Capital Power Corporation · TSX:CPX
Capital Power — Investor Day (December 2015)
76 slides from Capital Power's investor day presentation, Dec 3, 2015
Slide 1: 2015 Investor Day: Positioned for the future
CAPITAL POWER 2015 Investor Day December 3, 2015 Positioned for the future
Slide 2: Forward-looking information
Forward-looking information Cautionary statement Certain information in today’s presentations and in responses to questions contains forward-looking information. Actual results could differ materially from conclusions, forecasts or projections in the forward-looking information, and certain material
Slide 3: Our management team
Our management team Brian Vaasjo Jacquie Pylypiuk President & Chief VP Human Resources Executive Officer Kate Chisholm Darcy Trufyn SVP Legal & External SVP Operations, Relations Engineering & Construction Bryan DeNeve Mark Zimmerman SVP Finance & Chief SVP Corporate Financial Officer Development &
Slide 4: Agenda
Agenda Time Topic Presenter 10:00 am Introduction Randy Mah Positioned for the Future Brian Vaasjo • Delivering on strategy • Positioned for success • Alberta Climate Leadership Plan Alberta Power Market Outlook Mark Zimmerman Growth Pipeline Optimizing Operations Darcy Trufyn Finance Overview Bryan
Slide 5: Delivering on Strategy
Delivering on Strategy Alberta Climate Leadership Plan Brian Vaasjo, President & CEO
Slide 6: Company overview
Company overview Growth-oriented North American IPP with ownership interest in 17 facilities in Canada and the US totaling more than 3,200 MW(1) Young and modern fleet of assets Proven operating, development & construction expertise Strong contracted cash flow base supports annual dividend g
Slide 7: Focused strategy, positioned for the future
Focused strategy, positioned for the future Strong existing operations Continued operational excellence AB greenhouse gas (GHG) strategy impact mixed Enduring financial strength Strong balance sheet Generating FFO growth which supports a growing dividend Significant growth opportunities Ge
Slide 8: Capital Power's value proposition
Capital Power’s value proposition 8
Slide 9: Delivering operational excellence
Delivering operational excellence Decreased operational risks Improved performance Lower costs Operational excellence 3 years of progressive achievement of excellent performance 9
Slide 10: 2015 Accomplishments
2015 Accomplishments Delivering on corporate priorities Continued strong operational performance targeting 94% average plant availability Adding 3 new facilities • Shepard Energy Centre (AB) • K2 Wind (ON) • Beaufort Solar (North Carolina) Transitioned Genesee 4 from development to constructio
Slide 11: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Coal emissions Renewables acceleration Alberta merchant market 11
Slide 12: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Government plan and Panel recommendations Carbon price • Economy wide carbon price starting at $20/tonne on Jan 1/17 and increasing to $30/tonne on Jan 1/18 • Existing Specified Gas Emitters Regulation (SGER) replaced in 2018 with a Carbon Competitiveness Regulation
Slide 13: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Accelerated phase-out of coal facilities, replacement with renewables and merchant natural gas • Phase out coal-fired power by 2030 and replace at least 50-75% of retired coal generation with renewable power • Panel recommended central procurement of renewables, by
Slide 14: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Phase-out of coal facilities Generation End of Life Coal retirements Facility Capacity (MW) (current Regulations) • Capital Stock Turnover, Federal Battle River 3 149 2019 Government regulations Sundance 1 288 2019 H.R. Milner 144 2019 • No coal emissions post-2030
