Brookfield Renewable Partners LP (BEP) 2012 Q3 法說會逐字稿

Hello. This is the conference operator. Welcome to the Brookfield Renewable Energy Partners third quarter conference call and webcast. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).

At this time I would like to turn the conference over to Richard Legault, President and Chief Executive Officer of Brookfield Renewable Energy Partners. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining us for our third quarter conference call. With me on the call is Sachin Shah, our Chief Financial Officer. Before we begin, I would like to remind you that a copy of our news release, investor supplement, and letter to unit holders can be found on our website at brookfieldrenewable.com.

Our objective in forming Brookfield Renewable in November of 2011 was to create a global pure play renewable power play company; but more importantly, to continue to build its asset portfolio and operating platform into one of the leading renewable businesses worldwide.

In 2012 alone, we've expanded our asset base by more than 600 megawatts, or 13%, while lowering our funding cost and increasing our distributions to unit holders. Over the last 12 months, our total return to unit holders has been about 30%, reflecting unit price appreciation as well as quarterly cash dividends which are -- which have been increased twice during that same period.

It is clear that with the support of all of our stakeholders, Brookfield Renewable has been very successful in its first year, and we remain very well positioned to build on our achievements in the coming year and beyond.

Our overall financial results over the last two quarters have been well below expectations due to unfavorable hydrology. While disappointing when they occur, these variances from long-term average generation, including large ones from time to time, remain a normal part of the hydrology cycle. For example, whereas inflows in New York and Louisiana have been considerably lower than average this year, it was just last year that those regions experienced record rainfall and even flooding.

It is for this reason that we focus on optimizing our operations in all kind of conditions, and manage our business to long-term average generation, and this approach has and will continue to serve us well over the long haul.

In terms of portfolio expansion and new assets, the integration of the 378 megawatt hydro portfolio from Alcoa has gone smoothly and is nearing completion, as the acquisition is expected to close by the end of 2012. We continue to be impressed by the quality of these assets and their potential to add significant value to our business over time.

Construction activity at all three of our hydro development projects is on scope, schedule, and budget. At the 45 megawatt Kokish River site in British Columbia, clearing and excavation was completed at the intake and powerhouse site, and the first kilometer of the project's nine-kilometer penstock has been installed. In both -- in Brazil, both the Pezzi and Serra dos Cavalinhos facilities, with a combined capacity of 48 megawatts, remain on track for completion in Q1 of 2013.

In terms of new growth prospects, we continue to identify and evaluate expansion opportunities in North and South America as well as Europe. Our growth strategy is focused on securing large-scale renewable power assets or portfolios in our core markets, and our view remains that this is an attractive time to be growing our portfolio on a value basis.

With international growth as one of our key objectives, we are pleased to welcome Lars Josefsson to our Board of Directors. Lars was the CEO of Vattenfall from 2001 to 2010, and steered its growth into one of Europe's largest diversified energy companies, with a significant hydroelectric and wind portfolio. He is an experienced senior executive with a wealth of power industry expertise, and we look forward to his presence on the board and his contributions to achieving our goal of building one of the premier renewable businesses in the world.

On a final note, I want to take a moment to acknowledge the outstanding work and commitment of our colleagues at numerous facilities that were in the path of the recent storm known as Sandy. Our operations team used their expertise, training, and response processes to protect the well-being of our employees, the general public, and the system. The professionalism and the dedication was integral to effective storm preparations and the continued safe operations of our assets and the surrounding communities before, during, and after this historic storm.

I'll now ask Sachin to discuss our financial and operating results, as well as the progress we've made on our capital markets and funding strategies.

Thank you, Richard, and good morning. Generation was well below long-term average in the third quarter, approximating 3,000 gigawatt hours and reflecting low precipitation levels and inflows across Eastern Canada, New York State, and the Midwestern United States. Generation was 26% below average during the quarter, and 13% lower than long-term average on a year-to-date basis.

Generation from our wind facilities was 300 gigawatt hours, an increase of 200 gigawatt hours from the prior year, due to contributions from recently commissioned and acquired facilities in California and New England, as well as the Comber Wind facility in Southwestern Ontario, which was commissioned in the fourth quarter of 2011. Generation for the quarter was below long-term average, which was reflective of the mild wind conditions we experienced in Ontario and California during the third quarter.

