Brookfield Renewable Partners LP (BEP) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Brookfield Renewable Power Fund's fourth-quarter and year-end 2010 conference call. At this time, all participants are in listen-only mode.

Following management's presentation, instructions will be provided for you to queue up for questions for the question-and-answer period. (Operator Instructions). I would like to remind everyone that this conference is being recorded.

Before management begins their presentation, we remind you that in responding to questions and talking about financial and operating performance, management may make forward-looking statements which are predictions of or indicative of future events and trends. These statements are subject to known and unknown risks, and future results may differ materially. These forward-looking statements represent management's views today, and you are cautioned not to place undue reliance on these forward-looking statements.

For further information on known risk factors, you are encouraged to review the Fund's 2009 annual report available on SEDAR or the Fund's website at www.BRPFund.com. Mr. Legault, I will now turn the conference over to you. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining our fourth-quarter conference call. With me on the call is Donald Tremblay, our Chief Financial Officer.

Before we begin, I would like to remind you that a copy of our news release, supplemental information, and letter to unit holders can be found on our website at, www.BRPFund.com.

We are very pleased to end 2010 on a positive note with improved results for the fourth quarter. Hydrology began to normalize in Ontario in Q4 while the Quebec region has recovered quite rapidly with generation that was 25% above its long-term average. New England and BC performed solidly as they have all year. As a result, total hydroelectric generation in the fourth quarter was close to the long-term average.

Our overall reservoir levels are also above average for this time of year, leaving us well positioned for the first quarter of 2011.

Despite challenges along the way, the Fund continued to build long-term value for unit holders in 2010. We began the year on a strong footing with a 4% increase in our monthly distribution. We responded effectively to difficult market conditions in the middle of the year, preserving our strong financial position, liquidity and the quality of our overall portfolio. And later in the year, we commissioned Gosfield Wind and acquired the Comber Wind Project, increasing and diversifying our asset base in the process.

Gosfield Wind Farm has been performing very well since entering commercial operations in mid-September. The acquisition of the Comber Wind Project closed in December, and the construction is proceeding on schedule and on budget.

As of the end of January 28, 28 of the 72 foundations has been excavated and 13 have been poured. Construction of access roads is well advanced and the design of the electrical works is proceeding as planned. Comber remains on track to meet its commissioning date in the fall of 2011.

As you know, the SIFT rules came into effect on January 1, and there has been no change in the Fund strategy, operations or the level of its distributions to unit holders. It is important that whatever post income trust structure we adopt supports the long-term objectives of the business, is tax efficient, and is beneficial to unit holders. We have looked at various options available to us, including corporate, partnership, and stable security structures. And while we believe the corporate model remains the most suitable of those mentioned, we also recognize there is no urgency to undergo the process of conversion at this time, given the conversion rules remain available through 2012, and the Fund is not taxable until 2015.

While it is not our intention to remain an income trust, there are no restrictions preventing the Fund from pursuing its business objectives in its current form.

In light of these factors, the Fund intends to retain the flexibility it has today, and to proceed with conversion at some later time when it is most appropriate. I will now ask Donald to present the financial and operating results for the quarter.

Thank you. The fourth quarter brought significant improvement in our results as our watersheds in Quebec and Ontario have continued to recover from the low inflows experienced last summer. Hydroelectric generation of 1,334 gigawatt hours was only slightly below the LTA of 1,367 gigawatt hours.

Fourth-quarter revenues were CA113 million in 2010 as compared to CAD87.9 million in the prior year, the result of the contribution from Gosfield Wind and a CAD10 million claim from our hydrology insurance.

Income before non-cash items was CAD54.6 million as compared with CAD39.3 million in the prior year. For the full year, revenue increased to CAD343 million from CAD288 million, reflecting the addition of assets and higher selling price at Lievre and Mississagi.

Income before non-cash item was CAD130.7 million compared to CAD140 million in the prior year when excluding the one-time contract amendment payment made in 2009.

