Capital Power Corporation · TSX:CPX
Capital Power — Non-Deal Roadshow (March 2017)
59 slides from Capital Power's roadshow presentation, March 2017
Slide 1: Investor Meetings March 2017
CAPITAL POWER Investor Meetings March 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: Proven track record of high fleet availability
Operational performance Proven track record of high fleet availability Average facility availability of 94% in the past 5 years 18,000 100% 16,000 98% 14,000 12,000 96% Generation 10,000 95% 95% (GWh) 8,000 94% 94% 93% 6,000 4,000 92% 91% 2,000 0 90% 2012 2013 2014 2015 2016 Generation Average facil
Slide 4: Alberta CLP
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 5: 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 6: 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 7: 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 8: 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 9: 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 10: 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 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, equivalent to ~2,000 MW of capacity Will still need 4,000 MW of thermal to replace retiring coal generation AESO confirmed details • Procurement of 400 MW of rene
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 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 Demand growth recovering Moderate increase in natural gas prices Pass-through of higher environme
Slide 17: Alberta demand
AB power market Alberta demand Alberta demand showing recovery 3 consecutive months (November 2016 – January 2017) of positive normalized load growth January 2017 growth is the highest since August 2015 1) Alberta Internal Load normalized for weather. Source: Capital Power. 17
Slide 18: Alberta opportunity set
Alberta growth Alberta opportunity set Significant investment required over the next 14 years Up to $20 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, developm
Slide 19: Halkirk 2
Alberta 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 19
Slide 20: Whitla Wind
Alberta growth Whitla Wind Location: Near Medicine Hat in south eastern Alberta 300 MWs on 33,000 acres Expect 38% - 41% capacity factor Available transmission 20
Slide 21: Genesee 4&5
Alberta growth Genesee 4&5 Joint venture partner 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 wit
Slide 22: Acquisition of 294 MW of fully contracted power facilities
Other growth in Canada Acquisition of 294 MW of fully contracted power facilities Highlights of transaction announced on Feb 21/17 Agreement to acquire two gas-fired generation facilities and two waste heat assets from Veresen Inc. $500M purchase price subject to closing adjustments, and include
Slide 23: Ontario natural gas facilities
Other growth in Canada Ontario natural gas facilities Young, high-quality generation facilities with a weighted average PPA life of 14 years remaining York Energy and East Windsor have long-term York Energy Centre PPAs with Ontario IESO (A rated) Earn revenues through fixed capacity payments par
Slide 24: B.C. waste heat generation facilities
Other growth in Canada B.C. waste heat generation facilities Fully contracted with 11 years of EPA life remaining 150 Mile House and Savona waste heat facilities are under 20-year EPAs with BC Hydro (AA rated), with original terms expiring in 2028 EPAs have partial inflation indexation and premi
Slide 25: Benefits of transaction
Other growth in Canada Benefits of transaction Young, high-quality assets – excellent operating history that will strengthen existing fleet of assets Geographical diversification – waste heat facilities in BC and natural gas facilities in Ontario Long-term contracts – weighted average remainin
Slide 26: Growth opportunities
U.S. growth Growth opportunities New Frontier Wind Nolin Hills Wind Garrison Butte Tisch Mills Wind Wind Cardinal Point Black Fork Wind Acquire or develop Salt Springs Bloom Wind Wind Wind contracted opportunities across the U.S. 26
Slide 27: Production Tax Credits (PTC) extension
U.S. growth Production Tax Credits (PTC) extension PTC extended with phase-out beginning in 2017 Commence PTC % ~PTC Construction (per MWh Nominal Projects needed to have started output) ($/MWh) construction by end of 2016 to qualify 2015 100 23 for full tax credits 2016 100 23 Treasury Secret
Slide 28: 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 29: Financial strategy
Finance overview Financial strategy Maintain investment grade credit rating Maintain ongoing Ensure Ensure access to cost economic Financial stable competitive capital discipline in Strategy dividend to fund growth growth growth throughout business cycle Manage financing risk 29
Slide 30: 3-year financial performance
Finance overview 3-year financial performance $M, except per share amounts 2014 2015 2016 Revenues $1,218 $1,241 $1,214 Adjusted EBITDA $423 $482 $520 Basic earnings per share $0.28 $0.70 $0.91 Normalized earnings per share $0.72 $1.15 $1.22 Funds from operations $362 $400 $384 Dividends declared $1
Slide 31: 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 32: AB commercial portfolio positions
AB power market AB commercial portfolio positions Alberta Commercial baseload positions As of Dec 31/16 2017 2018 2019 Percentage sold forward 100% 53% 40% Average contracted prices(1) Mid-$40 Low-$50 Low-$50 ($/MWh) Average forward prices $32 $39 $41 ($/MWh) Potential to capture market upside wit
