EX-99.3 4 exhibit993.htm EXHIBIT 99.3  

 

 

Brookfield Renewable Energy Partners L.P.

MANAGEMENT’S DISCUSSION AND ANALYSIS  

FOR THE THREE MONTHS ENDED MARCH 31, 2014  AND 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basis of Presentation

This Management’s Discussion and Analysis for the three months ended March 31, 2014 is provided as of May 2, 2014. Unless the context indicates or requires otherwise, the terms “Brookfield Renewable”, “we”, “us”, and “our” mean Brookfield Renewable Energy Partners L.P. and its controlled entities.

Brookfield Renewable’s financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), which require estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and the amounts of revenue and expense during the reporting periods.

Certain comparative figures have been reclassified to conform to the current year’s presentation.

Unless otherwise indicated, all dollar amounts are expressed in United States (“U.S.”) dollars.

PRESENTATION TO PUBLIC STAKEHOLDERS

Brookfield Renewable’s consolidated equity interests include limited partnership units (“LP Units”) held by public unitholders and Redeemable/Exchangeable partnership units in Brookfield Renewable Energy L.P. (“BRELP”), a holding subsidiary of Brookfield Renewable, held by Brookfield (see “Participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield”). The LP Units and the Redeemable/Exchangeable partnership units have the same economic attributes in all respects, except that the Redeemable/Exchangeable partnership units provide Brookfield the right to request that their units be redeemed for cash consideration. In the event that Brookfield exercises this right, Brookfield Renewable has the right, at its sole discretion, to satisfy the redemption request with LP Units, rather than cash, on a one-for-one basis. Brookfield, as holder of Redeemable/Exchangeable partnership units, participates in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units. As Brookfield Renewable, at its sole discretion, has the right to settle the obligation with LP Units, the Redeemable/Exchangeable partnership units are classified under equity, and not as a liability. 

Given the exchange feature referenced above, we are presenting the LP Units and the Redeemable/Exchangeable partnership units as separate components of consolidated equity. This presentation does not impact the total income, per unit or share information, or total consolidated equity.

As at the date of this report, Brookfield Asset Management owns an approximate 65% limited partnership interest, on a fully-exchanged basis, and all general partnership units totaling a 0.01% general partnership interest in Brookfield Renewable, while the remaining 35% is held by the public.

Performance Measurement

We present our key financial metrics based on total results prior to distributions made to LP Unitholders, the Redeemable/Exchangeable unitholders and general partnership unitholders. In addition, our operations are segmented by country geography and asset type (i.e. Hydroelectric and Wind), as that is how we review our results, manage operations and allocate resources. Accordingly, we report our results in accordance with these segments.

One of our primary business objectives is to generate reliable and growing cash flows while minimizing risk for the benefit of all stakeholders. We monitor our performance in this regard through four key metrics — i) Net Income, ii) Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization, iii) Funds From Operations,  and iv) Adjusted Funds from Operations.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

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It is important to highlight that adjusted EBITDA, funds from operations, and adjusted funds from operations do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other companies. We provide additional information on how we determine adjusted EBITDA, funds from operations, and adjusted funds from operations, and we provide reconciliations to net income and cash flows from operating activities. See “Financial Review for the Three Months Ended March 31, 2014”.

Net Income

Net income is calculated in accordance with IFRS.

Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (adjusted EBITDA)

Adjusted EBITDA means revenues less direct costs (including energy marketing costs), plus our share of cash earnings from equity-accounted investments and other income, before interest, income taxes, depreciation, management service costs and the cash portion of non-controlling interests.

Funds From Operations

Funds from operations is defined as adjusted EBITDA less interest, current income taxes and management service costs, which is then adjusted for the cash portion of non-controlling interests. Our payout ratio is defined as distributions to Redeemable/Exchangeable Units, LP Units and general partnership interest, including general partner incentive distributions, divided by funds from operations.

Adjusted Funds From Operations

Adjusted funds from operations is defined as funds from operations less Brookfield Renewable’s share of levelized sustaining capital expenditures (based on long term capital expenditure plans).














Statement Regarding Forward-Looking Statements and Use of Non-IFRS Measures

 

This Management's Discussion and Analysis contains  forward-looking information within the meaning of U.S. and Canadian securities laws. We may make such statements in this Management's Discussion and Analysis, in other filings with the U.S. Securities and Exchange Commission (“SEC”) or in other communications or Canadian regulators - see “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 25. We make use of non-IFRS measures in this Management's Discussion and Analysis  - see “Cautionary Statement Regarding Use Of Non-IFRS Measures” on page 26. This Management's Discussion and Analysis, our Form 20-F  and additional information filed with the SEC and with securities regulators in Canada are available on our website at www.brookfieldrenewable.com, on the SEC’s website at www.sec.gov or on SEDAR’s website at www.sedar.com.

 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

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GENERATION FOR THE THREE MONTHS ENDED MARCH 31, 2014

The following table reflects the actual and long-term average generation for the three months ended March 31:

 

 

 

 

 

 

Variance of Results

 

 

 

 

 

 

 

 

Actual vs.

 

Actual Generation(1)

LTA Generation(1)

Actual vs. LTA

Prior Year

GENERATION (GWh)

2014

2013

2014

2013

2014

2013

 

Hydroelectric generation

 

 

 

 

 

 

 

 

United States

 2,591 

 2,561 

 2,794 

 2,389 

 (203) 

 172 

 30 

 

Canada

 1,311 

 1,282 

 1,193 

 1,196 

 118 

 86 

 29 

 

Brazil(2)

 1,099 

 936 

 929 

 936 

 170 

 - 

 163 

 

 

 5,001 

 4,779 

 4,916 

 4,521 

 85 

 258 

 222 

Wind energy

 

 

 

 

 

 

 

 

United States

 273 

 216 

 311 

 258 

 (38) 

 (42) 

 57 

 

Canada

 337 

 323 

 324 

 324 

 13 

 (1) 

 14 

 

 

 610 

 539 

 635 

 582 

 (25) 

 (43) 

 71 

Other

 100 

 217 

 219 

 222 

 (119) 

 (5) 

 (117) 

Total generation(3)

 5,711 

 5,535 

 5,770 

 5,325 

 (59) 

 210 

 176 

(1)         For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

(2)         In Brazil, assured generation levels are used as a proxy for long-term average.

(3)         Includes our share of generation in respect of those equity-accounted investments which we do not manage.

We compare actual generation levels against the long-term average to highlight the impact of one of the important factors that affect the variability of our business results. In the short-term, we recognize that hydrology will vary from one period to the next; over time however, we expect our facilities will continue to produce in line with their long-term averages, which have proven to be reliable indicators of performance.

Our risk of a generation shortfall in Brazil continues to be minimized by participation in a hydrological balancing pool administered by the government of Brazil. This program mitigates hydrology risk by assuring that all participants receive, at any particular point in time, a reference amount of electricity (assured energy), irrespective of the actual volume of energy generated. The program reallocates energy, transferring surplus energy from those who generated in excess of their assured energy to those who generate less than their assured energy, up to the total generation within the pool.

Generation levels during the three months ended March 31, 2014 totaled 5,711 GWh, an increase of 176 GWh as compared to the same period of the prior year.

