Brookfield Renewable Partners LP (BEP) 2011 Q1 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 first-quarter 2011 conference call. At this time, all participants are in a listen only mode. Following Management's presentation, instructions will be provided for you to queue up for question-and-answer period. (Operator Instructions) I would like to remind everyone this conference is being recorded.

Before Management begins their presentation, we remind you that in responding to questions in 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 2010 Annual Report available on SEDAR or the Fund's website at www.brpfund.com.

Mr. Legault, I'll now turn the conference over to you. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining our first-quarter conference call. With me on the call is Sachin Shaw, 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 where you'll also find the slide presentation that we will cover a little later in the call. I'll keep my remarks somewhat brief this morning to allow more time for Sachin to walk you through our financial results as well as some of the accounting changes resulting from the transition to IFRS. It is worth noting up front, though, that while some elements of our accounting and reporting may have changed, the Fund's investment and operating strategy has not. Our focus remains on generating stable and sustainable cash flows from our long life assets and strong returns on investments over time.

Total generation in the first quarter was 1,500 gigawatt hours or 95% of long-term average. Hydroelectric generation was 5% below LTA due to lower in-flows in Ontario, while in other regions exceeded expectations. Generation from wind in the quarter was 162 gigawatt hours with 45 gigawatt hours of that coming from the recently commissioned Gosfield Wind farm which continues to perform as expected since its commissioning in September 2010. The Comber Wind Project is proceeding on schedule, with turbine delivery scheduled to begin this month and continue through the end of July. Construction of the substation and the overhead and underground cable systems are progressing well in a joint effort with the local utility. Access roads and turbine foundations are also well advanced and the project remains on track for a fall 2011 Commissioning.

Looking ahead, our reservoirs in each region are above their usual levels for this time of year, including Ontario, which after a slow start to the spring has recently experienced stronger inflows and rising reservoir levels in line with expectations. As a result, we expect long term average generation for the second quarter and the remainder of the year.

I'll now ask Sachin to present the financial and operating results for the quarter.

Thank you, Richard, and good morning.

Net operating cash flow in the first quarter was CAD45.9 million or CAD6.1 million lower than the first quarter of last year. The difference is primarily due to lower inflows in Ontario as compared to the very strong first quarter last year. Net operating cash flow, a new performance metric for the Fund following our adoption of IFRS, will be discussed later on as I get into the IFRS component of this call. In the first quarter, the Fund invested CAD2.8 million sustaining capital expenditures and CAD0.9 million in major maintenance. We expect to invest a total of CAD29.1 million in sustaining CapEx and CAC10.7 million of major maintenance in 2011. This is slightly up from expectations last quarter and is related to the timing of certain projects.

Major ongoing projects include the Millinocket unit conversion and reconnection in New England, a transformer replacement in Quebec, a generator rewind in Ontario, and a spill gate upgrade in British Columbia. Spending on these major projects will continue into 2012. As Richard mentioned the construction of Comber is progressing well and spending on this project has totaled about CAD130 million in the first quarter.

At quarter end, the Fund has approximately CAD177 million of total liquidity available, which is comprised of CAD28 million of cash and equivalents and CAD149 million of available committed credit hydrology reserve facilities. Our liquidity position remains strong, and we'll continue to support the Fund's near term operating and investment objectives. As you know, we have project level financings for the Prince and Gosfield Wind facilities coming due in 2012 and 2013. We continue to look for opportunities to take advantage of the current low interest rate environment and are selectively looking to hedge against rising interest rates in anticipation of these refinancings.

Finally, I'd like to review some of the highlights of our transition to IFRS. There's a presentation available on the webcast which you can also find on our website. The slides in that presentation illustrate the major IFRS related accounting and reporting changes, and there are just a few items I'd like to bring to your attention. First, we adopted a new metric called net operating cash flow as a key measure of the Fund's financial performance and cash generating ability. Net operating cash flow is presented on the same basis as our prior metric, income before non-cash items, in that it includes our share, or the Fund's share, of cash flow from the Prince Wind facility, PREI, which is Powell River and Kingston Hydro, all which are now equity account for under IFRS as they are held under joint venture partnerships. Aside from this difference the two measures are the effectively the same and the presentation includes a reconciliation that bridges the two.

Another key difference as we move forward under IFRS is that our power generating assets will be presented on the balance sheet on a fair value basis and revalued annually, based on our 20-year discounted cash flow models. The impact of the transition on our opening property, plant, and equipment amount can be seen on slide 8 in that presentation and essentially takes our PP&E from approximately CAD2.8 billion under Canadian GAAP to CAD5.2 billion under IFRS and increases unit holder equity from approximately CAD1 billion to nearly CAD2.5 billion under IFRS.

