Welcome to the Brookfield Renewable Energy Partners 2015 Third Quarter Conference Call and Webcast. [Operator Instructions]. At this time, I'd like to turn the conference over to Sachin Shah, Chief Executive Officer. Please go ahead, sir..

Thank you, operator. Good morning, everyone and thank you for joining us this morning for our third quarter conference call. Before we begin, I'd like to remind you that a copy of our news release, investor supplement and the letter to shareholders can be found on our website at brookfieldrenewable.com.

I would also like to remind you that we may make forward-looking statements on this call. These statements are subject to known and unknown risks and our future results may differ materially. For more information, you're encouraged to review our regulatory filings, available on SEDAR, Edgar and on our website.

The business is performing well and we continue to make significant progress on our operating, investing and capital raising initiatives. As many of you know, the third quarter is seasonally our lowest from a generation perspective and one in which we take advantage of lower inflows to perform a majority of our sustaining capital work.

As we highlighted at our recent Investor Day, over the last few years, we and our institutional partners, have invested more than $4 billion into growth opportunities tied to economic recovery and where our operating and marketing expertise should allow us to maximize returns over time.

These investments include long-lived hydro facilities in North America, development pipelines in Europe and, more recently, distressed hydro and wind in Brazil.

In particular, over the last four years, we have made a significant investment in markets such as New England and PJM, as coal retirement, renewable policy initiatives and economic recovery take hold and only now are we seeing the very early signs of an improving revenue outlook.

For example, this quarter we sold capacity into the PJM market for our existing facilities in Pennsylvania, Tennessee and North Carolina at attractive pricing well in excess of our underwriting assumptions.

This quarter, we had two noteworthy transactions, which are consistent with our continued commitment to generate long term total returns to shareholders of 12% to 15%. First, we agreed to acquire a 300-megawatt hydro portfolio in the Northeast United States for $860 million.

These two facilities, recently rebuilt by the seller, share synergies with our 417 megawatt Safe Harbor facility on the Susquehanna River, which we acquired last year.

They benefit from diverse revenue streams comprising of energy, renewable energy credits, capacity and multiple ancillary products and can generate approximately $60 million of EBITDA annually at current market prices.

These assets are situated in PJM, a market, as we mentioned, experiencing significant coal retirement and have significant upside as a long term renewable resource. Second, we closed a $400 million refinancing of our 600-megawatt Bear Swamp pump storage facility in New England.

We bought this facility with a partner in the mid-2000s during a period of depressed energy prices. Since that time, we have been able to sell peak energy, capacity and ancillaries into wholesale markets, enter into long term PPAs and pull all of our capital out of the asset through multiple refinancings.

From an operating perspective, we advanced the construction of a 127 megawatts of hydroelectric and biomass projects in Brazil and continue to build out, as planned, our wind pipeline in Ireland, acquired last year, all on scope, schedule and bidet.

These projects have attractive long term contracts and allow us to deploy capital at over 20% returns in Brazil and 15% returns in Europe. Over the next five years, we expect to build and commission approximately 1,000 megawatts of greenfield projects, while continuing to replenish our pipeline to ensure a steady stream of growth opportunities.

We continue to focus our business on initiatives that drive a long term total return to our shareholders, as opposed to just near-term cash flow accretion.

On that basis, we continue to prioritize our operations on owning and operating the highest-quality hydro, acquired during periods of distress and with the potential for significant upside from rising prices; proprietary development that can generate superior returns; multi-technology operating capabilities; and a global growth mandate.

With proven access to capital and deep institutional relationships, we're well positioned to deliver on these objectives.

Nick?.

Thank you, Sachin. We continue to maintain high levels of liquidity and a strong access to capital with approximately $1 billion of near-term liquidity and the ability to surface significant additional capital from refinancing under-leveraged projects and further asset sales.

As Sachin mentioned, we completed a refinancing of our hydro pump storage facility in New England, which, combined with the Coram wind facility in California, provided BREP with $165 million of additional liquidity. This represents low-cost capital, which we can redeploy into new growth opportunities.

