Brookfield Renewable Energy Partners L.P.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014
HIGHLIGHTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015
Operating Results
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| Three months ended Sep 30 | |||
(MILLIONS, EXCEPT AS NOTED) |
| 2015 |
| 2014 | ||
Generation (GWh) |
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| ||
| Long-term average |
| 5,459 |
| 5,065 | |
| Actual |
| 4,992 |
| 4,383 | |
Revenues | $ | 337 | $ | 342 | ||
Adjusted EBITDA | $ | 242 | $ | 223 | ||
Funds From Operations | $ | 80 | $ | 61 | ||
Net income (loss) | $ | 27 | $ | (25) |
We successfully managed our assets with no material planned outages, high availability and reliability in line with plan.
North America
· Inflows at our hydroelectric portfolio were, in the aggregate, marginally below prior year. Our U.S. portfolio performed in line with long-term average while the Canadian portfolio was below long-term average due to adverse hydrological conditions. Revenues benefited from stronger capacity and ancillary revenues coupled with increased generation at facilities with higher relative pricing. This was offset by the shortfall in generation from elsewhere in the portfolio, over the prior year
· While our wind portfolio performed ahead of prior year it was still below long-term average due to weak wind conditions
Latin America
· Generation from our hydroelectric portfolio was ahead of the prior year but still below long-term average due to the impact of the continuing drought conditions
· In July 2015, concession agreements relating to two Brazilian hydroelectric facilities expired. We elected not to renew these concession agreements in exchange for compensation of $17 million
· The recently acquired wind portfolio performed in line with long-term average while the hydroelectric portfolio was marginally below due to the aforementioned hydrological conditions
Europe
· The Irish wind portfolio performed in line with long-term average as there was a return to more normal wind conditions
· The recently acquired and commissioned facilities in Ireland and Portugal performed in line with long-term average
· Continued to expand our operations, secured higher revenues through re-contracting and green credit sales initiatives, and integrated the recently acquired development portfolio in Scotland
Growth and Development
In July 2015 we, along with our institutional partners, completed the sale of the 102 MW wind portfolio in California for gross cash consideration of $143 million, inclusive of working capital adjustments, and a gain of $53 million. Our gain, which represents the 22% interest in the facility and is net of the cash portion of non-controlling interests, was $12 million.
In July 2015, we entered into an agreement to acquire two hydroelectric facilities in Brazil with an aggregate capacity of 51 MW and expected to generate 293 GWh annually. The transaction is expected to close in the fourth quarter of 2015, subject to typical closing conditions. We will retain a 100% interest in these facilities.
We continued to advance the construction, on scope, schedule and budget, of 127 MW of hydroelectric and biomass development projects in Brazil. Collectively, these four projects are expected to generate 624 GWh annually with commissioning expected between 2016 and 2018. We also continued construction, on scope, schedule and budget, of a 14 MW wind project in Northern Ireland expected to generate 38 GWh annually with commissioning expected in 2016.
Subsequent to quarter end, we entered into an agreement to acquire two hydroelectric facilities in Pennsylvania with an aggregate generating capacity of 292 MW. The facilities are expected to generate 1,109 GWh annually. We are pursuing this transaction with our institutional partners, and expect to retain an approximate 40% controlling interest in the facilities. The transaction is expected to close in the first quarter of 2016, subject to typical closing conditions.
Liquidity and Capital Resources
Our available liquidity at quarter end included approximately $1.0 billion of cash and cash equivalents and the available portions of credit facilities. Our debt to total capitalization is 43% and approximately 75% of our borrowings are non-recourse to Brookfield Renewable. Corporate borrowings and subsidiary borrowings have weighted-average terms of approximately seven and ten years, respectively.
During the quarter, we completed the following financing initiatives:
· Secured financing in the amount of R$187 million ($47 million) with respect to 90 MW of biomass capacity in Brazil, of which we drew R$139 million ($35 million). The loan bears interest at a floating interest rate of the Taxa de Juros de Longo Prazo (“TJLP”), the Brazil National Bank for Economic Development’s rate, plus 1.4% and matures in October 2035.
· Completed the final drawdown of €20 million ($22 million) on the construction and term loan associated with 137 MW of wind projects in Ireland, bringing the total draw to €188 million ($227 million) at a weighted average rate of 2.74% and maturing in December 2027.
· Reduced the margin on C$119 million ($95 million) of debt associated with a 51 MW wind facility in Ontario from 2.25% to 1.625%, and the debt was up-financed by C$7 million ($5 million).
Subsequent to quarter end, we completed a $400 million bond financing and a $26 million letter of credit and working capital facility associated with our 600 MW pumped-storage and 10 MW hydroelectric facilities in New England. We retain a 50% equity-accounted, interest in this facility.
HISTORICAL OPERATIONAL AND FINANCIAL INFORMATION
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| Three months ended Sep 30 | Nine months ended Sep 30 | ||||||
(MILLIONS, EXCEPT AS NOTED) |
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| 2015 |
| 2014 |
| 2015 |
| 2014 |
Operational information(1) |
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|
| ||
Capacity (MW) |
| 7,284 |
| 6,707 |
| 7,284 |
| 6,707 | ||
Long-term average generation (GWh)(2) |
| 5,459 |
| 5,065 |
| 19,174 |
| 17,526 | ||
Actual generation (GWh)(2) |
| 4,992 |
| 4,383 |
| 17,215 |
| 16,709 | ||
Average revenue ($ per MWh) |
|
|
| 68 |
| 78 |
| 72 |
| 80 |
Selected financial information |
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|
|
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|
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|
|
Revenues | $ | 337 | $ | 342 | $ | 1,236 | $ | 1,296 | ||
Adjusted EBITDA(3) |
| 242 |
| 223 |
| 919 |
| 943 | ||
Funds From Operations(3) |
| 80 |
| 61 |
| 379 |
| 444 | ||
Adjusted Funds From Operations(3) |
| 65 |
| 46 |
| 334 |
| 401 | ||
Net income (loss) |
| 27 |
| (25) |
| 113 |
| 172 | ||
Funds From Operations per LP Unit(3)(4) |
| 0.29 |
| 0.22 |
| 1.37 |
| 1.65 | ||
Distributions per LP Unit - last 12 months(5) |
|
|
| 1.64 |
| 1.53 |
| 1.64 |
| 1.53 |
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|
| Sep 30 | Dec 31 | ||
(MILLIONS, EXCEPT AS NOTED) |
| 2015 |
| 2014 | ||
Balance sheet data: |
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| |||
Property, plant and equipment, at fair value | $ | 17,511 | $ | 18,566 | ||
Equity-accounted investments |
| 239 |
| 273 | ||
Total assets |
| 18,697 |
| 19,849 | ||
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Long-term debt and credit facilities |
| 7,616 |
| 7,678 | ||
Deferred income tax liabilities |
| 2,485 |
| 2,637 | ||
Total liabilities |
| 10,864 |
| 10,968 | ||
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Preferred equity |
| 634 |
| 728 | ||
Participating non-controlling interests - in operating subsidiaries |
| 2,231 |
| 2,062 | ||
General partnership interest in a holding subsidiary held by Brookfield |
| 48 |
| 59 | ||
Participating non-controlling interests - in a holding |
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|
| ||
| subsidiary - Redeemable/Exchangeable units held by Brookfield |
| 2,337 |
| 2,865 | |
Limited partners' equity |
| 2,583 |
| 3,167 | ||
Total equity |
| 7,833 |
| 8,881 | ||
Debt to total capitalization(6) |
| 43% |
| 40% |
(1) Includes 100% of capacity and generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, “Financial Review by Segments for the Three Months Ended September 30, 2015” and “Financial Review by Segments for the Nine Months Ended September 30, 2015”.
(4) For the three and nine months ended September 30, 2015, weighted average LP units, Redeemable/Exchangeable units and General Partnership units totaled 275.7 million and 275.7 million, respectively (2014: 275.6 million and 269.5 million).
(5) Represents distributions per unit to holders of Redeemable/Exchangeable partnership units, LP Units and GP interest.
(6) Total capitalization is calculated as total debt plus deferred income tax liabilities, net of deferred income tax assets, and equity.
This Management’s Discussion and Analysis for the three and nine months ended September 30, 2015 is provided as of November 3, 2015. Unless the context indicates or requires otherwise, the terms “Brookfield Renewable”, “we”, “us”, and “our” mean Brookfield Renewable Energy Partners L.P. and its controlled entities.
Brookfield Renewable’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which require estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and the amounts of revenue and expense during the reporting periods.
Certain comparative figures have been reclassified to conform to the current year’s presentation.
Unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars.
The ultimate parent of Brookfield Renewable is Brookfield Asset Management Inc. (“Brookfield Asset Management”). Brookfield Asset Management and its subsidiaries, other than Brookfield Renewable, are also individually and collectively referred to as “Brookfield” in this Management’s Discussion and Analysis.
PRESENTATION TO PUBLIC STAKEHOLDERS
Brookfield Renewable’s consolidated equity interests include LP Units held by public unitholders, Redeemable/Exchangeable partnership units in Brookfield Renewable Energy L.P. (“BRELP”), a holding subsidiary of Brookfield Renewable, held by Brookfield (“Redeemable/Exchangeable partnership units”), and a general partnership interest in BRELP held by Brookfield (“GP interest”). The LP Units and the Redeemable/Exchangeable partnership units have the same economic attributes in all respects, except that the Redeemable/Exchangeable partnership units provide Brookfield the right to request that their units be redeemed for cash consideration. In the event that Brookfield exercises this right, Brookfield Renewable has the right, at its sole discretion, to satisfy the redemption request with LP Units, rather than cash, on a one-for-one basis. Brookfield, as holder of Redeemable/Exchangeable partnership units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units. As Brookfield Renewable, at its sole discretion, has the right to settle the obligation with LP Units, the Redeemable/Exchangeable partnership units are classified under equity, and not as a liability.
Given the exchange feature referenced above, we are presenting LP Units, Redeemable/Exchangeable partnership units, and the GP interest as separate components of consolidated equity. This presentation does not impact the total income (loss), per unit or share information, or total consolidated equity.
As at the date of this report, Brookfield owns an approximate 62% LP Unit interest, on a fully-exchanged basis, and all general partnership interests in Brookfield Renewable, representing a 0.01% interest, while the remaining approximately 38% is held by the public.
Performance Measurement
We present our key financial metrics based on total results prior to distributions made to LP Unitholders, the Redeemable/Exchangeable Unitholders and holders of the GP interest. In addition, our operations are segmented by the type of power generation (Hydroelectric, Wind, and Other, which includes Biomass and Co-gen) with Hydroelectric and Wind further segmented by geography (North America, which is comprised of the United States and Canada segments; Latin America; and Europe), as that is how Brookfield Renewable’s Chief Executive Officer and Chief Financial Officer (collectively, the chief operating decision maker, or “CODM”) review our results, manage operations and allocate resources. Accordingly, we report our results in accordance with these segments. Refer to Note 16 – Segmented information in our interim consolidated financial statements for further details.
One of our primary business objectives is to generate reliable and growing cash flows while minimizing risk for the benefit of all stakeholders. We monitor our performance in this regard through four key metrics — i) Net Income (Loss), ii) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”), iii) Funds From Operations, and iv) Adjusted Funds From Operations.
It is important to highlight that Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. We provide additional information on how we determine Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations, and we provide reconciliations to net income (loss) and cash flows from operating activities. See “Financial Review by Segments for the Three Months Ended September 30, 2015” and “Financial Review by Segments for the Nine Months Ended September 30, 2015”.
Net Income (Loss)
Net income (loss) is calculated in accordance with IFRS.
Adjusted EBITDA
Adjusted EBITDA means revenues, other income, and our share of cash earnings from equity-accounted investments less direct costs (including energy marketing costs), before interest, income taxes, depreciation, management service costs and the cash portion of non-controlling interests.
Funds From Operations
Funds From Operations is defined as Adjusted EBITDA less interest, current income taxes and management service costs, which is then adjusted for the cash portion of non-controlling interests. For the three and nine months ended September 30, 2014, Funds From Operations include the earnings received from the wind portfolio we acquired in Ireland, reflecting our economic interest from January 1, 2014 to June 30, 2014.
Our payout ratio is defined as distributions to Redeemable/Exchangeable partnership units, LP Units and the GP interest, including general partnership incentive distributions, divided by Funds From Operations.
Adjusted Funds From Operations
Adjusted Funds From Operations is defined as Funds From Operations less Brookfield Renewable’s share of adjusted sustaining capital expenditures (based on long-term sustaining capital expenditure plans).
Statement Regarding Forward-Looking Statements and Use of Non-IFRS Measures
This Management's Discussion and Analysis contains forward-looking information within the meaning of U.S. and Canadian securities laws. We may make such statements in this Management's Discussion and Analysis, in other filings with the U.S. Securities and Exchange Commission (“SEC”) or in other communications with Canadian regulators - see “Cautionary Statement Regarding Forward-Looking Statements”. We make use of non-IFRS measures in this Management's Discussion and Analysis - see “Cautionary Statement Regarding Use Of Non-IFRS Measures”. This Management's Discussion and Analysis, our Form 20-F and additional information filed with the SEC and with securities regulators in Canada are available on our website at www.brookfieldrenewable.com, on the SEC’s website at www.sec.gov or on SEDAR’s website at www.sedar.com.
