Slide 1: Capital Power Investor Meetings September 2016
CAPITAL POWER Investor Meetings September 2016 Bryan DeNeve, SVP Finance & CFO Tony Scozzafava, VP Taxation & Treasury Beaufort Solar, NC
Slide 2: Presentation outline
Presentation outline Page # Capital Power overview 3 Alberta Climate Leadership Plan • Carbon tax 4-6 • Power Purchase Arrangements (PPA) terminations 7-9 • Accelerated phase-out of coal & compensation 10 - 11 • Renewables acceleration; Alberta growth 12 - 14 opportunities Alberta power market
Slide 3: 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 ~700 MW of owned generation in advanced development in AB and under construction in Kansas Proven operating, development & construction expertis
Slide 4: Carbon tax
Carbon tax 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 R
Slide 5: Carbon tax
Carbon tax Alberta Climate Leadership Plan Carbon Competitiveness Regulation (CCR) Required to comply with Specified Gas Emitters Regulation (SGER) through to the end of 2017; levy under CCR effective in 2018 2017 2018 2019 2020 Compliance regulation SGER CCR Compliance requirement 20% 55% to 65%
Slide 6: Carbon tax – cost of coal compliance
Carbon tax Carbon tax – cost of coal compliance Cost of compliance versus tax $25 $20 AVG AB COAL Unhedged Cost $15 CPC COAL Cost of emissions Unhedged Cost ($/MWh) $10 CPC COAL Hedged Cost $5 $0 2015 2016 2017 2018 2019 2020 Lower compliance costs achieved by offset development & procurement strate
Slide 7: Sundance PPA early termination
PPA terminations Sundance PPA early termination Expected incremental impacts Mar 24/16, Capital Power provided notice to terminate the Sundance “C” PPA under the Change in Law provision of the PPA that was triggered by the AB Government’s Jun/15 announced changes to the Specified Gas Emitters Regu
Slide 8: Early termination of PPAs
PPA terminations Early termination of PPAs Alberta Government seeking to reinstate PPAs Jul 25/16 – AB Government launched legal action against the former Buyers (AltaGas, Capital Power, ENMAX, TransCanada) of coal PPAs who returned PPAs to the Balancing Pool pursuant to the Change in Law (CIL) pr
Slide 9: Early termination of PPAs
PPA terminations Early termination of PPAs CPX’s position is that the Government’s claim is without merit PPAs created by the Alberta Government in 2000 as part of the transition from a regulated to a competitive generation market Government set the terms of the PPAs and companies bid on the arr
Slide 10: Compensation for early phase-out of coal
Phase-out of coal Alberta Climate Leadership Plan Compensation for early phase-out of coal AB Government appointed Terry Boston as the coal phase-out facilitator to oversee the transition away from coal-fired generation by 2030 Facilitator tasked with presenting options that will strive to maint
Slide 11: Compensation
Phase-out of coal 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 is ~$2 billion at end of 2015 Remaining life of our c
Slide 12: Renewables RFP process & maintenance of AB market design
Renewables Alberta Climate Leadership Plan Renewables RFP process & maintenance of AB market design Mar 3/16 – AB Government tasked the Alberta Electric System Operator (AESO) to develop and implement a Renewable Electricity Program (REP) to add additional renewable generation capacity by 2030 in
Slide 13: Alberta opportunity set
Alberta growth Alberta opportunity set Significant investment required over the next 14 years ~$30 billion 4,200 MWs in renewables to replace retirement of coal units with balance in natural gas and other to meet demand Capital Power well-positioned with our existing power sites, development a
Slide 14: Capital Power is the leading IPP developer in the AB market
Alberta growth Capital Power is the leading IPP developer in the AB market Generation built in Alberta since 2004(1) 1,500 Renewables Thermal 1,000 (MW) 500 0 Capital Power ENMAX TransAlta ATCO Other 1) Excludes generation for oilsand developments and coal-fired unit expansions. 14
Slide 15: Alberta market forecasts
AB power market Alberta market forecasts Current low power price environment Oversupply in the market Lower demand from weak AB economy Low natural gas prices Expected uplift in power prices Expected recovery in demand growth Moderate increase in natural gas prices (2) Pass-through of hi
Slide 16: AB commercial baseload hedging profile
AB power market AB commercial baseload hedging profile Termination of our Buyer role under Sundance C PPA has significantly increased our baseload hedging profile from 2015 year-end Alberta Commercial baseload positions: 2017 2018 2019 As of date Mar Jun Mar Jun Mar Jun 31/16 30/16 31/16 30/16 3
Slide 17: Alberta power market trading
AB power market Alberta power market trading Continue to see significant value from portfolio optimization activities Average realized power prices(1) have exceeded spot power prices by 10% since company’s inception 7 years ago ($/MWh) $125 $100 $75 $50 $25 $0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q
Slide 18: Growth opportunities – Canada & U.S.
