Good day, ladies and gentlemen. Welcome to TransCanada Bruce Power Life Extension Agreement Conference Call. I would now like to turn the meeting over to Mr. David Moneda, Vice President and Communications. Please go ahead, Mr.
Moneta.
Thanks very much and good afternoon everyone. We're pleased you can join us today to discuss Bruce Power's life extension agreement that was announced earlier this morning. With me today to discuss the announcement are Russ Girling, President and Chief Executive Officer Bill Taylor, Executive Vice President and President of Energy and John Marchand, Executive Vice President, Corporate Development and Chief Financial Officer. Russ and Bill will begin today with some opening comments on the announcement. Please note that a slide presentation will accompany their remarks.
A copy of the presentation is available on our website at transcanada.com and can be found in the Investors section under the heading Events and Presentations. Following their prepared remarks, we'll turn the call over to the conference coordinator for questions from the If you have additional questions, please re enter the queue. Before Russ begins, I'd like to remind you that our remarks today will include forward looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed with Canada with Canadian Securities Regulators and with the U. S.
Securities and Exchange Commission. And finally, I'd also like to point out that during the presentation, we may refer to certain non GAAP measures. These measures do not have any standardized meaning under GAAP and as a result, they may not be comparable to similar measures presented by other entities. With that, I'll now turn the call over to Russ.
Thanks very much, David, and good afternoon, everyone, and thank you all for joining us this afternoon. I'm very pleased to report today that Bruce Power has entered into an agreement with the Ontario Independent Electric System Operator, or as we call it the ISO, to extend the operating life of Bruce Power through 2,064. The long term arrangement is consistent with our strategy of building a portfolio of contracted and low cost power generation assets and provides us with another significant and attractive growth opportunity that is expected to be accretive to earnings and cash flow, both in the near and long term. The agreement is also consistent with Ontario's long term energy plan providing the province with an abundant source of safe, reliable, low cost, emissionless energy for decades to come. As you know, Bruce Power is the world's largest nuclear facility.
It's located 250 kilometres north of Toronto and is capable of producing 6,300 megawatts of electricity, which is equivalent to the approximate to approximately 30% of Ontario's daily power needs. The facility is comprised of the Bruce A and Bruce B sites, each housing 4 operating reactors. During the past year, the facility has produced a number of excellent operating and technical achievements and was recently recognized internationally by an independent review agency for its strong operating performance. Looking forward, all of the power produced by all eight units at the site through 2,064 will be sold to the ISO under a fixed price contract that escalates over time. Bill will provide you a little bit more detail about the contract in just a few minutes.
In connection with the signing of this long term agreement with the ISO, we have announced today that we have exercised our option to acquire an additional interest in Bruce Power from the Ontario Municipal Employees Retirement System or OMERS for $236,000,000 Along with the acquisition, which is effective today, the Bruce A and Bruce B partnerships will be consolidated into 1 entity. Going forward, TransCanada and OMERS will each own 48.5 percent of Bruce Power. The Powers Workers Union, the Society of Energy Professionals and Bruce Power Employee Trust will hold the remaining 3%. Previously, TransCanada owned 48.9% of Bruce A and 31.6% of
Bruce B.
Just before I pass the call on to Bill, I would like to thank and congratulate all of people from the Ontario independent electric system operator, from Bruce Power, our partner, the Ontario Municipal Employees' Retirement Fund and our team here at TransCanada and the numerous other contributors who have worked tirelessly for the past couple of years to bring the complex arrangement altogether. It truly is a win win transaction that will benefit Ontario electric consumers, the environment, Bruce Power and the shareholders of both Omers and TransCanada for the next 5 decades. This in my mind is quite an accomplishment and we're very proud to be part of Bruce Power. Now I'd like to turn the call over to Bill Taylor, who will provide you with some additional detail on the long term life extension agreement between Bruce Power and the ISO.
Thanks, Russ, and good afternoon, everyone. As Russ mentioned, I will now turn to some details in the amended agreement that supports additional investments in Bruce Power. First, the agreement executed today goes into effect on January 1, 2018 and runs through to December 31, 2064. The cementing agreement supporting life extension and refurbishment at Bruce secures the future of the entire site that absent such an arrangement was seeking an uncertain future. In particular, Bruce B side of plant was in need of clarity as the commercial structure to support the continued operation beyond the end of the current decade.