As we indicated last quarter, we reduced our capital expenditure and major maintenance in 2010 by more than CAD6 million to help reserve our liquidity in light of the condition at the time. The flexibility of our asset base and capital program allow us to defer certain projects without compromising operations, health and safety, or the environment. As a result, the Fund invested CAD21.1 million in sustaining capital expenditure and CAD5.8 million in major maintenance in 2010, in line with the guidance provided in November 2010.

With a return to more normal weather conditions, the Fund expects to invest CAD27.9 million in sustaining capital expenditures and CAD11.2 million in major maintenance in 2011, excluding spending on Comber.

As Richard mentioned, the construction of Comber is progressing. Spending on the project totaled CAD90 million through the end of December and CAD153 million until now.

The Fund recently renewed the power purchase agreement for its Powell River facility with our Catalyst Paper partner. The new PPA was extended for another five years with terms and conditions very similar to the existing agreement.

Our financial conditions remain strong. We now have access to a three-year revolving credit facility with five Canadian banks for a total of CAD250 million. There is also CAD32 million available on the recently upsized CAD40 million hydrology reserve facility with Brookfield Renewable.

Including cash and short-term investments, the Fund's total liquidity is in excess of CAD253 million and will support its objective with respect to growth, capital investment, and cash distribution to unit holders.

That concludes the financial and operating discussions. I will now hand the call back to Richard.

Thank you, Donald. As you have read in our news release, Donald will be assuming a new position as Chief Financial Officer of Brookfield Power and Utilities Group after 11 years as the Fund's CFO. Donald has been a key contributor to the Fund since its creation in 1999. And on behalf of the board and myself, I wanted to take this opportunity to thank Donald for his exceptional leadership during that time.

The Fund will continue to enjoy strong financial direction under Sachin Shah, whom Donald and I have worked closely with for many years and whom some of you will know from his previous role as managing partner, finance at Brookfield Asset Management. Sachin will assume full responsibility for the Fund's finances, starting next week, and he looks forward to greeting you all on our next quarterly call.

So thank you for joining us this morning, and I will now open it to questions.

(Operator Instructions). Michael Willemse, CIBC World Markets.

Thank you. Good morning. Just on the -- you have a contract in BC. Sorry, I can't remember the name of the partner, but, I was assuming there would be a repricing on the contract. Any update on the negotiations there? I'm just trying to look at where pricing will be going forward at the BC assets.

I think that you're referring to the contract on the PREI assets?

Correct.

Which was a contract with the forest product company, Catalyst Paper.

Correct, yes.

That contract has been renewed on similar terms to the previous contract that was in place, except for the escalation of the contract will be aligned with large industrial load prices in British Columbia offered by BC Hydro. So the escalator may be slightly higher than what we've seen in the last 10 years. But those are kind of the prices, so they are aligned with large industrial prices in British Columbia today.

And can you give us a sense of where large industrial prices are in British Columbia today?

Close to the CAD40 mark plus the escalation going forward.

Okay. Could you give us a sense of hydrology in Quebec and Ontario in the first quarter? Do we look like things are getting back to normal in Ontario yet?

I think our reservoirs are back to normal. I would say that in all other jurisdictions, the, call it the return to -- it's come back to above normal. Like I've said in the conference call, we basically, in Quebec, I think it was 25% above long-term average was the generation. And our reservoirs are above the current -- the level they should be at this time of year. So we're in really good shape in Quebec.

In New England, I would say we are where we should be. And Ontario would be about the same story, and I think in terms of inflows in hydrology in Ontario, clearly not as strong as Quebec, but in line with expectations.

Okay, thank you.

Juan Plessis, Canaccord Genuity.

Thank you very much. Congratulations, Donald, on your upward move.

Thank you.