Slide 15: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Compensation A component of compensation for early retirement could be the ratio of reduced asset life to the current remaining life multiplied by Net Book Value (NBV) NBV of our coal assets will be ~$2 billion at end of 2015 Remaining life of our coal units are
Slide 16: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Maintenance of Alberta market design Under Climate Leadership Plan, new renewable generation will be timed to replace two-thirds of retiring coal-fired generation Ensures existing assets are not adversely impacted by oversupply Ensures new gas-fired generation c
Slide 17: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Expected incremental impacts 2018 to 2020 (~ +$20M average EBITDA(1) per year) - Coal compliance costs partly recovered through higher power prices + Utilize existing inventory of carbon credits + Higher power prices benefits natural gas and wind facilities + Reduct
Slide 18: AB Power Market Outlook Growth Pipeline
AB Power Market Outlook Growth Pipeline Mark Zimmerman, SVP Corporate Development & Commercial Services
Slide 19: Bright future
Bright future Key takeaways Have the talent and resources Growth to capitalize opportunity set dramatically increased Alberta power prices have bottomed 19
Slide 20: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Key elements Coal retirements (2030) Renewable replacement Natural gas replacement Carbon Competitiveness Regulation Market design 20
Slide 21: Alberta market forecasts
Alberta market forecasts Alberta Energy Prices(1) $/MWh $/GJ 100.00 15.00 75.00 10.00 50.00 5.00 25.00 0.00 0.00 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Power Forwards Nov 30 /15 Gas 1) Power and gas forecasts represent the average forecasts of three leading 3rd pa
Slide 22: Carbon tax: impact on pool price
Carbon tax: impact on pool price Some variable cost increase will be passed through power prices 1) Assumes allocation based on Cleanest Gas Standard of 0.4T/MWh, and the following intensities (T/MWh): coal = 1.05, Simple cycle & cogen = 0.55, Combined cycle = 0.45 22
Slide 23: Illustrative view of new supply
Illustrative view of new supply Alberta supply and demand (Gigawatts) 25 Generic Renewables Generic Gas Other Wind Hyrdo Natural Gas Coal (1) Demand (2) 20 15 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 1) Retire
Slide 24: Alberta opportunity set
Alberta opportunity set “6 GW of coal = 4 GW of renewables and 2 GW of gas” Significant investment required: 4 GWh of renewable energy • 150 MW / site • 33% capacity factor – 10-12 GW capacity • > 80 sites = $24B 2 GW of gas replacement energy • 4 NGCC sites = $4B • PLUS: gas peaker for wind int
Slide 25: Capital Power is the leading IPP developer in the AB market
Capital Power is the leading IPP developer in the AB market Generation built in Alberta since 2004(1) 1,500 Renewables Thermal 1,000 (MW) 500 0 Capital Power ENMAX TransAlta ATCO Other 1) Excludes generation for oilsand developments and coal-fired unit expansions. 25
Slide 26: Genesee highlights
Genesee highlights Genesee Energy Centre In the new environment • Infrastructure • Stakeholder relations • Footprint • Transmission • Water • Trained workforce 26
Slide 27: Genesee highlights
Genesee highlights Genesee Energy Centre Mitigate GHG volumes • Operational efficiency • Fuel conversion Life extension • Carbon capture and storage • Conversion to natural gas Possible new opportunities • NGCC – Genesee 4&5 • Peaking facilities • Solar 27
Slide 28: Halkirk 2 "H2"
