Brookfield Renewable Partners LP (BEP) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Brookfield Renewable Power Fund second-quarter 2011 conference call.

At this time all participants are in listen-only mode. Following management's presentations, instructions will be provided for you to queue up for a 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 actual results -- 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 will now turn the conference over to you. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining our second-quarter conference call.

With me on the call is Sachin Shah, our Chief Financial Officer. And 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 the www.brpfund.com.

With the first half of the year behind us, we see definite trends back to long-term average generation in all regions. Hydroelectric generation for the second quarter of 2011 was 1507 gigawatt hours or more than 50% higher than the same period last year when Eastern Canada experienced record-breaking dry conditions.

The Quebec, New England and British Columbia regions all performed well in Q2 while the Ontario region more than doubled its generation year over year and is expected to return to LTA in the second half of this year. Generation from wind in the quarter was 150 GW hours with one-quarter of that coming from the recently commissioned Gosfield windfarm which continues to perform as expected since its commissioning in September 2010.

Prince Wind Farm also experienced higher generation than in Q2 of last year. At quarter-end our reservoirs in all regions were above their usual levels for this time of year and about 4% higher than average on a portfolio basis. This leaves us well positioned as we enter into the second half of the year.

During the second quarter, we continued to make significant progress on all of our capital projects which are all on scope, schedule and on budget. The construction of our Comber Wind Project is progressing very well.

All of the components of the 72 wind turbines have been manufactured and delivered to the Port of Windsor. To date, 64 concrete foundations have been poured and components for 49 turbines have been delivered.

With 22 turbines having been installed, the project at this stage is equal to the size of the Gosfield facility and on its way to being more than three times larger once completed. In coordination with local Hydro One crews, the construction team continues to install the electricity cabling that will connect the turbines to each other and to the main substation. We expect all access roads with turbine foundations and underground cabling to be completed by late summer and for Comber to enter commercial operation this fall.

Finally, good progress continues to be made with Brookfield hydro and wind development projects to which the Fund has first rights. The most advanced of these is the 45 megawatt Kokish River Project whose environmental process is expected to be completed this summer. You may recall that the project has a 40-year energy purchase agreement with British Columbia Hydro and so environmental permitting is effectively the last major step that will allow us to proceed toward the construction phase.

You may also have seen the recent directive in Ontario that would provide additional contract certainty to projects with [fifth awards]. While this may not affect the Fund directly as we have no such projects that are not already under construction, this could lead to partnering or acquisition opportunities for solid projects that are otherwise in need of capital, expertise or both.

So we continue to be encouraged by the prospects to grow our renewable power business over time both organically and through opportunities presented by the market. I will now ask Sachin to present the financial and operating results for the quarter.

Thank you, Richard. Net operating cash flow in the first quarter was CAD46.3 million or CAD30.5 million higher than in the second quarter 2010. The difference is primarily due to significantly improved hydroelectric generation in Ontario and Quebec relative to last year. The addition of the Gosfield Wind Farm to our portfolio in the third quarter of last year also contributed to the increase.

In the second quarter, the Fund invested CAD2.9 million in sustaining capital expenditures and CAD2.7 million in major maintenance. We expect to invest a total of CAD27.6 million to sustain CapEx and CAD11.2 million on major maintenance in 2011.

As Richard mentioned, the construction of Comber is progressing well. Spending on the project has totaled about CAD112 million in the second quarter and about CAD200 million remains on the project's construction facility which as expected will be sufficient to see it through completion and commissioning which is expected in October.

At quarter-end, the Fund had CAD183.4 million of total liquidity which is comprised of CAD28 million of cash and equivalents and CAD155 million of available committed credit and hydrology reserved facilities. Our liquidity position remains solid and will continue to support the Fund's near-term operating and investment objectives.

As a final note, we have a modest CAD13 million in nonrecourse project debt on our Carmichael Falls facility coming due in November. We have started our work on the refinancing of that maturity and expect it to be completed in the normal course.

That 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.

(Operator Instructions) Nelson Ng, RBC Capital Markets.

Great, thanks. Good morning, everyone.

