2020 ANNUAL
Management's Discussion &
Analysis and Financial Statements
MANAGEMENT’S
DISCUSSION AND ANALYSIS
FINANCIAL HIGHLIGHTS
Revenue
EBITDA
Net income (loss) (1)
Preferred dividends
Total assets
Total long-term liabilities
As at and for the year ended December 31,
2020
181,503
118,571
(1,390)
2,452
1,240,260
2019
185,338
121,048
1,717
2018
183,629
122,676
2,304
2,452
1,105,645
2,452
1,131,928
750,557
770,660
806,887
(1) Net income (loss) attributable to the common shareholders of Capstone, which excludes non-controlling interests.
INSIDE THIS SECTION
Financial highlights
Legal notice
Introduction
Basis of presentation
Additional GAAP performance measures
Changes in the business
Subsequent events
Results of operations
1
2
3
3
3
3
4
5
Financial position review
Derivative financial instruments
Risks and uncertainties
Environmental, health and safety regulation
Related party transactions
Summary of quarterly results
Fourth quarter highlights
Accounting policies and internal controls
7
10
11
13
14
15
16
16
CAPSTONE INFRASTRUCTURE CORPORATION
Page 1
LEGAL NOTICE
This document is not an offer or invitation for the subscription or purchase of or a recommendation of securities. It does not take into account the
investment objectives, financial situation and particular needs of any investors. Before making an investment in Capstone Infrastructure
Corporation (the "Corporation"), an investor or prospective investor should consider whether such an investment is appropriate to their particular
investment needs, objectives and financial circumstances and consult an investment adviser if necessary.
Caution Regarding Forward-Looking Statements
Certain of the statements contained within this document are forward-looking and reflect management’s expectations regarding the future growth,
results of operations, performance and business of the Corporation based on information currently available to the Corporation. Forward-looking
statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and
readers are cautioned that such statements may not be appropriate for other purposes. These statements use forward-looking words, such as
“anticipate”, “continue”, “could”, “expect”, “may”, “will”, “intend”, “estimate”, “plan”, “believe” or other similar words, and include, among other
things, statements found in “Results of Operations” and "Financial Position Review". These statements are subject to known and unknown risks
and uncertainties that may cause actual results or events to differ materially from those expressed or implied by such statements and,
accordingly, should not be read as guarantees of future performance or results. The forward-looking statements within this document are based
on information currently available and what the Corporation currently believes are reasonable assumptions, including the material assumptions
set out in the management’s discussion and analysis of the results of operations and the financial condition of the Corporation (“MD&A”) for the
year ended December 31, 2020 under the headings "Changes in the Business", “Results of Operations” and "Financial Position Review", as
updated in subsequently filed MD&A of the Corporation (such documents are available under the Corporation’s SEDAR profile at
www.sedar.com).
Other potential material factors or assumptions that were applied in formulating the forward-looking statements contained herein include or relate
to the following: that the business and economic conditions affecting the Corporation’s operations will continue substantially in their current state,
including, with respect to industry conditions, general levels of economic activity, regulations, weather, taxes and interest rates; that the preferred
shares will remain outstanding and that dividends will continue to be paid on the preferred shares; that there will be no material delays in the
Corporation’s wind or solar development projects achieving commercial operation; that the Corporation’s power facilities will experience normal
wind, hydrological and solar irradiation conditions, and ambient temperature and humidity levels; that there will be no further material changes to
the Corporation’s facilities, equipment or contractual arrangements; that there will be no material changes in the legislative, regulatory and
operating framework for the Corporation’s businesses; that there will be no material delays in obtaining required approvals for the Corporation’s
power facilities; that there will be no material changes in environmental regulations for the power facilities; that there will be no significant event
occurring outside the ordinary course of the Corporation’s businesses; the refinancing on similar terms of the Corporation’s and its subsidiaries’
various outstanding credit facilities and debt instruments which mature during the period in which the forward-looking statements relate; that the
conversion rights pursuant to the convertible debenture issued in connection with the Ganaraska, Grey Highlands ZEP, Snowy Ridge and
Settlers Landing wind facilities are exercised; market prices for electricity in Ontario and the amount of hours that the Cardinal Facility is
dispatched; and the price that the Whitecourt Biomass Facility will receive for its electricity production considering the market price for electricity
in Alberta, and the Whitecourt Biomass Facility’s agreement with Millar Western, which includes sharing mechanisms regarding the price
received for electricity sold by the facility.
Although the Corporation believes that it has a reasonable basis for the expectations reflected in these forward-looking statements, actual results
may differ from those suggested by the forward-looking statements for various reasons, including: risks related to the Corporation’s securities
(controlling shareholder; dividends on common shares and preferred shares are not guaranteed; volatile market price for the Corporation's
securities (including related to global health emergencies such as the COVID-19 coronavirus pandemic)); risks related to the Corporation and its
businesses (availability of debt and equity financing; default under credit agreements and debt instruments; geographic concentration;
acquisitions, development and integration; environmental, health and safety; changes in legislation and administrative policy; and reliance on key
personnel); and risks related to the Corporation’s power facilities (power purchase agreements; operational performance; market price for
electricity; contract performance and reliance on suppliers (including potential delays related to the COVID-19 coronavirus pandemic); completion
of the Corporation’s wind and solar development projects (including potential delays related to the COVID-19 coronavirus pandemic); land tenure
and related rights; environmental; and regulatory environment).
For a comprehensive description of these risk factors, please refer to the "Risk Factors" section of the Corporation’s Annual Information Form
dated March 23, 2020, as supplemented by disclosure of risk factors contained in any subsequent annual information form, material change
reports (except confidential material change reports), business acquisition reports, interim financial statements, interim management's discussion
and analysis and information circulars filed by the Corporation with the securities commissions or similar authorities in Canada (which are
available under the Corporation's SEDAR profile at www.sedar.com).
The assumptions, risks and uncertainties described above are not exhaustive and other events and risk factors could cause actual results to
differ materially from the results and events discussed in the forward-looking statements. The forward-looking statements within this document
reflect current expectations of the Corporation as at the date of this document and speak only as at the date of this document. Except as may be
required by applicable law, the Corporation does not undertake any obligation to publicly update or revise any forward-looking statements.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 2
INTRODUCTION
Management’s discussion and analysis ("MD&A") summarizes Capstone Infrastructure Corporation's (the "Corporation" or
"Capstone") consolidated financial position, operating results and cash flows as at and for the years ended December 31, 2020
and 2019.
This MD&A should be read in conjunction with the accompanying audited consolidated financial statements of the Corporation
and notes thereto as at and for the years ended December 31, 2020 and 2019. Additional information about the Corporation,
including its Annual Information Form ("AIF") for the year ended December 31, 2019, quarterly financial reports and other public
filings of the Corporation are available under the Corporation’s profile on the Canadian Securities Administrators' System for
Electronic Document Analysis and Retrieval ("SEDAR") website at www.sedar.com.
This MD&A is dated March 4, 2021, the date on which this MD&A was approved by the Corporation's Board of Directors.
BASIS OF PRESENTATION
Financial information in this MD&A is prepared in accordance with International Financial Reporting Standards ("IFRS") and
amounts are in Canadian thousands of dollars or thousands of share amounts unless otherwise indicated.
ADDITIONAL GAAP PERFORMANCE MEASURES DEFINITIONS
This MD&A also contains EBITDA, a performance measure not defined by IFRS. EBITDA is an additional GAAP performance
measure and does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures
presented by other issuers. The Corporation believes that this indicator is useful since it provides additional information about the
Corporation's earnings performance and facilitates comparison of results over different periods. EBITDA is defined as earnings
(loss) before financing costs, income tax expense, depreciation and amortization. EBITDA includes earnings (loss) related to the
non-controlling interest ("NCI"), interest income, other gains and losses (net), and foreign exchange gains and losses. EBITDA
represents Capstone's capacity to generate income from operations before taking into account management's financing
decisions and costs of consuming tangible capital assets and intangible assets, which vary according to their age, technology,
and management’s estimate of their useful life. EBITDA is presented on the consolidated statement of income.
CHANGES IN THE BUSINESS
In 2020, despite the global impact of the coronavirus, Capstone continued to execute on its strategic objectives, moving to self
perform the operations and maintenance at its facilities with Senvion and Suzlon wind turbines, successfully completing several
financing activities to create flexibility, recontracting expiring power purchase agreements ("PPA") and advancing its development
projects.
COVID-19 Impact
In 2020, an outbreak of a novel strain of coronavirus, responsible for a communicable disease called "COVID-19", was declared
a pandemic by the World Health Organization and has resulted in governments worldwide enacting emergency measures to
combat the spread of the virus. These measures have caused material disruption to businesses globally, resulting in an
economic slowdown in many sectors. At the time of this report, the duration and full extent of impacts of COVID-19 are unknown,
as this is a continuing and evolving global concern.
Capstone's businesses have been deemed essential services and as such continue to operate, including construction of
development projects. To this end, Capstone's priority is to protect the health and safety of its employees, as well as the
communities that it operates in. While it is not currently possible to estimate the length and severity of these developments, the
Corporation's existing operations have not been materially impacted as the facilities are operating under long-term revenue
contracts and have experienced continued demand. Capstone continues to maintain sufficient liquidity and will continue to
monitor and respond to disruptions to global credit markets and supply chains, which may impact its operating businesses, as
well as construction and development projects.
Senvion and Suzlon Facilities' Operations
In 2020, Capstone transitioned the operations and maintenance services for the Grey Highlands Clean Energy Development LP
("Grey Highlands Clean"), Grey Highlands ZEP and Ganaraska ("GHG"), Snowy Ridge, and Settlers Landing wind facilities
(collectively, the "Senvion Projects"), and the Amherst wind facility (the "Suzlon Project") to being serviced by its in-house
operations and maintenance team. The Senvion Projects were taken over in February and the Amherst wind facility in December
without interruption to service.
Financing Activities
Grey Highlands Clean Wind Facility ("Grey Highlands Clean") Refinancing
On June 17, 2020, the Grey Highlands Clean term loan was refinanced with its existing lenders, increasing its term loan by
$22,638 to $66,096 and extending the term by 4 years to June 17, 2024, while locking in lower long-term interest rates through
an interest rate swap. The new project debt fully amortizes over the remainder of the facility's power purchase agreement, which
expires in 2036 and the effective fixed interest rate for the duration of the term loan is 2.85%.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 3
Claresholm Solar Project ("Claresholm") Financing
On July 9, 2020, Claresholm entered into a credit agreement providing up to $115,000 of non-recourse debt for the construction
of the solar facility, which was fully available to the project as of November 5, 2020.
The construction facility matures no later than December 31, 2021 and upon achieving commercial operation, the debt converts
to a term loan, amortizing over twenty years. The debt is comprised of two tranches, up to $60,000 from bank lenders at a
floating interest rate and up to $55,000 from long-term fixed rate lenders with the debts maturing on the fifth and twelfth
anniversaries, respectively.
To mitigate the interest rate risk from the bank lenders, Claresholm has swap contracts to convert the floating interest rate
obligations to a fixed rate.
Amherstburg Solar Park ("Amherstburg") Refinancing
On October 7, 2020, the Amherstburg term loan was refinanced with its existing lenders, increasing its term loan by adding a
second tranche of subordinated debt for $27,007. The new project debt carries a fixed interest rate of 3.78% and fully amortizes
over the remainder of the facility's power purchase agreement, which expires in 2031.
Power Recontracting
Hydro Facilities' Recontracting
In February 2020, Capstone entered into an amendment to the Sechelt Creek hydro facility Electricity Purchase Agreement
("EPA") with BC Hydro, amending the expiry date to October 2022.
Effective as of November 1, 2020, Capstone entered into a new EPA with BC Hydro for the 3MW Hluey Lake hydro facility. The
new EPA has a 20 year term, with a BC Hydro option to extend the term of the EPA for an additional 10 years, and now expires in
October 2040.
Glace Bay Wind Facility Recontracting
On October 30, 2020, Capstone entered into an amendment of the PPA with Nova Scotia Power Inc. ("NSPI") for 1.6MW of the
Lingan facility. The new PPA has a 15 year term and now expires in October 2035.
Changes to the Board of Directors
On June 26, 2020, Michael Smerdon resigned from the Board of Directors. Capstone's Board of Directors now consists of 7
directors.
Project Development
Capstone continues to pursue projects at various stages of development. As at December 31, 2020, Capstone's contracted
development pipeline included the rights to 190MW gross across the projects, including:
•
•
•
the Claresholm solar project, a 132MW facility located in Alberta, which commenced construction in 2020, is being
developed with its partner, Obton A/S (“Obton”);
the Buffalo Atlee wind projects 1, 2 and 3, in aggregate 48MW of facilities located in Alberta (collectively the "Buffalo
Atlee" wind development projects), which are being developed with its partner, Sawridge First Nation ("Sawridge"); and
the Riverhurst wind project ("Riverhurst"), a 10MW facility located in Saskatchewan.
SUBSEQUENT EVENTS
Acquisition of SWNS Wind Facilities
On January 7, 2021, Capstone acquired the assets of the Springwood, Whittington, Napier and Sumac Ridge wind facilities from
wpd Europe GmbH ("wpd"). The assets are now held in SWNS Wind LP ("SWNS"), an indirect subsidiary of Capstone. The
portfolio is 29MW of operating wind projects in Southern Ontario, with an average of 14 years remaining on their power purchase
agreements, that will be operated and maintained by Capstone’s in-house operations and maintenance team.
Capstone acquired the projects with a combination of equity and non-recourse project debt.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 4
RESULTS OF OPERATIONS
Overview
In 2020, Capstone's EBITDA and net income were lower than in 2019. Lower EBITDA reflects:
•
•
•
Lower revenue from Whitecourt as government grants were earned for fewer months due to the Bioenergy Producer
Program ("BPP") which ended in March 2020, as well as lower average realized prices and lower production, partially offset
by strong solar resources at Amherstburg;
Higher expenses due to project development costs associated with early stage and business development; partially offset by
Lower other expenses due to fair value changes on derivative financial instruments.
Revenue
Expenses
Other income and expenses
EBITDA
Interest expense
Depreciation and amortization
Income tax recovery (expense)
Net income
For the year ended
Dec 31, 2020
Dec 31, 2019
Change
181,503
(58,114)
(4,818)
118,571
(36,260)
(82,106)
774
979
185,338
(56,776)
(7,514)
121,048
(37,679)
(81,260)
2,117
4,226
(3,835)
(1,338)
2,696
(2,477)
1,419
(846)
(1,343)
(3,247)
The remaining significant changes in net income were:
•
•
Lower interest expense mainly due to scheduled loan repayments in the current year decreasing interest over time; partially
offset by
Lower income tax recovery in 2020 is mainly due to non-deductible fair value adjustments on financial instruments; and
Higher depreciation and amortization in 2020 due to capital asset additions.
•
Results by Segment
Capstone's MD&A discusses the results of the power segment, as well as the corporate activities. The power segment consists
of operating and development activities. The operating facilities produce electricity from wind, natural gas, solar and hydrological
resources, and biomass, and are located in Ontario, Nova Scotia, Alberta, British Columbia and Québec.
Corporate activities primarily comprise growth initiatives, capital structure expenses not specifically attributed to the facilities and
costs to manage, oversee and report on the facilities.
Revenue
Capstone's revenue is driven by the generation and sale of electricity through long-term power contracts.
Revenue
Wind
Gas
Solar
Hydro
Biomass (1)
Total Revenue
(1)
Biomass revenue includes $799 of grant funding eligibility for Whitecourt for the year (2019 - $3,443).
Power generated (GWh)
Wind
Gas
Solar
Hydro
Biomass
Total Power
CAPSTONE INFRASTRUCTURE CORPORATION
For the year ended
Dec 31, 2020
Dec 31, 2019
Change
117,811
118,086
22,269
16,157
13,868
11,398
22,494
14,916
14,064
15,778
181,503
185,338
For the year ended
Dec 31, 2020
Dec 31, 2019
1,049.4
40.5
38.5
157.7
190.6
1,049.3
34.4
35.5
162.4
199.5
1,476.7
1,481.1
(275)
(225)
1,241
(196)
(4,380)
(3,835)
Change
0.1
6.1
3.0
(4.7)
(8.9)
(4.4)
Page 5
Capstone's power segment earns revenue from:
•
•
•
The wind facilities, which are located in Ontario, Nova Scotia and Québec, by producing and selling electricity in
accordance with their PPAs with government agencies or regulated credit-worthy counterparties. On a megawatt ("MW")
weighted-average-basis, the wind facilities have 11 years remaining on the current PPAs, with the earliest expiry in
December 2021.
Cardinal, a natural gas peaking facility located in Ontario, from fixed payments for providing capacity and availability to the
IESO with a 2034 power contract expiry and by supplying electricity to the Ontario grid when it is profitable to do so. In
addition, Cardinal receives a fixed amount (subject to escalation) to provide operational and maintenance services to
Ingredion's 15MW facility.
Amherstburg Solar Park, a solar facility located in Ontario, and the four hydro facilities located in Ontario and British
Columbia, by generating and selling electricity under long-term PPAs. On a MW weighted-average-basis, the hydro
facilities have 13 years remaining on the current PPAs, with the earliest expiry in October 2022. The Amherstburg Solar
Park PPA expires in 2031.
• Whitecourt, a biomass facility located in Alberta, by selling electricity at market rates to the Alberta Power Pool. Whitecourt
also earns a portion of its revenue from government grants and the sale of renewable energy credits. These are
supplemented or offset by a revenue sharing agreement with Whitecourt's fuel supplier, Millar Western Forest Products
Ltd. ("Millar Western"), where contractual settlements are included in other gains and losses in the consolidated statement
of income.
The following table shows the significant changes in revenue from 2019:
Change Explanations
(2,644) Lower revenue from Whitecourt because the BPP funding program ended in March 2020.
(1,544) Lower revenue from Whitecourt due to lower market rates and production.
911 Higher revenue from Amherstburg, partially offset by the operating wind facilities due to relative resource conditions.
(558) Various other changes.
(3,835) Change in revenue.
Seasonality
Overall, the results for Capstone’s power segment fluctuate during the year because of seasonal factors that affect quarterly
production of each facility. These factors include scheduled maintenance and environmental factors such as water flows, solar
irradiation, wind speeds and air density, ambient temperature and humidity, which affect the amount of electricity generated. In
aggregate, these factors have historically resulted in higher electricity production during the first and fourth quarters.
Expenses
Expenses consist of expenditures within the power segment relating to operating expenses and costs to develop new projects,
as well as corporate business development and administrative expenses.
Expenses
Wind
Gas
Hydro
Solar
Biomass
Power operating expenses
Project development costs
Administrative expenses
Total Expenses
For the year ended
Dec 31, 2020
Dec 31, 2019
Change
(22,244)
(10,684)
(3,907)
(703)
(11,359)
(48,897)
(2,537)
(6,680)
(21,319)
(11,748)
(3,742)
(714)
(10,922)
(48,445)
(1,535)
(6,796)
(58,114)
(56,776)
(925)
1,064
(165)
11
(437)
(452)
(1,002)
116
(1,338)
Expenses for the operation and maintenance ("O&M") of the power facilities mainly consist of wages and benefits and payments
to third party providers. Capstone's wind facilities are operated by Capstone's in-house operations and maintenance teams,
except for Glen Dhu, Goulais, SkyGen, Saint-Philémon, Glace Bay and Fitzpatrick, which are maintained under service
agreements, typically with the original equipment manufacturers. The hydro facilities are operated and maintained under an O&M
agreement. In addition, Cardinal, Whitecourt and Amherstburg rely on the internal capabilities and experience of Capstone's
staff. Other significant costs include fuel, transportation, insurance, utilities, land leases, raw materials, chemicals, supplies and
property taxes.