Halkirk 2 “H2” 150 MW wind facility next to the existing Halkirk facility Investment of ~$300M AESO interconnection application filed Application for permits and supporting studies underway Operational and construction cost savings with experience from Halkirk 1 Locational advantage with
Slide 29: Capital Power's Alberta advantage
Capital Power’s Alberta advantage Project development and construction experience • Leading developer and constructor • Proven construction management experience – on schedule and on or lower than budget Robust development pipeline • Halkirk 2 and other greenfield renewable sites Development o
Slide 30: Alberta carbon offset trading
Alberta carbon offset trading Capital Power is a leader in AltaGas Ltd. ConocoPhillips Balancing Pool developing and originating 2% 2% Canada Resources Corp. offsets in Alberta and 2% active in carbon markets across North America In May 2015, Capital TransCanada Energy Ltd. CP Energy Marketing P
Slide 31: Growth opportunities
Zznxcn opportunites @ wing 0 Natural Gas Capital¢> 31 Power
Slide 32: Bright future
Bright future Key takeaways Have the talent and resources Growth to capitalize opportunity set dramatically increased Alberta power prices have bottomed 32
Slide 33: Optimizing Operations
Optimizing Operations Darcy Trufyn, SVP Operations, Engineering & Construction
Slide 34: Asset optimization
Asset optimization Our journey continues 2016 is year 4 of our 5 year optimization program Continuous improvements achieved: spending smarter and increasing availability Substantial reduction/mitigation of risks Industry leading Health, Safety, Environment (HSE) performance Validating impr
Slide 35: Fleet performance
Fleet performance 97.0 Availability 96.5 96.0 95.5 (%) 95.0 94.5 94.0 93.5 93.0 2012 2013 2014 2015F 2016B 2017T 2018T Operations Excellence + Reliability = Increased Availability 1) Genesee has two planned outages on even years and one planned outage on odd years. 35
Slide 36: Maximizing revenue potential
Maximizing revenue potential Actual Production vs. Targeted MWh (Thermal Plant) 9,800,000 9,600,000 Production (MWh) 9,400,000 9,200,000 9,000,000 8,800,000 2012 2013 2014 2015F 2016B 2017T 2018T Fleet Actual Production Fleet Reliability Target Improved reliability = higher fleet output 1) Clover Ba
Slide 37: Genesee – proven excellence
Genesee – proven excellence Genesee Forced and Maintenance Outage Rate 4.0% Station Average FMOR % 3.5% 3.0% 2.5% 2.0% 1.5% 2012 2013 2014 2015F 2016T 2017T 2018T Top quartile performance 37
Slide 38: Genesee benchmarking
Genesee benchmarking Plant manageable expenditures Coal 210-549 MW 2011 Solomon Study Expenditures, USD/MWh 2014 Solomon Study Expenditures, CAD/MWh 4th Quartile 3rd Quartile 2nd Quartile Group Avg. Genesee Avg. G3 G2 G1 Group Avg. Genesee Avg. G3 G2 G1 Genesee: substantial improvement in cost effec
Slide 39: Genesee benchmarking
Genesee benchmarking Technical unavailability Coal – Lignite & Subbituminous 4th Quartile 4th Quartile 2011 Solomon Study 3rd Quartile 2014 Solomon Study 2-Year Unavailability Factors, % 3rd Quartile 2-Year Unvavailability Factors, % 2nd Quartile 2nd Quartile Group Avg. Genesee Avg. G1 G2 G3 Group G
Slide 40: Solid fuel facilities – North Carolina
Solid fuel facilities – North Carolina Southport: 84 MW + steam; Roxboro: 48 MW Both plants use tri-fuel blend (wood/tire-derived fuel/coal) 940 North Carolina Production 890 Production GWH 840 790 740 690 640 2012 2013 2014 2015F 2016B 2017T 2018T NC Actual Production NC Target Production Continued
Slide 41: Renewables facilities
Renewables facilities Quality Wind: 142 MW PD&N: 105 MW K2 Wind: 90 MW Halkirk: 150 MW Kingsbridge 1: 40 MW Macho Springs: 50 MW 100.0 99.5 Wind Fleet Availability 99.0 98.5 Percentage 98.0 97.5 97.0 96.5 96.0 Historical Average 95.5 95.0 2012 2013 2014 2015F 2016B 2017T 2018T Focus on improved outp