Third quarter generation was 4,992 gigawatt hours, relative to the long term average of 5,459 gigawatt hours and an increase of 609 gigawatt hours compared to the prior year. Recent growth in the portfolio contributed 623 gigawatt hours.

Hydroelectric generation of 3,948 gigawatt hours increased 145 gigawatt hours compared to the prior year, but was below the long term average. Inflows in Brazil increased year over year but remained below the long term average due to the continuing, albeit slowly improving, drought conditions. In North America, generation in the U.S.

returned to long term average, partially offsetting below-average inflows in Canada. Growth in our portfolio added 256 gigawatt hours with new assets performing in line with long term average. Wind generation of 772 gigawatt hours was 206 gigawatt hours higher than the prior year, reflecting growth in the portfolio.

Generation from the prior year includes our recently sold 102 megawatt wind facility in California. Our recent wind additions in Europe and Brazil performed with long term average, helping to offset weaker conditions in North America and demonstrating the benefit of an increasingly diversified portfolio.

Adjusted EBITDA of $242 million and funds from operations of $80 million each increased $19 million from the prior year. Strong merchant pricing, annual escalations in our power purchase agreements and better performance from facilities with higher relative contract prices were offset by lower year-over-year hydro generation in North America.

In the quarter, we also recognized the gain on the sale of the wind facility in California. As highlighted at our recent Investor Day, we believe our current share price does not reflect the intrinsic value of in-place cash flows and, in essence, is valuing our cash flows at depressed prices into perpetuity.

We, therefore, see meaningful upside to the current share price that will increase further as we deliver on our organic growth initiatives. That concludes our formal remarks. Thank you for joining us this morning. We'd be pleased to take your questions at this time.

Operator?.

[Operator Instructions]. Our first question today comes from Frederic Bastien of Raymond James. Please go ahead..

I was wondering -- you highlighted you were able to extract strong merchant pricing.

Can you provide a bit more color on that?.

Sure, Frederic.

I think what you're referencing is our capacity sales, which many of our hydros have significant capacity that they can sell into the markets in the Northeast United States and this quarter or in the third quarter, sorry, we sold capacity from assets located or having access to PJM at typically somewhere in the $4.50 to $5 a kW-month range.

And just to put that in perspective, when we're acquiring assets in this type environment, our capacity assumptions tend to be in that $3 a kW-month, $2 to $3, depending on where the market -- where the asset is located.

So, you can see that we're starting to see early signs of capacity price increases and, I would say, PJM is still muted, relative to what we've seen in New England, where capacities trade at anywhere from $7.50 a kW-month all the way to $15 a kW-month for import products. And we're seeing meaningful supply that new supply is needed in these markets..

But how did your merchant business actually perform in the current quarter? I was just -- I'm just wondering if the low natural gas prices are hurting your ability to command strong prices right now?.

Sure. Yes, merchant markets have generally cleared in an around $40, $45. We can peak our facilities and get a little bit more than that, but they're performing virtually exactly in line with our underwriting.

We're buying these and underwriting them with energy curves in that $40 range which really reflects current gas environment, $2.50 gas and it reflects that prices and fuel switching is currently ongoing between gas and coal and so, we're not seeing any real departure from where we're underwriting and prices continue to remain very low for energy..

Okay. So, then, if we look at your average revenue per megawatt hour, it was off 13% year over year. It was a bit, also, below our expectations.

Is that, then, mainly currency driven?.

Yes, that would be largely currency driven between Brazil and Canada..

The next question is from Rupert Merer of National Bank. Please go ahead..

Just to follow up on the currency impact, can you remind on -- of your hedging policy and the average duration of your currency hedges today?.

Sure, Rupert. So, our hedging policy, I think, as we've stated in the past, we proactively look to hedge our Canadian and euro FFO up to 24 months out and kind of up to 50% to 80% would be the range of the FFO. Currently, we have two years duration at 80% of our euro FFO.

Our Canadian FFO hedges are rolling off and we -- at these levels we've chosen not to lock in at 1.33 and two years out. So, those hedges have largely rolled off.

And in Brazil, we don't have an active hedging policy because of the cost of currency, but, as we've mentioned in the past, we do have inflation linkage in our contracts that partially offset the impact of a strong U.S. dollar, albeit there's a slight lag in that catch-up..