The hydroelectric portfolio generated 5,001 GWh, in-line with the long-term average of 4,916 GWh and an increase of 222 GWh as compared to the first quarter of 2013. Generation from existing hydroelectric assets was 4,711 GWh compared to 4,779 GWh for the prior year. In the United States, hydrological conditions across the portfolio resulted in lower inflows, and generation was slightly below long-term average. Generation in Canada increased as hydrology was strong, notably in Ontario.  Facilities acquired in Maine during the current quarter and in the first quarter of 2013 contributed incremental generation of 231 GWh. In Brazil, we effectively used energy shaping, as permitted by the balancing pool administered by the government of Brazil, to sell more than the assured level of generation in this quarter to capture higher power prices. The generation required to be provided to the balancing pool in later quarters was locked in at favorable power pricing.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

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Generation from the wind portfolio totaled 610 GWh, in-line with the long-term average of 635 GWh and an increase of 71 GWh compared to the first quarter of 2013.  Wind conditions in the United States were stronger compared to the prior year, and generation increased by 27 GWh with a full quarter’s contribution from the facilities acquired in California in the first quarter of 2013.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 4 

 

 

FINANCIAL REVIEW FOR THE THREE MONTHS ENDED MARCH 31, 2014

The following table reflects adjusted EBITDA, funds from operations, adjusted funds from operations, and a reconciliation to net income for the three months ended March 31:

(MILLIONS, EXCEPT AS NOTED)

 

 

 

 

2014

 

2013

Revenues

$

 480 

$

 437 

Other income

 

 3 

 

 2 

Share of cash earnings from equity-accounted investments

 

 7 

 

 6 

Direct operating costs

 

 

 

 

 (130) 

 

 (126) 

Adjusted EBITDA(1)

 

 360 

 

 319 

Interest expense – borrowings

 

 (101) 

 

 (102) 

Management service costs

 

 (11) 

 

 (12) 

Current income taxes

 

 (8) 

 

 (3) 

Less: cash portion of non-controlling interests

 

 

 

 

 

Preferred equity

 

 (9) 

 

 (7) 

    

Participating non-controlling interests - in operating subsidiaries

 

 (46) 

 

 (33) 

Funds from operations(1)

 

 185 

 

 162 

Less: sustaining capital expenditures(2)

 

 

 

 

 (14) 

 

 (14) 

Adjusted funds from operations(1)

 

 171 

 

 148 

Add: cash portion of non-controlling interests

 

 55 

 

 40 

Add: sustaining capital expenditures

 

 14 

 

 14 

Other items:

 

 

 

 

   

Depreciation

 

 (126) 

 

 (128) 

   

Unrealized financial instrument gain

 

 - 

 

 16 

   

Share of non-cash loss from equity-accounted investments

 

 (6) 

 

 (2) 

Deferred income tax recovery

 

 (2) 

 

 (1) 

Other

 

 19 

 

 (2) 

Net income

$

 125 

$

 85 

 

 

 

 

 

Basic and diluted earnings per LP Unit(3)

$

 0.29 

$

 0.23 

(1)           Non-IFRS measures.  See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

(2)           Based on long-term capital expenditure plans.

(3)           Average LP Units outstanding during the period totaled 133.0 million (2013: 132.9 million).

Net income is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income on an IFRS basis for our business will often lead to the recognition of a loss even though the underlying cash flow generated by the assets is supported by high margins and stable, long-term contracts. The primary reason for this is that we recognize a significantly higher level of depreciation for our assets than we are required to reinvest in the business as sustaining capital expenditures.

As a result, we also measure our financial results based on adjusted EBITDA, funds from operations, and adjusted funds from operations to provide readers with an assessment of the cash flow generated by our assets and the residual cash flow retained to fund distributions and growth initiatives.

Revenues totaled $480 million which represented a year-over-year increase of $43 million. Of this amount, $39 million was attributable to full quarter’s contribution from facilities acquired or commissioned in the first quarter of 2013, and $9 million was attributable to the facilities acquired during the current quarter. An increase in generation from our existing facilities resulted in additional revenues of $6 million. At our recently-acquired facilities in Maine we predominantly sell our generation at market-based prices,

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 5 

 

 

and therefore we have benefited from very strong power pricing in the northeastern United States during the current quarter. Activity in our Brazil portfolio contributed an additional $20 million to revenues.

The appreciation of the U.S. dollar not only impacted revenues by $30 million but affected costs and other expenses resulting in a year-over-year decrease to funds from operations by $14 million.

Direct operating costs totaled $130 million which represented a year-over-year increase of $4 million related primarily to the growth in our portfolio.

Interest expense totaled $101 million which remained consistent with the prior year. Borrowing costs increased by $7 million with the financing related to portfolio growth, partially offset by the impact of the appreciation of the U.S. dollar.

Management service costs reflect a base fee of $20 million annually plus 1.25% of the growth in total capitalization value. Management service costs totaled $11 million and represented a slight decrease year-over-year. The capitalization value decreased due to lower amounts on credit facilities and a decrease in the value of our Canadian dollar-denominated corporate borrowings.

The cash portion of non-controlling interests was $55 million which represented an increase of $15 million related to the contributions from the growth in our portfolio.

Funds from operations totaled $185 million representing an increase of $23 million year-over-year reflecting the growth in our portfolio and net of the $14 million foreign exchange impact.

Net income was $125 million for the three months ended March 31, 2014 (2013: $85 million).

 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 6 

 

 

SEGMENTED DISCLOSURES

HYDROELECTRIC

The following table reflects the results of our hydroelectric operations for the three months ended March 31:

(MILLIONS, EXCEPT AS NOTED)

 

2014

 

 

United States

Canada

Brazil

Total

Generation (GWh) – LTA(1)(2)

 

 2,794 

 

 1,193 

 

 929 

 

 4,916 

Generation (GWh) – actual(1)(2)

 

 2,591 

 

 1,311 

 

 1,099 

 

 5,001 

Revenues

$

 206 

$

 98 

$

 89 

$

 393 

Adjusted EBITDA(3)

 

 158 

 

 82 

 

 73 

 

 313 

Funds from operations(3)

$

 82 

$

 66 

$

 58 

$

 206 

 

(MILLIONS, EXCEPT AS NOTED)

 

2013

 

 

United States

Canada

Brazil

Total

Generation (GWh) – LTA(1)(2)

 

 2,389 

 

 1,196 

 

 936 

 

 4,521 

Generation (GWh) – actual(1)(2)

 

 2,561 

 

 1,282 

 

 936 

 

 4,779 

Revenues

$

 185 

$

 94 

$

 75 

$

 354 

Adjusted EBITDA(3)

 

 143 

 

 78 

 

 55 

 

 276 

Funds from operations(3)

$

 82 

$

 62 

$

 42 

$

 186 

(1)            Includes our share of generation in respect of those equity-accounted investments which we do not manage.

(2)           For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

(3)            Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.   

United States

Generation from the portfolio was 2,591 GWh for the first quarter of 2014, compared to the long-term average of 2,794 GWh and prior year generation of 2,561 GWh. The acquisition of a 70 MW hydroelectric portfolio in Maine completed during the current quarter contributed 69 GWh, while a full quarter’s contribution from the 360 MW portfolio in Maine acquired in March 2013 resulted in an incremental 162 GWh of generation. Generation from existing facilities decreased 201 GWh, as conditions in California were very dry, and the northeastern and midwestern United States experienced lower inflows than in the first quarter of 2013. Generation from our portfolio in North Carolina and Tennessee returned to more normal levels compared to the very strong hydrological conditions these facilities benefited from in the prior year. 

Revenues totaled $206 million which represented a year-over-year increase of $21 million. Of this amount, $9 million was attributable to a facility in Maine acquired during the current quarter, and $30 million was attributable to a full quarter’s contribution from market-based cash flow portfolio in Maine acquired in the first quarter of 2013. We were able to sell power from the acquired facilities in Maine at higher market prices in part due to the cold winter in the New England region.