Just a quick question in terms of your maintenance CapEx. So it looks like only 20% of the annual estimate has been incurred to date. So are you able to give any kind of guidance in terms of how the remaining amount will be incurred in Q3 versus Q4?

Yes, it's fairly equally between Q3 and Q4, a little bit skewed to Q3. It's timing and it's normal -- I'd say it's normal course timing.

We do a lot of work at the end of the summer on a major maintenance front. So you should expect us to -- by the end of the third quarter, you should expect us to be back to a pretty normal level from a cash flow expenditure perspective.

Okay, thanks. For the Comber Wind Farm, you mentioned that there's CAD200 million left in the construction facility. So like does that mean that's the -- out of the CAD567 million total project cost, only CAD200 million remained or have you fully invested all of the equity?

No, we have about -- the total costs remaining in the project are about -- approximately CAD285 million. So we'll use CAD200 million from the available facility and we'll have the final CAD85 million payment coming from our liquidity, our available liquidity.

Juan Plessis, Canaccord Genuity.

Okay, great, thanks very much. Just going back to your maintenance CapEx, for 2012, can we still expect -- or can we expect that to drop a little bit to that normal CAD24 million to CAD26 million range?

Yes we can.

Okay, and that's a good number going forward?

Yes, I think -- we have been saying it's around CAD25 million a year. So CAD24.6 million is good from a planning perspective.

Andrew Kuske, Credit Suisse.

Thank you, good morning. Just given some of the opportunities you have for growth, would you contemplate rationalizing your US portfolio and just being purely Canadian from an asset standpoint?

Andrew, it's Richard. Just to make sure -- I think we've been pretty consistent over time that the Fund particularly in 2009 when we consolidated the Canadian business, that the focus and the strategies of the Fund would focus on the Canadian market particularly both hydro and wind assets.

At this stage I think certainly we feel there's lots of growth prospects in Canada and we continue to think that we can grow the fund and meet expectations with basically the Canadian marketplace. The US marketplace, as we've said, we have US assets. They are essentially from the 2000 to 2002 period. We have certainly not gone into with the Fund in the US market and have no plans to do so in the short term.

And just because of the opportunities that exist in Canada, would there be a possibility to really dispose of those assets [whether two of them] a Brookfield Asset Management Fund existing or prospectively in the future and then really redeploy that capital into Canada for yourselves?

I'm not sure I understand fully the question, but I believe that again if you take Brookfield Renewable Power Fund today, it has been a terrific vehicle for us in Canada. It has access to capital.

I don't think there's any shortage in the group of capital, and therefore I would certainly think that today if we have opportunities such as Kokish, Pehonan or any acquisition opportunity today, we're pretty confident that the Fund can actually fund those opportunities in Canada. And I hope I've answered your question. If not, let me know.

Oh no, you have. I'm just really asking from a rationalization standpoint. But if we just touch upon financing conditions, I think it's really clear that you've got great capital market access whether it's to equity or to debt. But maybe if Sachin could just address what you're seeing in the market from a spread standpoint in particular on debt right now and how that compares to say the last few years.

Sure, Andrew. Look, most of our financing is project level, all of our financing is project level and spreads have definitely come in in the last few years.

I would say for very high-quality assets like ourselves with PPAs and a stable cash flow profile, those are the types of assets that lenders continue to invest capital into. And we haven't had any issues in terms of spread widening in the last few months just given the turmoil in the US and the peripheral effects of that.

I would say the outlook for that for us remains the same. I think well-capitalized companies with great assets continue to try capital and we're not worried that the -- what's going on in the market right now should impact it.

Okay, that's great. Thank you.

Steven Paget, FirstEnergy Capital.

Good morning and thank you. Just a question -- we have seen some wind projects get power purchase agreements in Quebec.

And given Brookfield's hydroelectric projects in Quebec and presence in Quebec, would you expect to participate more in any future wind power projects that are there? And what has kept you from participating more in them in the past?

It's Richard. I'll just maybe make a few comments, the first one being that our focus has been Ontario, British Columbia and certainly I think Saskatchewan from a growth perspective.

