Q4 2021 Capital Power Corp Earnings Call
Thank you for standing by and this is the conference operator.
Welcome to capital Power's fourth quarter, 2021 results conference call.
As a reminder, all participants are in a listen only mode and the conference call is being recorded today February 24th 2022.
I will now turn the call over to Mr. Randy Mah director of Investor Relations. Please.
Please go ahead.
Good morning, and thank you for joining us today to review capital Power's fourth quarter and year end 2021 results, which we released earlier. This morning, our 2021 integrated annual report and the presentation for this conference call are posted on our website at capital power Dot com.
Joining me this morning are Brian <unk>, President and CEO and Sandra House can senior Vice President Finance and CFO will start with opening comments and then open the lines to take your questions.
Before we start I would like to remind everyone that certain statements about future events made on this call are forward looking in nature and are based on certain assumptions and analysis made by the company actual results could differ materially from the company's expectations due to various risks and uncertainties associated with our business. Please refer to the cautionary statement on forward looking information on slide two.
In today's discussion, we will be referring to various non-GAAP financial measures and ratios as noted on slide three these measures are not defined financial measures. According to GAAP and do not have standardized meanings for.
Ascribed by GAAP, and therefore are unlikely to be comparable to similar measures used by other enterprises.
These measures are provided to complement the GAAP measures, which are provided in the analysis of the company's results from management's perspective.
Reconciliations of these non-GAAP financial measures to their nearest GAAP measures are disclosed in our 2021 integrated annual report.
I will now turn the call over to Brian for his remarks, starting on slide four.
Thanks, Randy and good morning.
Capital Power's head office in Edmonton is located within the traditional and contemporary home of many indigenous peoples of the Treaty six region.
<unk> nation of Alberta region for.
We acknowledged that their burst indigenous communities that are located in these areas.
Whose presence continues to enrich the community and our lives as we continue to learn more about the indigenous history.
The land on which we live and work.
2021 was an excellent year in advancing our strategy and commitment to being off coal in 2023, where we saw strong progress for our strategic sustainability and financial perspectives.
At a high level, we escalated our renewables and storage footprint.
We had success on long term contracting.
Our renewable projects and we made progress in repositioning Genesee, one and two to be the most efficient combined cycle units in Alberta.
Once the Repowering project is completed.
Sustainability continues to be integral to our business, where we have incorporated broad compensation that is linked to our ESG targets. We have also advanced our decarbonization strategy through strategic partnerships, such as collaborating with Enbridge on the <unk> project.
Sandra will provide more details on our financial highlights. These highlights include delivering record financial performance and maintaining a strong balance sheet.
As to capital to fund our growth. We have also significantly managed down several short term and medium term risks to capital power and based on the stability of our cash flows we have extended our annual dividend guidance to 2025.
On slide five is a list of strategic highlights and accomplishments for 2021.
We've enhanced the Genesee one and two Repowering project with the integration of the 210 megawatt battery energy storage system the largest in Canada.
Once we position Genesee, one and two will have the dominant baseload position in the Alberta power market.
We executed a six year tolling arrange.
Tolling agreement extension for Arlington Valley, It reaffirms, our strategy of investing and strategically positioned natural gas assets.
We completed the combustion turbine upgrade at the cater that increases our contracted capacity.
Efficiency.
Which enhanced economics consistent with the contract extension, we executed in 2020.
With law became the largest wind facility in Alberta at 353 megawatts when phases, two and three were completed ahead of schedule in early December and below budget.
We executed 15 year renewable contracts with both Labatt breweries and Dow chemical to help them reach their sustainability goals through customized renewable energy solutions.
And demand for renewable contracts for us continues to be very positive.
Growth in our Alberta renewable assets continues with our latest project help her to 150 megawatt wind farm that is adjacent to our existing health care facility in central Alberta.
Lastly, we expanded our solar and storage development pipeline with the acquisition of a portfolio of solar sites with battery potential in the United States, providing us with a platform for significant renewable growth.
Overall, these strategic advances support growth in our roadmap the decarbonization.
Turning to slide six.