With this amending contract, near term investment will begin to extend the life of the units and prepare them for eventual full refurbishment as part of this multi unit, multiyear investment program. Bruce Power will earn a targeted return on capital employed and other cash commitments made in support of the operations, the life extension and the refurbishment work that is completed at site over the extended life of the facility. New capital to be deployed going forward falls into 3 categories. 1st, the sustaining capital, which covers annual repairs and replacement of general site assets outside of the power generation portion of the plant. The second is what Bruce Power has termed asset management or AM Capital.
This work is necessary to extend the life of the units to meet the timeline agreed to with the ISO for the phased in refurbishment of units 3 through 8. It includes repair and replacement of equipment not related to the reactor such as turbines, pumps, piping, electrical systems and instrumentation and control systems. The final category of investment is called major component replacement or MCR work. The MCR capital essentially covers the replacement of all of the life limiting components within the reactor portion of each unit. The first of this MCR work is expected to begin on Unit 6 in 2020.
Work on the other 5 units will follow between 2022 and 2030. For details on the full refurbishment schedule, I refer you to the Bruce Power website where you will find a background and some other information regarding the overall program. One of the most important elements of this transaction is the contract power pricing mechanism. I will provide more detail on a later slide, but for now I would note that the capital estimates for both the AM Capital and the MCR Capital are revisited and finalized over a period of time prior to the commencement of those investments. Subject to various terms and conditions in the contract, the power price is then adjusted at predetermined dates to reflect the estimated amounts that will be invested in the AM and MCR capital programs in advance of the work actually taking place.
Finally, I would highlight that the overall transaction owing to the phased in nature of the investments and the power price changes that are incorporated over time is accretive to earnings and cash flow for TransCanada over both near term and very significantly over the long term. Turning to how the power pricing for power delivered under the contract is adjusted over time. As I alluded to a moment ago, there will now be a uniform price that applies in all site generation. This price is adjusted each year for a variety of factors, some of which are adjusted annually while others are periodic and driven by capital investment. Starting base contract price is roughly $56 per megawatt hour, which includes consideration of return of and on the historic investments made at the site as well as the 1st 6 years of the required asset management or AM Capital Investment.
This base contract price will be adjusted annually in accordance with the formula utilizing a basket of economic indices. Some of the escalation is fixed, some is driven by general CPI escalation and some is specific to labor index increases. The next component included in the price paid for each megawatt hour is compensation for the dynamic capability potential Bruce Power will be providing to the ISO in the future. Dynamic capability is associated with the ISO's ability to maneuver the output of a portion of the total plant output. Bruce Power will continue to be paid the dynamic capability price and the base contract price for expected baseline generation even while available capacity is not fully dispatched.
Dynamic capability price also escalates both with CPI. Finally, all costs associated with nuclear fuel are paid to Ontario Power Gen are a full flow through and are included in the per unit price. As I noted a moment ago, the initial contract price takes into account a return of and on approximately $600,000,000 of capital expected to be invested in the asset management program over the 1st 6 years of the deal. This number is TransCanada's share of the AM investment during this period. Going forward, 6 years of AM capital spend will always be reflected in the contracted power price.
The $600,000,000 initially included is part of the $2,500,000,000 total that is expected to be spent on asset management or life extension activity over the life of the contract. Again, this is TransCanada's share of the AM investment. Every 3 years, the power price will be adjusted upward to account for an additional 3 years of AM Capital. The first such adjustment will occur on April 1, 2019. The next category of capital spend that affects the power price over time is related to major component replacement work or MCR activity.
The first cost estimate to be provided to the ISO for the refurbishment of a reactor will be for work and is expected to start in January 2020 on Unit 6. The estimate will be provided to the ISO in September 2018 and will be reflected in the price of power beginning April 1, 2019. In accordance with the overall refurbishment schedule that is available on the Bruce Power website, the key dates for MCR related price adjustments under the contract would occur between 2022 2030. On the right hand side of this next slide, you will see a drawing of the equipment covered under the major component replacement or MCR program for each of Units 3 to 8. The program involves replacing the reactor calandria tubes, fuel channels, feeder tubes, steam generators and other related systems listed at the bottom of the drawing.