And when you enter into a new, long term PPA, would you consider longer-term hedges on those cash flows, if they're derived in Canadian dollars or euros?.

No. We tend to focus just on two years out and we have inflation protection in those contracts, which can largely protect asset values. And we really just look at a two-year rolling program.

We may look for longer -- when we think of our currency hedges, we may look for longer for balance sheet protection, but if you think of volatility through the income statement, they tend to be two-year forwards..

Maybe just to add to that is that, first, when we look at long term PPAs and signing contracts, I think the -- one of our main objectives is to get inflation linkage in our contracts, which tends to be more protective than of income streams than just the currency hedge.

And the second thing I'd lay out is that as you get into longer and longer currency hedging, liquidity becomes less and less in the market and then you have to pay for that. And so, the tradeoff isn't work it to us.

I think, as Nick rightfully points out, two years tends to be where you get the most liquidity and the cheapest cost to hedge your business..

The next question is from Sean Steuart of TD Securities. Please go ahead..

A couple questions to start. You've talked a lot about your interests or potential interest in Isagen in the past.

I'm just wondering if you can give any specific updates on the auction timeline and the mechanics going forward there?.

So, the government has announced that the process has restarted. We've requalified ourselves. It was more procedural than anything, but all the bidders had to requalify themselves. They are still working through a formal timeline.

We've been told that bids will be due anywhere between late November and mid-December, as they work through just the final what I call protocols for those who are making bids. We've done all of our work and we're more in that updating our file stage.

We've been spending time with the company there and, obviously, this is a portfolio that we would be interested in, if the opportunity arises..

And then, I guess, another potential growth initiative, Pacific Hydro.

Can you talk a little bit about, I guess, about your ability to own assets in Chile, given BIP's transmission assets there already? Is there an ability for BREP to structure a deal such that you can own the generation assets there?.

Sure. So, we've seen the press, just like you, on Pacific Hydro and, look, candidly we're not participating in that process in light of our transmission business in the broader group in Chile. So, this is, obviously, just information in the press that's clearly not accurate..

The next question is from Nelson Ng of RBC Capital Markets. Please go ahead..

I just had a quick question on -- I just wanted to understand what your current view on El Nino's impact is over the next few quarters for wind and hydrology in North America and Brazil..

I'd start with we never really form a view on a quarter or two out for any variation in weather. I think we've always lived with volatility in our business.

It's the nature of running a hydro and wind business is that there's going to be volatility and whether it's driven by droughts or El Nino or significant precipitation, we have the business model to manage that kind of risk profile and over the years we've diversified geographically and across watersheds, as a means to mitigate that type of volatility.

We also set a distribution that's very realistic and predicated on knowing that our business will have ups and downs in terms of near-term generation levels, as you've seen this year. So, I don't want to predict the weather and I suspect El Nino will have some benefits to parts of our portfolio.

It will have other parts of the portfolio that will have lower water levels and, in fact, that's just like every other year..

And then just on the North American wind facilities, were there any outages for maintenance that contributed to generation being about 33% below average or was that [indiscernible] in that wind resource?.

Yes, nothing that would be unplanned. So, to the extent that have low wind periods, we would perform our ongoing maintenance initiatives, but nothing that would be unplanned, Nelson..

And then, just one last question, this is more a high level. We've seen the yieldco share prices decline over the summer and, as a result, M&A activity kind of slowed to a trickle.

I guess, can you comment whether there's a, I guess, relationship between your share price and, I guess, your pace of development or M&A activity? I'm just thinking in terms of, I guess, obviously, at some point in the future you'll need equity to fund growth and how do you kind of manage that dynamic in terms of a weak share price versus M&A activity?.

Sure. I'll start with the share price. Clearly, between the yieldcos and the MLPs having seen weakness in the capital markets in the last six months, our stock has suffered. We do get dragged down, although relatively, I think, a lot less.

But it's important that we clarify our story and you've seen us clarify this for, really, the better part of two years now since we saw yieldcos come to market. We're very different. We have internal operating capabilities. We have our own development. We don't rely on a drop-down from parent.