Slide 42: Cost – bending the curve
Cost – bending the curve(1) 65 O&M Operated Plants Controllable Costs(2) 60 ($/kW) 55 50 2012 2013 2014 2015F 2016B Committed to spending smarter; will not compromise high maintenance standards that allow us to achieve high plant availability 1) Normalized to 2015 dollars. 2) Controllable costs excl
Slide 43: Cost – fleet O&M and sustaining capital
Cost – fleet O&M and sustaining capital(1) Focus on spending smartly in this low pool price environment Total non-fuel O&M and CAPEX spending excluding planned outages 160000 140000 120000 100000 $ (000s) 80000 60000 40000 20000 0 2012 2013 2014 2015F 2016B Adjusted O&M Adjusted CAPEX Adjusted O&M N
Slide 44: HSE performance
HSE performance Total Recordable Incident Frequency (TRIF) 1.44 1.46 1.4 1.2 0.96 1 Rates 0.8 0.6 0.4 0.16 0.12 0.2 0 2011 2012 2013 2014 2015YTD Reportable Environmental Incidents 45 41 42 40 Number of Incidents 35 30 Industry leader 25 20 18 in safety and 15 10 environment 4 5 2 0 2011 2012 2013 2
Slide 45: Construction and Engineering
Construction and Engineering Proven in-house expertise Beaufort Solar – 15 MW solar farm located near Washington, North Carolina with 15 year contract with Duke Energy. On track for mid- December completion. Another Capital Power project completed on time and under budget. Genesee 4 key project
Slide 46: Positioned for the future
Positioned for the future Cost Risk Safety & Output Management Mitigation Environment Capital Power continues to optimize assets based on 4 pillars Output – Fleet production has increased by 8% since 2011 as a result of the reliability program Cost – Spending smarter on O&M and CAPEX has led to
Slide 47: Finance Overview
2016 Guidance Impacts from AB Climate Leadership Plan Dividend Guidance Finance Overview Bryan DeNeve, SVP Finance & CFO
Slide 48: Financial strategy
Financial strategy Investment grade credit rating Manage Well F/X and spread interest debt Maintain ongoing rate risk maturities access to cost Financial competitive capital to Strategy fund sustainable growth throughout Economic business cycle Financial discipline in flexibility growth Stable divid
Slide 49: Capital allocation
Capital allocation (1) Maintain growing dividend backed by Dividend sufficient contracted cash flow base Growth Capital Growth (2) Fund growth opportunities in the near term with discretionary cash flow Allocation Opportunities Share Buybacks & (3) Active in debt reduction and share buybacks Debt Re
Slide 50: AB commercial portfolio positions
AB commercial portfolio positions Alberta portfolio hedged positions (% sold forward) As of Nov 30/15 2016 2017 2018 Percentage sold forward 100% 35% 12% Average contracted prices(1) High-$40 Mid-$50 Low-$60 ($/MWh) Average forward prices $37 $45 $57 ($/MWh) Percentage sold forward based on Albert
Slide 51: Alberta power market trading
Alberta power market trading Portfolio optimization activities focused on managing exposure to commodity risks, reducing volatility and creating incremental value Average realized power price has exceeded spot power prices ($/MWh) by 24% on average since 2010 $125 $100 $75 $50 $25 $0 Q1 Q2 Q3 Q4 Q
Slide 52: Corporate expenses
Corporate expenses Ongoing objectives to realize efficiencies $115 Restructuring costs Base G&A(1) $105 $95 ($M) $85 $75 $65 $55 2012 2013 2014 2015E 2016T Base G&A expenses decreases by 13% while inflation increases by 8.5% since 2012 1) Base G&A expenses excludes a one time recovery of $20M receiv
Slide 53: Continued strong cash flow generation
Continued strong cash flow generation Funds from operations (FFO)(1) $450 Cash flow expected to increase ~4% in 2016 to $405M $400 47% 42% ~42% of 2016 FFO is $350 discretionary cash flow(2) 37% $300 At the mid-point of 2016 guidance range, generating $250 ~$175M in DCF before growth ($M) $200