This chart shows our growth in renewables from 2016 to 2024 based.
Based on current growth projects, we have achieved a compound annual growth rate of 18%.
As the chart illustrates we have delivered constant annual growth.
Where where new contracted renewable projects are added every year, except for 2023.
When the original completion dates for the North Carolina projects.
Be delayed to 2024 due to the delays in the interconnection process.
We were hoping to have at least one additional renewable projects to be announced this year.
Moving to slide seven we are committed to be carbon neutral by 2050 and have a clear pathway that includes setting targets along that pathway.
We have compensation elements, where executives and capital powered leaders that are directly linked to ESG targets. These include targets on diversity of 30% carbon reduction by 2024 and employee well being.
In 2021, we achieved our sustainability targets to develop companywide water management and sustainability sourcing strategies that are designed around ESG principles to positively contribute to society, and ensuring our environment and thrive over the long term.
We are moving to implement these strategies in 2022.
Our Genesee one and two Repowering project continues to be on track supporting our commitment to be I'll call in 2023.
We've also incorporated sustainability into our financing by transitioning existing credit facilities to sustainability linked credit facilities that are tied to emission intensity targets.
We're advancing our Genesee one and two Ccs project by collaborating with Enbridge that I'll elaborate on shortly.
Through our achievements in 2021, we've increased our velocity to meet our sustainability targets.
And positions the company to deliver long term value for our stakeholders and the environment.
Turning to slide eight we have made substantial progress on the advancement of CSC U S. C. O. Two hub development process is moving forward in Alberta with the Enbridge project fitting our needs very well we're.
We're in the process of finalizing our pre feed study aimed at solidifying project definition technology licensing scoping preliminary engineering deliverables and costing details.
We're optimistic that sufficient financial support for the one $8 billion to $2 billion of carbon capture project will come from both federal and provincial governments. We're in discussions with the Canadian infrastructure Bank on the framework for financing.
We also expect first nation's participation as well as other potential partnerships for the project.
One of the key issues for this project to proceed is derisking carbon policy.
General appreciation by governments that long term policy uncertainty presents unique risks to investments in the Ccs.
Our discussions with government has focused on potential mechanisms and approaches to mitigate adverse impacts in the event of carbon policy related changes. The final investment decision is now expected in mid 2023 and is subject to satisfactory hub progress government support and policy risks.
Litigation.
I'll now turn the call over to Sandra.
Thanks, Brian .
On slide nine and I'll touch on the financial highlights for 2021.
As mentioned, we set an annual record for both adjusted EBITDA and that's all in 2021 and our financial performance in 2022 is expected to be equivalent.
We delivered on our eighth consecutive annual dividend increase and extended the annual dividend guidance up 5% to 2025 based on the support of predictable cash flows.
In 2021 capital power delivered a total shareholder return of 19%, which is consistent with the five year average and exceeding our target T. S are up 10% to 12% over the long term.
We have been derisking, our cash flow by securing low cost carbon offset increasing commodity hedging and executing on longer term contracts to manage medium term risks.
In June of last year, we completed a successful $288 million equity offering to pre fund our existing growth capex.
We've just renewed our NCI program for another year that provide the capital allocation option during periods of limited growth and when the shares are undervalued.
We have also extended our debt maturity profile and reduce refinancing risk.
Our investment grade credit rating remains a top priority and the strength of our balance sheet and resilient cash flow secures that credit rating.
So did that in 2021 is 23% compared to S&P's target of 17%.
Overall, we are well positioned to finance our growth capex using internally generated cash flow.
Slide 10.
Year over year financial performance for the fourth quarter and for the full year 2021.
We delivered year over year increases on all key financial metrics, both in the fourth quarter and for the full year.
This includes generating revenues and other income of $1 99 billion in 2021 compared to $193 7 billion in 2020.
Both adjusted EBITDA and <unk> exceeded the midpoint of our higher revised guidance.
Adjusted EBITDA was $1 124 billion, an 18% increase compared to $955 million in 2020.
And like.