Adjusted EBITDA and FFO in Q3 were $118 million and $11 million respectively. As in Q2, the generation shortfall was generally greater in markets where contract prices are higher than our portfolio average. As we look beyond Q3, I can tell you that generation levels from our hydro portfolio for the month of October have returned to average levels in our US operations due to the recent precipitation we experienced. Additionally, our wind farms in Ontario and California are performing above expectations.

As Richard mentioned, our management and operating approach means that we maintain a strict discipline aimed at ensuring adequate liquidity for our operations. Accordingly, we have focused on optimizing our working capital balances, reviewing capital spending, and maintaining a prudent payout ratio based on sustainable long-term performance.

As a result, we have been able to maintain our capital investment this year and expect to invest approximately $60 million into our facilities during 2012, in line with our long-term targets.

At the same time, our liquidity position has remained strong and has increased since quarter end, due to our recently completed preferred share issuance. We currently have approximately $1 billion of liquidity, consisting of cash and the available portion of committed bank lines.

Since the beginning of the year we've completed over $3 billion of capital transactions, including acquisitions, financings, and offerings. Recent activity includes the CAD250 million offering of preferred shares as well as the CAD175 million financing of the Kokish River hydro project with a term of 41 years. Both of these initiatives were completed at an average yield of 4.4%. These financings have provided us with access to stable, long-term sources of capital at very attractive rates, and demonstrate the strength of our capital structure.

Over the last several quarters, we've also optimized our financial position by strategically reducing the cost on our borrowings by approximately 50 basis points on the total debt portfolio in our business. We expect that our units will be listed on the New York Stock Exchange by the end of 2012, which should enhance our trading liquidity and further access to capital, supporting our growth prospects in 2013 and beyond.

Based on our results to date and generation outlook for the rest of the year, our distribution payout ratio for 2012 should approximate 95% of FFO, which demonstrates the resilience of our business, considering the generation shortfall we've experienced over the last two quarters. We expect that our payout ratio will revert back to the target of 60% to 70% of FFO annually as generation levels normalize.

The underlying value of our business today approximates $32 a share based on our most recent IFRS valuation. This value assumes the current market environment for prices and interest rates, and uses our best estimate of future contractual revenues.

As we look ahead beyond the first year of BREP's existence, our objectives are simple -- increase distributions by 3% to 5% annually, and grow the value of each share, to deliver a 12% to 15% total return to our shareholders.

In that regard, we believe there is an incremental $6 to $8 of value per share that we can surface through recontracting expiring PPAs, accretively reinvesting surplus cash from operating and financing activities, and from pursuing high-value projects in our development pipeline.

These initiatives are in addition to the significant value we can create through our global M&A strategy, which has fueled substantial growth over the last ten years. With a strong balance sheet and liquidity position, and a focus on organic and external growth opportunities, we believe we are well positioned to deliver on these return objectives.

That concludes our formal remarks today. Thank you for joining us this morning. Richard and I would be pleased to take your questions at this time. Operator?

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Juan Plessis, Canaccord Genuity.

Thank you. My first question is in regard to some of the issues that have been going on in Brazil with respect to the renegotiation of some of the concessions that are up for renewal over the next couple of years. Can you talk a little bit about how the reductions in electricity prices for these renewal of concessions, impact your expectations for power prices when you renew your contracts in the next couple of years? And perhaps what the government's recent actions means for your appetite to redeploy capital in Brazil?

It's Richard, Juan. Thank you for that question. So, I think -- let me answer the first part, but provide a little bit of context to this.

First of all, the government of Brazil has certainly, I'd say, made it very clear that one of its objectives, in light of sort of a slowing economy in Brazil, was to try and reduce rates to consumers in order to actually help the economy in terms of its growth prospects.

So, they have two strategies that they're employing to actually achieve that. The first is reduced charges, and certainly the taxes relating to electricity sales in Brazil. Which, obviously, I think we can all say, we're very supportive of that approach.

The second is to actually convert concessions that were coming due between now and 2017, and to convert those concessions into cost-of-service models. And to achieve that, what they were doing is giving the incumbent -- the concessionaires -- the right to actually receive the undepreciated replacement value of the plants that they operate today.

The second component is that they would be entitled to continue to operate the facility for a further 30 years by essentially having a cost-of-service model, therefore, just flowing through their cost of producing the power from these facilities. So, achieving what the government is trying to accomplish, which is, by reducing the actual sale price that they're entitled, they would reduce prices to consumer -- in the regulated market, I must add.