Funds from operations totaled $82 million which was unchanged from the prior year. Funds from operations were impacted by the increase in revenues, and was offset by increases in direct operating costs, interest expense and the cash portion of non-controlling interests associated with the recently acquired facilities.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 7 

 

 

Canada

Generation from the Canadian portfolio was 1,311 GWh for the first quarter of 2014 compared to the long-term average of 1,193 GWh and prior year generation of 1,282 GWh. Generation increased from the prior year and was above long-term average as a result of strong inflows, notably at our Ontario facilities.

Revenues totaled $98 million which represented a year-over-year increase of $4 million. The increase is due to the contribution from a facility in British Columbia in which we acquired the remaining 50% interest in the first quarter of 2013. The increase was partially offset by the appreciation of the U.S. dollar relative to the Canadian dollar.

Funds from operations totaled $66 million which represented a year-over-year increase of $4 million attributable to the additional revenues.

Brazil

Generation from the Brazilian portfolio was 1,099 GWh for the first quarter of 2014 compared to the prior year generation of 936 GWh. We executed on a strategy to sell additional assured energy to take advantage of the higher power prices, while at the same time acquired the energy to satisfy contracts later in the year at a lower price. There was also a full quarter’s generation of 59 GWh from a facility commissioned in the first quarter of 2013.

Revenues totaled $89 million which represented a year-over-year increase of $14 million. By executing on our strategy to sell additional assured energy and other initiatives, we were able to increase revenues in the current period, which will be partially offset over the course of the year.

Funds from operations totaled $58 million which represented a year-over-year increase of $16 million related primarily to the  increase in revenues.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 8 

 

 

WIND

The following table reflects the results of our wind operations for the three months ended March 31:

(MILLIONS, EXCEPT FOR AS NOTED)

2014

 

United States

Canada

Total

Generation (GWh) – LTA(1)(2)

 

 311 

 

 324 

 

 635 

Generation (GWh) – actual(1)(2)

 

 273 

 

 337 

 

 610 

Revenues

$

 29 

$

 39 

$

 68 

Adjusted EBITDA(3)

 

 17 

 

 36 

 

 53 

Funds from operations(3)

$

 - 

$

 26 

$

 26 

 

(MILLIONS, EXCEPT FOR AS NOTED)

2013

 

United States

Canada

Total

Generation (GWh) – LTA(1)(2)

 

 258 

 

 324 

 

 582 

Generation (GWh) – actual(1)(2)

 

 216 

 

 323 

 

 539 

Revenues

$

 23 

$

 40 

$

 63 

Adjusted EBITDA(3)

 

 14 

 

 35 

 

 49 

Funds from operations(3)

$

 1 

$

 21 

$

 22 

(1)            Includes our share of generation in respect of those equity-accounted investments which we do not manage.

(2)           For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

(3)            Non-IFRS measures. See “Cautionary Statement Regarding Use of Non-IFRS Measures”. 

United States

Generation from the portfolio was 273 GWh for the first quarter of 2014 compared to the long-term average of 311 GWh and prior year generation of 216 GWh. The increase in generation from the prior year is attributable to stronger wind conditions experienced during the current quarter as compared to the prior year, and a full quarter’s contribution from the facilities acquired in California in the first quarter of 2013 resulting in an increase in generation of 27 GWh.

Revenues totaled $29 million, which represented a year-over-year increase of $6 million. The increase in revenues is attributable to a full quarter of generation from the assets acquired in California in the first quarter of 2013, and stronger wind conditions.

Funds from operations were $nil, virtually unchanged from the prior year. Funds from operations were positively impacted by the increase in revenues, offset by increased expenses associated with the growth in our portfolio.

Canada

Generation from our Canadian wind portfolio was 337 GWh, which was in-line with the long-term average of 324 GWh and prior year generation of 323 GWh.

Revenues totaled $39 million, which was consistent with the same period of the prior year.

Funds from operations totaled $26 million, which represented an increase of $5 million from the prior year and was attributable to non-recurring costs related to the up-financing at two facilities in 2013.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 9 

 

 

Analysis Of Consolidated Financial Statements and Other Information

Property, Plant and Equipment

In accordance with IFRS, Brookfield Renewable has elected to revalue its property, plant and equipment at a minimum on an annual basis, as at December 31st of each year.  As a result, certain of Brookfield Renewable’s property, plant and equipment, are carried at fair value as opposed to historical cost, using a 20-year discounted cash flow model. This model incorporates future cash flows from long-term power purchase agreements that are in place where it is determined that the power purchase agreements are linked specifically to the related power generating assets. The model also includes estimates of future electricity prices, anticipated long-term average generation, estimated operating and capital expenditures, and assumptions about future inflation rates and discount rates by geographical location.

Property, plant and equipment, at fair value totaled $15.8 billion as at March 31, 2014 as compared to $15.7 billion as at December 31, 2013. During the quarter, the acquisition of 85 MW of hydroelectric facilities and the development and construction of renewable power generating assets combined totaled $324 million. Property, plant and equipment were also impacted by foreign currency changes related to the U.S. dollar in the amount of $168 million. We also recognized depreciation expense of $126 million which is significantly higher than what we are required to reinvest in the business as sustaining capital expenditures. 

Fair value of property, plant and equipment can vary with discount and terminal capitalization rates. The following table summarizes the impact of a change in discount rates and terminal capitalization rates on the fair value of property, plant and equipment as at December 31, 2013:

(BILLIONS)

 

 

2013

 

2012

50 bps increase in discount rates

$

 (1.1) 

$

 (1.2) 

50 bps decrease in discount rates

 

 1.3 

 

 1.4 

 

 

 

 

 

50 bps increase in terminal capitalization rate(1)

 

 (0.3) 

 

 (0.4) 

50 bps decrease in terminal capitalization rate(1)

 

 0.3 

 

 0.3 

(1)            The terminal capitalization rate applies only to hydroelectric assets in the United States and Canada.

Terminal values are included in the valuation of hydroelectric assets in the United States and Canada.  For the hydroelectric assets in Brazil, cash flows have been included based on the duration of the authorization or useful life of a concession asset without consideration of potential renewal value. The weighted-average remaining duration at December 31, 2013, is 16 years (2012: 17 years). Consequently, there is no terminal value attributed to the hydroelectric assets in Brazil. If an additional 20 years of cash flows were included, the fair value of property, plant and equipment would increase by approximately $1 billion. See Note 11 - Property, plant and equipment, at fair value in our December 31, 2013 audited consolidated financial statements.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 10 

 

 

liquidity and capital Resources

A key element of our financing strategy is to raise the majority of our debt in the form of asset-specific, non-recourse borrowings at our subsidiaries on an investment grade basis. As at March 31, 2014, long-term indebtedness increased from December 31, 2013 as a result of the portfolio growth. The debt to capitalization ratio was 41% at March 31, 2014 and remained unchanged from December 31, 2013.

Capitalization

The following table summarizes the capitalization using book values:

 

 

Mar 31

Dec 31

(MILLIONS)

 

 

2014

 

2013

Credit facilities(1)

$

 346 

$

 311 

Corporate borrowings(2)

 

 1,352 

 

 1,406 

Subsidiary borrowings(3)

 

 

 5,113 

 

 4,906 

Long-term indebtedness

 

 6,811 

 

 6,623 

Deferred income tax liabilities, net of deferred income tax assets

 

 2,111 

 

 2,148 

Equity

 

 7,741 

 

 7,536 

Total capitalization

$

 16,663 

$

 16,307 

Debt to total capitalization

 

41%

 

41%

(1)            Credit facilities are comprised of $289 million issued by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable, and $57 million borrowed under a subscription credit facility made available by a private fund sponsored by Brookfield Asset Management. This subscription credit facility is only available to us on a limited basis. These credit facilities are unsecured.