The final change I'd like to point out relates to our assets in Great Lakes Power and Hydro Pontiac. Those two assets have contracts related to the assets for energy sales that are required to be mark-to-market on a quarterly basis due to their perpetual nature. You can therefore expect to see some additional volatility in our P&L going forward, although again, this does not impact our operating cash flows nor does it impact our distributable cash and is a function of the new accounting treatment.

That summarizes the IFRS items I wanted to highlight and concludes the financial and operating discussion. Thank you for joining us this morning. Richard and I would be pleased to take your questions at this time.

Thank you.

(Operator Instructions)

Your first question comes from Juan Plessis from Canaccord Genuity. Please go ahead.

Thank you very much.

You mentioned, Sachin, that sustaining CapEx budget for 2011 is up a bit due to timing. Does that imply that the 2012 sustaining CapEx will be a bit lower than the long term average of between CAD24 million and CAD26 million?

No, if you recall, some of this is really related to amounts that we pushed out in 2010 into the 2011 period. So it's really a catch up of some of that work. We had particularly low hydrology last year, so we would expect 2012 to revert back to the normalized levels.

Okay, and you're still expecting a normalized to be CAD24 million to CAD26 million?

Yes, I'd say CAD25 million to CAD26 million is a good levelized number.

Okay, thanks for that.

And I'm wondering if you might be able to -- with Gosfield Wind in and Comber Wind coming in, just wondering if you can talk a little bit about your cash tax profile and when you might expect to be cash taxable?

I think we've been pretty open about this fact that we've got quite a bit of shelter in the Fund through the new construction projects and available depreciation that comes with that. I don't see us having any real cash tax on the horizon until about 2014 to 2015.

Okay, great. Thank you very much.

Your next question comes from Nelson Ng from RBC Capital Markets.

Great, thanks. Good morning.

Just a quick question on Kokish, do you have any kind of expected update on timing in terms of when you expect to push that down from BAM into the Fund?

No, I think we're still looking to getting full completion environmental permitting. That's number one, and then once that is in hand, I think getting a refresh on sort of the cost of construction. But once that is in hand and we're ready to proceed with instruction, it would actually be pushed into BRPF at that time, which we expect to be 2011, but probably the later part of the year.

Okay, got it. And in terms of your I guess revaluation of the PP&E, what are some of the assumptions you used in terms of discount rates? You mentioned that you use a 20 year DCF?

Yes. Hi there, it's Sachin.

I'd say, first of all our cash flows are predicated on the contracts that we have in place. The Fund is 90.9% contracted and our contract duration is approximately 20 years, so we're in good position to have a lot of the metrics be readily available. In terms of discount rates, the discount rates that we use to value PP&E are generally in the 7% range depending on where they're located.

I see, and it's --

And once our interim is filed we will provide that disclosure in the notice.

Okay, and I guess it's the same discount rate for the PP&E and the PPAs and water rights and things like that?

Yes, absolutely.

Okay. I'll get back into the queue, thanks.

Your next question comes from Andrew Kuske from Credit Suisse. Please go ahead.

Thank you, good morning.

I think my first question is for Sachin, and if we just look at around the power markets in North America right now, you've got -- hydrology looks pretty robust and it is pushing down the forward curve in certain areas; and BRC, you aren't really price exposed because you're under long term contracts. But just under the IFRS accounting, do you see revaluation charges out into the future given your contracted levels versus the spot prices across a lot of markets?

Yes, hey, Andrew. It's definitely something we have to factor into our revaluation as we prepare them annually and if the low price environment persists then your observations are correct on the back end. We may have some exposure to declining prices. That being said the forward curve isn't generally longer than 3 to 4 years in terms of visibility, and after that, there isn't a lot of movement in terms of what you get as expert estimates on power prices. So I wouldn't expect that to impact the Fund material at all given our contract profile.

Okay, that's helpful.

And then, just a bigger broader question for Richard, when you start to think about the new majority government at the federal level, how do you think that changes renewable power across Canada, even though that's a more provincial matter, but do you think that has a positive impact on renewable power on a go forward basis?

Well, you know, I was expecting the Ontario government question, not the federal one.

That might be my next one.

(Laughter) Listen, I think a majority government federally will certainly, I think, in my mind help in terms of understanding the direction in terms of energy policy in Canada going forward. But I would say that as you've probably pointed out, it is really very much a provincial jurisdiction. I think that when you look at -- maybe just saving you the question, I think on the Ontario front, the Green Energy Act and certainly, I think, the conservatives have been very vocal as to what they would actually do with it. We believe that number one, this doesn't impact the Fund's business today, but if you look at growth going forward -- renewables, whether it be Ontario or other places in Canada, we think Hydro and Wind will certainly be part of the landscape for a very long time to come.

