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Northland Power dips its toe in regulated utility market with Colombia buy

Canadian power plant owner Northland Power Inc.'s planned move into the regulated utilities market with a C$1.05 billion purchase of Colombia's Empresa de Energía de Boyacá ESP is designed to provide a stable source of income to bolster its generation-only revenues, CEO Mike Crawley said.

The transaction is part of the Toronto-headquartered company's push into new markets that started with the announcement of a planned solar power plant in Mexico in May, Crawley said on a conference call Sept. 9 to discuss the purchase. The Colombian electric utility, known as EBSA, is one of the 10 largest power distributors in Colombia, with about 480,000 customers in the department of Boyacá, northeast of the capital city of Bogotá. EBSA is owned by affiliates of Canada's Brookfield Asset Management Inc.

"Expansion in Latin America is a core part of our strategy," Crawley said on the call. "The acquisition of EBSA provides our business in Latin America with scale now in Mexico and Colombia and puts us in a good position to grow in other jurisdictions in the region in a risk measured way."

Northland Power shares trading on the Toronto Stock Exchange were down 3.78% on Sept. 10 to C$24.17 on more than double average volume.

The largest number of Northland's operating assets is in Canada, where it owns gas-fired, wind and solar plants in Ontario, Quebec and Saskatchewan. It also has two operating offshore wind farms in the North Sea, connected to grids in Germany and the Netherlands, and another offshore wind farm in Germany under construction. As well, the company has a majority equity stake in an offshore wind project in Taiwan.

Northland said the purchase of the Colombian utility, which it expects to close in the fourth quarter, would add C$100 million to EBITDA in 2020. The utility business will provide an offset to the company's generation portfolio, which, because a large component is renewables, comes with some weather-related risks to output. Colombia's regulatory atmosphere lends added stability to EBSA's business, Crawley said.

"We find the regulatory framework conducive to providing a stable ... environment for investors," he said. "The business itself is growing. The majority of the growth is from the inflation indexation that is embedded in the rate-setting mechanism, while the remainder is driven by capital investment in the rate base. All of the investment can be funded from internally generated cash or non-recourse debt."

A quirk in EBSA's structure allowed it to sidestep regulations surrounding private ownership limits, Crawley said.

"In Colombia, when the government first introduced private investment in the energy sector, they established restrictions on a single entity's participation in multiple segments of the electricity sector," Crawley said. "EBSA is one of the few energy companies in Colombia with grandfathered rights, which allow for vertical integration and participation in all segments of the electricity supply chain."