(2)            Issued by a subsidiary of Brookfield Renewable and guaranteed by Brookfield Renewable. The amounts are unsecured.

(3)            Issued by subsidiaries of Brookfield Renewable and secured against their respective assets. The amounts are not guaranteed.

During the three months ended March 31, 2014 we completed the following financings:

·          In January 2014, the $279 million bridge loan associated with a 360 MW operating hydroelectric portfolio located in Maine was refinanced to 2017 at LIBOR plus 2.25%. 

·          In February 2014, as part of the acquisition of the 70 MW hydroelectric portfolio in Maine, $140 million of financing was obtained through a bond issuance with a 5.5% interest rate maturing in 2024.

·         In March 2014, we up-financed indebtedness associated with a 349 MW Ontario hydroelectric portfolio through the issuance of C$90 million of senior and C$60 million of subordinate bonds with interest rates of  3.8% and 5.0% respectively maturing in June 2023.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 11 

 

 

Available liquidity

We operate with substantial liquidity, which along with ongoing cash flow from operations enables us to fund growth initiatives, capital expenditures, distributions, and to finance the business on an investment grade basis.

The following table summarizes the available liquidity:  

 

 

Mar 31

Dec 31

(MILLIONS)

2014

2013

Cash and cash equivalents

$

 227 

$

 203 

Credit facilities

 

 

 

 

 

Authorized credit facilities

 

 1,480 

 

 1,480 

 

Draws on credit facilities

 

 (289) 

 

 (311) 

 

Issued letters of credit

 

 (237) 

 

 (212) 

Available portion of credit facilities

 

 954 

 

 957 

Available liquidity

$

 1,181 

$

 1,160 

Available liquidity is comprised of cash and the unused portion of credit facilities. As at March 31, 2014, we had $1,181 million of available liquidity (December 31, 2013: $1,160 million) which provides the flexibility to fund ongoing portfolio growth initiatives and to protect against short-term fluctuations in generation.

Long-term debt and credit facilities

The following table summarizes our principal repayments and maturities as at March 31, 2014:

(MILLIONS)

Balance of 2014

2015

2016

2017

2018

Thereafter

Total

Principal repayments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Subsidiary borrowings(1)

$

 505 

$

 229 

$

 263 

$

 862 

$

 298 

$

 2,991 

$

 5,148 

 

Corporate borrowings and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

credit facilities(1)

 

 57 

 

 - 

 

 272 

 

 289 

 

 181 

 

 905 

 

 1,704 

 

Equity-accounted investments

 - 

 

 32 

 

 - 

 

 125 

 

 - 

 

 - 

 

 157 

 

$

 562 

$

 261 

$

 535 

$

 1,276 

$

 479 

$

 3,896 

$

 7,009 
                                 

(1)            Subsidiary borrowings and corporate borrowings and credit facilities include $53 million and $12 million of unamortized deferred financing fees and premiums, respectively.

Subsidiary borrowings maturing in 2014 include $125 million on a New England hydroelectric facility and $250 million on our portfolio of hydroelectric facilities in the Southeastern United States. These borrowings are expected to be refinanced in the normal course.

The overall maturity profile and average interest rates associated with our borrowings and credit facilities are as follows:

 

 

 Average term (years)

Average interest rate (%)

 

 

Mar 31

 

Dec 31

 

Mar 31

 

Dec 31

 

 

2014

 

2013

 

2014

 

2013

Corporate borrowings

 

 7.5 

 

 7.7 

 5.3 

 

 5.3 

Subsidiary borrowings

 

 11.5 

 

 11.8 

 5.9 

 

 6.0 

Credit facilities

 

 3.6 

 

 3.8 

 1.5 

 

 1.4 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 12 

 

 

CONTRACT PROFILE

We have a predictable profile driven by both long-term power purchase agreements with a weighted-average remaining duration of 17 years, combined with a well-diversified portfolio that reduces variability in our generation volumes. We operate the business on a largely contracted basis to ensure a high degree of predictability in funds from operations. We do however maintain a long-term view that electricity prices and the demand for electricity from renewable sources will rise due to a growing level of acceptance around climate change and the legislated requirements in some areas to diversify away from fossil fuel based generation.

The following table sets out contracts over the next five years for generation output assuming long-term average:

FOR THE YEAR ENDED DECEMBER 31

Balance of 2014

 

2015

 

2016

 

2017

 

2018

 

Generation (GWh)

 

 

 

 

 

 

 

 

 

 

 

Contracted(1)

 

 

 

 

 

 

 

 

 

 

 

 

Hydroelectric

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 5,814 

 

 7,035 

 

 7,018 

 

 7,018 

 

 7,018 

 

 

 

Canada

 

 3,946 

 

 5,185 

 

 5,185 

 

 5,185 

 

 5,185 

 

 

 

Brazil

 

 2,580 

 

 2,522 

 

 2,308 

 

 1,570 

 

 1,334 

 

 

 

 

 

 12,340 

 

 14,742 

 

 14,511 

 

 13,773 

 

 13,537 

 

 

Wind energy

 

 

 

 

 

 

 

 

 

 

 

 

 

United States

 

 1,006 

 

 1,293 

 

 1,292 

 

 1,292 

 

 1,292 

 

 

 

Canada

 

 873 

 

 1,197 

 

 1,197 

 

 1,197 

 

 1,197 

 

 

 

 

 

 1,879 

 

 2,490 

 

 2,489 

 

 2,489 

 

 2,489 

 

Other

 

 32 

 

 - 

 

 - 

 

 - 

 

 - 

 

 

 

 

 

 14,251 

 

 17,232 

 

 17,000 

 

 16,262 

 

 16,026 

 

Uncontracted

 

 

 

 2,309 

 

 4,901 

 

 5,116 

 

 5,844 

 

 6,080 

 

Total long-term average

 16,560 

 

 22,133 

 

 22,116 

 

 22,106 

 

 22,106 

 

Long-term average on a proportionate basis(2)

 

 

 

 13,442 

 

 17,877 

 

 17,859 

 

 17,850 

 

 17,850 

 

 

 

Contracted generation - as at March 31, 2014

% of total generation

 86 

%

 78 

%

 77 

%

 74 

%

 72 

%

% of total generation on a proportionate basis(2)

 93 

%

 86 

%

 85 

%

 81 

%

 80 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Price per MWh

$

 80 

$

 83 

$

 84 

$

 82 

$

 83 

 

(1)            Assets under construction are included when long-term average and pricing details are available and the commercial operation date is established in a definitive construction contract. Long-term average for 2014 to 2018 includes generation from our 45 MW hydroelectric facility in British Columbia that entered commercial operation in April 2014.