It was $605 million in 2021, a 16% increase compared to $5 20 $22 million in 2020.
The positive factors that led to record performance in the year includes strong performance from the Alberta commercial segment due to higher Alberta power prices that averaged $102 per megawatt hour in the year.
Wait, let's you began commercial operations a month earlier than scheduled in 2021, and we received full year contribution from the additions in 2020 of Buckthorn wind and Cardinal point.
We accelerated the recognition of coal compensation with the Genesee, one and two Repowering project, where we expect to be off coal by the end of 2023.
Six years earlier than required.
We also had lower net finance expense of $23 million largely a result of lower interest due to decreased loans and borrowings outstanding.
Offsetting the positive factors were a weaker U S dollar lower wind resources that most of our wind facilities and higher current tax expense with 2021 being our first cash taxable year in Canada.
Turning to slide 11, I'll provide a status update on the re contracting of our island generation facility.
I own generation has provided reliable power to Vancouver Island in the lower mainland of D. C for almost 20 years.
Although the facility runs in frequently it is there and available when needed to provide reliable generation.
When D C hydro face significant challenges in 2019, and 2021 Island generation offered at high capacity factors and help to keep the lights on.
Recall that in September of 2021, BC hydro indicated to be see you see that it needed the island generation facility to operate during transmission repairs.
In December 2021, BC Hydro released its final IRB, where it affirmed its view that the long term EPA for island generation is not required.
Based on these developments and an assumption of a four year contract extension of $52 million impairment was recorded in the fourth quarter.
We continue to expect the need for island generation beyond four years and are aggressively intervening in the D. C C IRB process.
Moving to slide 12, I'll touch on the Alberta power market and our hedge position.
In 2021, we saw full recovery in power demand from the Covid related and oil low oil price low decreases in 2020.
In fact, the Alberta market saw a new record summer and winter peak demands.
Despite not fully reopening load remains strong today and is expected to increase model modestly year over year.
But the expiry of the balancing pool ppas at the end of 2020, we saw robust power market in 2021, with an average power price of $102 per megawatt hour compared to $47 per megawatt hour in 2020.
This slide shows our hedge positions for power and natural gas.
You'll note that we have increased our hedge positions for 2022 to 2024 since our disclosure at Investor Day on December 2nd.
For 2022 we entered the year, 72% hedged in the high $60 per megawatt hour range.
In 2023, we are 47% hedged in the low $60 range and for 2024 were 32% hedged in the high $50 range.
This compares to forward prices of $94 $72 $61 per megawatt for 2022 to 2024, respectively.
The hedge position includes longer term origination contracts as another mechanism to manage price risk and volatility the.
The contract capture a lower priced relative to the forwards in 2022, but reduce price risk in future years, when we see prices moving down first.
For example in 2022, we are 72% hedged in total and more than 40% hedged with contracts that are greater than one year in term many of which are three to five years or longer in duration.
Long term hedges have an average price in the low $60 per megawatt hour range, which reflects longer term forward, whereas the balance of the hedge contracts either or at an average price that is more in line with 2022 forward.
In 2023, and 2020 for the hedges currently in place are predominantly longer term contracts.
Natural gas prices have an increasing impact on our financial result, because he transition off coal.
We have been actively hedging our expected natural gas burn for the Alberta fleet at favorable prices relative to forward.
We have hedged, 100% and 99% of our expected natural gas volumes in 2022, and 2023 and have hedged 85% of our expected natural gas volumes in 2024.
The average hedge price for all three years is between $2 and $2 50 per Giga, joule, which is much lower than for gas prices as shown in the table.
Turning to slide 13, I will conclude our remarks by reviewing our 2022 targets and comment on the various sensing at sensitivities on these targets.
As highlighted 2021 with our strongest year for financial results and 2022 results will build on our strong momentum.
For 2022, we are targeting $1 1 billion to $1 6 billion in adjusted EBITDA and $580 million to $630 million and a S. S O.
We have looked at the impact from fight rising inflation rate and have a modest unmedicated exposure on our operating results.
For our growth projects, we are managing our construction exposure, which includes having over 84% of our procurement costs locked in so the Genesee repowering.