So, that's really the context. And when we look at the impact of this proposal, it is very difficult at this stage to actually evaluate. There's been lots of different things written on the topic. But just to put it in perspective, there is over 400 amendments in front of Congress that today is being evaluated on this piece of legislation. So, again, to actually be precise about the impact on prices, I would certainly think it is premature for to give you some insight into that this morning.

However, I would say that we're very much focused on three key drivers in Brazil. The first is, we continue to think that demand growth, meaning GDP growth of the country, will drive the actual demand for power. We've had a position for a number of years where 5,000 to 6,000 megawatts per year is required, and we continue to think that that is exactly what's going to occur in the future, particularly if prices are reduced in power in Brazil. Therefore, it should stimulate demand for electricity, and therefore increase demand.

The second driver is the supply response. And our experience in Brazil is that the supply response has been not necessarily just in time. It's been slow, and ultimately sometimes late. And today, what we understand to be on the drawing boards in terms of construction or development, will fall short to actually service that 5,000 to 6,000 megawatt demand growth year over year.

The third driver, just to make sure -- and I know this is a lengthy answer to your question -- but hydrology in the country is a very critical factor. It actually should not be a long-term driver, but in the short term it does drive prices up and down because of the fact that, if it's a dry year, there really is very expensive resources they have to bring online to service that demand.

So, coming back to your question, Juan, the first one being, what's the prospect for and the impact on prices -- in the near term, maybe it does put some downward pressure on the overall market. Because, you know, the concessions that are being targeted here are about 22,000 megawatts. They're large plants, hydro plants, owned by state-owned companies for the most part. And essentially, once that's in the system, it really will be driven -- the prices and the expectation should be driven off GDP growth and the supply response to that to the growth and demand of electricity.

So, we're still bullish and we still think that in 2014, '15, that prices should be attractive. And if they are not, because of these measures, then we would probably revert to shorter-term contract, because longer term, we think the fundamentals will come back.

The appetite for Brazil, I think, remains the same. This is a country that we continue to feel that is really going to have significant growth in Latin America, and we continue to think that investing there is the right strategy for us, and we're still bullish on what the prospects for particularly hydroelectric facilities in that country, may be. So, that -- long way to answer your question, Juan, but I wanted to make sure that I respond fully to that particular aspect.

No, that was great color. Thank you for that. And maybe you can remind us when your concessions on the Brazilian assets begin to expire?

Well, we have four very small plants that I would say fall within that category, and these are small concessions that we acquired from a company called Energisa a while back. But these don't -- you know, probably add up to less than 15 megawatts in total. Then when you look at sort of the other concessions, the more -- probably nearest-term would be Itiquira in 2024.

Great. Thank you very much.

Bert Powell, BMO Capital Markets.

Rick, I just want to talk a little bit about your -- the acquisition M&A opportunities for Brookfield Renewable. You know, you talk about Europe, and North America, and South America. I'm wondering if you could just give us a little bit of color in terms of what you're thinking in each of those markets. And my assumption would be, given where prices are in the US, it's probably a pretty attractive time to be shopping. So, I just want to get a sense of your pipeline and what you're thinking about each of those markets.

Well, your last comment would probably be -- form part of my answer, which is, at current sort of price environment in a lot of our markets, and I should say just the US, obviously, is a very attractive market right now, because of where prices are. So, if you have capital and you can invest and have a long-term value perspective on these facilities, I think it's a great opportunity to acquire facilities today.

Brazil's no different, because the same dynamic as we've just said -- if the government does reduce prices, and we believe in the long-term dynamics and fundamentals of that market, it's very attractive to go, sort of, you know, buy something.

When you look at 2012, whether it is the Smoky Mountain facilities that we acquired from Alcoa, whether it's Alta VIII, whether it's Western Wind acquisition or Santa Ana in Brazil, we seem to be looking, and certainly finding, very good quality assets at values that we think are very attractive over the long term. So, to answer your question, we think that those -- that our core markets are extremely sort of -- today, we are bullish and certainly optimistic that we can secure further acquisitions on those fronts.

I would say the other markets that we've been looking at -- and I've said this in other conference calls in the past -- two markets -- Australia and Europe. I've said before, I think Australia -- still a very attractive market -- very attractive environment for us to invest; but dominated by very large players. So, an entry strategy in Australia is very difficult, if you ask us. So, do I see something in the immediate term? Not for the moment; but we continue to look.

Europe -- obviously, this is a place where we feel there is a number of opportunities to deploy capital. There is obviously risk that goes with that capital.