We fund our growth largely through our own existing cash flow, as opposed to equity issuances and our investors would have seen that. Since we launched BREP in 2011, we've grown the installed capacity from just under 5000 to 7500 today and almost 8,000 once we close on a couple of transactions and we've had one equity offering through that period.

So, it shows the cash flow profile of our business and the ability to generate cash internally to fund growth. And Nick highlighted in his prepared remarks the refinancing of Bear Swamp and the sale of Coram, which really just illustrate that strategy that we have. So, I would say we're not too worried right now that the markets are volatile.

It is just a function of being a public company I think it's imperative though, on us to continue to highlight the differences so that we don't get caught up in that and I think that's on us to go out there and explain how different we're from a yieldco.

Second, I'd say it's a tremendous advantage being part of the broader Brookfield Group to have institutional capital that we can draw on to help fund growth as partners come into our investments and you've seen us do that, really, since our inception, by bringing in various fund partners.

So, that's a second feature, I think, that really differentiates us. And then lastly, from a growth perspective, I think the opportunity set will actually get better if we see a weaker capital market and we're one of the few organizations that is really well positioned to benefit from that.

We saw yieldcos drive the cost of assets to levels that were really difficult for us to compete with and this was largely off the back of them trading at a very, very low cost of capital and, really, the market believing that their growth into perpetuity could sustain itself.

And that's not something that we would subscribe to, but we may see better opportunities to put our capital to work, in particular in North America, as a result of where we're..

The next question is from Andrew Kuske of Credit Suisse. Please go ahead..

The question really revolves around the comment on your current unit price not really reflecting the intrinsic value of the overall entity and just on that basis, how do you think about the build versus buy decision and then also the sell versus keep decision by maybe your geographic region or by asset type? You've been clearly monetizing some wind farms, but maybe if you could just give us bit of color across the world?.

Look, I think right now and it's a little bit tied to the question before, but the market has been conditioned to just look at near-term cash flow accretion as a view of value. And we're not investors who make decisions based on near-term cash flow accretion.

We're and have a track record of making very long term decisions that drive total returns to shareholders and when we put out our projections on 12% to 15%, it's in the fullness of time.

And so, I'd say, with that, when we look at our stock and Nick say that at the current share price it really just assumes that energy prices stay low, at their current levels, into perpetuity and we don't subscribe to that theory.

We think at some point, the level of coal retirement, the pace of economic recovery, the need for new renewable supply, will all drive prices at a level that should get closer to cost of new entry.

With that in mind, I think our view right now would be that in terms of sources of capital, better sources of capital for us are up-financing our assets, using our existing liquidity and selling assets. So, if I was to go through the geographies as you asked, in the U.S., clearly valuations have been very high.

A little bit off today because of what's going on in the capital markets, but still much, much higher and when we sold Coram, that was really a reflection of that.

We locked in a 30% IRR in a project that we built three years ago and we would look on a selective basis to sell further wind assets and further assets that have locked-in cash flows that can drive near-term accretion to other types of investors. When we look at Brazil, it's the opposite phenomenon. It's a buyer's market right now.

There is very little liquidity in the country. Capital has flowed out as we've seen a combination of low growth, political turmoil and a drought and, really, you have the perfect storm there for deep value opportunities and so, we've been putting money to work there.

In Europe, I would say our assets that are built and fully contracted, we actually would consider selling some, if an opportunity came about, because you still see very, very low cost of capital, pension funds and infrastructure asset managers or infrastructure equity funds deploying capital at very, very high multiples.

So, I think each market is different and it's an advantage we have, being global in our nature, to look at each market differently and think about our capital allocation differently..

Okay, that's very helpful and then, if I may, with just a follow-up on your hedging on a forward basis and your power contracts on a forward basis.

How should we think about the breakdown of the future years between, effectively, power hedging versus the capacity payments that you've already locked in?.

If I understand your question correctly, we sell our capacity into existing auctions while our assets are merchant. Obviously, if we were to sign a long term PPA, historically our PPAs, many of them, would have the buyer of the power wanting not only the energy, but the capacity, as well and would pay us for that.

So, today, while we have a portion of our portfolio sitting in the merchant market, we sell energy into that market. We sell our capacity into the auctions that they run. We sell ancillary products to the ISOs.