Slide 33: Alberta power market trading
AB power market Alberta power market trading Portfolio optimization activities focused on managing exposure to commodity risks, reducing volatility and creating incremental value Average realized power prices(1) have exceeded spot power prices by 17% since the Company’s inception 7 years ago ($/MW
Slide 34: Continued strong cash flow generation
Cash flows Continued strong cash flow generation ~43% of cash flow in 2017 expected to be discretionary cash flow ($M) $500 $455 $400 Annual cash flow $384 $400 $362 expected to increase 43% ~18% in 2017 $300 37% 45% 42% Including off-coal compensation, $200 generating ~$195M in 34% 36% 34% 38%
Slide 35: Improving contracted EBITDA
Contracted EBITDA Improving contracted EBITDA(1,2,3,4) ($M) $500 EnPower Waste Heat East Windsor York Energy $400 Bloom Off-coal Compensation Beaufort $300 Macho Springs K2 Wind Shepard $200 PD&N Halkirk Quality Wind Island Generation $100 North Carolina Kingsbridge 1 Genesee 1&2 $0 2010 2011 2012 2
Slide 36: Merchant-contract EBITDA mix
Contracted EBITDA Merchant-contract EBITDA mix(1,2,3) 100% 75% 79% 66% 66% 50% 25% 0% 2015 2016 2017T Contract % Merchant % EBITDA increasingly derived from contracted assets 1) EBITDA includes off-coal compensation and excludes G&A costs. 2) Shepard and Halkirk have been split into contracted and m
Slide 37: 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 ~$340M $1.56 in AFFO in 2017 $1.46 $1.26 $1.36 AFFO payout ratio averages ~50% from 2016 to 2018 Pipeline of opportunities to e
Slide 38: Financial obligations & dividends covered by contracted EBITDA
Financial coverage Financial obligations & dividends covered by contracted EBITDA 150% Operating margin(1) to financial obligations(2) and dividends(3) Contracted(5) + merchant ($60/MWh) 140% 130% Contracted(5) + merchant (forwards(4)) Contracted(5) + merchant ($40/MWh) 120% Contracted(5) margin 110
Slide 39: Cash flow and financing outlook
Cash flow Cash flow and financing outlook Generating surplus cash after dividends and sustaining CAPEX Sources of cash flow ($M) 2017E Funds from operations + coal compensation $455 Proceeds from tax-equity debt $235 Uses of cash flow ($M) Dividends (common shares) $(155) Dividends (preferred shares
Slide 40: 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 ~57% ($195M) of Adjusted funds from operations (AFFO) is discretionary cash flow(1) available for a
Slide 41: Financial strength
Strong financial base Financial strength Strong balance sheet and investment grade credit rating Investment grade credit ratings by Agency Ratings Outlook S&P and DBRS S&P BBB- / P-3 Stable Continued to be well capitalized DBRS BBB / Pfd-3 (low) Negative with capacity for leverage Debt to total
Slide 42: Credit metrics
Strong financial base Credit metrics Above DBRS financial criteria for current rating Adj. Cash flow/Adj. Debt(1) EBITDA/Adj. Interest 30% 7.0 25% 6.0 20% 5.0 4.0 15% 3.0 10% 2.0 5% 1.0 0% 0.0 2016 2017T 2016 2017T Within S&P financial criteria for investment grade rating Adj. FFO/Adj. Debt(1,2) Adj
Slide 43: Adjusted funds from operations
2017 Targets Adjusted funds from operations(1) Purpose of new metric AFFO(1) defined as: Reflects cash available to Funds from operations (as previously sustain common dividends defined(1)) and to fund future + Coal compensation received investment opportunities annually Includes coal compensati
Slide 44: Financial guidance
2017 Targets Financial guidance Adjusted funds from operations (AFFO)(1) target ($M) $400 $340(2) $316 $306 Gross common dividends $300 Discretionary cash flow(1) $265 $200 $100 $0 2014 2015 2016 2017T Cash available for common share dividends and growth 1) Adjusted funds from operations and Discret
Slide 45: 2016 Performance and 2017 targets
2017 Targets 2016 Performance and 2017 targets Operational and financial targets ($M) 2016 2016 2017 2017 Targets Results Targets Targets (Dec 15/16) (Current) Facility availability 94% 94% 95% 95% Sustaining capex $65 $55 $75 $75 Genesee Performance Standard $10 $10 Facility operating & maintenance
Slide 46: Disciplined 2017 growth targets
2017 Targets Disciplined 2017 growth targets New developments Complete Bloom Wind on time and on budget Execute contracts for the output of two new developments 46
Slide 47: 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 48: Debt maturity schedule
Appendix Debt maturity schedule(1) $1B in committed credit facilities recently renewed with 5-year tenor maturing 2021, of which ~$863M 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 49: Alberta market
Appendix Alberta market Maintain competitiveness with efficient coal fleet 49
Slide 50: 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 50
Slide 51: 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 51
Slide 52: 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 52
Slide 53: 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 53
Slide 54: 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 55: 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 56: 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 57: Non-GAAP financial measures
Non-GAAP financial measures The Company uses (i) earnings before net 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 (
Slide 58: 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 59: 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