So, we're being very patient, and doing our homework, and looking at all of the things that are going on in Europe, and trying to make sure that if we do acquire something, our first choice has been, as we've said in the past, to acquire portfolios from European companies, but that would actually own assets in our core markets, meaning North and South America. Or, to acquire something in Europe that is of a size and a risk profile that fits what BREP is looking for today, which is stable cash flows and ultimately some -- a technology that we are competent and capable in. So, that would be sort of the two areas I would say, to answer your question, Bert.

And a question for Sachin. Just in your comments, Sachin, you talked about -- you know, October, return to average levels in the US. Did you mean North America? Is Canada not come back in October?

Yes, I meant the US, Bert. I mean, I'd say Ontario's still been a challenge, and I wouldn't want you or anyone on the call to have the view that that's come back to average levels. It's better; but I think the US has certainly shown a great response based on the precipitation we received.

And then just lastly, Sachin, you talked about surfacing $6 to $8 of value. I assume you mean in addition to the $32 of IFRS that you currently have?

Absolutely.

And this is just -- you went through it pretty quickly, but this is just an opportunity to recontract -- is a bunch of little things that add up? It's not necessarily a change in assumptions around discount rates, or those kinds of things?

You're absolutely right. I think what we're trying to say, Bert, to our investor base and stakeholders, is that there is the very active M&A program where we can deploy capital and we may need to issue equity over time to do that; but there's also a very large opportunity set organically in the business to surface value without having to issue shares, and we're very focused on both. And you're right; there's a number of smaller things that we're focused on that can lead to $6 to $8 of value over time, and that's the piece that I just wanted to highlight.

Thanks for the clarification, Sachin.

Andrew Kuske, Credit Suisse.

I think it might have been in either the letter or the supplemental, where you talked about lowering your borrowing costs by about 50 basis points. Could you just put that into context on the decline in nominal, and then also any discussion you have around extending your duration in your maturity schedule?

Sure. Hey, Andrew, it's Sachin. Yes. I mean, I guess we -- what we've been focused on very actively through the year is taking advantage of just the very low rate environment. I mean, clearly, there's a lot of folks who think that we may be in a prolonged low rate environment; but our view is that, if we can maintain or extend duration in this environment and refinance near-term maturities at better all-in rates, then that's something that will surface significant value over time and just accrete more cash flows back to our equity holders.

In terms of the 50 basis points, on our total $6 billion portfolio we've been able to repay higher yieldings debt in the business. In particular, we had a few pieces of debt in Brazil that we paid down in the earlier part of the year, and we've been able to finance the business on a long duration low-rate basis, similar to the two financings we completed in October that we just referenced, Kokish 41-year financing at 4.45%, and a preferred share issuance at 4.4%. So, those are the types of things we're working on, and we've seen a real benefit in our capital structure as a result.

So, if I can just continue on the point of the extent of the duration, how do you think about that just from a cash flow basis? Because, obviously you've got a lot of inflation riders on your contracts. You effectively get a cash flow enhancement over a period of time, where you've locked in your interest costs, which is the bulk of the capital base underlying some of the facilities. So, how do you think about your return on capital, really, over a period of time on a going-in basis? And then, say, on an exit basis, when the debt rolls off or matures?

Yes. I think the way we would think about it is, ultimately, you can take advantage of low rates in two ways. You can play the whole floating rate game, which is something we don't do, and we've -- you're fully aware, with many of the Brookfield companies, we would opt for a very long duration and pay that spread.

But, you're right. These are real return assets which generally will benefit from some form of inflation protection, which we do have in many of our PPAs. And our view is that, going into a transaction, we will evaluate the returns based on the current cash flows and our view of future value. But at the back end, if inflation works in our favor, we want to capture all of that and keep that for the shareholders by locking in the current rate environment for as long as possible.

If you look at our debt portfolio, both at the corporate and the nonrecourse level, they are nine and ten years in duration respectively, and we think that provides significant cash flow certainly on the capital side, with lots of potential upside cash flow value coming back to shareholders due to rising prices or a mildly more inflationary environment.

That's very helpful. And if I may, just one final question, really directed to Richard. And it relates to the new board appointment. To what extent, you know, does this really help you from a European standpoint? Because obviously Vattenfall's a very large player in Northern Europe. So, there's a wealth of connections that really go with that. And then, to what degree does this also help you in things like district heating systems where other parts of the Brookfield Group now have exposure, because those systems are usually quite predominant in European utilities?

