DBRS Confirms Atlantic Power Corporation at STA-3 (low)

Dominion Bond Rating Service (“DBRS”) has today confirmed the rating on the Income Participating Securities (IPS) of Atlantic Power Corporation (“APC” or the “Company”) at STA-3 (low).

The rating confirmation incorporates DBRS’s expectations that APC will continue to provide relatively stable cash distributions with its current portfolio of assets in the medium term. Maintenance of the current stability rating level is dependent upon APC paying out less than 100% of cash flow available for distributions, and using the retained cash to either increase the reserve fund or fund future acquisitions that enhance long-term stability. DBRS expects a payout ratio averaging approximately 80% over the next few years. Prudent use of the retained cash flows is needed to partially offset the staggered maturities of APC’s power purchase agreements (PPAs).

Cash available for distribution was close to expected levels for the partial-year period from the November 2004 initial public offering through September 30, 2005. The payout ratio of 82% (on a fully-diluted basis) was in line with expectations. APC recently announced a 3% increase in distributions per IPS from Cdn$1.00 to Cdn$1.03, which the company attributed to the expected benefits of the recently acquired 40% interest in the Chambers Cogeneration facility.

APC’s long-term challenges remain unchanged. A number of key PPAs which contribute a material amount of distributable cash flow expire in 2008, with another set due to expire in 2013. The cash reserve fund can mitigate this risk for an interim period, but in order to maintain stable distributions in the long run APC will need to generate revenues from assets coming off contract, and/or make accretive acquisitions. Currency risk remains an issue, as APC’s distributions are in Canadian dollars while revenues are generated in U.S. dollars. While APC continues to hedge its distribution requirements on a rolling five-year basis, the hedge program does not mitigate the long-term risk of a continued appreciation in the Canadian dollar.