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Executives

Richard Legault – President, Chief Executive Officer

Donald Tremblay – Chief Financial Officer

Analysts

Tony Courtright – Scotia Capital

Bob Hastings – Cannacord Adams

Michael McGowen – BMO Nesbitt Burns

Andrew Kuske – Credit Suisse

[Nelson Ng – RBC Capital Markets]

Michael Willemse – CIBC

Francisco for Carolina Vargas – Clarus Securities

Sean Steuart – TD Newcrest

Steven Paget – First Energy

Brookfield Renewable Power Fund (BRPFF.PK) Q1 2010 Earnings Call May 13, 2010 10:00 AM ET

Operator

Welcome to the Brookfield Renewable Power Fund’s first quarter conference call. (Operator Instructions)

Before management begins their presentation, we remind you that in responding to questions and talking about financial and operating performance, management may make forward-looking statements, which are predictions of or indicative of future events and trends. These statements are subject to known and unknown risks and future results may differ materially.

These forward-looking statements represent management’s views today, and you are cautioned not to place undue reliance on these forward-looking statements. For further information on known risk factors, you are encourage to view of Fund’s 2009 annual report available on SIDAR or the Fund’s website at www.brpfund.com.

I will now turn the conference over to Mr. Legault.

Richard Legault

Good morning everyone and thank you for joining our first quarter conference call. With me on the call is Donald Tremblay, our Chief Financial Officer.

Before we begin, I would like to remind you that a copy of our news release, supplemental information and letter to unit holders can be found on our website at www.brpfund.com. I would like to begin this morning with some general comments. Donald will then address our financial and operating results in more detail.

The Fund recorded solid performance in the first quarter with total generation of 1661 gigawatt hours or 8% above long-term average. Generation was above average in all regions and the assets that we acquired in 2009 continued to perform in line with expectations accounting for roughly one-third of generation in the quarter.

Our Gosfield wind project is progressing very well with the construction of access roads, water crossings and site work at the project’s electrical substation. The delivery of turbines is expected to begin next month with commercial operations anticipated for September.

Gosfield’s commissioning will increase the Fund’s installed wind capacity to nearly 240 megawatts, further diversify our generation base and provide the Fund with valuable tax attributes.

The Fund also stands to grow its wind portfolio further as it sponsored Brookfield Renewable Power was recently awarded a power sale contract for its 165 megawatt Comber wind project in Ontario. Once the turbine supply agreement and balance of plant contracting agreements have been finalized, Comber will be in a position to be evaluated by an independent committee of the Fund for acquisition in keeping with the Fund’s mandate as Brookfield’s dedicated growth vehicle for contracted, operating and construction ready hydro and wind generation.

We believe the Fund presents a strong and unique value proposition as Canada’s leading pure play renewable power business. In the first quarter, the Fund was added to the newly created S&P TSX clean technology index. This further supports the Fund’s credentials as a sustainable leader in the renewable power sector and follows our addition to the S&P TSX composite index late last year.

We continue to be optimistic as to the Fund’s growth opportunities in the Canadian market as evidenced by strong demand for renewable, significant untapped potential and the recent clean power awards in Ontario and British Columbia.

With its unique operating platform and financial strength, we believe the Fund maintains a low risk profile while remaining very well positioned to participate in the growing renewable power sector.

On a final note, I would like to invite you to attend our annual meeting of unit holders, which will be held at 2:00 o’clock this afternoon at the Hockey Hall of Fame in downtown Toronto.

I’ll now ask Donald to present the financial and operating results for the quarter.

Donald Tremblay

As Richard mentioned, our performance this quarter was again very solid. Hydro-electric generation in Q1 was 1,558 gigawatt hours or 11% above our long term average with 519 gigawatt hours coming from assets acquired in 2009.

Generation of 103 gigawatt hours from the Princewind farm was 30 gigawatt hours above the same quarter last year and the Fund only owned Prince for two months in Q1 of 2009. Availability remains very strong at the processing at 98%, but generation was below the amount due to lower than average wind levels.

Revenue for the full year increased to $111 million from $58 million in Q1 of last year. Income before non-cash items roughly doubled to $61.2 million if you exclude the $6.9 million in issuance associated with the Prince share offering.

The assets we acquired in 2009 contributed $29 million to income before non-cash items while the increase from Lievre and Mississauga added almost $13 million. In March, we successfully completed a $250 offering of preferred shares through our Orleans subsidiary. Net offering proceeds of $243 million were used to repay the $200 million note to Gosfield, which was partial payment of 2009 acquisition.