Well, certainly, I think Lars brings a wealth of experience and expertise. He's certainly very well regarded in the European power space. So, we're extremely pleased that he's accepted to join our board. As you know, our board -- Brookfield has been quite present in North and South America in the power space. So, we really wanted to add to the -- call it, resumes of people that are involved in our business today, someone that actually had the European experience.

So, you know, I think it will certainly help, and certainly I think Lars has a number of relationships that I'm hoping that will be helpful to us in growing our business.

On the second part, sort of -- I'm not sure I caught that last part of your question.

Just on district heating. And so, another part of the Brookfield Group's -- you know, Brookfield Infrastructure Partners along with the [institutional] capital's been involved in a district heating system. They made comments about liking that business and being involved in it to a greater degree. Do you see any opportunities for BREP within that business?

Well, I think the answer is, BREP's kind of more in the renewable space. District heating is very much a different business. And, as you know, Brookfield Infrastructure Partners invested in the Enwave facilities in Toronto, so I think this is -- I think they're quite excited about the prospects for that.

And you're absolutely right that in Europe it is certainly a business that would offer, I think, a lot of potential. So, can Lars help the Group on that front? I would think that areas that he -- that overlap in Europe with district heating. I don't think it's an opportunity for BREP, but it's certainly, I think, based on what my understanding of BIP's objectives are, that it certainly is a pretty neat opportunity for BIP.

That's very helpful. Thank you very much.

Ian Tharp, CIBC World Markets.

So, turning to the quarter, obviously very dry conditions, Sachin, you alluded to, and Richard, in your comments. So, is there -- I guess you're seeing recovery in the US in Q4. Is there any thought that there'd be a spillover effect -- you know, certainly we were well below long-term average in Q3. Is there any spillover effect that you would anticipate into 2013, given the dry conditions over the last couple of quarters?

I would be really hesitant to make that type of a projection. I think what we know from the portfolio is, it can turn quickly. As we saw in the month of October, significant precipitation can really change the dynamic.

That being said, you know, we don't -- as much as it's easy to focus on very short-term weather patterns, given that we have to report quarterly, this is about long-term averages in a very long cycle of hydrology. And one of the things that, if you look back over the last five years of this total portfolio -- recognizing that a portion of it was public through the old income fund and a portion was privately held in Brookfield -- you easily point to two out of the five years being, on a total portfolio basis, above long-term average, meaningfully; and two being below; and one being right at average.

So, we have a lot of conviction in the long-term analysis that we do, and the weather patterns that we are exposed to. But clearly, I wouldn't want anyone to infer that the spillover will just create a malaise. Is that clear?

Yes, absolutely, and I understand the long-term cycle there. So, in Q4, as, Sachin, you talked about, I guess 95% of -- payout being at 95% of funds from operations, probably for the year.

Yes.

Does that assume a return to long-term averages for each of the regions?

We don't assume it on a binary basis, sort of starting on October 1st. We do have a forecast of where it will get to. But we have not included a return for Ontario in that projection, and I think what we've seen in the US is slightly better than what we were anticipating.

Okay. And then I'd assume in 2013 the numbers that you referenced, assume just long-term average production in the year?

Yes. Absolutely.

And then just finally on this point, is there any risk that the long-term averages would be revised down, on, I guess, in particular the hydro side?

So, it's Richard, Ian. As you know, we do this work every time we acquire, and that's -- would go, like when we acquired Smoky -- the Smoky Mountain facilities, no different. We do as long as possible sort of dataset, and we analyze hydrology throughout time. I think we continue to revise that, because every year we operate, we add a year of data. So, we continuously sort of update our numbers.

So, at this stage we certainly are very confident that everything we've done -- like we say, it's -- the -- clearly, I think, these last two quarters have been severe in terms of shortfall, and at the same time rare, but not unheard of. So -- but we continue to believe that our long-term averages are solid, and that's what we continue to sort of work to.

Okay. Helpful. And then, Richard, going back to your very helpful commentary on the Brazil market, you had mentioned that in a low-hydrology year for Brazil, they start bringing very expensive assets up to the top of the merit order. So, by that token, do you see that there might be a little less interest in hydro-based capacity as the country builds out its capacity? And I guess the next part of that question is, would that lead you to be a little more interested in some of the other technology classes that might provide growth opportunity in Brazil?