Project development costs consist of professional fees and other costs to pursue greenfield opportunities, as well as costs to
explore and execute transactions. Administrative expenses are comprised of staff costs, professional fees for legal, audit and tax,
as well as certain office administration and premises costs.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 6
The following table shows the significant changes in expenses from 2019:
Change Explanations
(1,002) Higher project development costs due to costs associated with early stage and business development in 2020.
(941) Higher operating costs in wind due to contractual step-ups, and set up costs for the Senvion sites.
873 Lower electricity costs at Cardinal due to energy conservation initiatives in place in 2020.
(268) Various other changes.
(1,338) Change in expenses.
FINANCIAL POSITION REVIEW
Overview
As at December 31, 2020, Capstone's working capital was a $42,453 deficit, compared with a $53,124 surplus as at
December 31, 2019. The decrease was due to upcoming project debt maturities, which Capstone expects to refinance or extend,
partially offset by higher restricted cash for the construction of the Claresholm solar project. Capstone has adequate financial
flexibility, including $71,161 of cash and $78,660 of credit facility capacity available, positioning the Corporation for growth.
Capstone and its subsidiaries continue to comply with all debt covenants.
Liquidity
Working capital
As at
Power
Corporate
Working capital (equals current assets, less current liabilities)
Dec 31, 2020
(43,389)
936
(42,453)
Dec 31, 2019
49,468
3,656
53,124
Capstone's working capital was $95,577 lower than December 31, 2019 due to a decrease of $92,857 in power and a decrease
of $2,720 at corporate. The power segment decrease reflects $109,067 of higher current debt as a few project financings mature
in 2021, consisting of GHG, Snowy Ridge, Skyway 8 and SkyGen. Capstone is evaluating readily available options to refinance
these non-recourse project debts or extend with existing lenders, based on advanced discussions and recent experience with its
other wind projects, such as Grey Highlands Clean. In addition, higher accounts payable and accruals of $9,623, mainly
reflecting accruals for Claresholm constructions costs. This was partially offset by $20,868 of higher restricted cash, mainly by
adding $14,549 of construction reserves for Claresholm and $6,000 of cash security for SWNS interest rate swaps.
Cash and cash equivalents
As at
Power
Corporate
Unrestricted cash and cash equivalents
Dec 31, 2020
69,689
1,472
71,161
Dec 31, 2019
64,371
4,885
69,256
These funds are available for operating activities, capital expenditures and future acquisitions. The $1,905 increase consists of
an increase of $5,318 at power, partially offset by a decrease of $3,413 at corporate. Higher cash at power reflects proceeds
from refinancing Grey Highlands Clean and Amherstburg and accumulation of asset distributions, partially offset by Capstone's
portion of the Claresholm funding. The decrease at corporate reflects the settlement of year-end liabilities.
Cash at the power segment is comprised of $24,448 at CPC and $45,241 at the projects, which is only periodically accessible by
corporate through distributions. The power segment's cash and cash equivalents are accessible through distributions under the
terms of the CPC credit facility, which allows for distributions, subject to certain conditions. In turn, CPC receives distributions
from its subsidiary power assets, which are subject to the terms of their project-specific credit agreements.
In addition to these funds, the CPC revolving credit facility has an available capacity of $78,660 as at December 31, 2020.
Cash flow
Capstone’s consolidated cash and cash equivalents increased by $1,905 in 2020 compared with a decrease of $7,085 in 2019.
The components of the change in cash, as presented in the consolidated statement of cash flows, are summarized as follows:
For the year ended
Operating activities
Investing activities
Financing activities (excluding dividends to shareholders)
Dividends paid to shareholders
Change in cash and cash equivalents
Dec 31, 2020
82,085
(183,893)
106,165
(2,452)
1,905
Dec 31, 2019
94,452
(29,227)
(69,858)
(2,452)
(7,085)
CAPSTONE INFRASTRUCTURE CORPORATION
Page 7
Cash flow from operating activities was $12,367 lower in 2020. The decrease consists of $14,324 of lower power segment
cash flows, reflecting $4,759 of swap breakage costs for the Grey Highlands Clean refinancing and to a lesser extent slightly
lower revenue and higher project development costs in 2020. These were partially offset by $1,957 higher corporate cash flows
due to changes in working capital.
Cash flow used in investing activities was $154,666 higher in 2020 driven by an increase of $146,209 for projects under
development, $19,707 of additional restricted cash resulting from the progress of Claresholm, and $4,000 for advances of loans
receivable. These were partially offset by higher investments in capital assets of $15,250 in 2019, primarily for the purchase of
the Watford wind facility.
Cash flow used in financing activities changed by $176,023 to a receipt of funds in 2020, reflecting new long-term debt of
$73,500 for Claresholm, $66,096 from refinancing Grey Highlands Clean, and $27,007 from refinancing Amherstburg, whereas
2019 included $20,200 from refinancing Cardinal. In addition, our partners contributed $40,586 for Claresholm.
Long-term Debt
Continuity of Capstone's long-term debt for the year ended was:
Long-term debt (1), (2), (3) and (4)
Deferred financing fees (5)
Less: current portion of long-term debt
Dec 31, 2019
Additions
Repayments
Other
Dec 31, 2020
699,296
(12,283)
687,013
(45,293)
641,720
171,603
(6,297)
165,306
—
(93,610)
—
(93,610)
—
165,306
(93,610)
—
2,890
2,890
(109,067)
(106,177)
777,289
(15,690)
761,599
(154,360)
607,239
The power segment has a cumulative $70,098 utilized on its letter of credit facilities.
(1)
(2) On February 25, 2020, the CPC revolving credit facility was extended to December 15, 2023.
(3)
Additions of $171,603 consist of $73,500 drawn on the Claresholm construction facility, refinancing term loans of $66,096 for Grey Highlands Clean and
$27,007 for Amherstburg, and a draw of $5,000 on the CPC revolving credit facility. Refer to the "Changes in the Business" section of this MD&A for details.
Additions include transaction costs of $4,509 for Claresholm, $1,400 for Grey Highlands Clean and $278 for Amherstburg.
(4) Repayments of $93,610 include $43,458 for Grey Highlands Clean refinancing, $5,000 on the CPC revolving credit facility, as well as scheduled repayments.
(5)
As at December 31, 2020, Capstone's long-term debt consisted of $777,289 of project debt. The current portion of long-term
debt was $154,360, consisting of $115,239 for GHG, Snowy Ridge, Skyway 8 and SkyGen, which mature in 2021, along with
scheduled debt amortization. Capstone expects to repay the scheduled amortization from income generated by the power assets
and is evaluating readily available options to refinance or extend with existing lenders for the project debt maturing in 2021.
CPC is subject to customary covenants, including specific limitations on leverage and interest coverage ratios. All of the power
segment's project debt is non-recourse to Capstone, except for certain limited recourse guarantees provided to the lenders of the
various facilities.
Equity
Shareholders’ equity comprised:
As at
Common shares
Preferred shares (1)
Share capital
Accumulated other comprehensive income (loss)
Retained earnings
Equity attributable to Capstone shareholders
Non-controlling interests (2)
Total shareholders’ equity
Dec 31, 2020
62,270
72,020
134,290
(717)
67,233
200,806
96,850
297,656
Dec 31, 2019
62,270
72,020
134,290
—
71,113
205,403
59,247
264,650
Increase from partner contributions of $41,352, primarily for Claresholm.
(1) Capstone has 3,000 publicly listed Series A preferred shares on the Toronto Stock Exchange.
(2)
Contractual Obligations
As at December 31, 2020, Capstone had outstanding contractual obligations with amounts due as follows:
Long-term debt (1)
Operating leases
Asset retirement obligations
Purchase obligations
Total contractual obligations
Within one year One year to five years
Beyond five years
183,511
4,810
—
79,356
267,677
308,152
20,223
—
18,448
346,823
502,659
53,979
15,846
3,044
575,528
(1)
Long-term debt includes principal and interest payments.
CAPSTONE INFRASTRUCTURE CORPORATION
Total
994,322
79,012
15,846
100,848
1,190,028
Page 8
Long-term debt
•
Long-term debt is discussed in the "Long-term Debt" section of this MD&A.
Operating leases
The following leases have been included in the table based on known minimum operating lease commitments:
•
•
•
•
Capstone's operating wind facilities and wind development projects have entered into agreements to use, or the option to
use, land in connection with the operation of existing and future wind facilities. Payment under these agreements is typically
a minimum amount with additional payments dependent on the amount of power generated by the wind facility. The
agreements can be renewed and extended as far as 2061.
Cardinal leases the site on which it is located from Ingredion. Under the lease, Cardinal pays monthly rent. The lease
extends through 2034 and expires concurrently with the Energy Savings Agreement between Ingredion and Cardinal.
Capstone's operating solar facility and solar development project have entered into agreements to use land in connection
with the operation of the solar facilities with terms extending as far as 2060.
The Corporation has an operating lease for the corporate office ending in 2023.
Capstone's operating lease commitments with no minimum operating lease commitments required are:
•
Capstone has agreements with the Provinces of Ontario and British Columbia for the lease of certain lands and water rights
necessary for the operation of its hydro power facilities. The payments under these agreements vary based on actual power
production. The terms of the lease agreements extend to 2023 and 2042.
Asset retirement obligations
Commitments associated with our asset retirement obligations for Capstone's power facilities are projected to occur principally
over the next 25 years.
Purchase obligations
Capstone enters into contractual commitments in the normal course of business, either directly or through its subsidiaries. These
contracts include capital commitments and operations and maintenance ("O&M") agreements:
Capital commitments
•
During 2020, Claresholm and Riverhurst entered into various commitments for the development and construction of solar
and wind facilities.
O&M agreements
•
•
•
Cardinal has a maintenance contract with Siemens Energy Canada Limited covering the gas turbine at Ingredion's 15 MW
facility. The contract expires on November 24, 2023.
Capstone has several service and maintenance agreements covering the turbines in operation on various wind facilities.
The agreements provide for scheduled and unscheduled maintenance and require annual minimum payments, subject to
inflationary increases, as applicable. In addition, Capstone has transitioned its Senvion Projects and Suzlon Project to in-
house operations and maintenance service agreements, without interruption to the facilities.
Capstone has an O&M agreement with Regional Power OPCO Inc. ("Regional") to operate and maintain the hydro power
facilities. Regional is paid a monthly management fee and is eligible for an annual incentive fee. The agreement expires
on November 30, 2021.
Other commitments
In addition to the commitments included in the table above, Capstone has the following other commitments with no fixed
minimum payments:
Power Purchase Agreements
A significant portion of the Corporation's electricity revenue is earned through long-term PPAs. The majority of these contracts
include terms and conditions customary to the industry. For Cardinal's contract, the nature of commitments includes: electricity
capacity; availability; and production targets. For the remaining power facilities, Capstone is not obligated to deliver electricity;
however, in certain circumstances, if a facility fails to meet the performance requirements, the operating facility's PPA may be
terminated after a specified period of time.
Management services agreements
Capstone has agreements with all the partially owned wind and solar facilities and development projects, including
Claresholm, Buffalo Atlee, Amherst, Saint-Philémon, Goulais, GHG, Snowy Ridge and Settlers Landing. For the operating
projects, these agreements are primarily for the provision of management and administration services and are based on an
agreed percentage of revenue. Additionally, some of the development projects include a development fee for the successful
completion of the projects, which pays an agreed flat fee or fee per MW on completion of development.
Wood waste supply agreement
The Whitecourt and Millar Western fuel supply agreement for wood waste includes sharing mechanisms regarding the price
received for electricity sold by Whitecourt.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 9
Energy savings agreement ("ESA")
Cardinal has an ESA with Ingredion which matures on December 31, 2034. Under the terms of the ESA, Cardinal is required to
provide O&M services in respect of Ingredion's 15 MW facility, and supply steam and compressed air to Ingredion for the use
of its manufacturing facility. Cardinal entered into a maintenance contract with Siemens Canada Limited in connection with the
operation and maintenance of the 15 MW plant in order to support Cardinal's satisfaction of the O&M terms of the ESA.
Guarantees
Capstone has provided limited recourse guarantees on the project debt of certain wind projects totaling $6,000 as at
December 31, 2020.
There have been no other significant changes to the specified contractual obligations that are outside the ordinary course of
business. Capstone is not engaged in any off-balance sheet financing transactions. Due to the nature of their operations, the
Facilities are not expected to incur material contingent liabilities upon the retirement of assets.
Capital Expenditure Program
Capstone's power segment incurred $167,439 of capital expenditures during 2020, which included $160,325 of additions to
projects under development ("PUD") and $7,114 of additions to capital assets, which excludes right-of-use ("ROU") asset
additions.
PUD expenditures in 2020 primarily consist of costs to develop the Claresholm solar project and Riverhurst and Buffalo Atlee
wind projects ($141,700, $4,055, and $3,075, respectively).
Income Taxes
In 2020, the current income tax expense was $277 (2019 - $967), reflecting lower taxable income from operations, offset by a
higher corporate minimum taxes in Ontario.
Deferred income tax assets and liabilities are recognized on Capstone's consolidated statement of financial position based on
temporary differences between the accounting and tax bases of existing assets and liabilities. Deferred income tax assets and
liabilities are calculated on a net basis where there is a legally enforceable right of offset within the same tax jurisdictions.
Capstone’s net deferred income tax liability decreased by $2,006 primarily due to the difference between accounting and tax
amortization claimed during the year and non-deductible fair value adjustments on financial instruments partially offset by the
utilization of tax losses. Capstone's total deferred income tax assets of $135 (2019 - $112) primarily relate to unused tax losses
carried forward. Deferred income tax liabilities of $83,895 (2019 - $85,878) primarily relate to the differences between
amortization of intangible and capital assets for tax and accounting purposes.
DERIVATIVE FINANCIAL INSTRUMENTS
Capstone has exposure to market, credit and liquidity risks from its use of financial instruments as described in note 8 financial
instruments and note 9 financial risk management in the consolidated financial statements as at and for the year ended
December 31, 2020. These notes contain further details on the implicit risks and valuation methodology employed for Capstone’s
financial instruments.
To manage the certain financial risks inherent in the business, Capstone enters into derivative contracts primarily to mitigate the
economic impact of the fluctuations in interest rates or foreign exchange rates. The fair values of these contracts, as well as the
Whitecourt embedded derivative included in the consolidated statement of financial position, were:
As at
Derivative contract assets
Derivative contract liabilities
Net derivative contract assets (liabilities)
Dec 31, 2020
15,181
(17,723)
(2,542)
Dec 31, 2019
6,459
(5,773)
686
Net derivative contract assets decreased by $3,228 from December 31, 2019 to a net liability, due to contractual settlement
payments of $3,388 paid by Millar Western partially offset by gains of $160 in net income.
Fair value changes of derivatives in the consolidated statements of income comprised:
For the year ended
Whitecourt embedded derivative
Interest rate swap contracts
Gain (losses) on derivatives in comprehensive income
Dec 31, 2020
Dec 31, 2019
13,466
(13,306)
160
(1,909)
(6,956)
(8,865)
The gain on derivatives were primarily attributable to gains from the Whitecourt embedded derivative asset due to lower
forecasted Alberta Power Pool prices since December 31, 2019. This was partially offset by losses from the interest rate swap
contracts, mainly because of lower long-term interest rates since December 31, 2019.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 10
RISKS AND UNCERTAINTIES
Introduction
Risk is an inevitable aspect of operating any business. Decisions that balance risk exposure with intended financial rewards
within risk tolerances are the responsibility of the Corporation's management under the supervision of the Board of Directors.
When a risk exposure exceeds the Corporation's risk tolerance, the Corporation will, to the extent possible, take steps to
eliminate, avoid, reduce or transfer such risk.
The Corporation recognizes the importance and benefits of timely identification, assessment and management of risks that may
impact the Corporation's ability to achieve its strategic and financial objectives. In this respect, the Corporation is committed to
prudent risk management practices within the context of an enterprise risk management ("ERM") framework. The Corporation
maintains a registry of risks that is reviewed by management and the Board of Directors at least quarterly. The Corporation also
undertakes an annual comprehensive review of its ERM framework and practices to continuously improve its risk management
practices.
What follows is a description of the Corporation's key risk governance and risk processes to support achievement of strategic
and financial performance objectives.
Risk Management Principles and Governance
The Corporation's ERM framework is based on five core principles which establish the culture and tone that guide risk
management decisions. Risk management is everyone's responsibility, about decision-making, embedded within existing
management routines, about people and culture, and specific to each business unit. The Corporation's interpretation of the ERM
framework includes the following hierarchy of responsibilities:
• Board of Directors and Audit Committee have overall governance responsibility for
setting and overseeing management's implementation of the risk management policy.
• Internal Audit reports to the Audit Committee and is responsible for reviewing
management's practices to manage risks in specific areas agreed from time to time
between management and the Audit Committee.
• Senior Management is responsible for ensuring the implementation of the ERM
framework to all applicable activities and reporting to the Audit Committee.
• Business Units are responsible for ensuring the application of a risk management
framework to identify, monitor and report risk.
• Risk Owners are responsible for the identification and day-to-day management and
oversight of risks in their assigned area.
Risk Management Processes
The Corporation's framework relies on the following six key ERM processes to integrate risk management activities with strategic
and operational planning, decision-making and day-to-day oversight of business activities.
• Risk identification is the process of identifying and categorizing risks that could impact the Corporation's objectives.
• Risk assessment is the process of determining the likelihood and impact of the risk. The Corporation uses a five-point
rating scale for likelihood and impact.
• Risk prioritization is the process of ranking risks as high, medium or low based on the net risk rating as described in the
diagram below.
• Risk management responses are measures taken to optimize the Corporation's net risk exposure within overall tolerance to
achieve the desired balance between risk and reward.
• Monitoring and reporting are the processes of assessing the effectiveness of risk management responses.
• Training and support ensure that personnel tasked with risk management responsibilities have sufficient knowledge and
experience to complete their risk management obligations.
The Corporation's risk management approach is comprehensive. It combines the
experience and specialized knowledge of individual business segments and
corporate oversight functions as well as various analytic tools and methodologies,
including a risk matrix (see chart to the right), to assist the Corporation in regularly
assessing and updating the net exposure (including mitigants) of each known
material risk facing the Corporation in the following four risk categories:
operational; strategic; financial; and legal and regulatory. The Corporation's
assessment process prioritizes risks.
Managing Risk
The Corporation requires that risk assessments (which encompass operational, strategic, financial and legal and regulatory risks)
be performed for the power facilities and at the corporate level.
In addition to these risks, there are numerous other risk factors, many of which are beyond the Corporation's control and the
effects of which can be difficult to predict, that could be material to investors or cause the Corporation's results to differ
CAPSTONE INFRASTRUCTURE CORPORATION
Page 11
significantly from its plans, objectives and estimates. For a more comprehensive list and description of the risks affecting the
Corporation refer to the "Risk Factor" section of the Corporation's most recently filed Annual Information Form, as supplemented
by risk factors contained in any of the following documents filed by the Corporation with securities commissions or similar
authorities in Canada after the date of this annual MD&A, which are available on SEDAR at www.sedar.com: material change
reports; business acquisition reports; interim financial statements; and interim management's discussion and analysis. In
addition, refer to the "Changes in the Business" section of this MD&A for a description of the impact of COVID-19 to Capstone.
Risks Related to the Corporation and its Businesses
Risks that have materially affected the Corporation's financial statements, or that have a reasonable likelihood of affecting them
materially in the future, are presented in the table below. There have been no material changes to existing risks as a result of
COVID-19. Risks specific to Capstone's power segment, as well as at the corporate-level, are included.
