Borelax has been depreciating their plants by about 3.6% a year - very aggressive rate for assets that should last over a century with proper maintenance.

I’m not familiar with your RRSP portfolio, but for me, it’s better to invest outside of RRSP because 91% of the distribution is return of capital (tax-free) and dividend (basically tax-free depending on tax-bracket).

Great site. I stumbled upon here looking for commentary on Borelax and found many other interesting posts.

Questions for you EBITDA is positive for Boralex but their net income showed a net loss of $30 million. From what I can decipher, looks like income tax was much higher. Why is that? and really how does that affect Boralex to continue to pay distributions?

I’m not a tax expert, but I pretty sure the humungous deferred tax on their income statement is a mandate set by the government to provide
tax provision ahead of the 2011 income trust taxation legislation.

This is a non-cash charge, and as far as I can tell, BPT’s after-tax distribution should remain more or less the same.

Ross Marowits, THE CANADIAN PRESS

MONTREAL - Falling water levels in the United States have helped to short-circuit the quarterly profits of some Canadian power companies.

Boralex Power Income Fund (TSX:BPT.UN) and Brookfield Asset Management Inc. (TSX:BAM) said they have been impacted by lower hydroelectric power generation.

Quebec-based Boralex said its third-quarter earnings declined mainly because of reduced power generation at two U.S. rivers where it has operations.

Net earnings for the quarter decreased to $1.5 million, or three cents a trust unit, from a $6.3-million profit a year earlier.

Sales fell to $19.8 million from $23.5 million, the Montreal-based power producer said Friday.

The U.S. installations generate about two-thirds of its total 90 megawatts of hydroelectric capacity

“The main factor behind this quarter’s performance is our hydro group, which is below average operational performance, is for the most part explained by lower water levels, especially in the U.S.,” Jean-Francois Thibodeau, the chief financial officer, said during a conference call with analysts.

The hydroelectric operations produced 34 per cent less electricity than in the third quarter of 2006 and 23 per cent less than the historical average. As a result, revenue dropped by $4.4 million to $6 million.

Strong water levels last year helped produce a 17 per cent excess in power generation, he told analysts. In the United States, this year’s generation was off by 35 per cent, compared to an excess of 42 per cent last year.

The situation was better in Canada, where hydro output declined by two per cent, largely because of the shutdown of its Forestville power station.

With little reservoir capacity, Boralex is heavily dependent on river flows to generate hydroelectricity.

“It’s a fact of doing business and owning run of river hydroelectric plants,” analyst Daniel Shteyn said in an interview.

Hydrology in Quebec wasn’t as bad as the U.S., suggesting it wasn’t a widespread problem and may be a seasonal anomaly.

“It really depends on which rivershed we are talking about.”

With its large reservoir system, Hydro Quebec said it has had a good year for water flows and doesn’t have any difficulties.

Ontario Power Generation said the diversity of its installations across Canada’s largest province has ensured its power production is doing well.

“Right now we are pretty much on track to average,” said spokesman John Earle.

It has benefited from near flood conditions in northwestern Ontario. That compares with much drier conditions last year.

Brookfield, which through a subsidiary partially owns Great Lakes Hydro Income Fund (TSX:GLH.UN), said its results were hurt by lower generation levels in its power generation operations because of abnormally low water levels, especially in New York.

Meanwhile, low water is causing ecological and economic problems on the Great Lakes, particularly for commercial shippers and recreational marinas.

Lakes Michigan and Huron are about 50 centimetres below their historical average levels for this time of year. Lake Superior hit a record monthly low in September.

Partially offsetting Boralex’s hydro results were increases in the wood residue segment, where revenues rose slightly to $8.1 million. The natural gas power station had $5.7 million in earnings.

Water levels aren’t the only challenge facing Boralex.

It is seeking a court injunction to prevent Bowater Canada from unilaterally terminating an agreement to operate a generating facility at its plant in Dolbeau, Que.

“We continue to vigorously contest this decision by Bowater to unilaterally invalidate the management contract of this plant and we do find their complaint unfounded,” Thibodeau told analysts.

A ruling is expected in a few weeks.

Published reports say Bowater is suing Boralex for $8 million.

An arbitration process that will impose a settlement is expected to take more than six months.

Meanwhile, Thibodeau declined to explain why a strategic review ended with the trust not being sold when four power trusts have concluded sales.

“The fund is continuously looking at its strategic alternatives,” he said in response to a question from an analyst.

Boralex Power is an open-ended trust that indirectly owns 10 power generating stations in Quebec and the United States, producing energy from rushing rivers, wood residue and natural gas.

On the Toronto Stock Exchange, its units lost 55 cents or 6.25 per cent to $8.25 in trading Friday.