Capital Power Corporation (TSX:CPX)

Investor Day 2018

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Dec 6, 2018

Good morning, everyone. My name is Randy Mah. I am the Director of Investor Relations for Capital Power. Thank you for joining us today for our 10th annual Investor Day event here in Toronto. The event is also being webcast, so I would like to welcome our listeners on the webcast. The theme of this year's Investor Day is Delivering a Sustainable Future. We issued a news release earlier this morning that contained some of the highlights that will be discussed today, including our financial and operating targets for 2019 and extension of our 7% annual dividend guidance out to 2021. Before we begin, let me cover off the standard disclaimer regarding forward-looking information. I ask that you refer to the forward-looking information disclaimer at the end of the presentation, as well as our disclosure documents filed on SEDAR for further information on the material factors and risks that could cause actual results to differ. With that out of the way, let me introduce Capital Power's management team that will be presenting today. We have Brian Vaasjo, President and CEO, and for the first time here at Investor Day, in her recently appointed position as Chief Sustainability Officer, Kate Chisholm. Kate has been with the company since our inception in 2009. Bryan DeNeve, Senior Vice President, Finance and CFO. Darcy Trufyn, Senior Vice President, Operations, Engineering and Construction. Mark Zimmerman, Senior Vice President, Corporate Development and Commercial Services. The management team also consists of Jacquie Pylypiuk, Vice President, Human Resources. This is the agenda for today. We will kick things off with a short video, and then we will start with presentations by Brian, Darcy, Mark, and then we will take a mid-morning break. After the break, we will hear from Bryan DeNeve, Kate, and conclude with Brian Vaasjo. We will then have time to respond to your questions afterwards, and hopefully, you can join us for lunch. Let's play the video. Hello. Not too long ago, 195 countries accounting for 97% of all emissions agreed to cut greenhouse gas emissions by 80%. How are we going to achieve the 80%? Well, any idea that moves the needle is a good idea, but it is only going to happen when we evolve how electricity is produced. Let me explain. Emissions are a result of how we make energy and how we use energy. Simply, they are a consequence of our energy decisions. How are we going to evolve? Well, it is pretty obvious, right? More renewables. At Capital Power, we are inspired by the performance and prospects of wind energy. Clearly, so is the rest of North America. The installed base keeps growing and growing, just as costs keep falling and falling. And while wind farms are now covering the landscape of North America, there is still more opportunity. Lots of tailwinds in wind. Remember, it's often the obvious we miss. Natural gas remains a fundamental component of our energy landscape for many decades to come, including well beyond 2050. Here's how we see the future. If you read the signs, you'll see it too. Good morning and welcome. Welcome to Capital Power's 10th Investor Day. I hope you enjoyed our short video. After 10 years, we thought we'd change it up a little bit. From a more serious perspective, though, his messages are on the mark, as is how our strategy fits the current and future realities of our business. We continue to challenge our strategy and tactics every year. We have confirmed our direction, and we've confirmed that it creates shareholder value. Capital Power has stayed the course, stuck to what we know well. In fact, we execute better and better every year. Our last major shifts in tactics took place approximately five years ago, which is also when we commenced increasing the dividend at 7% per year. Certainly, Alberta has dominated our discussions over the past few years. In part, as a result, we believe our share price is still a little bit undervalued. Despite Alberta, we've done very well over the past five years. We've delivered an AFFO per share growth of over 14% and annual dividend increases of 7% year after year. We've been delivering on what we say we're going to do. Why are the last five years so important? The reason we delivered in 2018, 2017, and earlier are the same reasons we'll deliver in 2019 and thereafter. The presentations this morning will show you how come and will confirm those principles. Our strong conviction is demonstrated by the extension of our 7% dividend guidance out to 2021. Potential investors and a number of you have asked me from time to time, how should investors think about Capital Power? At the 60,000-foot level, Capital Power is a growth-oriented North American power producer who is delivering on both short- and long-term sustainable value for shareholders. How should investors think about the nature of Capital Power? Capital Power is credible, competent, creative, and competitive. Pretty straightforward and substantially the same answers that I've given you last year. Capital Power continues to be on the same track we've been on for a number of years. Of course, we can only create shareholder value if our direction is consistent with and is complemented or complementary to industry trends. Our short video alluded to, and my introduction to last year's Investor Day described in detail how our strategy and tactics align with the electrification of the economy, extensive penetration of renewables, and the long-term need for reliable, affordable natural gas generation. You'll hear a little bit more about that today. Our alignment with industry trends positions us very well for long-term delivery of shareholder value. Our focus has been and will continue to be increasing AFFO per share, in part through investing in developing and building renewable generation. As well, we are continuing to pursue natural gas assets, primarily through acquisition. A major driver is to increase our contracted EBITDA as to both increasing the long-term stability of cash flows and to provide a base for maintaining and increasing dividends. These are the same focus areas we've been discussing with you over the last number of years. One area we've been commenting on over the last few years is our geographic diversification. This is primarily captured as a percentage of Alberta EBITDA. Looking at the last five years, how have we done? Our AFFO per share has grown at a compound annual rate of 14%. The points on this map are the assets we have added over the past five years, which are the same ones depicted on the video. We've doubled our wind facilities, including the two in construction that will be completed near the end of 2019. We've actually quadrupled our natural gas generation by adding five facilities. Our longer-term vision of developing regions where we have a concentration of natural gas assets is working. We now have beachheads in the U.S. Southeast market as well as the desert Southwest. We've added assets in Ontario, where we already had a significant wind interest. Our view of M&A activities and development potential would suggest significant further growth for Capital Power in these regions. As these concentrations of assets develop, we should realize additional efficiencies. Over the five years, we've moved our contracted EBITDA from 58% to 82%, and we've decreased our Alberta EBITDA from 76% to 56% of the total. As we look to 2019, we will continue to deliver in the same way. Our 2019 AFFO per share is 22%. The two wind farms in construction in 2019 are on track to be on time and on budget. We expect to move forward on one or two more wind farms in 2019. The points on this map are the development sites we currently have. There continues to be a very active natural gas M&A market. We see some additions to our fleet in 2019. Our portion of contracted EBITDA dropped slightly to 77%, primarily because of the stronger merchant EBITDA coming out of Alberta. The stronger Alberta merchant EBITDA is also impacting on the portion of Alberta EBITDA with a modest decrease to 55%. We are excited about our position in Alberta. The power market is back to appropriate price levels. Market demand continues to increase. Our assets are performing very well. We have increased our optionality around our coal plants. We continue to have opportunities in Genesee four and five. We are also developing a peaking facility through 2019. I would be remiss if I didn't mention what underlies these results and expectations. Very strong operations. It's the backbone of what we do, and although I've not highlighted it today, we never forget it. With that, over to Darcy Trufyn. I won't let you forget it. Well, thank you, Brian, and good morning. Today, I'll provide an overview of how we are continuing to drive operations excellence. I'll talk about the success we're having on growth. Lastly, I'll update you on the progress at Genesee on our transition to natural gas. Many of you have been at Investor Day over the years and know of our optimization and reliability programs and how they have helped maximize the value of our assets, existing assets. High availability and reliability is who we are at Capital Power. As we move forward to a new market design in Alberta, as we grow our footprint across North America, we know this philosophy will continue to be of benefit to Capital Power. You can see from the graph that our availability over the past five years has continued to trend extremely positively and is in excess of 96% again this year. Our proactive maintenance approach has helped reduce the unplanned and costly outages and has substantially lowered our risks. Safety and production do go hand-in-hand with each other, Capital Power has again been recognized by the Canadian Electrical Association with the President's Award for Safety Excellence. On the plants that we acquired over the past two years, we are very pleased that following integration, operations can say that these assets have met or exceeded our expectations. The major assets have been well-maintained, and the surprises have been few. While these assets are well-run, we know there are good opportunities at these facilities from an operations and engineering perspective to add value and reduce operational risk. For example, at Decatur, we have a strategy to significantly improve the plant's performance and efficiency, which will make that plant even more valuable to both parties for recontracting purposes and for the plant's future. Since our inception in 2009, Capital Power has consistently demonstrated an ability to build projects on time and under budget. Over the past five years, we have led the construction of three wind farms totaling approximately 450 MW and one solar farm of 50 MW, and have been involved with the construction of our 800-MW Shepard Energy Centre. In fact, at the end of next year, Capital Power will have constructed eight major wind farms over the past decade, totaling approximately 1,300 MW. All have been or will be a success. One of the things that have contributed to this success is that we focus on continuous improvement, learnings from each successive project, and challenging ourselves on how to build the next one even more cost-effectively. Later this month, our 99-MW New Frontier project in North Dakota will achieve COD, another Capital Power project built on time, and we expect it to be completed under budget. The outlook for Whitla Phase One, a 202-MW plant near Medicine Hat, Alberta, is also very positive, with expected COD tracking on schedule for next December. This fall, we completed approximately 50% of the roads and also started construction of the substation and the O&M building. This pre-work allows us, next spring, to hit the project running and sets us up very well for the weather window for next year and really almost ensures a finish in that ahead of schedule. Everything's set up very well for Whitla. The other project that's currently under development is Cardinal Point. It's a 150-megawatt plant in Illinois. The turbines for the plant have been ordered through GE, and we'll be starting construction this coming spring. I fully expect both Whitla Phase One and Cardinal Point to be a success, both in terms of time completion and on hitting our budget requirements. What makes us different when it comes to construction? Well, it begins with our people, the in-house expertise we have developed within Capital Power. We have the ability, for example, to estimate our own costs of building a wind farm. We don't rely on contractors or OEMs or consultants to tell us how much. We can determine the cost internally. We only need external pricing to validate market conditions and local costs. Whitla Phase One was one of three wind farms awarded in last year's Alberta government's RFP. This was an international competition involving many developers, including major global companies. To win, we didn't compromise on our expectations. We had to be different. We had to find advantages and strategies that others didn't have, and we did that. This is the flexibility and capability I've noted on the slide. What did we do that's different? Well, let's just say that Capital Power is only building what we require to operate that plant effectively. Nothing more. We are driving the design and construction of Whitla, not being led. We can do this because we have a very experienced team of professionals who know and understand wind. Because of our successful track record, OEMs and contractors do want to work with us. They know we do what we say, we deal with issues before they become problems, and that we drive the projects to a successful and timely completion. As a result, they provide us with very competitive pricing. From an acquisition perspective, a few years ago, we made a change in how we did our due diligence on the operations side, leading the cost evaluation for the O&M. What we did is we put operations to lead that aspect of our due diligence, and we believe that it's really helped make us more competitive. This cost analysis that we do is supported with in-house specialists for rotating equipment, boiler work, high-pressure piping, instrumentation and controls, and water chemistry. The team's objectives are to validate the models, look for technical concerns, and also, a key one is look for opportunities to add value. This value add can be done through improving performance and output, as I mentioned with Decatur, and also in spending