GENERATION AND FINANCIAL REVIEW FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015
The following table reflects the actual and long-term average generation for the three months ended September 30:
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| Variance of Results | ||
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| Actual vs. |
| Actual Generation(1) | LTA Generation(1) | Actual vs. LTA | Prior Year | |||||
GENERATION (GWh) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
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Hydroelectric |
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| North America |
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| United States | 2,117 | 2,183 | 2,114 | 2,160 | 3 | 23 | (66) |
|
| Canada | 952 | 987 | 1,162 | 1,233 | (210) | (246) | (35) |
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| 3,069 | 3,170 | 3,276 | 3,393 | (207) | (223) | (101) |
| Latin America | 879 | 633 | 1,033 | 887 | (154) | (254) | 246 | |
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| 3,948 | 3,803 | 4,309 | 4,280 | (361) | (477) | 145 |
Wind |
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| North America |
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| |
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| United States | 185 | 240 | 269 | 341 | (84) | (101) | (55) |
|
| Canada | 155 | 152 | 238 | 238 | (83) | (86) | 3 |
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| 340 | 392 | 507 | 579 | (167) | (187) | (52) |
| Latin America | 137 | - | 148 | - | (11) | - | 137 | |
| Europe | 295 | 174 | 292 | 160 | 3 | 14 | 121 | |
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| 772 | 566 | 947 | 739 | (175) | (173) | 206 |
Other | 272 | 14 | 203 | 46 | 69 | (32) | 258 | ||
Total(2) | 4,992 | 4,383 | 5,459 | 5,065 | (467) | (682) | 609 |
(1) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(2) Includes 100% of generation from equity-accounted investments.
We compare actual generation levels against the long-term average to highlight the impact of one of the important factors that affect the variability of our business results. In the short-term, we recognize that hydrology and wind conditions will vary from one period to the next; over time however, we expect our facilities will continue to produce in line with their long-term averages, which have proven to be reliable indicators of performance.
Our risk of a generation shortfall in Latin America continues to be minimized by participation in a hydrological balancing pool administered by the government of Brazil. This program mitigates hydrology risk by assuring that all participants receive, at any particular point in time, an assured energy amount, irrespective of the actual volume of energy generated. The program reallocates energy, transferring surplus energy from those who generated an excess to those who generate less than their assured energy, up to the total generation within the pool. Periodically, low precipitation across the entire country’s system could result in a temporary reduction of generation available for sale. During these periods, we expect that a higher proportion of thermal generation would be needed to balance supply and demand in the country potentially leading to higher overall spot market prices. In anticipation of adverse hydrological conditions, we continue to maintain a lower level of contracted power in the portfolio, thereby preserving optionality and flexibility in the portfolio and allowing us to capture increased revenues in times of strong power prices.
Generation for the three months ended September 30, 2015 totaled 4,992 GWh, below the long-term average of 5,459 GWh and an increase of 609 GWh compared to the prior year. The contribution from the recent growth in the portfolio was 683 GWh.
The hydroelectric portfolio generated 3,948 GWh, below the long-term average of 4,309 GWh and an increase of 145 GWh compared to the prior year. Inflows in our North American portfolio were in line compared to prior year. The United States portfolio was in line with long-term average while the Canadian portfolio was below. Inflows in Brazil improved compared to the prior year but remained below the long-term average due to the continuing drought conditions. Generation from the growth in our portfolio was 256 GWh which was in line with our long-term average.
The wind portfolio generated 772 GWh, below the long-term average of 947 GWh and an increase of 206 GWh compared to the prior year. Generation from the prior year includes 64 GWh related to our recently sold 102 MW wind facility in California. Generation at our North American portfolio was ahead of the prior year but, due to wind conditions, was below long-term average. The Irish portfolio returned to the long-term average due to improved wind conditions. Contributions from our recently acquired and commissioned facilities in Europe and Latin America were 258 GWh which was in line with the long-term average.
The recently acquired biomass portfolio in Brazil generated 169 GWh while our co-gen facility in New York generated 103 GWh.
The following table reflects Adjusted EBITDA, Funds From Operations, Adjusted Funds From Operations, and provides a reconciliation to net income (loss) for the three months ended September 30:
(MILLIONS, EXCEPT AS NOTED) |
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| 2015 |
| 2014 |
Revenues | $ | 337 | $ | 342 | |||
Other income(1)(2) |
| 42 |
| 3 | |||
Share of cash earnings from equity-accounted investments |
| 5 |
| 10 | |||
Direct operating costs |
| (142) |
| (132) | |||
Adjusted EBITDA(3) |
| 242 |
| 223 | |||
Interest expense – borrowings |
| (107) |
| (106) | |||
Management service costs |
| (11) |
| (14) | |||
Current income taxes |
| (7) |
| (5) | |||
Less: cash portion of non-controlling interests |
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| Preferred equity |
| (7) |
| (10) | ||
| Participating non-controlling interests - in operating subsidiaries |
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| (30) |
| (27) |
Funds From Operations(3) |
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| 80 |
| 61 |
Less: adjusted sustaining capital expenditures(4) |
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| (15) |
| (15) |
Adjusted Funds From Operations(3) |
| 65 |
| 46 | |||
Add: cash portion of non-controlling interests(1) |
| 78 |
| 37 | |||
Add: adjusted sustaining capital expenditures |
| 15 |
| 15 | |||
Other items: |
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| Depreciation |
| (153) |
| (145) | ||
| Unrealized financial instruments (loss) gain |
| (1) |
| 9 | ||
| Share of non-cash loss from equity-accounted investments |
| (2) |
| (3) | ||
Deferred income tax recovery |
| 26 |
| 27 | |||
Other |
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| (1) |
| (11) |
Net income (loss) |
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| $ | 27 | $ | (25) |
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Basic and diluted earnings per LP Unit(5) |
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| $ | (0.07) | $ | (0.13) |
(1) Brookfield Renewable, along with its institutional partners, sold its interest in a 102 MW wind facility in California to a third party for gross cash consideration of $143 million, resulting in a gain of $53 million. See Note 4 - Disposal of assets and Note 15 - Other income in our interim consolidated financial statements. Brookfield Renewable’s share of the gain was $12 million, representing the 22% interest in the facility and is net of the cash portion of non-controlling interests.
(2) In July 2015, concession agreements relating to two Brazilian hydroelectric facilities expired. Brookfield Renewable elected not to renew these concession agreements in exchange for compensation of $17 million.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures” and “Financial Review by Segments for the Three Months Ended September 30, 2015”.
(4) Based on long-term sustaining capital expenditure plans.
(5) Average LP Units outstanding during the period totaled 143.3 million (2014: 143.3 million).
Net income is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income on an IFRS basis for our business will often lead to the recognition of a loss or a year-over-year decrease in income even though the underlying cash flows generated by the assets are supported by strong margins and stable, long-term power purchase agreements. The primary reason for this is that we recognize a significantly higher level of depreciation for our assets than we are required to reinvest in the business as sustaining capital expenditures.
As a result, we also measure our financial results based on Adjusted EBITDA, Funds From Operations, and Adjusted Funds From Operations to provide readers with an assessment of the cash flow generated by our assets and the residual cash flow retained to fund distributions and growth initiatives.
Revenues totaling $337 million represent a decrease of $5 million.
In our North American hydroelectric portfolio, stronger capacity and ancillary revenues and increased generation at facilities with higher relative pricing were offset by the shortfall in generation from elsewhere in the portfolio, over the prior year. Improved hydrological conditions in Brazil contributed a $3 million increase.
A return to more normal wind conditions in Ireland and stronger performance at our U.S. wind portfolio resulted in a $9 million increase.
The recent growth across our entire portfolio contributed revenues of $28 million. The 102 MW wind facility in California sold at the beginning of the quarter had contributed revenues of $8 million in the prior year.
Canadian dollar and Euro exposure, representing 30% of our entire portfolio, continues to be proactively managed through foreign currency contracts. The Brazilian Real exposure, representing 20% of our entire portfolio, is not hedged through foreign currency contracts due to high associated costs. However, the exposure is mitigated by the annual inflation-linked escalations in our power purchase agreements. The appreciation of the U.S. dollar resulted in a $38 million reduction in revenues. This also affected operating and borrowing costs and, with the effect of the ongoing foreign currency hedging program, reduced the net impact on Funds From Operations to $3 million.
The average total revenue per MWh of $68 decreased $10 per MWh, primarily attributable to the appreciation of the U.S. dollar impacting our revenues denominated in Canadian dollars, Euros and Brazilian Real.
Direct operating costs totaling $142 million represent an increase of $10 million, primarily reflecting timing differences from prior year and the growth in our portfolio.
Interest expense totaling $107 million represents an increase of $1 million, as incremental borrowing costs of $18 million were attributable to the growth in our portfolio.
Management service costs totaling $11 million represent a decrease of $3 million which was primarily attributable to the appreciation of the U.S. dollar.
The cash portion of non-controlling interests totaling $37 million is in line with the prior year.
Funds From Operations totaling $80 million represent an increase of $19 million, primarily attributable to the gain on the sale of the 102 MW wind facility in California and the compensation related to the expiration of the concession agreements in Brazil.
Net income totaling $27 million represents an increase of $52 million.
SEGMENTED DISCLOSURES
Segmented information is prepared on the same basis that Brookfield Renewable’s CODM manages the business, evaluates financial results, and makes key operating decisions. See Note 16 - Segmented information in our interim consolidated financial statements.
HYDROELECTRIC
The following table reflects the results of our operations for the three months ended September 30:
(MILLIONS, EXCEPT AS NOTED) | 2015 | ||||||||||
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| North America | Latin |
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| United States | Canada | Total | America | Total | |||||
Generation (GWh) – LTA(1)(2) |
| 2,114 |
| 1,162 |
| 3,276 |
| 1,033 |
| 4,309 | |
Generation (GWh) – actual(1)(2) |
| 2,117 |
| 952 |
| 3,069 |
| 879 |
| 3,948 | |
Revenues | $ | 153 | $ | 55 | $ | 208 | $ | 49 | $ | 257 | |
Adjusted EBITDA(3) |
| 89 |
| 43 |
| 132 |
| 57 |
| 189 | |
Funds From Operations(3) | $ | 29 | $ | 29 | $ | 58 | $ | 42 | $ | 100 |
(MILLIONS, EXCEPT AS NOTED) | 2014 | ||||||||||
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| North America | Latin |
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| United States | Canada | Total | America | Total | |||||
Generation (GWh) – LTA(1)(2) |
| 2,160 |
| 1,233 |
| 3,393 |
| 887 |
| 4,280 | |
Generation (GWh) – actual(1)(2) |
| 2,183 |
| 987 |
| 3,170 |
| 633 |
| 3,803 | |
Revenues | $ | 151 | $ | 64 | $ | 215 | $ | 60 | $ | 275 | |
Adjusted EBITDA(3) |
| 98 |
| 47 |
| 145 |
| 44 |
| 189 | |
Funds From Operations(3) | $ | 47 | $ | 28 | $ | 75 | $ | 30 | $ | 105 |
(1) Includes 100% of generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review by Segments for the Three Months Ended September 30, 2015”.
North America
Generation from the portfolio was 3,069 GWh, below the long-term average of 3,276 GWh and lower than prior year generation of 3,170 GWh.
Revenues totaling $208 million represent a decrease of $7 million. Funds From Operations totaling $58 million represent a decrease of $17 million.
United States
Generation from the portfolio was 2,117 GWh, consistent with the long-term average of 2,114 GWh and lower than prior year generation of 2,183 GWh. Lower inflows in New York, New England, Tennessee and North Carolina were partially offset by higher generation in Louisiana and a full quarter’s contribution from the step-up purchase of the Pennsylvania facility acquired in 2014.
Revenues totaling $153 million represent an increase of $2 million, primarily attributable to the growth in our portfolio. The benefit of relatively stronger capacity and ancillary revenues, particularly in the southeastern United States, and increased generation at our Louisiana facility which also has a higher relative contract price was offset by the decrease in generation.
Funds From Operations totaling $29 million represent a decrease of $18 million. The growth in our portfolio resulted in increased operating and borrowing costs, while timing differences from the prior year resulted in increased operating costs. Lower realized pricing impacted results at our equity-accounted pumped-storage facility.
Canada
Generation from the portfolio was 952 GWh, below the long-term average of 1,162 GWh and lower than prior year generation of 987 GWh. The variances were primarily attributable to lower than average inflows across the portfolio.
Revenues totaling $55 million represent a decrease of $9 million. The decrease in generation was offset by the annual escalations in our power purchase agreements. The appreciation of the U.S. dollar impacted revenues by $10 million, but operating and borrowing costs were also affected and the net impact on Funds From Operations was fully offset by the ongoing foreign currency hedging program.
Funds From Operations totaling $29 million represent an increase of $1 million.
Latin America
Generation from the portfolio was 879 GWh, below the long-term average of 1,033 GWh and higher than prior year generation of 633 GWh. While generation from our existing facilities increased 77 GWh compared to the prior year, hydrology in Brazil continues to be affected by the drought conditions. The recently acquired facilities in Brazil generated 169 GWh, below the long-term average of 208 GWh.
