* New firm will operate 3,300 MW in Canada, U.S.
* Assets are worth about C$5 billion
* Epcor to keep transmission, distribution, water units (Adds CEO, analyst comments)
By Jeffrey Jones
CALGARY, Alberta, May 8 (Reuters) - The utility company of the City of Edmonton, Alberta is spinning off its C$5 billion of ($4.3 billion) power generation assets and launching an initial public offering for the new firm to help fund expansion of its transmission, distribution and water operations.
Epcor Utilities Inc said on Friday that the new company, to be called Capital Power Corp, will operate 3,300 megawatts of generation capacity at 31 coal, natural gas and renewable generation facilities in Canada and the United States.
That will make it Canada's second largest publicly traded pure-play generation company after TransAlta Corp (TA.TO).
Capital Power will also assume Epcor's 30.6 percent interest in Epcor Power LP EP_u.TO, the publicly traded vehicle with stakes in 20 Canadian and U.S. plants.
Epcor, which serves more than one million customers, will continue to own and operate its power transmission and distribution unit, as well as water and wastewater services.
Brian Vaasjo, who will be chief executive of the new entity, said the book value of the assets it will operate is about C$5 billion.
Splitting two operations with different risk profiles will help both as they raise money for future investments in expansion and acquisitions, Vaasjo said. Merchant power generators operate in a more volatile market.
"You consider what the capital requirements are of two fairly prosperous and aggressive businesses, and you quickly recognize that it takes a lot of capital," Vaasjo said in an interview. "What this does is it allows both organizations to continue to grow."
Municipally owned Epcor's initial public offering of 25 percent of Capital Power is expected to be completed by mid-year. Epcor said it hired TD Securities Inc and Goldman Sachs Canada to act as bookrunners for the issue.
The prospectus is expected to be available next week, Vaasjo said. It will contain more on Capital Power's investment and operating strategies, he said.
Epcor may eventually sell all or most of its stake in the new entity, depending on market conditions and its need for cash, it said.
"It sounds like they need to raise capital and that may be hard in their current structure," FirstEnergy Capital Corp analyst Steven Paget said.
It is floating the operation in a rising market for utilities and power producers, which like many stocks had been under pressure due to global economic worries.
The Toronto Stock Exchange's utilities group is off about 28 percent from a year ago, but has gained 6 percent in the past month.
Epcor has built six power stations in the past seven years, and is now constructing the 200 MW Clover Bar Energy Centre expansion and 495 MW Keephills 3 coal-fired facility in Alberta.
The utility also said on Friday it earned C$104 million in the first quarter, up 53 percent from C$68 million a year earlier. Revenue rose 11 percent to C$890 million.
The improvement was driven by better availability of its Genesee coal-fired power plants, located west of Edmonton, it said.
$1=$1.16 Canadian Editing by Jeffrey Hodgson