smarter, both from an operating perspective and from a sustaining capital perspective. Given our continued growth, the importance of integrating these assets, the need for plant standardization, and the opportunities for future savings through critical mass, all because of those reasons, we've implemented a new computer maintenance system for our plants. This integrated system has modules for operations, for supply chain, and for HSE, and it really facilitates a much quicker integration and also a much more cost-effective integration. Many of you know that Capital Power operates an energy management center that oversees the dispatch of our units. Over the next 5 quarters, we will be adding three more major wind farms to our fleet. Now is an opportune time to expand our center by adding a renewables operations group. The intent is to start building an internal capability, firstly on the surveillance and monitoring side, but as the service agreements expire over the next 5 years, we see the ops center's role expanding, such that we will have much more oversight into the performance and management of these plants. We expect this will realize a material upside of at least 5% EBITDA over the current renewable return. We are starting to put plans in place for the coming technological changes through digitalization and artificial intelligence. Today, we're introducing technological change opportunistically. There's several examples I could provide you. Over the next few years, we see the ops center's role further expanding to include oversight of new technology, not only on renewables, but also on our thermal side. As again, we believe we'll be able to unlock hidden value in the thermal assets as technology continues to advance. Three years ago, in response to Alberta's Climate Leadership Plan, we developed the Genesee Performance Strategy, GPS, to drive CO2 intensity reductions in our coal fleet. Recently, we had a Chinese delegation come and see us, and these people were traveling all over the world, and their lead person noted that they've never seen anything like what we're doing at Genesee on the coal, with a focused program to drive CO2 intensity. It's good to hear that. Units 1 and 2 intensities at Genesee have improved substantially over the last two years. Over the next two years, we are doing the LP rotor changes, which will significantly, when complete, improve the CO2 intensities for those 2 units and give us really the equivalent of what the super critical units were when we first started this program. GPS has driven an operational change at the plant. In the past, the three KPIs that we were using to measure success were availability, output, and cost. Today, a fourth measure has been added, and that's the one of CO2 intensity. It's become a fundamental performance measurement at the plant because it really does add value. It's something we focus on each and every day. This is the third consecutive year you are seeing this slide. The first bar in each of the 5 years shows the savings we initially targeted three years ago in response to Alberta's Climate Leadership Plan. The second bar is either what we have achieved or what we currently are forecasting to achieve. Yellow showing intensity emissions reductions, and white showing coal savings. A key requirement, though, for the GPS expenditures is that each project has to meet or beat our business case hurdle. The other requirement is that the changes we employ must work on both coal and gas. You can see that we have substantially beat our targets through the early years, but are now noting that in year five of the program, against the original target of CAD 35 million annual savings, we're showing something around CAD 32 million. The reason for that is we don't see a payback to get that last CAD 3 million. It's just too pricey. We've backed down and are very happy, and we'll continue to look at other opportunities, but still, we're very happy with the results. That's all based on a CAD 30 a ton cost. That's what those numbers are being based on. I would note, however, that the cost of GPS, the capital cost, initially, we noted, I think last year at CAD 50 million. We've reduced that to a forecast of CAD 35 million expenditure. Over the past year, we have made significant progress refining the details for the fuel conversions of our three units at Genesee and working with our partner on our fourth unit at Keephills. Our proportionate cost to convert the four units is now approximately CAD 85 million, and we are confident that the final conversion work inside the boilers at Genesee can be done within the planned outage durations that we currently schedule on a two-year rotation. This is a significant improvement over the last year when we said costs would be in the CAD 100 million range and that a two-month conversion outage would be required for each unit. I do want to remind you that when these units are converted, all the advantages that come with our units will be transferred. This means our high availability, the excellent maintained condition, and the lowest CO2 emissions of any converted units, all of this transfers when we convert to gas. The timeline here displays a potential scenario for fuel conversion. The new gas to the plant in 2020 is fixed. This will increase our gas capacity to Genesee from the existing 20% to 35% without making any other changes in the plant. Subject to gas and CO2 pricing, a possible scenario is noted. Where we would begin the following year converting from coal to gas on a stage approach until all units are fully converted. You see this one shows a four-year scenario of conversions. I would note that for at least two of the units, the conversion being planned allows us to dual fuel fire both coal and gas, and that provides us, again, with maximum flexibility. This is, however, just one scenario where each step represents one year. However, this can be looked at very much like an accordion, where we could collapse it to as little as six months or expand it as the market dictates. If we were to compress the timelines to less than two years, obviously, that would be outside of our normal outages, and we'd have to do this and do an outage for the conversion. Again, this is a very real scenario. In summary, operations excellence continues, and we are ahead of our targets to reduce our coal CO2 intensities, and we have made very good progress transitioning these facilities to gas. On growth, Capital Power's track record of constructing new projects on time and at or under budget continues. On acquisitions, our plants are meeting or exceeding our performance expectations. Capital Power continues to deliver success. Thank you. Now I'll pass it over to Mark Zimmerman. Thanks, Darcy. Okay. Thanks, everyone. I'd also like to thank you all for coming today as well. I'll be reviewing our plans for us to continue to deliver disciplined growth well into the future. First off, I'd like to observe. I look around this room, and all of you personally I know look to invest to generate the highest risk-weighted return that you can, and Capital Power, we're the same. I'm hoping to today highlight why our track record shows we have been doing that and why we believe we're a trustworthy and credible steward of your capital. We have a disciplined approach to investing that results in sustainable investment returns, and we will continue with this approach. Today, I'll walk through how we've delivered that over the last five years, how we focus on the four core strategic areas that we have and why, and finally, illustrate the goalposts we utilize when considering these investments, as evidenced by some of the cases that I'll review. By the end of my presentation, I hope you'll understand and agree on how we continue to grow our cash flows through both development and acquisitions of contracted renewable and gas generation assets while maintaining our disciplined investment approach. Before we look forward, let me first reflect on our past. Over the last five years, we've been focused on deploying capital into both contracted renewable and gas generation assets. We've invested over CAD 3 billion of capital over that period of time, a significant amount given our relative size. This has increased our portfolio of assets by just under three gigawatts and increased EBITDA by more than CAD 400 million per annum. What has drove us in that direction? First, rather than harvesting assets, we have been able to deliver sustained cash flow growth, which further supports a growing track record of dividend growth for our shareholders. During this time, wind technology improvements, combined with industry incentives, have contributed to making wind generation increasingly economic and desirable. With an increase in intermittent renewables becoming a material component of many grids, gas generation is required for reliability in those periods when the wind isn't blowing or the sun isn't shining. Especially flexible gas units that can respond to fluctuations in system supply and demand balances. In addition, as gas generation efficiencies continue to improve, fuel costs are remaining low, carbon emissions are significantly better than alternatives, as such, the gas-fired generation does become the generation of choice now, and we believe well into the future. Indeed, we see the direction of the industry continuing in this evolution. We all know that electricity underpins our economy and our standard of living. In fact, I've heard people say it's now become a necessity like food and water to us. As our industry continues to evolve, that demand will be increasingly met while also moving towards lower carbon emissions from generating power. As the trend continues, those entities with developmental, operational, and commercial expertise will flourish. You should also note, as highlighted last year, we have limited our geographic focus to jurisdictions where we see sound fundamentals and market structures that are conducive to providing opportunity and the cash flow certainty we seek. This is intentional as we look to ensure we allocate resources to the most strategically aligned and the highest risk-weighted return opportunities that we can. Assessing risk-weighted returns requires a very focused perspective. This growth has come from pulling various levers we have at our disposal. From development and acquisition activities through to operational costs, revenue optimization, and finally, prudent financing. The first activity I would like to highlight is our development expertise. Looking over the last five years, we've invested approximately CAD 2 billion in development opportunities, resulting in more than one gigawatt of capacity being brought online, which has been on time and under budget. This activity has also increased the certainty of the cash flow as we have commercially underpinned these investments with contracts ranging from 10 to 20 years. As a side note, we are close to finalizing tax equity arrangements for New Frontier, and you can look forward to hearing the details of that in the coming weeks. The delivery of this success has come from the full suite of development skills such as prospecting, commercial structuring, building, operating, and optimizing once in service. As we reflect on each of these investments once they have been brought into service, we continue to hone this expertise through learnings and continuous improvement. In short, as market forces continue to evolve, we will continue to be adaptive, resilient, and creative in order to sustain our competitive advantage. Second activity I'll speak to is the acquisition of high-quality assets. This activity is important as it's an essential tool at our disposal for building out sustainable businesses in each of our four focus areas. After all, we are not looking to simply acquire a collection of standalone assets, rather looking to develop a solid, robust, and going concerned business in each area. We cannot expect to build these platforms solely by using just our development levers. Capturing and progressing competitive development opportunities successfully requires a presence in the markets where you are targeting. As such, it takes both acquisitions and development to build a business and achieve the sustained and disciplined growth we aspire to in each of those areas. After all, it's only through the creation and build-out of such regional platforms where we can crystallize value by applying our strategic competencies, like cost and revenue optimization, and achieve economies of scale. Within this context, over the last five years, we've deployed more than CAD 1.6 billion of capital through acquisitions, representing more than 1.7 gigawatts of capacity and an increased EBITDA of CAD 175 million. While these acquisitions have had associated contractual underpinnings of 6 to 14 years in duration, we remain highly confident in our ability to recontract, given, one, our intimate knowledge of the market fundamentals, the offtake relationships we have, and the high quality of the assets we own. Specifically, in each of these markets, we see robust demand growth, old generation retirements, and our assets are placed very well on the dispatch curve in the markets that they serve. These will all be competitive with other alternatives and/or are connected to adjoining markets. While we monitor closely the development of overall cost of emerging technologies like batteries, we expect they will only supplement and not replace existing generation. We expect there will continue to be a need for gas-fired generation to provide grid reliability well into the future. With respect to some updates on a few of these acquisitions, we do continue to work commercially to enter into or renew existing contracts. As many of you know, we just closed our Arlington acquisition last week and are close to finalizing contractual tolling arrangements for the off-season capacity of the plant. Expect to hear more about that in the coming weeks. In respect of Decatur, we still see sound fundamentals in the market and know our asset is competitively positioned. However, in cases like this, there are optimal times when the generators and offtakers can find a mutually beneficial arrangement. Going too early to recontract can sometimes disproportionately reduce the value attributable to them. When we step back and look at the results of the last 4 to 5 years, we see that our portfolio has strategically evolved. Our technology is growing in gas and renewable generation