But as the pricing environment evolves over the next few years and the opportunities to sell under a long term contract increase, then we would envision selling energy capacity, ancillaries and even green attributes to the extent they're valued under longer-term PPAs, as we've done in the past..

The next question comes from Matthew Akman of Scotiabank. Please go ahead..

Just a couple questions on the Brazil hydro and hydrology and hedging, it looks like the hydrology, obviously, was below but -- below normal, but starting to close the gap a little bit between actual and normal.

What is your outlook, I guess, for Q4 and is it too early to have an outlook for 2016 hydrology in Brazil?.

Yes. So, we're starting to see a bit of a recovery. I wouldn't want anyone to read too much into that just yet. The recovery that we've seen is reservoir levels have gone from about 20% of average last year at this time to about 40% of average. Still very, very low, but a doubling from where they were last year at the same time.

The country does have a rainy season, which really spans from sort of January to March and I think that's the important period which will drive 2016.

So, my view would be, let's wait and see where we come out of the rainy season and to the extent that precipitation continues to improve and the ground soaks up more water and reservoirs start to replenish, we may be right in that sort of recovery phase. But it's early signs and they're encouraging..

Okay. And the other piece there, I guess, is pricing. There's a lot of -- you put a lot of hedges there for 2016.

Can you say anything about hedge prices in '16 versus your realized '15 prices?.

Hedge prices in '16 would be slightly better, but still -- I'm assuming you're talking about the U.S. -- would be slightly better..

Sorry, I'm talking about Brazil..

Sorry?.

I'm talking about Brazil..

Pricing in Brazil. Okay. In Brazil, we've continued to actually sign contracts as opposed to hedging. So, these are actual bilateral contracts that we're signing. We signed 7 in the quarter. Small volumes, but the contract market in Brazil is still very robust and at pricing that is in excess of what we think the long term -- our long term view would be.

And so, while that market exists, you'll see us aggressive putting on contracts with a particular focus on term..

Do you expect your realized prices in Brazil to be higher in '16 than '15?.

Yes, we do, because '15 would have continued to reflect legacy contracts that we had rolling off and in 2016 were starting to see the benefit of contracts we had been signing last year and this year in a much higher pricing environment..

The next question comes from Rupert Merer of National Bank. Please go ahead..

I'm going to ask you to speculate a little, if you will.

You had talked about the potential benefit of coal retirements in the Northeast and I was wondering if you anticipate any tailwinds from the upcoming global climate discussions and if you see any opportunities that might arise from the change of government in Canada?.

I'll start with your question on the global climate change summit. Look, all of this is encouraging.

We keep saying that the more and more momentum that goes behind broad policy initiatives and broad support for carbon reduction, we're extremely well positioned for that as a business and if you're an investor looking to find a long term, sustainable stream of cash flows that has significant upside directly tied to carbon reduction, I think very few offer the track record that we have and very few offer the cash flow and return profile that we've been able to deliver for a long time.

So, I think the summit in Paris is a really just a continued reflection of that theme. In Canada, with the changing government, I think this government, obviously, is very vocal or the new government is very vocal about its support for climate change. I don't think the prior government had an anti-climate change.

It's just it was less vocal and in our view Canada is a smaller part of our business.

It hasn't been a significant growth market for us, so I don't think it'll have a meaningful impact, but that being said, again, we're encouraged by the fact that more and more governments continue to support climate change and look for initiatives that drive carbon reduction as key targets..

We have a follow-up question from Sean Steuart of TD Securities. Please go ahead..

An easy one for you guys. I saw you let a couple of concessions in Brazil expire and you took compensation of $17 million.

Can you just go into a little bit of the detail behind that decision?.

Sure.

So, if you remember, I believe it was two years ago, there was a law that came out called Law 579 in the country, in Brazil, where concessions that were expiring between -- I believe it was 2015 and 2018 were -- the government was on a program to try to reduce their overall electrical cost structure by 20% through a combination of generation, transmission and distribution tariff reductions.

And what they wanted to do was renew concessions during those periods for generating assets effectively at below an economic level. And they gave owners the option of either renewing them at a level that was uneconomic or giving them back to the government.