(2)            Long-term average on a proportionate basis includes wholly-owned assets, and our share of partially-owned assets and equity-accounted investments.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 13 

 

 

The majority of the long-term power sales agreements are with investment-rated or creditworthy counterparties. At the beginning of 2014 the composition of our contracted generation for 2014 is as follows:

 

 

 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 14 

 

 

SUMMARY CONSOLIDATED BALANCE SHEETS

The following table provides a summary of the key line items on the interim consolidated balance sheets:

 

 

Mar 31

Dec 31

(MILLIONS)

 

2014

2013

Property, plant and equipment, at fair value

$

 15,771 

$

 15,741 

Equity-accounted investments

 

 549 

 

 290 

Total assets

 

 17,288 

 

 16,977 

Long-term debt and credit facilities

 

 6,811 

 

 6,623 

Deferred income tax liabilities

 

 2,247 

 

 2,265 

Total liabilities

 

 9,547 

 

 9,441 

Preferred equity

 

 766 

 

 796 

Participating non-controlling interests - in operating subsidiaries

 

 1,571 

 

 1,303 

General partnership interest in a holding subsidiary held by Brookfield

 

 54 

 

 54 

Participating non-controlling interests - in a holding subsidiary -

 

 

 

 

 

Redeemable/Exchangeable units held by Brookfield

 

 2,641 

 

 2,657 

Limited partners' equity

 

 2,709 

 

 2,726 

Total liabilities and equity

 

 17,288 

 

 16,977 

Contractual obligations

In March 2014, Brookfield Renewable entered into an agreement to acquire the wind portfolio of Bord Gáis Energy. The portfolio comprises 321 MW of operating wind capacity across 17 wind projects in Ireland and Northern Ireland. The transaction with Brookfield Renewable is being completed as a sale by the Republic of Ireland-owned Bord Gáis Éireann. The purchase price is subject to customary closing adjustments and represents, net of assumed long-term non-recourse debt and certain deferred contingent consideration, a net purchase price of approximately €495 million ($680 million). Brookfield Renewable will fund the transaction with its institutional partners and maintain an economic interest in the portfolio of approximately 40%. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to close in the second quarter of 2014.

Capital expenditures and development and construction

Brookfield Renewable categorizes its capital spending as either sustaining or development and construction expenditures. Sustaining capital expenditures relate to maintaining power generating assets, whereas development and construction expenditures include project costs for new facilities. Total sustaining capital expenditures for 2014 are expected to be approximately $85 million.

Guarantees

Brookfield Renewable, on behalf of its subsidiaries, and subsidiaries themselves have provided letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance. As at March 31, 2014 letters of credit issued by subsidiaries of Brookfield Renewable amounted to $98 million.

In the normal course of operations, we execute agreements that provide for indemnification and guarantees to third parties in transactions such as acquisitions, construction projects, capital projects, and purchases of assets. We have also agreed to indemnify our directors and certain of our officers and employees. The nature of the indemnifications prevents us from making a reasonable estimate of the maximum potential amount that could be required to pay third parties, as many of the agreements do not

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 15 

 

 

specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, we have made no significant payments under indemnification agreements.

Off-Balance Sheet Arrangements

Brookfield Renewable has no off-balance sheet financing arrangements.

Related Party Transactions

Brookfield Renewable’s related party transactions are in the normal course of business, and are recorded at the exchange amount. Brookfield Renewable’s related party transactions are primarily with Brookfield Asset Management and its affiliates.

Brookfield Renewable sells electricity to subsidiaries of Brookfield Asset Management through long-term power purchase agreements to provide stable cash flow and reduce Brookfield Renewable’s exposure to electricity prices in deregulated power markets. Brookfield Renewable also benefits from a wind levelization agreement with a subsidiary of Brookfield Asset Management which reduces the exposure to the fluctuation of wind generation at certain facilities and thus improves the stability of its cash flow.

In addition to these agreements, Brookfield Renewable and Brookfield Asset Management have executed other agreements that are fully described in Note 9 - Related Party Transactions in our December 31, 2013 audited consolidated financial statements.

The following table reflects the related party agreements and transactions on the interim consolidated statements of income for the three months ended March 31:

(MILLIONS)

 

2014

 

2013

Revenues

 

 

 

 

 

Purchase and revenue support agreements

$

 35 

$

 103 

 

Wind levelization agreement

 

 1 

 

 1 

 

 

$

 36 

$

 104 

Direct operating costs

 

 

 

 

 

Energy purchases

$

 (6) 

$

 (10) 

 

Energy marketing fee

 

 (5) 

 

 (5) 

 

Insurance services

 

 (7) 

 

 (6) 

 

 

$

 (18) 

$

 (21) 

Management service costs

$

 (11) 

$

 (12) 

Revenues from long-term power purchase agreements and revenue agreements were $36 million, a decrease of $68 million from the first quarter of 2013. This decrease is primarily due to the reduction in the level of price support and reflects the very strong pricing environment which we benefited from in the first quarter of 2014.    

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 16 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

The following table summarizes the key items on the consolidated statements of cash flows for the three months ended March 31:

(MILLIONS)

 

2014

2013

Cash flow provided by (used in):

 

 

 

 

Operating activities

$

 272 

$

 202 

Financing activities

 

 340 

 

 155 

Investing activities

 

 (588) 

 

 (267) 

Increase in cash and cash equivalents

$

 24 

$

 90 

Cash and cash equivalents as at March 31, 2014 totaled $227 million, representing an increase of $24 million since December 31, 2013.

Operating Activities

Cash flows provided by operating activities totaled $272 million for the first quarter of 2014, resulting in a year-over-year increase of $70 million, which was primarily attributable to funds generated from operations.

Financing Activities

Cash flows provided by financing activities totaled $340 million for the first quarter of 2014. Borrowings increased by $581 million due to the growth in our portfolio and refinancing at a hydroelectric portfolio in Maine and an up-financing at a hydroelectric portfolio in Ontario. Repayments related to subsidiary borrowings were $296 million. The capital provided by participating non-controlling interests – in operating subsidiaries relates to the acquisitions of a portfolio of hydroelectric generation facilities in Maine and a hydroelectric generation facility in Pennsylvania.

For the first quarter of 2014, distributions paid to unitholders were $164 million (2013: $91 million). With the change in timing of our quarterly distributions taking effect in the first quarter of 2014 resulting in a distribution on January 31, 2014 and on March 31, 2014, the amounts paid in the first quarter of 2014 included distributions declared in both the fourth quarter of 2013 and the current quarter. Distributions paid in the first quarter of 2013 included only those declared in the preceding quarter. The distributions paid to preferred shareholders and participating non-controlling interests - in operating subsidiaries were $26 million (2013: $69 million). See “Dividends and Distributions” for further details.

Investing Activities

Cash flows used in investing activities for the first quarter of 2014 totaled $588 million.  Our investments were with respect to the acquisition of a portfolio of hydroelectric generation facilities in Maine, a 33% economic interest in a hydroelectric generation facility in Pennsylvania, and the remaining 50% interest previously held by our partner in a hydroelectric facility in California that when combined totaled $540 million. In addition, our continued investment in the construction of renewable power generating assets was $11 million and sustainable capital expenditures totaled $11 million.

NON-CONTROLLING INTERESTS

Preferred equity

For the three months ended March 31, 2014, dividends declared on all classes of preference shares were $9 million (2013: $7 million). See Dividends and Distributions.

As at March 31, 2014 no preference shares have been redeemed.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 17 

 

 

General partnership interest in a holding subsidiary held by Brookfield

Brookfield, as the owner of the 1% general partnership interest in BRELP, is entitled to regular distributions plus an incentive distribution based on the amount by which quarterly distributions exceed specified target levels. To the extent that distributions exceed $0.375 per unit per quarter, the incentive is 15% of distributions above this threshold. To the extent that quarterly distributions exceed $0.4225 per unit, the incentive distribution is equal to 25% of distributions above this threshold. Accordingly, incentive distributions of $1 million were made during the three months ended March 31, 2014.