Risk and Description
Operational Risks
PPA renewal risk concerns the ability to
recontract expiring PPAs on economically
feasible terms and failing to align with the
useful lives of the power facilities.
Production risk concerns the
dependence of power production on
adequate resources such as wind,
sunlight and water flow as well as fuel
supply and the availability of each of the
sites.
Development and capital expenditure
risks concern the construction of new
power generation facilities in line with the
requirements of awarded PPAs and
planned maintenance capital expenditures
required on existing facilities to maintain
operations.
Information technology and data
security risk concerns the ability to
develop, maintain and manage complex
information technology systems which are
used to operate and monitor its facilities
and other business systems.
Succession and human resources
retention risks concern the ability to
replace senior management and attract,
retain and motivate key staff.
Impact
Monitoring and Mitigation
If Capstone is unsuccessful or delayed in
recontracting its expiring PPAs, it would
cause Capstone to fall short of its financial
forecasts, as revenue short-falls could
result from operating in merchant or other
markets.
Low availability, inadequate wind, sunlight,
water flow, wood waste or gas leads to
lower power production which results in
lower revenues.
Delays and cost overruns in the
construction of new facilities or in
performing planned maintenance or
refurbishments could lead to lower cash
flows, and where PPA requirements are
not met, cancellation of the PPA resulting
in lost revenue and impairment of any
capitalized costs for the facility.
Cyber attacks or unauthorized access to
information technology systems may lead
to production disruptions and system
failures that, amongst other things, may
result in lower production and revenues.
Inability to retain or replace key staff or
senior management could prevent or
delay Capstone from executing its
business strategy, thereby causing
Capstone to fall short of its financial
forecasts.
Capstone mitigates by starting negotiations with
counter-party(ies) well before contract expiry,
considering impacts of other stakeholders and working
to ensure the broader benefits of the facility are
considered in the process. In addition, company-wide
mitigation is provided by maintaining a diversified
portfolio to reduce the impact of any one facility to the
overall consolidated financial results.
Capstone maintains facilities in quality condition to
maximize availability for power generation when
renewable resources are available and strongest.
Capstone also seeks to diversify its portfolio of
businesses to mitigate the dependency on a single
resource or geography.
Capstone has professional project management
processes and uses experienced contractors and
advisors. Capstone contracts include a combination of
incentives, liquidated damages, or fixed-pricing to align
suppliers interests to project results.
Capstone follows a recognized IT framework which
includes security and recovery plans.
In addition, certain sites are compliant with North
American Electric Reliability Corporation standards.
Capstone maintains a succession plan and provides
career and development opportunities to its employees.
Strategic Risks
Competition risk concerns the ability to
source and complete attractive investment
opportunities that support Capstone's
growth initiatives within the power
segment.
Inability to source and execute attractive
growth opportunities may lead to lower
long-term cash flow as businesses
operating under finite term contracts
experience uncertainty about their longer
term cash flow potential.
Management periodically reviews and updates strategy
according to market conditions and developments.
Financial Risks
Expense management risk concerns
unexpected non-recoverable increases in
operating and administrative costs.
Forecasting risk concerns the accuracy
of projections for results from operations
due to error or unpredictable economic,
market and specific business factors.
Taxation risk concerns higher income
and other taxes attributable to adverse
legislation changes, including tax rate
increases, or interpretations by tax
authorities on audit.
Unanticipated increases in costs could
result in lower earnings and cash flow.
Capstone monitors costs against budgets and
considers asset lifecycle costs in decision making.
Volatility of financial forecasts increases
liquidity reserve requirements to pay
expenses, reducing cash flows.
Higher taxation results in both lower
income and cash flow available.
Capstone targets businesses which have inherently
predictable financial results from operations.
Capstone maintains adequate levels of liquidity to
manage during periods of uncertainty.
Capstone minimizes exposures to adverse tax rulings
by choosing structures that adhere to taxation
regulations, are commonly used in practice and
wherever practical supported by opinions of external
advisers.
In addition, Capstone monitors the trends and policies
of taxation authorities in the jurisdictions where its
businesses operate.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 12
Risk and Description
Impact
Monitoring and Mitigation
Financing risk concerns the ability to
access timely and cost effective debt or
equity to support the development and
construction of power facilities, business
acquisitions and replace maturing debt.
Inability to access cost-effective debt or
equity could result in higher interest costs,
lower cash flow or liquidity difficulties.
For an acquisition, this could also prevent
Capstone from realizing a growth
opportunity.
Capstone maintains relationships with multiple financial
institutions that have the resources to provide some or
all financing requirements. In addition, most existing
project debt amortizes over the term of the PPAs to
minimize refinancing requirements and debt maturities
are staggered.
Legal and Regulatory Risks
Contract and permit compliance risk
concerns the ability to operate Capstone's
power businesses within the allowances
of an increasing number of requirements.
Failure to comply with contracts and
permits can impact Capstone's power
contracts, debt facilities, and other
agreements, which can lead to lower cash
flow from the existing businesses by
reducing revenue or increasing costs to
restore the ability to operate at capacity.
Capstone maintains its contracts, permits and licenses,
works with knowledgeable contractors and responds to
adverse findings promptly to minimize the impact.
ENVIRONMENTAL, HEALTH AND SAFETY REGULATION
Capstone's power facilities (collectively the "Facilities") hold all material permits and approvals required for their operation and
maintenance. All assets are managed to comply with health, safety and environmental ("HSE") laws in addition to Capstone's
corporate and facility-specific HSE policies.
The Facilities are subject to robust and stringent environmental, health and safety regulatory regimes, which focus on:
•
•
•
Commitment to identify, eliminate, mitigate and manage health and safety issues for all workers, visitors, nearby landowners
and other personnel at each of the Facilities;
Regulatory compliance of emissions and discharges related to air, noise, water, and sewage;
Proper storage, handling, use, transportation and distribution of dangerous goods and hazardous and residual materials
including the prevention of releases of these materials to the environment;
• Management of construction and operation related permits to ensure compliance with all HSE regulations; and
Protection of the natural and built environment.
•
Climate Change, Greenhouse Gases and Policy Changes
Due to the emission of greenhouse gases, such as carbon dioxide ("CO2") and nitrous oxides ("NOx"), some of the Facilities,
specifically the Cardinal and Whitecourt facilities, have an ongoing operational impact on the environment. All Facilities comply in
all material respects with the applicable Canadian and provincial legislation and guidelines regarding greenhouse gases and
other emissions. Capstone monitors the potential impact of future changes to environmental legislation and guidelines by
remaining diligent in the operation of the Facilities, including implementing stringent policies and procedures to prevent the
contravention of permits and approvals. The Canadian federal government ratified the Paris Accord, negotiated under the United
Nations Framework Convention on Climate Change, in the fall of 2016. Pursuant to the Paris Accord, the parties committed, in a
non-binding manner, to accelerate actions and investments needed to limit global average temperatures to below 2°C above pre-
industrial levels and to pursue efforts to limit the increase to 1.5°C.
In late 2016, Canada and its provinces, other than Saskatchewan and Manitoba, agreed to the Pan-Canadian Framework on
Clean Growth and Climate Change ("Framework"). Manitoba subsequently signed onto the Framework, whereas Ontario and
Alberta subsequently pulled out of it. The Framework is the blueprint by which the federal government and the provinces will
attempt to meet Canada’s commitment under the Paris Accord. Elements of the Framework include all provincial jurisdictions
being required to price carbon. However, provincial jurisdictions have the flexibility to implement a variety of carbon regimes
ranging from price-based regimes such as a carbon tax, to performance-based emissions regimes such as cap and trade. For
price-based regimes, the price should be at least $30/tonne in 2020 and rise by $10/tonne each year to $50/tonne by 2022. As a
regulatory backstop, the federal government has also enacted the Greenhouse Gas Pollution Pricing Act ("GGPPA"), which
introduces a carbon pricing regime to those provinces that fail to implement adequate provincial measures. In December 2020,
the federal government announced a strengthened climate plan entitled "A Healthy Environment and a Healthy Economy". Under
the strengthened plan, the price of carbon is proposed to rise by $15/tonne each year from 2023 to 2030, resulting in a final
proposed price of $170/tonne in 2030.
Saskatchewan, Ontario and Alberta have all launched constitutional challenges to the GGPPA. The Saskatchewan and Ontario
Courts of Appeal have both rendered decisions upholding the validity of the GGPPA, and the Alberta Court of Appeal has ruled
that the legislation is unconstitutional. All of the decisions were appealed to the Supreme Court of Canada and a decision is
pending. In the interim, all or parts of the GGPPA continue to apply as a backstop to those Provinces without adequate provincial
greenhouse gas emissions regimes. Until a final court decision that applies throughout Canada is rendered, it is unclear what
effect, if any, the GGPPA will have on Capstone’s operations. Capstone continues to monitor potential implications of this issue
on its business.
In Alberta, under the Technology Innovation and Emissions Reduction ("TIER") Regulation (previously the Carbon
Competitiveness and Incentive Regulation or CCIR), regulated facilities that emit 100,000 tonnes or more of greenhouse gases
CAPSTONE INFRASTRUCTURE CORPORATION
Page 13
per year must meet provincial greenhouse gas emissions thresholds. If they cannot do so through operational improvements,
they can purchase emissions offsets from qualified offset facilities. Once operating, Capstone's Alberta-based wind and solar
development projects are all eligible to produce valid offsets under TIER.
In 2018, Ontario revoked its cap and trade program, therefore subjecting it to the provisions of the GGPPA. In 2019, Ontario
introduced an Emissions Performance Standards ("EPS") program which applies to greenhouse gas emissions from large
industrial emitters. Currently, only the registration and record keeping requirements of the EPS program are in effect. On
September 20,2020, the federal government accepted Ontario's EPS program as an alternative to the federal backstop. As such,
for now, large industrial emitters in Ontario must still comply with the GGPPA.
Cardinal
There is currently no restriction on the amount of CO2 that the Cardinal facility may emit, although the facility is required to report
its CO2 emissions under various federal and provincial regulations. Environmental regulations in Ontario also provide for, among
other things, the reporting, allocation and retirement of NOx emissions. NOx emissions from Cardinal's generating equipment are
lower than the levels mandated by legislation.
Whitecourt
The Whitecourt facility uses biomass combustion technology to convert the energy content in wood waste into electricity.
Biomass is generally considered to be carbon-neutral as the amount of CO2 arising from combustion is equal to what would be
emitted if the biomass were to decompose naturally. As a result, electricity generated from biomass is regarded as an
environmentally friendly form of power generation. The Whitecourt facility is subject to limits governing the emissions of carbon
monoxide, NOx and particulates in accordance with the facility's Environmental Approval. Average annual emission levels at the
Whitecourt facility are below the levels of permitted emissions for it. The Whitecourt facility is also subject to certain federal and
provincial greenhouse gas reporting requirements and is in compliance with these requirements.
Hydro Facilities
Capstone's hydro facilities do not produce greenhouse gases. However, their operations are governed by water management
plans and/or water licenses, which specify the hydrological conditions during which production may occur.
Wind Facilities
Capstone's wind facilities do not produce greenhouse gases, but are subject to regulations and/or approvals relating to the
natural and built environment.
Solar Facilities
The operation of Capstone's solar facilities do not generate greenhouse gases.
Further Information
The outbreak of COVID-19, which was declared a pandemic by the World Health Organization, poses risks to its employees,
contractors, suppliers, and other partners. The Corporation's priority is to protect the health and safety of our employees and the
communities that it operates in. Further information regarding Environmental, Safety and Health Regulations matters is contained
in the Corporation's Annual Information Form (which is available under the Corporation's profile on www.sedar.com).
RELATED PARTY TRANSACTIONS
Capstone's 2020 related party transactions and balances are primarily comprised of transactions with iCON Infrastructure LLP
and subsidiaries ("iCON") and compensation to key management.
Shared Service Arrangement with iCON
Fees earned from iCON Infrastructure North America Inc. ("iCON NA"), a subsidiary of iCON, under a shared service
arrangement, are reported in the consolidated statements of income as an administrative expense recovery. During 2020,
Capstone earned fees of $230 from iCON NA (2019 - $240).
Compensation of Key Management
Key management includes the Corporation's directors, Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Compensation awarded to key management consisted of salaries, directors' fees, short-term employee benefits and long-term
incentive plans. Key management compensation is described in note 25 related party transactions in the consolidated financial
statements for the year ended December 31, 2020.
Linking Management Compensation to Performance
Compensation plays an important role in achieving short- and long-term business objectives that ultimately drive the
Corporation’s business success in alignment with long-term shareholder goals. The objectives of the Corporation's compensation
program are to:
•
•
•
Attract and retain highly qualified employees with a history of proven success;
Align the interests of employees with shareholders’ interests and with the execution of the Corporation’s business strategy;
Establish performance goals that, if met, are expected to improve long-term shareholder value; and
CAPSTONE INFRASTRUCTURE CORPORATION
Page 14
•
Tie compensation to those goals and provide meaningful rewards for achieving them.
Corporate performance targets are set each year to provide management with an incentive to exceed annual budgeted financial
results and other business performance measures and are therefore aligned with shareholder interests.
The following table summarizes the link between the Corporation's executive and senior officer forms of compensation and
performance:
Salary
Short-term incentive plan ("STIP")
Long-term incentive plan ("LTIP")
Description
Salary is a fixed component of
compensation that provides income
certainty by establishing a base level of
compensation for executives fulfilling
their roles and responsibilities.
The STIP provides the possibility of an
additional annual cash award based on
the achievement of corporate and
individual goals.
Purpose
To attract and retain qualified
executives.
To motivate, attract and retain qualified
executives.
Capstone has a share appreciation rights
("SAR") plan, and had a discretionary LTIP
(paid out in 2019), both of which are tied to
long-term growth to motivate and retain
executives on a long-term basis. The
awards are paid in cash after meeting
certain vesting conditions.
To reward long-term performance and align
interests of executives with security
holders.
Link to
performance
No direct link.
A significant portion of this award is
based on actual business performance
against Capstone's internal
performance measures.
The SAR is directly linked to the long-term
increase in the Corporation's value upon a
sale transaction. The discretionary LTIP
was not directly linked to performance.
For a comprehensive understanding of Capstone's compensation program refer to the "Compensation Discussion and Analysis"
section of the Corporation's most recently filed AIF.
SUMMARY OF QUARTERLY RESULTS
The following table provides a summary of the previous eight quarters of Capstone’s financial performance.
Revenue
EBITDA
Net income (loss) (1)
Preferred dividends
2020
2019
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
51,106
36,595
45,581
48,221
51,424
37,707
45,729
43,629
22,751
26,785
25,406
36,346
26,060
27,845
9,995
(5,718)
(2,631)
(3,036)
3,496
(3,920)
2,064
613
613
613
613
613
613
613
50,478
30,797
77
613
(1) Net income (loss) attributable to the common shareholders of Capstone, which excludes non-controlling interests.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 15
FOURTH QUARTER HIGHLIGHTS
Revenue
Operating expenses
Administrative expenses
Project development costs
Interest income
Other gains and (losses), net
Foreign exchange gain and (losses)
Earnings before interest, taxes, depreciation and amortization
Interest expense
Depreciation of capital assets
Amortization of intangible assets
Earnings (loss) before income taxes
Income tax recovery (expense)
Current
Deferred
Total income tax recovery (expense)
Net income (loss)
Net income (loss) attributable to:
Shareholders of Capstone
Non-controlling interest
Three months ended
Dec 31, 2020
Dec 31, 2019
51,106
(13,594)
(1,859)
1,086
191
6,650
49
43,629
(9,366)
(17,868)
(2,864)
13,531
(192)
(3,032)
(3,224)
10,307
9,995
312
10,307
51,424
(13,666)
(2,131)
(688)
386
1,021
—
36,346
(9,316)
(17,635)
(2,839)
6,556
(125)
(2,127)
(2,252)
4,304
3,496
808
4,304
In the fourth quarter of 2020, Capstone's EBITDA and net income were higher than in 2019. Higher quarterly net income reflects:
•
•
Higher other gains due to fair value increases on the Whitecourt embedded derivative due to lower forecasted Alberta Power
Pool Prices partially offset by fair value decreases on interest rate swaps due to shifts in the long-term forecasts; and
Project development costs recovery resulting from capitalizing SWNS transaction costs.
ACCOUNTING POLICIES AND INTERNAL CONTROLS
Significant Changes in Accounting Standards
The consolidated financial statements have been prepared in accordance with IFRS and are consistent with policies for the year
ended December 31, 2019, except for the narrow-scope amendments to IFRS 3, Business Combinations, effective January 1,
2020.
Refer to note 2 to the December 31, 2020 consolidated financial statements for a description of the standard and the impact of
the adoption. The adoption of these accounting standards did not change any comparative figures presented in the consolidated
financial statements.
Future Accounting Changes
The International Accounting Standards Board ("IASB") has not issued any significant accounting changes that impact the
Corporation. Capstone is evaluating the impact of the narrow-scope amendments to IAS 1 and IAS 16 on the Corporation. The
amendments are effective for annual reporting periods beginning on or after January 1, 2022.
Capstone continues to monitor changes to IFRS and has implemented applicable IASB changes to standards, new
interpretations and annual improvements.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 16
Accounting Estimates
The consolidated financial statements require the use of estimates and judgment in reporting assets, liabilities, revenues,
expenses and contingencies. The following accounting estimates included in the preparation of the consolidated financial
statements are based on significant estimates and judgments, which are summarized as follows:
Area of Significance
Critical Estimates and Judgments (1)
Capital assets, projects under development and intangible assets:
• Purchase price allocations
• Depreciation on capital assets
• Amortization on intangible assets
• Asset retirement obligations
• Initial fair value of net assets.
• Estimated useful lives and residual value.
• Estimated useful lives.
• Expected settlement date, amount and discount rate.
• Impairment assessments of capital assets, projects under
• Future cash flows and discount rate.
development and intangible assets
Deferred income taxes
• Timing of reversal of temporary differences, tax rates and current and future taxable
income.
Financial instruments and fair value measurements
• Forward Alberta Power Pool prices, volatility, credit spreads and production projections.
Accounting for investments in non-wholly owned subsidiaries
• Determine how relevant activities are directed (either through voting rights or contracts);
• Determine if Capstone has substantive or protective rights; and
• Determine Capstone's ability to influence returns.
(1)
The COVID-19 outbreak (refer to the "Changes in the Business" section of this MD&A) has not changed Capstone's method of calculation for its critical
estimates and judgments to date, although underlying market assumptions have fluctuated significantly for its financial instruments.
Management’s estimates and judgments were based on historical experience, trends and various other assumptions that are
believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.
Internal Controls over Financial Reporting and Disclosure Controls and Procedures
Capstone's CEO and CFO are required by the various provincial securities regulators to certify annually that they have designed,
or caused to be designed, Capstone's disclosure controls and procedures, as defined in the Canadian Securities Administrators'
National Instrument 52-109 ("NI 52-109"), and that they have evaluated the effectiveness of the presence and function of these
controls and procedures in the applicable period. Disclosure controls are those controls and other procedures that are designed
to provide reasonable assurance that the relevant information that Capstone is required to disclose is recorded, processed and
reported within the time frame specified by such securities regulators.
Capstone's management, under the supervision of and with the participation of the CEO and CFO, has designed internal controls
over financial reporting, as defined in NI 52-109. The purpose of internal controls over financial reporting is to provide reasonable
assurance regarding the reliability of Capstone's financial reporting, in accordance with IFRS, focusing in particular on controls
over information contained in the audited annual and unaudited interim consolidated financial statements. The internal controls
are not expected to prevent and detect all misstatements due to error or fraud. Consistent with the prior year, Capstone uses the
2013 version of Committee of Sponsoring Organizations (COSO) internal control framework.