My first question, I'm just wondering if there was a change to the accounting treatment for the selling of administrative expenses. I noticed that for the year, it was CAD6 million. But for the nine months ended September, it was CAD11.1 million. I'm just wondering what's going on there.

It's just reclassification of some of our system control expenditures, and operating costs that were basically classified in selling and admin that we decided to reclass at year end.

Okay. So it's just reclassified into operating --

(multiple speakers) reclassification.

Okay, great. Thank you. I'm just wondering if you can update us as well on how your cash taxes and future taxes profile look with Comber and Gosfield Wind Farms..

No significant change to what we disclose historically. Like we're probably at -- like CAD1.5 billion of tax shelter when we include everything. Clearly, the Comber project will increase that in a significant way when it is in commercial operation later in 2011.

Okay, great. Thank you very much.

Tony Courtright, Scotia Capital.

Thanks very much. I'm wondering if you could just walk me through some of the numbers on Comber Wind Farm. On the invested capital year over year in the wind generation segment, it's increased by CAD308 million. You say you have incurred a CAD90 million of costs in relation to Comber. I guess the CAD40 million purchase and the CAD50 million of incurred CapEx. So, is the balance entirely Gosfield? Or is there some additional amount in relation to Comber in that invested capital?

It should be Gosfield plus Comber.

So --

And we may have, like, a bit of like adjustment to our purchase price allocation for Gosfield, but it should not be material.

But then that would imply -- if you take CAD90 million off the CAD308 million, you're up to CAD218 million for Gosfield. Is that the cost of -- that you've capitalized the Project at?

Gosfield should be at CAD147 million.

That was my thinking.

(multiple speakers), Tony, okay?

Pardon me?

I'll get back to you on that.

Okay, thanks. And then, separately, in terms of -- it's a question in terms of policy relative to reservoir management and how you operate your facilities. You drew down CAD8 million under your hydrological boring credit facility. But, it would seem that -- was there the potential to have run a couple of systems more full out, like the new England or Quebec system? Or was that maximum production? I'm just relating it to the amount that you have in your reservoir which is above long-term average.

Yes, and, Tony, we manage the actual reservoirs to essentially rule curves that are seasonal, as you know. I think that the Quebec system was exceptional. I think that this was -- the turnaround we actually got on Quebec was exceptional. As exceptional as the shortfall was, the turnaround was as exceptional. And we were running almost full out on the Quebec system, so there was really nowhere to put the water other than to just generate it. And therefore, the new England system clearly wasn't in the same position.

And Ontario, as I have mentioned, we've been certainly, I think, trying to replace the reservoirs to its long-term sort of position, which would be a function of that rule curve. And then ultimately, hydrology dictates how much generation we can actually do based on that. So, the answer to your question, hopefully I have answered it, but we would do nothing differently.

Andrew Kuske, Credit Suisse.

Thank you. Good morning. Just a bigger, broader question, with some of the government showing a bit of signs of strain, are you seeing a deceleration, at least in the government's appetite, to give long-dated PPA contracts for renewable power?

It would be difficult for me to comment in substance because we have almost all of our projects today, the contracts, have been negotiated and are in place, so Comber, Kokish. And therefore, if you look at the rest of this in terms of our pipeline of projects and what we are trying to get from governments, obviously, we are aware that there is clearly some stress in terms of how much renewables and the cost of those renewables and the impact on the actual cost to consumers.

But at this stage, there seems to be certainly a strong commitment in Ontario to continue to put renewables in place; British Columbia as well, and therefore, we believe and continue to believe that there will be strong support for contracts in the future.

And I guess an extension of that question, a somewhat related question, we've seen some assets trade in the last few weeks in the renewable space. I'm just wondering if you could give us any comments on your thoughts on just valuation broadly within the market on some of those past few deals. And then also, are you seeing a greater willingness for some of the developers that some of which have PPAs, some don't have PPAs, and their willingness to really sell and transact in the market right now?

