Capital Power Corporation · TSX:CPX
Capital Power — Non-Deal Roadshow (January 2017)
49 slides from Capital Power's roadshow presentation, January 2017
Slide 1: Investor Meetings January 2017
CAPITAL POWER Investor Meetings January 2017 Brian Vaasjo, President & CEO Bryan DeNeve, SVP Finance & CFO
Slide 2: Capital Power overview
Capital Power overview Growth-oriented North American IPP with ownership interest in 18 facilities in Canada and the U.S. totaling more than 3,200 MW Young and modern fleet of assets; strong pipeline of contracted growth opportunities in AB and the U.S. Proven operating, development, construct
Slide 3: Updates on Alberta electricity market
Alberta CLP Updates on Alberta electricity market Alberta’s Climate Leadership Plan (CLP) Compensation for phase-out of coal facilities by 2030 Carbon competitiveness regulation (carbon tax) Renewables to replace coal-fired retirements Transition to a capacity market from current energy-only
Slide 4: Coal compensation
Coal compensation Coal compensation Coal phase-out agreement with AB Government Capital Power will receive 14 annual payments of $52.4M totaling $734M Annual payments start July 31, 2017 through to July 31, 2030 Based on proposed NBV adjusted for consideration of potential for non-stranded ass
Slide 5: Coal compensation accounting implications
Coal compensation Coal compensation Accounting implications Annual cash compensation payment of $52.4M will be recognized under ‘other income’ and as a component of adjusted EBITDA(1) Net income and EPS will reflect the difference between the coal compensation received and accelerated depreciati
Slide 6: Carbon competitiveness regulation
AB carbon tax 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% 5
Slide 7: Carbon tax – cost of coal compliance
AB carbon tax Carbon tax – cost of coal compliance Cost of compliance versus tax $20 Cost of Emissions ($/MWh) $15 $10 2016 CPC Coal $5 Unhedged Cost Current CPC Coal Hedged Cost $0 2016 2017 2018 2019 2020 Lower compliance costs achieved by offset development & procurement strategies and lower GHG
Slide 8: Alberta’s coal fleet
AB coal fleet Alberta’s coal fleet Retirements under the federal Capital Stock Turnover (CST) and Alberta’s Climate Leadership Plan (CLP) regulations AESO Maximum Age in 2017 End of Life Remaining coal life Facility Capacity (MW) (years) (CST & CLP) (years) Battle River 3 149 48 2019 2 Sundance 1 28
Slide 9: Coal variable cost assumptions
AB carbon tax Coal variable cost assumptions Components of variable cost for coal units - $30 carbon levy Variable Cost ($/MWh) $50 $40 $30 $20 $10 $- Coal Coal Coal Coal Coal Coal Gas Conversion Gas Conversion Gas Conversion Gas Conversion Gas Conversion Gas Conversion *Subcritical Subcritical Supe
Slide 10: Alberta market
AB carbon tax Alberta market 10
Slide 11: Federal environmental regulations
Federal carbon tax Federal environmental regulations Regulations provide opportunity for coal to gas conversion Plans to amend regulations requiring all coal-fired generation to meet an emissions limit of 420 tonnes of CO2 per GWh by no later than 2030 matching Alberta’s CLP Converted natural ga
Slide 12: Renewables in Alberta
Renewables Renewables in Alberta Targeting 30% of AB’s electricity generation from renewables by 2030 5,000 MW of renewable energy • Competitive Renewable Electricity Program (REP) AESO confirmed details • Procurement of 400 MW of renewable capacity • Operational in 2019 • Utilize existing trans
Slide 13: Alberta Climate Leadership Plan
Capacity market Alberta Climate Leadership Plan Transition to a capacity market from energy-only market Government committed to ensuring that existing investments would be treated fairly, and the new market framework would continue to promote a level playing field between existing and potential ne
Slide 14: Capacity market
Capacity market Capacity market 2019 first round with delivery target for 2021 • Eligible for auction likely limited to existing capacity Existing investments to participate in a capacity market – a level playing field will be maintained “… Power companies in Alberta have my word that the new ma
Slide 15: Baseload revenue – Alberta vs. PJM
Capacity market Baseload revenue – Alberta vs. PJM Capacity market creates a more stable revenue stream relative to selling into the Alberta market Revenue under the Alberta energy only market for the period of 2009 through 2021 is $57/MWh for Capital Power’s baseload assets (including trading g
Slide 16: Alberta opportunity set
AB growth Alberta opportunity set Significant investment required over the next 14 years Up to $30 billion 5,000 MWs in renewables to replace retirement of coal units with balance in natural gas and other to meet demand Capital Power well-positioned with our existing power sites, development a