The CEO and CFO have concluded that Capstone's disclosure controls and procedures were effective as at December 31, 2020
to ensure that information required to be disclosed in reports that Capstone files or submits under Canadian securities legislation
is recorded, processed, summarized and reported within applicable time periods.
As at December 31, 2020, Capstone's management had assessed the effectiveness of Capstone's internal control over financial
reporting using the criteria set forth by COSO of the Treadway Commission in Internal Control – Integrated Framework (2013).
Based on this assessment, management has determined that Capstone's internal control over financial reporting was effective as
at December 31, 2020.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 17
MANAGEMENT’S
RESPONSIBILITY FOR
FINANCIAL REPORTING
The consolidated financial statements and other financial information contained in this annual report have been prepared by
management. It is management's responsibility to ensure that sound judgment, appropriate accounting policies and reasonable
estimates have been used to prepare this information and that the consolidated financial statements are in accordance with
International Financial Reporting Standards.
Management is also responsible for designing, maintaining and testing a system of internal controls over the financial reporting
processes. Internal controls have been designed to provide reasonable assurance that the financial records are reliable,
accurate and form a proper basis for the preparation of the consolidated financial statements. As of December 31, 2020,
management reviewed and tested the internal controls over financial reporting and concluded that they were effective to provide
reasonable assurance over the consolidated financial statements.
The Audit Committee of the Board of Directors, consisting entirely of independent directors, is responsible for reviewing the
consolidated financial statements with management and the external auditors and reporting to the Board of Directors. The Audit
Committee is responsible for retaining the services of the independent auditor and for renewing the auditor's mandate, which is
subject to Board of Directors' review and shareholders' approval.
The independent auditor, PricewaterhouseCoopers LLP, is responsible for conducting an examination in accordance with
Canadian generally accepted auditing standards to express an opinion on whether the consolidated financial statements have
been prepared in accordance with International Financial Reporting Standards. The report of PricewaterhouseCoopers LLP,
which outlines the scope of its examination and its opinion on the consolidated financial statements, appears on the following
pages.
David Eva
Chief Executive Officer
Toronto, Canada
March 4, 2021
Andrew Kennedy
Chief Financial Officer
CAPSTONE INFRASTRUCTURE CORPORATION
Page 18
Independent auditor’s report
To the Shareholders of Capstone Infrastructure Corporation
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of
Capstone Infrastructure Corporation and its subsidiaries (together, the Company) as at December 31, 2020 and 2019, and its
financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as
adopted by the International Accounting Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated statements of financial position as at December 31, 2020 and 2019;
the consolidated statements of changes in shareholders’ equity for the years then ended;
the consolidated statements of income and comprehensive income for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and other explanatory
information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our
report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Key audit matter
How our audit addressed the key audit matter
Fair value measurement of Whitecourt embedded
derivative
Our approach to addressing the matter included the following
procedures, among others:
Refer to note 2 – Summary of Significant Accounting Policies
and note 8 – Financial Instruments to the consolidated
financial statements.
On March 2, 2015, Whitecourt Power Limited Partnership
(“Whitecourt”), a wholly owned subsidiary of the Company,
entered into a fuel supply agreement with Millar Western for
With the assistance of professionals with specialized skill
and knowledge in the field of valuation, developed an
independent point estimate of the fair value of the
embedded derivative based on assumptions applied by
management.
PricewaterhouseCoopers LLP
PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2
T: +1 416 863 1133, F: +1 416 365 8215
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matter
How our audit addressed the key audit matter
Evaluated the reasonableness of significant
assumptions, which included the following:
o Compared the forward Alberta Power Pool
prices, volatility and credit spreads to external
market data.
o Compared production projections to current and
past performance of Whitecourt.
Tested the underlying data used in developing the
independent point estimate.
Compared the independent point estimate to
management’s estimate to evaluate the reasonableness
of management’s fair value of the embedded derivative.
15 years, which is extendable to 20 years. The agreement,
which was effective on January 1, 2015, includes power
price support and revenue sharing mechanisms that reduce
Whitecourt’s exposure to merchant price risk in Alberta. The
price support and revenue sharing mechanisms are an
embedded derivative that is measured at fair value.
The carrying value of the Whitecourt embedded derivative
contract asset as at December 31, 2020 was $13,493
thousand, which consists of $16,671 thousand fair value and
$3,178 thousand of amortized contra asset.
The determination of the fair value of the embedded
derivative requires the use of option pricing models involving
significant judgment based on management’s estimates and
assumptions, including the forward Alberta Power Pool
prices, volatility, credit spreads and production projections.
We considered this a key audit matter due to the significant
judgments made by management when determining the fair
value of the Whitecourt embedded derivative and the high
degree of complexity in assessing audit evidence related to
the estimates and assumptions made by management. In
addition, the audit effort involved the use of professionals
with specialized skill and knowledge in the field of valuation.
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified
above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial
statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with
IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless
management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to
provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing
so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Eric Clarke.
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Ontario
March 4, 2021
CONSOLIDATED
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
As at
Current assets
Cash and cash equivalents
Restricted cash
Accounts receivable
Other assets
Current portion of derivative contract assets
Non-current assets
Loan receivable
Derivative contract assets
Capital assets
Projects under development
Intangible assets
Deferred income tax assets
Total assets
Current liabilities
Accounts payable and other liabilities
Current portion of derivative contract liabilities
Current portion of lease liabilities
Current portion of long-term debt
Long-term liabilities
Derivative contract liabilities
Deferred income tax liabilities
Lease liabilities
Long-term debt
Liability for asset retirement obligation
Total liabilities
Equity attributable to shareholders' of Capstone
Non-controlling interest
Total liabilities and shareholders’ equity
Commitments and contingencies
Subsequent events
See accompanying notes to these consolidated financial statements
Notes
Dec 31, 2020
Dec 31, 2019
71,161
45,445
25,850
7,138
—
149,594
5,468
15,181
760,339
177,128
132,415
135
1,240,260
33,205
3,377
1,105
154,360
192,047
14,346
83,895
34,828
607,239
10,249
942,604
200,806
96,850
1,240,260
69,256
24,577
23,837
4,391
1,398
123,459
702
5,061
815,955
16,803
143,553
112
1,105,645
24,005
—
1,037
45,293
70,335
5,773
85,878
27,440
641,720
9,849
840,995
205,403
59,247
1,105,645
4
4
5
6
8
7
8
10
11
12
13
14
8
15
16
8
13
15
16
17
19
24
27
CAPSTONE INFRASTRUCTURE CORPORATION
Page 22
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Balance, December 31, 2018
Other comprehensive income (loss)
Net income for the period
Dividends declared to preferred shareholders of
Capstone (3)
Dividends declared to NCI
Convertible debenture repayments (4)
Contributions from NCI (5)
Balance, December 31, 2019
Other comprehensive income (loss)
Net income (loss) for the period
Dividends declared to preferred shareholders of
Capstone (3)
Dividends declared to NCI
Convertible debenture repayments (4)
Contributions from NCI (5)
Balance, December 31, 2020
Equity attributable to shareholders of
Capstone
Notes
Share
Capital
134,290
—
—
—
—
—
—
134,290
—
—
—
—
—
—
18
19
19
19
18
19
19
19
AOCI (1)
Retained
Earnings
(Deficit)
—
—
—
—
—
—
—
—
(717)
—
—
—
—
—
71,842
—
1,717
(2,446)
—
—
—
71,113
—
(1,390)
(2,490)
—
—
—
134,290
(717)
67,233
NCI (2)
50,086
—
2,509
—
(4,073)
(2,608)
13,333
59,247
(688)
2,369
—
(3,010)
(2,420)
41,352
96,850
Total Equity
256,218
—
4,226
(2,446)
(4,073)
(2,608)
13,333
264,650
(1,405)
979
(2,490)
(3,010)
(2,420)
41,352
297,656
Accumulated other comprehensive income (loss) ("AOCI").
(1)
(2) Non-controlling interest ("NCI").
(3) Dividends declared to preferred shareholders of Capstone include current and deferred income taxes recovery of $38 (2019 - recovery of $6).
(4) Repayments are to the holder of the convertible debenture related to the Ganaraska, Grey Highlands ZEP, Snowy Ridge and Settlers Landing wind facilities.
The convertible debenture provides the holder the option to convert its debt into a 50% equity interest in these projects.
Includes contributions from Obton to Claresholm, from Firelight to Amherst, and from Sawridge to Buffalo Atlee.
(5)
See accompanying notes to these consolidated financial statements
CAPSTONE INFRASTRUCTURE CORPORATION
Page 23
CONSOLIDATED STATEMENTS OF INCOME
Revenue
Operating expenses
Administrative expenses
Project development costs
Interest income
Other gains and (losses), net
Foreign exchange gain (loss)
Earnings before interest expense, taxes, depreciation and amortization
Interest expense
Depreciation of capital assets
Amortization of intangible assets
Earnings before income taxes
Income tax recovery (expense)
Current
Deferred
Total income tax recovery (expense)
Net income and total comprehensive income
Attributable to:
Shareholders of Capstone
Non-controlling interest
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Gains (losses) on financial instruments designated as cash flow hedges
Other comprehensive income (loss)
Net income
Total comprehensive income
Comprehensive income attributable to:
Shareholders of Capstone
Non-controlling interest
See accompanying notes to these consolidated financial statements
For the year ended
Notes
Dec 31, 2020
Dec 31, 2019
21
22
22
22
8
23
8
8
10
12
13
19
181,503
185,338
(48,897)
(48,445)
(6,680)
(2,537)
943
(5,477)
(284)
(6,796)
(1,535)
1,924
(9,437)
(1)
118,571
121,048
(36,260)
(70,769)
(11,337)
205
(277)
1,051
774
979
(1,390)
2,369
979
(37,679)
(69,952)
(11,308)
2,109
(967)
3,084
2,117
4,226
1,717
2,509
4,226
For the year ended
Notes
Dec 31, 2020
Dec 31, 2019
(1,405)
(1,405)
979
(426)
(2,107)
1,681
(426)
—
—
4,226
4,226
1,717
2,509
4,226
19
CAPSTONE INFRASTRUCTURE CORPORATION
Page 24
CONSOLIDATED STATEMENTS OF CASH FLOWS
Operating activities:
Net income
Deferred income tax expense (recovery)
Depreciation and amortization
Non-cash other gains and losses (net)
Amortization of deferred financing costs and non-cash financing costs
Change in non-cash working capital and foreign exchange
Total cash flows from operating activities
Investing activities:
Investment in projects under development
Increase in restricted cash
Investment in capital assets
Advances of loans receivable
Total cash flows used in investing activities
Financing activities:
Proceeds from issuance of long-term debt
Partner contribution
Repayment of long-term debt
Transaction costs on debt refinancing
Dividends paid to non-controlling interests
Dividends paid to preferred shareholders
Convertible debenture repayments
Lease principal payments
Total cash flows from (used in) financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplemental information:
Interest paid
Taxes paid
See accompanying notes to these consolidated financial statements
For the year ended
Notes
Dec 31, 2020
Dec 31, 2019
13
11
10
7
16
19
19
979
(1,051)
82,106
4,106
2,903
(6,958)
82,085
(149,361)
(21,152)
(9,380)
(4,000)
4,226
(3,084)
81,260
11,593
2,997
(2,540)
94,452
(3,152)
(1,445)
(24,630)
—
(183,893)
(29,227)
171,603
40,586
(93,610)
(5,950)
(3,010)
(2,452)
(2,420)
(1,034)
103,713
1,905
69,256
71,161
20,200
8,000
(89,469)
(926)
(4,073)
(2,452)
(2,608)
(982)
(72,310)
(7,085)
76,341
69,256
33,308
1,090
34,656
2,103
CAPSTONE INFRASTRUCTURE CORPORATION
Page 25
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
Note Description
Page
Note Description
Page
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Corporate Information
Summary of Significant Accounting Policies
Acquisitions
Cash and Cash Equivalents and Restricted Cash
Accounts Receivable
Other Assets
Loan Receivable
Financial Instruments
Financial Risk Management
Capital Assets
Projects Under Development
Intangible Assets
Income Taxes
Accounts Payable and Other Liabilities
26
26
33
33
34
34
34
34
36
39
40
40
41
42
15
16
17
18
19
20
21
22
23
24
25
26
27
Lease Liabilities
Long-term Debt
Liability for Asset Retirement Obligation
Shareholders' Equity
Non-Controlling Interests
Share-based Compensation
Revenue by Nature
Expenses by Nature
Other Gains and Losses
Commitments and Contingencies
Related Party Transactions
Segmented Information
Subsequent Events
42
43
46
46
47
49
50
50
50
50
52
52
52
NOTE 1. CORPORATE INFORMATION
Capstone is incorporated in British Columbia, domiciled in Canada and located at 155 Wellington Street West, Suite 2930,
Toronto, Ontario, M5V 3H1. All of Capstone's Class A common shares are owned by Irving Infrastructure Corp. ("Irving"), a
subsidiary of iCON Infrastructure Partners III, LP ("iCON III"), a fund advised by London, UK-based iCON Infrastructure LLP
("iCON"), who is the ultimate parent. Capstone Infrastructure Corporation and its subsidiaries (together the "Corporation" or
"Capstone") mission is to power society, protect the environment, contribute to communities, and create value for its
shareholders. As at December 31, 2020, Capstone owns and operates an approximate net installed capacity of 541 megawatts
across 24 facilities in Canada, including wind, hydro, solar, biomass, and natural gas power plants.
All amounts are in Canadian thousands of dollars or thousands of share amounts unless otherwise indicated.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies are used in the preparation of these consolidated financial statements.
Basis of Preparation
Statement of compliance
The consolidated financial statements of Capstone have been prepared in accordance with International Financial Reporting
Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").
In 2020, an outbreak of a novel strain of coronavirus, responsible for a communicable disease called "COVID-19", was declared
a pandemic by the World Health Organization and has resulted in governments worldwide enacting emergency measures to
combat the spread of the virus. These measures have caused material disruption to businesses globally, resulting in an
economic slowdown in many sectors. At the time of this report, the duration and impacts of COVID-19 are unknown, as this is a
continuing and evolving global concern. The COVID-19 outbreak has not changed Capstone's method of calculation for its critical
estimates and judgments to date, although underlying market assumptions have fluctuated significantly for its financial
instruments. Capstone continues to maintain sufficient liquidity and will continue to monitor and respond to disruptions to global
credit markets and supply chains, which may impact its operating businesses, as well as construction and development projects.
The consolidated financial statements were authorized for issue by the Board of Directors on March 4, 2021.
Basis of measurement
The consolidated financial statements have been prepared under the historical cost basis, except for the revaluation of certain
financial instruments, which are measured at fair value as explained in the accounting policies set out below and on a going
concern basis of accounting. Historical cost is generally based on the fair value of the consideration given in exchange for
assets.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 26
Consolidation
These consolidated financial statements are primarily made up of the assets, liabilities and results of operations of the
Corporation's subsidiaries. Subsidiaries are all entities over which Capstone has control. Capstone controls an entity when it is
exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through
its power over the entity.
The following table lists the significant subsidiaries of the Corporation which are accounted for on a consolidated basis:
Name of entity
Capstone Power Corp. ("CPC")
Erie Shores Wind Farm Limited Partnership ("Erie Shores")
Glen Dhu Wind Energy LP ("Glen Dhu")
SP Amherst Wind Power LP ("Amherst")
Sky Generation L.P. ("SkyGen"), formerly Sky Generation Inc. (1)
SWNS Wind LP ("SWNS") (2)
GHG Wind Development LP ("GHG") (3)
Chi-Wiikwedong LP ("Goulais")
Chi-Wiikwedong Holdings LP
Parc Éolien Saint-Philémon S.E.C. ("Saint-Philémon")
Glace Bay Lingan Wind Power Ltd. ("Glace Bay")
Grey Highlands Clean Energy Development LP ("Grey Highlands Clean")
Watford Wind LP ("Watford")
SR Wind Development LP ("Snowy Ridge") (3)
SLS Wind Development LP ("Settlers Landing") (3)
Fitzpatrick Mountain Wind Energy Inc. ("Fitzpatrick")
Cardinal Power of Canada, L.P. ("Cardinal")
MPT Hydro LP ("Hydro")
Whitecourt Power Limited Partnership ("Whitecourt")
Helios Solar Star A-1 Partnership ("Amherstburg")
Claresholm Solar LP ("Claresholm")
Buffalo Atlee 1 Wind LP, Buffalo Atlee 2 Wind LP, Buffalo Atlee 3 Wind LP
(collectively, "Buffalo Atlee")
Principal place
of business and
country of
incorporation
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Canada
Ownership at
December 31,
2020
100%
100%
100%
51%
100%
100%
100%
51%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
75%
2019
100%
100%
100%
51%
100%
Nil
100%
51%
100%
51%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
51%
75%
Principal activity
Power
holding company
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power
holding company
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Power generation
Development
Development
Riverhurst Wind Farm LP ("Riverhurst")
Canada
100%
100%
Development
The SkyGen entity holds the Ferndale, Ravenswood, Proof Line and Skyway 8 operating wind facilities.
(1)
(2) On January 7, 2021, Capstone acquired the assets of new wind facilities which are now held in SWNS (formed in 2020). Refer to note 27 for more details.
(3) GHG, Snowy Ridge and Settlers Landing have convertible debentures outstanding which provide the holder the option to convert its debt into a 50% equity
interest in these projects.
The Corporation accounts for its controlled investments using the consolidation method of accounting from the date control is
obtained and deconsolidates from the date that control ceases. All intercompany balances and transactions have been
eliminated on consolidation.
Non-controlling interests represent equity interests in subsidiaries owned by outside parties. The share of net assets of
subsidiaries attributable to non-controlling interests is presented as a component of equity. Their share of net income and
comprehensive income is recognized directly in equity. Changes in the Corporation's interest in subsidiaries that do not result in
a loss of control are accounted for as equity transactions.
Equity Accounted Investments
Companies in which the Corporation has the ability to exercise significant influence, but not control, or has the ability to exercise
joint control over financial and operating policy decisions are accounted for using the equity method. Significant influence is
presumed to exist when the Corporation holds between 20% and 50% of the voting power of another entity.
Business Combinations
The acquisitions of businesses are accounted for using the acquisition method. The consideration for each acquisition is
measured at the aggregate of the fair values, at the date of exchange, of assets transferred, liabilities incurred or assumed, and
equity instruments issued by the Corporation in exchange for control of the acquired business. The acquired identifiable assets,
CAPSTONE INFRASTRUCTURE CORPORATION
Page 27
liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3, Business Combinations ("IFRS 3") are
recognized at their fair value at the acquisition date.
The Corporation recognizes any non-controlling interest in the acquiree at the non-controlling interest's proportionate share of the
recognized amounts of acquiree's identifiable net assets. Acquisition-related costs are expensed as incurred.
Foreign Currency Translation
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of
transactions. Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the
translation at exchange rates of monetary assets and liabilities denominated in currencies other than an entity's functional
currency are recognized in the consolidated statement of income in "foreign exchange gain (loss)".
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents are composed of highly liquid investments with original maturities of 90 days or less at the date of
acquisition and are recorded at fair value. Restricted cash comprises amounts primarily restricted by credit agreements for
specific uses including amounts funded against future maintenance, debt service, and construction costs at certain subsidiaries.
Loan Receivable
The Corporation has an interest-bearing financial asset that consists of a loan receivable, carried at amortized cost.
Capitalized Interest
The Corporation capitalizes interest and borrowing costs when activities that are necessary to prepare the asset for its intended
use are in progress, and expenditures for the asset have been used or borrowed to fund the construction or development.
Capitalization of interest and borrowing costs ceases when the asset is ready for its intended use. Capitalized interest is included
in the statement of financial position as part of capital assets and projects under development.