Well, Ian, I think that if you sort of look at Brazil today, the lowest-cost resource is always the best sort of -- the best bet. Because in the end, the lowest-cost resource will always be the most profitable if, again, the most expensive resource sets price.

So, I think that we continue to think that the hydro space in Brazil is the low-cost resource that the country can bring onstream. When you look at sort of bringing in gas-fired facilities, wind, even biomass to some degree, it has, clearly, I think, a competitive cost. But on natural gas or oil-fired, obviously that's going to be a lot more expensive than what we've seen in the hydro space.

So, again, I don't think that it changes our perspective; it's just that it is a -- it has less fuel diversity than most markets, so that when hydrology is low, then ultimately that has a more severe impact on prices. But when hydrology is high, then clearly the prices go back to where they should be, I think, on a new entrant basis. And that's -- I would think the most competitive resource is hydro.

That's helpful. And then we've talked about Australia and Europe, Richard, in terms of M&A opportunities. I wonder if you can talk about some of the other markets that might exist in South America for opportunities, for example either Peru or Chile?

Well, I think in Peru -- I'll start with Peru and Colombia. I think -- you know, Colombia's a bigger market. We actually have a little bit of a footprint in the Group there by having acquired a distribution business, and that was acquired by a fund and BIP.

But when you look at sort of Colombia, we think that's a great opportunity to look at -- for hydro facilities in that country. But it is still a very small market. So, I wouldn't want you to think that we're going to in a big way deploy significant capital in that country.

Peru is even smaller. And ultimately, like I say, there are opportunities, but I wouldn't say these are huge markets in which we can deploy significant capital.

Then Chile, I think, has been something that, because the Group owns the transmission businesses in Brazil, or in Chile, we're precluded from investing in generation, because they go right up the chain no matter what. So, Chile's not a market in which we could invest in the renewable space to begin with. So, that leaves Brazil, Peru, and Colombia, Brazil being -- continues to be the most -- the largest market and the biggest potential for us.

Very helpful. And then finally, the Alcoa assets. Certainly it sounds like integration is going well to date. I wonder if you can speak to any of the efforts that have been made at this early stage around potential recontracting of those assets once they roll off, I think in 2014?

Yes. I think the focus has been more to ensure that we can -- when we close, that we have everything we need and that we can operate these things safely, and that we can operate them within and comply with all of the different things that we need to comply with, as part of our licenses.

So, the actual recontracting of them in 2014 -- we're kind of very early stages of that, but we continue to look at the dynamics of that market and continue to think that this is a great -- it's a great market. One, it has growth that is much more significant than the Northeast would be. So, growth in that particular jurisdiction is probably twice as much as what the Northeast growth of demand would be.

And in addition to having significant amounts of coal that will actually sort of, I think, today, with -- and I'm not -- don't take me -- don't quote me on this, but the elections -- I think having Obama come back into power -- clearly, I think, we believe that coal facilities will continue to shut down, which is positive for the Smoky Mountain facility. So -- particularly in that particular timeframe of 2014, '15, '16.

So, these will be valuable assets going forward, and we're quite optimistic as to what we can do with them from a market perspective. But is very early goings.

Okay, great. Those are my questions. Thank you very much, gentlemen.

Nelson Ng, RBC Capital Markets.

Most of my questions have been answered, but I just have a few additional ones. For the Kokish facility, I believe that's a partnership with the First Nations. Is it a 50/50 JV?

No, it's actually 25% First Nations, 75% Brookfield.

And how will that be financed? Will they be putting real equity, or will they be providing a bridge, or is there some other preferred return arrangement?

That's a good question. I think, you know, we are providing them some financing for their share of the equity required for this facility. If you've actually sort of noticed, we've completed a financing for Kokish. So, a substantial part of the actual project, because of the nature of the contract, which is 40 years, will be financed through debt. So, the remaining equity -- we will provide them a loan at certainly market terms that -- the goal is really to have them repay that loan fairly quickly, so that we have a true partner.

And I think, you know, one thing -- the Namgis have been a great partner. They've helped in terms of developing this project; supported it in a big way. And I do think that, going forward, we think the alignment of interests here are certainly, I think, one of the better projects we've worked with First Nations in Canada, up till today.

Sachin, you mentioned that you paid down some Brazilian debt earlier this year to lower your overall borrowing costs. Is there a longer-term strategy to move -- effectively move debt from Brazil to North America?