Although only 4 steam generators are shown here on this graphic, there are 8 per reactor. The schedule of outages for the MCR program has been set to optimize the unit's overall economic life while minimizing outage duration and MCR overlap. As mentioned, 15 months prior to the scheduled start of each MCR outage, Bruce Power will provide a final cost estimate and duration estimate to the ISO. Once the final cost estimate and duration are set, Bruce Power will manage capital cost risk associated with each unit outage. 50% of any capital costs under spend or additional revenue from early return to service may be shared with the ISO.
TransCanada's share of the total program is currently expected to be approximately $4,000,000,000 in $20.14 Under certain conditions, both Bruce Power or the ISO can elect to not proceed with the remaining MCR investments should the cost exceed certain thresholds or not provide sufficient economic benefit. Next, I would like to spend a few minutes on how Bruce Power intends to undertake this long term capital program to ensure the work is completed on time and on budget. First, since all the units are operating, there is a high degree of knowledge of the current condition of the equipment as a result of ongoing maintenance and inspection work. 2nd, Bruce Power has 3 years to plan and analyze the cost estimate and schedule prior to finalizing the MCR cost estimate and related price adjustment for the 1st unit. 3rd, the refurbishment and replacement of a large number of systems has been moved into the asset management program to reduce the number of tasks that will be completed during the MCR outage and also minimizing that outage duration.
4th, Bruce Power has experienced senior project management staff who will plan the capital program and establish a detailed resource plan going forward. Lastly, Bruce Power has upgraded its project management and risk control systems and they will be refined further through the asset management capital projects prior to starting the main MCR outage program. In summary, I would like to leave you with the following key messages. This amended agreement allows TransCanada and its partners to extend the life of this facility for over 40 years through a significant capital investment program and at an attractive return. A combination of better escalators applied to the component of revenue that tracks salaries, which is the largest cost component at the facility and a reset of that price component to reflect actual salaries every 9 years reduces the risk of revenue growth not tracking cost escalation.
Capital costs and the related revenues are determined and adjusted more closely from the time when the capital programs are about to start, thus providing a high degree of confidence that the capital program can be delivered on time and on budget. Finally, the amended ISO contract means that Bruce Power will continue to generate strong and growing earnings and cash flow for TransCanada shareholders for decades to come. That concludes my prepared remarks. I would now like to turn the call back to David for the question and answer period.
Thanks, Bill. Just a reminder before I turn it over to the conference coordinator for questions from the investment community. We ask that you limit yourself to 2 questions. If you have additional questions, please reenter the queue. With that, I'll turn it back to the conference coordinator.
Thank you. We will now take questions from the telephone line. Our first question is from Lena Isagailis with TD Securities. Please go ahead.
Thank you. Congratulations on finally putting a pin on this agreement. I'm just wondering if you can comment on your range possible returns and what the main swing factors might be. You mentioned the sharing mechanism, I assume it's symmetric and there's no cap on that. Would it be capital costs, utilization, some other factor that would cause your returns to vary versus your initial expectations?
Linda, it's Bill. Thanks for the question. I guess what I would refer you to maybe in part for your question and then I'll give a shot at the answer would be that there is a contained on the Bruce Power website are some links to some further information on the agreement in particular. There is a copy of the that has a pretty good description of the overall workings of the transaction. But the return the targeted return as it's described in the agreement is in the low double digits on an after tax unlevered return on capital basis.
And that number is basically modeled into the power price that we're receiving over time. So the variation in that return would arise as to whether we were unable to meet our schedule or our cost projections as we price the various work activity over time. So it's really our performance against that target return will be determined against our performance by delivering the program.
Thank you. And just as a follow-up, I'm wondering how you might comment on the utilization of the units, not when they're down for your major capital program, but as a run rate over time, would you expect it to remain steady in the high 80% range? Or would you expect it to decline as they approach both the major refurbishment period and then the ultimate end of the life many years out?
