Atlantic Power Sees Impairment of Assets After Navy Doesn’t Select Firm For Energy Security at Two Naval Bases

Atlantic Power (AT) said late Monday it expects to record a long-lived asset impairment of approximately $50 million in Q3 after the US Navy decided not to select its proposals involving Atlantic’s Naval Station and North Island projects that are located at two naval bases.

The company’s Naval Station, North Island and Naval Training Center projects sell power to Sempra Energy’s (SRE) San Diego Gas & Electric under power purchase agreements that are scheduled to expire in December of 2019. These three projects also supply steam to the Navy under deals expiring in February 2018 that lets Atlantic use the property at the respective sites on which each project is located.

If Atlantic had won the Navy’s solicitation for energy security and resiliency at the naval basis, Atlantic would have retained the right to use the Naval Station and North Island sites beyond February. Now, however, it has to decommission the sites and it is likely that the power purchase agreements for the three projects will terminate ahead of December 2019.

“If we must close these facilities in 2018, we will be disappointed as the expected returns on incremental investment were attractive, the new [power purchase tolling agreements] might have bridged us to a potentially better power market in that location in eight years,” CEO James Moore said.

In addition to the $50 million impairment in Q3, the company said it will continue to amortize the approximate remaining $16 million of carrying value of the three projects through February 2018.

Atlantic added that it doesn’t believe it would be required to any liquidated damages associated with early termination.

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