The balance will be used to support our growth initiatives and boost our cash reserve to more than $100 million.

First quarter sustaining capital expenditure were $3.8 million while major maintenance was $600,000. In Ontario, work continues on the unit rewind and the rotor pole refurbishment at the Aubrey Falls generating station. The unit is expected to return in service in the second quarter of 2010. Other capital programs scheduled for this year include an upgrade in New England, engineering work for transformers in Quebec and repair work in Ontario.

The Fund currently expects a total of $27.6 million in sustaining CapEx and $7.4 million in major maintenance during 2010. The small increase compared to our previous estimate is due to projects that have been carried over from 2009.

Spending on Gosfield was $19.3 million in the quarter and $34.5 million to date. The first draw down on the Gosfield grid is expected to take place this quarter coinciding with the delivery of the turbine, which is scheduled to begin in June.

The Fund ended the year with more than $100 million in cash and demand deposits. The Fund continues to have access to almost $60 million of committed credit facility and reserve authority bringing total liquidity to more than $150 million.

That concludes our remarks. We would be pleased to take questions at this time.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tony Courtright – Scotia Capital.

Tony Courtright – Scotia Capital

My first question deals with wind generating assets. Will Gosfield have any levelization and what about future assets that are constructed or dropped down into the Fund? What’s your view on the levelization guarantees?

Richard Legault

I think our view is that essential the initial levelization agreement that was put in place was primarily because of the short timeline that we had in order to facilitate due diligence. I think Gosfield was very different and ultimately does not have a levelization agreement with the Fund, and future wind or hydro facilities, we don’t expect that would actually include levelization agreements.

Tony Courtright – Scotia Capital

The accounting for this loss on exchangeable shares retroactive, can color be provided or do you want to just phone me later?

Donald Tremblay

Last year at year end, we recorded a loss on exchangeable shares and instead of recording that in the income fund, we recorded that in the subsidiary income fund that we only own 50%, meaning that we only took on our P&L in 2009 50% of the losses, so that’s the adjustment that we’re making in this quarter.

Richard Legault

It’s also important to point out that this is essentially an accounting loss, that it is by no means a cash loss. This was accounting for those shares on a mark to market basis because they’re viewed as a derivative.

Operator

You're next question comes from Bob Hastings – Cannacord Adams.

Bob Hastings – Cannacord Adams

The financing costs of $6.9 million being completely expensed in the quarter, a very conservative way to do it and maybe meets with the new IFRS proposals, but normally would have been amortized over the life. Can you explain that to me?

Donald Tremblay

The reason for that is the shares have been issued by a subsidiary of the income Fund, not the income Fund directly and as a result, we cannot capitalize those costs in the income Fund.

Bob Hastings – Cannacord Adams

With the assets going down into the Fund, potentially with the approval of the Fund trustees, can you give us some guidelines of what you see the trustees might be using as cost of capital or IRR’s now for new projects?

Richard Legault

Again, new projects I would say clearly need to be something north of 12% particularly at the stage at which the Fund is actually picking up the project. When you look at it that would be a minimum threshold.

I think the projects that we have today are clearly much better than that, and clearly, we would see, because when you look at the construction stage of these projects, turbine supply agreements have been secured. Balance of plant is basically EPC and fixed price, and ultimately we have financing in place.

So clearly there is a risk profile here that’s lower than what typically a development project would carry, but we still think particularly in wind, that we’re looking for clearly north of 12% if not greater.

Operator

You're next question comes from Michael McGowen – BMO Nesbitt Burns.

Michael McGowen – BMO Nesbitt Burns

I have a question about the state of the hydro in Comber wind facilities. Can you provide an update on that and perhaps a potential timeline on when they would be considered to be construction ready?

Richard Legault

First of call, Comber is a project that has probably five years of development that we’ve been working on. We’ve been working on Comber for five years, so there’s a good strong history here in terms of wind regime etc. This is the project that is going to be the closest to being ready to build and I think when we look at construction or commissioning the project, it’s probably early part of 2011 because we’ve basically achieved permitting and right now we’re just finalizing balance of plant and also financing because we have a turbine supply agreement that we can apply.

When we did Gosfield, we retained an option to buy at the same price, turbines from Siemans that essentially are going to be used for this project. So we expect Comber to be ready to certainly be reviewed by an independent committee of the Board sometime this summer, once we’ve secured all of the various agreements and done the due diligence required to actually sit down with the independent committee.