Participating non-controlling interests - in a holding subsidiary - Redeemable/Exchangeable units held by Brookfield

BRELP has issued Redeemable/Exchangeable partnership units to Brookfield Asset Management, which may at the request of the holder, require BRELP to redeem these units for cash consideration. The right is subject to Brookfield Renewable’s right of first refusal which entitles it, at its sole discretion, to elect to acquire all of the units presented to BRELP that are tendered for redemption in exchange for LP Units. If Brookfield Renewable elects not to exchange the Redeemable/Exchangeable partnership units for LP Units, the Redeemable/Exchangeable partnership units are required to be redeemed for cash. As Brookfield Renewable, at its sole discretion, has the right to settle the obligation with LP Units, the Redeemable/Exchangeable partnership units are classified as equity, and not as a liability.

 

LIMITED PARTNERS’ EQUITY

A secondary offering was completed during the first quarter of 2013 in which Brookfield Asset Management sold 8,065,000 of its LP Units. As a result, Brookfield Asset Management now owns, directly and indirectly, 169,685,609 LP Units and Redeemable/Exchangeable partnership units, representing approximately 65% of Brookfield Renewable on a fully-exchanged basis.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 18 

 

 

SHARES AND UNITS OUTSTANDING

The shares and units outstanding are presented in the following table:

 

 

 

Mar 31

Dec 31

 

 

 

2014

2013

Class A Preference Shares

 

 

 

Series 1

 10,000,000 

 10,000,000 

 

Series 3

 10,000,000 

 10,000,000 

 

Series 5

 7,000,000 

 7,000,000 

 

Series 6

 7,000,000 

 7,000,000 

 

 

 

 34,000,000 

 34,000,000 

 

 

 

 

 

General partnership units held by Brookfield

 2,651,506 

 2,651,506 

 

 

 

 

 

Redeemable/Exchangeable units held by Brookfield

 129,658,623 

 129,658,623 

 

 

 

 

 

LP Units

 

 

 

Balance, beginning of year

 132,984,913 

 132,901,916 

 

Distribution reinvestment plan

 45,459 

 82,997 

Balance, end of period/year

 133,030,372 

 132,984,913 

 

 

 

 

 

Brookfield Asset Management

 40,026,986 

 40,026,986 

External LP Unitholders

 93,003,386 

 92,957,927 

 

 

 

 133,030,372 

 132,984,913 

 

 

 

 

 

LP Units on a fully-exchanged basis - total

 262,688,995 

 262,643,536 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 19 

 

 

DIVIDENDS AND DISTRIBUTIONS

The composition of the dividends and distributions for the three months ended March 31 are presented in the following table:

THREE MONTHS ENDED MARCH 31

 

Accrued

 

Paid

(MILLIONS, EXCEPT AS NOTED)

 

2014

 

2013

 

2014

 

2013

Class A Preference Shares

 

 

 

 

 

 

 

 

 

Series 1

$

 3 

$

 3 

$

 3 

$

 3 

 

Series 3

 

 2 

 

 3 

 

 2 

 

 3 

 

Series 5

 

 2 

 

 1 

 

 2 

 

 1 

 

Series 6

 

 2 

 

 - 

 

 2 

 

 - 

 

 

 

$

 9 

$

 7 

$

 9 

$

 7 

 

 

 

 

 

 

 

 

 

 

 

Participating non-controlling interests - in operating

 

 

 

 

 

 

 

 

 

 subsidiaries 

$

 17 

$

 62 

$

 17 

$

 62 

 

 

 

 

 

 

 

 

 

 

 

General partnership interest in a holding subsidiary

 

 

 

 

 

 

 

 

 

 held by Brookfield

$

 1 

$

 1 

$

 1 

$

 1 

 

Incentive distribution

 

 1 

 

 - 

 

 1 

 

 - 

 

 

 

$

 2 

$

 1 

$

 2 

$

 1 

 

 

 

 

 

 

 

 

 

 

 

Participating non-controlling interests - in a holding subsidiary

 

 

 

 

 

 

 

 

 

 - Redeemable/Exchangeable units held by Brookfield

$

 50 

$

 47 

$

 80 

$

 45 

 

 

 

 

 

 

 

 

 

 

 

Limited partners' equity

 

 

 

 

 

 

 

 

 

Brookfield Asset Management

 

 15 

 

 14 

 

 24 

 

 13 

 

External LP Unitholders

 

 36 

 

 34 

 

 58 

 

 32 

 

 

 

$

 51 

$

 48 

$

 82 

$

 45 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

 129 

$

 165 

$

 190 

$

 160 

In February 2014, unitholder distributions were increased to $1.55 per unit on an annualized basis, an increase of ten cents per unit, to take effect with the first quarter distribution payable in March 2014.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 20 

 

 

Critical ESTIMATES AND CRITICAL JUDGMENTS in applying accounting policies

The consolidated financial statements are prepared in accordance with IFRS, which require the use of estimates and judgments in reporting assets, liabilities, revenues, expenses and contingencies. In the judgment of management, none of the estimates outlined in Note 2 –  Significant accounting policies in our December 31, 2013 audited consolidated financial statements are considered critical accounting estimates as defined in NI 51-102 with the exception of the estimates related to the valuation of property, plant and equipment and the related deferred income tax liabilities. These assumptions include estimates of future electricity prices, discount rates, expected long-term average generation, inflation rates, terminal year and operating and capital costs, the amount, the timing and the income tax rates of future income tax provisions. Estimates also include determination of accruals, purchase price allocations, useful lives, asset valuations, asset impairment testing, deferred tax liabilities, decommissioning retirement obligations and those relevant to the defined benefit pension and non-pension benefit plans. Estimates are based on historical experience, current trends and various other assumptions that are believed to be reasonable under the circumstances.

In making estimates, management relies on external information and observable conditions where possible, supplemented by internal analysis, as required. These estimates have been applied in a manner consistent with that in the prior year and there are no known trends, commitments, events or uncertainties that we believe will materially affect the methodology or assumptions utilized in this report. These estimates are impacted by, among other things, future power prices, movements in interest rates, foreign exchange and other factors, some of which are highly uncertain, as described in the “Risk Factors” section of our 2013 Annual Report. The interrelated nature of these factors prevents us from quantifying the overall impact of these movements on Brookfield Renewable’s financial statements in a meaningful way. These sources of estimation uncertainty relate in varying degrees to virtually all asset and liability account balances. Actual results could differ from those estimates.

Future changes in accounting policies

(i)         Financial Instruments

IFRS 9, Financial Instruments (“IFRS 9”) was issued by the IASB on October 28, 2010, and will replace IAS 39. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Two measurement categories continue to exist to account for financial liabilities in IFRS 9, fair value through profit or loss (“FVTPL”) and amortized cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortized cost unless the fair value option is applied. The treatment of embedded derivatives under the new standard is consistent with IAS 39 and is applied to financial liabilities and non-derivative hosts not within the scope of the standard. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.

ADOPTION OF ACCOUNTING STANDARDS

IFRIC 21, Levies  was adopted and applied by Brookfield Renewable on  January 1, 2014 and had no material impact on the interim consolidated financial statements. See Note 2 (c) - Significant accounting policies in our interim consolidated financial statements and Note 2 (q) - Future changes in accounting policies in our December 31, 2013 audited consolidated financial statements.  

