Atlantic Power has reporting oddities

 Atlantic Power reported it's fourth quarter and year-end results on February26,2015.The overall result was that both year-end and fourth quarter results were ahead of guidance.Atlantic gave 2014 guidance of $285 to $300 million for adjusted EBITDA while it actually reported EBITDA of $299 million.This blog contends that adjusted EBITDA could have been higher.It's quarterly EBITDA was $77 million in comparison to $59 for the same quarter last year.The main reason affecting the increase in both both results was the increased profit from their wind projects and a full year of operation from it's Piedmont plant.Atlantic Power (ATP) offers conservatively guidance of only $265 to $285 million for 2015.This would seem to portend worsening performance but it is really only  reflecting reporting oddities.
   Project Adjusted EBITDA
 Most utilities use adjusted EBITDA as a measure of  earnings performance.But ATP has come up with a new measure of performance called project adjusted EBITDA.This measurement is used because ATP has 28 power generation projects and doesn't own 100% of all projects.In fact, in one case (the Rockland plant) it only owns 50% of the equity but it counts 100% of earnings.This is probably not a significant factor in overall EBITDA and besides some accounting methodology allows this type of financial reporting.However there may be a few examples where Atlantic owns 80 to 90% but counts all earnings in project adjusted EBITDA.However I believe this difference in normal project accounting is offset by another practice that ATP uses.It includes in total project adjusted EBITDA unallocated corporate costs.This includes development costs for a new acquisition and administrative costs.These items do not belong in top-line EBITDA accounting.It is certainly possible that total adjusted EBITDA could be $310 million.
       Dividend Restrictions 
 Atlantic Power has senior unsecured notes;it's report does not say when they mature.But it does say that there is a fixed charge coverage ratio.This ratio is either the ratio of fixed financing charges to adjusted EBITDA or to cash flow.For example, refinancing and repurchase of debt charges are included here.At present,ATP is not in compliance with it's fixed charge coverage ratio;it will pay off some of these charges and be in compliance in Q2 2015 only.Until then Atlantic is restricted on the payment of common dividends;it cannot exceed payment of $56 million for common dividends.In 2014 the company paid out only $33 million in dividends.So it is able to raise the dividend by about $.08 per share and still meet the covenant.This would certainly raise the share price and even allow them to raise equity capital that will soon be cheaper than debt.The choices are limited as ATP either raises more unsecured notes with tighter restrictions on financing  or raises secured notes which may put restrictions on collateral ,that is it's plants.Raising the dividend and hence   increasing equity capital would be a prudent way of financing.
    2015 Project adjusted EBITDA
  For three quarters ATP gave guidance of $285 to $305 million but in Q4 they changed it to $285 to $300 million.Nevertheless adjusted EBITDA came in at about $300 million.In late 2014 ATP either built or acquired a new plant called Ridgeline.They decided to allocate some of it's costs to total project adjusted EBITDA which brought it down to $300 million.If these costs were excluded (as they should be) project adjusted EBITDA might have been $310 to $315 million.In 2015 they will have earnings coming in from another plant and a full year of operations from the fairly new Piedmont operation.Atlantic warns that EBITDA will be reduced by the shutting down and overhaul costs for it's Manchief operation.Once again the costs should not be included but the loss of revenues from a shutdown would be.That aside, blog expects that project adjusted EBITDA for the next quarter will exceed that of Q4 ($77 million) and for the year to exceed $315 million.This may not happen unless ATP makes a few accounting procedure changes.And the share price may respond favourably, especially with a dividend increase that they can afford.