We and virtually every other owner in the country, either domestic or foreign, returned our plants to the government on that basis and so this -- we returned 12 megawatts. It's tiny in the grand scheme of our 8,000 megawatt business, but we returned them because we weren't going to run plants on an uneconomic basis.

The government today is now taking all of these facilities that were returned and trying to re-auction them. Clearly, they made a mistake from a policy perspective and clearly they didn't anticipate the real need for new generation. So, it would be a reflection of a really, really poor decision from that government at that point in time..

The next question comes from Ben Pham of BMO Capital Markets. Please go ahead..

Just keying off that last question, is there more to come on this concession option? Because you mentioned something about '15 to '18?.

No. No, you had to make a decision two years ago on what you would return and the 12 megawatts was what we returned..

Okay, got it.

And on Isagen, going back to that, what are your plans with respect to the structuring of that? Is it your standard 40% to [indiscernible] and can you comment on your balance sheet and liquidity, how you would expect to finance that if you were successful?.

Sure. So, Isagen's obviously a very large-scale transaction. It would not be our standard 40%. This would be a transaction that we would have today a significant number of investors and partners, co-investors and partners that are in our funds and partners outside of our funds participating with us directly.

And we would size BREP's to a level that we felt we could manage with our internal liquidity and our cash flow, rather than needing to go to market to issue equity. And that's how we've set it up and we continue to pursue it on that basis..

And finally, I wanted to see if I can dig into your payout ratio expectations for next year, when you think about your hedges and upside on the Northeast power side probably being pushed out longer term.

I mean, are you anticipating to be within your targeted range for '16 at this point?.

No, we'll be elevated. We have a long term range in that 60% to 70%.

I think we talked about this last year, too, that with merchant markets very weak and a significant amount of development in front of us that's committed to, we continue to have an elevated payout ratio, probably consistent with where we thought we'd be this year in that closer to the 80% range.

It still gives us ample cushion from a cash flow perspective to manage volatility, but it also reflects just the growth profile in front of us..

[Operator Instructions]. Our next question comes from Jeremy Rosenfield of Industrial Alliance Securities. Please go ahead..

Just in terms of the payout ratio and the expectation looking forward, is there an implication for how you think about increasing the dividend going forward for next year, trying to get yourself back into that range using the dividend increasing, keeping it sort of towards the low end of your guidance range, let's say?.

Look, we're not too stressed about trying to stay within that range year over year. We provide that as really long term guidance and we give ourselves lots of cushion to stay above or below that level.

And like I said, I think we'll maintain an elevated level for next year, in light of just what we see as a number of headwinds when it comes to energy and currency, but over the long term, we do size our distribution to what we see as sort of a realistic run rate for the business..

Just one other question, maybe much more strategic, I think, in nature and referring back to some of Rupert's line of questioning.

Are there other markets that you see a place to get into at relatively low historical levels? And here I'm thinking, potentially, more broadly in terms of, like, Alberta, a market that you're not traditionally in and a market that is experiencing significant price weakness and, potentially, a shift in terms of its renewable policy.

Have you thought about that market, specifically?.

Yes, we've thought about Alberta. I mean, I think it's in the category of we've thought about Germany, France. We've thought about Alberta, as a province. We've thought about the Southwest of the United States, California, where we've got a decent wind business. We've looked at Peru and Mexico as markets.

And we've started to look a little bit into Asia in India and Australia as markets. So, I would say in Canada, if you're asking specifically about Canada, we're in BC, we're in Quebec. We're in Ontario. We're notably absent from Alberta and I think we'd share your view that there is -- if you're going to go into Alberta, now is a good time.

It's kind of the perfect storm of low gas prices, the changing government and a much weaker economic outlook in light of oil prices. But we do that for every market that we see as having the potential for scalable growth.

Does that help?.

There are no further questions at this time. I'll now hand the call back over to Mr. Shah for closing comments..

Okay. Well, once again, thank you everyone for your continued support and interest in the business. We will talk to you in the fourth quarter. Take care..

This concludes today's conference call. You may now disconnect your lines. Thank you for participating and have a pleasant day..