increased $64 million from the year ago period, primarily for 2 reasons: in the first quarter of 2014, we incurred $47 million of financing charges associated with our debt refinancing and repayment transactions which did not recur this year; and in 2015, we experienced a $19 million increase in cash flows from working capital, primarily due to prepayments on gas contracts in the year-ago period. As I mentioned previously, operating cash flow includes the cash flows of our wind businesses.

Our adjusted cash flows from operating activities of $34.4 million this quarter were in line with the $35.3 million in the first quarter of 2014. As you know, this metric excludes discontinued operations, working capital changes, debt prepayment and related costs and severance charges.

Adjusted free cash flow of $7 million this quarter decreased $21 million from the year ago period, which was almost entirely attributable to the amortization of the APLP term loan, which was $21 million this quarter. Recall that, though we issued the term loan in February 2014, amortization of that loan did not begin until the second quarter of last year.

The liquidity numbers in Slide 11 exclude the cash at our wind businesses. At March 31, we had liquidity of $202 million, down slightly from $210 million at year end 2014.

We dont have any borrowings outstanding under our revolver, although we are using $108 million of revolver availability for letters of credit. The decline in our unrestricted cash balance of $106 million to $100 million is primarily attributable to our use of cash for discretionary debt purchases in the quarter.

Slide 12 summarizes the changes to our debt since year-end 2014. During the quarter, reduced our debt by $40 million, excluding the unrealized impact of foreign currency changes in our debt, which was positive $34 million at the end of the quarter.

The $40 million included $24 million of project debt and term loan amortization and $16 million of discretionary purchases of our senior unsecured notes and our convertibles under the MCIB. During April, we repurchased another $10 million of our convertible debentures under the MCIB, which puts discretionary debt purchases at $26 million year-to-date. Youll also notice from Slide 12 that when the sale of our wind business closes, we expect that approximately $249 million of wind project debt will be de-consolidated and another $68 million, representing our proportional share of debt at the equity-owned wind projects, will be assumed by the new owner.

Turning to Slide 13. Weve updated our 2015 guidance to reflect the sale of our wind businesses and the planned use of the $310 million of cash proceeds. Although theres been some puts and takes on our other businesses since the beginning of the year, the overall impact of these still keep us within the range of our original guidance.

As Jim mentioned, we plan to use the cash from the sale to redeem our outstanding $311 million of 9% senior unsecured notes following the close of the transaction.

Its helpful to keep a few things in mind as I review the updated guidance: the impact on project adjusted EBITDA for the full year as project adjusted EBITDA excludes discontinued operations. Our adjusted cash flow metrics also exclude discontinued operations, so the cash flow from the assets are excluded for the full year. However, the benefit of lower interest expense from the debt reduction is only for a partial year. Thus, the loss on the cash flow from the asset is not fully offset by the interest savings this year. On an annualized basis, we believe the transaction is cash-flow-accretive and the expected annual interest savings on the redeemed notes of approximately $28 million modestly exceeds the budgeted cash distributions of approximately $26 million from the wind projects.

One other item of note, redemptions of the notes requires a make-whole premium. Wed also incur accrued interest until the date of redemption. The premium in accrued interest would be recorded as expenses in the quarter in which the notes are redeemed. Our adjusted cash flow metrics exclude these transaction-related costs, much as we did in the first quarter of last year on our debt refinancing and repurchase transactions.

Turning to our revised guidance metrics. As shown in our updated bridge on Slide 14, our 2015 project adjusted EBITDA guidance, previously $265 million to $285 million, has been revised to $200 million to $220 million. Wind businesses have been expected to contribute $65 million of project adjusted EBITDA in 2015.

Turning to Slide 15. Our 2015 guidance for adjusted cash flows from operating activities, previously $120 million to $140 million, has been revised to $90 million to $110 million. Our adjusted free cash flow guidance, previously $10 million to $30 million, has been revised to 0 to $20 million. Note that the impact of our cash flow metrics is less than for project adjusted EBITDA because of debt service obligations as well as distributions to noncontrolling interest at Rockland and Meadow Creek that go away as well as the partial year benefit to our corporate interest expense from assumed debt repayment.

Lastly, Id mention there is no change to our guidance for APLP project adjusted EBITDA of $148 million to $160 million.

Turning to Slide 16. In the past few months, weve received a number of calls from analysts and investors about our exposure to the Canadian dollar and how it affects our financial results. Theres a few things to keep in mind.