We have operations in Quebec, as you have noted. We have looked at opportunities in Quebec and for many different reasons which I have a long list of, we've chosen not to pursue wind projects in some of the RFPs that Quebec has conducted.

They have had very significant local content requirements. The power purchase agreements have had terms and conditions that we found were less favorable than other jurisdictions that we could participate in.

And looking at sort of our ability and our team and our ability to actually tap into the right projects, we felt that that wasn't part of our focus and strategy at this time. Does that change in the future? We continue to believe Quebec is a good place to do business. The issue is that they've just chosen to run processes that were less attractive to us.

Okay, thank you. At the end of Q1, you were thinking that hydrology levels were looking pretty good. But you ended in Ontario below your long-term average in Q2. So I'm just wondering, was it a very dry second quarter, maybe not as dry as Q2 2010 but dry enough that you felt you had to hold back a bit?

No, I guess it's a good question. From a hydrological standpoint and certainly in the second quarter, you've also have probably witnessed across different jurisdictions that it's been a bit of a flat -- I'll allow myself to say it's been a bit of a flashy hydrological period where we have had great deal of inflows in short periods of time.

So essentially if you look at the average, we were above average in most jurisdictions in Canada, Ontario being the exception. However, in Ontario we also were able to actually store water in our reservoirs because of the actual nature of the inflows, that the inflows were above our capacity to generate power. So that excess had to go into our reservoirs which is why you see it above average at that stage.

Having said that, on average over the quarter, hydrology in Ontario still wasn't back to LTA. So out of prudence, we chose to leave the water in the reservoirs which is turning out to be the right choice in the third quarter which again, we're close to LTA but that was a good decision for us to actually leave a bit of water in the reservoirs at the end of second quarter.

But overall, we continued in the third quarter to have good performance across the systems including Ontario. And even though Ontario is still lagging a little bit behind LTA, we had water in the reservoirs above the average which is helping us in the third quarter.

So hope I haven't lost you in my explanation. But the bottom line is we had lots of water in the second quarter, kept some of it and particularly in Ontario in our reservoirs. And we're finding that the third quarter is pretty well in line with LTS.

That's what I was looking for. Thank you.

Ian Tharp, CIBC World Markets.

Thanks, good morning. So just to follow on with Steven's questions around Ontario and hydrology, I too I guess was a bit surprised coming into Q2 when we had high hydrology and then we saw lower production from Ontario especially.

But I heard your commentary about the hydrology here. It sounds like it was just a dry quarter.

But I guess the main thing is looking forward in Q3, we're seeing it revert closer to long-term average. So my question is do you see anything I guess in long-term trends within Ontario that would lead you to think that that the long-term averages for any of the facilities should be reconsidered?

No, you know, and we do revisit call it long-term averages in every jurisdiction on a regular basis. I will say that having been involved with the Ontario portfolio for a long time, I will tell you that because of a whole bunch of different things like Great Lakes effects and where the facilities are located, the cyclicality of the Ontario portfolio is a bit longer.

Like we tend to sort of have a longer drawn out period of dry spells and a longer drawn out period of wet periods which is why it's tough -- people see quarter over quarter that we are performing under the LTA. But over a long period of time, we revisit this and it continues to be the best estimate for this system. So having -- hopefully when we look at this going forward, we look at a long history, there's no trends that we can discern from sort of the data set and the data points.

Okay, so helpful. So the long-term averages remain intact but it's really just kind of a longer oscillation toward that long-term average?

Exactly.

Okay, and then the other thing, are there any downstream issues in Ontario that preclude you from producing in certain seasons over and above a certain level even if you have available hydrology?

I would tell you that Ontario in particular is -- although it's not generally -- I won't make a general comment that every facility is like this. But I would say it is the jurisdiction where we have the most flexibility.

Like we have rivers that we actually have full flexibility on the river ramping up to maximum and ramping down almost to zero. And that's probably not -- that is very exceptional across Canadian jurisdictions and the US. So I would say we have more flexibility here than we do elsewhere.

Okay, helpful. If I may move on, I know Carmichael's relatively small in the grand schemes, but what are your plans on refinancing that?