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 21 

 

 

SUMMARY OF HISTORICAL QUARTERLY RESULTS ON A CONSOLIDATED BASIS

The following is a summary of unaudited quarterly financial information for the last eight consecutive quarters:

 

 

 

 

2014

2013

2012

(MILLIONS, EXCEPT AS NOTED)

 

 

 

 

Q1

 

Q4

 

Q3

 

Q2

 

Q1

 

Q4

 

Q3

 

Q2

Generation (GWh) - LTA(1)(2)

 5,770 

 5,380 

 4,960 

 6,171 

 5,325 

 4,606 

 4,049 

 4,998 

Generation (GWh) - actual(1)(2)

 

 

 

 5,711 

 5,268 

 5,154 

 6,265 

 5,535 

 4,053 

 2,971 

 4,101 

Revenues

$

 480 

$

 393 

$

 392 

$

 484 

$

 437 

$

 317 

$

 229 

$

 337 

Adjusted EBITDA(3)

 

 360 

 

 272 

 

 260 

 

 357 

 

 319 

 

 195 

 

 118 

 

 221 

Funds from operations(3)

 

 185 

 

 137 

 

 108 

 

 187 

 

 162 

 

 74 

 

 11 

 

 87 

Net income (loss) :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred equity

 

 9 

 

 10 

 

 10 

 

 10 

 

 7 

 

 6 

 

 4 

 

 3 

 

 

Participating non-controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests - in operating subsidiaries

 

 40 

 

 (7) 

 

 8 

 

 24 

 

 16 

 

 (14) 

 

 (11) 

 

 (14) 

 

 

General partnership interest in a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holding subsidiary held by Brookfield

 

 1 

 

 - 

 

 - 

 

 - 

 

 1 

 

 (1) 

 

 - 

 

 - 

 

 

Participating non-controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests - in a holding subsidiary

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/Exchangeable units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

held by Brookfield

 

 37 

 

 10 

 

 5 

 

 22 

 

 30 

 

 (27) 

 

 (26) 

 

 4 

 

Limited partners' equity

 

 38 

 

 11 

 

 5 

 

 22 

 

 31 

 

 (28) 

 

 (26) 

 

 4 

 

 

 125 

 

 24 

 

 28 

 

 78 

 

 85 

 

 (64) 

 

 (59) 

 

 (3) 

Basic and diluted earnings (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

per LP Unit(4)

 

 0.29 

 

 0.08 

 

 0.04 

 

 0.17 

 

 0.23 

 

(0.20)

 

(0.20)

 

0.03

Distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred equity

 

 9 

 

 10 

 

 10 

 

 10 

 

 7 

 

 6 

 

 3 

 

 4 

 

General partnership interest in a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

holding subsidiary held by Brookfield

 

 2 

 

 1 

 

 1 

 

 1 

 

 1 

 

 1 

 

 1 

 

 1 

 

Participating non-controlling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

interests - in a holding subsidiary -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable/Exchangeable units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 held by Brookfield

 

 50 

 

 47 

 

 47 

 

 47 

 

 47 

 

 45 

 

 45 

 

 45 

 

Limited partners' equity

 

 51 

 

 48 

 

 49 

 

 48 

 

 48 

 

 45 

 

 46 

 

 47 

(1)            Includes our share of generation in respect of those equity-accounted investments which we do not manage.

(2)            For assets acquired or reaching commercial operation during the year, this figure is calculated from the acquisition or commercial operation date.

(3)            Non-IFRS measures. See "Cautionary Statement Regarding Use of Non-IFRS Measures".

(4)            Average LP Units outstanding totaled 133.0 million (2013 and 2012: 132.9 million).

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 22 

 

 

ADDITIONAL INFORMATION

Risk factors about our business and additional information, including our Form 20-F filed with the SEC and securities regulators in Canada are available on our website at www.brookfieldrenewable.com, on SEC’s website at www.sec.gov and on SEDAR’s website at www.sedar.com. 

Subsequent eventS

In April 2014, construction on the 45 MW hydroelectric project in British Columbia was completed, and the project entered commercial operation.

 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 23 

 

 

FINANCIAL REVIEW BY SEGMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2014

The following table reflects adjusted EBITDA, funds from operations, adjusted funds from operations, and reconciliations to net income and cash flows from operating activities for the three months ended March 31:

 

 

 

 

 

 

Co-generation

 

 

 

 

(MILLIONS)

Hydroelectric

Wind

 and Other

2014

2013

Revenues

$

 393 

$

 68 

$

 19 

$

 480 

$

 437 

Other income

 

 3 

 

 - 

 

 - 

 

 3 

 

 2 

Share of cash earnings from equity-accounted

 

 

 

 

 

 

 

 

 

 

 

 investments 

 

 7 

 

 - 

 

 - 

 

 7 

 

 6 

Direct operating costs

 

 

 

 (90) 

 

 (15) 

 

 (25) 

 

 (130) 

 

 (126) 

Adjusted EBITDA (1)

 

 313 

 

 53 

 

 (6) 

 

 360 

 

 319 

Interest expense - borrowings

 

 (60) 

 

 (20) 

 

 (21) 

 

 (101) 

 

 (102) 

Management service costs

 

 - 

 

 - 

 

 (11) 

 

 (11) 

 

 (12) 

Current income taxes

 

 (8) 

 

 - 

 

 - 

 

 (8) 

 

 (3) 

Less: cash portion of non-controlling interests

 

 

 

 

 

 

 

 

 

 

 

Preferred equity

 

 - 

 

 - 

 

 (9) 

 

 (9) 

 

 (7) 

 

Participating non-controlling interests - in

 

 

 

 

 

 

 

 

 

 

 

 

operating subsidiaries

 

 (39) 

 

 (7) 

 

 - 

 

 (46) 

 

 (33) 

Funds from operations (1)

$

 206 

$

 26 

$

 (47) 

$

 185 

$

 162 

Less: sustaining capital expenditures (2)

 

 

 

 

 

 

 

 

 

 (14) 

 

 (14) 

Adjusted funds from operations (1)

 

 

 

 

 

 

 

 171 

 

 148 

Add: sustaining capital expenditures  

 

 

 

 

 

 

 

 14 

 

 14 

Add: cash portion of non-controlling interests

 

 

 

 

 

 

 

 55 

 

 40 

Other items:

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 (126) 

 

 (128) 

 

Unrealized financial instrument gain

 

 

 

 

 

 

 

 - 

 

 16 

 

Share of non-cash loss from equity-

 

 

 

 

 

 

 

 

 

 

 

 

accounted investments

 

 

 

 

 

 

 

 (6) 

 

 (2) 

Deferred income tax expense

 

 

 

 

 

 

 

 (2) 

 

 (1) 

Other

 

 

 

 

 

 

 

 19 

 

 (2) 

Net income

 

 

 

 

 

 

$

 125 

$

 85 

Adjustments for non-cash items

 

 

 

 

 

 

 

 119 

 

 107 

Dividends received from equity accounted

 

 

 

 

 

 

 

 

 

 

 

investments

 

 

 

 

 

 

 

 6 

 

 3 

Changes in due to or from related parties

 

 

 

 

 

 

 

 40 

 

 1 

Net change in working capital balances

 

 

 

 

 

 

 

 (18) 

 

 6 

Cash flow from operating activities

 

 

 

 

 

 

$

 272 

$

 202 

(1)            Non-IFRS measures.  See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

(2)            Based on long-term capital expenditure plans.