Slide 17: Halkirk 2
AB growth Halkirk 2 150 MW wind facility on 18,000 acres next to the existing Halkirk facility Expect 37% - 39% capacity factor Investment of ~$300M Available transmission Locational advantage with wind diversity resulting in expected higher capture factor 17
Slide 18: Whitla Wind
AB growth Whitla Wind Location: Near Medicine Hat in south eastern Alberta 300 MWs on 33,000 acres Expect 38% - 41% capacity factor Available transmission 18
Slide 19: Genesee 4&5
AB growth Genesee 4&5 Joint venture partners with ENMAX to develop, construct, own, and operate the 1,060 MW natural gas-fired combined cycle facilities 8-year tolling agreement with ENMAX for 50% of Capital Power’s share of the output All major regulatory approvals received to proceed with co
Slide 20: Growth opportunities
U.S. growth Growth opportunities Well-positioned for natural gas and renewables growth in Alberta New Frontier Wind Nolin Hills Wind Garrison Butte Tisch Mills Wind Wind Black Fork Wind Salt Springs Cardinal Point Acquire or develop Bloom Wind Wind Wind contracted opportunities across the U.S. 20
Slide 21: Production Tax Credits (PTC) extension
U.S. growth Production Tax Credits (PTC) extension PTC extended with phase out beginning in 2017 Projects must be under construction by the end of this year to qualify for full tax credits 2016 IRS Guidance Developers have 4 years from commencing construction to reach COD Projects commenced
Slide 22: Bloom Wind
U.S. growth Bloom Wind 178 MW wind farm consisting of 54 Vestas V117-3.3 MW turbines 10-year fixed price contract covering 100% of the output, with Allianz Risk Transfer (rated AA- (stable) by S&P’s), a subsidiary of Allianz SE, a worldwide insurance and asset management group Under the contra
Slide 23: Capital allocation
Finance overview Capital allocation Dividend 1) Maintain growing dividend backed by Growth sufficient contracted cash flow base Capital Growth Allocation Opportunities 2) Fund growth opportunities in the near term with discretionary cash flow Share Buybacks & Debt 3) Consider debt reduction and shar
Slide 24: Alberta market forecasts
AB power market Alberta market forecasts Current low power price environment Oversupply in the market Lower demand from weak AB economy Low natural gas prices Expected uplift in power prices Expected recovery in demand growth Moderate increase in natural gas prices Pass-through of higher
Slide 25: AB commercial portfolio positions
AB power market AB commercial portfolio positions Alberta Commercial baseload positions As of Nov 30/16 2017 2018 2019 Percentage sold forward 100% 52% 40% Average contracted prices(1) Mid-$40 Low-$50 Low-$50 ($/MWh) Average forward prices $32 $39 $43 ($/MWh) Potential to capture market upside wit
Slide 26: Alberta power market trading
AB power market Alberta power market trading Portfolio optimization activities focused on managing exposure to commodity risk, reducing volatility and creating incremental value Average realized power prices(1) have exceeded spot power prices by 13% since company’s inception 7 years ago ($/MWh) $1
Slide 27: Continued strong cash flow generation
Cash flows Continued strong cash flow generation $M $450 $440 $405 $400 $400 Annual cash flow expected $362 to increase ~10% in 2017 39% $350 Including coal compensation, 46% 43% $300 37% generating ~$170M in discretionary cash flow $250 (DCF)(1) to reinvest in growth $200 35% opportunities $150
Slide 28: Improving contracted EBITDA
Contracted EBITDA Improving contracted EBITDA(1,2,3) $450 $400 $350 Bloom Beaufort $300 Macho Springs K2 Wind ($M) $250 Shepard PD&N $200 Halkirk $150 Quality Wind Island Generation $100 North Carolina Kingsbridge 1 $50 Genesee 1&2 $0 2010 2011 2012 2013 2014 2015 2016E 2017T Substantial expansion i
Slide 29: Strong financial coverage
Financial coverage Strong financial coverage Operating margin(1) to financial obligations(2) and dividends(3) 150% Contracted5 + merchant ($60/MWh) 140% 130% Contracted5 + merchant (forwards(4)) Contracted5 + merchant ($40/MWh) 120% 110% Contracted5 margin 100% Minimum Alberta power prices 90% requi
Slide 30: Cash flow and financing outlook
Cash flow Cash flow and financing outlook Generating surplus cash after dividends and sustaining CAPEX Sources of cash flow ($M) 2017E Funds from operations + coal compensation $440 Proceeds from tax-equity debt $235 Uses of cash flow ($M) Dividends (common shares) $(155) Dividends (preferred shares
Slide 31: Financing of growth opportunities
Funding growth Financing of growth opportunities Existing financial capabilities and potential financing options Strong balance sheet driven by • Recent financings • Extension of credit facilities ~52% ($170M) of Adjusted funds from operations (AFFO) is Discretionary Cash Flow(1) available for a