Grants and Contributions
Grants are recognized at their fair value when there is reasonable assurance that the grant will be received and all attaching
conditions will be complied with. Grants and contributions related to charges to net income are netted against such expenditures
as received.
Capital Assets
Capital assets are stated at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures
that are directly attributable to the acquisition of the asset. Subsequent costs are included in the asset's carrying amount or
recognized as a separate asset only when it is probable that future economic benefits associated with the item will flow to the
Corporation and the cost can be measured reliably. The carrying value of an asset is derecognized when retired or replaced.
Right-of-use ("ROU") assets are primarily land leases, measured at cost comprising of the amount of the initial measurement of
the lease liability, any lease payments made at or before the commencement date and any initial direct costs.
Major maintenance costs are capitalized in the carrying value of the assets as incurred, and depreciated over their useful lives.
Other repairs and maintenance costs are charged to the consolidated statement of income during the period incurred.
Gains or losses on disposals are determined by comparing the proceeds of sale with the carrying amount and are recognized
within the consolidated statement of income.
The Corporation allocates the amount initially recognized in respect of an item of capital assets to its significant parts and
depreciates separately each such part. Residual values, method of amortization and useful lives of the assets are reviewed
annually and adjusted if appropriate. The major categories of capital assets are depreciated using the straight-line method as
follows:
Equipment and vehicles:
Computer hardware
Communications, meters and telemetry equipment
Vehicles
Property and plant:
Operational structures
Operational properties
ROU assets
Power
3 to 5 years
3 to 25 years
3 to 10 years
3 to 30 years
5 to 40 years
5 to 40 years
CAPSTONE INFRASTRUCTURE CORPORATION
Page 28
Leases
Capstone adopted IFRS 16, Leases, effective January 1, 2019. The adoption of this accounting standard resulted in the
recognition of ROU assets and equal lease liabilities. Assets and liabilities arising from a lease are initially measured on a
present value basis, using a single discount rate for a portfolio of leases with reasonably similar characteristics.
Leased (ROU) Assets
At the inception of a contract, the Corporation assesses whether the contract is, or contains, a lease that conveys to the
Corporation the right to control the use of an underlying asset in return for payment. Assets financed by leasing agreements that
transfer substantially all the risks and rewards of ownership of an asset to the lessee are capitalized as an ROU asset on the
date on which they are available for use and depreciated over the shorter of their estimated useful lives and the lease term. The
capital element of the lease rental is deducted from the obligation to the lessor as paid. The interest element of lease rentals and
the depreciation of the relevant assets are charged to the consolidated statement of income.
Lease Liabilities
Lease liabilities are measured at the net present value of fixed payments, variable lease payments that are based on an index or
a rate, amounts expected to be payable by the lessee under residual value guarantees, the exercise price of a purchase option if
the lessee is virtually certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising that option. Capital lease payments are discounted using Capstone’s incremental borrowing rate where the
rate implicit in the lease is not readily determinable. The variable portion of lease payments not included in the lease liability will
remain in operating expenses in the statement of income.
Projects Under Development ("PUD")
Capitalized costs related to an asset under development include all eligible expenditures incurred in connection with the
development and construction of the power generating asset until it is available for its intended use. The Corporation capitalizes
all direct project costs related to the development of the Corporation's electricity generation projects. Capitalization commences
when the costs are measurable and it is probable the benefits will flow to Capstone.
Development cost capitalization criteria include the following and are dependent on the type of clearly identified project:
•
The technical feasibility has been established or interconnection permit secured;
• Management has indicated its intention to construct, operate and maintain the project or land option(s) established;
•
•
An offtake market is identified or a power purchase agreement ("PPA") awarded; and
Adequate resources exist or are expected to be available to complete the project.
Upon a project becoming commercially operational, the capitalized costs, including capitalized borrowing costs, if any, are
transferred to capital assets and are amortized on a straight-line basis over the estimated useful lives of the various components.
The recovery of project development costs is dependent upon successful commercialization of project sites for the profitable sale
of electricity.
Intangible Assets
Identifiable intangible assets
The Corporation separately identifies acquired intangible assets, including computer software, electricity supply contracts, gas
purchase contracts, water rights and licenses, and records each at their fair value at the date of acquisition. The initial fair value
is amortized over their estimated useful lives using the straight-line method as follows:
Computer software
Electricity supply, gas purchase and other contracts
Water rights
Power
3 to 7 years
18 to 20 years
10 to 35 years
The expected useful lives of intangible assets are reviewed on an annual basis and adjusted prospectively.
Impairment of Non-financial Assets
The capital assets, projects under development and intangible assets with finite lives are tested for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable. For the purpose of measuring recoverable
amounts, assets are grouped at the lowest levels for which there are separately identifiable cash inflows. The recoverable
amount is the higher of an asset's fair value less costs to sell the assets and the value in use (being the present value of the
expected future cash flows of the relevant assets or Cash Generating Unit ("CGU")). An impairment loss is recognized for the
amount by which the asset's carrying value exceeds its recoverable amount. The Corporation evaluates impairment losses, for
potential reversals when events or circumstances warrant such consideration.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 29
Provisions
Provisions are recognized when the Corporation has a present legal or constructive obligation as a result of past events, it is
more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably
estimated. Provisions are measured using management's best estimate of the expenditure required to settle the obligation at the
end of the reporting period, and are discounted to present value where the effect is material. The Corporation performs
evaluations to identify onerous contracts and, where applicable, records provisions for such contracts.
Retirement Benefit Plans
The Corporation operates defined contribution pension plans through its subsidiaries. Costs of defined contribution pension plans
are charged to the consolidated statement of income in the period in which they fall due.
Asset Retirement Obligations
The Corporation recognizes a provision for the future retirement obligations associated with its operating plants. These
obligations are initially measured at the present value, which is the discounted future cost of the liability. A reassessment of the
expected costs associated with these liabilities is performed annually with changes in the estimates of timing or amount of cash
flows added or deducted from the cost of the related asset. The liability grows until the date of expected settlement of the
retirement obligations.
Share Capital
Common and Class A shares are classified as equity. Incremental costs directly attributable to the issuance of shares are
recognized as a reduction in equity.
Preferred Shares
The Corporation classifies its series A preferred shares as equity for reporting purposes given that the preferred shares may be
converted into a fixed number of the Corporation's own equity instruments and there is no settlement required at a future date.
Incremental costs directly attributable to the issuance of shares are recognized as a reduction in equity.
Dividends
Dividends on series A preferred shares are recognized in the Corporation's consolidated financial statements in the period in
which the dividends are declared by the Board of Directors of the Corporation.
Revenue Recognition
Revenue from Contracts with Customers
Revenue derived from the sale of electricity and steam is recognized upon delivery to the customer and priced in accordance
with the provisions of the applicable electricity and steam sales agreements. In addition, capacity and availability payments to
Cardinal are recognized in accordance with the non-utility generator contract. Certain power purchase arrangements provide for
an electricity rate adjustment, which is updated periodically both for the current and prior periods. Capstone accounts for such
adjustments when a reliable estimate of the adjustment can be determined. Revenue derived from Whitecourt electricity sales to
the Alberta Power Pool are recorded at the hourly weighted average power pool rate.
The customer invoices and provides payments on a systematic basis based on fixed billing cycles. There are no significant
financing components inherent in Capstone’s contracts with customers. Capstone does not make significant judgments that
affect the determination of the amount and timing of revenue from contracts with customers.
Other Revenue and Income Recognition
Capstone follows Accounting for Government Grants and disclosure of Government Assistance (IAS 20) with respect to certain
power contracts with provincial jurisdictions.
Interest income is earned with the passage of time and is recorded on an accrual basis.
Expense Recognition
Costs related to the purchases of fuel are recorded upon delivery. All other costs are recorded as incurred.
Project development costs are recorded as incurred. These costs include the activities to pursue and develop greenfield projects
and acquisition-related business development expenses incurred at both the power segment and corporate.
Interest expense is incurred with the passage of time and is recorded on an accrual basis.
Long-term Incentive Plans
The Corporation accounts for grants under its share appreciation rights ("SAR") plan in accordance with IFRS 2 Share-Based
Payments.
Income Taxes
Current and deferred income taxes are recognized in the consolidated statement of income except to the extent that they relate
to items recognized directly in equity or in other comprehensive income, in which case the income tax is also recognized directly
in equity or in other comprehensive income.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 30
Current income tax is the amount recoverable or expensed based on the current year's taxable income using tax rates enacted,
or substantively enacted, at the reporting period, and any adjustments to income tax payable or recoveries in respect of previous
years.
The Corporation follows the liability method of accounting for deferred income tax whereby deferred income tax is recognized in
respect of temporary differences arising between the tax bases of assets and liabilities and their carrying values in the
consolidated financial statements. Deferred income tax assets and liabilities are determined using income tax rates that are both
expected to apply when the deferred income tax asset or liability will be settled and that have been enacted or substantively
enacted as at the date of the consolidated statement of financial position. Deferred income tax assets are recognized to the
extent that it is probable that the asset can be recovered. Deferred income tax assets and liabilities are presented as non-
current.
Comprehensive Income
Other comprehensive income ("OCI") represents changes in shareholders' equity during a period arising from transactions and
other events, including the effective portion of the change in fair value of designated cash flow hedges less any amounts
reclassified to interest and other expenses, net, in the period the underlying hedged item is also recorded in interest expense,
net. Accumulated other comprehensive income ("AOCI") is included as a component in the consolidated statement of
shareholders' equity.
Financial Instruments
Financial assets and financial liabilities are recognized on the consolidated statement of financial position when the Corporation
becomes a party to the contractual provisions of the financial instrument.
Classification and Measurement
Financial instruments are required to be measured at fair value on initial recognition plus transaction costs in the case of financial
instruments measured at amortized cost. Transaction costs that are directly attributable to the acquisition or issue of financial
instruments classified as fair value through profit and loss ("FVTPL") are expensed as incurred. Measurement in subsequent
periods depends on the classification of the financial instrument.
The Corporation has designated each of its significant categories of financial instruments outstanding as follows:
IFRS 9 Classification
Amortized cost assets
Significant Categories
Measurement
• Cash and cash equivalents
• Restricted cash
• Accounts receivable
• Loans receivable
• At amortized cost using the effective interest method
Financial assets and liabilities at fair
value through profit and loss
• Derivative contract assets
• Derivative contract liabilities
• At fair value with changes in fair value recognized in the
consolidated statement of income
Other liabilities
• Accounts payable and other liabilities
• Long-term debt
• At amortized cost using the effective interest method
The classification of financial assets depends on Capstone’s business objectives for managing the assets and whether
contractual terms of the cash flows are considered solely payments of principal and interest. For assets measured at FVTPL,
gains and losses will be recorded in the statement of income as incurred.
The Corporation determines the fair value of its financial instruments based on the following hierarchy:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
Level 3 – Inputs that are not based on observable market data.
Derivative Financial Instruments
The Corporation's derivatives are carried at fair value and are reported as assets when they have a positive fair value and as
liabilities when they have a negative fair value. In 2020, the Corporation's derivatives include an embedded derivative in
Whitecourt's fuel supply agreement, interest rate swaps and foreign currency contracts.
Changes in the fair values of derivative financial instruments are reported in the consolidated statement of income, except for
cash flow hedges that meet the conditions for hedge accounting. Capstone designates its foreign currency contracts as hedges
of foreign exchange risk associated with the cash flows of highly probable forecasted capital expenditure transactions. The
portion of the gain or loss on the hedging instruments that are determined to be an effective hedge are recognized directly in
other comprehensive income, and the ineffective portion in the consolidated statement of income. Gains or losses recognized in
other comprehensive income are subsequently recognized in the statement of income in the same period in which the hedged
underlying transaction or firm commitment is recognized in the statement of income.
In order to qualify for hedge accounting, the Corporation is required to document in advance the relationship between the item
being hedged and the hedging instrument. The Corporation is also required to document and demonstrate an assessment of the
relationship between the hedged item and the hedging instrument, which shows that the hedge will be highly effective on an
CAPSTONE INFRASTRUCTURE CORPORATION
Page 31
ongoing basis. This effectiveness testing is performed at the end of each reporting period to ensure that the hedge remains
highly effective.
Derivatives embedded in other financial instruments or contracts are separated from their host contracts and accounted for at fair
value when their economic characteristics and risks are not closely related to those of the host contract.
Impairment of Financial Assets
For financial assets measured at amortized cost. Capstone applies the simplified expected credit loss ("ECL") approach as
permitted by IFRS 9. ECLs are estimated based on historical information, third-party accreditations such as credit ratings, and
forward looking information regarding historical customer default rates. Capstone does not expect this to affect any measurement
of financial assets and liabilities as its customer base is predominantly government entities.
If impairment exists on the financial asset, the Corporation recognizes an impairment loss in the consolidated statement of
income. The loss is measured as the difference between the carrying and the present value of the expected future cash flows.
Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.
Impairment of cash and cash equivalents and restricted cash are evaluated by reference to the credit quality of the underlying
financial institution.
Segment Reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-
maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating
segments.
Earnings Before Interest Expense, Taxes, Depreciation and Amortization ("EBITDA")
EBITDA is an additional GAAP financial measure defined as earnings (loss) before financing costs, income tax expense,
depreciation and amortization. EBITDA includes earnings (loss) related to the non-controlling interest ("NCI"), interest income,
other gains and losses (net), and foreign exchange gains and losses. EBITDA represents Capstone’s capacity to generate
income from operations before taking into account management’s financing decisions and costs of consuming tangible capital
assets and intangible assets, which vary according to their age, technology, and management’s estimate of their useful life.
EBITDA is presented on the consolidated statement of income.
Changes to Accounting Policies
Capstone's accounting policies are consistent with those disclosed in the notes to the December 31, 2019 consolidated financial
statements, except for the narrow-scope amendments to IFRS 3, Business Combinations, which were adopted for use on
transactions effective January 1, 2020. The amendments to the definition of a business are intended to assist companies in
determining whether a transaction should be accounted for as a business combination or a group of assets, and are applied
prospectively.
Future Accounting Changes
The IASB has not issued any significant accounting standard changes that impact the Corporation. Capstone is evaluating the
impact of the narrow-scope amendments to IAS 1 and IAS 16 on the Corporation. The amendments are effective for annual
reporting periods beginning on or after January 1, 2022.
Capstone continues to monitor changes to IFRS and has implemented applicable IASB changes to standards, new
interpretations and annual improvements.
Critical Accounting Estimates and Judgments
The Corporation makes estimates and assumptions concerning the future that will, by definition, seldom equal actual results. The
following are the estimates and judgments applied by management that most significantly affect the Corporation's financial
statements. These estimates and judgments have a risk of causing a material adjustment to the carrying values of financial
assets and financial liabilities within the next financial year.
Area of Significance
Critical Estimate
Capital assets, projects under development and
intangible assets – carrying values
Fair value estimates are required in the
determination of the net assets acquired in a
business combination and in the impairment
assessment for our capital assets and the
assignment of amounts to the asset retirement
obligations, as well as assessing capitalization
criteria for project development costs.
• Estimates are based on assumptions that are sensitive to change,
which may have a significant impact on the valuations performed.
• Impairment reviews of the carrying value of capital and other long-
lived assets along with the asset retirement obligations require
management to estimate fair value based on future cash flows,
discount rates and business performance.
Critical Judgment
• Initial fair value of net assets
• Estimated useful lives and residual
value
• Expected settlement date, amount
and discount rate
• Future cash flows and discount
rate
CAPSTONE INFRASTRUCTURE CORPORATION
Page 32
Area of Significance
Critical Estimate
Critical Judgment
Deferred income taxes
Estimates in the determination of deferred income
taxes affect asset and liability balances.
Financial instrument fair value measurements
When observable prices are not available, fair
values are determined by using valuation
techniques that refer to observable market data.
This is specifically related to Capstone's financial
instruments.
Accounting for investments in non-wholly owned
subsidiaries
When Capstone owns a partial interest in an
entity, significant judgment is required to
determine the proper accounting treatment.
Capstone consolidates upon evaluating its ability
to control a subsidiary.
• The determination of the deferred income tax balances of the
• Timing of reversal of temporary
Corporation requires management to make estimates of the reversal
of existing temporary differences between the accounting and tax
bases of assets and liabilities in future periods.
• Management's valuation techniques include comparisons with similar
instruments where market observable prices exist, discounted cash
flow analysis, option pricing models and other valuation techniques
commonly used by market participants.
• For embedded derivatives, fair values are determined from valuation
techniques using non-observable market data or transaction
processes.
A number of factors such as bid-offer spread, credit profile and model
uncertainty are taken into account, as appropriate.
• No critical estimates are involved in determining control.
differences
• Tax rates
• Current and future taxable income
• Forward Alberta Power Pool
prices, volatility, credit spreads and
production projections
• Determine how relevant activities
are directed (either through voting
rights or contracts)
• Determine if Capstone has
substantive or protective rights
• Determine Capstone's ability to
influence returns
NOTE 3. ACQUISITIONS
(A) Watford Wind Facility
On February 1, 2019, Capstone acquired the Watford assets from Zephyr Farms Limited for $13,960, paid for from existing
liquidity. The 10MW wind facility operates in the municipality of Brooke-Alvinston in Ontario under a PPA that expires in 2032.
(B)
On November 19, 2019, Capstone acquired a 51% interest in the 132MW Claresholm solar development project, through a
series of transactions. The remaining 49% interest is indirectly held by Denmark-based Obton A/S (“Obton”). The project was
acquired for $15,951, which includes $4,820 of acquired cash, the reimbursement of certain pre-construction expenses,
transaction costs, and consideration that becomes payable over time and is recorded in accounts payable and other liabilities
due to the expected timing of payment.
Claresholm Solar Project
The project has secured regulatory approvals from the Alberta Utilities Commission and has executed a 74MW power purchase
agreement with TC Energy Corporation.
In 2020, Claresholm executed material project contracts for the construction of the facility and commenced construction. These
capital expenditures are funded by a combination of project financing, which was executed on July 9, 2020 (see note 16 Long-
Term Debt), and equity contributions from the partners.
The accounting for Claresholm is treated as an asset acquisition in accordance with IFRS 3. In addition, Capstone consolidates
Claresholm as defined in IFRS 10, with Obton's interest treated as NCI.
NOTE 4. CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Debt service and maintenance reserves
Construction escrow
Cash on deposit
Restricted cash
Unrestricted cash and cash equivalents
Dec 31, 2020
22,351
23,094
—
45,445
71,161
116,606
Dec 31, 2019
15,625
8,875
77
24,577
69,256
93,833
Restricted cash is primarily cash that is held by the Corporation's subsidiaries in support of segregated bank accounts to support
debt service reserves, operating and maintenance reserves in support of specific long-term debt and/or proceeds from
construction facilities used for specific project costs. Capstone has also provided letters of credit to back other reserve
requirements (refer to note 16).
CAPSTONE INFRASTRUCTURE CORPORATION
Page 33
NOTE 5. ACCOUNTS RECEIVABLE
Power
Corporate
Dec 31, 2020
Dec 31, 2019
25,716
134
25,850
23,776
61
23,837
For both periods presented, accounts receivable did not require a provision for impairment. Substantially all of the accounts
receivable are with government authorities and none are past due. Refer to note 9b and 9c for further detail of credit risk and
economic dependence.
NOTE 6. OTHER ASSETS
Prepaid expenses
Inventory of spare parts and consumable supplies, net (1)
Investments in Genalta (2)
Dec 31, 2020
Dec 31, 2019
4,977
1,661
500
7,138
2,291
1,600
500
4,391
(1) No inventory obsolescence provision is required as at December 31, 2020 (2019 - nil).
(2) Capstone has an investment in the common shares of Genalta Power Inc. ("Genalta").