assets, sustainable solutions for our collective energy future. Our contractual capacity has increased to more than 75%, providing greater certainty in our future returns, supporting the sustainability in our dividend growth. Our footprint has diversified into fundamentally strong markets across North America, decreasing exposure to any one market. Finally, in aggregate, we have grown the FFO upwards of 80% over this time period. This has enabled further investment growth through compounding free cash flow and investments. Given the brief review of where we have come from, let's move to reviewing the attributes of the 4 core areas we focus on, even though there's 5 on the chart. Perhaps the first question is why we have limited ourselves to these core areas and what value do they add going forward. In respect to the value they add, it really comes from 3 elements. First, our ability to deploy our competencies and competitive advantages across fleets in larger markets across North America. Second, to provide optionality for future growth, both through development builds or further M&A consolidation. Finally, diversification or resiliency by reducing the risk of any one market disruption jeopardizing the overall health of the organization. As it relates to the second element of why we would limit ourselves, it's really simple. We need to ensure we are maximizing our probability of success that will come from ensuring we are focused on all aspects in any particular market we participate in. When I say all aspects, I mean staying on top of evolving market fundamentals, stakeholder relations, policy initiatives, regulatory developments, customer-supplier relations, et cetera. The list goes on. It's really important that we're not stretching ourselves too thin by trying to be experts in all markets, in all geographic regions. We need to be focused as we unfold our business. Let's start with our current largest footprint, Alberta. To highlight the strength of our position in Alberta, One, our fleet is young. This is critically important because it means our fixed and variable costs are competitively placing us lower on the dispatch curve and enabling larger margins as we move forward. Two, we are a competent operator, which is critically important to ensure availability, so we are able to sell large volumes in the market, both in terms of energy and in the future capacity. Our assets are strategically located next to large transmission or load centers. In Halkirk's case, it is advantage that it is not in the middle of other wind assets, where when the wind blows in those areas, it's blowing for everyone. Therefore, it leads us to capture higher prices. We also have the flexibility on when we convert coal to gas, which allows us to respond to commodity and carbon prices as they evolve. In other words, we can participate in the economic decarbonization and sustainability that's evolving in the markets we are operating. We have also been a very active participant in the capacity market design. We understand the nuances. This will allow us to effectively manage and optimize our fleet under the new design when it comes into effect. To be clear, we remain committed and confident in Alberta for the long run. We have a great position we want to maintain and indeed enhance. As such, we will pursue the right opportunities under the right market conditions. Perhaps to pause on market fundamentals for a minute, given more than 50% of our results come from Alberta. Pricing has recovered over the last 12 months. However, you'll see by this chart, the forwards would suggest a softening going forward. We believe this is inconsistent with the fundamentals we see. One, load is increasing. We've seen a new summer peak this past summer. We are seeing very healthy spark spread due to low gas prices, which we expect to continue given the abundance of gas in the Western Canadian basin and the power price being set by other fuels. Commercial optimization is returning as PPAs are turned back. Supply is compressing as older coal facilities are coming offline and/or retiring. We would suggest the aggregate of market uncertainty around the amount of REP 2 generation, carbon tax and price uncertainty, implications of the capacity market are all contributing to very low liquidity currently as we look out forward. As a result, having very low bids, very low price discovery unfolding. As such, we also have a very lower percentage of hedges in place as we look into the future, as we see a more rosy picture going forward. Regardless, within this environment, Capital Power has the best fleet of assets in the province to capture the value under either market structure going forward. In summary, we are active in the entire value chain in Alberta. Why is that important in terms of growth? We have experienced development, construction, and operational capabilities to maintain a competitive advantage for any incremental generation. We have a long history of successful commodity risk management expertise. We have scale, which brings us an advantage to optimize our position. In short, we bring synergy to the table. We have a well-established stakeholder relationship presence and have a seat at the incumbent table to comment on policy. Overall, we enjoy a wealth of advantages in Alberta that will enable our power business to prosper as we move forward. Given the strong foundation in Alberta, we look to replicate in other jurisdictions to increase our future growth potential and to diversify or reduce risk. In Ontario, total installed capacity is over three times the size of Alberta at approximately 41 GW. Of that 41, more than 10% of the supply is declining as more than 3 GW of nuclear generation is being retired with a further 1.7 being out of commission for refurbishing. In addition, 22% of that capacity is increased intermittent renewables, which requires flexibility for system reliability. The majority of this is currently provided by natural gas, and we believe will continue to be the case as the economy grows. Operating reserve requirements are already increasing as variable generation swings become material. East Windsor and York are all well-positioned to provide flexibility through the energy and/or our markets. We will continue to build our position here if and when the right opportunities present themselves. Moving to the U.S., we remain optimistic about the future growth in U.S. winds. When we step back and look at the U.S. market for winds, there are some major trends that we see continuing. State policies vary, but on aggregate are supportive of further renewable growth. In addition, the corporate off-take desire for renewable generation has been increasingly growing as entities like Google, Walmart, and Microsoft have been leading the change to demonstrate sustainability in their own operations. They are all looking for the off-take of green power to power their business. We have seen this trend continuing, and our conviction remains strong as just this year we have seen up to 6 GW of transactions come across our desk. In addition, our experience is the appetite for monetizing tax equity remains robust. As a result, we continue to expect to build new wind facilities throughout the U.S. Midwest, where the wind resource is also the strongest in North America. Further out, we are expecting the market to be dynamic based upon a variety of factors, including low fundamentals and politics. We are well-positioned to prosper in any case. Finally, we remain optimistic about the opportunity for mid-life gas assets. As Bloomberg New Energy Finance has observed, half the U.S. coal fleet and one-quarter of the U.S. nuclear capacity have failed to break even since 2012. With average ages of 40 to 37 years respectively, U.S. coal and nuclear plants were designed for a different era. Whereas gas continues to be the go-to fuel for now, and we expect well into the future, as it provides system reliability with the reduced emissions and at the lowest cost. As shown in the graph, coal is projected to decline, with that decline, we see an incremental build of renewables, as evidenced in the green and yellow, and gas, as is evidenced in the blue, each by about 200 MW as we move into the future. Or pardon me, 200 GW. A significant amount of generation that is required to meet the decline in coal generation and the growing demand. While we are seeing a resurgence of growth in the U.S. South as manufacturing base returns and a decline in supply from retirements, it all bodes well for our existing assets. As an example, in the Decatur service area, up to 7 gigawatts of coal-fired capacity is at least 50 years old and close to the end of their useful life. In addition, there will also be 2 gigawatts of existing contractual capacity expiring between 2022 and 2026. Given the desirable operating attributes of the facility, it sets the stage for successful recontracting discussions. In the Southwest, a rapidly increasing population in the Phoenix area is fueling increasing demand that is outstripping the U.S. average. Much like other areas in the U.S., they are also seeing significant coal retirements, which makes reliable gas, again, units like Arlington, key assets in the region. Accordingly, we see a continuing role in our core focus areas for gas-fired generation remaining essential for base load due to retirements and for reliability and integration with renewables. Because of these dynamics, as we continue to evaluate additional opportunities to supplement and build our position in these areas in order to achieve further optimization and economies of scale for the entire platform. Given the foregoing commentary, we see great opportunity going forward in Ontario, the U.S. Midwest for wind, and the U.S. South for gas, both in these markets and with the competencies we can bring to bear. In other words, we bring a number of capabilities that the competition we go up against quite often do not possess. Specifically, we have delivered on developmental skills, being on time, on budget. We have the resources in the field at Tim Prospect. We are competent operators across multiple fuel sources and technologies. We hedge and get commercial support behind our projects. We know how to secure tax equity and sustain REC management, and we continually commercially optimize our assets, individually and collectively. In short, it is these capabilities which allow us to overcome our cost of capital disadvantage in certain desirable situations. Now let's look forward. To begin with, we maintain a number of development sites, which, when added up, present a very significant 6 gigawatts of size. However, as with all development sites, some will move forward and some will not. These are options for us, and there is a hit rate that we need to be cognizant of. For us, the key is managing the cost of maintaining these sites while ensuring we have a robust set of opportunities to enable pursuit should market conditions evolve. On that point, you will also see we have maintained base load and peaking gas-fired sites and wind sites in Alberta. Again, to be clear, we are committed and confident in Alberta for the long term. We have a suite of assets and skills that give us a desirable competitive position. While we have not aggressively pursued many development opportunities in Alberta over the last few years, other than Whitla, it was due to market conditions only. If the right conditions evolve in the future, we will evaluate Alberta investment opportunities, which may be either contract or merchant or both, and consider those that will deliver on our strategic goals. As it relates to non-Alberta development sites, we have sites in different regions and technologies. Depending on how political and regional policies unfold, things like RECs and PPs, how fundamentals evolve, gas prices and low growth demand, shifting incumbent activity, and dynamic corporate appetite on the off-take, all may result in different opportunities being pursued at different times. In addition, as we build out sites, with Midwest Wind being an example, we will also need to refill our pipeline of additional development opportunities. We have looked at a number of those development portfolios over the course of last year and will continue to do so going forward, with the expectation of transacting of one over the next 12 to 24 months. I mentioned that we'll be considering opportunities with respect to how they deliver on our goals. To expand on that a bit, let me share how we approach our decision to invest. To begin with, we do not rely on one metric solely. Rather, we look to triangulate on what we are willing to consider and determine what type and level of investment is prudent. The three considerations are, how strategically aligned is the opportunity with our aspiration? What is the appropriate return, taking into consideration the risk that will be assumed? Three, what is the timing of those returns, acknowledging that sooner is better than later? As for what we mean by strategically aligned, we'll consider what the fuel type and technology is, what market it resides in, and the future market fundamentals that are evident in that jurisdiction. We'll also consider the risks from operational to credit. Last but not least, what competencies can we apply to mitigate those risks and capture opportunities? In respect to return levels, we adjust them to take into account the inherent risks and duration and measure against a risk-adjusted hurdle rate. As such, we do not generate generic hurdle rates, but at a high level, taking into account risk profiles like contracted versus merchant when they're driving a specific hurdle rate for a project. Perhaps as a simple example of that, our recent Arlington acquisition. We took a contracted unlevered hurdle rate of around 6.5% that was weighted for the remaining contract term. We added 100 basis points spread to that for recontracting assumptions that were supported by the market fundamentals. We added a further weighting of 300 basis points for the merchant period. That was just some of the adjustments that we have made, resulting in a blended hurdle rate of just under 8%. As we look at our projections for the facility and the expected market price that would be needed to clear and be successful at the acquisition and compared that to the hurdle, it was above it, met our requirement, and that met one of the elements that we consider when making that decision, in addition if it was strategically placed. Finally, in respect of