No, I -- definitely not, Nelson. I mean, clearly, financing, if you look at our two projects under development today, we've got local currency development debt there on a long-duration basis. I think we just had couple of pieces in the portfolio of debt that we didn't like the spreads that we were paying, and the interest carried. But our overall financing strategy is still a local currency strategy, so we can mitigate the currency exposure to our invested capital, and Brazil is no different in that regard.

Okay, thanks. And just one last housekeeping item. What's the expected maintenance CapEx for the rest of the year? And I was just wondering whether there's any large maintenance programs coming up in the near term.

So, we are projecting a total CapEx spend this year of approximately $60 million. We've completed about half of that work, and I would say that the remaining half -- it's -- clearly, there's a lot of work to do from now to the end of the year, but nothing is -- no one project individually is material or problematic in terms of what we need to do, and I would suspect that there is a likelihood that some of that may spill over into 2013; but nothing that gives us any cause for concern.

Matthew Akman, Scotiabank.

One area we haven't touched on much is Ontario, and there've been a lot of political machinations and concerns among some of the companies about renewals of gas-fired contracts. I'm wondering how you guys are feeling about Ontario and the environment here right now?

Meaning -- it's Richard. So, I assume you mean generally in terms of the environment, to invest in Ontario?

As well as specifically related to -- I think you have one gas plant?

We do, yes. So, let me just -- investing in Ontario over a long period has been, I think, very successful for us. We have great assets in the province. And obviously, you know, this is no different than -- there's lots of things that are moving around from a regulatory perspective. There is an excess of base load generation in the province. So, meaning that there's too -- in hours where there's not a need for the power, there is an excess of power that typically services and is hard to actually shut down. So, typically, nuclear plants, et cetera.

So, the dynamics from a demand -- supply/demand perspective are clearly not positive right now in Ontario. But, coming back to the fundamentals that we have in that province, in 2009 we basically contracted all of our hydro portfolio. So, when we look at our portfolio, we're extremely well-positioned in that province.

There are two areas, I would say. One is the gas plant. So, it's a non-utility generating contract that goes back to the early 1990s. That is coming due in 2014. And we are trying to negotiate with the government, but obviously I think not just Brookfield, but everyone in the context of the surplus base load generation that we talked about -- trying to do that at this stage is more difficult than ultimately would be, should the supply/demand dynamics be more positive.

So, we're still working with industry participants. And certainly, I think, looking to make sure that these assets continue to be productive in Ontario. And I think that the alignment of that particular goal is quite prevalent, I think, with the government, the OPA, and industry participants. It is more the context and the timing of them that is the issue. So, on NUG contracts that would be, you know -- I'm not sure if there were other aspects of the Ontario market that you want me to address?

No. I guess I'm just wondering -- I mean, people talk about the political risk in Brazil, and that gets a lot of profile. You know. Given the machinations about plant cancellations in Ontario, Brazil, electricity market reform, or just the dramatic economic downturn and issues in Europe -- I mean, where would you guys rather put your money right now? Or is it just the strategy of, let's diversify across a lot of jurisdictions because there's issues everywhere?

Well, you know, the -- as they say, risk and beauty is in the eye of the beholder. So, when you look at sort of these various markets, there -- the common thread here is, worldwide, economies are struggling to sort of kick-start their economies and grow their economies.

So, whether they're moving around rules to be able to facilitate that -- which is very much what Brazil is doing today -- or -- the same is occurring in Canada in many jurisdictions. But there's -- I would say there's political and regulatory flux across all jurisdictions.

So, diversifying geographically, as you put it, I think is very much part of our plan. So, we think that if we invest in different jurisdictions, and certainly I think understand the risks, and factor that into what we're looking for in terms of return, it's an appropriate, and certainly I think a very positive time, for us to deploy capital for value.

Because, with complications and what we're talking about in various jurisdictions, I think there's a better value proposition that's offered to us if we can deploy the right resources to understand the risks. So, I think diversifying geographically is part of our strategy. Diversifying from a technology perspective has been part of our strategy as well. But I would say that the primary focus of our teams today would be on geography more so than technology.

Great. Thanks. That makes sense. Those are my questions.

(Operator Instructions). Steven Paget, FirstEnergy.

On Pehonan, first, could you update us on progress there? And second, on a more general basis, when you look at Canada do you see further opportunities to build assets like this?