The cost of inventories recognized in operating expenses for the year ended December 31, 2020 was $407 (2019 - $620).
NOTE 7. LOANS RECEIVABLE
Genalta (1)
Sawridge First Nation ("Sawridge") (2)
Dec 31, 2020
Dec 31, 2019
4,000
1,468
5,468
—
702
702
(1) Capstone issued a $4,000 convertible debenture to Genalta on October 30, 2020. The loan receivable bears a fixed 12% rate of interest, with an option to
convert into equity in Genalta.
(2) Capstone has provided Sawridge, its 25% partner on the Buffalo Atlee wind development projects with a loan for their pro rata share of project costs. The loan
receivable bears a fixed interest rate of 9%. Interest and principal are to be repaid from the project's excess cash flows and can be repaid at any time, with a
final maturity date 30 years from the COD.
The estimated fair value of the loans receivable as at December 31, 2020 approximates the carrying value.
NOTE 8. FINANCIAL INSTRUMENTS
Financial instruments consist of amortized cost assets, other liabilities and financial instruments at fair value through profit and
loss.
Amortized Cost Assets
Cash and cash
equivalents, restricted
cash
Balances are invested in financial instruments of highly rated financial institutions and government securities with original maturities of
90 days or less. As at December 31, 2020, the carrying values of cash and cash equivalents and restricted cash are considered to
approximate their fair values due to their short-term nature.
Accounts receivable
Are trade receivables with carrying values that approximate their fair values.
Loans receivable
Are measured at amortized cost using the effective interest rate method. The fair value of the Corporation's loans receivable may differ
from the carrying value due to changes in interest rates and the underlying risk associated with the debtor. It is determined using a
discounted cash flow analysis.
Other Liabilities
Accounts payable and
other liabilities
Long-term debt
Are short-term liabilities with carrying values that approximate their fair values.
Balances are recorded at amortized cost using the effective interest rate method. The fair value of the Corporation's long-term debt is
determined using level 2 inputs as follows:
• Floating rate debt approximates its carrying value.
• Fixed-rate debt is determined through the use of a discounted cash flow analysis using relevant risk-free bond rates plus an
estimated margin.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 34
Financial Instruments at Fair Value through Profit and Loss ("FVTPL")
Whitecourt embedded derivative
On March 2, 2015, Whitecourt entered into a fuel supply agreement with Millar Western for 15 years, which is extendable to 20
years. The agreement, which was effective on January 1, 2015, includes power price support and revenue sharing mechanisms
that reduce Whitecourt's exposure to merchant price risk in Alberta.
The price support and revenue sharing mechanisms comprise an embedded derivative that is measured at fair value and results
in an asset during periods when the projected merchant power price is forecast to be lower than the price support and a liability
during periods when the merchant power price is forecast to be higher.
On March 2, 2015, Capstone recognized an asset of $5,297 based on the fair value of the Whitecourt fuel supply agreement,
which was equal to and offset the fair value of the embedded derivative included in Whitecourt's fuel supply agreement at
inception. Capstone amortizes the inception value to income over 15 years, representing the life of the fuel supply agreement.
Interest rate swaps
These contracts to effectively fix the interest cost on long-term debt with variable rates, specifically for Cardinal, GHG, Grey
Highlands Clean, Snowy Ridge, Settlers Landing and Claresholm. In addition, an interest rate swap was entered into for the
acquisition debt of SWNS (refer to note 27). Under these agreements, the projects receive or will receive Canadian Dollar
Offered Rate ("CDOR") in exchange for fixed rate (refer to note 9a).
Foreign currency contracts
These contracts to mitigate the currency risk related to US dollar purchases.
Fair value determination
The Corporation has determined the fair values of derivative financial instruments as follows:
Whitecourt embedded
derivative
Interest rate swaps
• The determination of the fair value of the embedded derivative requires the use of option pricing models involving significant
judgment based on management's estimates and assumptions, including the forward Alberta Power Pool prices, volatility, credit
spreads and production projections.
• Fair value fluctuates with changes in market interest rates.
• A discounted cash flow valuation based on a forward interest rate curve was used to determine their fair value.
Foreign currency
contracts
• Fair value fluctuate with changes in the US dollar to the Canadian dollar.
• A discounted cash flow valuation based on a forward USD/CAD exchange rate curve was used to determine their fair value.
Due to the lack of observable market quotes on the Whitecourt embedded derivative, the contract has been classified as level 3
financial instruments.
Capstone, with the assistance of third-party experts, is responsible for performing the valuation of financial instruments, including
level 3 fair values. The valuation processes and results are reviewed and approved each reporting period. These critical
estimates are discussed as part of the Audit Committee's quarterly review of the financial statements.
The following table illustrates the classification of the Corporation's financial instruments, that have been recorded at fair value:
Recurring measurements:
Derivative contract assets:
Whitecourt embedded derivative (1)
Interest rate swap contracts
Less: current portion
Derivative contract liabilities:
Interest rate swap contracts
Less: current portion
Level 1
Quoted prices in active
markets for identical
assets
Level 2
Significant other
observable inputs
Level 3
Significant
unobservable
inputs
Dec 31, 2020
Dec 31, 2019
—
—
—
—
—
—
—
—
1,688
—
1,688
17,723
(3,377)
14,346
13,493
—
—
13,493
1,688
—
13,493
15,181
—
—
—
17,723
(3,377)
14,346
3,414
3,045
(1,398)
5,061
5,773
—
5,773
(1) Consists of a $16,671 fair value asset and $3,178 amortized contra-asset, set up on inception (2019 - $6,945 asset and $3,531 contra-asset, respectively).
CAPSTONE INFRASTRUCTURE CORPORATION
Page 35
Fair value continuity for Level 3 inputs
Opening balance, January 1,
Change in value of the embedded derivative included in other gains and (losses) in net income
Settlements during the period
Amortization of inception value included in other gains and (losses) in net income
Closing balance, December 31,
Income and Expenses from Financial Instruments
Amortized cost assets:
Interest income on cash and cash equivalents, restricted cash
Interest income on loans receivable
Other liabilities:
Interest expense on long-term debt (1)
Financial instruments at FVTPL (refer to note 23):
Whitecourt embedded derivative
Interest rate swap contracts
Changes in derivative financial instruments fair value
Losses on debt extinguishment
2020
3,414
6,338
3,388
353
13,493
2019
7,478
(2,262)
(2,156)
354
3,414
Dec 31, 2020
Dec 31, 2019
763
180
943
1,924
—
1,924
(36,260)
(37,679)
13,466
(13,306)
160
(1,909)
(6,956)
(8,865)
(5,248)
—
(1)
Interest expense on the long-term debt for 2020 of $36,260 includes amortization of deferred financing fees, interest expense on lease liabilities and accretion
on liability for asset retirement obligations of $2,890, $1,964 and $503, respectively (2019 - $2,514, $1,716 and $478).
NOTE 9. FINANCIAL RISK MANAGEMENT
The Corporation's normal operating, investing and financing activities expose it to a variety of financial risks, including market
risk, credit risk, economic dependence and liquidity risk. The Corporation's overall risk management process is designed to
identify, manage and mitigate business risk, which includes, among others, financial risk.
(A) Market Risk
Market risk is the risk or uncertainty arising from possible price movements and their impact on the future performance of the
business. The Corporation is exposed to commodity price risk (electricity revenue), interest rate and inflation risk, foreign
currency exchange risk and other indices that could adversely affect the value of the Corporation's financial assets, liabilities or
expected future cash flows.
Commodity price risk
In 2020, both Cardinal and Whitecourt's revenues are exposed to price risk as follows:
(i) Cardinal earns a portion of its revenue by supplying electricity to the Ontario grid only when profitable to do so.
(ii) Whitecourt sells all electricity generated into the Alberta Power Pool. Millar Western and Whitecourt's fuel supply agreement
includes sharing mechanisms regarding the price received for electricity sold by Whitecourt.
Interest rate and inflation risk
Interest rate risk arises as changes in market interest rates affect the Corporation's future payments on debt obligations. The
Corporation is exposed to interest rate risk on its floating rate debt. Currently, the Corporation has interest rate swap contracts to
mitigate some of the risks associated with its long-term debt.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 36
The terms of the contracts are:
Entity
Grey Highlands Clean
GHG
GHG
Snowy Ridge
Snowy Ridge
Settlers Landing
Settlers Landing
Claresholm
Claresholm
Cardinal
Cardinal
SWNS
Maturity Date
Notional Amount
Swap Fixed Rate
Credit Margin
Sep 30, 2036
Jun 30, 2021
Jun 30, 2034
Dec 31, 2021
Dec 31, 2034
Jun 30, 2022
Jun 30, 2035
Jun 30, 2021
Sep 30, 2030
Dec 30, 2022
Jun 30, 2034
Dec 31, 2036
64,650
59,913
57,363
25,004
21,011
21,689
17,719
29,668
57,623
73,522
66,080
87,052
1.22%
1.34% - 1.45%
3.04% - 3.17%
1.13%
2.07%
1.71%
2.93%
0.64%
1.06%
1.24% - 2.00%
2.44% - 2.82%
1.16%
1.63%
1.63%
1.63%
1.63%
1.63%
1.63%
1.63%
2.75%
2.75%
1.25%
1.25%
1.75%
Effective
Interest Rate
2.85%
2.97% - 3.08%
4.67% - 4.80%
2.76%
3.70%
3.34%
4.56%
3.39%
3.81%
2.49% - 3.25%
3.69% - 4.07%
2.91%
Foreign currency exchange risk
Capstone's power assets have expenses or capital commitments in currencies other than the Canadian dollar; as new projects
are built, expected additional purchases will be made in foreign currencies. To mitigate these risks Capstone monitors the risk
associated with foreign exchange rate fluctuations and, from time to time, may enter into forward foreign exchange contracts or
employ other hedging strategies.
Credit Risk
(B)
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to honour a
financial obligation.
Financial instruments that potentially subject the Corporation to concentrations of credit risk consist of cash and cash
equivalents, restricted cash, accounts receivable, loan receivable and derivative contracts.
The Corporation deposits its cash with reputable financial institutions and limits the exposure by counterparty; management
therefore believes the risk of loss to be remote.
Credit risk concentration with respect to power trade receivables is limited due to the Corporation's customer base being
predominantly government authorities. The table below summarizes power trade receivables from the sale of electricity and
government incentive programs by counterparty:
As at
Independent Electricity System Operator ("IESO")
Nova Scotia Power Inc. ("NSPI")
Natural Resources Canada Inc. ("NRC")
Ontario Electricity Financial Corporation ("OEFC")
Government of Alberta
Other (1)
Dec 31, 2020
Dec 31, 2019
13,064
3,380
1,008
660
—
7,738
25,850
11,550
3,728
1,143
1,350
2,210
3,856
23,837
(1) Other receivables includes HST recoverable from CRA for 2020 of $3,936, primarily for Claresholm construction (2019 - $463).
There are no accounts receivable that are past due. Since the IESO, OEFC, and NRC are government agencies, and NSPI is
regulated by the provincial government, management considers credit risk to be minimal.
The Corporation's derivative agreements expose Capstone to losses under certain circumstances, such as the counterparty
defaulting on its obligations under the swap agreements or if the swap agreements provide an imperfect hedge. Counterparties
to the Corporation's derivative contracts are major financial institutions that have been accorded investment-grade ratings.
Consequently, management believes there to be minimal credit risk associated with its derivative contracts.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 37
Economic Dependence
(C)
Economic dependence arises when an enterprise relies on a significant volume of business with another party that cannot be
easily transferred at similar terms and conditions, or is abnormal relative to expectations of similar entities. The table below
summarizes revenue from the sale of electricity by counterparty for the power segment:
For the year ended
IESO
NSPI
Hydro Quebec
OEFC
Other
Dec 31, 2020
Dec 31, 2019
122,145
31,786
8,403
7,417
11,752
181,503
121,908
32,595
8,382
7,986
14,467
185,338
Liquidity Risk
(D)
Liquidity risk is the risk that the Corporation may have insufficient cash or other resources to meet obligations as they come due.
As at December 31, 2020, Capstone's current liabilities exceeded the current assets. This was due to upcoming project debt
maturities, which Capstone expects to refinance or extend with existing lenders.
Compliance with debt covenants
The Corporation has financial liabilities in its power operating segments and at corporate. Refer to notes 14 accounts payable
and other liabilities and 16 long-term debt for further details on financial liabilities. These financial liabilities contain a number of
standard financial and other covenants.
Failure to comply with terms and covenants of the Corporation's credit agreements could result in a default, which, if not cured or
waived, could result in accelerated repayment or the suspension of preferred dividends.
In the event of default, there can be no assurance that the Corporation could:
(i) Generate sufficient cash flow from operations in amounts sufficient to pay outstanding indebtedness, or to fund any other
liquidity needs; or
(ii) Pay future preferred dividends; or
(iii) Refinance these credit agreements or obtain additional financing on commercially reasonable terms, if at all. The credit
agreements, and future borrowings may be at variable rates of interest, which exposes the Corporation to the risk of
increased interest rates.
Contractual maturities
The contractual undiscounted maturities of the Corporation's financial liabilities as at December 31, 2020 were as follows:
Financial Liabilities
Within one year One year to five years
Beyond five years
Accounts payable and other liabilities
Lease liabilities (1)
Long-term debt
Principal payments
Interest payments
33,205
2,700
154,360
29,151
183,511
—
12,449
213,899
94,253
308,152
—
53,543
409,030
93,629
502,659
Total
33,205
68,692
777,289
217,033
994,322
Sensitivity Analysis
Includes the fixed portion of minimum lease payments.
(1)
(E)
The sensitivity analysis provided below discloses the effect on net income for the year ended December 31, 2020, assuming that
a reasonably possible change in the relevant risk variable has occurred during the year, and has been applied to the risk
exposures in existence at that date to show the effects of reasonably possible changes. The changes in market variables used in
the sensitivity analysis were determined based on implied volatilities, where available, or historical data.
The sensitivity analysis has been prepared based on December 31, 2020 balances and on the basis that the balances, the ratio
of fixed to floating rates of debt and derivatives, and the energy contracts that are financial instruments in place at December 31,
2020 are all constant. Excluded from this analysis are all non-financial assets and liabilities that are not classified as financial
instruments under IFRS 9.
The sensitivity analysis provided is hypothetical and should be used with caution because the impacts provided are not
necessarily indicative of the actual impacts that would be experienced, as the Corporation's actual exposure to market rates is
constantly changing as the Corporation's portfolio of commodity, debt, foreign currency and equity contracts changes. Changes
in fair values or cash flows based on a variation in a market variable cannot be extrapolated because the relationship between
the change in the market variable and the change in fair value or cash flows may not be linear. In addition, the effect of a change
in a particular market variable on fair values or cash flows is calculated without considering interrelationships between the
CAPSTONE INFRASTRUCTURE CORPORATION
Page 38
various market rates, hedging strategies employed by the Corporation or other mitigating actions that would be taken by the
Corporation.
The table summarizes the impact on fair value of changes in the Whitecourt embedded derivative's significant unobservable
inputs:
Dec 31, 2020 Unobservable inputs Estimated input
Relationship of input to fair value
$13,493 Forward Alberta Power
Pool prices
From $35/MWh to $119/
MWh over the next 9 years.
A reasonably possible increase in estimated forward prices of 5% or a
decrease of 5%, would cause fair value to decrease by $2,671 and
increase by $2,582, respectively.
Changes in these estimates may have a significant impact on the fair value of the embedded derivative given the length of
contract involved. As new information becomes available, management may choose to revise these estimates where there is an
absence of reliable observable market data.
The table summarizes the impact on fair value of changes in observable inputs:
For the year ended Dec 31, 2020
Financial liabilities: (1)
Interest rate swap liabilities, net
Carrying
Amount
Interest Rate Risk
(0.5)%
0.5%
(16,035)
(32,781)
(4,899)
(1)
Financial liabilities in long-term debt are not included as all long-term debt is either fixed-rate debt or variable rate debt that is covered by a swap contract for
fixed-rate debt. The outstanding balance on the CPC term credit facility was nil.
NOTE 10. CAPITAL ASSETS
(A)
Continuity
Cost
Land
ROU assets (refer to note 15)
Equipment and vehicles
Property and plant
Accumulated depreciation
ROU assets
Equipment and vehicles
Property and plant
Net carrying value
Cost
Land
ROU assets (refer to note 15)
Equipment and vehicles
Property and plant
Accumulated depreciation
ROU assets
Equipment and vehicles
Property and plant
Net carrying value
Jan 1, 2020
Additions
Disposals
Dec 31, 2020
1,084
29,460
12,035
1,239,736
1,282,315
(1,658)
(7,896)
(456,806)
(466,360)
815,955
—
8,490
390
6,724
15,604
(1,781)
(468)
(68,520)
(70,769)
(55,165)
—
—
(82)
1,084
37,950
12,343
(2,968)
(3,050)
1,243,492
1,294,869
—
72
2,527
2,599
(451)
(3,439)
(8,292)
(522,799)
(534,530)
760,339
Jan 1, 2019
Additions
Disposals
Dec 31, 2019
1,084
28,201
11,012
1,220,899
1,261,196
—
(7,473)
(391,723)
(399,196)
862,000
—
1,259
1,023
22,207
24,489
(1,658)
(423)
(67,871)
(69,952)
(45,463)
—
—
—
1,084
29,460
12,035
(3,370)
(3,370)
1,239,736
1,282,315
—
—
2,788
2,788
(582)
(1,658)
(7,896)
(456,806)
(466,360)
815,955
CAPSTONE INFRASTRUCTURE CORPORATION
Page 39
(B)
Reconciliation to Cash Additions for the Cash Flow Statement
For the year ended
Additions
Adjustment for non-cash ROU asset additions
Adjustment for change in capital asset additions included in accounts payable and accrued liabilities
Cash additions
Dec 31, 2020
15,604
(8,490)
2,266
9,380
Dec 31, 2019
24,489
(1,259)
1,400
24,630
NOTE 11. PROJECTS UNDER DEVELOPMENT
(A)
Continuity
As at January 1
Asset acquisition (1)
Capitalized costs during the year
As at December 31 (2), (3)
2020
16,803
—
160,325
177,128
2019
1,595
11,131
4,077
16,803
(1) On November 19, 2019, Capstone acquired 51% of the Claresholm solar project; the remaining 49% is held by Obton. Refer to note 3 for details.
(2)
(3)
Includes $1,335 of capitalized borrowing costs for 2020, during the construction of Claresholm (2019 - nil).
The balance primarily includes costs to develop the Claresholm solar project, and the Riverhurst and Buffalo Atlee wind projects (2020 - $155,038, $5,362 and
$5,233, respectively, and 2019 - $13,338, $1,307, and $2,158, respectively), as well as other early stage projects.