Sure. Thanks, Linda. Yes, I guess there's really two periods of time to think about in response to your question. During the period of time between now and when the major MCR work is begun, There will be some, I guess I would call it as some choppiness in the overall capacity factor availability because we're taking the units down for some more complex outages in part to deal with the life the near term life extension. So I would say that in a low year of availability overall, you should expect sort of a low 80s overall availability in that period.
Some of the years are not quite that low and I would say kind of more in the mid to high 80s. And then on the long run basis over the life of the agreement, the target availability that is driving the overall transaction is 87%.
Okay. Thank you. And maybe just to help us out over the next couple of years, would 2016 2017 be characterized as low AV utilization?
The outlook right now based on our current work plan, there could be some variation in this as the work plan is revised over the next couple of years, but it would be kind of low 80s in 2016 and then actually jumping up some in 2017 above that.
Great. Thank you. I'll jump back in
the queue.
Thanks, Linda.
Thank you. Our next question is from Rob Hope with Macquarie. Please go ahead.
Yes. Thank you. Maybe just first, in terms of the risk sharing for the it looks like you'll be on
the hook
for any overages there. Just based on your existing experience with Bruce A, what gives you confidence that we won't see another significant cost of goods there?
Well, I think I covered some of that, Rob, it's Bill. I covered some of that in my prepared remarks. But just to reiterate, I think we have a significantly different situation at the site versus the prior refurbishment work that was undertaken. At this juncture, we've got all 8 reactors operating. The condition assessments literally of every piece of every valve, every pump, every aspect of the plant is very well understood by Bruce management and the operating team.
And with that, that knowledge combined with the fact that the work package is being undertaken in a significantly different way as between the split between the reactor work and the other work that will be occurring over time on the balance of plant significantly reduces the scope of the overall effort during the major outage. And this was a key area of experience that was learned from the prior effort and we anticipate that the project management challenges overall will be significantly different as a result of that.
All right. Thanks for that. And then maybe a follow-up. Just in turn in terms of the asset management CapEx over the next few years, can you give us a sense of magnitude overall for the impact needs per tower or at least your share?
Our share over the next few years is 600,000,000 dollars for TransCanada share in $2014.
And on a per year basis?
Rob, that was $600,000,000 and that would be overall over the next 6 years from the asset management program.
You might want to mention sustaining capital as well.
Yes. In addition, there's a per what we described in our release, there was another $110,000,000 our share, dollars 20.14 of sustaining capital that would go in each year.
And then the asset management, does that evenly spread over the next few years?
More or less. It's got a little variation, but it's pretty even.
Thank you.
Thanks, Rob.
Thank you. Our next question is from Robert Kwan with UBS Economic. Please go ahead.
Great. Good afternoon. Just in terms of the cost you had put in front of the ISOs part of the agreement, to kind of get them comfortable that at least the economics as you see today are worth going forward. What was it based on? Did you have was it based on detailed engineering?
Yes, there's a fair Robert, it's Bill. There's a fair amount of work that has been done. The commercial team at Bruce has been putting together these estimates. They're not fully refined in terms of the basically by the time we get to the mid-twenty 18 when the final number is provided, That estimate will be categorized under cost estimating guidelines as a Class II. So it will be a very tight estimate by the time we get to the point when that estimate becomes live in the price.
But the preliminary estimates that we provided and the basis of estimates that were provided to the ISO, we reviewed with a great degree of due diligence over the past 18 months to 24 months are comprehensive, I guess I would say. They're not I wouldn't categorize them obviously as a Class 2 as yet, but they're a very comprehensive estimate.
Okay. Thank you. And just I guess as a second question, does the pricing adjustments as part of this agreement in addition to the pricing under the AM program, does that all state and state impact if the ISO or yourselves decide not to go ahead with the MCR spending?
There is what the final version of the contract is going to be if not already is going to be posted on the government and ISO arms around the ISO and Bruce Power website. So you can get into that detail Robert with regards to the how the pricing is adjusted in the what we perceive to be the unlikely event of any off ramp occurring. We're confident that this program is affordable and it will remain affordable going forward. But nonetheless, the details of that price adjustment would basically account for the remaining generation if there was if there ever was an offer that was put under the agreement.