Revenues totaling $49 million represent a decrease of $11 million. Revenues increased due to the higher generation, and the recently acquired facilities contributed $7 million of revenues. The appreciation of the U.S. dollar impacted revenues by $21 million, but also affected operating and borrowing costs, resulting in a net decrease in Funds From Operations of $11 million.
Funds From Operations totaling $42 million represent an increase of $12 million, primarily attributable to the $17 million compensation in relation to our election to not renew expired concession agreements for two Brazilian facilities. Operating and borrowing costs, and the cash portion of non-controlling interests increased primarily due to the recent growth in the portfolio.
WIND
The following table reflects the results of our operations for the three months ended September 30:
(MILLIONS, EXCEPT AS NOTED) | 2015 | |||||||||||
| North America | Latin |
|
|
|
| ||||||
| United States | Canada | Total | America | Europe | Total | ||||||
Generation (GWh) – LTA(1)(2) |
| 269 |
| 238 |
| 507 |
| 148 |
| 292 |
| 947 |
Generation (GWh) – actual(1)(2) |
| 185 |
| 155 |
| 340 |
| 137 |
| 295 |
| 772 |
Revenues | $ | 23 | $ | 16 | $ | 39 | $ | 6 | $ | 25 | $ | 70 |
Adjusted EBITDA(3) |
| 26 |
| 10 |
| 36 |
| 5 |
| 15 |
| 56 |
Funds From Operations(3) | $ | 15 | $ | 3 | $ | 18 | $ | 1 | $ | 3 | $ | 22 |
(MILLIONS, EXCEPT AS NOTED) | 2014 | |||||||||||
| North America | Latin |
|
|
|
| ||||||
| United States | Canada | Total | America | Europe | Total | ||||||
Generation (GWh) – LTA(1)(2) |
| 341 |
| 238 |
| 579 |
| N/A |
| 160 |
| 739 |
Generation (GWh) – actual(1)(2) |
| 240 |
| 152 |
| 392 |
| N/A |
| 174 |
| 566 |
Revenues | $ | 28 | $ | 19 | $ | 47 | $ | N/A | $ | 18 | $ | 65 |
Adjusted EBITDA(3) |
| 17 |
| 13 |
| 30 |
| N/A |
| 11 |
| 41 |
Funds From Operations(3) | $ | 3 | $ | 4 | $ | 7 | $ | N/A | $ | 2 | $ | 9 |
(1) Includes 100% of generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review by Segments for the Three Months Ended September 30, 2015”.
North America
Generation from the portfolio was 340 GWh, below the long-term average of 507 GWh and lower than prior year generation of 392 GWh.
Revenues totaling $39 million represent a decrease of $8 million. Funds From Operations totaling $18 million represent an increase of $11 million.
United States
Generation from the portfolio of 185 GWh was below the long-term average of 269 GWh and ahead of prior year generation of 176 GWh.
Revenues totaling $23 million represent an increase of $3 million due to the annual escalations in our power purchase agreements and the increase in generation. Funds from Operations totaling $3 million represent an increase of $1 million.
The 102 MW wind facility in California sold at the beginning of the quarter had contributed 64 GWh in generation, $8 million in revenues, and $1 million in Funds From Operations in the prior year. Our share of the gain on the sale of the wind facility recognized in the quarter was $12 million.
Canada
Generation from the portfolio was 155 GWh, below the long-term average of 238 GWh due to lower wind conditions, and consistent with prior year generation of 152 GWh.
Revenues totaling $16 million represent a decrease of $3 million attributable to the appreciation of the U.S. dollar. Funds From Operations totaling $3 million represent a decrease of $1 million, as the impact of the appreciation of the U.S. dollar on operating and borrowing costs partly offset the effect on revenues.
Latin America
Generation from the recently acquired wind portfolio in Brazil of 137 GWh was in line with the long-term average of 148 GWh.
Revenues and Funds From Operations totaled $6 million and $1 million, respectively.
Europe
Generation from the portfolio of 295 GWh was in line with the long-term average of 292 GWh, and higher than prior year generation of 174 GWh. Generation in the prior year included 60 GWh from a recently built project which was in the final stages of commercialization but was receiving payments under its power purchase agreement, tied to production. Generation from our existing facilities in Ireland was in line with the long-term average due to a return to normal wind conditions over prior year. The facilities recently commissioned in Ireland and the acquired portfolio in Portugal contributed 71 GWh and 50 GWh, respectively, which were consistent with the long-term averages.
Revenues totaling $25 million represent an increase of $7 million. The increase in revenues attributable to the higher generation in Ireland was $6 million, and the contribution from our recently acquired portfolio in Portugal was $5 million. The appreciation of the U.S. dollar impacted revenues by $4 million but operating and borrowing costs were also affected and the net impact was $1 million. Funds From Operations totaling $3 million represent an increase of $1 million.
GENERATION AND FINANCIAL REVIEW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
The following table reflects the actual and long-term average generation for the nine months ended September 30:
|
|
|
|
|
|
| Variance of Results | ||
|
|
|
|
|
|
|
|
| Actual vs. |
| Actual Generation(1) | LTA Generation(1) | Actual vs. LTA | Prior Year | |||||
GENERATION (GWh) | 2015 | 2014 | 2015 | 2014 | 2015 | 2014 |
| ||
Hydroelectric |
|
|
|
|
|
|
| ||
| North America |
|
|
|
|
|
|
| |
|
| United States | 7,582 | 7,859 | 8,566 | 7,989 | (984) | (130) | (277) |
|
| Canada | 3,792 | 3,856 | 3,971 | 3,914 | (179) | (58) | (64) |
|
|
| 11,374 | 11,715 | 12,537 | 11,903 | (1,163) | (188) | (341) |
| Latin America | 2,451 | 2,576 | 2,976 | 2,714 | (525) | (138) | (125) | |
|
|
| 13,825 | 14,291 | 15,513 | 14,617 | (1,688) | (326) | (466) |
Wind |
|
|
|
|
|
|
| ||
| North America |
|
|
|
|
|
|
| |
|
| United States | 746 | 940 | 1,048 | 1,120 | (302) | (180) | (194) |
|
| Canada | 671 | 731 | 854 | 854 | (183) | (123) | (60) |
|
|
| 1,417 | 1,671 | 1,902 | 1,974 | (485) | (303) | (254) |
| Latin America | 322 | - | 294 | - | 28 | - | 322 | |
| Europe(2) | 1,072 | 592 | 1,050 | 591 | 22 | 1 | 480 | |
|
|
| 2,811 | 2,263 | 3,246 | 2,565 | (435) | (302) | 548 |
Other | 579 | 155 | 415 | 344 | 164 | (189) | 424 | ||
Total(3) | 17,215 | 16,709 | 19,174 | 17,526 | (1,959) | (817) | 506 |
(1) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(2) We completed the acquisition of the wind portfolio in Ireland on June 30, 2014. Pursuant to the terms of the purchase and sale agreement, Brookfield Renewable acquired an economic interest in the wind portfolio from January 1, 2014. Accordingly, 2014 numbers include generation for the period from January 1, 2014 to June 30, 2014.
(3) Includes 100% of generation from equity-accounted investments.
Generation during the nine months ended September 30, 2015 totaled 17,215 GWh, below the long-term average of 19,174 GWh and an increase of 506 GWh compared to the prior year. The contribution from the recent growth in the portfolio was 1,940 GWh.
The hydroelectric portfolio generated 13,825 GWh, below the long-term average of 15,513 GWh and a decrease of 466 GWh compared to the prior year. The generation from our recently acquired or commissioned facilities was 869 GWh which was below long-term average. The variances were attributable to lower inflows, largely over the first half of this year, across the portfolio.
The wind portfolio generated 2,811 GWh, below the long-term average of 3,246 GWh and an increase of 548 GWh compared to the prior year:
· The North American portfolio generated 1,417 GWh, below the long-term average of 1,902 GWh and a decrease of 254 GWh compared to the prior year. Generation from the prior year includes our recently sold 102 MW wind facility in California. Our portfolio performed below long-term average and below the prior year due to weak wind conditions in the first half of this year
· The Irish portfolio generated 633 GWh, which was in line with the long-term average and an increase compared to the prior year due to improved wind conditions throughout this year.
· The contributions from our recently acquired and commissioned facilities in Europe and Latin America were 761 GWh, which was above the long-term average
The recently acquired biomass portfolio in Brazil contributed 310 GWh while our co-gen facility in New York contributed 269 GWh.
The following table reflects Adjusted EBITDA, Funds From Operations, Adjusted Funds From Operations, and provides a reconciliation to net income for the nine months ended September 30:
(MILLIONS, EXCEPT AS NOTED) |
|
|
|
| 2015 |
| 2014 |
Revenues | $ | 1,236 | $ | 1,296 | |||
Other income(1)(2) |
| 75 |
| 8 | |||
Share of cash earnings from equity-accounted investments |
| 18 |
| 25 | |||
Direct operating costs |
| (410) |
| (386) | |||
Adjusted EBITDA(3) |
| 919 |
| 943 | |||
Fixed earnings adjustment(4) |
| - |
| 11 | |||
Interest expense – borrowings |
| (326) |
| (309) | |||
Management service costs |
| (38) |
| (38) | |||
Current income taxes |
| (17) |
| (19) | |||
Less: cash portion of non-controlling interests |
|
|
|
| |||
| Preferred equity |
| (23) |
| (29) | ||
| Participating non-controlling interests - in operating subsidiaries |
| (136) |
| (115) | ||
Funds From Operations(3) |
| 379 |
| 444 | |||
Less: adjusted sustaining capital expenditures(5) |
|
|
|
| (45) |
| (43) |
Adjusted Funds From Operations(3) |
| 334 |
| 401 | |||
Add: cash portion of non-controlling interests(1) |
| 200 |
| 144 | |||
Add: adjusted sustaining capital expenditures |
| 45 |
| 43 | |||
Less: fixed earnings adjustment |
| - |
| (11) | |||
Other items: |
|
|
|
| |||
| Depreciation |
| (472) |
| (400) | ||
| Unrealized financial instruments (loss) gain |
| (9) |
| 5 | ||
| Share of non-cash loss from equity-accounted investments |
| (8) |
| (15) | ||
Deferred income tax recovery |
| 38 |
| 8 | |||
Other |
| (15) |
| (3) | |||
Net income |
|
|
| $ | 113 | $ | 172 |
|
|
|
|
|
|
|
|
Basic and diluted earnings per LP Unit(6) |
|
|
| $ | 0.10 | $ | 0.31 |
(1) Brookfield Renewable, along with its institutional partners, sold its interest in a 102 MW wind facility in California to a third party for gross cash consideration of $143 million, resulting in a gain of $53 million. See Note 4 - Disposal of assets and Note 15 - Other income in our interim consolidated financial statements. Brookfield Renewable’s share of the gain was $12 million, representing the 22% interest in the facility and is net of the cash portion of non-controlling interests.
(2) In July 2015, concession agreements relating to two Brazilian hydroelectric facilities expired. Brookfield Renewable elected not to renew these concession agreements in exchange for compensation of $17 million.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures” and “Financial Review by Segments for the Nine Months Ended September 30, 2015”.
(4) The fixed earnings adjustment relates to Brookfield Renewable’s investment in the acquisition of the wind portfolio in Ireland. Pursuant to the terms of the purchase and sale agreement, Brookfield Renewable acquired an economic interest in the wind portfolio from January 1, 2014. The transaction closed on June 30, 2014, and accordingly under IFRS, the $11 million net Funds From Operations contribution was recorded as part of the purchase price.
(5) Based on long-term sustaining capital expenditure plans.
(6) Average LP Units outstanding during the period totaled 143.4 million (2014: 137.2 million).
Revenues totaled $1,236 million which represented a decrease of $60 million.
In North America, the decrease in generation combined with a relatively lower pricing environment in the first quarter of 2015 in our hydroelectric portfolio, resulted in a $72 million decrease in revenues. Lower inflows in Brazil were partially offset by strong power prices captured from un-contracted power, with the net result being a decline of $20 million.
The decrease in generation at our North American wind facilities was partially offset by a return to more normal wind conditions in Ireland. The net impact was a $15 million decrease in revenues.
The recent growth across the portfolio contributed revenues of $159 million. The 102 MW wind facility in California sold at the beginning of the third quarter had contributed revenues of $8 million in the same quarter of the prior year.
The appreciation of the U.S. dollar resulted in a $96 million reduction in revenues. This also affected operating and borrowing costs, and the net impact on Funds From Operations was largely offset by the ongoing foreign currency hedging program.
The average total revenue per MWh of $72 decreased $8 per MWh from the prior year, reflecting the impact of the relatively lower pricing environment in the first quarter of 2015 and the appreciation of the U.S. dollar impacting our revenues denominated in Canadian dollars, Euros and Brazilian Real.
Direct operating costs totaling $410 million represent an increase of $24 million, primarily reflecting the growth in our portfolio.
Interest expense totaling $326 million represents an increase of $17 million. The borrowing costs attributable to the growth in our portfolio and the issuance of C$400 million of medium-term corporate notes were partially offset by the savings attributable to normal course repayments on certain subsidiary borrowings.
Management service costs totaling $38 million are in line with the prior year.