(B)
Reconciliation to Cash Additions for the Cash Flow Statement
For the year ended
Additions
Adjustment for change in additions to PUD included in accounts payable and accrued liabilities
Cash additions
NOTE 12. INTANGIBLE ASSETS
Dec 31, 2020
160,325
(10,964)
149,361
Dec 31, 2019
4,077
(925)
3,152
Assets
Computer software
Electricity supply and other contracts
Water rights
Accumulated amortization
Computer software
Electricity supply and other contracts
Water rights
Net carrying value
Assets
Computer software
Electricity supply and other contracts
Water rights
Accumulated amortization
Computer software
Electricity supply and other contracts
Water rights
Net carrying value
CAPSTONE INFRASTRUCTURE CORPORATION
Jan 1, 2020
Additions
Dec 31, 2020
264
171,407
73,018
244,689
(262)
(74,382)
(26,492)
(101,136)
143,553
199
—
—
199
(3)
(9,218)
(2,116)
(11,337)
(11,138)
463
171,407
73,018
244,888
(265)
(83,600)
(28,608)
(112,473)
132,415
Jan 1, 2019
Additions
Dec 31, 2019
264
171,407
73,018
244,689
(259)
(65,193)
(24,376)
(89,828)
154,861
—
—
—
—
(3)
(9,189)
(2,116)
(11,308)
(11,308)
264
171,407
73,018
244,689
(262)
(74,382)
(26,492)
(101,136)
143,553
Page 40
NOTE 13. INCOME TAXES
(A)
Deferred Income Tax
As at
Deferred income tax assets
Deferred income tax liabilities
Net deferred income tax liability
Dec 31, 2020
135
(83,895)
(83,760)
Dec 31, 2019
112
(85,878)
(85,766)
The net deferred income tax liability, without taking into consideration the offsetting of balances within the same jurisdiction, are
detailed as follows:
As at
Non-capital loss carry forwards
Asset retirement obligations
Other
Financial Instruments
Deferred income tax assets
Capital assets
Intangibles
Loan premium and deferred financing costs
Other
Financial instruments
Deferred income tax liabilities
Net deferred income tax liability
A continuity of the net deferred income tax liability follows:
Net deferred income tax liability as at January 1
Recorded in earnings
Other
Net deferred income tax liability as at December 31
Timing of Deferred Income Tax Reversal
(B)
The timing of deferred income tax reversal is summarized as follows:
As at
Within 12 months
After more than 12 months
Net deferred income tax liability
Dec 31, 2020
Dec 31, 2019
19,678
21,707
3,731
2,631
648
2,561
3,342
—
26,688
27,610
(74,403)
(33,200)
(2,293)
(552)
—
(74,032)
(36,536)
(2,120)
(503)
(185)
(110,448)
(113,376)
(83,760)
(85,766)
2020
2019
(85,766)
(89,837)
1,051
955
3,084
987
(83,760)
(85,766)
Dec 31, 2020
Dec 31, 2019
29,329
(113,089)
(83,760)
(3,682)
(82,084)
(85,766)
Tax Loss Carry Forwards
(C)
Capstone's tax loss carry forwards and the portion recognized in deferred income tax assets were as follows:
Canadian – non-capital losses
US – non-capital losses
Canadian – capital losses
Expiry
Recognized Unrecognized
Dec 31, 2020
Dec 31, 2019
2025 – 2040
2023 – 2027
No expiry
75,387
—
—
62,444
19,292
296
137,831
19,292
296
144,082
19,730
282
The Corporation also has $1,916 of unrecognized deferred tax assets, which have not been recognized as at December 31,
2020 (2019 - $2,045).
CAPSTONE INFRASTRUCTURE CORPORATION
Page 41
Rate Reconciliation
(D)
The following table reconciles the expected income tax expense using the statutory tax rate to the expense:
For the year ended
Income (loss) before income taxes (1)
Statutory income tax rate
Income tax expense based on statutory income tax rate
Permanent differences
Tax rate differentials
Change in unrecognized deferred tax assets
Other
Total income tax expense (recovery)
Dec 31, 2020
Dec 31, 2019
205
25.78 %
53
469
(947)
448
(797)
(774)
2,109
26.70 %
563
180
(2,903)
206
(163)
(2,117)
Income (loss) before income taxes excludes discontinued operations.
(1)
The statutory income tax rate of 25.78% (2019 - 26.70%) changes in response to Capstone's allocation of taxable income to
different tax jurisdictions, as well as the decrease in the Alberta and Nova Scotia statutory tax rates that were substantively
enacted in 2020.
Current Income Taxes
(E)
Current income taxes payable of $2,050 are included in accounts payable and other liabilities on the statement of financial
position (refer to note 14) (2019 - $1,898).
NOTE 14. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Dividends payable
Income taxes payable
Other accounts payable and accrued liabilities
Income taxes payable
Canadian Renewable and Conservation Expense ("CRCE") penalties (1)
Taxes payable on preferred share dividends
Current income taxes payable
Dec 31, 2020
Dec 31, 2019
409
2,050
30,746
33,205
409
1,898
21,698
24,005
Dec 31, 2020
Dec 31, 2019
1,647
164
239
2,050
1,663
164
71
1,898
(1) CRCE penalties related to flow-through shares originally issued by Renewable Energy Developers Inc., which was acquired by Capstone in 2013.
NOTE 15. LEASE LIABILITIES
As at January 1
Additions (1) (refer to note 10)
Interest expense
Lease payments
Lease liabilities
Less: current portion
As at December 31
(1)
Includes $8,490 of additions for Claresholm (2019 - $1,259 for Watford).
2020
28,477
8,490
1,964
(2,998)
35,933
(1,105)
34,828
2019
28,201
1,259
1,716
(2,699)
28,477
(1,037)
27,440
CAPSTONE INFRASTRUCTURE CORPORATION
Page 42
NOTE 16. LONG-TERM DEBT
(A)
Power
As at
CPC credit facilities
Project debt
Wind
Solar
Gas
Hydros
Power
Less: deferred financing costs
Long-term debt
Less: current portion
Dec 31, 2020
Dec 31, 2019
Fair Value
Carrying
Value
Fair Value
—
—
—
Carrying
Value
—
497,931
479,784
500,018
169,124
73,522
85,501
468,554
165,179
73,522
70,034
68,044
77,176
78,897
828,165
777,289
722,048
(15,690)
761,599
(154,360)
607,239
70,441
77,176
71,895
699,296
(12,283)
687,013
(45,293)
641,720
Capstone has a cumulative $70,098 utilized on its letter of credit facilities.
The respective project debt within the power segment have regular principal and interest payments over the term to maturity and
are secured only by the assets of respective project, with no recourse to the Corporation's other assets, except as noted.
In addition, the individual project debt agreements require the respective projects to maintain certain restrictive covenants
including a minimum debt service coverage ratio to allow distributions to Capstone.
(i)
CPC Credit Facilities
Total available credit - all facilities
Amount drawn
Term credit facility (2)
Letter of credit facility (3)
Remaining available credit
Interest Rate (1)
Maturity
Dec 31, 2020
Dec 31, 2019
2.08%
Dec 15, 2023
120,500
120,500
—
41,840
78,660
—
45,864
74,636
As at December 31, 2020, Capstone had 17 letters of credit authorized under the revolving credit facility.
The effective rate was 2.08% in 2020 (2019 - 3.92%) based on a variable rate plus an applicable margin.
(1)
(2) On February 25, 2020, the remaining CPC term credit facility was converted into the revolving credit facility.
(3)
As at December 31, 2020, the revolving credit facility capacity was $120,500, of which $41,840 supports letters of credit for the
operating facilities.
Under the CPC credit facilities, CPC is subject to customary covenants, including specific limitations on leverage and interest
coverage ratios, and a minimum cash flow profile. The collateral for the CPC credit facilities is provided by Capstone, CPC, and
its material subsidiaries. CPC and its material subsidiary guarantors (with the exception of certain subsidiaries, including
previously encumbered project financed subsidiaries) provided demand debentures granting a first ranking security interest in all
present and future property, a floating charge over real property and first ranking securities pledge agreements (subject to certain
permitted liens). Capstone provided a limited recourse guarantee, a securities pledge agreement, and an assignment of
indebtedness owed to Capstone by CPC.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 43
(ii)
Wind
Project debt
Glen Dhu
Grey Highlands Clean
Goulais
GHG
Erie Shores
Saint-Philémon
Amherst
Snowy Ridge
Settlers Landing
Skyway 8 (1)
SkyGen (1)
Glace Bay
Dec 31, 2020
Dec 31, 2019
70,272
64,650
62,423
59,169
47,818
46,596
30,478
24,880
22,120
16,269
14,921
8,958
76,884
44,465
65,433
63,311
54,944
48,506
32,756
26,469
23,258
16,979
16,803
9,976
468,554
479,784
(1)
SkyGen project debt includes financing related to the Ferndale, Ravenswood, and Proof Line facilities. Skyway 8 was financed separately.
Glen Dhu
Term loan
Interest Rate
5.33%
Maturity
Dec 31, 2020
Dec 31, 2030
70,272
Dec 31, 2019
76,884
(1) Glen Dhu is required to set aside $5,310 as letters of credit to fund its debt service reserve.
Grey Highlands Clean
Term loan
Interest Rate (3)
2.85%
Maturity
Dec 31, 2020
Dec 31, 2019
Jun 17, 2024
64,650
44,465
(1) Grey Highlands Clean is required to set aside $2,540 as letters of credit to cover the debt service reserve.
(2) Grey Highlands Clean is required to set aside $526 as restricted cash to fund its operating and maintenance reserve.
(3)
As at December 31, 2020, Grey Highlands Clean had swap contracts to convert interest to a fixed rate (See note 9a).
(4) On June 17, 2020, the Grey Highlands Clean term loan was refinanced with its existing lenders, increasing its term loan by $22,638 to $66,096 and extending
the term by 4 years to June 17, 2024, while locking in lower long-term interest rates through an interest rate swap. The new project debt fully amortizes over the
remainder of the facility's PPA, which expires in 2036 and the effective fixed interest rate for the duration of the term loan is 2.85%. In accordance with IFRS 9,
the refinancing of the existing term loan was recognized as a debt extinguishment, as the instruments are substantially different. This resulted in the
capitalization of $1,400 of related transaction costs on the full term loan. The previously capitalized transaction costs of $489 were derecognized and the costs
associated with exiting the previous swap contract of $4,759 were recorded in other gains and losses.
Goulais
Term loan
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
5.16%
Sep 30, 2034
62,423
65,433
(1) Goulais is required to set aside $3,504 as restricted cash to cover the debt service reserve.
(2) Goulais is required to set aside $1,000 as letters of credit to cover the operating and maintenance reserves.
GHG
Term loan
Interest Rate (3)
3.08%
Maturity
Dec 31, 2020
Dec 31, 2019
Aug 26, 2021
59,169
63,311
(1) GHG has $3,200 as letters of credit to cover the debt service reserve.
(2) GHG is required to set aside $909 as restricted cash to fund its operating and maintenance reserve.
As at December 31, 2020, GHG had swap contracts to convert interest to a fixed rate (See note 9a).
(3)
Erie Shores (3)
Tranche A
Tranche C
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
5.96%
6.15%
Apr 1, 2026
Apr 1, 2026
28,802
19,016
47,818
33,104
21,840
54,944
(1)
(2)
(3)
Erie Shores project debt has a $5,000 limited recourse guarantee provided by CPC to the lenders of the Erie Shores project debt.
Erie Shores is required to set aside $5,148 as restricted cash and $550 as letters of credit against the borrowing capacity of the CPC revolving credit facility to
cover the debt service and maintenance reserves.
Tranche B matured on April 1, 2016.
Saint-Philémon
Term loan
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
5.49%
May 31, 2034
46,596
48,506
(1)
Saint-Philémon is required to set aside $1,224 as letters of credit against the borrowing capacity of the CPC revolving credit facility to cover the debt service
reserve.
Amherst
Term loan
Interest Rate
6.20%
Maturity
Apr 30, 2032
Dec 31, 2020
30,478
Dec 31, 2019
32,756
(1)
(2)
Amherst's project debt has a $1,000 limited recourse guarantee provided by CPC to the lenders of the Amherst project debt.
Amherst is required to set aside $1,102 as letters of credit against the borrowing capacity of the CPC revolving credit facility to cover the debt service and
maintenance reserves.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 44
Snowy Ridge
Term loan
Interest Rate (3)
2.75%
Maturity
Dec 31, 2020
Dec 31, 2019
Dec 23, 2021
24,880
26,469
(1)
(2)
(3)
Snowy Ridge is required to set aside $1,300 as letters of credit to cover the debt service reserve.
Snowy Ridge is required to set aside $580 as restricted cash to fund its operating and maintenance reserve.
As at December 31, 2020, Snowy Ridge had swap contracts to convert interest to a fixed rate (See note 9a).
Settlers Landing
Term loan
Interest Rate (3)
3.34%
Maturity
Dec 31, 2020
Dec 31, 2019
Aug 31, 2022
22,120
23,258
(1)
(2)
(3)
Settlers Landing is required to set aside $1,100 as letters of credit to cover the debt service reserve.
Settlers Landing is required to set aside $401 as restricted cash to fund its operating and maintenance reserve.
As at December 31, 2020, Settlers Landing had swap contracts to convert interest to a fixed rate (See note 9a).
Skyway 8
Term loan
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
4.90%
Jul 17, 2021
16,269
16,979
(1)
Skyway 8 is required to set aside $766 as restricted cash to cover the debt service reserve.
SkyGen
Term loans
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
4.90%
July 17, 2021
14,921
16,803
(1)
SkyGen is required to set aside $1,334 as restricted cash to cover the debt service reserve.
Glace Bay
Term loan
Term loan
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
5.99%
4.72%
Mar 15, 2027
Oct 1, 2032
4,972
3,986
8,958
5,588
4,388
9,976
(1) Glace Bay is required to set aside $1,891 as restricted cash to cover the debt service and operating and maintenance reserves.
(iii)
Solar
Project debt
Amherstburg
Claresholm
Amherstburg
Senior term loan
Subordinated term loan (2)
Dec 31, 2020
Dec 31, 2019
91,679
73,500
70,441
—
165,179
70,441
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
3.49%
3.78%
Dec 31, 2030
Jun 30, 2031
64,672
27,007
91,679
70,441
—
70,441
(1)
Amherstburg is required to set aside $5,786 as letters of credit against the borrowing capacity of the CPC revolving credit facility to cover the debt service and
maintenance reserves.
(2) On October 7, 2020, the ASP term loan was refinanced with its existing lenders, increasing its term loan by adding a second tranche of subordinated debt for
$27,007. The new project debt carries a fixed interest rate of 3.78% and fully amortizes over the remainder of the facility's power purchase agreement, which
expires in 2031. In accordance with IFRS 9, $278 of transaction costs were capitalized and will amortize over the term of the loan.
Claresholm
Construction facility
Interest Rate (2)
4.71%
Maturity
Dec 31, 2020
Dec 31, 2019
Dec 31, 2021
73,500
—
As at December 31, 2020, Claresholm had swap contracts to convert interest to a fixed rate (See note 9a).
(1) Claresholm is required to set aside $14,549 as restricted cash to cover construction holdbacks with vendors.
(2)
On July 9, 2020, Claresholm entered into a credit agreement providing up to $115,000 of non-recourse debt for the construction
of the solar facility, which was fully available to the project as of November 5, 2020.
The construction facility matures no later than December 31, 2021 and upon achieving commercial operation, the debt converts
to a term loan, amortizing over twenty years. The debt is comprised of two tranches, up to $60,000 from bank lenders at a
floating interest rate and up to $55,000 from long-term fixed rate lenders with the debts maturing on the fifth and twelfth
anniversaries, respectively.
To mitigate the interest rate risk from the bank lenders, Claresholm has swap contracts to convert the floating interest rate
obligations to a fixed rate.
Interest during construction is capitalized to projects under development, which includes $1,335 as of December 31, 2020.
(iv)
Gas
Term loan
Interest Rate (2)
2.69%
Maturity
Dec 31, 2020
Dec 31, 2019
Apr 1, 2026
73,522
77,176
(1) Cardinal is required to set aside $1,064 as restricted cash to cover the operating and maintenance reserves and $2,892 as letters of credit to cover the debt
service reserve.
As at December 31, 2020, Cardinal had swap contracts to convert interest to a fixed rate (See note 9a).
(2)
CAPSTONE INFRASTRUCTURE CORPORATION
Page 45
(v)
Hydros
Senior secured bonds
Subordinated secured bonds
Interest Rate
Maturity
Dec 31, 2020
Dec 31, 2019
4.56%
7.00%
Jun 30, 2040
Jun 30, 2041
51,550
18,484
70,034
53,109
18,786
71,895
(1)
The hydro facilities are required to set aside $11,438 as letters of credit against the borrowing capacity of the CPC revolving credit facility to cover the debt
service and maintenance reserves.
Long-term Debt Covenants
(B)
For the year ended and as at December 31, 2020, the Corporation and its subsidiaries complied with all financial and non-
financial debt covenants.
(C)
The following table summarizes total principal payments required under each of the Corporation's facilities in the next five years
and thereafter:
Long-term Debt Repayments
Year of Repayment
Power
Within one year One year to five years
Beyond five years
154,360
213,899
409,030
Total
777,289
NOTE 17. LIABILITY FOR ASSET RETIREMENT OBLIGATION
The carrying value of these obligations is based on estimated cash flows required to settle these obligations in present day costs.
The costs relate to site restoration and decommissioning of Cardinal and the operating wind and hydro power facilities.
The following table provides the underlying assumptions and reconciles the Corporation's total asset retirement obligation
activity:
Assumptions:
Expected settlement date (1)
Inflation rate
Credit adjusted discount rate
Balance, beginning of year
Asset acquisition
Revision of estimates
Accretion expense
Balance, end of year
(1)
Projects with PPAs expiring in 2021 are expected to continue to operate beyond the current expiry date.
NOTE 18. SHAREHOLDERS’ EQUITY
The following table summarizes the Corporation's share capital:
As at
Common and Class A shares
Preferred shares
Dec 31, 2020
Dec 31, 2019
2021– 2078
2020– 2078
2.0 %
2.0 %
4.75% - 5.75% 4.75% - 5.75%
9,849
—
(103)
503
10,249
9,442
173
(244)
478
9,849
Dec 31, 2020
Dec 31, 2019
62,270
72,020
62,270
72,020
134,290
134,290
Common and Class A Shares
(A)
Capstone is authorized to issue an unlimited number of common and Class A shares, all of which have the same rights and
attributes. As at December 31, 2020 and 2019, there were 304,609 common and class A shares issued and outstanding, with a
carrying value of $62,270.
(B)
Capstone is authorized to issue preferred shares equal to 50% of the outstanding common shares. As at December 31, 2020
and 2019, there were 3,000 series A preferred shares issued and outstanding, with a carrying value of $72,020.
Preferred Shares
The series A preferred shares have a cumulative discretionary dividend, which resets on each 5-year anniversary; the next
anniversary date is July 31, 2021. The shares are non-voting and redeemable at the Corporation's discretion.
In accordance with the terms of the share agreement, all preferred shares accrue dividends at a fixed rate of 3.271% per annum
and preferred dividends are paid quarterly.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 46
Dividends
(C)
No dividends were declared in 2020 or 2019 in respect of the Corporation's common shareholders.
For the year ended
Preferred shares declared (1), (2)
Dec 31, 2020
Dec 31, 2019
2,490
2,446
(1)
(2)
Includes $38 of deferred income taxes recovery for the year ended December 31, 2020 (2019 - $6 recovery).
Capstone has included $409 of accrued preferred dividends as declared on November 9, 2020 (2019 - $409).
Capital Management
(D)
The Corporation manages its capital to achieve the following objectives:
• Maintain a capital structure that provides financial flexibility to the Corporation to ensure access to debt on commercially
reasonable terms, without exceeding its debt capacity;
• Maintain financial flexibility in order to preserve its ability to meet financial obligations, including debt servicing payments and
distribution payments; and
• Deploy capital to provide an appropriate investment return to its security holders.
The Corporation's financial strategy is designed to maintain a capital structure consistent with the objectives stated above and to
respond to changes in economic conditions. In doing so, the Corporation may receive capital contributions from its common
shareholder, issue additional shares, issue additional debt, issue debt to replace existing debt with similar or different
characteristics, or adjust the amount of dividends paid to shareholders.
The Corporation's financing and refinancing decisions are made on a specific transaction basis and depend on such things as
the Corporation's needs and economic conditions at the time of the transaction.
The Corporation is not subject to any external capital requirements and is in compliance with all debt covenants as described in
note 16.