Okay. So ahead of actions looking at the agreement, if you can go ahead with the MCR, does it sounds like there may be a step down in the pricing?
No, it's actually the opposite. There would be a price adjustment, the net effect of which would increase the price because your overall generation over life would be reduced.
Okay. And is it just amortization of that cap over a lower period of time? Is that kind of what the driver is then?
Yes, over a lower period of time or perhaps more correctly over a lower number of megawatt hours?
Yes, the numerator is the cost, the denominator is the volume. And if you don't move forward with volume refurbishment, then cost over volume leads you to a higher price.
Okay. Thanks so much.
Thanks, Robert.
Thank you. Our next question is from Andrew Kuske with Credit Suisse. Please go ahead.
Thank you. Good afternoon. I guess a question either for Russ or for Bill. And now that you're going to embark upon the Bruce Life extension, you've got the agreement in hand. How do you think about just your portfolio mix on the power side of assets in Ontario and the interplay between them?
Obviously, you've got a bunch of gas plants that are under longer term PPAs. Those will roll off within the life of Bruce. And so how do
you think about the mix
of assets and just the exposure here overall?
I'll give it a quick shot, but I'll leave most to Bill. But as you know, most of those the average contract life that we have remaining on our facilities in Ontario is quite long. This particular one goes out to 2,064. So there isn't any other contract that kind of looks like that. But so as we look out into we are well into the next decade, we're fully contracted on our power in sales in Ontario, whether that be solar or the gas fired that we have.
Once those expire, our belief would be is that there's still going to be a need for both the solar generation and for gas fired power in the province of Ontario. But if I look out, it's hard to predict sort of out into late 2020s as to when those expires to what the market is going to look like. But I would expect that they will be very economic sources of power still in the province and maybe our intent to operate those for the life of those facilities.
Yes, I would maybe just augment Russ' response, Andrew, by adding that I mean perhaps I'm a little biased, but I mean I like our portfolio in Ontario. We're active in all aspects of the market. They have designed a power system that is foundational element of which is now nuclear or has always been nuclear, but is now further enhanced by this agreement. So we're participating on that end of it. Gas plants that we own are critical infrastructure.
They're both close to Toronto. The Napanee plant is a little further distant, but it's well connected electrically, I should say, to the backbone of the system. And then we're also participating in the renewable portion with our investments in the solar plant. So we kind of have a spectrum of investments in Ontario and we think that mix will likely not change. And then just maybe
one follow-up. Are you concerned about any degree of constitution risk just being taken in the province?
Andrew, I don't have any issue with that at all. I mean, it's a core geography for us. We've operated in the energy business in Ontario for about 60 years. We do provide either through the south end of our gas system or the north end of our gas system, we are the largest supplier of natural gas to the region. Power is a logical extension of that portfolio, single largest market in Canada and a place where we want to continue to hold a large position.
So we're very comfortable with Ontario over time. What we know is that consumers in Ontario are trying to continue to consume natural gas and power for many decades to come. And I think from an environmental perspective, we've positioned ourselves well with the energy mix, as Phil said, with nuclear energy, which is the cornerstone of their strategy. The solar portfolio providing missionless energy and the back stop of capacity with the natural gas plants positioned in the core market pockets that are going to need that generation at critical peak times. I look at the quality of our assets.
They're solid in a marketplace that's continuing to grow and consume energy for many decades to come. So we're pretty comfortable with our position in Ontario.
Okay. That's great. Thank you.
Thanks, Andrew.
Thank you. Our next question is from Paul Letchem with CICC. Please go ahead.
Thank you.
First off, why 2,064? Do you expect all our units to operate into that period or is that when the
last one comes up?
Can you just talk sort of the tail end of the agreement?
Sure. Yes, each refurbishment, Paul, adds about 30 to 35 years to the life of that particular unit. And then the investments that we're making in the asset management as I mentioned earlier, will extend the life at the front end. So you're correct in saying that that's the tail end is the end of the last unit. And you would expect that around the end of the agreement, as
occurred
as occurred in this latest round when they reached the end of their current life, there's still considerable value in the facility and in life extension. And this is a process that could be repeated down the road if the demand is still there and this is still economic power. It's I would fully expect that we would continue to do this refurbishment process going forward. That's way out there beyond my lifeblood for sure.