The cash portion of non-controlling interests totaling $159 million represents an increase of $15 million. The increase of $44 million related to the growth in our portfolio was partially offset by the decrease in performance from certain assets in our portfolio.
Funds From Operations totaling $379 million represent a decrease of $65 million.
Net income totaling $113 million represents a decrease of $59 million. Depreciation and amortization increased due to the recent growth in the portfolio and the increased fair value of existing facilities.
SEGMENTED DISCLOSURES
HYDROELECTRIC
The following table reflects the results of our hydroelectric operations for the nine months ended September 30:
(MILLIONS, EXCEPT AS NOTED) | 2015 | ||||||||||
|
| North America | Latin |
|
| ||||||
|
| United States | Canada | Total | America | Total | |||||
Generation (GWh) – LTA(1)(2) |
| 8,566 |
| 3,971 |
| 12,537 |
| 2,976 |
| 15,513 | |
Generation (GWh) – actual(1)(2) |
| 7,582 |
| 3,792 |
| 11,374 |
| 2,451 |
| 13,825 | |
Revenues | $ | 546 | $ | 245 | $ | 791 | $ | 155 | $ | 946 | |
Adjusted EBITDA(3) |
| 365 |
| 214 |
| 579 |
| 134 |
| 713 | |
Funds From Operations(3) | $ | 165 | $ | 165 | $ | 330 | $ | 97 | $ | 427 |
(MILLIONS, EXCEPT AS NOTED) | 2014 | ||||||||||
|
| North America | Latin |
|
| ||||||
|
| United States | Canada | Total | America | Total | |||||
Generation (GWh) – LTA(1)(2) |
| 7,989 |
| 3,914 |
| 11,903 |
| 2,714 |
| 14,617 | |
Generation (GWh) – actual(1)(2) |
| 7,859 |
| 3,856 |
| 11,715 |
| 2,576 |
| 14,291 | |
Revenues | $ | 575 | $ | 269 | $ | 844 | $ | 216 | $ | 1,060 | |
Adjusted EBITDA(3) |
| 412 |
| 214 |
| 626 |
| 168 |
| 794 | |
Funds From Operations(3) | $ | 224 | $ | 161 | $ | 385 | $ | 127 | $ | 512 |
(1) Includes 100% of generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review By Segments For the Nine Months Ended September 30, 2015”.
North America
Generation from the portfolio was 11,374 GWh, below the long-term average of 12,537 GWh and lower than prior year generation of 11,715 GWh.
Revenues totaling $791 million represent a decrease of $53 million. Funds From Operations totaling $330 million represent a decrease of $55 million.
United States
Generation from the portfolio was 7,582 GWh, below the long-term average of 8,566 GWh and lower than prior year generation of 7,859 GWh. Generation decreased 828 GWh due to lower inflows, largely in the first half of this year, across the portfolio. A full period’s contribution from facilities acquired in 2014 resulted in incremental generation of 551 GWh.
Revenues totaling $546 million represent a decrease of $29 million. The lower generation impacted revenues by $56 million. Wholesale prices for both energy and capacity continue to trend higher relative to the cyclical lows experienced during the last few years and, accordingly, our merchant facilities continue to perform above our expectations. However, merchant pricing did not reach the peaks we experienced in the prior year, particularly in the first quarter of 2014, and the impact was an $11 million reduction in revenues. A full period’s contribution from facilities acquired in 2014 resulted in incremental revenues of $38 million.
Funds From Operations totaling $165 million represent a decrease of $59 million, primarily attributable to the decrease in revenues, a reduction in our share of the cash earnings from our equity-accounted pumped-storage facility in Massachusetts, and higher operating and borrowing costs largely associated with the growth in our portfolio.
Canada
Generation from the portfolio was 3,792 GWh, below the long-term average of 3,971 GWh and lower than prior year generation of 3,856 GWh. Strong hydrological conditions at our facilities in British Columbia were offset by lower inflows in Quebec and Ontario. The facility in British Columbia commissioned in 2014 provided incremental generation of 50 GWh.
Revenues totaling $245 million represent a decrease of $24 million. The decrease in revenues due to lower generation was partially offset by the annual escalations in our power purchase agreements, the net impact of which was $5 million. The commissioned facility contributed $7 million. The appreciation of the U.S. dollar impacted revenues by $26 million, but operating and borrowing costs were also affected and the net impact was fully offset by the ongoing foreign currency hedging program.
Funds From Operations totaling $165 million represent an increase of $4 million.
Latin America
Generation from the portfolio was 2,451 GWh, below the long-term average of 2,976 GWh and lower than prior year generation of 2,576 GWh. Generation decreased 393 GWh as hydrology in Brazil continues to be affected by the drought conditions. However, the impact was reduced by our participation in the Brazilian balancing pool. The recently acquired facilities in Brazil contributed 268 GWh, below the long-term average of 312 GWh.
Revenues totaling $155 million represent a decrease of $61 million. The impact on revenues from the lower generation was partially offset by the strong power prices we were able to capture by maintaining a lower level of contracted power in the portfolio, and by amounts received for the settlement of matters related to the delayed completion of a hydroelectric facility in Brazil. The recently acquired facilities contributed $13 million of revenues. The appreciation of the U.S. dollar impacted revenues by $54 million, but also affected operating and borrowing costs, resulting in a net decrease in Funds From Operations of $32 million.
Funds From Operations totaling $97 million represent a decrease of $30 million. The net reduction in revenues was partly offset by compensation of $17 million related to our election to not renew expired concession agreements for two Brazilian facilities. Operating and borrowing costs, and the cash portion of non-controlling interests increased by a total of $13 million primarily due to the recent growth in the portfolio.
WIND
The following table reflects the results of our wind operations for the nine months ended September 30:
(MILLIONS, EXCEPT AS NOTED) | 2015 | |||||||||||
| North America | Latin |
|
|
|
| ||||||
| United States | Canada | Total | America | Europe | Total | ||||||
Generation (GWh) – LTA(1)(2) |
| 1,048 |
| 854 |
| 1,902 |
| 294 |
| 1,050 |
| 3,246 |
Generation (GWh) – actual(1)(2) |
| 746 |
| 671 |
| 1,417 |
| 322 |
| 1,072 |
| 2,811 |
Revenues | $ | 82 | $ | 72 | $ | 154 | $ | 16 | $ | 93 | $ | 263 |
Adjusted EBITDA(3) |
| 65 |
| 57 |
| 122 |
| 15 |
| 70 |
| 207 |
Funds From Operations(3) | $ | 20 | $ | 34 | $ | 54 | $ | 4 | $ | 23 | $ | 81 |
(MILLIONS, EXCEPT AS NOTED) | 2014 | |||||||||||
| North America | Latin |
|
|
|
| ||||||
| United States | Canada | Total | America | Europe | Total | ||||||
Generation (GWh) – LTA(1)(2) |
| 1,120 |
| 854 |
| 1,974 |
| N/A |
| 591 |
| 2,565 |
Generation (GWh) – actual(1)(2) |
| 940 |
| 731 |
| 1,671 |
| N/A |
| 592 |
| 2,263 |
Revenues | $ | 106 | $ | 87 | $ | 193 | $ | N/A | $ | 18 | $ | 211 |
Adjusted EBITDA(3) |
| 71 |
| 72 |
| 143 |
| N/A |
| 11 |
| 154 |
Funds From Operations(3) | $ | 13 | $ | 43 | $ | 56 | $ | N/A | $ | 13 | $ | 69 |
(1) Includes 100% of generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”, and “Financial Review By Segments For the Nine Months Ended September 30, 2015”.
North America
Generation from the portfolio was 1,417 GWh, below the long-term average of 1,902 GWh and lower than prior year generation of 1,671 GWh.
Revenues totaling $154 million represent a decrease of $39 million. Funds From Operations totaling $54 million represent a decrease of $2 million.
United States
Generation from the portfolio of 746 GWh was below the long-term average of 1,048 GWh and prior year generation of 876 GWh, primarily attributable to lower wind conditions in California in the first half of this year.
Revenues totaling $82 million represent a decrease of $16 million primarily attributable to the decrease in generation over the prior year. Funds From Operations totaling $20 million represent a decrease of $4 million.
The 102 MW wind facility in California sold at the beginning of the quarter had contributed 64 GWh in generation, $8 million in revenues, and $1 million in Funds From Operations in the prior year. Our share of the gain on the sale of the wind facility recognized in this quarter was $12 million.
Canada
Generation from the portfolio of 671 GWh was below the long-term average of 854 GWh and lower than prior year generation of 731 GWh, attributable to lower wind conditions in the first half of this year.
Revenues totaling $72 million represent a decrease of $15 million. The decrease in revenues attributable to the lower generation was partially offset by annual escalations in our power purchase agreements. Funds From Operations totaling $34 million represent a decrease of $9 million primarily attributable to the decrease in revenues, as the impact of the appreciation of the U.S. dollar on operating and borrowing costs partially offset the effect on revenues.
Latin America
Generation from our recently acquired wind portfolio in Brazil of 322 GWh was above the long-term average 294 GWh.
Revenues and Funds From Operations totaled $16 million and $4 million, respectively.
Europe
Generation from the portfolio of 1,072 GWh was consistent with the long-term average of 1,050 GWh. Generation from our existing facilities in Ireland was 633 GWh, above the long-term average of 613 GWh and an increase of 101 GWh from the prior year primarily due to a return to normal wind conditions over the last two quarters. The facilities commissioned in Ireland during the first half of 2015 contributed an incremental 186 GWh and produced in line with the long-term average. Our recently acquired portfolio in Portugal contributed 193 GWh, also consistent with the long-term average.
Revenues and Funds From Operations totaled $93 million and $23 million, respectively. The Irish and Portuguese portfolios contributed Funds From Operations of $19 million and $4 million, respectively.
Analysis Of Consolidated Financial Statements and Other Information
Property, Plant and Equipment
In accordance with IFRS, Brookfield Renewable has elected to revalue its property, plant and equipment at a minimum on an annual basis, as at December 31st of each year. Substantially all of Brookfield Renewable’s property, plant and equipment, are carried at fair value as opposed to historical cost, using a 20-year discounted cash flow model. This model incorporates future cash flows from long-term power purchase agreements that are in place where it is determined that the power purchase agreements are linked specifically to the related power generating assets. The model also includes estimates of future electricity prices, anticipated long-term average generation, estimated operating and capital expenditures, and assumptions about future inflation rates and discount rates by geographical location. For power generating assets acquired through business combinations during the year, Brookfield Renewable initially measures the assets at fair value consistent with the policy described in Note 2(l) – Business combinations in our December 31, 2014 audited consolidated financial statements. Accordingly, in the year of acquisition, power generating assets are not revalued at year-end unless there is an indication that assets are impaired.
Property, plant and equipment, at fair value totaled $17.5 billion as at September 30, 2015 as compared to $18.6 billion as at December 31, 2014. During the nine months ended September 30, 2015, the acquisition of 163 MW of hydroelectric facilities, 273 MW of wind facilities, 175 MW of biomass facilities, and a wind development pipeline of approximately 1,200 MW totaled $1,160 million. The development and construction of power generating assets totaled $194 million. In the second quarter sufficient information, including securing long-term contracts for the sale of generation (see “Contract Profile”), became available to allow us to determine the fair value of two hydroelectric development projects in Brazil with total capacity of 53 MW. Accordingly, the construction work in progress associated with these two projects was revalued, resulting in an increase in fair value of $39 million. The 102 MW wind facility in California sold during the quarter had been recorded at a carrying amount of $230 million. Property, plant and equipment were impacted by foreign currency changes related to the appreciation of the U.S. dollar in the amount of $1.7 billion. We also recognized depreciation expense of $472 million which is significantly higher than what we are required to reinvest in the business as sustaining capital expenditures.
Fair value of property, plant and equipment can vary with discount and terminal capitalization rates. Excluding power generating assets acquired during the year ended December 31, 2014, the following table summarizes the impact of a change in discount rates and terminal capitalization rates on the fair value of property, plant and equipment as at December 31:
(BILLIONS) |
| 2014 |
| 2013 |
50 bps increase in discount rates | $ | (1.3) | $ | (1.1) |
50 bps decrease in discount rates |
| 1.5 |
| 1.3 |
|
|
|
|
|
50 bps increase in terminal capitalization rate(1) |
| (0.3) |
| (0.3) |
50 bps decrease in terminal capitalization rate(1) |
| 0.4 |
| 0.3 |
(1) The terminal capitalization rate applies only to hydroelectric assets in North America.
Terminal values are included in the valuation of hydroelectric assets in North America. For the hydroelectric assets in Brazil, cash flows have been included based on the duration of the authorization or useful life of a concession asset without consideration of potential renewal value. The weighted-average remaining duration at December 31, 2014, was 15 years (2013: 16 years). Consequently, there is no terminal value attributed to the hydroelectric assets in Brazil. If an additional 20 years of cash flows were included, the fair value of property, plant and equipment would increase by approximately $1 billion. See
Note 11 - Property, plant and equipment, at fair value in our December 31, 2014 audited consolidated financial statements.
liquidity and capital Resources
A key element of our financing strategy is to raise the majority of our debt in the form of asset-specific, non-recourse borrowings at our subsidiaries on an investment grade basis. The debt to total capitalization ratio increased from December 31, 2014 due primarily to the impact of the appreciation of the U.S. dollar on foreign denominated net assets.