Well, let me start with the first part of your question. When you look at where assets are trading today, we have always had a pretty distinct value perspective. And clearly, high-quality assets, long-term and long-life assets, and stable cash flows is what we look for. Therefore, our value proposition is pretty clear in our minds.

Clearly, the kind of assets that have traded as of recently, we clearly have had on our radar screen for a long time. But we feel that, clearly, the value for us is to ensure that it's accretive, and it adds value to unit holders when we make those types of propositions.

So, generally, I would think that pricing of assets have increase based on the last few transactions that we have seen. And whether that's a trend or not, we will see in the future. In terms of the second part of your question, we continue to think and feel that developers are increasingly looking for strong sponsors to help them bring to market some of their projects. Capital, it continues to be fairly scarce to them. And we have positioned ourselves quite well.

As you've recently seen, we have acquired the rights to a wind development project called Aeolis in British Columbia, which is exactly that type of story. We really feel this is a prime wind location, great opportunity to enter at a certain point where it's not early stage, but clearly is not late-stage ready to build. Our skill sets are more conducive to securing contracts, completing the development work, and a balance sheet to actually construct it, so that is opportunities that we feel are good value propositions for us.

That's very helpful. Thank you.

Michael McGowan, BMO Capital Markets.

Hello. Good morning. I had a question about your operating expenses. They seem to be running a little bit higher in the fourth quarter this year compared to the fourth quarter last year. Is there anything specific that really drove the increase?

Like the addition of the Gosfield project may have a bit of an impact, and there's normally some timing of expenditures, so we may have slowed down some of the maintenance in Q3 because of the condition, and we may have picked that up a little bit in Q4.

Okay, because if I just do some math on your statements last year, you would have -- fourth-quarter expenses look like they're around CAD66 million, and this quarter they're closer to CAD82 million. So, but CAD1 million for Gosfield and is the rest timing related?

There's a portion of that timing. There's also like transaction costs or -- that we incur during Q4, etc.

Transaction costs related to Comber or sorry, Gosfield?

Transactions that we worked on for growing the Income Fund.

Nelson Ng, RBC Capital Markets.

Great. Thanks. I have a question relating to cash taxes. I believe like several million dollars of cash taxes were recognized in the fourth quarter. And I was -- what were -- like what are some of the reasons for the increase in cash taxes?

And do you think cash taxes are -- or I don't think material cash taxes are payable going forward, but what's the general level of cash taxes you see going forward?

The cash taxes should be very minimal going forward. Some of the cash taxes we have in Q4 are relating to our 6.1% tax, payable on the per-share dividend, that we will recover on other tax payables in 2011 or in 2012.

I see. Regarding the Kokish project, is it still your expectation that it will be construction-ready later this year?

Yes, actually, we continue to move forward on the environmental permitting of Kokish. We expect that process to be completed in 2011, and subject to getting the environmental permits to begin construction, we feel that that project should be in a position to start construction this year.

Great, thanks.

Steven Paget, FirstEnergy.

Good morning. I would like to ask about the Coldwell Project and the Pehonan Hydroelectric Project. If you could comment on the status of those two significant projects, that would help.

Well, you know, just making sure that it's clear for everyone, those two projects are projects that are being developed by Brookfield, and not necessarily the Fund, but the Fund has a first right of offer when and if those projects become construction-ready.

I can give you an update on Pehonan. I think we are doing a prefeasibility work that is required in order to actually start having more substantive discussions on contracts for a PPA with the province of Saskatchewan. The work is moving forward quite well.

And as I've indicated in the past, Pehonan is clearly a very large project, 250 MW, and clearly close to our estimate today, CAD1.4 billion to build, and would, certainly, I think, require greater than five years to actually start looking at commissioning a project of this nature. So that's where we are.