Growth Growth opportunities – Canada & U.S. 1 Wind Natural Gas Solar Acquire or develop contracted opportunities across North America and consider merchant opportunities in Alberta 18
Slide 19: Genesee 4&5
Alberta 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 CP’s share of the output All major regulatory approvals received to proceed with construc
Slide 20: Halkirk 2
Alberta growth Halkirk 2 150 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 adva
Slide 21: 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 22: Capital allocation
Finance overview Capital allocation (1) Maintain growing dividend backed by sufficient Dividend contracted cash flow base. Growth Capital Growth (2) Fund growth opportunities in the near Allocation Opportunities term with discretionary cash flow. Share Buybacks & (3) Active in debt reduction and sha
Slide 23: Continued strong cash flow generation
Finance overview Continued strong cash flow generation Funds from operations (FFO)(1) $450 ~42% of 2016 FFO is $400 discretionary cash flow(2) 45% 42% $350 At the mid-point of 2016 37% guidance range, generating $300 ~$170M in DCF before growth $250 capex to reinvest in ($M) renewables and natur
Slide 24: Improving contracted EBITDA
Contracted EBITDA Improving contracted EBITDA(1,2,3) Substantial expansion in contracted EBITDA from 2012 to 2016 $450 $400 $350 $300 } Shepard & K2 Wind ($M) $250 $200 } 3 wind projects Beaufort Macho Springs K2 Wind Shepard $150 PD&N Halkirk Quality Wind $100 Island Generation North Carolina $50 K
Slide 25: Strong financial coverage
Contracted cash flows Strong financial coverage Operating margin(1) to financial obligations(2) and dividends(3) 150% 140% Contracted + merchant ($70/MWh) 130% 120% Contracted + merchant (Forwards(4)) 110% Contracted + merchant ($40/MWh) 100% Contracted margin 90% Minimum AB power prices required to
Slide 26: Target annual dividend increases
Dividend growth Target annual dividend increases Third consecutive 10 cents per share annual increase to dividend Effective with Q3/16 dividend, Annualized dividend per common share(1) quarterly dividend increased 6.8% to $0.39 per share $1.56 $1.46 $1.36 24% increase in annualized $1.26 dividen
Slide 27: 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 Debt-to-capital ratio remains below DBRS BBB / Pfd-3 (low) Negative long-term target of 40% - 50% Debt to
Slide 28: Credit metrics
Strong financial base Credit metrics(1) In line with 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 2015A 2016T 2015A 2016T In line with S&P’s financial criteria for current rating Adj. FFO/Adj. Debt Adj.
Slide 29: Financial performance – Q2/16 YTD
Financial results Financial performance – Q2/16 YTD Q2/16 Q2/15 $M, except per share amounts Change YTD YTD Revenues $570 $441 29% Adjusted EBITDA (before mark-to-market)(1) $251 $210 20% Basic earnings (loss) per share $0.07 $(0.06) 217% Normalized earnings per share $0.63 $0.40 58% Funds from oper
Slide 30: Q2/16 YTD performance vs. annual targets
2016 Guidance & Targets Q2/16 YTD performance vs. annual targets Operational and financial targets Plant availability Sustaining capex ($M) 94% $65 93% $33 2016 YTD Target 2016 YTD Target Plant operating & Funds from operations ($M) maintenance expenses ($M) $380 - $430 $200 - $220 $215 $108 2016 YT
Slide 31: 2016 Disciplined growth targets
2016 Guidance & Targets 2016 Disciplined growth targets Genesee 4&5 (Alberta) Target Q2/16 Status Proceeding with construction based on: Awaiting further clarification on Clarity with respect to impact of implementation of CLP and impacts decisions from the Alberta on current Alberta assets Gove
Slide 32: 2016 Disciplined growth targets
2016 Guidance & Targets 2016 Disciplined growth targets New developments Target Q2/16 Status Execute a contract for the Bloom Wind (178 MW project in output of a new development Kansas) • 10-year fixed price contract covering 100% of the output • Cost of $358M (CDN$) • Construction begins in Q3/
Slide 33: Attractive value proposition
Summary Attractive value proposition Excellent existing operations Sustainable and growing dividend • Expect annual dividend growth of 7% through 2018 • Attractive dividend yield Significant growth opportunities • Genesee 4&5 best positioned to be the next large natural gas- fired generation p
Slide 34: Historical Alberta prices
Appendix Historical Alberta prices Daily average power prices 800 700 600 500 $/MWh 400 300 200 100 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Annual average power prices and AECO (Annual power prices have averaged $63/MWh in the past 15 years) 100 89.95 10.00 8.27
Slide 35: Carbon tax – impact on pool price
Appendix Carbon tax – impact on pool price Some of the variable cost increase will be passed through to 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 35
Slide 36: Alberta market design
Appendix Alberta market design Stable market design has signalled the addition of 7 GW of new generation 1600 45% 1400 40% 35% 1200 30% 1000 25% Capacity 800 Reserve (MW) 20% Margin 600 15% 400 10% 200 5% 0 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 New Capacity AE
Slide 37: Illustrative view of new supply
Appendix 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
Slide 38: Debt maturity schedule
Appendix Debt maturity schedule(1) $1B(1) in committed credit facilities recently renewed with 5-year tenor maturing 2021, of which $640M is available $700 $600 $500 $360 ($Millions) $400 $300 $300 $250 $200 $174 $100 US $230 US $65 $10 $0 2017 2018 2019 2020 2021 2026 (2) EPCOR Debt Capital Markets
Slide 39: 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 40: 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 41: Projects under development/construction
Appendix Projects under development/construction Genesee 4&5 Halkirk 2 Bloom Wind Alberta Commercial U.S. Contracted Capacity Up to 1,060 MW 150 MW 178 MW % owned / 50 / 100 100 / 100 100 / 100 operated Location Warburg Halkirk Ford and Clark Counties, Kansas Fuel & equipment Combined-cycle natural
Slide 42: 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, finance expense from joint venture, and gains or losses on disposals (adjusted EBITDA), (ii) funds from operations, (iii
Slide 43: Forward-looking information
Forward-looking information Forward-looking information or statements included in this presentation and in responses to questions 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 m
Slide 44: Investor Relations Contact
Investor Relations Contact Randy Mah Head Office Senior Manager 10th Floor (780) 392-5305 10423 – 101 Street NW rmah@capitalpower.com Edmonton, AB T5H 0E9 www.capitalpower.com