Capitalization
The following table summarizes the capitalization using book values:
|
| Sep 30 | Dec 31 | ||
(MILLIONS, EXCEPT AS NOTED) |
|
| 2015 |
| 2014 |
Credit facilities(1) | $ | 461 | $ | 401 | |
Corporate borrowings(1) |
| 1,422 |
| 1,286 | |
Subsidiary borrowings(2) |
| 5,733 |
| 5,991 | |
Long-term indebtedness |
| 7,616 |
| 7,678 | |
Deferred income tax liabilities, net of deferred income tax assets |
| 2,330 |
| 2,495 | |
Equity |
| 7,833 |
| 8,881 | |
Total capitalization | $ | 17,779 | $ | 19,054 | |
Debt to total capitalization |
| 43% |
| 40% |
(1) Issued by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable. The amounts are unsecured.
(2) Issued by subsidiaries of Brookfield Renewable and secured against their respective assets. The amounts are not guaranteed.
During the nine months ended September 30, 2015 we completed the following financings:
Credit facilities
In May 2015, Brookfield Renewable extended the maturity of its corporate credit facilities by one year to June 2020 and also expanded the available amount to $1,310 million from $1,280 million.
Corporate borrowings
In March 2015, we issued C$400 million ($317 million) of medium-term corporate notes, maturing in June 2025 at a fixed rate of 3.75%. Proceeds of the offering were used to repay existing indebtedness and for general corporate purposes.
Subsidiary borrowings
In February 2015, we secured an 18-month extension on $75 million of debt associated with a portfolio of hydroelectric and wind facilities in the United States held through the Brookfield Americas Infrastructure Fund. The debt bears interest at LIBOR plus 2.75%, and matures in August 2016.
In February 2015, we refinanced indebtedness associated with a 45 MW hydroelectric facility in British Columbia by issuing C$90 million ($76 million) of bonds with an interest rate of 2.95%, maturing in May 2023. We own a 50% equity-accounted interest in this facility.
In February 2015, as part of the acquisition of a 123 MW wind portfolio in Portugal, we assumed loans with principal balances totaling €99 million ($109 million). The loans bear interest at an initial weighted-average fixed rate of 6.28%, including the related interest rate swaps, and have a weighted-average remaining term of 9.5 years.
In March 2015, as part of the acquisition of a 313 MW operating renewable power generation portfolio in Brazil comprising of 43 MW of hydroelectric, 150 MW of wind, and 120 MW of biomass generating capacity and a 55 MW biomass development project, we assumed R$631 million ($197 million) of debt
with a combination of variable and fixed interest rates, and a weighted-average remaining term of 12.7 years.
In May 2015, as part of the acquisition of a 120 MW hydroelectric facility in Brazil, we assumed R$254 million ($83 million) of debt with variable interest rates of the Brazilian Interbank Deposit Certificate rate plus 0.5% and 2.0%, and a weighted-average remaining term of 7.6 years.
Effective June 30, 2015, the margin on C$194 million ($155 million) of debt associated with a 189 MW wind facility in Ontario was reduced from 2.25% to 1.625%.
The final drawdown of €20 million ($22 million) was made in July 2015 on the construction and term loan associated with 137 MW of wind projects in Ireland, bringing the total draw to €188 million ($227 million) at a weighted average rate of 2.74% and maturing in December 2027.
Effective July 31, 2015, the margin on C$119 million ($95 million) of debt associated with a 51 MW wind facility in Ontario was reduced from 2.25% to 1.625%, and the debt was up-financed by C$7 million ($5 million).
In September 2015, we secured financing in the amount of R$187 million ($47 million) with respect to 90 MW of biomass capacity in Brazil, of which we drew R$139 million ($35 million). The loan bears interest at a floating interest rate of the TJLP’s rate plus 1.4%, and matures in October 2035.
Available liquidity
We operate with sufficient liquidity to enable us to fund growth initiatives, capital expenditures, distributions, withstand sudden adverse changes in economic circumstances or short-term fluctuations in generation, and to finance the business on an investment grade basis. Principal sources of liquidity are cash flows from operations and access to public and private capital markets.
The following table summarizes the available liquidity:
|
| Sep 30 | Dec 31 | ||
(MILLIONS) | 2015 | 2014 | |||
Cash and cash equivalents | $ | 106 | $ | 150 | |
Credit facilities |
|
|
|
| |
| Authorized credit facilities |
| 1,510 |
| 1,480 |
| Draws on credit facilities(1) |
| (461) |
| (401) |
| Issued letters of credit |
| (205) |
| (227) |
Available portion of credit facilities |
| 844 |
| 852 | |
Available liquidity | $ | 950 | $ | 1,002 |
(1) Amounts are unsecured and revolving. Interest rate is at the LIBOR plus 1.20% (December 31, 2014: 1.20%).
Long-term debt and credit facilities
The following table summarizes our principal repayment obligations and maturities as at September 30, 2015:
(MILLIONS) | Balance of 2015 | 2016 | 2017 | 2018 | 2019 | Thereafter | Total | ||||||||||
Principal repayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Subsidiary borrowings(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| United States | $ | 24 | $ | 355 | $ | 778 | $ | 770 | $ | 59 | $ | 1,241 | $ | 3,227 |
|
|
| Canada |
| 14 |
| 122 |
| 46 |
| 48 |
| 47 |
| 1,266 |
| 1,543 |
|
|
|
|
| 38 |
| 477 |
| 824 |
| 818 |
| 106 |
| 2,507 |
| 4,770 |
|
| Latin America |
| 7 |
| 28 |
| 28 |
| 38 |
| 39 |
| 214 |
| 354 | |
|
| Europe |
| 21 |
| 46 |
| 49 |
| 53 |
| 56 |
| 437 |
| 662 | |
|
|
|
|
| 66 |
| 551 |
| 901 |
| 909 |
| 201 |
| 3,158 |
| 5,786 |
| Corporate borrowings and |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
| credit facilities(1) |
| - |
| 225 |
| - |
| 150 |
| - |
| 1,513 |
| 1,888 |
| Equity-accounted investments | - |
| - |
| 125 |
| - |
| - |
| 34 |
| 159 | |||
|
|
|
| $ | 66 | $ | 776 | $ | 1,026 | $ | 1,059 | $ | 201 | $ | 4,705 | $ | 7,833 |
(1) Subsidiary borrowings and corporate borrowings and credit facilities include $4 million and $62 million of unamortized premiums and deferred financing fees, respectively.
The remaining subsidiary borrowings due in 2015 are normal course principal repayments. Subsidiary and corporate borrowings maturing in 2016 are expected to be refinanced at or in advance of maturity. Maturities of subsidiary borrowings in 2016 include $190 million on our portfolio of hydroelectric facilities in the Southeastern United States, and $75 million of debt associated with a portfolio of hydroelectric and wind facilities in the United States held through the Brookfield Americas Infrastructure Fund.
We remain focused on refinancing near term facilities on acceptable terms and maintaining a manageable maturity ladder. We do not anticipate material issues in addressing our borrowings through 2019 on acceptable terms and will do so opportunistically based on the prevailing interest rate environment.
The overall maturity profile and average interest rates associated with our borrowings and credit facilities are as follows:
|
| Average term (years) | Average interest rate (%) | |||||
|
| Sep 30 |
| Dec 31 |
| Sep 30 |
| Dec 31 |
|
| 2015 |
| 2014 |
| 2015 |
| 2014 |
Corporate borrowings |
| 6.8 |
| 6.7 | 5.0 |
| 5.3 | |
Subsidiary borrowings |
| 9.6 |
| 10.4 | 5.5 |
| 5.3 | |
Credit facilities |
| 4.8 |
| 4.5 | 1.4 |
| 1.4 |
During the nine months ended September 30, 2015, we issued C$400 million ($317 million) of medium-term corporate notes maturing in June 2025, reducing our overall costs on corporate borrowings from 5.3% to 5.0% and also increasing the average term.
CONTRACT PROFILE
We have a largely predictable profile driven by both long-term power purchase agreements with a weighted-average remaining duration of 17 years combined with a well-diversified portfolio that reduces variability in our generation volumes. We operate the business on a largely contracted basis to ensure a high degree of predictability in Funds From Operations. We do however maintain a long-term view that electricity prices and the demand for electricity from renewable sources will rise due to a growing level of acceptance around climate change and the legislated requirements in some areas to diversify away from fossil fuel based generation.
The following table sets out contracts over the next five years for generation output assuming long-term average:
FOR THE YEAR ENDED DECEMBER 31 | Balance of 2015 |
| 2016 |
| 2017 |
| 2018 |
| 2019 |
| ||||
Generation (GWh) |
|
|
|
|
|
|
|
|
|
|
| |||
Contracted(1) |
|
|
|
|
|
|
|
|
|
|
| |||
| Hydroelectric |
|
|
|
|
|
|
|
|
|
|
| ||
|
| North America |
|
|
|
|
|
|
|
|
|
|
| |
|
|
| United States(2) |
| 2,127 |
| 9,481 |
| 9,080 |
| 7,000 |
| 7,000 |
|
|
|
| Canada |
| 1,203 |
| 4,681 |
| 4,634 |
| 4,634 |
| 4,624 |
|
|
|
|
|
| 3,330 |
| 14,162 |
| 13,714 |
| 11,634 |
| 11,624 |
|
|
| Latin America |
| 896 |
| 3,627 |
| 3,278 |
| 2,981 |
| 2,969 |
| |
|
|
|
|
| 4,226 |
| 17,789 |
| 16,992 |
| 14,615 |
| 14,593 |
|
| Wind |
|
|
|
|
|
|
|
|
|
|
| ||
|
| North America |
|
|
|
|
|
|
|
|
|
|
| |
|
|
| United States |
| 195 |
| 1,010 |
| 1,010 |
| 1,010 |
| 1,010 |
|
|
|
| Canada |
| 343 |
| 1,197 |
| 1,197 |
| 1,197 |
| 1,197 |
|
|
|
|
|
| 538 |
| 2,207 |
| 2,207 |
| 2,207 |
| 2,207 |
|
|
| Latin America |
| 141 |
| 560 |
| 560 |
| 560 |
| 560 |
| |
|
| Europe |
| 421 |
| 1,433 |
| 1,433 |
| 1,433 |
| 1,433 |
| |
|
|
|
|
| 1,100 |
| 4,200 |
| 4,200 |
| 4,200 |
| 4,200 |
|
Other |
| 137 |
| 481 |
| 486 |
| 534 |
| 534 |
| |||
|
|
|
|
| 5,463 |
| 22,470 |
| 21,678 |
| 19,349 |
| 19,327 |
|
Uncontracted | 849 |
| 3,343 |
| 4,183 |
| 6,512 |
| 6,534 |
| ||||
Total long-term average | 6,312 |
| 25,813 |
| 25,861 |
| 25,861 |
| 25,861 |
| ||||
Long-term average on a proportionate basis(3) | 4,694 |
| 19,363 |
| 19,390 |
| 19,392 |
| 19,392 |
| ||||
|
| |||||||||||||
Contracted generation - as at September 30, 2015 | ||||||||||||||
% of total generation | 87 | % | 87 | % | 84 | % | 75 | % | 75 | % | ||||
% of total generation on a proportionate basis(3) | 93 | % | 90 | % | 88 | % | 82 | % | 82 | % | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price per MWh - total generation | $ | 69 | $ | 72 | $ | 72 | $ | 77 | $ | 78 |
| |||
Price per MWh - total generation on a |
|
|
|
|
|
|
|
|
|
|
| |||
| proportionate basis |
| 69 |
| 73 |
| 72 |
| 75 |
| 76 |
|
(1) Assets under construction are included when long-term average and pricing details are available and the commercial operation date is established in a definitive construction contract.
(2) Includes generation of 451 GWh for 2015, 2,481 GWh for 2016 and 2,080 GWh for 2017 secured under financial contracts.
(3) Long-term average on a proportionate basis includes wholly-owned assets, and our share of partially-owned assets and equity-accounted investments.
The following changes were made to the contract profile for the nine months ended September 30, 2015:
· Included power purchase agreements associated with the acquisitions of the 488 MW multi-technology renewable energy portfolio in Brazil and the 123 MW wind portfolio in Portugal
· Included power purchase agreements associated with our commissioned 12 MW wind facility in Ireland
· Included long-term contracts for three hydroelectric development projects in Brazil, representing 72 MW of generating capacity
· Eliminated the contract for the 102 MW wind facility in California which was sold at the beginning of the third quarter of 2015
The majority of the long-term power purchase agreements are with investment-grade rated or creditworthy counterparties. The composition of our contracted generation under power purchase agreements is comprised of: Brookfield (42%), public power authorities (24%), industrial users (23%) and distribution companies (11%).