timing, we look to ensure the investments will be accretive in the near term in support of our ongoing dividend, acknowledging that sooner is better than later. Overall message I want to deliver or leave you with, is that it's a measured balance between all of these three factors, which leads to our disciplined approach in making prudent investment decisions. Given the premise on the presentation, we thought we would review some case studies of past investments we have made and as a proxy of what you can expect us to continue doing going into the future. Specifically, we want to illustrate how we deliver value through our development and acquisition activities and how we look at potential investments. First example is the Element portfolio. We purchased that portfolio for $69 million, which included one operating asset, Marshall Springs, and a suite of development sites. The main value creation points for us that we have been successful in delivering since the acquisition have been securing revenue hedge contracts in support of the build, preserving full production tax credit qualification with construction of project-specific transformers, securing tax equity partners to utilize those production tax credits. We built a competitive advantage in renewable development, which we were then able to apply and realize greater margins with each successive opportunity. All of this culminating in the aggregate opportunity to invest CAD 500 million currently using the disciplined investment thesis I laid out earlier. In addition, we've begun to optimize operations with the development of the control center Darcy spoke to, and we're also beginning to optimize revenue by managing output across the entire platform. Our second example is gas acquisitions. As illustrated on the slide, 3 main transactions have occurred over the last couple of years. We purchased a basket of assets from Veresen, which included York, Windsor, and two waste heat facilities in B.C. We also separately purchased Decatur and recently Arlington. All have been contracted opportunities in markets with solid long-term fundamentals and immediate AFFO accretion. The transaction numbers illustrate the initial expected return. Our performance since acquiring has shown that we are slightly below our expectations for York, slightly ahead for Windsor, and on target for the waste heat. Overall, we are slightly ahead of expectations on the total Veresen portfolio. Finally, we are ahead on our expectations on Decatur. With respect to Arlington, we've only had it for five days. Thus far, there's been nothing to suggest our expectations will be any different since first agreeing to the acquisition. In total, we are ahead of our expectations that were developed during our due diligence on these acquisitions. In addition, as we get into the operating and commercial management of the facility, other opportunities are arising. As we consider opportunities like these, there are numerous internal characteristics we will consider. Operationally, we'll look at cost synergies, maintenance optimization, long-term service arrangements versus self-managed, where we can manage the risk. This is what we are doing at Decatur. Commercially, we'll look at the provision of ancillary services, fuel supply, recontracting, off-peak, off-season optimization, like we're pursuing on Arlington. It's these sort of competencies which allow us to mitigate external risks and seize opportunities, resulting in greater value than initially expected. Bringing it all together, as we look to the future, we expect to continue these efforts. If we extrapolate out into the future and register one possible scenario, by 2030, our portfolio could be 100% gas and renewables, more than two-thirds contracted, with a weighted contract life of 10 years or more, 40% of our portfolio in Alberta, delivering a 9% AFFO cumulative average growth rate over that period of time. However, I indicated it's only one possible scenario. We should observe that we need to remain nimble, resilient, and attentive to how the future power generation industry unfolds. We believe there's a very bright future ahead as the industry decarbonizes while also having to replace retirements and maintain supply to serve the increasing growing demand. An incredible quantum of investment is going to be required, and those that are focused, disciplined, and have a track record of delivery can win. In summary, to repeat the key attributes of our investment strategy, contracted winds and gas for growth, geographically diversified focus in our four core areas, achieved through both development and acquisitions in a thoughtful and disciplined manner. With that, I'll pass it back to Randy. Okay. Thanks, Mark. We'll take a short break. We'll take about a 15-minute break and start up again around at 10:15 A.M. I really want you. Come on, let me hold you. Only yours, I can love you girl, oh. 'Cause I said I don't want to hurt you. Make sure no one can harm you. Baby, let me have you, oh. Yeah, she driving me crazy. I think I'm in a daze. Pull out the 'Rari or Mercedes. Yeah, she got my heart racing. Foreign cars, foreign hoes. Yeah, we got a lot of those. That's on my Gucci clothes. Turn up in the studio. Guess I'm gonna miss you though. I got a lot of goals. Tell these bitches look at Karl. I'm addicted to the dough. I'ma ask you, baby, how you do? If you wanna flex, take that asshole to Vogue. Big smoke, 54 floor, let's go. My whole crew came with a stripper pole. I really want you. Come on, let me hold you. Only yours, I can love you girl, oh. 'Cause I said I don't want to hurt you. Make sure no one can harm you. Baby, let me have you, oh. If you ever get to feel my touch. You might never get enough. Yes, I know you feel the energy. Love you like I've never seen you working. On some real 'cause I'm not for preaching. Free me out with your own 16s. My love is emergency. I can sense the urgency. Come break me off. Your body is just for me. It works like groceries. She laughing like an alcoholic. I really want you. Come on, let me hold you. Only yours, I can love you girl, oh. 'Cause I said I don't want to hurt you. Make sure no one can harm you. Baby, let me have you, oh. [Foreign language] Mamá, te hice un party en mi cama. Me encanta la forma en que mira. Invita a sus amigas, las monas. Las que fumamos como criminales. Siempre andamos positivos. Esa es la forma en que vivo activo. Se joden si no son lo mismo. Eso dedicado a mi amigo. Di que si quieres no sé, pues hazlo conmigo. Está vestida de Chanel hasta los pies. Chicos de fondo, paso de moda y me pongo. Como se tiene que ser de una vez. I really want you. Come on, let me hold you. Only yours, I can love you girl, oh. 'Cause I said I don't want to hurt you. Make sure no one can harm you. Baby, let me have you, oh. Ooh. Everybody fly, I can't belong to you. You don't believe me, but it's true. All the pencils on my wall say like your name. Real feelings coming through. It's all I know. All I am is you. Ooh. It's all I know. All I am is you. Ooh. I'm breaking my silence. Since I've had a few. I just can't deny it. All I know and all I am is you. Every time I think I'm falling. I know you're falling too. There's no doubt you want it. Oh. If you really think you're falling. You know I'll catch you too. All I am is you. Ooh. Ooh. Oh. Every daydream I have starts and ends with you. I wanna take it one more time. Oh. When I need an alibi, you're my perfect excuse. You are always on my side. It's all I know. All I am is you. Ooh. I'm breaking my silence. Since I've had a few. I just can't deny it. Oh. All I know and all I am is you. Every time I think I'm falling. I know you're falling too. There's no doubt you want it. Oh. If you really think you're falling. You know I'll catch you too. All I am is you. It feels like I'm miles away. You bring me back. A habit I'll never break. No, no, no. I'm breaking my silence. To god head up you. I just can't deny it. No, no. All I know and all I am is you. Even when I think I'm falling. I know I'm falling too. There's no doubt you want it. All I know. Even when I think you're falling. You know I've got your back. Oh, oh. All I know. Is all I know, and all I am is you. Is all I know, and all I am is you. Is all I know, and all I am is you. Yeah, all I know, and all I am is you. Had to have high, high hopes for a living. Shooting for the stars when I couldn't make a killing. Didn't have a dime but I always had a vision. Always had high, high hopes. Had to have high, high hopes for a living. Didn't know how but I always had a feeling. I was gonna be that one in a million. Always had a little hope. Mama said. Fulfill your prophecy. Be something greater. Make a legacy. Write up your destiny. Back in the days we wanted everything. Wanted everything. Mama said. Burn your biographies. Rewrite your history. Light a few pyres. Victory in victories. Every day. We wanted everything. Wanted everything. Mama said, "Don't give up. It's a little complicated. All fired up. No more love and I'd hate to see you waiting". Had to have high, high hopes for a living. Shooting for the stars when I couldn't make a killing. Didn't have a dime but I always had a vision. Always had high, high hopes. Had to have high, high hopes for a living. Didn't know how but I always had a feeling. I was gonna be that one in a million. Always had high, high hopes. Mama said. Fulfill your prophecy. Be something greater. Make a legacy. Write up your destiny. Back in the days we wanted everything. Wanted everything. Stay up on that rise. Stay up on that rise and never come down. Oh. Stay up on that rise. Stay up on that rise and never come down. Mama said, "Don't give up. It's a little complicated. All fired up. No more love and I'd hate to see you waiting". It's all been done. The damage is done to me. I got one more run and it's gonna be a funny thing. Had to have high, high hopes for a living. Shooting for the stars when I couldn't make a killing. Didn't have a dime but I always had a vision. Always had high, high hopes. Had to have high, high hopes for a living. Didn't know how but I always had a feeling. I was gonna be that one in a million. Always had high, high hopes. Had to have high, high hopes for a living. Shooting for the stars when I couldn't make a killing. Didn't have a dime but I always had a vision. Always had high, high hopes. Had to have high, high hopes for a living. Didn't know how but I always had a feeling. I was gonna be that one in a million. Always had high, high hopes. [Foreign language] Todos están pendientes a ti. Pero tú puesta pa mí. Haciendo que me odien más. Porque todos te quieren probar. Lo que no saben es que no te dejas llevar de cualquiera. Y todos te quieren probar. Lo que no saben es que hoy yo te voy a buscar. Dile que tú eres mía. Tú sabes que eres mía. Tú misma lo decías. Cuando yo te lo hacía. Dile que tú eres mía. Tú sabes que eres mía. Tú misma lo decías. Cuando yo te lo hacía. Bebé, yo soy fan de tu caminata. Te doy todo lo mío, hasta mi respiración. Contigo veo todo como en inspiración. Quiero tirarme un paso y que se haga milagro. Tus ojos me concentran como adelanto. Contigo me sube el overol. Te topo y este mundo deja de girar. A nosotros ni la muerte nos va a separar. Bebé, yo soy tuyo nada más. Dile que conmigo te vas. Déjame tirarte. Y nadie va a tocarnos. Dile que tú eres mía, mía. Tú sabes que eres mía, mía. Tú misma lo decías. Cuando yo te lo hacía. Dile que tú eres míaYo soy tu Romeo, pero no tanto. A estos bobos con la forty los espanto. Ellas me quieren desde que yo canto. Pero yo soy tuyo na' más. Yo soy tu Romeo, pero no tanto. A estos bobos con la forty los espanto. Ellas me quieren desde que yo canto. Pero yo soy tuyo na' más. Dile que tú eres mía desde la high. El yerno favorito de tu mai. El mismo que tenía to'as las Jordan y las Nike. Dile a estos bobos que dejen de darte like. Quiero tenerte entera. Pa' recorrer los tiempos en la escalera. Y dime que ya no soy cualquiera. [Foreign language] Yeah. Oh, no questions today. Anonymous. Yeah. Okay. I'm glad to be following Mark. I mean, Mark. He'll be okay. Yeah. Today, I'll be providing an overview of Capital Power's financial strategy, along with our guidance for 2019. Starting with, of course, the breakdown of our financial strategy. The first component is to continue to grow the common dividend by 7% per year while maintaining an AFFO payout ratio of 45%-55%. We believe the 7% growth is sustainable based on the returns that can be generated from reinvesting our discretionary cash flow produced by our existing portfolio, in accordance with the growth strategy outlined by Mark. Given the strength of the cash flows from our existing portfolio, we are able to invest CAD 500 million per year in growth opportunities without needing to access the equity market. I've talked to some of the bankers in the room, though, and said, "If we exceed that CAD 500, we will be giving them a call." Assuming our current dividend yield remains constant, management expects to generate a total shareholder return of 14% in 2019. The second component is to maintain our investment-grade credit rating at BBB low. This provides the best trade-off between our cost of debt and the amount of leverage that can be used in our capital structure. It also signals the stability of our dividend to our equity investors. The third component is effective management of our financial risk. Credit facilities are typically utilized during the construction phase and then converted into long-term debt once the project reaches COD, in order to manage our interest rate exposure. Our offtake agreements are primarily with investment-grade counterparties, we tend to keep a balanced book relative to our foreign exchange exposure. The fourth component is disciplined growth. As Mark walked through, our projected returns on new investments need to exceed our risk-adjusted cost of capital. All our investments ensure we're creating shareholder value on an expected basis. Investments also need to generate sufficient return to meet our dividend growth target of 7%. In terms of capital allocation, Capital Power is pursuing a strategy where approximately 50% of our adjusted funds from operations are allocated to common dividends and 50% to new growth projects. This creates a balanced approach where 50% of the total shareholder return is fixed year-over-year, which appeals to fixed-income investors looking for stable annual returns, while the balance is invested in growth projects where Capital Power creates