Slide 32: Target annual dividend increases
Dividend growth Target annual dividend increases Annualized dividend Annual 7% dividend growth per common share(1,2) guidance to 2018 $1.67 $1.79 Expect to generate ~$325M $1.46 $1.56 in AFFO in 2017 $1.36 $1.26 AFFO payout ratio averages ~51% from 2016 to 2018 Pipeline of opportunities to e
Slide 33: Financial strength
Strong financial base Financial strength Strong balance sheet and investment grade credit rating Investment grade credit ratings by Agency Ratings Outlook S&P and DBRS S&P BBB- / P-3 Stable Continued to be well capitalized DBRS BBB / Pfd-3 (low) Negative with capacity for leverage Debt to total
Slide 34: Credit metrics
Strong financial base Credit metrics(1) Above DBRS financial criteria for current rating Adj. Cash flow/Adj. Debt(3) EBITDA/Adj. Interest 30% 6.0 25% 5.0 20% 4.0 15% 3.0 10% 2.0 5% 1.0 0% 0.0 2016E 2017T 2016E 2017T Within S&P financial criteria for investment grade rating Adj. FFO/Adj. Debt(2)(3) A
Slide 35: 2017 Corporate operating priorities
2017 Targets 2017 Corporate operating priorities Deliver strong operational performance from a young, well- maintained generation fleet Operational targets 95% Capacity-weighted plant availability $85M Maintenance capital (plant maintenance capital, sustaining capital expenditures, and Genesee Perfo
Slide 36: Adjusted funds from operations
2017 Targets Adjusted funds from operations(1) Purpose of new metric AFFO(1) defined as: Reflects cash available to Funds from operations (as previously sustain common dividends defined(1)) and to fund future + Coal compensation received investment opportunities annually Includes coal compensati
Slide 37: Financial guidance
2017 Targets Financial guidance Adjusted funds from operations (AFFO)(1) target ($M) $400 $316 $320 $325(2) $300 $265 $200 Gross common dividends Discretionary cash flow(1) $100 $- 2014 2015 2016T 2017T Cash available for common share dividends and growth 1) Adjusted funds from operations and Discre
Slide 38: Executing on proven competencies
Summary Executing on proven competencies Operational Increasing performance and reducing risk at a excellence lower cost while managing GHG cost and risk Delivering opportunities in the U.S. and Contracted growth positioned to continue Excellent assets & skills in energy-only market Alberta market a
Slide 39: Debt maturity schedule
Appendix Debt maturity schedule(1) $1B in committed credit facilities recently renewed with 5-year tenor maturing 2021, of which ~$940M available in 2017(1) $400 $350 $300 $300 $250 ($M) $200 $250 US $230 US $65 $150 $174 $160 $100 $50 $10 $0 2017 2018 2019 2020 2021 2026 (2) EPCOR Capital Markets C
Slide 40: Tisch Mills Wind
Appendix Tisch Mills Wind Location: Manitowoc County, Wisconsin 12,000 acres; 100 MWs: 7.3 m/s wind speed Market: MISO Wisconsin RPS: one of a limited number of Wisconsin development projects 40
Slide 41: New Frontier Wind
Appendix New Frontier Wind Location: McHenry County, North Dakota 11,350 acres; 99 MWs; 8.8 m/s wind speed Market: MISO Superior wind resource; MISO network resource Comp 41
Slide 42: Black Fork Wind
Appendix Black Fork Wind Location: Crawford and Richland Counties, Ohio 23,900 acres; 100-180 MWs: 6.5 m/s wind speed Market: PJM One of a handful of permitted OH projects; AEP Procurement 42
Slide 43: Cardinal Point Wind
Appendix Cardinal Point Wind Location: McDonough and Warren Counties, Illinois 15,000 acres; 150 MWs: 7.7 m/s Market: MISO Illinois Nuclear legislation; Illinois RPS 43
Slide 44: Summary of assets
Appendix Summary of assets Clover Bar Clover Shepard Genesee Genesee Genesee Keephills Energy Bar Energy 1 2 3 3 Joffre Centre Landfill Halkirk Centre Alberta Contracted Alberta Commercial Capacity 430 MW 430 MW 516 MW 516 MW 480 MW 243 MW 5 MW 150 MW 800 MW % owned / 100 / 100 100 / 100 50 / 100 50
Slide 45: Summary of assets
Appendix Summary of assets Kingsbridge Island Quality Port Dover & Macho Beaufort 1 Generation Wind Nanticoke K2 Wind Roxboro Southport Springs Solar Ontario & British Columbia Contracted U.S. Contracted Capacity 40 MW 275 MW 142 MW 105 MW 270 MW 46 MW 88 MW 50 MW 15 MW % owned / 100 / 100 100 / 100
Slide 46: Projects under development/construction
Appendix Projects under development/construction Whitla Genesee 4&5 Halkirk 2 Wind Bloom Wind Alberta Commercial U.S. Contracted Capacity Up to 1,060 MW 150 MW 300 MW 178 MW % owned / 50 / 100 100 / 100 100 / 100 100 / 100 operated Location Warburg Halkirk Medicine Hat Ford and Clark Counties, Kansa
Slide 47: 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) adjusted FFO, (iv) discretionary cash
Slide 48: 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 49: 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