SUMMARY CONSOLIDATED BALANCE SHEETS
The following table provides a summary of the key line items on the interim consolidated balance sheets:
|
|
| Sep 30 |
| Dec 31 |
(MILLIONS) |
| 2015 | 2014 | ||
Property, plant and equipment, at fair value | $ | 17,511 | $ | 18,566 | |
Equity-accounted investments |
| 239 |
| 273 | |
Total assets |
| 18,697 |
| 19,849 | |
Long-term debt and credit facilities |
| 7,616 |
| 7,678 | |
Deferred income tax liabilities |
| 2,485 |
| 2,637 | |
Total liabilities |
| 10,864 |
| 10,968 | |
Preferred equity |
| 634 |
| 728 | |
Participating non-controlling interests - in operating subsidiaries |
| 2,231 |
| 2,062 | |
General partnership interest in a holding subsidiary held by Brookfield |
| 48 |
| 59 | |
Participating non-controlling interests - in a holding subsidiary - |
|
|
|
| |
| Redeemable/Exchangeable units held by Brookfield |
| 2,337 |
| 2,865 |
Limited partners' equity |
| 2,583 |
| 3,167 | |
Total liabilities and equity |
| 18,697 |
| 19,849 |
Contractual obligations
Development and construction
The remaining development project costs on three Brazilian hydroelectric projects totaling 72 MW, a 55 MW biomass facility in Brazil, and a 14 MW wind project in Northern Ireland are expected to be $221 million. The biomass facility and the wind project are expected to be fully operational in 2016. Two hydroelectric projects with a combined capacity of 53 MW are expected to be fully operational in 2017, and the 19 MW hydroelectric project is expected to be fully operational in 2018.
Commitments and contingencies
In July 2015, we entered into an agreement to acquire two hydroelectric facilities in Brazil with an aggregate capacity of 51 MW and expected to generate 293 GWh annually. The transaction is expected to close in the fourth quarter of 2015, subject to typical closing conditions. We will retain a 100% interest in these facilities.
Brookfield Renewable, on behalf of its subsidiaries, and subsidiaries themselves have provided letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance. See “Liquidity and Capital Resources” for further details.
Brookfield Renewable, along with institutional investors, has provided letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance as it relates to interests in the Brookfield Americas Infrastructure Fund and the Brookfield Infrastructure Fund II. As at September 30, 2015, the letters of credit issued were $75 million (2014: $125 million).
Guarantees
In the normal course of operations, we execute agreements that provide for indemnification and guarantees to third parties in transactions such as acquisitions, construction projects, capital projects, and purchases of assets. We have also agreed to indemnify our directors and certain of our officers and
employees. The nature of the indemnities prevent us from making a reasonable estimate of the maximum potential amount that could be required to pay third parties, as many of the agreements do not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, we have made no significant payments under indemnification agreements.
Off-Balance Sheet Arrangements
Brookfield Renewable has no off-balance sheet financing arrangements.
Related Party Transactions
Brookfield Renewable’s related party transactions are in the normal course of business, and are recorded at the exchange amount. Brookfield Renewable’s related party transactions are primarily with Brookfield.
Brookfield Renewable sells electricity to Brookfield through long-term power purchase agreements to provide contracted cash flow and reduce Brookfield Renewable’s exposure to electricity prices in deregulated power markets. Brookfield Renewable also benefits from a wind levelization agreement with Brookfield which reduces the exposure to the fluctuation of wind generation at certain facilities and thus improves the stability of its cash flow.
In addition to these agreements, Brookfield Renewable and Brookfield have executed other agreements that are described in Note 9 - Related Party Transactions in our December 31, 2014 audited consolidated financial statements.
Brookfield Renewable has also entered into a number of voting agreements with Brookfield whereby Brookfield, as managing member of entities related to Brookfield Americas Infrastructure Fund and Brookfield Infrastructure Fund II, in which Brookfield Renewable holds investments in power generating operations with institutional partners, agreed to provide to Brookfield Renewable the authority to direct the election of the Boards of Directors of such entities.
The following table reflects the related party agreements and transactions on the interim consolidated statements of income (loss):
|
| Three months ended Sep 30 | Nine months ended Sep 30 | ||||||
(MILLIONS) |
| 2015 |
| 2014 |
| 2015 |
| 2014 | |
Revenues |
|
|
|
|
|
|
|
| |
| Power purchase and revenue agreements | $ | 95 | $ | 99 | $ | 350 | $ | 280 |
| Wind levelization agreement |
| 2 |
| 2 |
| 6 |
| 5 |
|
| $ | 97 | $ | 101 | $ | 356 | $ | 285 |
Direct operating costs |
|
|
|
|
|
|
|
| |
| Energy purchases | $ | (1) | $ | (1) | $ | (5) | $ | (8) |
| Energy marketing fee |
| (6) |
| (6) |
| (17) |
| (16) |
| Insurance services |
| (7) |
| (7) |
| (20) |
| (21) |
|
| $ | (14) | $ | (14) | $ | (42) | $ | (45) |
Management service costs | $ | (11) | $ | (14) | $ | (38) | $ | (38) |
Revenues from power purchase and revenue agreements for the nine months ended September 30, 2015 were higher as compared to the prior year. The increase is primarily due to an increased level of price support, reflecting the relatively lower pricing environment in the first quarter of 2015, and the impact of power purchase agreements for certain recently acquired facilities.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The following table summarizes the key items on the interim consolidated statements of cash flows:
|
| Three months ended Sep 30 | Nine months ended Sep 30 | ||||||
(MILLIONS) | 2015 | 2014 | 2015 | 2014 | |||||
Cash flow provided by (used in): |
|
|
|
|
|
|
|
| |
Operating activities | $ | 160 | $ | 188 | $ | 556 | $ | 640 | |
Financing activities |
| (179) |
| 510 |
| 134 |
| 1,323 | |
Investing activities |
| 24 |
| (716) |
| (716) |
| (1,962) | |
Foreign exchange loss on cash |
| (12) |
| (11) |
| (18) |
| (8) | |
Decrease in cash and cash equivalents | $ | (7) | $ | (29) | $ | (44) | $ | (7) |
Cash and cash equivalents as at September 30, 2015 totaled $106 million, representing a decrease of $44 million since December 31, 2014.
Operating Activities
Cash flows provided by operating activities totaling $160 million for the third quarter of 2015 represent a decrease of $28 million primarily attributable to the increase in Funds From Operations offset by changes in working capital balances.
Cash flows provided by operating activities totaling $556 million for the nine months ended September 30, 2015 represent a decrease of $84 million primarily attributable to the decrease in Funds From Operations and changes in working capital balances.
Financing Activities
Cash flows used in financing activities totaled $179 million for the third quarter of 2015. Long-term debt – borrowings were $148 million, and related primarily to the growth in our portfolio. Long-term debt – repayments related to subsidiary borrowings and credit facilities were $143 million. The capital provided by participating non-controlling interests – in operating subsidiaries related to the growth in our portfolio, and amounted to $37 million.
For the third quarter of 2015, distributions paid to LP Unitholders were $115 million (2014: $107 million). The distributions paid to preferred shareholders and participating non-controlling interests - in operating subsidiaries were $100 million (2014: $54 million). See “Dividends and Distributions” for further details.
Cash flows provided by financing activities totaled $134 million for the nine months ended September 30, 2015. Long-term debt – borrowings were $938 million, and related to the growth in our portfolio and the issuance of medium-term corporate notes during the first quarter. Long-term debt – repayments related to subsidiary borrowings and credit facilities were $698 million. The capital provided by participating non-controlling interests – in operating subsidiaries relates to the growth in our portfolio, and amounted to $460 million.
For the nine months ended September 30, 2015, distributions paid to LP Unitholders were $346 million (2014: $374 million). We increased our distributions to $1.66 per LP Unit, an increase of 11 cents per LP Unit which took effect in the first quarter. The amounts paid in the first quarter of 2014 included distributions declared in both that quarter, and in the fourth quarter of 2013. The distributions paid to preferred shareholders and participating non-controlling interests - in operating subsidiaries were $214 million (2014: $125 million). See “Dividends and Distributions” for further details.
Investing Activities
Cash flows provided by investing activities for the third quarter of 2015 totaled $24 million. Proceeds from the sale of the 102 MW wind facility in California were $143 million. Our continued investment in the development and construction of power generating assets was $59 million and sustainable capital expenditures totaled $21 million.
Cash flows used in investing activities for the nine months ended September 30, 2015 totaled $716 million. Our investments were with respect to the acquisition of a 488 MW renewable power portfolio in Brazil, a 123 MW wind portfolio in Portugal, and a wind development pipeline of approximately 1,200 MW in Scotland. When combined, these investments totaled $663 million. Proceeds from the sale of the 102 MW wind facility in California were $143 million. In addition, our continued investment in the development and construction of power generating assets was $137 million and sustainable capital expenditures totaled $49 million.
NON-CONTROLLING INTERESTS
Preferred equity
On April 1, 2015, the fixed dividend rate on the Series 1 Preference Shares for the five years commencing May 1, 2015 and ending April 30, 2020 was reset and, if declared, will be paid at an annual rate of 3.355% (C$0.2096875 per share per quarter). The holders of 4,518,289 Series 1 Preference Shares exercised their right to convert their shares into Class A, Series 2 Preference Shares on a one-for-one basis. The holders of the Series 2 Preference Shares will be entitled to receive floating rate cumulative preferential cash dividends, equal to the T-Bill Rate plus 2.62%. The quarterly dividend in respect of the August 1, 2015 to October 31, 2015 dividend period was paid on October 31, 2015 at an annual rate of 3.2% (C$0.201393 per share).
On June 23, 2015, we announced that the Toronto Stock Exchange had accepted a notice of Brookfield Renewable Power Preferred Equity Inc.’s intention to commence a normal course issuer bid in connection with its outstanding Class A Preference Shares. Under this normal course issuer bid, we are permitted to repurchase up to 10% of the total public float for each respective series of our Class A Preference Shares.
For the period ended September 30, 2015, 78,537 Class A Preference Shares were repurchased at a cost of $1 million, and cancelled.
General partnership interest in a holding subsidiary held by Brookfield
Brookfield, as the owner of the 1% GP interest in BRELP, is entitled to regular distributions plus an incentive distribution based on the amount by which quarterly LP Unit distributions exceed specified target levels. To the extent that LP Unit distributions exceed $0.375 per LP Unit per quarter, the incentive is 15% of distributions above this threshold. To the extent that quarterly distributions exceed $0.4225 per LP Unit, the incentive distribution is equal to 25% of distributions above this threshold. Accordingly, incentive distributions of $2 million and $6 million were made during the three and nine months ended September 30, 2015.
Participating non-controlling interests - in a holding subsidiary - Redeemable/Exchangeable units held by Brookfield
BRELP has issued Redeemable/Exchangeable partnership units to Brookfield, which may at the request of the holder, require BRELP to redeem these units for cash consideration. The right is subject to Brookfield Renewable’s right of first refusal which entitles it, at its sole discretion, to elect to acquire all of the units presented to BRELP that are tendered for redemption in exchange for LP Units. If Brookfield Renewable elects not to exchange the Redeemable/Exchangeable partnership units for LP Units, the
Redeemable/Exchangeable partnership units are required to be redeemed for cash. As Brookfield Renewable, at its sole discretion, has the right to settle the obligation with LP Units, the Redeemable/Exchangeable partnership units are classified as equity, and not as a liability.
LIMITED PARTNERS’ EQUITY
Brookfield Asset Management owns, directly and indirectly, 169,685,609 LP Units and Redeemable/Exchangeable partnership units, representing approximately 62% of Brookfield Renewable on a fully-exchanged basis.
We commenced a normal course issuer bid on December 29, 2014 to repurchase up to 7.1 million LP Units, representing approximately 5% of the issued and outstanding LP Units, for capital management purposes. We repurchased and cancelled 163,100 LP Units during the nine months ended September 30, 2015 at a cost of $5 million under the normal course issuer bid (refer to Note 13 - Limited partners’ equity in our September 30, 2015 consolidated financial statements).
SHARES AND UNITS OUTSTANDING
The shares and units outstanding are presented in the following table:
|
|
| Sep 30, 2015 | Dec 31, 2014 |
Class A Preference Shares |
|
| ||
| Series 1 | 5,449,675 | 10,000,000 | |
| Series 2 | 4,510,389 | - | |
| Series 3 | 9,961,399 | 10,000,000 | |
| Series 5 | 7,000,000 | 7,000,000 | |
| Series 6 | 7,000,000 | 7,000,000 | |
|
|
| 33,921,463 | 34,000,000 |
|
|
|
|
|
GP interest | 2,651,506 | 2,651,506 | ||
|
|
|
|
|
Redeemable/Exchangeable partnership units | 129,658,623 | 129,658,623 | ||
|
|
|
|
|
LP Units |
|
| ||
| Balance, beginning of year | 143,356,854 | 132,984,913 | |
| Issuance of LP Units | - | 10,250,000 | |
| Distribution reinvestment plan | 112,600 | 121,941 | |
| Repurchase of LP Units for cancellation | (163,100) | - | |
Balance, end of period/year | 143,306,354 | 143,356,854 | ||
|
|
|
|
|
Total LP Units on a fully-exchanged basis(1) | 272,964,977 | 273,015,477 | ||
|
|
|
|
|
LP Units held by |
|
| ||
Brookfield | 40,026,986 | 40,026,986 | ||
External LP Unitholders | 103,279,368 | 103,329,868 | ||
|
|
| 143,306,354 | 143,356,854 |
(1) The fully-exchanged amounts assume the exchange of Redeemable/ Exchangeable partnership units for LP Units at the beginning of the year.