Our projects in Canada account for about a quarter of our projected-adjusted EBITDA. We translate the results into US dollars for financial reporting purposes. When the US dollar strengthens against the Canadian dollar, as it has for the last several months, the results of our Canadian businesses in US dollars are reduced. As I indicated earlier, we had an approximate $3 million reduction in project adjusted EBITDA because of currency translation impacts. Thus, while it would seem were on with the Canadian dollar, that is true only from a project adjusted EBITDA standpoint. The overall impact on our cash of a strengthening US dollar is mitigated by the interest payments on our Canadian denominated debt securities and via preferred and common dividend payments, all of which are made in Canadian dollars.

From an overall standpoint, were pretty closer to neutral. The impact in the first quarter was slightly negative because it is a high-earnings quarter for our Canadian businesses but a fairly light quarter in terms interest payments on our Canadian securities. The balance is expected to be much more even over the remainder of the year. For this reason, we chose to not put actual hedges on our exposure, but instead, to rely on the natural hedge provided by our Canadian obligations.

Turning to Slide 17. Id like to address 2 other topics before closing: First, as you may have seen for the 10-Q we filed yesterday, as of March 31, were again in compliance with the fixed charge coverage ratio under the restricted payments covenant of our senior unsecured note indenture. The calculation of the rate is based on a rolling 4-quarter test. Effective in March 2015, the charges associated with our debt refinancing and repurchase transactions in the first quarter of last year rolled out of the calculation. During the period we were not in compliance, our payment of common dividends was limited to the greater of $50 million or 2% of net assets, $46.7 million as of March 31, 2015.

We used $35.4 million of basket capacity during this period. As long as we remain in compliance, were not subject to the basket limitation. If, as planned, we redeem the $311 million of our 9% senior unsecured notes, with the proceeds of wind portfolio sale we will no longer be subject to a fixed charge coverage ratio.

Second. Many of you know that in the past, weve discussed what weve spent to maintain our projects by breaking it down into major maintenance, which is expensed in capital expenditures. Major maintenance included only those expenditures above a certain threshold level, both routine and nonroutine.

Last quarter, we indicated we expected to have approximately $23 million of major maintenance and $12 million of CapEx this year. These estimates included our wind projects. Going forward, we believe that it would enhance clarity and consistency with other companies to instead discuss total maintenance expense, which includes all maintenance expense, routine and nonroutine, mandatory or discretionary. This expense is included in the operations and maintenance expense line in the consolidated statement of operations. Excluding our wind assets, maintenance expense is expected to be approximately $44 million this year, up $3 million from last year, primarily due to a scheduled major outage at Manchief, as we disclosed last quarter and to a lesser extent, the absence of insurance recoveries and other proceeds at Piedmont that were a credit in 2014, partially offset by reductions at several other projects that had maintenance outages in 2014.

Our CapEx this year are expected to be $11 million to $12 million, with the majority of that for optimization projects at Morris and Nipigon, and to a lesser extent, Curtis Palmer. Now Id like to turn the call over to Dan.

Daniel Rorabaugh

Thanks, Terry, and good morning, everyone. Before discussing our optimization program, Ill briefly recap our operating performance for the quarter. Availability factor this quarter improved nearly 5 percentage points from 97.6% -- sorry to 97.6% from 92.7%. You may recall that in last years first quarter, we were hurt by a number of outages, some related to the extreme temperatures. Generation declined nearly 10% from last year. Selkirk and Tunis were significant contributors to the decline, as was Frederickson, which had lower dispatch due to warmer weather.

With regards to our hydro facilities, Mamquam flows were above normally in the first quarter, but record low snowpack implies it will see a negative impact during the summer and most likely for the year.

In terms of Curtis Palmer. In the first quarter, output was reduced versus a year ago due to very cold temperatures which delayed snow melt and result in reduced flows.

Flows increased in April, although we finished the month below expectations. Fortunately, melting was gradual, which minimized spillover. Performance the rest of the year will be a function of rainfall, so it remains to be seen, but year-to-date through April, we are behind expectations.

In Ontario, waste heat production was 24% higher for this quarter than it was last year, excluding Tunis from the comparison. In April, waste heat was nearly twice the size it was last April, again, excluding Tunis. Year-to-date, waste heat production is 42% higher than last year contributing approximately $2 million additional revenue versus a year ago.