Is it roughly the same size of facility? Certainly you've got a long-tail PPA there and a pretty good capacity factor, so could you potentially expand it or what are your thoughts around it?

Yeah, we are looking to keep it at the same level it is at currently. We're not looking to increase it materially or decrease it materially.

Okay, great. And then if I could talk about expansion a little bit, you referred to Saskatchewan. You also referred to Ontario. First off, are you submitting anything in the current Saskatchewan call for power that's coming up in the next month or so?

No, but I think you know the project that we're working on, we're working with the Saskatchewan government on the 250 megawatt hydro project that I've mentioned in the past on these calls. It's called the Pehonan Project. It's really a project that we have in partnership with First Nations and also Kiewit, the construction company.

We feel that that project has received extremely good support from the government and SaskPower and we continue to develop that project to its operational sort of state and that will probably be a five to six to seven year development period. But we're pretty bullish on that. But that is the project that we are currently working on in Saskatchewan currently.

That's it for me for questions. Thank you very much.

John Mould, TD Securities.

Good morning, just a couple of questions. First of all on the [fit] you'd mentioned earlier when you're looking at Quebec, you're not necessarily big fans of the domestic content provisions.

How does that make you think about Ontario's domestic content provisions? And I know it's a little bit early to talk about the ECT projects that the parent has, but would you consider partnering those projects with another company potentially?

Well, let me just answer generically to the question of domestic content. I think if you have looked at some of the Quebec RFPs, the manufacturers of the turbines that are being sort of solicited are the same, right?

So GE got the first round, REpower got the second. And therefore I have nothing against the turbines. We have GE turbines on Prince.

It limits our ability however to tailor the right turbine to the right site, and I think that has been more our concern about having domestic content that sort of skews the equation in favor of a manufacturer in particular. There's all sorts of benefits and there's all sorts of reasons why people do that.

But that has been something that we have been less attracted to. In terms of partnering on projects, again for the right circumstance and the right project and again the right economics, we will partner with people.

We have done so and we continue to look for strong projects that have strong economics whether it has local content requirements are not. But in general, and our own initiatives trying to find projects, that has not been sort of our first choice of where we look.

Okay, thanks, and then just a couple quick housekeeping questions. Powell River, the 10 day outage, was that tied in with the fire that Catalyst had at their facilities there?

Well, I think this was a planned outage with Catalyst. I think that we lost no generation as a result of it and the 10-day outage was planned. So again I'm not sure if it was related to the fire at Catalyst. I wouldn't be able to tell you, but we can look into it and get back to you. But it was a planned outage, I can tell you that much.

Okay, great. And then just finally, your payables came up good this past quarter relative to the last couple. Anything in particular driving that?

Yeah, we have two suppliers -- two contractors in relation to the Comber project which is just -- it's timing related to the completion of the construction project.

Okay, great. Okay, those are my questions. Thank you very much.

(Operator Instructions) Steven Paget, FirstEnergy Capital.

Quickly housekeeping question. Will maintenance capital increase with the addition of Comber or does the run rate of CAD24 million to CAD26 million still apply?

It won't be a material increase, Steven. So I would say you can still use the 24 to 26. We won't have a material increase because of Comber.

Okay, thank you, Sachin.

Ian Tharp, CIBC World Markets.

Hi, thanks. I just wanted to talk about Kokish River. You had mentioned it, perhaps I didn't hear it. But it sounds like environmental permitting is in process now. Again I think you mentioned the timing -- if you can repeat that and then perhaps what the process might be in terms of [vending] that project into the Fund.

Well, there's actually -- the environmental permitting is not just underway. It really is -- we're expecting it probably between now and the end of this year.

We are through all the public hearings and ultimately I think we're really on the final stages of that -- the permitting exercise. That clearly is the next step.

Once we obtain environmental permits for the project, then we're going to go back and make sure that we revise our cost estimates and do an EPC and negotiate an EPC contract. So with an EPC contract, permits in hand and a PPA, then we are in a position to offer it up to the fund as we have agreed in the past.

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

Well, just wanted to take the opportunity to thank everyone for joining us this morning. Again appreciate your presence and we will look forward to next quarter. Thank you very much.