DIVIDENDS AND DISTRIBUTIONS
The composition of the dividends and distributions are presented in the following table:
|
|
| Three months ended Sep 30 | Nine months ended Sep 30 | ||||||||||||||
|
| Declared |
| Paid |
| Declared |
| Paid | ||||||||||
(MILLIONS) |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| 2015 |
| 2014 |
| 2015 |
| 2014 | ||
Class A Preference Shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Series 1 | $ | 2 | $ | 3 | $ | 1 | $ | 3 | $ | 5 | $ | 9 | $ | 6 | $ | 9 | |
| Series 2 |
| 1 |
| - |
| 1 |
| - |
| 2 |
| - |
| 1 |
| - | |
| Series 3 |
| 2 |
| 3 |
| 3 |
| 3 |
| 6 |
| 8 |
| 7 |
| 8 | |
| Series 5 |
| 1 |
| 2 |
| 1 |
| 2 |
| 5 |
| 6 |
| 5 |
| 6 | |
| Series 6 |
| 1 |
| 2 |
| 1 |
| 2 |
| 5 |
| 6 |
| 5 |
| 6 | |
|
|
| $ | 7 | $ | 10 | $ | 7 | $ | 10 | $ | 23 | $ | 29 | $ | 24 | $ | 29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participating non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| interests - in operating |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| subsidiaries | $ | 93 | $ | 44 | $ | 93 | $ | 44 | $ | 190 | $ | 96 | $ | 190 | $ | 96 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General partnership interest in a |
|
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|
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|
|
|
|
|
|
|
|
|
|
|
| ||
| holding subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| held by Brookfield | $ | 1 | $ | 1 | $ | 1 | $ | 1 | $ | 3 | $ | 3 | $ | 3 | $ | 3 | |
| Incentive distribution |
| 2 |
| 1 |
| 2 |
| 1 |
| 6 |
| 2 |
| 6 |
| 2 | |
|
|
| $ | 3 | $ | 2 | $ | 3 | $ | 2 | $ | 9 | $ | 5 | $ | 9 | $ | 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participating non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| interests - in a holding subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| - Redeemable/Exchangeable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| units held by Brookfield | $ | 54 | $ | 50 | $ | 54 | $ | 50 | $ | 163 | $ | 151 | $ | 162 | $ | 181 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Limited partners' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Brookfield Asset Management |
| 16 |
| 16 |
| 16 |
| 16 |
| 50 |
| 47 |
| 50 |
| 56 | |
| External LP Unitholders |
| 43 |
| 40 |
| 42 |
| 39 |
| 130 |
| 113 |
| 125 |
| 132 | |
|
|
| $ | 59 | $ | 56 | $ | 58 | $ | 55 | $ | 180 | $ | 160 | $ | 175 | $ | 188 |
In February 2015, LP Unitholder distributions were increased to $1.66 per unit on an annualized basis, an increase of eleven cents per LP Unit, which took effect with the distribution payable in March 2015.
Critical ESTIMATES AND CRITICAL JUDGMENTS in applying accounting policies
The interim consolidated financial statements are prepared in accordance with IFRS, which require the use of estimates and judgments in reporting assets, liabilities, revenues, expenses and contingencies. In the judgment of management, none of the estimates outlined in Note 2 – Significant accounting policies in our December 31, 2014 audited consolidated financial statements are considered critical accounting estimates as defined in NI 51-102 with the exception of the estimates related to the valuation of property, plant and equipment and the related deferred income tax liabilities. These assumptions include estimates of future electricity prices, discount rates, expected long-term average generation, inflation rates, terminal year and operating and capital costs, the amount, the timing and the income tax rates of future income tax provisions. Estimates also include determination of accruals, purchase price allocations, useful lives, asset valuations, asset impairment testing, deferred tax liabilities, decommissioning retirement obligations and those relevant to the defined benefit pension and non-pension benefit plans. Estimates are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.
In making estimates, management relies on external information and observable conditions where possible, supplemented by internal analysis, as required. These estimates have been applied in a manner consistent with that in the prior year and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in this report. These estimates are impacted by, among other things, future power prices, movements in interest rates, foreign exchange and other factors, some of which are highly uncertain, as described in the “Risk Factors” section of our 2014 Annual Report. The interrelated nature of these factors prevents us from quantifying the overall impact of these movements on Brookfield Renewable’s financial statements in a meaningful way. These sources of estimation uncertainty relate in varying degrees to substantially all asset and liability account balances. Actual results could differ from those estimates.
Future changes in accounting policies
(i) Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, Financial Instruments (“IFRS 9”) which reflects all phases of the financial instruments project and replaces IAS 39, Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before February 1, 2015. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.
(ii) Amendments to IFRS 10 and IAS 28
The amendments to IFRS 10, Consolidated Financial Statements (“IFRS 10”) and IAS 28, Investments in Associates and Joint Ventures (2011) (“IAS 28”) address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if the assets are housed in a subsidiary. The amendments are effective for transactions occurring in annual periods beginning on or after January 1, 2016 with earlier application permitted. Management is currently evaluating the impact of the amendments to IFRS 10 and IAS 28 on the consolidated financial statements.
(iii) Revenue recognition
IFRS 15, Revenue from Contracts with Customers (“IFRS 15”) was issued by IASB on May 28, 2014. IFRS 15 outlines a single comprehensive model to account for revenue arising from contracts with customers and will replace the majority of existing IFRS requirements on revenue recognition including IAS 18, Revenue, IAS 11, Construction Contracts and related interpretations. The core principle of the standard is to recognize revenue to depict the transfer of goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The standard has prescribed a five-step model to apply the principles. The standard also specifies how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. IFRS 15 is effective for annual periods beginning on or after January 1, 2018. Management is currently evaluating the impact of IFRS 15 on the consolidated financial statements.
Internal Control over Financial Reporting
No changes were made in our internal control over financial reporting during the nine months ended September 30, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
SUMMARY OF HISTORICAL QUARTERLY RESULTS ON A CONSOLIDATED BASIS
The following is a summary of unaudited quarterly financial information for the last eight consecutive quarters:
|
|
|
| 2015 | 2014 | 2013 | |||||||||||||
(MILLIONS, EXCEPT AS NOTED) |
| Q3 |
| Q2 |
| Q1 |
| Q4 |
| Q3 |
| Q2 |
| Q1 |
| Q4 | |||
Generation (GWh) - LTA(1)(2) | 5,459 | 7,199 | 6,516 | 5,770 | 5,065 | 6,440 | 6,021 | 5,380 | |||||||||||
Generation (GWh) - actual(1)(2) | 4,992 | 6,400 | 5,823 | 5,839 | 4,383 | 6,341 | 5,985 | 5,268 | |||||||||||
Revenues | $ | 337 | $ | 458 | $ | 441 | $ | 408 | $ | 342 | $ | 474 | $ | 480 | $ | 393 | |||
Adjusted EBITDA(3) |
| 242 |
| 339 |
| 338 |
| 273 |
| 223 |
| 360 |
| 360 |
| 272 | |||
Funds From Operations(3) |
| 80 |
| 146 |
| 153 |
| 116 |
| 61 |
| 198 |
| 185 |
| 137 | |||
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Non-controlling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| Preferred equity |
| 7 |
| 8 |
| 8 |
| 9 |
| 10 |
| 10 |
| 9 |
| 10 | |
|
| Participating non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| interests - in operating subsidiaries |
| 37 |
| 10 |
| 14 |
| (8) |
| (2) |
| 21 |
| 40 |
| (7) |
|
| General partnership interest in a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| holding subsidiary held by Brookfield |
| - |
| - |
| - |
| - |
| - |
| - |
| 1 |
| - |
|
| Participating non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| interests - in a holding subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| - Redeemable/Exchangeable units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| held by Brookfield |
| (8) |
| 8 |
| 14 |
| 14 |
| (16) |
| 20 |
| 37 |
| 10 |
| Limited partners' equity |
| (9) |
| 9 |
| 15 |
| 16 |
| (17) |
| 21 |
| 38 |
| 11 | ||
|
| 27 |
| 35 |
| 51 |
| 31 |
| (25) |
| 72 |
| 125 |
| 24 | |||
Basic and diluted (loss) earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| per LP Unit |
| (0.07) |
| 0.07 |
| 0.10 |
| 0.11 |
| (0.13) |
| 0.15 |
| 0.29 |
| 0.08 | ||
Average LP Units outstanding (millions) |
| 143.3 |
| 143.4 |
| 143.4 |
| 143.3 |
| 143.3 |
| 135.3 |
| 133.0 |
| 132.9 | |||
Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Preferred equity |
| 7 |
| 8 |
| 8 |
| 9 |
| 10 |
| 10 |
| 9 |
| 10 | ||
| General partnership interest in a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| holding subsidiary held by Brookfield |
| 3 |
| 3 |
| 3 |
| 1 |
| 2 |
| 1 |
| 2 |
| 1 | |
| Participating non-controlling |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
| interests - in a holding subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| - Redeemable/Exchangeable units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| held by Brookfield |
| 54 |
| 54 |
| 55 |
| 50 |
| 50 |
| 51 |
| 50 |
| 47 | |
| Limited partners' equity |
| 59 |
| 60 |
| 61 |
| 56 |
| 56 |
| 53 |
| 51 |
| 48 |
(1) Includes 100% of generation from equity-accounted investments.
(2) For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.
(3) Non-IFRS measures. See "Cautionary Statement Regarding Use of Non-IFRS Measures" , “Financial Review by Segments for the Three Months Ended September 30, 2015” and “Financial Review by Segments for the Nine Months Ended September 30, 2015”.
ADDITIONAL INFORMATION
Additional information, including our Form 20-F filed with the SEC and securities regulators in Canada, are available on our website at www.brookfieldrenewable.com, on SEC’s website at www.sec.gov and on SEDAR’s website at www.sedar.com.
Subsequent eventS
In October 2015, we completed a $400 million bond financing associated with our 600 MW pumped storage and 10 MW hydroelectric facilities in New England. The bond matures in 2025, and bears interest at a fixed interest rate of 4.89% on $375 million and a floating interest rate of LIBOR plus a margin of 270 basis points on the remaining $25 million. Simultaneously, we also completed a $26 million letter of credit and working capital facility with a three-year term and a floating interest rate of LIBOR plus a margin of 170 basis points. We retain a 50%, equity-accounted interest in this facility.
In October 2015, we entered into an agreement to acquire two hydroelectric facilities in Pennsylvania with an aggregate generating capacity of 292 MW. The facilities are expected to generate 1,109 GWh annually. We are pursuing this transaction with our institutional partners, and expect to retain an approximate 40% controlling interest in the facilities. The transaction is expected to close in the first quarter 2016, subject to typical closing conditions.
FINANCIAL REVIEW BY SEGMENTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2015
The following table reflects Adjusted EBITDA, Funds From Operations, Adjusted Funds From Operations, and provides a reconciliation to net income (loss) and cash flows from operating activities for the three months ended September 30:
|
|
|
|
|
| Corporate |
|
|
|
| ||
(MILLIONS) | Hydroelectric | Wind | and Other(1) | 2015 | 2014 | |||||||
Revenues | $ | 257 | $ | 70 | $ | 10 | $ | 337 | $ | 342 | ||
Other income(2)(3) |
| 30 |
| 12 |
| - |
| 42 |
| 3 | ||
Share of cash earnings from equity-accounted |
|
|
|
|
|
|
|
|
|
| ||
| investments |
| 5 |
| - |
| - |
| 5 |
| 10 | |
Direct operating costs |
| (103) |
| (26) |
| (13) |
| (142) |
| (132) | ||
Adjusted EBITDA(4) |
| 189 |
| 56 |
| (3) |
| 242 |
| 223 | ||
Interest expense - borrowings |
| (62) |
| (25) |
| (20) |
| (107) |
| (106) | ||
Management service costs |
| - |
| - |
| (11) |
| (11) |
| (14) | ||
Current income taxes |
| (7) |
| 1 |
| (1) |
| (7) |
| (5) | ||
Less: cash portion of non-controlling interests |
|
|
|
|
|
|
|
|
|
| ||
| Preferred equity |
| - |
| - |
| (7) |
| (7) |
| (10) | |
| Participating non-controlling interests - in |
|
|
|
|
|
|
|
|
|
| |
|
| operating subsidiaries |
| (20) |
| (10) |
| - |
| (30) |
| (27) |
Funds From Operations(4) | $ | 100 | $ | 22 | $ | (42) | $ | 80 | $ | 61 | ||
Less: adjusted sustaining capital expenditures(5) |
|
|
|
|
|
|
| (15) |
| (15) | ||
Adjusted Funds From Operations(4) |
|
|
|
|
|
|
| 65 |
| 46 | ||
Add: adjusted sustaining capital expenditures |
|
|
|
|
|
|
| 15 |
| 15 | ||
Add: cash portion of non-controlling interests(2) |
|
|
|
|
|
|
| 78 |
| 37 | ||
Other items: |
|
|
|
|
|
|
|
|
|
| ||
| Depreciation and amortization |
|
|
|
|
|
|
| (153) |
| (145) | |
| Unrealized financial instruments (loss) gain |
|
|
|
|
|
|
| (1) |
| 9 | |
| Share of non-cash loss from equity- |
|
|
|
|
|
|
|
|
|
| |
|
| accounted investments |
|
|
|
|
|
|
| (2) |
| (3) |
Deferred income tax recovery |
|
|
|
|
|
|
| 26 |
| 27 | ||
Other |
|
|
|
|
|
|
| (1) |
| (11) | ||
Net income (loss) |
|
|
|
|
|
| $ | 27 | $ | (25) | ||
Adjustments for non-cash items |
|
|
|
|
|
|
| 70 |
| 107 | ||
Dividends received from equity accounted |
|
|
|
|
|
|
|
|
|
| ||
| investments |
|
|
|
|
|
|
| 6 |
| 10 | |
Changes in due to or from related parties |
|
|
|
|
|
|
| 18 |
| 8 | ||
Net change in working capital balances |
|
|
|
|
|
|
| 39 |
| 88 | ||
Cash flows from operating activities |
|
|
|
|
|
| $ | 160 | $ | 188 |
(1) Other includes biomass and Co-gen.