Non-controlling Interests
NOTE 19. NON-CONTROLLING INTERESTS
(A)
Non-controlling interests represent ownership interests by third parties in businesses consolidated by Capstone. Capstone's
entities with non-controlling interests and Capstone's partners as at December 31, 2020 were:
•
•
•
Claresholm is 49% owned by Obton A/S ("Obton").
Goulais is 49% owned by Batchewana First Nation ("BFN").
GHG, Snowy Ridge ("SR") and Settlers Landing ("SLS") have a debenture with a subsidiary of One West Holdings Ltd.
("Concord"), convertible into a 50% ownership interest in the projects.
Amherst is 49% owned by Firelight Infrastructure Partners LP ("Firelight").
Buffalo Atlee is 25% owned by Sawridge First Nation ("Sawridge").
Saint-Philémon is 48.9% owned by Municipalité Régionale de Comté de Bellechasse and 0.1% owned by Municipalité de
Saint-Philémon.
•
•
•
Capstone has agreements with each partner that govern distributions from these investments. In addition, distributions must also
comply with the respective debt agreements.
The balances and changes in non-controlling interests are:
Obton's
interest in
Claresholm (1)
BFN's
interest in
Goulais (2)
Concord's
interest in
GHG, SR &
SLS
Firelight's
interest in
Amherst
Sawridge's
interest in
Buffalo Atlee
Municipal
interest in
Saint-
Philémon
—
—
—
—
12,631
12,631
(202)
—
—
39,949
(688)
17,678
1,253
(1,265)
—
—
17,666
1,461
(1,265)
—
—
—
22,586
—
—
(2,608)
—
8,928
754
(1,274)
—
—
19,978
8,408
—
—
(2,420)
—
—
827
(931)
—
637
—
—
—
—
—
702
702
—
—
—
766
—
894
502
(1,534)
—
—
(138)
283
(814)
—
—
—
Total
50,086
2,509
(4,073)
(2,608)
13,333
59,247
2,369
(3,010)
(2,420)
41,352
(688)
January 1, 2019
NCI portion of net income
Dividends declared
Convertible debenture repayments
Contributions from NCI
As at December 31, 2019
NCI portion of net income
Dividends declared
Convertible debenture repayments
Contributions from NCI
AOCI attributable to NCI
As at December 31, 2020
51,690
17,862
17,558
8,941
1,468
(669)
96,850
Includes $4,631 in development assets contributed on the acquisition date and $47,949 of subsequent cash contributions.
(1)
(2) Net income is allocated based on pro-rata share of distributions.
CAPSTONE INFRASTRUCTURE CORPORATION
Page 47
(B)
Summarized Information for Material Partly Owned Subsidiaries
As at
Summarized Statements of Financial
Position
Claresholm
Goulais
GHG, SR &
SLS
Amherst Buffalo Atlee
Saint-
Philémon
December 31, 2020
Assets
Current
Non-current
Liabilities
Current
Non-current
Total equity
Attributable to:
Shareholders of Capstone
NCI
36,343
168,471
2,459
181
50
68,704
3,128
49,409
(16,619)
(77,484)
110,711
(291)
(431)
1,787
59,021
51,690
110,711
(16,075)
17,862
1,787
(7)
—
68,878
51,320
17,558
68,878
(3,121)
(28,828)
20,588
11,647
8,941
20,588
258
5,234
(268)
—
5,224
3,756
1,468
5,224
2,082
48,070
(2,435)
(45,551)
2,166
2,835
(669)
2,166
As at
Summarized Statements of Financial
Position
Claresholm
Goulais
GHG, SR &
SLS
Amherst Buffalo Atlee
Saint-
Philémon
December 31, 2019
1,502
51,431
(2,277)
(47,536)
3,120
3,258
(138)
3,120
Saint-
Philémon
8,403
577
—
577
294
283
577
Assets
Current
Non-current
Liabilities
Current
Non-current
Total equity
Attributable to:
Shareholders of Capstone
NCI
For the year ended
19,756
13,338
(7,316)
—
25,778
1,744
878
(146)
(440)
2,036
365
68,704
1,866
51,549
(7)
—
69,062
(2,681)
(31,233)
19,501
13,147
12,631
25,778
(15,630)
17,666
2,036
49,084
19,978
69,062
11,093
8,408
19,501
79
2,158
(79)
—
2,158
1,456
702
2,158
Summarized Statements of Income
Claresholm
Goulais
Revenue
Net income
OCI
—
(412)
(688)
Total net income and comprehensive income
(1,100)
Attributable to:
Shareholders of Capstone
NCI
For the year ended
(898)
(202)
(1,100)
December 31, 2020
GHG, SR &
SLS
Amherst Buffalo Atlee
3,641
1,015
—
1,015
(446)
1,461
1,015
4,840
4,656
—
4,656
4,656
—
4,656
8,781
1,687
—
1,687
860
827
1,687
—
—
—
—
—
—
—
December 31, 2019
GHG, SR &
SLS
Amherst Buffalo Atlee
Saint-
Philémon
Summarized Statements of Income
Claresholm
Goulais
Revenue
Net income
OCI
Total net income and comprehensive income
Attributable to:
Shareholders of Capstone
NCI
—
—
—
—
—
—
—
2,843
415
—
415
(838)
1,253
415
5,216
5,213
—
5,213
5,213
—
5,213
8,391
1,539
—
1,539
785
754
1,539
—
—
—
—
—
—
—
CAPSTONE INFRASTRUCTURE CORPORATION
8,382
1,025
—
1,025
523
502
1,025
Page 48
For the year ended
December 31, 2020
Summarized Statements of Cash Flows
Claresholm
Goulais
GHG, SR &
SLS
Operating
Investing
Financing
Net increase / (decrease) in cash and
equivalents
(3,468)
(145,454)
147,637
4,140
—
(3,650)
4,632
—
(4,840)
Amherst Buffalo Atlee
3,701
984
(4,063)
—
(3,230)
3,230
Saint-
Philémon
4,163
(36)
(3,441)
(1,285)
490
(208)
622
—
686
For the year ended
December 31, 2019
Summarized Statements of Cash Flows
Claresholm
Goulais
GHG, SR &
SLS
Amherst Buffalo Atlee
—
(1,394)
21,062
3,158
—
(3,350)
5,175
—
(5,216)
5,203
(36)
(4,673)
—
(1,339)
1,339
Saint-
Philémon
4,236
2
(4,963)
Operating
Investing
Financing
Net increase / (decrease) in cash and
equivalents
19,668
(192)
(41)
494
—
(725)
Convertible debenture with Concord
(C)
On November 16, 2015, a subsidiary of CPC issued an unsecured convertible debenture to a subsidiary of Concord. The
debenture allows Concord to eventually acquire a 50% interest in the GHG, Snowy Ridge and Settlers Landing projects. Under
the terms of the debenture, both Capstone and Concord will equally fund ongoing equity requirements relating to these projects.
In addition, Capstone and Concord will equally share any distributions made from the projects, which are based on the
availability of cash from the projects. Distributions to Concord prior to conversion of the debenture are principal repayments. At
either Capstone or Concord's option, subject to limited conditions, the debenture is convertible into 50% of the outstanding equity
of the entity holding the GHG, Snowy Ridge and Settlers Landing projects. The debenture is classified as an equity instrument in
accordance with IAS 32 because there are no fixed payment obligations, including principal and interest. The debenture is
included in the non-controlling interest component within the consolidated statement of shareholders' equity because it is
attributable to Concord's interest in the GHG, Snowy Ridge and Settlers Landing projects. The initial principal contribution of the
debenture was $31,408. The face value decreased to $19,978 as at December 31, 2019 and $17,558 as at December 31, 2020.
Share Appreciation Rights Plan
NOTE 20. SHARE-BASED COMPENSATION
(A)
On April 1, 2017, a SAR plan was approved by the board. The SAR plan allows up to 15,230,458 SAR units, or 5% of the
number of shares issued, to be granted. At the beginning of 2020, there were 13,060,106 units outstanding, 951,901 were
granted during the year, and there were 14,012,007 units outstanding as at December 31, 2020. A SAR unit entitles the holder to
the appreciation in value of one unit over a period of time. The SAR units have a maximum life of 13 years and vest upon a sale
transaction, defined as more than 50% of the equity securities of Capstone being sold to a third party. The sale price will
determine the ultimate fair value of the SAR units on the vesting date. The SAR units will be settled in cash for individuals who
meet the vesting conditions on the vesting date. No liability has been recorded as a sale transaction is not currently probable.
(B)
On April 1, 2017, Capstone awarded a discretionary cash-based LTIP to members of senior management. The LTIP accrued
based on passage of time, until the vesting date of December 31, 2019 at which point $402 was paid, leaving a remaining
balance of nil. The LTIP expense included in wages and benefits was nil in 2020 (2019 - $159).
Long-term Incentive Plans
CAPSTONE INFRASTRUCTURE CORPORATION
Page 49
NOTE 21. REVENUE BY NATURE
Capstone's power segment generates revenue through long-term power contracts which vary in nature as disaggregated below.
The corporate activities do not generate revenue.
Wind
Gas (1)
Solar
Hydro
Biomass (2)
Total Revenue
For the year ended
Dec 31, 2020
Dec 31, 2019
117,811
118,086
22,269
16,157
13,868
11,398
22,494
14,916
14,064
15,778
181,503
185,338
(1) Gas revenue consists of fixed payments for providing capacity and availability based on Cardinal's PPA and other contracts; the remaining revenue is variable
based on production.
Biomass revenue includes $799 of grant funding eligibility for Whitecourt for the year (2019 - $3,443).
(2)
As at December 31, 2020, Capstone has trade receivable balances of $21,669 (2019 - $23,314).
NOTE 22. EXPENSES BY NATURE
For the year ended
Dec 31, 2020
Dec 31, 2019
Maintenance & supplies
Wages and benefits
Property expenses (1)
Fuel and transportation
Professional fees (2)
Power facility administration
Insurance
Other
Total
Operating
Admin.
Project
Development
Costs
Total
Operating
Admin.
Project
Development
Costs
16,657
11,313
—
5,054
6,853
5,341
1,786
2,877
2,618
1,452
513
—
339
—
92
682
—
—
125
—
2,026
—
—
386
16,657
16,367
17,903
10,143
—
4,961
7,491
5,341
4,151
2,877
2,710
2,520
6,838
5,723
1,448
2,629
2,250
1,511
519
—
383
—
112
821
—
—
96
—
1,237
—
—
202
Total
17,903
15,104
7,453
5,723
3,068
2,629
2,362
2,534
48,897
6,680
2,537
58,114
48,445
6,796
1,535
56,776
(1)
(2)
Property expenses include leases, utilities, and property taxes.
Professional fees include legal, audit, tax and other advisory services.
NOTE 23. OTHER GAINS AND LOSSES
Changes in derivative financial instruments fair value (1)
Losses on debt extinguishment (2)
Losses on disposal of capital assets
Other gains and (losses), net
For the year ended
Dec 31, 2020
Dec 31, 2019
160
(5,248)
(389)
(5,477)
(8,865)
—
(572)
(9,437)
(1)
The derivative financial instruments changes in fair value include increases in the Whitecourt embedded derivative asset and decreases on interest rate swap
contracts since December 31, 2019.
(2) Relates to Grey Highlands Clean refinancing. Refer to note 16 Long-Term Debt in the notes to the financial statements.
NOTE 24. COMMITMENTS AND CONTINGENCIES
The Corporation, either directly or indirectly through its subsidiaries, has entered into various contracts and commitments in
addition to the commitments described in note 8 financial instruments, note 9 financial risk management, notes 16 long-term
debt, 17 liability for asset retirement obligation and 18 shareholders' equity as at December 31, 2020 were as follows:
Leases
(A)
Lease payments comprised:
Leases
Within one year One year to five years
Beyond five years
4,810
20,223
53,979
Total
79,012
CAPSTONE INFRASTRUCTURE CORPORATION
Page 50
The following leases have been included in the table based on known operating lease commitments as follows:
•
•
•
•
Capstone's operating wind facilities and wind development projects have entered into agreements to use, or the option to
use, land in connection with the operation of existing and future wind facilities. Payment under these agreements is typically
a minimum amount with additional payments dependent on the amount of power generated by the wind facility. The
agreements can be renewed and extended as far as 2061.
Cardinal leases the site on which it is located from Ingredion Canada Corporation ("Ingredion"). Under the lease, Cardinal
pays monthly rent. The lease extends through 2034 and expires concurrently with the Energy Savings Agreement between
Ingredion and Cardinal.
Capstone's operating solar facility and solar development project have entered into agreements to use land in connection
with the operation of the solar facilities with terms extending as far as 2060.
The Corporation has an operating lease for the corporate office ending in 2023.
Capstone's operating lease commitments with no minimum operating lease commitments required were:
•
Capstone has agreements with the Provinces of Ontario and British Columbia for the lease of certain lands and water rights
necessary for the operation of its hydro power facilities. The payments under these agreements vary based on actual power
production. The terms of the lease agreements extend between 2023 and 2042.
Capital Commitments
Power Purchase Agreements
(B)
Capstone enters into capital commitments in the normal course of operations. As part of Capstone's power development
operations, Capstone enters various construction and purchase agreements. As at December 31, 2020, Claresholm and
Riverhurst have aggregate commitments of $49,107 and $15,680, respectively for the development and construction of the
facilities.
(C)
A significant portion of the Corporation's electricity revenue is earned through long-term PPAs. The majority of these contracts
include terms and conditions customary to the industry. For Cardinal's contract, the nature of the material commitments includes:
electricity capacity; availability; and production targets. For the remaining power facilities, Capstone is not obligated to deliver
electricity; however, in certain circumstances, if a facility fails to meet the performance requirements, the operating facility's PPA
may be terminated after a specified period of time.
(D) Management Services Agreements
Capstone has agreements with all the partially owned wind and solar facilities and development projects, including Claresholm,
Buffalo Atlee, Amherst, Saint-Philémon, Goulais, GHG, Snowy Ridge and Settlers Landing. For the operating projects, these
agreements are primarily for the provision of management and administration services and are based on an agreed percentage
of revenue. Additionally, some of the development projects include a development fee for the successful completion of the
projects, which pays an agreed flat fee or fee per MW on completion of development.
(E) Wood Waste Supply Agreement
The Whitecourt and Millar Western fuel supply agreement for wood waste includes sharing mechanisms regarding the price
received for electricity sold by Whitecourt.
(F)
Cardinal has a maintenance contract with Siemens Energy Canada Limited covering the gas turbine at Ingredion's 15 MW
facility. The contract expires on November 24, 2023.
Operations and Maintenance ("O&M") Agreements
Capstone has several service and maintenance agreements covering the turbines in operation on various wind facilities. The
agreements provide for scheduled and unscheduled maintenance and require annual minimum payments, subject to inflationary
increases, as applicable. In addition, Capstone has transitioned its Senvion Projects and Suzlon Project to in-house operations
and maintenance service agreements, without interruption to the facilities.
Energy Savings Agreement ("ESA")
Capstone has an O&M agreement with Regional Power OPCO Inc. ("Regional") to operate and maintain the hydro power
facilities. Regional is paid a monthly management fee and is eligible for an annual incentive fee. The original agreement expires
on November 30, 2021.
(G)
Cardinal has an ESA with Ingredion which matures on December 31, 2034. Under the terms of the ESA, Cardinal is required to
provide O&M services in respect of the 15 MW plant, and supply steam and compressed air to Ingredion for the use of its
manufacturing facility. Cardinal entered into a maintenance contract with Siemens Canada Limited in connection with the
operation and maintenance of the 15 MW plant in order to support Cardinal's satisfaction of the O&M terms of the ESA.
(H)
Capstone has provided limited recourse guarantees on the project debt of certain wind projects totaling $6,000 as at
December 31, 2020.
Guarantees
CAPSTONE INFRASTRUCTURE CORPORATION
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There have been no other significant changes to the specified contractual obligations that are outside the ordinary course of
business. Capstone is not engaged in any off-balance sheet financing transactions. Due to the nature of their operations, the
Facilities are not expected to incur material contingent liabilities upon the retirement of assets.
NOTE 25. RELATED PARTY TRANSACTIONS
Transactions with iCON Infrastructure LLP and subsidiaries ("iCON")
(A)
Fees earned from iCON Infrastructure North America Inc. ("iCON NA"), a subsidiary of iCON, under a shared service
arrangement, are reported in the consolidated statements of income as an administrative expense recovery. During 2020,
Capstone earned fees of $230 from iCON NA (2019 - $240). As at December 31, 2020, accounts receivable included $65 due
from iCON NA.
(B)
Key management includes the Corporation's directors, Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Compensation awarded to key management consisted of salaries, directors' fees, short-term employee benefits and long-term
incentive plan payments.
Compensation of Key Management
Key Management Compensation for the year ended
Salaries, directors' fees and short-term employee benefits (1)
Long-term incentive plan
Dec 31, 2020
Dec 31, 2019
1,136
—
1,136
1,119
207
1,326
(1)
The short-term incentive plan component of is based on amounts paid during the year.
NOTE 26. SEGMENTED INFORMATION
The Corporation’s business has one reportable segment containing the power operations, in order to assess performance and
allocate capital, as well as the remaining corporate activities. The power operations and corporate activities are all located in
Canada. Management evaluates performance primarily on revenue, expenses and EBITDA. Cash generating units within the
power segment have similar economic characteristics based on the nature of the products or services they provide, the
customers they serve, the method of distributing those products or services and the prevailing regulatory environment.
For the year ended
Dec 31, 2020
Dec 31, 2019
Revenue (1)
Expenses
EBITDA
Interest expense
Income tax recovery (expense)
Net income (loss)
Additions to capital assets, net
Additions to PUD (2)
Power
Corporate
Total
Power
Corporate
Total
181,503
—
181,503
185,338
—
185,338
(51,072)
(7,042)
(58,114)
(48,367)
(8,409)
(56,776)
125,208
(6,637)
118,571
128,453
(7,405)
121,048
(36,260)
(1,929)
5,214
15,604
160,325
—
(36,260)
(37,679)
—
(37,679)
2,703
(4,235)
774
979
—
—
15,604
160,325
(974)
8,854
24,489
15,208
3,091
(4,628)
—
—
2,117
4,226
24,489
15,208
(1)
(2)
Biomass revenue includes $799 of grant funding eligibility for Whitecourt for the year (2019 - $3,443).
PUD additions for the year primarily include costs to develop the Claresholm solar project of $141,700.
NOTE 27. SUBSEQUENT EVENTS
Acquisition of SWNS Wind Facilities
On January 7, 2021, Capstone acquired the assets of the Springwood, Whittington, Napier and Sumac Ridge wind facilities from
wpd Europe GmbH ("wpd"). The assets are now held in SWNS Wind LP ("SWNS"), an indirect subsidiary of Capstone. The
portfolio is 29MW of operating wind projects in Southern Ontario, with an average of 14 years remaining on their power purchase
agreements, that will be operated and maintained by Capstone’s in-house operations and maintenance team.
Capstone acquired the projects with a combination of equity and non-recourse project debt.
CAPSTONE INFRASTRUCTURE CORPORATION
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INVESTOR INFORMATION
Quick Facts
Preferred shares outstanding
Securities exchange and symbols
Toronto Stock Exchange: CSE.PR.A
3,000,000
CONTACT INFORMATION
Address:
155 Wellington Street West, Suite 2930
Toronto, ON M5V 3H1
www.capstoneinfrastructure.com
Email: info@capstoneinfra.com
Contacts:
Andrew Kennedy
Chief Financial Officer
Tel: 416-649-1300
Email: akennedy@capstoneinfra.com
CAPSTONE INFRASTRUCTURE CORPORATION
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