additional shareholder value through the competitive advantages that have been described by Darcy and Mark. Capital Power prioritizes disciplined investment in assets over share buybacks, given the share price appreciation, which results from diversification of the portfolio and higher market capitalization. However, there are periods where there may be a gap in available growth opportunities and/or Capital Power share price is materially undervalued. In which case, discretionary cash flow will be utilized to buy back shares or pay down debt if needed to maintain our investment-grade credit rating. There are two key drivers that are increasing our AFFO in 2019. The first driver is the addition of the Arlington facility and completion of the New Frontier Wind project here in December. It is important to recognize, however, that the current toll on Arlington expires at the end of 2019, and the new toll generates CAD 40 million less AFFO in 2020. As a result, we believe the normalized AFFO, which is the far-right bar, is more representative of our AFFO run rate. The second driver is the uplift in Alberta power prices continued with the very low natural gas prices which we're experiencing in Western Canada. This is driving an increase in our AFFO of CAD 70 million. A significant portion of the CAD 70 million is related to our merchant gas-fired facilities, which benefit both from higher power prices and the low natural gas prices. The increase in AFFO is partially offset by the sale of our K2 Wind facility, which reduces projected AFFO in 2019 by CAD 20 million. When we look at our AFFO guidance for 2019, we're looking at a range of CAD 460 million to CAD 510 million, with a midpoint of CAD 485 million. This maintains a plus-minus 5% range around the midpoint. We've also placed on here our expectations for 2018. We're projecting an AFFO to come within a range of CAD 390 million and CAD 410 million, with the midpoint projected to be at the top end of our original guidance for 2018 that we provided a year ago. The primary driver of the healthy returns in 2018, again, has been robust power prices in Alberta, coupled with low natural gas prices. AFFO was increased by an average of 14% per year since 2014. With the normalization of Darlington toll, the average is 12%, which exceeds our target AFFO per share growth of 9%. Since 2014, Capital Power has maintained the AFFO payout ratio below the top end of our target range of 55%. Discretionary cash flow in 2019 is expected to be CAD 295 million, which will be available for equity investment in new growth opportunities. On an AFFO per share basis, the growth has been 19% in 2019 relative to 2018, and it exceeds the 17% I mentioned on AFFO as a result of the share buybacks that we completed in 2018. As Mark mentioned, the key characteristic of our asset portfolio is its significant remaining asset lives. Only 3% of our assets are expected to physically retire in the next decade, which is a key contributor to the stability of our existing business and provides a significant runway to build AFFO per share prior to seeing the impact of retirements. The other key characteristic is the average remaining life of offtake agreements on our contracted assets. Excluding G1, G2 PPA, the average contract life is currently 11 years. This is expected to be maintained through 2021, and in fact, increased with the recontracting at the Island and Decatur generation facilities. Our growth CapEx has averaged CAD 500 million per year, which aligns with our expectations of CAD 500 million of growth on a go-forward basis. The average annual EBITDA growth since 2012 has been CAD 70 million per year, which exceeds the amount required to sustain our 7% dividend growth. Capital Power has increased its dividend by 7% for five consecutive years. I'm pleased to advise that we have achieved the growth necessary to extend the guidance for the 7% growth through 2021. Capital Power last provided dividend guidance in July 2017 as part of our quarterly earnings release. Since that time, we have crystallized growth with the addition of contracted cash flow with the New Frontier, Whitla 1, and Cardinal Point Wind projects. These projects will be financed without needing to dilute the shareholder base and are expected to generate AFFO of CAD 37 million, which is a 9% increase in AFFO per share, which supports that extension of the dividend guidance. The ability to increase the dividend in 2021 is supported by our assessment of the financial contribution from our existing business, which will be sufficiently stable to ensure that we'll remain within our target AFFO payout ratio under a range of commodity and political scenarios. If we achieve the target CAD 500 million growth in 2019, we'll then be well-positioned to extend our dividend guidance further into 2022. The CAD 500 million in growth can be achieved without needing to access the equity market. Based on the economics of our recent gas acquisitions, this results in an 8% increase in AFFO per share, which exceeds our 7% dividend growth target. Combined with ongoing optimization of our assets, we anticipate an annual increase in AFFO per share of 9% per year over the long term. This table summarizes our cash flow and financing outlook in 2019. Two additional sources of cash are the proceeds from the sale of our interest in K2 Wind and bond issuances of approximately CAD 650 million in 2019. The cash will be used to repay debt on our credit facilities and continue with construction at Whitla and Cardinal Point. Our target growth CapEx will be funded initially through our credit facilities, which would then ultimately be converted into long-term debt. This table summarizes our current position on our Alberta baseload merchant assets, which is comprised of 700 MW through 2020, increasing to 1,500 MW with the expiry of the G1, G2 PPA in 2021. Baseload output is 73% hedged in 2019, at an average price below CAD 50 per MWh. The hedge percentage in 2020 remains low and is largely driven by our view that power prices will settle materially higher than the current forward prices, as explained by Mark. It is important to note that these hedge percentages are applicable to our baseload facilities, which do not include our peaking gas and wind facilities in Alberta. One trend we're seeing in Alberta, given the low natural gas prices and high carbon taxes, are much higher utilization of our gas peaking assets at Cloverbar and Joffre. The next slide is a summary of our projections of our key credit metrics relative to the targets articulated by S&P and DBRS. We manage our capital structure to ensure we continue to have some cushion over the target metrics. Two additional metrics that have been outlined by S&P is average remaining contract term and percentage of EBITDA under long-term contract. S&P's expectation is that average remaining contract term will remain above 10 years. In terms of the percentage EBITDA under long-term contract, their target is a minimum of 67%. We are positioned to exceed both of these targets as we move forward. I want to just briefly touch on modeling guidance for New Frontier, primarily just because there has been a shift in terms of the profile. With the reduction in the U.S. corporate tax rates, what we've seen is that the crystallization of the production tax credits, which front-loads the EBITDA, is the slope is lower than it was when we gave guidance around Bloom. Where are we now? Back at the start. Okay. Okay, well, just following along with Here we go. Okay. Dividend yield. We believe Capital Power continues to be undervalued based on our 6.5% dividend yield. As shown in this graph, our historical dividend yield prior to the significant changes in Alberta government policy in the fall of 2015 averaged 5.5%, despite our portfolio having a significantly higher portion of merchant EBITDA. We believe a dividend yield of 5.5% is more appropriate once the remaining uncertainty in the Alberta market is resolved. Although it can be argued that our dividend yield should increase with rising interest rates, we believe this should be offset by the reduced commodity risk and greater diversification of the Capital Power portfolio. Just in summary, key takeaways. Growth in the FFO per share has and will continue to support the 7% annual dividend growth. Our financial capacity in 2019 is CAD 500 million without having to access the equity market. In addition to hedges on 700 MW of baseload generation, we have the ability to capture upside from higher Alberta power prices and price volatility from 340 MW of peaking gas and 150 MW of wind. Finally, our share price growth is expected to be driven by 7% dividend growth, further improvement in Alberta's certainty, and diversification. I'll now turn it over to Kate to speak to the sustainability. I got excited. I thought he was letting me off the hook there for a moment. Good morning, everyone. I'm here this morning to tell you a little bit about what Capital Power has been doing and is planning to do regarding sustainability. Our desire to provide you with more information in this regard stems from three basic things. Firstly, of course, the advent of responsible investing has given rise to new ESG scorecards being used by ISS and other watchdogs. Second, the view of climate change as posing an existential risk, and in particular for energy companies, is now more prevalent than ever. That, for example, S&P recently announced that it's incorporating ESG factors now into its rating considerations. Third, perhaps most importantly, we realized as an executive team that like many other energy companies, we need to be more transparent with regard to our significant achievements and opportunities in the area of sustainability, especially given the aforementioned increasing interest. We need you to understand that sustainability is not new at Capital Power. On the environmental or E side of the ESG equation, it's always been a primary focus for us. For example, when we applied for Genesee 3's operating permit years and years ago, we volunteered to have it financially comply down to the carbon emissions level of a combined cycle natural gas unit. We did this in spite of the fact that it was already going to be the cleanest coal unit in North America, and doing so wasn't by any means required for legal compliance at the time. We did it in order to better position G3 to succeed in a lower carbon world. We did it again with Keephills 3. Over the last few years, we've been consciously diversifying our portfolio away from coal, as demonstrated on this slide. Indeed, we anticipate a further reduction in emissions of about 43% when we convert our coal units to gas. In addition, by 2019, we will have reduced our emission intensity by 25% by executing on our strategy to concentrate on gas and renewables and by optimizing the operations of our current assets to decrease their emissions. Basically, we've been working on technical process and social innovations for more than a decade, specifically to de-risk Capital Power's future. Now I want to answer the obvious next question regarding increasing our natural gas fleet. At some point in the last few years, there was a shift in popular focus away from reducing emissions from every source towards just getting off fossil fuels altogether. This is very unfortunate because it ignores a number of entirely valid potential decarbonization solutions and ignores a great deal of very good work being done by energy companies on the carbon reduction side. One important example of this carbon reduction work is in the general area of carbon capture. In the last decade, Capital Power has conducted 4 different carbon capture and storage projects on our coal units. Although unfortunately, they all proved to be technically feasible, they would have also been uneconomic in Alberta's merchant market, given low natural gas prices. Of course, this unfavorable economic comparison doesn't apply when the CCS is attached to natural gas. We're continuing to work on possibilities for carbon capture and storage on gas. One thing that excites me even more, though, is some new work we and others are doing on carbon capture and usage, because turning captured carbon into a solid with tangible value makes the economics of carbon capture and usage on gas even more attractive. Capital Power's new project, C2CNT, converts captured carbon into carbon nanotubes, which are stronger than steel, lighter than aluminum, and more conductive than copper, and therefore have a wide range of uses in construction and public infrastructure. I encourage you all to wander around in Google for carbon capture and usage. There are some uber cool and currently viable possibilities being advanced, and they all speak to natural gas as not being merely a transition fuel. For example, there's a hotel in downtown Vancouver which is currently capturing carbon from its exhaust fans and creating a sodium bicarbonate or baking soda from the carbon. There are a lot of other projects that are creating plastics and other materials for construction. It's important to note that the federal government's most recent sustainable development plan and various other very well-recognized climate scenarios classify carbon capture, usage, and storage as a source of clean energy that may have to occupy a place in the long-term energy mix in order for Canada to meet its Paris commitments. Toward this end, similar CCUS work is being undertaken by others on upstream operations as well. By the way, beyond completion of the XPRIZE competition, our Shepard stack is also now set to provide a long-term test capture center for the Alberta Carbon Conversion Technology Centre, which is funded by Alberta Economic Development and Trade and NRCan. As you heard on the introductory video, at a high level, our strategy focuses on rendering Capital Power future-ready in 2 very important ways. We are reducing emissions of our natural gas fleet via technical and process innovations. In the short term, we have Darcy's Genesee Performance Standard, which is expected to reduce Genesee's carbon emissions by 10% by next year, which reductions will survive conversion to gas. In the short to medium term, we'll also reduce our emissions at our coal units by a further 40% when we convert them to gas. In the longer term, we believe carbon capture, usage, and storage on our natural gas facilities will ensure them a full, long life even beyond 2050. In addition, we're also employing a suite of technical process and social innovations