(2) Brookfield Renewable, along with its institutional partners, sold its interest in a 102 MW wind facility in California to a third party for gross cash consideration of $143 million, resulting in a gain of $53 million. See Note 4 - Disposal of assets and Note 15 - Other income in our interim consolidated financial statements. Brookfield Renewable’s share of the gain was $12 million, representing the 22% interest in the facility and is net of the cash portion of non-controlling interests.
(3) In July 2015, concession agreements relating to two Brazilian hydroelectric facilities expired. Brookfield Renewable elected not to renew these concession agreements in exchange for compensation of $17 million.
(4) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.
(5) Based on long-term sustaining capital expenditure plans.
FINANCIAL REVIEW BY SEGMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015
The following table reflects Adjusted EBITDA, Funds From Operations, Adjusted Funds From Operations, and provides a reconciliation to net income and cash flows from operating activities for the nine months ended September 30:
|
|
|
|
|
| Corporate |
|
|
|
| ||
(MILLIONS) | Hydroelectric | Wind | and Other(1) | 2015 | 2014 | |||||||
Revenues | $ | 946 | $ | 263 | $ | 27 | $ | 1,236 | $ | 1,296 | ||
Other income(2)(3) |
| 51 |
| 21 |
| 3 |
| 75 |
| 8 | ||
Share of cash earnings from equity-accounted |
|
|
|
|
|
|
|
|
|
| ||
| investments |
| 18 |
| - |
| - |
| 18 |
| 25 | |
Direct operating costs |
| (302) |
| (77) |
| (31) |
| (410) |
| (386) | ||
Adjusted EBITDA(4) |
| 713 |
| 207 |
| (1) |
| 919 |
| 943 | ||
Fixed earnings adjustment(5) |
| - |
| - |
| - |
| - |
| 11 | ||
Interest expense - borrowings |
| (186) |
| (77) |
| (63) |
| (326) |
| (309) | ||
Management service costs |
| - |
| - |
| (38) |
| (38) |
| (38) | ||
Current income taxes |
| (17) |
| 1 |
| (1) |
| (17) |
| (19) | ||
Less: cash portion of non-controlling interests |
|
|
|
|
|
|
|
|
|
| ||
| Preferred equity |
| - |
| - |
| (23) |
| (23) |
| (29) | |
| Participating non-controlling interests - in |
|
|
|
|
|
|
|
|
|
| |
|
| operating subsidiaries |
| (83) |
| (50) |
| (3) |
| (136) |
| (115) |
Funds From Operations(4) | $ | 427 | $ | 81 | $ | (129) | $ | 379 | $ | 444 | ||
Less: adjusted sustaining capital expenditures(6) |
|
|
|
|
|
|
| (45) |
| (43) | ||
Adjusted Funds From Operations(4) |
|
|
|
|
|
|
| 334 |
| 401 | ||
Add: adjusted sustaining capital expenditures |
|
|
|
|
|
|
| 45 |
| 43 | ||
Add: cash portion of non-controlling interests(5) |
|
|
|
|
|
|
| 200 |
| 144 | ||
Less: fixed earnings adjustment |
|
|
|
|
|
|
| - |
| (11) | ||
Other items: |
|
|
|
|
|
|
|
|
|
| ||
| Depreciation and amortization |
|
|
|
|
|
|
| (472) |
| (400) | |
| Unrealized financial instruments (loss) gain |
|
|
|
|
|
|
| (9) |
| 5 | |
| Share of non-cash loss from equity- |
|
|
|
|
|
|
|
|
|
| |
|
| accounted investments |
|
|
|
|
|
|
| (8) |
| (15) |
Deferred income tax recovery |
|
|
|
|
|
|
| 38 |
| 8 | ||
Other |
|
|
|
|
|
|
| (15) |
| (3) | ||
Net income |
|
|
|
|
|
| $ | 113 | $ | 172 | ||
Adjustments for non-cash items |
|
|
|
|
|
|
| 390 |
| 379 | ||
Dividends received from equity accounted |
|
|
|
|
|
|
|
|
|
| ||
| investments |
|
|
|
|
|
|
| 26 |
| 28 | |
Changes in due to or from related parties |
|
|
|
|
|
|
| 11 |
| 14 | ||
Net change in working capital balances |
|
|
|
|
|
|
| 16 |
| 47 | ||
Cash flows from operating activities |
|
|
|
|
|
| $ | 556 | $ | 640 |
(1) Other includes biomass and Co-gen.
(2) Brookfield Renewable, along with its institutional partners, sold its interest in a 102 MW wind facility in California to a third party for gross cash consideration of $143 million, resulting in a gain of $53 million. See Note 4 - Disposal of assets and Note 15 - Other income in our interim consolidated financial statements. Brookfield Renewable’s share of the gain was $12 million, representing the 22% interest in the facility and is net of the cash portion of non-controlling interests.
(3) In July 2015, concession agreements relating to two Brazilian hydroelectric facilities expired. Brookfield Renewable elected not to renew these concession agreements in exchange for compensation of $17 million.
(4) Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.
(5) The fixed earnings adjustment relates to Brookfield Renewable’s investment in the acquisition of the wind portfolio in Ireland. Pursuant to the terms of the purchase and sale agreement, Brookfield Renewable acquired an economic interest in the wind portfolio from January 1, 2014. The transaction closed on June 30, 2014, and accordingly under IFRS, the $11 million net Funds From Operations contribution was recorded as part of the purchase price.
(6) Based on long-term sustaining capital expenditure plans.
cautionary statement regarding forward-looking statements
This Management's Discussion and Analysis contains forward-looking statements and information, within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, “safe harbor” of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations, concerning the business and operations of Brookfield Renewable. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. Forward-looking statements in this Management's Discussion and Analysis include statements regarding the quality of Brookfield Renewable’s assets and the resiliency of the cash flow they will generate, Brookfield Renewable’s anticipated financial performance, future commissioning of assets, contracted portfolio, technology diversification, acquisition opportunities, expected completion of acquisitions, future energy prices and demand for electricity, economic recovery, achievement of long-term average generation, project development and capital expenditure costs, diversification of shareholder base, energy policies, economic growth, growth potential of the renewable asset class, the future growth prospects and distribution profile of Brookfield Renewable and Brookfield Renewable’s access to capital. Forward-looking statements can be identified by the use of words such as “plans”, “expects”, “scheduled”, “estimates”, “intends”, “anticipates”, “believes”, “potentially”, “tends”, “continue”, “attempts”, “likely”, “primarily”, “approximately”, “endeavours”, “pursues”, “strives”, “seeks”, or variations of such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information in this Management's Discussion and Analysis are based upon reasonable assumptions and expectations, we cannot assure you that such expectations will prove to have been correct. You should not place undue reliance on forward-looking statements and information as such statements and information involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information.
Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: the potential for separation of economic interest from control within our organizational structure; the incurrence of debt at multiple levels within our organizational structure; being deemed an “investment company” under the U.S. Investment Company Act of 1940; the effectiveness of our internal controls over financial reporting; changes to hydrology at our hydroelectric stations, to wind conditions at our wind energy facilities or to crop supply or weather generally at any biomass cogeneration facility; counterparties to our contracts not fulfilling their obligations, and as our contracts expire, not being able to replace them with agreements on similar terms; increases in water rental costs (or similar fees) or changes to the regulation of water supply; volatility in supply and demand in the energy market; the increasing amount of uncontracted generation in our portfolio; increased regulation of our operations; general regulatory risks relating to the power markets in which we operate; our concessions and licenses not being renewed; increases in the cost of operating our plants; our failure to comply with conditions in, or our inability to maintain, governmental permits; equipment failure; dam failures and the costs of repairing such failures; force majeure events; uninsurable losses; adverse changes in currency exchange rates; availability and access to interconnection facilities and transmission systems; health, safety, security and environmental risks; disputes, government and regulatory investigations and litigation; our operations being affected by local communities; fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events; our reliance on computerized business systems; advances in technology that impair or eliminate the competitive advantage of our projects; newly developed technologies in which we invest not performing as anticipated; labour disruptions and economically unfavourable collective bargaining agreements; our inability to finance our operations due to the status of the capital markets; operating and financial restrictions imposed on us by our loan, debt and security agreements; changes in our credit ratings; changes to government regulations that provide incentives for renewable energy; our inability to identify sufficient investment opportunities and complete transactions; the growth of our portfolio and our inability to realize the expected benefits of our transactions; our inability to develop existing sites or find new sites
suitable for the development of greenfield projects; delays, cost overruns and other problems associated with the construction, development and operation of our generating facilities; arrangements we enter into with communities and joint venture partners; Brookfield Asset Management’s election not to source acquisition opportunities for us and our lack of access to all renewable power acquisitions that Brookfield Asset Management identifies; our lack of control over our operations conducted through joint ventures, partnerships and consortium arrangements; our ability to issue equity or debt for future acquisitions and developments is dependent on capital markets; foreign laws or regulation to which we become subject as a result of future acquisitions in new markets; the departure of some or all of Brookfield Asset Management’s key professionals; our relationship with, and our dependence on, Brookfield Asset Management and Brookfield Asset Management’s significant influence over us; risks related to changes in how Brookfield Asset Management elects to hold its ownership interests in the Partnership; and we are not subject to the same disclosure requirements as a U.S. domestic issuer.
We caution that the foregoing list of important factors that may affect future results is not exhaustive. The forward-looking statements represent our views as of the date of this Management's Discussion and Analysis and should not be relied upon as representing our views as of any date subsequent to the date of this Management's Discussion and Analysis. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law. For further information on these known and unknown risks, please see “Risk Factors” included in our Form 20-F.
cautionary statement regarding use of non-ifrs measures
This Management's Discussion and Analysis contains references to Adjusted EBITDA, Funds From Operations and Adjusted Funds From Operations which are not generally accepted accounting measures under IFRS and therefore may differ from definitions of Adjusted EBITDA, Funds From Operations and Adjusted Funds From Operations used by other entities. We believe that Adjusted EBITDA, Funds From Operations and Adjusted Funds From Operations are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by our operating portfolio. Neither Adjusted EBITDA, Funds From Operations nor Adjusted Funds From Operations should be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance with IFRS.
A reconciliation of Adjusted EBITDA, Funds From Operations and Adjusted Funds From Operations to net income (loss) and cash flows from operating activities is presented in our Management’s Discussion and Analysis. We have also provided a reconciliation of Adjusted EBITDA and Funds From Operations to net income (loss) in Note 16 - Segmented information in our interim consolidated financial statements.
GENERAL INFORMATION |
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Corporate Office
73 Front Street Fifth Floor Hamilton, HM12 Bermuda Tel: (441) 294-3304 Fax: (441) 516-1988 www.brookfieldrenewable.com
Officers of Brookfield Renewable Energy Partners L.P.’s Service Provider, BRP Energy Group L.P.
Richard Legault Executive Group Chairman
Harry Goldgut Group Chairman
Sachin Shah Chief Executive Officer
Nicholas Goodman Chief Financial Officer
Transfer Agent & Registrar Computershare Trust Company of Canada 100 University Avenue 9th floor Toronto, Ontario, M5J 2Y1 Tel Toll Free: (800) 564-6253 Fax Toll Free: (888) 453-0330 www.computershare.com |
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Directors of the General Partner of Brookfield Renewable Energy Partners L.P. Jeffrey Blidner Eleazar de Carvalho Filho John Van Egmond David Mann Lou Maroun Patricia Zuccotti Lars Josefsson
Exchange Listing NYSE: BEP (LP Units) TSX: BEP.UN (LP Units) TSX: BRF.PR.A (Preferred shares – Series 1) TSX: BRF.PR.B (Preferred shares – Series 2) TSX: BRF.PR.C (Preferred shares – Series 3) TSX: BRF.PR.E (Preferred shares – Series 5) TSX: BRF.PR.F (Preferred shares – Series 6)
Investor Information
Visit Brookfield Renewable online at
Additional financial information is filed electronically with various securities regulators in United States and Canada through EDGAR at www.sec.gov and through SEDAR at www.sedar.com.
Shareholder enquiries should be directed to the Investor Relations Department at (416) 359-1955 or
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