Maxim Power Corp. Announces 2015 Financial and Operating Results


During the fourth quarter of 2015, revenue, adjusted EBITDA and FFO have increased and adjusted net loss has decreased when compared to the same quarter of 2014. The increase in revenue is primarily due to higher generation in the Northeast U.S. and France, partially offset by a decline at H.R. Milner Generating Facility ("M1"). The decline at M1 was primarily driven by the weakening in the Alberta pool price. The $21 average Alberta market price was the lowest quarterly price since deregulation in 2001.

In addition to the factors in the paragraph above, adjusted EBITDA and FFO have also increased and adjusted net loss decreased from the sale of emissions credits used to offset the production of sulphur dioxide ("SO2 Credits") and cost cutting initiatives at M1 and in the corporate offices.

Net loss attributable to shareholders has increased compared to the same quarter of 2014 due to asset impairment charges on goodwill and assets under construction, as well as the reversal of previously recognized deferred tax assets. These charges resulted from lower commodity prices (Alberta power and metallurgical coal) and higher emissions taxes in Alberta. The impact of these was partially offset by the recognition of M1's remaining unsold SO2 Credits.

On an annual basis, revenue and FFO decreased whereas adjusted net loss and net loss attributable to shareholders increased when compared to 2014. The change in these financial measures is primarily due to lower Alberta power prices and lower realized Northeast U.S. power prices. The $33 annual average Alberta market price was the lowest annual price since deregulation of Alberta's power market in 2001. In addition, revenue was further decreased as a result of the M1 cooling tower outage in the second half of 2015, however this was partially offset in other financial measures by lower fuel and variable operating costs. Further, costs incurred in the restructuring of Alberta operations resulted in an increase in adjusted net loss and a decrease in FFO. Finally, net loss attributable to shareholders also increased due to the previously mentioned asset impairment charges on goodwill and assets under construction, as well as the reversal of previously recognized deferred tax assets.

On an annual basis, adjusted EBITDA increased when compared to 2014. Adjusted EBITDA increased primarily due to the sale of SO2 Credits, partially offset by the factors impacting revenue in the paragraph above.


On March 23, 2016, MAXIM temporarily suspended the generation of electricity at M1. The decision to dial down the operations at M1 was due to record low Alberta power prices, which have undermined profitability for a prolonged period. Dialing down the operations at M1 resulted in a temporary layoff of 75% of the plant staff for an undetermined period. MAXIM intends to maintain a smaller operating team to undertake maintenance and plant modifications for an expected resumption of generation as power market conditions improve. A significant improvement in Alberta power prices, and/or cost reductions will be required to justify resuming operations. MAXIM will also consider:

--  The estimated impact of the recent notices of intent to return several
    Power Purchase Arrangements ("PPA"s) to the Balancing Pool by the PPA
    buyers, and the uncertain outcome of the Balancing Pool's examination of
    its options, and; 
--  The phasing in of higher levies associated with the Specified Gas
    Emitters Regulation ("SGER") which began on January 1, 2016.

MAXIM will actively monitor the Alberta power market to determine the appropriate time to economically resume generation activities at M1 while continuing to advance its initiatives to convert M1 from coal to natural gas.


On November 26, 2015, the AUC rendered its decision on Module B of Phase 2 of the line loss rule and has directed the Alberta Electric System Operator ("AESO") to make changes to the current non-compliant rule that has been in effect since January 1, 2006. Further, on February 1, 2016 the AESO filed a plan to revise the rule and incorporate the AUC's findings in the decision on a go forward basis. MAXIM has determined the resulting new rule will align with the loss factor methodology advocated by M1 in its original 2005 Complaint.

Through its decision, the AUC expressly asserted its parallel authority to adjust line loss charges from January 1, 2006 and determine final line loss charges in Module C, which will determine the ultimate financial remedy to M1. MAXIM estimates the compensation that it will be afforded to be approximately $38 million for the period January 1, 2006 to December 31, 2015 based on information currently available on the public record. This amount excludes compensation for M1's cost of capital and legal costs, which will also be determined in Module C. As at the date of this press release, the implementation date of the new rule under Module B and timing of compensation under Module C cannot be determined.


The Corporation, as previously reported, has been responding to the FERC inquiry since the latter part of 2013. On July 1, 2015, FERC filed a petition seeking a court order to affirm civil penalties of US$5 million related to certain offers to supply electricity during July and August of 2010. FERC has not advanced matters in its preliminary findings relating to 2013. On September 4, 2015, MAXIM filed a motion to dismiss FERC's petition. The court's decision on this motion is anticipated in the second quarter of 2016. MAXIM intends to vigorously defend itself and is confident it can demonstrate that the conduct set forth in FERC's preliminary findings and Show Cause Order did not violate FERC's anti-manipulation rule or any other rule.


On October 30, 2015, the Corporation entered into an agreement to sell SO2 Credits for $5 million. The agreement closed on November 3, 2015.


COMAX secured debt financing of $9.5 million (6.4 million Euro) and subsequently completed two 2015 renovation projects. The terms of the loans are favorable with leverage ranging from 80% to 83% of the project investment and fixed interest rates ranging from 2.8% to 3.5%. Total 2015 capital expenditures related to the two projects in the renovation program in France was $11.3 million (8.0 million Euro), MAXIM has deferred one additional renovation project, originally included in the scope of the 2015 renovation program, to 2016.


On November 22, 2015, the Government of Alberta announced its Climate Leadership Plan. The CLP recommends that Alberta move forward on phasing out coal-fired electricity generation by 2030 and encourages more renewable energy.

By 2030, the Province targets to have renewable sources such as wind and solar account for up to 30% of Alberta's wholesale power market and has indicated that it will, through an agency such as the AESO, request proposals by the end of 2016 for the construction and operation of an estimated 300 MW of renewables to be in service by 2019.

Under the CLP, the Government of Alberta has also announced the intention to replace the existing SGER with the Carbon Competiveness Regulation (or "CCR") commencing January 1, 2018. If enacted, the CCR will require coal-fired generators to pay $30 per tonne of CO2 on emissions above what Alberta's cleanest natural gas-fired plant would emit to generate the same amount of electricity. This has been estimated at $18 per MWh for Alberta's coal-fired generation fleet.

MAXIM anticipates that any resulting environmental compliance cost increases from the CCR will either be recovered in the market through higher wholesale power prices or, in the case of M1, incent a higher use of natural gas versus coal.

MAXIM had anticipated that it would be permitted to run M1 at full capacity to December 31, 2019 and at stand-by capacity thereafter until December 31, 2029, consistent with the current Federal regulations. Based on the current forward prices, and assuming the implementation of the CCR, MAXIM has determined it would be uneconomic to operate as a coal-fired facility post 2017 without a material improvement in Alberta wholesale power prices.

Nevertheless, MAXIM believes it is well positioned for this shift in the composition of generation capacity, having permits to own and operate 946 MW of natural gas-fired generation projects in Alberta. The Milner Expansion 2 ("M2") and Milner Expansion ("M3") would increase the installed generation capacity at the existing M1 site by 606 MW to 756 MW. M3 adds 86 MW through the integration of natural gas-fired generation operating in combined cycle mode at this site, and provides for an orderly transition from coal to natural gas. M2 is permitted as a 520 MW combined cycle natural gas-fired facility. The Deerland Peaking Station ("D1"), MAXIM's project to develop a natural gas-fired peaking facility, represents a further 190 MW and is fully permitted. MAXIM also has a wind development project, Buffalo Atlee ("B1") that has the potential for up to 200 MW of wind generation capacity.

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