Slide 54: Cash flow and financing outlook
Cash flow and financing outlook Generating surplus FFO after dividends and sustaining CAPEX Sources of cash flow ($M) 2016E Funds from operations(1) $405 Proceeds from debt offering & short-term $135 borrowings (net of debt repayment) Uses of cash flow ($M) Dividends (common shares) $(145) Dividends
Slide 55: Financial strength
Financial strength Strong balance sheet and investment grade credit rating Investment grade credit ratings Agency Ratings Outlook recently reaffirmed by S&P and DBRS S&P BBB- / P-3 Stable Debt-to-capital ratio remains below DBRS BBB / Pfd-3 (low) Stable long-term target of 40% - 50% Debt to tota
Slide 56: Credit metrics
Credit metrics(1) Above DBRS financial criteria for current rating Adj. Cash flow/Adj. Debt EBITDA/Adj. Interest 30% 6.0 25% 5.0 20% 4.0 15% 3.0 10% 2.0 5% 1.0 0% 0.0 2015T 2016T 2015T 2016T Within S&P financial criteria for investment grade rating Adj. FFO/Adj. Debt(2) Adj. Debt/Adj. EBITDA(2) 25%
Slide 57: Debt maturity schedule
Debt maturity schedule(1) $1B in committed credit facilities with 5-year tenor maturing 2020, of which $964M is available $400 $350 $375 $300 $250 $250 $226 US $230 ($M) $200 $174 $150 $139 $100 US $65 $50 $10 $0 2015 2016 2017 2018 2019 2020 2021 2026 (2) EPCOR Debt Capital Markets Debt Bank Debt W
Slide 58: Debt restructuring
Debt restructuring Proposed exchange of Capital Power L.P. MTNs for Capital Power MTNs Applicable to the following issued and outstanding notes of CPLP MTN series Interest rate payable Due date Series 3 4.85% payable semi-annually Feb 21, 2019 Series 1 5.276% payable semi-annually Nov 16, 2020 B
Slide 59: Alberta Climate Leadership Plan
Alberta Climate Leadership Plan Financial impacts 2030 Maintenance Retirement of AB market dates for coal- design fired plants Financial impacts to Capital Carbon Growth Power opportunities: Competitiveness gas-fired & Regulation renewables Financial impacts Well positioned to address impacts and op
Slide 60: Carbon competitiveness regulation
Carbon competitiveness regulation Required to comply with Specified Gas Emitters Regulation (SGER) through to the end of 2017. Levy under Carbon Competitiveness Regulation (CCR) effective starting in 2018. 2017 2018 2019 2020 Compliance regulation SGER CCR Compliance requirement 20% 55% to 65% (Do
Slide 61: Carbon tax – cost of coal compliance
Carbon tax – cost of coal compliance Cost of compliance versus tax $25 AVG AB COAL $20 Unhedged Cost Cost of Emissions ($/MWh) $15 CPC COAL Unhedged Cost $10 CPC COAL Hedged Cost $5 $- 2016 2017 2018 2019 2020 Lower compliance costs achieved by offset development & procurement strategies and lower G
Slide 62: Estimated incremental impacts of CCR
Estimated incremental impacts of CCR(1) EBITDA impact ($M) 2018 2019 2020 2021 Total coal EBITDA impact due to CCR $30 ($25) ($65) ($120) EBITDA increase from natural gas & wind facilities $50 $30 $30 $20 Total portfolio EBITDA impact $80 $5 ($35) ($100) CCR slightly beneficial in near term and more
Slide 63: Improving contracted cash flow
Improving contracted cash flow(1,2,3) $450 $400 } Shepard $350 & K2 Wind } $300 3 wind projects Beaufort $250 ($M) Macho Springs K2 Wind $200 Shepard PD&N $150 Halkirk Quality Wind $100 Island Generation North Carolina $50 Kingsbridge 1 Genesee 1&2 $0 2012 2013 2014 2015T 2016T Substantial expansion
Slide 64: Financial obligations & dividends significantly covered by contracted cash flow