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 24 

 

 

cautionary statement regarding forward-looking statements

This Management's Discussion and Analysis contains forward-looking statements and information, within the meaning of Canadian securities laws and “forward-looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933, as amended, Section 21E of the U.S. Securities Exchange Act of 1934, as amended, “safe harbor” of the United States Private Securities Litigation Reform Act of 1995 and in any applicable Canadian securities regulations, concerning the business and operations of Brookfield Renewable. Forward-looking statements may include estimates, plans, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. Forward-looking statements in this Management's Discussion and Analysis include statements regarding the quality of Brookfield Renewable’s assets and the resiliency of the cash flow they will generate, Brookfield Renewable’s anticipated financial performance, future commissioning of assets, contracted portfolio, technology diversification, acquisition opportunities, expected completion of acquisitions, future energy prices and demand for electricity, economic recovery, achieving long term average generation, project development and capital expenditure costs, diversification of shareholder base,  energy policies, economic growth, growth potential of renewable asset class, the future growth prospects and distribution profile of Brookfield Renewable and Brookfield Renewable’s access to capital. Forward-looking statements can be identified by the use of words such as “plans”, “expects”, “scheduled”, “estimates”, “intends”, “anticipates”, “believes”, “potentially”, “tends”, “continue”, “attempts”, “likely”, “primarily”, “approximately”, “endeavors”, “pursues”, “strives”, “seeks”, or variations of such words and phrases, or statements that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Although we believe that our anticipated future results, performance or achievements expressed or implied by the forward-looking statements and information in this Management's Discussion and Analysis are based upon reasonable assumptions and expectations, we cannot assure you that such expectations will prove to have been correct. You should not place undue reliance on forward-looking statements and information as such statements and information involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievement expressed or implied by such forward-looking statements and information.

Factors that could cause actual results to differ materially from those contemplated or implied by forward-looking statements include, but are not limited to: our limited operating history; the risk that we may be deemed an “investment company” under the Investment Company Act; the fact that we are not subject to the same disclosure requirements as a U.S. domestic issuer; the risk that the effectiveness of our internal controls over financial reporting could have a material effect on our business; changes to hydrology at our hydroelectric stations or in wind conditions at our wind energy facilities; the risk that counterparties to our contracts do not fulfill their obligations, and as our contracts expire, we may not be able to replace them with agreements on similar terms; increases in water rental costs (or similar fees) or changes to the regulation of water supply; volatility in supply and demand in the energy market; our operations are highly regulated and exposed to increased regulation which could result in additional costs; the risk that our concessions and licenses will not be renewed; increases in the cost of operating our plants; our failure to comply with conditions in, or our inability to maintain, governmental permits; equipment failure; dam failures and the costs of repairing such failures; exposure to force majeure events; exposure to uninsurable losses; adverse changes in currency exchange rates; availability and access to interconnection facilities and transmission systems; health, safety, security and environmental risks; disputes, governmental and regulatory investigations and litigation; our operations could be affected by local communities; losses resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events; risks relating to our reliance on computerized business systems; general industry risks relating to operating in the North American and Brazilian power market sectors; advances in technology that impair or eliminate the competitive advantage of our projects; newly developed technologies in which we invest not performing as anticipated; labour disruptions and economically unfavorable collective bargaining agreements; our inability to finance our operations due to the status of the capital markets; the operating and financial restrictions imposed on us by our loan, debt and security agreements; changes in our credit ratings; changes to government regulations that provide incentives for renewable energy; our inability to identify sufficient investment opportunities and complete transactions; risks related to the growth of our portfolio and our inability to

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 25 

 

 

realize the expected benefits of our transactions; our inability to develop existing sites or find new sites suitable for the development of greenfield projects; risks associated with the development of our generating facilities and the various types of arrangements we enter into with communities and joint venture partners; Brookfield Asset Management’s election not to source acquisition opportunities for us and our lack of access to all renewable power acquisitions that Brookfield Asset Management identifies; our lack of control over our operations conducted through joint ventures, partnerships and consortium arrangements; our ability to issue equity or debt for future acquisitions and developments will be dependent on capital markets; foreign laws or regulation to which we become subject as a result of future acquisitions in new markets; and the departure of some or all of Brookfield’s key professionals.

We caution that the foregoing list of important factors that may affect future results is not exhaustive. The forward-looking statements represent our views as of the date of this Management's Discussion and Analysis and should not be relied upon as representing our views as of any date subsequent to May 2, 2014, the date of this Management's Discussion and Analysis. While we anticipate that subsequent events and developments may cause our views to change, we disclaim any obligation to update the forward-looking statements, other than as required by applicable law. For further information on these known and unknown risks, please see “Risk Factors” included in our Form 20-F.

cautionary statement regarding use of non-ifrs measures

This Management's Discussion and Analysis contains references to adjusted EBITDA, funds from operations and adjusted funds from operations which are not generally accepted accounting measures under IFRS and therefore may differ from definitions of adjusted EBITDA, funds from operations and adjusted funds from operations used by other entities. We believe that adjusted EBITDA, funds from operations and adjusted funds from operations are useful supplemental measures that may assist investors in assessing the financial performance and the cash anticipated to be generated by our operating portfolio. Neither adjusted EBITDA, funds from operations nor adjusted funds from operations should be considered as the sole measure of our performance and should not be considered in isolation from, or as a substitute for, analysis of our financial statements prepared in accordance with IFRS.

A reconciliation of adjusted EBITDA, funds from operations and adjusted funds from operations to net income (loss) and cash flows from operating activities is presented in our Management’s Discussion and Analysis. We have also provided a reconciliation of adjusted EBITDA and funds from operations to net income (loss) in Note 14 - Segmented information in our interim consolidated financial statements.    

 

Brookfield Renewable Energy Partners L.P.                                  Q1 2014 Management’s Discussion and Analysis                                            March 31, 2014      

Page 26 

 

 

 

GENERAL INFORMATION 

 

 

 

Corporate Office

 

73 Front Street

Fifth Floor

Hamilton, HM12

Bermuda

Tel:  (441) 294-3304

Fax: (441) 516-1988

www.brookfieldrenewable.com

 

 

Officers of Brookfield Renewable Energy Partners L.P.’s Service Provider, BRP Energy Group L.P.

 

Harry Goldgut

Chairman of BRE Group

 

Richard Legault

President and Chief Executive Officer

 

Sachin Shah

Chief Financial Officer

 

Transfer Agent & Registrar

Computershare Trust Company of Canada

100 University Avenue

9th floor

Toronto, Ontario, M5J 2Y1

Tel  Toll Free: (800) 564-6253

Fax Toll Free: (888) 453-0330

www.computershare.com

 

 

Directors of the General Partner of

Brookfield Renewable Energy Partners L.P.

Jeffrey Blidner

Eleazar de Carvalho Filho

John Van Egmond

David Mann

Lou Maroun

Patricia Zuccotti

Lars Josefsson

 

Exchange Listing

TSX:    BEP.UN (LP Units)

NYSE: BEP (LP Units)

TSX:    BRF.PR.A (Preferred shares – Series 1)

TSX:    BRF.PR.C (Preferred shares – Series 3)

TSX:    BRF.PR.E (Preferred shares – Series 5)

TSX:    BRF.PR.F (Preferred shares – Series 6)

 

Investor Information

 

Visit Brookfield Renewable online at
www.brookfieldrenewable.com  for more information. The 2013 Annual Report and Form 20-F is also available online. For detailed and up-to-date news and information, please visit the News Release section.

 

Additional financial information is filed electronically with various securities regulators in United States and Canada through EDGAR at www.sec.gov  and  through SEDAR at www.sedar.com. 

 

Shareholder enquiries should be directed to the Investor Relations Department at (416) 359-1955 or
unitholderenquiries@brookfieldrenewable.com

 

 

 

 

 

 

                                  

 

 

TSX:

 

BEP.UN

 

NYSE:

 

BEP

 

 

 

 

 

www.brookfieldrenewable.com