When you look at Coldwell, that was a wind project in northern Ontario. Coldwell is a project we have done a lot of work on, clearly more closer to construction-ready. And because of transmission congestion, this is a project that requires additional transmission in Northern Ontario in order to move forward. So we would not have any expectation of providing -- of presenting that project for a contract until there is sufficient transmission in that area.

Thank you. My second question is on your US assets, are -- is there any thought of Brookfield Renewable Power, Inc. putting more of its US assets into the Fund?

Well, I think, you know, we've been asked that question a number of times in the past. I think the mandate in 2009 was clearly delineated for Brookfield Renewable Power Fund to be a Canadian vehicle that had hydro and wind. It is the exclusive vehicle by which Brookfield invests capital in that jurisdiction.

The US assets that the Fund owns today are essentially a legacy of 2002, and we really haven't done anything in the US in the Fund since then. And at this time, none of that has changed.

Excellent. I continue to get questions about that as well, so thank you.

Tony Courtright, Scotia Capital.

Thanks very much. I'm wondering if you could confirm to me whether you have repatriated any funds out of the US this past year, because I don't see any realized FX gain or loss on your statements.

We certainly have made distribution from the US to Canada, but I don't think it was very material.

Okay. Secondly, you have some major maintenance scheduled for this year. Any quantification in terms of the amount of downtime or impact on production or generation (multiple speakers)?

Normally it's very minimal impact. We do that when we basically have units available and when the water is normally low.

Okay. And if I could, just one follow-on. In Ontario, there have been occasions where we have negative power prices, driven in part by excess renewable generation. Do you have any views on this and preferences for jurisdictions or modality of generation going forward?

I assume, Tony, you are referring to the curtailment issue in Ontario.

Correct.

So I would say we are certainly aware of the issue. We've been participating quite actively in the stakeholder process to address this issue. We really believe that the process is making progress, and I think that it is being constructive at this stage.

And one thing that's important to note that we have, although we've been requested to curtail, we have not, and we have suffered no economic loss as a result of it. And we believe that the market rules and the contract framework that is in place for all of our projects, including Comber, clearly provides us some protection against that type of request from the ISO or the OPA to curtail.

So, we also recognize that this is something that needs to be addressed from an Ontario wind industry perspective, and we are actively participating in trying to achieve that.

Do I have a preference? We are doing business in California. This is not an uncommon issue because it's a very similar issue in California or other jurisdictions. I think it goes with the territory of being, call it non-dispatchable generation, and how the actual grids and system operators are managing those types of assets within their grids.

It is, in our opinion, clearly going to be an important factor going forward, and that development -- developers or asset owners such as ourselves cannot carry the burden of excess generation that was contracted previously. So, our view is pretty strong, and we have, certainly, I think, defended our position vigorously.

So, could you classify most of your hydro in Ontario as dispatchable, or --?

Absolutely because most of our hydros have reservoirs, Tony, so we wouldn't fall in that category, so we clearly delineate. We decide when we dispatch our plants. Contrary to a wind asset, which really is not the nature of which is really intermittent generation, so we actually sell schedules. So it actually goes into the generation stack in Ontario on a non-dispatchable basis. But it doesn't affect our hydro assets.

Michael McGowan, BMO Capital Markets.

Just wanted a little bit of clarification on some of the tables on your balance sheet. Looks like your accounts payable to related parties grew quite a bit at the end of 2010 versus 2009. How much of that relates to projects that you are working on such as Comber and Gosfield? And how much of that -- what are the other items related to?

There's very minimal amount relating to Gosfield, and most of that is from the Comber project. So those are costs that we incurred pre construction that are sitting there.

So out of the CAD185.7 million, how much of that would relate to Comber?

I would say in the CAD100 million range.

Then what would the CAD85.7 million relate to?

I'll have to come back to you on that.

Okay. Thank you.

There are no further questions at this time. Please continue.

Well, thank you for joining us this last quarter of 2010, and clearly in 2011, we look forward to seeing you again at our first-quarter conference call. Again, thank you this morning for joining us.