Procurement regime and how we actually go about trying to promote a project or get a contract for it may change over time, depending on governments and how they actually are sensitive to pricing and price shock with consumers. But the bottom line is there are few choices governments can make in promoting various technologies and we believe that Hydro and Wind are part of the landscape and are competitive technologies. When you look at other technologies which again Solar -- I can ramble off a list of them, that require a greater level of support and have a greater impact on the actual price of power to consumers. Well, I think there will be a greater impact both federally and provincially, in terms of going forward whether or not people are willing to pay that premium. And again, I'll come back to the first comment which none of which I think has an impact on the current business of the Fund today.

Okay. That's very helpful, thank you.

Your next question comes from Steven Paget from First Energy Capital. Please go ahead.

Yes, good morning. Thank you for an excellent IFRS presentation and wish that all your peers did the same, so very much appreciated.

My question on tax pools. Could you give further clarity on the size and nature of your taxables?

Sure. Obviously, we have a lot of available shelter through the projects. It's approximately CAD1.2 billion of available tax shelter we have today on a gross basis, and the rates that we would get from a benefit perspective range anywhere from 4% to 50% depending on the type of shelter, depending on the type of investment it comes from. I think what's more important is, it gives us effectively a pretty good profile well into 2014 and early 2015 and means the Fund really has no worries from a tax perspective for the foreseeable future.

Thank you.

My second question is any further thoughts or decisions on the possible conversion to a different structure?

No, I think as we've pointed out, the last quarter I think that we're not taxable. We're essentially not in a hurry to do all of those -- make those decisions and convert and therefore, I think it's business as usual, and that's what the advice we gave the last quarter. And I think that would be what I would give as guidance for the foreseeable future this year.

So, maybe no decision this year then?

I think that's correct.

Okay, thank you.

Your next question comes from Tony Courtright from Scotia Capital.

I guess a request and then a question. Is it possible to package the whole interim statements and release them with the results? Not that I need to necessarily read more stuff all at once, but it's kind of -- so I just wonder any thought on that?

Tony, it's Sachin.

Look, it is. I guess the only practical consideration is we generally are finalizing the audit of the statements and it just takes a bit more time to get everyone nailed down and all of our disclosures final. It doesn't change or impact the numbers, which is why we tend to present it the way we do. But, look, we obviously always take people's considerations and think about it, so we will look to see if we can, but I suspect the way we have it currently is the most practical way.

You're only doing audit once a year, don't you, so -- ?

We get the Fund reviewed every quarter, just as a good practice.

I see. Right.

Okay, my question is related to Comber. Could you just go through spend-to-date and the financing? I'm just trying to look at the capital yet to spend.

Sure.

When we announced the project it was a CAD567 million project. To date, we've spent approximately CAD170 million and CAD130 million of that was in the first quarter, so that leaves us with about CAD400 million, just under CAD400 million left to spend. We have a CAD354 million facility dedicated to the Comber project, of which we've utilized just over CAD40 million. So we have CAD400 million left to spend and out of that, approximately CAD80 million to CAD90 million will be our own equity and CAD310 million will be off the remaining balance.

And when is the requirement for the fund to spend that CAD80 million or CAD90 million?

We expect the project to be commissioned in the fourth quarter of this year, and we would expect that all of our costs associated with the project would be incurred in that period.

All right.

And in terms of the funding of those costs for the Fund, is it still the expectation just to use short-term debt and maybe finance it with long term debt?

Like I said, we have the facility that's available for approximately CAD350 million on the Comber facility. We also have over CAD170 million of liquidity today with our bank lines, our available cash, and our hydro facilities. So, I think we're in good position to complete the project without any potential liquidity concerns.

Okay. Thank you.

(Operator Instructions)

Your next question comes from Steven Paget from First Energy Capital. Please go ahead.

I think this is a broader macro question. With Brookfield controlling both Wind and Hydro, particularly in Ontario and Quebec, I'm wondering if there's a possibility that you could sell a package to the government that is basically demand power with good pricing to match where you're basically guaranteeing that you'll provide power and from a renewable source, it's just a question of where it comes from and that would be Brookfield's to manage.

I will -- I think I get the question, but I will answer it in the following fashion. We're always looking for long-term contracts and to provide people with the flexibility of our assets and ultimately obtain the best possible value in doing so, so whether that is a contract with Ontario or whether it's a contract in the US. So Brookfield is essentially is always looking for those opportunities. At the same time you should consider, I think, what we have always said to investors in CRPF that essentially this is a fully-contracted portfolio and the contracts are with Brookfield for about 65% and with third party, mostly government entities for the other 35%. And an example of that is some of that is with Brookfield, but for example, the contract for Comber is a fit contract under written by the OPA. So again, there's not a lot of ability for BRPF to do that; however, BRPI, which is really the off-taker for BRPF always is looking for those opportunities.

Okay, thank you.

Mr. Legault, there are no further questions. I'll turn it over to you for closing remarks.

Well, once again, thank you very much for joining us this morning. And again you are welcome to join us at the annual general meeting this afternoon, and we look forward to seeing any and all of you at that meeting this afternoon. Thank you very much, and if not, we will speak to you next quarter.