First part of your question -- I'll answer the second part of your question first, which is the potential to build larger-scale hydro projects in Canada. Because Pehonan -- just for context, Pehonan is a 250 megawatt project that we are developing on the Saskatchewan River. I do think that there is a tremendous potential still in Canada. Mainly, I would say, Ontario; Quebec; Manitoba to some degree; but I think BC would be the other place.

Now, the potential is there, but infrastructure is scarce to actually connect them back into a place where they can be productive in service load or service demand. So, there are challenges, but I do think there is a potential to do this.

So, coming back to your first part of your question, on Pehonan, I think that there is -- the Saskatchewan government, and certainly SaskPower, has been looking at all of the alternatives. And today, I would say that we've slowed down our development efforts on Pehonan. Simply put, is that, you know, they're evaluating whether there are other more economically -- economic dispatchable assets that they can build for that market and their needs.

But I do think longer-term, this is a project that -- like we say, this is all site-specific. So, the site is very attractive. We had the support and have the support of the government over the longer term. And it's more about timing of when you actually develop this project. So, I would say those activities have slowed down today.

Thank you. I appreciate that update. Second -- and I understand there's a process ongoing, but on Western Wind, is the opportunity that you see largely based on the development potential of the US assets that haven't been built out yet?

Yes. Like -- I can say that in Western Wind in the third quarter we acquired 17% of the shares. We do believe the company's portfolio is attractive and complementary to our Western facilities or Western asset base. So, whether that's operating facilities or, in addition, some of the development opportunities that they may have -- again, when you look at California and our footprint on the West Coast, like I say, this is attractive and complementary.

So, we're certainly, I think, very comfortable with the value of our investment in those shares, and see a potential in the future. As you know, the company has made it very public that it is -- it has an ongoing sale process to sell the company, and we're monitoring that situation very, very closely.

Well, thank you. Those are my questions.

We have a follow-up question from Ian Tharp of CIBC World Markets.

Richard, just picking up on your comment regarding the markets here in Canada, we haven't spent a lot of time aside from Ontario, but Quebec certainly has one of the more active processes expected in the next year or so, for new power procurement. So -- and you also have a very good pipeline of development opportunities. So, could you touch on your potential opportunity in Quebec? Do you have partners there and sites that might be eligible for bidding into that RFP?

Well, Quebec, I think -- as you know, without sort of making political comments -- but certainly, Quebec's landscape with the minority government has gotten way more complicated than it was.

I think, at the end, we have always looked at Quebec as a potential for us to expand, but have failed really to actually find the right circumstance, the right contracts, the right partners. And I would say there's probably no new prospect that I can actually tell you.

So, we're looking, but certainly more guarded, based on what we see in the future. Because we certainly see that if the current government stays in place, or becomes a majority in the future, we see a reduction in the, call it, independent power producers of Quebec. Meaning, there's -- be less a push on having private interest build new facilities. At least, that's been the public statements the government has made. So, at this stage I would say we're just watching.

Okay. Helpful. And then just very briefly on Brazil, you have the two projects, hydro facilities, coming on early next year. And maybe you touched on it in terms of your view of the power markets there. But, what are your expectations around the first couple of years of operation, in terms of power sales? Are you able to strip it out by month or by quarter, or is it really into the spot market?

Oh, none of it is in the spot market. Like -- the -- in Brazil, the spot market is really a balancing pool, and very little volume gets transacted on that balancing pool. It really is just for utilities or distribution utilities to actually buy whatever their shortage is and to follow load. And at the end of the day, like I say, it's not a very efficient market -- meaning that, like I was saying, when there's -- hydrology is high, prices on the spot market are low; and when hydrology is low, then prices go to near maximum. So, we don't really want that volatility.

So, in 2013 I can tell you we have no maturities. We've contracted all of our power in 2013. And what we're looking at is really, what do we do in 2014? Because we do have maturities in that particular year that are not contracted today.

We do see that we have some time, because the -- like, the timing for us would probably be midway through 2013, to make a decision. Unless we see opportunities between now and that time which would give us the right pricing expectation, we'll sort of be patient and let the dust settle on all of the rules that are being implemented today.

Okay. Helpful. So, by your comments I take that you have sold the output of these two new facilities through at least 2013.

That is correct.

Okay. Great. Those are my questions. Thank you.

There are no further questions at this time. I'll hand the call back to Richard Legault for any closing comments.

Well, again, thank you very much for joining us this morning. And really, we look forward to the fourth quarter, and we look forward to a lot of rain. Thank you very much for joining us.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines. Thank you for participating, and have a pleasant day.