I have bought a few hundred shares for a starter position in Creststreet Power and Income Fund LP (CRS.UN.TO). The shares are held in IRA account only (US tax free) at this time based on my current perception of the tax consequences of CRS.UN for US holders. It looks like, as a Limited partnership, the distributions would not be classified as normal dividend income for US investors.
I am trying to understand this one better. Any additions and/or corrections to what I have written would be greatly appreciated.
Summary and speculation:
From the 2005 annual report:
1) CRS.UN provides distributions to unitholders from cashflow derived from windpower project electrcity sales and from share sales if needed.
2) CRS.UN generally does not spend money developing and only sometimes partially funds construction of projects from a pool of projects in various stages of planning and construction that are initially funded by other Crestreet Limited Partnerships.
3) 11,500,700 units outstanding at end of '05.
4) 2005 revenue of 13m, loss of 4m or .54/sh.. .3135 per unit paid out as distributions. 69m long term debt.
5) Currently have 2 operating projects, Mt. Copper and Pubnico Point in eastern Canada.
6) Crestreet partnerships have another 7 projects in pipeline, with potentially 10(?) times current operation capacity. Current capacity is 84.6 Mw.
7) During the first 7 to 10 months of production, output was 9% below projected levels at both projects. Attributed to standard startup problems delayed startup and normal expected deviation from average.
8) Funds are set aside for early production repairs and sustaining the present distribution levle during low power output periods (4 months equiv. at end of 05).
9) Both projects have long term price purchase agreements (PPA) with set prices per Kw hour, 13 to 25 years term lengths.
10) 2000 operating margin of 85% (operating costs = 15% of revenue)
11) Revenue is higher in winter (more wind) than in summer.
12) 2005 costs were negatively impacted by derivatives losses unique to start up and will not be a factor in the future for the first two projects.
13) Production can be impacted by Hydro Quebec repairs also (e.g. transmission lines).
14) A third project, Kettle Hills Project, Alberta, expected to contribute to income in late 06. Financing of this acquistion will be through bank debt and share offering.
15) CRS has long term (25 yrs+) surface lease agreements in place on their operatiing projects.
16) The turbines are under a 5 yr warranty for repair/service/performance.
17) The current share structure is not clear to me. My interpretation is that CRS.UN has purchased 100% of the Mt. Copper and Publico Point projects from the original funding limited partnerships for cash and trust units. There is mention in the annual report of class A and B shares, and payouts to the different classes depending on certain revenue levels attained. If someone could offer some help on this one it would be greatly appreciated.
My achilles heel on this one, besides my ignorance, is that I am in love with the concept of wind power. My previous experience with Canadian Trusts has largely been in Oil and Gas. The huge advantage over O&G trusts that I see with CRS.UN is that it is a non-depleting asset that can be incrementally exploited. The biggest long term opportunity appears to me in creating enough capacity that wind power could be exported to the US at higher rates. The biggest long term threat that I see is the possiblilty of changing weather patterns and in the shorter term, continued underperformance of Mt. Copper necessitating another distribution cut. I do not feel comfortable trying to put a value on the shares until I am clearer on the share structure. I do not understand the status of the class A and B shares, or if such a share structure still exists.
Note from 2nd quarter '06 report
- June 2006 distribution cut due to continuing losses.
-Continued operations at a loss.
- Operating capacity at Mt. Copper continues to fall signifcantly below the original engineers estimate, but still within variability expectations
- Operating capacity at Pubnico Point above expectations, but not enough to offset Mt. Copper.
- Operating margin of 79% in 2nd qtr '06 vs 88% in 2nd qtr '05. This is said to reflect "performance under full operations". I don't understand what they mean by this. This statement seems suspiciously vague to me
-14.3 million units fully diluted.
Not yet ready to make this one a significant part of PF. Too many questions, and I have most likely missed some of the most important ones. |