And you have no liabilities as you reach end of life. There's no cost to you at that point if it didn't operate beyond that time?
No, there's no delta in that aspect from what the agreement contained before where that the end of life obligations are basically they're funded along the way and that will not be the responsibility of the power or the owners.
Okay. Can I ask just
a couple of quick questions on the mechanics of the MTR negotiations? Is each unit a separate negotiation such that if you had an overrun on the first unit, is there a way for you to reconvene the cost of the second or are they completely separate negotiations?
Well, it's Bill. I would not characterize them as a negotiation so much as it is there's a process that's well defined in the agreement. Your question is kind of a complex one that I don't mean to defer on it, but I would suggest that that detail can be picked up in your read of the agreement. But the short answer would be that no, we wouldn't be able to recoup. The intention is not that we'd be able to recoup any overruns on one within the next.
And that's sort of defined as to what the cost basis of each estimate is. So there's a well defined process as to how to determine that cost basis for each unit.
You would incorporate learnings obviously from unit to unit as we move forward. So we don't recoup any losses from the past, but obviously learnings can be incorporated into the next estimate.
Or learnings or more importantly cost increase that could be just due to general market matters.
Okay. Thanks very much.
Thanks, Paul.
Thank you. Our next question is from Ben Pham with BMO Capital. Please go ahead.
Yes. Thank you. Maybe my questions have been answered. I just wanted to go back to you had some commentary about potentially getting to the point where the CapEx program for one particular unit should be too high for the move forward and that's just a bit of a negotiation with your partners and the government. And I'm just curious, just hopefully, I mean, who really has the kind of tipping point on that negotiation process?
I mean, if you guys come up with a tax number that looks good from your perspective, I mean how do your customers kind of think about it and how does the government look
at it? Well, again, it's not really a negotiation so much as it is a defined process under the agreement. There are certain cost thresholds that have been defined further to the question that Robert asked earlier about the current estimates. Those provided a framework and guideline for both parties to understand what this cost of power would look like over time. And there's a band basically around that estimate then and to the extent that it falls within that band, then we proceed.
And if it falls outside of that band, then parties have rights to choose to proceed or not according to the terms
of the agreement. Okay. That's all kind of laid out right now in front of you then. Yes. Those bands.
Okay. That's right. Okay. And then I just wanted to clarify just on the 2020 program, when these facilities are offered 3 to 4 years, what's your revenue stream look for that? Is it 2 weeks to see models that hold
to declining cash? Yes. So you're paid still on dollar per megawatt hour basis. But the effect of that is I guess mitigated to some degree because remember you have all 8 units operating generally. And so you have 1 unit down, but you'd still have revenue the price of which would reflect the unit that is down.
You'd have revenue coming from the remaining 7.
Okay. Thanks everybody. Thanks, Ben.
Thank you. Our next question is from Rob Chatelier with GMC Securities. Please go ahead.
Hi, good afternoon. Thanks for the presentation. I'm also curious about the risk reward aspect and cost sharing of the program, the risk you've taken on CapEx. Is that last off ramp sort of feature that you discussed of Ben's question really the biggest risk mitigant? In other words, are there any other risk mitigants other than getting outside of Ben Comfort that can allow you to not proceed or otherwise modify your risk?
I think the best way to answer that would be that once the estimate is established and we have reached a goal decision on that particular MCR then at that point. But again, we're talking about a situation where we've got considerable time between now and then to establish that Class II estimate. But once that estimate is in the price and that we are going, well then the execution, project execution risk progress with Bruce Power.
And I think this is to do with all of our capital projects. Once we've reached that point, we will look to our other levers to mitigate risk through fixed price contracting and those kinds of things as we nail down those estimates and nail down those contractors when you get close to construction. So we would use our traditional risk management tools to mitigate our construction cost risk once you're implementing the construction.