Also with the delayed C O D up in North Carolina Solar projects to Q4, 2024 and help her two scheduled for late 2024, the timing will allow us to take advantage of more normal commodity and shipping costs.
To manage the expectation of higher interest rates, we have fixed rate debt in place. We have also been actively hedging the underlying G. Youll see rates for all financing into early 2026 in anticipation of increasing rates.
Financing in 2022 is limited to the refinancing of preferred shares.
2022 will be a year with significant planned outages, including outages for Genesee one and three.
Sustaining capex is expected to be between 105, and $115 million, which is well above the forecast of $55 million to $70 million in the next few years.
Over 'twenty or 2022 targets also reflect our cash taxable position in Canada.
We expect continued strong internally generated cash flow based on a strong Alberta price outlook.
And finally, we continue to target $500 million per year of committed capital for growth.
We expect 2020 to be another very strong year, both financially and strategically.
Now I'll call the turn the call back over to Randy.
Alright, Thanks, Sandra shrinks, we're ready to take questions.
Thank you.
We will now begin the question and answer session.
Joining the question queue you May Press Star then one on your telephone keypad, you will hear a tone acknowledging your request.
If you were using a speakerphone please pick up your handset before pressing any keys.
To withdraw your question. Please press Star then two.
We will pause for a moment as callers join the queue.
The first question comes from Robert Hope with Scotiabank.
Please go ahead.
Hi, Good afternoon, everyone, just a maybe a longer term strategic question just on the natural gas midlife generation side. What are you seeing out there in terms of opportunities and as you evaluate these opportunities how does the ability to kind of reduce carbon at the sites or co locate renewables or batteries for them to the investors.
No.
Oh good afternoon. So in terms of what we're seeing on the mid.
Mid life natural gas assets.
In terms of activity. These days it has increased significantly over the last couple of months. So we're seeing a fair amount of traffic not the same degree of traffic that we saw pre pandemic, but definitely more than we've seen in the last couple of years.
So that's that's looking encouraging when we actually are looking at a particular proposal, obviously theres a contracting side comfort the poor its economic life. It can be re contracted hold into the future or has sufficient current long term contract too.
To carry us well into well into the 20 <unk>. So that's that's.
That's sort of our first hurdle when we look at it in terms of.
Part of our optimism around re contracting or lack thereof will depend on how it strategically positions. We've been looking at a number of assets that are just how called simply generation assets and create energy, but those are readily displaced by renewables and whatever.
A relatively shorter history.
Those assets that are built on the grid.
In strategic locations.
For example, those facilities that are peaking facilities would tend to have the longest enduring value.
The other thing because of their positioning is that it's a relatively straightforward transition to start including batteries on those sites and then eventually retiring our natural gas facilities and having real storage capability, you'll realize that those sites. So there is a number of things that we look up and certainly the carbon.
The outlook for each facility is looked at very very closely and how it impacts on our targets and what we see as the long term viability of that asset and location. So each each very much so.
Her project specifics, but Oh, we hit on all of those points. When we look at the Oh evaluation as to whether we even go forward and looking at an asset.
I appreciate the color.
Very helpful and then maybe moving over to the renewable side in the prepared remarks, you mentioned a number of the projects under development.
Do you have enough.
Time left until their commission to.
Miss some of the challenges we're seeing in the supply chains right now.
Is this for the next tranche of our renewable projects is a slowing down in discussions with customers or is the backlog of counterparties willing to backstop. The PPA is still quite strong.
Well, it's caused there is a bit of a pause right now and it's a combination of things one of course is what's happening with the by the administration.
In the United States and what's the outlook for our.
Various credits are tax credits et cetera, So that's creating I think is.
A significant slowdown in terms of elements being transacted not necessarily.
Slowing down there with some of the discussions, but I think before you'll see an awful lot of triggers polls.
There'll be a little bit more certainty that will come into the market.
From a pricing perspective, you can acquire or you'll get commitments around placed one two or three years, which are tending to be a little bit lower than current pricing or today's pricing.