to maintain our wind leadership. Examples include our approach to landowner engagement. In order to reduce local pushback at the development stage, we were the first developer in Canada to socialize payments so that landowners neighboring the lots on which we erect turbines also receive payments. We're also industry leaders in the safe construction of wind farms and in biodiversity protections. For instance, we proactively detune turbines during migratory periods as necessary to save bird and bat lives. Some of our competitors still don't do this, and their relationships with regulators, governments, and NGOs reflect this gap. On the community investment side, in addition to more traditional activities, we take great pride in the fact that we actively work to make the communities in which we operate better for their inhabitants. Examples of this would include recently building a road for the good people of Southport to allow our fuel trucks to drive around town instead of right through it and to provide a second key emergency access into the city. We also initiated and provided most of the funding for a new traffic light at an intersection in the Genesee area that was causing safety concerns for our employees and other residents of the area. Along with jobs that we provide, these types of initiatives contribute to our excellent reputation for being a desirable neighbor and help us to be welcomed in every single community in which we operate. We consider this to be a great competitive advantage. In addition to being the right thing to do, they speed up our permitting time considerably as well. Although Capital Power has complied with the GRI or Global Reporting Initiative ESG disclosure standard since 2007, we've done so to date in a corporate sustainability report that's released annually in July, which isn't optimal for shareholders. We'll comply with the climate change disclosure requirements established by the Task Force on Climate-related Financial Disclosures in February 2019. We expect this first attempt to be fairly qualitative, but we'll work to add more quantitative detail as public policy is clarified and technical advances are made. Furthermore, the July timing of our CSR report was originally established because we report our annual emissions to government much later than we release our annual disclosure. We're currently in the process of changing our internal processes so that we can publish a truly, fully integrated annual report for 2019. To close, Capital Power's board and management view sustainability as a critical success factor. We've been working on it for a very long time. As various parties, including yourselves, other large institutions, and credit rating agencies press for more standardization and comparability in ESG performance disclosure amongst sector competitors, we believe our efforts and approach will shine through. Our shareholders will be very pleased by the outcome of such apples-to-apples comparison. Thank you. Thanks, Kate. As you know, every year, we provide guidance and set targets for the following year's performance. In turn, we report quarterly on our progress vis-a-vis those targets. Consistent with prior years, we set targets that, in our view, give rise to shareholder value. This year, we've streamlined them slightly, as I'll explain as I go. Our operating targets are 95% availability for the fleet, which is consistent with 2018. Now, just to comment, Darcy had showed you a chart and talked about 96%. 96% are on the assets we operate. When we incorporate assets that others operate, it moves us down to 95%. Sustaining capital expenditures target range for 2019 is CAD 80 million-CAD 90 million. As you'll see in a moment, we added adjusted EBITDA as a target, which seems to be a useful data point for our investors. In turn, we dropped operating and maintenance cost as its impacts are visible through EBITDA. Our development and construction targets are similar to 2018. Keep our construction projects on time and on budget or better. We have a committed contracted capital target of CAD 500 million, which is the same as 2018. As Brian demonstrated, this level of committed capital gives rise to roughly an 8% AFFO-per-share growth rate, which provides the basis for future annual dividend increases beyond 2021. I would also point out this level of growth does not require issuing common shares. We've eliminated the number of wind farm developments as a target, as it is somewhat double counting with the investment in contracted assets. As I mentioned earlier, we've added adjusted EBITDA as a financial target. The 2019 target is a range of CAD 800 million-CAD 850 million, compared to our 2018 estimate of CAD 675 million. Our key financial metric is AFFO. For 2019, our target is a range of CAD 460 million-CAD 510 million compared to the 2018 target of CAD 380 million. We have also adjusted our guidance for 2018 up to the top end of the range. Returning to the question I posed when I got up here earlier this morning, how investors should think about Capital Power. Bluntly, it's an attractive investment opportunity. Our 2018 performance lines up very well with targets. The 2019 AFFO target reflects strong performance and growth consistent with our previous history and is supportive of a 14% total shareholder return. Alberta is back to being a very good market. Strong prices, the competitive positioning of our assets, and continuation of great flexibility and optionality around our coal assets all support a great Alberta outlook for Capital Power. The outlook and stability in the Alberta market and our dividend track record should contribute to a dividend yield improvement. The CAD 500 million contracted committed capital is consistent with our growth outlook. The longer-term strategy of natural gas and renewable investments in the areas we've chosen remains resilient. We have an abundance of development opportunities, and the acquisition market is very active. As the presentations have demonstrated, our competencies are strong, our competitive advantages are real, our assets are very good, and our strategies are resilient. We've been delivering shareholder value over the past number of years, and we are very well-positioned to deliver the same value with the same strategies in 2019 and thereafter. Thank you. Thanks, Brian. We're ready to start the Q&A session. I ask that you use the microphone when asking your question, and also to identify yourself before asking your question. From Credit Suisse. To either of the Brians, really, it's probably to start off with, and then I'll probably segue a little bit into Darcy. When you look at the K2 monetization. How do you think about really recycling the portfolio to surface value in the company? To what extent CP yourselves is really a developer and building assets, monetizing them, and effectively driving value in the stock? The sale of the K2 Wind, our interest in it, was a situation where one of the one-third partners was looking to buy out the other third. For us, being a minority stakeholder in that project, didn't fit with our overall strategy. Given the pricing was very attractive, we moved forward with the sale. Those funds, of course, will be recycled back in, as I described, in terms of capital allocation. It begs the question, I guess, would we do further crystallization of value through the sale of long-term contracted assets? The answer is no, unless there's a unique situation like K2. The reason being is that long-term contracted cash flow serves a bunch of other critical purposes for us. One is maintaining that 10-plus year of average contracts, maintaining our overall investment-grade credit rating, and also being able to sustain the 7% dividend growth. That kind of trumps looking to crystallize to further divestitures. Maybe as a follow-up, is there an opportunity to ramp up the construction efforts, really build more across North America in the pipeline that you've got and then monetize, say, a fractional interest? Because there is still the public-private market divide and valuations in the sector. No, I think that's a very good point. If we are fortunate to increase the pace of development, which Darcy can speak to our capabilities on that front, certainly, as we go beyond sort of the CAD 500 million and what's needed to sustain the dividend growth strategy, we would be in a position to look at crystallizing through divestitures. Next question. Mark Jarvi from CIBC. I wonder if you guys could comment on the changes we've seen to accelerated investment in Canada with the accelerated depreciation, and maybe dovetail that in with the robustness in the Alberta market and your willingness maybe to build wind outside of the RFP process. You want me to take it? Sure. We do see a lot of very interesting and potential development opportunities in Alberta. As Brian has pointed out, we see some stability returning, some clarity returning. We will continue to advance our efforts to still try and see if we can underpin any sort of development with some contractual commercial underpinnings. We are seeing a lot of requests coming forward for green energy, and to the extent we can crystallize on that from the commercial industrial sector, we'd want to do so. We, of course, will continue to examine as well what sort of returns we may see on a merchant basis, given the forward curves and as they develop. If the conditions are right and there's an opportunity to seize in advance, we will absolutely consider that relative to all other opportunities that we have on our plate as well. I wouldn't rule it out that we wouldn't do it. With the recent changes around depreciation, does that make it more? It does absolutely help the economics. What is very interesting about that is we see the price in Alberta being set by other factors, not the implicit returns on the investment. It's not a cost of capital shootout. Those improvements on the tax side of the equation have helped to generate better margins or spreads for us on our investments. The other change we've seen on renewables in Alberta is they actually generate credits now for renewable energy. That's also improved the prospects for renewable projects in the Alberta context. Just going back to your commentary on the Ontario market, you guys talking about some of the tightness that might come with the nuclear situation, and you said, Brian, being patient on recontracting. Maybe when you think about where those contracts are set to expire versus where the tightness in the market might shape up, do you guys think you'd want to maybe move on some of your Ontario assets about working with the government on extensions or contracts before they enter term? Absolutely. That's something that will remain in continual dialogue on the assets that we have here and how we might manifest longer terms or different options as we move forward. I would observe one of the elements that we actually are quite excited about. There was a real focus in the election around cost of energy to consumers in Ontario. I've observed that the gas plants that already exist, that are in the market, that are well-positioned close to load, don't need long-haul, very expensive transmission to be put into place, are very well suited to meet the increasing demand and to offset the supply contraction and do so in a very economic way. We're fortunately blessed with an abundance of gas in North America, and we see that commodity price being quite low and stable for a long time to come yet. That's going to translate into very competitive output coming from the gas plants that we have in place. Maybe just follow-up, do you see that playing out in the next one to two years or is that more medium term? I think it would be more medium term. We've gotten out a bad runway on the existing contracts that we have in place. I think once you see the tightness manifesting itself in the market, that's where you may see a bit more concern in wanting to buy additional insurance, if you will, to make sure that Ontario isn't subject to any blackouts or the like going forward. I think, along the way, we'll be demonstrating the competitiveness that we have with other alternatives, say, hydro transmission or hydro generation and very long transmission. I think we can absolutely be competitive with that. We'll take the question in the front here. Yeah, thanks. Pat Kenny, National Bank. I just wanted to touch on Alberta forward power prices and get your thoughts on how much of the backwardation do you think reflects potential change in government next spring and the removal of the carbon tax? Just maybe your thoughts on how much downward pressure you see on Alberta power prices, and maybe tie that in with the offset being lower carbon tax, of course, and what impact that might have on margins. There certainly is some impact of the prospect of a change in the carbon tax and what that could do to power prices. That is one factor. I think, though, the other thing we're seeing is there is lower liquidity in the forward market, and part of that's driven by the fact that the market design is still in flux and is being sorted through. There's certainly, as that certainty returns, we'd see that liquidity increase out two, three years, and that'll put some upward pressure on forward prices. I think when you go beyond 2021 into 2022 and further, you're going to see somewhat lower energy prices because of the expectation that part of that revenue stream is now going to come in the form of a capacity payment. If I could add, Brian, I think you touched on a very interesting point. That lower liquidity is really causing concern out there. I think there's people that are only looking for exceptional deals that are putting a bid forward. That's being compounded because if they wanted to get out of that position, there's not a lot of liquidity to get out. I think that tightness has really put some downward pressure on price. I think one thing, just to clarify, is if there is a change in the carbon tax, certainly, we would see lower revenues in the Alberta market. That'll be more than offset by the cost savings we'll see on our current portfolio. Net-net, it'll be beneficial to us as an organization. Great. Maybe just higher level, without a carbon tax, just on the sustainability front, weighing the decision to convert early next decade, potentially or staying on coal through 2030 and potentially having higher cash flows versus converting early, you might leave some cash flow on the table, but at the same time, it