Relative to our expectations, the comparison is even a little stronger, which has mostly offset the shortfall at Curtis Palmer.

Turning to Slide 19, Id like to provide an update on the 2015 optimization initiatives that I discussed on our previous call. As Jim mentioned, we plan to invest approximately $10 million in these projects this year. The most significant of these investments include: Several projects at Morris, including upgrades to gas turbine and water treatment designed to improve plant heat rate, steam delivery reliability and fast-start boiler capability, and to boost power output. Were also replacing the purified water production system with new, more efficient equipment that we expect will produce better margins for us. Most of these upgrades are likely to be completed by year-end, although the fast start capability may slip into next year. However, we expect that most of the expenditures will be incurred this year.

A second phase at Nipigon, following our once-through steam generator replacement and upgrade last year, were installing a feedwater booster pump to further increase steam and electricity generation and work at Mamquam to improve the projects efficiency. Both the Nipigon and Mamquam projects are expected to be completed this year.

Last time, I indicated that another one of our 2015 initiatives was to optimize the spillway system at Curtis Palmer to reduce forced outages and derates and increase generation. Due to the lead time for a required permit modification, we now expect this project to slip into 2016. We still expect to make some of the equipment purchases required for the project this year, however.

On Slide 20, as I indicated on our previous call, we expect a cash return this year on our 2013 and 2014 investments of about $4 million to $8 million. We expect to refine this range later this year after we gain operating experience with last years upgrades at Morris and Nipigon. Morris, during the summer peak season and Nipigon, as waste heat drops off. We believe that the total investment, of approximately $28 million for 2013 through 2015, will yield annual cash flow benefits of at least $10 million beginning in 2016. We also remain optimistic that we can make another $5 million to $10 million of this type of high-return investment in 2016.

Turning to Slide 21. As you know, the PPAs for Selkirk and Tunis expired in 2014. Selkirk is operating on a fully merchant basis. During the first quarter, Selkirk has significantly reduced dispatch from the year-ago period due to unfavorable market conditions. Accordingly, project adjusted EBITDA declined about $4.7 million from the year-ago level. We had a short-term hedge in place for March that was beneficial, but no hedges in place currently. Dispatch has also have been significantly lower in April. As we said on our last call, the project does have a steam contract, but on the merchant side, results will be highly dependent on the summer season.

On our previous call, Ive provided an update on our Tunis project, which we mothballed in February following the expiration of its PPA. As you may recall, I also discussed a new agreement with the Ontario independent Electric System Operator, which would be effective at our option starting between November 2017 and June 2019.

With this new PPA, we have the option to operate Tunis in simple cycle mode. We expect conversion to simple cycle would require only modest capital costs.

Further, the start date of this agreement is contingent on Tunis being able to economically procure firm gas transportation. Since the previous call, we have signed a precedent agreement with TransCanada pipeline for firm transportation following the recent conclusion of its open season for pipeline capacity. We have until May 2016 to decide whether to execute a final contract with them. Assuming that we proceed with TCPL, the new firm transportation capacity could start as early as November 2017. We expect TransCanada PipeLine to confirm the start date for our requested capacity in the second quarter of 2017, which would allow us to commit to a start date for the Tunis contract.

With respect to other projects that have PPAs expiring in 2018 and beyond, we continue to work on potential early extensions or renewals of those PPAs. As Ive discussed on our previous call, we respond to formal requests for offers or proposals as well as negotiate with existing customers outside of a formal process.

We look for opportunities to add value for the customer as well as ourselves. Although we dont have specific announcements to make this quarter, were optimistic that our efforts will produce some results later this year.

Now Ill turn it back to Jim.

James J. Moore

Thanks, Dan. To sum up, it was a productive quarter in terms of progress on our last strategic and financial objectives. Weve taken the necessary steps to ensure a meaningful reduction in our cost structure and benefit our free cash flow, creating value for all the shareholders. We executed an agreement to sell our wind projects in an attractive valuation, and we intend use the proceeds this year to optimize our capital structure, lower our interest expense and help improve our cost to capital.

We continue to pay down debt from project level cash flow and weve opportunistically repurchased some of the debt in the marketplace. We continue to make discretionary investments, and our projects on strong cash-on-cash returns. That concludes the prepared remarks. Were now pleased to take any questions you may have.

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