We expect that that will soften and as the market becomes clearer and clearer.
I think youll see a tendency for there to be more contracting taking place. So I'd suggest there is a bit of a slow down for a couple of months, but certainly by mid year and thereafter, you'll see some acceleration in and renewable opportunities in the U S.
Canada is more on a province by province basis into.
In terms of what's being offered by the other utilities or by the provinces in terms of in terms of the renewable projects.
Data continues to be the same we see it as an excellent place to continue to invest and we've been very successful long gaining contracts on our renewable projects, even though we've said over and over we're comfortable with a man and a.
Merchant perspective, but the.
The contracting.
Our remaining position.
With a renewables you know at this point is very positive so things things look very good from the renewable perspective.
Yeah.
I appreciate the color. Thank you.
The next question comes from Maurice Choy with RBC capital markets. Please.
Please go ahead. Thank you.
Thank you and good morning, My first question just to pick up on the discussion on the Tcs.
In addition, two first nation what are you, hoping other potential partners bring to the table and then a follow up to that on timing what two five D coming again earlier than mid 2023.
Yeah.
So in terms of what where do we see in the partner.
Look firstly to a strategic partner is somebody who brings more to the table than simply capital and you can see that from a technology perspective.
Mitsubishi for example would be one core you know there's a number of engineering firms who are very much committed to this line of.
Development and in fact, we feel.
We do have capital that they'd like to deploy.
There is also organizations, who would be very interested in continuing down.
Investments in Ccs.
<unk> for example would be one of the one one organization, but theres other organizations out there who are very interested in being part of I'll call. It part of the action.
And then of course, there's financial players who would look at it.
A positive investment given what is achieving.
And again that they would not necessarily bring anything to the table other than capital.
Yeah.
And I should be clear, we've had no discussions so far with anybody.
And that brings with maybe two to your second question about timing and moving forward.
We see as a major date, a major milestone for us.
When the federal budget comes out.
And what it what it has in terms of magnitude and parameters around.
Investment tax credit everything where are our understanding and theres nothing.
<unk> installed or committed or anything, but it seems like that will be a positive outcome from our perspective and thats. When we will start being getting into more and more discussions around specific partnerships et cetera.
In terms of advancing the the date in which we move forward on it.
The major issue.
Hmm.
We have right now is more around the hub close outs is not advancing as quickly as we had anticipated initially the expectation and it was a broad expectation is that.
That'd be the government would be looking at a number of different hubs sort of at the same time.
And what's.
What's happened is that there's been an overwhelming response than they anticipated.
Various.
Much more significant level response than they expected.
With the first tranche and so they've had to say they just don't have the capacity to act.
Annualized these at the same time, so that they have there.
We're putting them in an order in which.
Enbridge project has not come forward, yet core or assessment or.
Probably more appropriately.
Any of those projects.
Projects that are west of Edmonton have not been.
Been asked for by the government to BSS, so that slowed things down by a few months, we could see that move ahead, you know fairly quickly.
We believe with the Enbridge is putting forth extremely straightforward extremely clean excellent excellent project.
The other thing, though that enters into the hub side of it is there are some fairly significant geological expenditures to be made.
And so it would be prudent that those expenditures take place once there is a greater degree of certainty.
In terms of processes going forward. So a lot of that work, we see now probably being pushed into <unk> into next year.
And potentially being complete by midyear next year and all of that could be advantage. If there was a drive to but as we see it and theres still even.
We could.
Even with the extension of the planet, it's possible to too.
He'll be complete in 2026.
Pushing off to be more like a.
Really reaching the.
Our completion and our 2027, having said that that's well in advance of.
Oh, we're choosing to provincial and federal targets in advance of 2030. So we actually have a lot of time at the back end so.
Don't want to do anything imprudent.
And or get there.
Over our skis as we move forward until pretty firm on what we need to be seeing and things are lining up well, albeit with a slight delay with all those things coming to fruition.
And that dovetails quite nicely into my next question about capital allocation.
You. Obviously you mentioned earlier that you are encouraged by the level of activity you see in the midlife cash generation market you have this $2 billion project.