As for Cochish, it received a contract from B.C. and clearly this has been very good news for us. It’s a 46-megawatt project, hydro, and as well, this is a project that we’ve been working on for a number of years. I think there are still some environmental study work that needs to be completed, so that probably again, would not be ready for review by an independent committee before at least a year if not a year and a bit.

So this would be the second in the pipeline to be completed. It’s about a two to two and a half year construction after that.

Michael McGowen – BMO Nesbitt Burns

You seem to have a couple of large items on your cash flow statement. There is the $61.5 million dollar deposit to related party and a fairly deposit change in working capital. Can you talk a little bit about what those two items related to?

Donald Tremblay

The deposit with Brookfield is our surplus cash that we’re investing at Brookfield at LIBOR plus 30 basis points and the reduction in working capital is due to the settlement of the working capital adjustment as part of the August of last year transaction that was settled in February of this year.

Operator

You're next question comes from Andrew Kuske – Credit Suisse.

Andrew Kuske – Credit Suisse

Just recently there was a Brookfield affiliate, Brookfield Infrastructure Partners that acquired an interest in a hydro facility in the U.S. Could you give us a little bit of color and commentary if you see that as being a broader strategy in the Brookfield group to have a little bit of new ownership in U.S. hydro assets? And is this also an opportunity for you to really look at capital reallocation for the Fund and exit the U.S. assets and then to really fund more acquisition activities or development activities in Canada?

Richard Legault

The first part of your question, I think just to clarify, the acquisition in the U.S. was done mainly by a private equity fund that we have and basically has partnered traditionally with Brookfield Infrastructure Partners in acquiring infrastructure assets. So there’s no signal of any kind in that transaction. It was mainly sourced and basically done through our private equity fund.

In terms of the assets, the second part of your question, the assets that we currently own in the U.S., there are no plans and certainly I think today, we’re perfectly happy in Brookfield Renewable Power Fund to own the Maine and New Hampshire assets. But as you know, a number of years ago, we basically refocused a lot of the activity for Brookfield Renewable Power Fund in the Canadian market.

And today, I would say there is a substantial amount of activity in Canada, particularly late stage or construction ready projects that we feel there is a very strong pipeline of opportunity today both from the sponsor Brookfield Renewable and from third parties. We’re very optimistic in terms of growing the Fund in the next few years.

Andrew Kuske – Credit Suisse

So particular in relation to those third parties, there’s quite a number of players that have received or won government backed contracts, but look to be fairly poorly capitalized. I would assume that you’re having conversations with those types of players and that might be the major focus, is that true?

Richard Legault

That is exactly true. Just to be more specific, there is a number of opportunities. I think that we’re trying to be a bit more surgical and more selective, particularly when it comes time to looking at wind projects. We really want to make sure that essentially we have strong returns when we get involved in the project.

Again, the risk being clearly different than what we see in hydro and that would be the selective; we’re more selective on that front.

Operator

You're next question comes from [Nelson Ng – RBC Capital Markets]

[Nelson Ng – RBC Capital Markets]

Can you tell us the maintenance CapEx profile for the remainder of the year?

Donald Tremblay

We are expecting the total for the year to be in the range of $27 million.

[Nelson Ng – RBC Capital Markets]

But in terms of Q2, Q3, Q4, do you expect that will roughly flat?

Donald Tremblay

Normally our highest CapEx is in Q4. QA2 normally is like [inaudible] and the machine needs to be available to generate power during the summer. We keep the machine available because power prices are good and normally we do most of the maintenance CapEx in Q4.

Operator

You're next question comes from Michael Willemse – CIBC.

Michael Willemse – CIBC

Just to follow up on the question on potential acquisition of third parties, how early in the development stage would you be willing to look at for these types of acquisitions?

Richard Legault

I would say that there are different ways of doing this. First of all, we prefer very late stage where there is maybe a year of work to do if we need to, and there’s clearly a lot of support from Brookfield Renewable, the sponsor to carry some of that work until it’s actually construction ready.

I think in the Fund, we would take very little that would be very little risk that would be construction, pre construction ready. Our preference is really to try to do a lot of that development work outside of the Fund, but clearly if third parties have a project, which has a year lead, time to finish up permitting and various other things, that would be a profile that I would find somewhat acceptable.

Michael Willemse – CIBC

If you look at hydrology conditions in the second quarter, are they still looking pretty good?