might be accretive to your ESG reporting and potentially result in a higher valuation. Just how do you weigh those benefits? Maybe I can comment on that. With the, I guess just so that we're sort of playing in kind of the same sandbox. There's been expressions by the UCP that they would potentially contemplate going back to something like SGER. That was where we were in the zone of paying tax on 12% of our carbon and a carbon tax of CAD 15. However, it was being reviewed, and we actually wouldn't expect under any circumstances in Alberta for us, not consumers, but for us, we wouldn't see a carbon price below CAD 30. We also wouldn't see. We would expect some sort of, if there was a change in moving back to SGER, there would be some reduction associated with, I'll say, the number of tons that we'd pay a carbon tax on. It would drop, in theory, depending on how far it goes back. It would have a significant impact, as Brian identified, on our bottom line in terms of tax relief, and it would be to a small degree offset by lower power prices. We don't see a situation where there's no carbon tax on our output. We see that under all circumstances, there'll continue to be some. As we've said all along, what we're doing is we're maintaining our optionality, looking at carbon prices, looking at natural gas prices, and looking at it, I'll say, generally from an economic perspective. Certainly, we do and are very mindful of what is the growing sentiment in terms of carbon reduction across the spectrum. Certainly, that will play very significantly in our consideration when we believe our shareholders will benefit from conversion outside of just the economics, we would certainly be prepared to do that. We'd have to make sure that it is in the benefit of our shareholders, and they do see that in the circumstances where they may be giving up some EBITDA, the improvement in the multiple would have to be there. We'd have to be pretty convinced, certainly, our view on it extends well beyond just the simple economics. The other thing, too, that does weigh on it to a degree, and you're seeing the narrative very significant in parts of Canada and certainly the U.S., is jobs. We convert, you're putting hundreds of people out of work immediately. That's something that weighs on us, and that's one of the considerations. Again, certainly, in terms of what can our considerations on what would be attractive to current and future shareholders, we'd definitely consider the environmental impact as well, not just simply the economics. That's great. Thanks. Next question, please. Thank you. Robert Hope from Scotiabank. Just taking a look at your 2019 guidance and the comments on UC power pricing above where the forward curve is right now. Just want to get a sense of what power price you're including in your guidance right now. The guidance for 2019 would reflect roughly the forward prices we see for 2019. All right. Yeah. Where we see the forward prices being understated is really 2020 and beyond. Okay. That's helpful. Just a follow-up question on the Alberta power market as well. With some of the headwinds that we're seeing in the energy sector, as well as potential curtailments of the oil sands facilities into 2019, just want to get a sense of where you see demand growth and whether or not a potential reduction in demand would largely be offset by reduced behind-the-fence generation, or would there be another balancing mechanism there? As you heard, demand growth has been very strong over the last couple of years in Alberta, running 3%-4%. It certainly has exceeded our expectations. When we look forward, we do believe that'll tail off to something more in the 2% range, and kind of normalize at that level. In terms of the activity that's out there, given the cost structure of a lot of the oil sands facilities, we see production continuing from those facilities, albeit there is the production cuts that Notley just announced, but don't see that as changing on-site generation in any meaningful way. I think your question alludes to, will we see a demand growth that starts going below the 2%? Certainly, it's possible, but we are seeing other things happening in the Alberta economy that is lifting it the other direction. Just one follow-up, if I may. When do you think that you'll need additional capacity in the Alberta market, beyond the RFPs that have been announced? It's interesting because with the introduction of the capacity market, the timing of the need for generation is now determined by the AESO, as opposed to letting it fall out of competitive forces. That remains to be seen. Certainly, under the current market structure, we would see the need for new capacity in the 2023, 2024 timeframe. Next question. Robert Kwan, RBC. You talked earlier about expecting a successful renegotiation of contracts when they expire. Can you just talk about how do you define success when it comes to any changes in pricing and additional contract term? You hit it on the nose, Robert. There's a number of variables that are coming into play as we're considering what sort of offer would be appealing to us versus what wouldn't be. I guess to me, success is going to be relative. Looking at the options that we have available to us. Decatur is probably a great example of if we are able to achieve a good long-term contract at a reasonable price, we'd be absolutely entertaining that, but that's got to be measured against the option that we have to wheel that power into PJM and how that may look. Frankly, whether there was any sort of a C&I offtake or other consumer offtake that would underpin a portion of that wheeling into PJM that we might want to consider. I wouldn't want to go with hard and fast rules saying, this sort of adjustment to the current price for this term would be something that we would absolutely jump on, rather, it's got to be more relative to the other options that we have. I would say there's also an element of looking at how far out you are on the current term, and whether or not you want to consider any sort of extension at the current date. I will say the general disposition thus far is the further out you are, the more of a haircut the counterparties would want to look to take. Given that with time itself, they as well have many options. It's going to be a game of patience to walk through and make sure that we're able to maximize the options and the value to us. If you look at market valuations and M&A valuations that we've seen, general thoughts that M&A exceeds public market values. Wins, we've seen a number of transactions in around 10 times. We've seen some gas as they start to approach the end of lives in the four to six times. How do you think then about, again, kind of throwing financial theory out the window, how do you think about when you go out and acquire a mid-contract gas plant or approach building something like Whitla at almost 12 times EBITDA? Good question. I observe, first of all, some of those very high multiples that we're seeing seem to be attached to very clear long-term annuity strips that the guys are able to cut and are really just applying a simple spread. What we found is the more complex the situation is, the lower multiple that's coming, that's where it becomes interesting is given the inherent talents this organization has to mitigate some of those risks or seize opportunities. It's those more complex situations that allow us to be competitive also crystallize value once we bring in-house. In respect of Whitla, on the other side, there's not a lot of 20-year contracts that are being handed out these days being attached to renewables development. Indeed, what we're seeing in the U.S. is we're migrating to more 10, 12, maximum 14-year sort of strip that can be out there. We've seen that as very appealing. We've seen that right in our backyard. Frankly, we've seen it as also positioning ourselves for additional developments. A bit of a beachhead that we are able to establish, that should give us a competitive advantage in the future. Net-net, I don't think you'll see us on being competitive on a straight-up 20-year strip that has no construction risk because there's a ton of money out there chasing things. Where you'll see us being competitive is on those more complex situations. I would note, we have looked at a lot of opportunities over the last year. You've really only seen us execute on one. Absolutely staying in front of the deal flow, but again, it's a very heated market right now, and we see that continuing. If I can just interject a quick one, actually for Kate. You talked about some of the work that you're doing at Shepard to reduce carbon. Whether it's that work or taking carbon completely to complete capture, how do you see that working within the best gas framework in Alberta? Would that take it down to zero? It would in fact, ultimately take it down to zero. As you know, all of those are performance standards. You pay tax above the performance standard, and you pay no tax below the performance standard. We look forward to a time when we're not paying any carbon tax at all. That would take all other gas units who are not doing that into a significant carbon position? No. To be fair, Capital Power is not alone in working on this. There are lots and lots of energy companies that are working on carbon capture. I think probably what you see is an evolution. I think this is going to be disruptive, frankly. I think that there will be a lot of natural gas units that will ultimately, if they're young enough, be given some capital investment that will allow them to capture carbon and be zero emitting. Thank you. Question at the front here. John Mould, TD. Maybe first for Bryan DeNeve. For a project like Whitla, which has the 20-year government-backed PPA, can you just talk about your willingness or interest to consider project-level financing versus the corporate debt structure you have historically used? Yeah, we certainly always monitor and keep in mind the prospects of using project financing as an alternative. There's a number of considerations that go into it, including our current covenants of our existing debt and those considerations. Generally, what we find is the standalone rating that a project like Whitla would get is fairly close to what our overall company rating is. The cost of debt is very close in the two circumstances. Generally, it's at this point in where we see pricing, it's more expedient for us just to do it on balance sheet. Okay, thanks. Then maybe for Brian Vaasjo, I think on the question of new markets, I think you've been pretty crystal clear historically that you don't see the need to go beyond Canada and the U.S. to meet your growth strategy. A number of your peers have been active beyond Canada and the U.S. in recent years. What would cause you to reconsider that and take another look at markets beyond Canada and the U.S.? I think the key is, from our perspective, we see that we can definitely deliver our growth aspirations. We've been talking here about sort of 7% dividend and investing CAD 500 million a year or committing CAD 500 million a year. That's sort of our base case. We would hope to do well beyond that, and we see that the market can actually support that. For as long as this market, and the North American market can support our growth aspirations and deliver the returns that we believe our shareholders deserve. We're satisfied with being here. I think a lot of the conversation today and what we've talked to you about and shared with you is the fact that the way we differentiate ourselves from others is a very strong depth of competencies on the natural gas side, the wind side. I would say we've been very creative in a number of things that we've done, and the pieces come together and make us very competitive and allow us to do that here in North America. I think once you go outside of North America, not only do you lose some of those advantages, but you actually end up with others around you having more advantages than you do, beyond the issue of cost of capital. From our perspective, the risk-adjusted return for our shareholders is much better for us to be here in Canada. I'll just explain one or just give you one example or chain a couple together on the wind side. Darcy was talking about having to do things differently, and someday when we explain what we've actually done around Whitla, which I think would be a surprise to a lot of people, a positive surprise as to the ingenuity and creativity to actually deliver a project that's delivering what it should in terms of result, but done in, again, a very creative way. When you look at Bloom Wind, for how we structured it and what we did, a lot of that comes from a knowledge of the energy markets, and that we wouldn't have someplace else. When you look at Cardinal Point, what made that project go is we stepped into the REC market ahead of time, and we basically sold the REC output of that facility in advance of selling the commodity side. It's that kind of broad ability and ability to bring different elements into focus that allows us to be very competitive and to go outside of North America, we would lose that. It would be a number of years before we could recreate that in another market. I think as you look at our peers, what you kind of see a little bit over time is they're a little bit nomadic. They go from one market to another to another because it becomes more competitive, and the risk-return profile changed dramatically as those markets develop. Not so sure we want to be chasing outside of North America almost in a continuous way. We're real happy to be here. We think we can compete extremely well, and we'll continue to compete extremely well in the North American market. Do you have a question in the back? Ben Pham, BMO Capital Markets. I want to go back to the discussion of Alberta power prices, because some of your robust commentary is a bit contrary to the view that most of it could happen in the economy in Alberta. On the demand side, let's put that aside. Let's assume that demand, tend towards 2015, 2016 levels, demand did drop much more dramatic than what everyone was expecting. This time around, do you see more of a supply response because the Balancing Pool isn't involved in the dispatch curve anymore? I just want to clarify, Brian, if SAGD plants start to roll off, do you think behind-the-fence generation, they'll shut down those co-gen plants, or do you expect them to put more electricity into the market? That would be SAGD plants that are retiring and