Financial obligations & dividends significantly covered by contracted cash flow 200% Operating margin(1) to financial obligations(2) and dividends(3) Minimum Alberta power prices required to cover financial obligations and dividends(3) 180% 2015F $0/MWh 2016F $0/MWh 160% 2017F Low $30s 2018F Low $40
Slide 65: Target annual dividend increase
Target annual dividend increase $1.80 Generating $340M in free cash flow(2) in 2016 before growth capex at the bottom of the cycle $1.60 Dividend payout ratio to FFO ($/share) averages 39% from 2016 to $1.40 2018 Pipeline of opportunities to expand contracted footprint $1.20 throughout North A
Slide 66: Attractive yields relative to peers
Attractive yields relative to peers Capital Power’s AFFO payout ratio is below peer average 2016E AFFO Payout Ratio1,2 Dividend & 2016E AFFO Yield1,2 101% 9.6% 9.6% 81% 6.6% 8.2% 73% 8.7% 11.9% 73% 12.9% 17.8% 71% 5.7% 8.1% 68% 6.3% 9.2% 64% 5.0% 7.7% 63% 4.4% 7.1% 56% 6.0% 10.7% 54% 5.6% 10.4% 53%
Slide 67: Financial outlook for 2016
Financial outlook for 2016 Managing low Alberta power prices • 100% of the AB Commercial portfolio sold forward in 2016 at high-$40/MWh • Ability to capture potential increases in AB power prices through non-baseload facilities Year-over-year increase in capacity and production • Full year of operat
Slide 68: 2016 Corporate Priorities
2016 Corporate Priorities Corporate priorities Brian Vaasjo, President & CEO
Slide 69: 2016 Corporate priorities
2016 Corporate priorities Deliver strong operational performance from a young, well- maintained generation fleet Operational targets 94% Capacity-weighted plant availability (reflects major planned outages at Genesee 2 & 3, Clover Bar Energy Centre, Joffre, and Shepard Energy Centre) $65M Maintenanc
Slide 70: 2016 Corporate priorities
2016 Corporate priorities Enhance value for shareholders by delivering accretive growth from new developments Development and construction targets Genesee 4&5 progress Execute a PPA for new development 70
Slide 71: 2016 Corporate priorities
2016 Corporate priorities Financial target 2015-16 year-over-year Funds from operations(1) changes ($M) ~$390 $380 to $430 Full year of operations $400 from Shepard and K2 $300 Wind $200 Addition of Beaufort Solar $100 Lower finance expense $0 2015E 2016T Partially offset by higher GHG compl
Slide 72: Highlights for 2016
Highlights for 2016 No financial impact by Alberta Climate Change Leadership Plan Work with Alberta government to receive fair compensation from accelerated retirement of coal facilities Generate ~4% growth in FFO versus 2015 (8% per share) Increase dividend in-line with annual dividend grow
Slide 73: Attractive value proposition
Attractive value proposition Excellent existing operations Continued growth in funds from operations • Able to increase the annual dividend through 2018 at 7% Significant growth opportunities • Genesee 4&5 best positioned to be the next large natural gas-fired generation project to be built in
Slide 74: Non-GAAP financial measures
Non-GAAP financial measures The Company uses (i) earnings before finance expense, income tax expense, depreciation and amortization, impairments, foreign exchange gains or losses, and gains on disposals (adjusted EBITDA), (ii) funds from operations (FFO), (iii) normalized earnings attributable to co
Slide 75: Forward-looking information
Forward-looking information Forward-looking information or statements included in this presentation are provided to inform the Company’s shareholders and potential investors about management’s assessment of Capital Power’s future plans and operations. This information may not be appropriate for othe
Slide 76: Investor Relations Contact
Investor Relations Contact Randy Mah 10423 101 Street NW Senior Manager 10th Floor (780) 392-5305 Edmonton, Alberta rmah@capitalpower.com Canada, T5H 0E9 www.capitalpower.com