Richard Legault

I think that clearly, everybody’s been enjoying a very sunny and mild spring and that has clearly affected the amount of water that we’re receiving in certain of the watersheds. I would say that again, it was fairly dry in Quebec and also Ontario. I would say Quebec has come back. Ontario is still fairly dry.

So in the second quarter a lot of the actual generation depends on the amount of rainfall. I think the snow has melted a long time past, so we’re going to monitor and certainly keep track of all of this, but clearly the second quarter has been not as strong as the first one.

Operator

You're next question comes from Francisco for Carolina Vargas – Clarus Securities.

Francisco for Carolina Vargas – Clarus Securities

In terms of depreciation, do you have some guidance going forward just for modeling purposes?

Donald Tremblay

The depreciation in Q1 is probably a good representation of future depreciation.

Francisco for Carolina Vargas – Clarus Securities

In terms of your wind resource, what do you think the performance will be going into Q3 and Q4?

Richard Legault

We’re hoping average, and clearly I think the wind regime has been affected below average and there’s a track record of having been below average so I won’t debate that with you. However, the history of wind right now is pretty short, so it’s hard to determine over a long period of time what the actual expectation should be quarter by quarter, and I think that when we look at all of our modeling and all of the things that we’ve done so far, we’re still pretty confident that based on the modeling of the wind regime and the history that is available to us, that long term average is what we should be expecting.

Operator

You're next question comes from Sean Steuart – TD Newcrest.

Sean Steuart – TD Newcrest

Can you speak to the projects that are on the ECT list in the Ontario fit? It looks like you have quite a bit on the backlog there. Any expectations with respect to those projects and potential timeline of hearing anything back from the province.

Richard Legault

I’m not sure, when you say the ECT list; this is really the connection test?

Sean Steuart – TD Newcrest

Yes, we thought there was more with the Comber wind partnership in addition to the one project that was approved.

Richard Legault

FIT is a very good program. I think we’ve tried to certainly submit as many projects and secure certainly interconnection rights as quickly as possible. I think that today, we’re happy that we’ve won Gosfield in the first place in RES 3. Comber comes with a FIT contract and we’re looking forward to making sure that we’re well positioned for every other project we have in the province at prices of that nature.

These projects are very attractive to us and we were clearly first movers in the province in wind, and we’ve been, I would say certainly I would think looking for a range of return that reflects the risk of wind, which I believe that the FIT contract pricing today does.

So we’re quite optimistic that we will be able to secure a contract, and as you know, congestion of transmission is really dictating on how quickly transmission gets built around these projects, will facilitate getting further contracts in the future.

Sean Steuart – TD Newcrest

Just on the hydro generation this quarter, did that reflect the full 200 gigawatt hours that was held back in the fourth quarter? Was all of that reflected in the Q1 number?

Donald Tremblay

Yes it is.

Operator

You're next question comes from Bob Hastings – Cannacord Adams.

Bob Hastings – Cannacord Adams

Just to clarify your 12% IRR, that’s fully taxed, unleveraged?

Richard Legault

I would say in terms of an IRR unlevered, I would say it’s probably closer to 10% to 11% and then we’re looking for equity returns that would be north of 12%, so again, if I were to give you a number, I’m looking 13% to 14% on equity after taxes.

Operator

You're next question comes from Michael McGowen – BMO Nesbitt Burns.

Michael McGowen – BMO Nesbitt Burns

On the wind production, it was down quite a bit this quarter and was that all due to the wind resources or did any portion of that relate to equipment availability?

Richard Legault

Actually, thank you for asking that question, because availability has been 98%. So when you look at standards or benchmarks in the industry, they vary anywhere from 92% to 97% or 96% availability, so we had extremely strong availability of the units. So it was mainly all about wind regime and wind availability.

Operator

You're next question comes from Steven Paget – First Energy.

Steven Paget – First Energy

If you could comment on the American Power Act or the Lieberman bill or whatever it’s being called in the U.S. Senate, could that increase some of the prices you receive for power in the U.S.?

Richard Legault

No, because again, the power in the U.S. is all contracted so essentially the power that basically the Fund is producing in Maine and New Hampshire is contracted longer term, so I think it wouldn’t affect the Fund.

Steven Paget – First Energy

And that contract includes all renewable attributes of the power?

Richard Legault

That is correct.

Operator

There are no further questions at this time. Please go ahead.

Richard Legault

Thank you again for joining us this morning and I’ll reiterate our invitation to join us at the Annual General meeting this afternoon, and hope to see you there. Thank you very much.

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Source: Brookfield Renewable Power Fund Q1 2010 Earnings Call Transcript
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