coming offline? Just a production response to oil price where you have the steam generation to co-gen plants. Yeah. Some of it's being offloaded at CAD 0 right now, as you know. Yep. You mentioned that you didn't expect behind the fence to roll off. I just wanted to clarify, if we are heading towards a recession in Alberta, do you expect those co-gen plants to roll off? Just comparing the Balancing Pool, is it a different dynamic now on the supply? Yeah. My comment on onsite generation was related to those facilities that continue to produce output. We wouldn't see anything really changing in terms of the economics of continuing with onsite generation. Certainly, if price destruction is such that you start seeing those facilities mothballed or shut down, yes, you'd probably see a corresponding change in the onsite generation. I think at the end of the day, those facilities are primarily there for providing steam for that operation. Certainly, a standalone power plant isn't consistent with the line of business. The first part of your question in terms of supply response, we've seen a huge change, of course, in response on the supply side with the Balancing Pool terminating the PPAs. As you know, we've got two coal-fired facilities that are permanently retired now this year, and we have two that have been mothballed. Certainly, if you saw a downturn again in the economy and perhaps demand growth flattening out, we would expect to see more facilities, particularly older coal facilities, will be mothballed in response. That dynamic will certainly take place. It's a bit more efficient outlook than 2015, 2016. Secondarily on the marginal cost, I'm just not saying I'm in the student base scenario, I'm just saying hypothetically, if you saw marginal costs come down to CAD 20-CAD 30 in over the last 2015, 2016. Where do you see it now going forward? What is the marginal cost? Is it CAD 45? That curve looks pretty good, or is it something lower than that where there's some resistance down climb to think of them? Yeah. The key there is the carbon tax, of course, and what it does in terms of the marginal cost of operating the coal-fired facilities. Under the current carbon price regime, it's definitely north of CAD 40 a megawatt hour. That creates a floor. If we see it back off to a less strict carbon regime, yeah, you'll see that number drop. As we talked about, in our case, it'll be more than offset by our savings on our coal units. The other thing I would mention is that, in terms of changes in the carbon tax regime and maybe going to a less stringent requirement, under either of those, our coal-fired facilities, because of their age and the efficiencies that Darcy's team has created, we continue to operate in a baseload fashion. Really, it's the older coal units that will be affected by that change and then how they stack up relative to what natural gas prices are doing that really can see a swing in terms of their utilization. Is it fair to mention as well, Brian, the competitive bidding situation as well? Unlike 2015 when there was a very large block of PPA volume that was being offered onto the market, now with all that being turned back, I think you'll see another market participant behavior changing. Very much reduced risk that you would see a large block being bid out the way it was before. Can I finish off the dividend expansion to 2021? I know you had discussions about you not thinking about extending it to here, the capacity pricing visibility. Are you pinning down capacity payment ranges much better than before that you can extend that dividend growth out? Is there a major update on that. Yeah. For the capacity market, the current target is that it will come into effect November 1st, 2021. 2021 is predominantly still in the existing market design. When we looked at extending our dividend guidance, we were looking at volatility in commodity prices, how we typically look at it. In 2022, the design of the capacity market is, of course, a bigger consideration. It will be in effect for the full year. We feel we have a really good read on how that capacity market will operate in Alberta, given the design that the AESO has filed with the AUC for approval. Certainly, we feel comfortable in terms of what that volatility would look like. As long as that market design is implemented as proposed by the AESO, it wouldn't be a barrier to us looking at extending dividend guidance to 2022. Can I add just a comment? Although we talk about the situation where now we've got the incremental contracted cash flow that supports an increasing dividend, we don't just look at that. When we make the decision on the dividend and providing that guidance, that's over a longer-term view that takes into consideration transition into a capacity market and everything else. Our view is much, much longer than just simply 2021 or 2022. We've got confidence in the Alberta market that it will continue to have strong returns in the longer term out of that market. We are also premising dividend expectations and sustainability of dividend expectations on the existing fleet of contracted assets as well. We look at, again, overall, where do we think the business is going? What are the risks? What are the sensitivities? On balance, because we've ended up with, again, an increase in contracted cash flow that can support the dividend, we make that call. That, again, is based on a lot of work to feel comfortable that the longer term is very sustainable. Question on the side here. Andrew Kuspy, Credit Suisse. The question's for Kate. Obviously with ESG issues, there's always a lot of focus on carbon. Could we talk a little bit about water usage and water intensity? Then as it relates to underwriting for Arlington, how did you think about just the water issues in Arizona when you underwrote Arlington? That's probably more for Brian than Eve. Mark. Mark. Yeah. In terms of water, many of the facilities that we are running, our gas plants are great consumers of water. Perhaps some of that I'll turn over to Darcy as well. I know there's a lot of attention spent to not only the source of it, how we're reclaiming it, how we're running it through the plant and being very good stewards and the like. What's interesting, the access to the water, because we're buying existing facilities, quite often we're seeing through the due diligence that we're able to make sure that we'll have that access on a going-forward basis as well, and that we're not at risk in any way, shape, or form to being without water, which we critically need in running these plants. I don't know, Darcy. Yeah. Arlington. Sorry. Arlington, actually, the plant comes with a large tract of land, and that land includes sufficient well capacity to supply the needs and then some for the plant. Actually, I think we looked at this plant years ago, and it didn't at the time, and that was one of the physical changes. We're very comfortable with Arlington going forward with water supply. I think just to maybe be clear, in Arizona, the issue is water rights. In addition to the actual supply, the water rights are there to support Arlington. In fact, that's the reason why there's 3,000 acres that go with the plant, is because that's what you actually need, unless you're buying water rights, that's what you need to actually secure water rights. We're situated very well in Arlington in terms of long-term water supply. Next question, please. Mark Jarvi from CIBC. I wanted to go back through the commentary about contracted profile, the duration of it, and the % contracted and the dance with the rating agencies. In terms of how that informs your view on, A, the buyback or that constrains you, and how much more contracted you would have to get, and if not, how much buffer do you have with the rating agencies to play with that number as you work through the contracting profile? The rating agencies would be the first to say that those metrics, there's trade-offs between them. When you look at our percentage that's under long-term contract right now, it's 77% for 2019. With the expiry of the G1, G2 PPAs, we'll be down around the 67%-70% range. Certainly based on our growth projections, that'll continue to increase from there. We see that we're in good shape relative to that metric. The 10 years is one of those ones that we do see that, of course, as each year passes, that that erodes, but then it's bolstered by what we're doing on the growth side and recontracting side. If we did find ourselves in a situation where we were maybe starting to come in below the 10 years, we would look to offset on another metric, like maybe our FFO to debt would need to run at a higher rate. Certainly, we'd look at making the adjustments in order to get to a place that the rating agencies were comfortable with. Are there any further questions? Right at the front here. Jeremy Rosenfield with Industrial Alliance. A question on capital allocation and the valuation and where you think you should be trading on dividend yield. Every company believes that their stock price is too low and that it should be higher. That's I think not unique to you guys. In terms of capital allocation to the dividend, at some point, potentially investors don't really need or maybe don't want more in terms of dividend increases, and maybe there are other things that that capital should be used for more buybacks, if there's room. Or maybe more growth or more strategic growth. To what degree do you consider that capital allocation decision and whether you should be even extending that dividend growth guidance beyond a certain point? Maybe 2021 is a hard stop at this point. How do you consider those sorts of things? We look at the 7% increase as our ability to create a track record and continue to prove that out over time is fundamental for building investor confidence in our growth story. At this point, we would see that as being an objective for us in the long term to continue that 7% growth. Certainly, if we were to sort of stop in 2021, it definitely would create a heavier weighting to investment in new assets and the potential for more shareholder value creation. We look at that as your organization then has to be sized right, then you have to look at the market opportunities, how competitive it is. Based on our current view and outlook, we feel like we're in a good spot with that CAD 500 million being a base and that split. Again, investors are going to have different views in how important that dividend growth is. We certainly know there's differences there, and I think that comes down a lot to the differences in what investors are looking for. We feel the 50/50 strikes a good balance for the investment base we see in Canada, which forms the majority of our shareholders. I think just to add to that, as we continually look at dividends, and it isn't just, as I was describing before, the long-term outlook and sort of the contracted cash flow, new contracted cash flow to support it. We also look at what we believe our investor base is looking for and what we believe sort of where the next incremental shareholder's going to come from. As we look at it now and have been looking at it, the value of a long, sustained predictable dividend growth has a fair amount of value and should result in improved multiples. It should by definition. So, that's our sort of the thesis that we have now and we've had for the last number of years. We're not blind to that. We have conversations with investors, we have conversations with the investment community or in the analyst community. We've recently done a survey of both the buy and the sell side to get a sense as to where they are on those issues. It's as Brian describes, we have a sort of a number of different investors who are looking at a number of different benefits associated with holding Capital Power, but also a different range of expectations and maybe biases that they'd like us to have. As we sit now, sort of as Brian's described, having a split between out of basically AFFO of having dividends and cash to reinvest in the business. As we grow, both of those should definitely increase and then having sort of a bit of a safety valve, so to speak, in terms of share buybacks to us right now is a reasonable balance. As we go forward and we assessed it when we looked at this latest guidance for the 7% dividend increase and felt that for that from now to 2021, that continues to be a reasonable thesis and a way to move forward. We also have to consider that in the absence of that would send a pretty strong signal. I mean, again, we've assessed it from a number of different perspectives, and we feel comfortable that that's reasonable guidance at this point in time and is something that would be well received by our investor base. Hello, my name is Donald Walk. I'm a private investor. Thank you. You are very welcome. Any other questions? Okay. Can I add one other comment? One of the things that's also happened with our investor base, and it always moves around, but there's been a definite shift away from institutional holders and getting more of the retail side. As we look at other organizations and so on, we suspect that over time, again, we would hope and expect that we'll get some greater concentration around the institutional side and have fewer coming in and out. We do expect that we may well stay where we are now in terms of the non-institutional holders, and that may well increase over time. Again, something like dividend tends to attract those investors as opposed to a standalone growth proposition. Final call. Any questions? Okay. If not, I'll turn it over to Brian for closing comments. Well, thanks, Randy. As we've gone through this morning, we've talked about our level of confidence, our belief in our own competencies, and just to be clear, we didn't claim names as a competency. We have been delivering on shareholder value, and a lot of our conversation this morning has been why we've been delivering, what are those elements that have allowed us to deliver, and how those elements continue to be there on a go-forward basis. Again, based on what we've said and the way we look at it, what we've delivered in the past, we're absolutely going to be able to deliver in the future. In closing, I'd like to say the best of the season to all of you. Certainly, with all the traveling that takes place, safe travels and, we'll definitely see you here again next year. Thank you very much.

Data Source: Quartr Last updated: Dec 6, 2018

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