Yes. And I would just further add to and remind you of my remarks earlier of the comments that I made on the AM Capital portion of this, which is a rolling 3 year set of estimates. So that program which comprises our share $2,500,000,000 would be a rolling 3 year set of estimates that would be worked into the price. So again, to the extent that there's market changes affecting our contractors, etcetera, that would be reflected in whatever those kind of then current estimates would be for the AM capital over time.
Right. So just how do you distinguish between the sustaining capital and the AM portion? Is the sustaining capital drawing a return as well? Or is that outside sort of the IRR that you described previously?
Well, in terms of what the work represents, the sustaining capital as I mentioned is anything that is going on at the site that has not to do with the actual power generation equipment. So building maintenance, road maintenance, there's a fair bit of complex security at the site. This is what that element of capital is basically for. And yes, you would over time, but it's embedded in the price calculation that we've arrived at.
Just to be clear, Rob, is we get return of and on capital on all capital buckets, if you will, sustaining capital, asset management capital and MCR capital.
Okay. So then with the schedule you have in front of you for Bruce now, assuming you hit those milestones and there's no outside events getting in the way, How does that impact your ability to accelerate returns to shareholders? Is it the schedule looks like maybe it's a little more back ended. From my perspective, is there any more flexibility in your capital plan before you get to sort of 2020 timeframe?
The schedule is established pretty firmly in the agreement. But as I highlighted, there is capital that's going in and this essentially immediately once this program goes live here on January 1 next year. But that capital will build. There's obviously a larger jump in price and therefore in our earnings and return starting in 2019. But you can expect that it is a growing profile over time obviously as the capital builds in the overall program.
Again, you can think of it as upfront. We were increasing our investment by about 235,000,000 dollars in the facilities and that capital gets employed right away. There's $600,000,000 of asset management capital that goes into the pricing at $110,000,000 of sustaining capital. And then as Bill said, once we get to 2019, we have our share of the MCR capital that comes live. So that's sort of the total of now in 2020, what comes into play in terms of pricing?
Rob, it's Don here. If your question is more
is, does this soak up
capacity to do other things? The answer is no. We're looking at including sustaining capital, which is there in any event $1,700,000,000 over the next 5 years. And the cash generation from this asset is fairly strong as well. As we pointed out at Investor Day, we have about $14,000,000,000 of spend over the 2016, 2017, 2018 timeframe and that's eminently manageable from a financing standpoint.
And 2018 and onward there is significant free cash flow available and capacity for additional investment. This will soak up part of that, but it certainly doesn't preclude us from taking on new projects.
Actually, the way I was looking at it is because you're not actually doing a full unit refurb before 2020, sort of a lumpier part of the capital. It seems to be further out in the schedule and perhaps being that more flexibility that you alluded to in the interim period?
Yes, that's
a fair way of looking at it. Yes.
Okay. Thank you.
Thanks, Rob. Thank
you. Next question is from Linda Ezergailis with TD Securities. Please go ahead.
Thank you. Just another clean up question. While we're talking about Bruce Power, you can help us understand how your costs are trending over the next couple of years as well. Will there be a change in your lease revenues or your depreciation payments or anything else in terms of your cost structure?
It's Bill, Linda. I'll start with the lease costs. I think as I may have highlighted in my prepared remarks, the lease costs are a full flow through under this agreement. And so we wouldn't expect there to be any change clear or bad in regards to that. On the depreciation side, there is some modest pickup.
I defer to Don here to maybe describe this better, but there's some in the near term as the clarity on Bruce B was extended out with the life extension capital that's part of it?
Yes. So there is some life extension of the depreciation expense, but the book on Ghee is not substantial right now. So we need to invest capital first to achieve that life extension. So as Bill mentioned, it'd be modest, but there would be some.
Thank you.
Thanks Linda.
Thank you. There are no further questions registered at this time. I would like to turn the conference over to you, Mr. Moneda.
Okay. Thanks very much. And thanks to all of you for participating today on such short notice. We very much appreciate your interest in TransCanada. And we do look forward to speaking to you again soon.
Just a reminder for media, you have obviously full access to our media relations team. To the extent you do have questions, please feel free to give them a call. Thanks and bye for now.
Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.