Related to Ccs and you also mentioned that you may move forward with one more renewable projects this year.
Have you considered revisiting the potential of selling a portion of your renewables to fund all of these.
Noting too that you turn off the drip last quarter.
So maybe I'll start and Sandra Oh, certainly certainly follow up.
Definitely when it comes to looking at new capital requirements.
As I said.
We're sitting quite well right now.
In terms of in terms of our capital requirements, but all the time, we look at still turning over capital are there assets that we should be selling and then creating liquidity events and utilizing those funds. So that's always on the table.
A lot of it is dependent on our outlook for growth and.
The deployment of that capital versus.
And realization of that capital versus you know what our other alternatives are but that's always on the table and Thats always something thats actively actively discussed.
Yeah, I don't have anything really to add to that at this point, we're more looking at funding our growth between internally generated cash flow and the strength of the balance sheet, we're really not in a position where we're looking at raising equity or doing that type of a sell down you'll remember that all of our <unk>.
<unk> growth a portion of that is the U S. Solar so a part of that funding will come through investment tax credits as well. So at this point, we're not a.
Finding ourselves having to look at that as an option, but as Brian mentioned it it's always on the table.
Yeah.
I think.
One of the things maybe the bear in mind, and that's where the magnitude of this.
Uh huh.
Tax credit information that'll be coming out so hopefully in March.
But that can have a very significant impact on the net capital cost of the one $8 billion to $2 billion.
And then if you take into consideration partners on top of that.
It's not as daunting as it has with other blue.
Looks from a headline perspective.
That makes sense. Thank you very much.
The next question comes from Patrick Kenny with National Bank financial.
Please go ahead.
Thank you and good morning.
Just with the Alberta budget coming out later today, Brian could you just remind us what else do you need to see in terms of provincial government support.
On top of Enbridge being awarded the sequestration rates of course, but just more from an economic perspective, what Peru.
Clarity or policy milestones should we be watching for.
So.
Certainly there can be surprises from from <unk>.
Whether it be federal or provincial governments.
It creates problems for us moving forward, we don't anticipate any we're not thinking of any well that's always that's always a possibility, but from what we see and what we kind of understand from a financial perspective.
On a pure financial perspective.
We are anticipating that between the support from the Canadian infrastructure Bank.
The the tax credit.
The investment tax credit that we believe might be available to us.
We don't think theres much more needed for a quote unquote financial perspective.
What is important though at this juncture and what we need to see is some de risking of the carbon credit environment, whether that'd be in the form of contract for differences, whether that'd be in the form of Oh.
Other different kinds of interest instruments that create some higher degree of certainty around our cash flow.
Yeah.
As I indicated you know it seems like the governments are very much aware of it they understand and I think as you know the banking community also represents.
A very very significant and cause a bit of an extraordinary risk for them for the magnitude of the investments that are being made so believe the governments are sympathetic what that translates into and whether it's at the federal provincial AR on the federal perspective or from the previous.
Perspective.
We're talking to both governments about the need for something.
And talk a little bit about some some mechanisms that we think might work.
I do believe it's an act of discussion of that at least from a from a federal perspective.
We don't see that.
Would come out in terms of regulation.
We have a bit of a challenge with anything.
Regulation and we're hoping that it stays about for 20 years, that's not necessarily the case, we would actually be looking for something that would be contractual as opposed to regulatory to provide that extra degree of comfort. So much like what was the.
Our assistance with the provincial Alberta provincial government in negotiating the off coal arrangements.
We are satisfied with it being in regulations need it to be by contract and we see the same the same sort of approach from the greater assurance from the from the carbon risk perspective.
Okay, great. Thanks for that that's helpful.
Maybe for Sandra.
The 72% hedged position for this year.
The high $60 range versus I guess forward prices are still in the mid nineties.
Is that relatively higher percentage baseload sold forward more of a function of being able to lock in your natural gas requirements below market.
Or is it perhaps more reflective of a view that you think the forward curve doesn't.
Reflect reality in that.
As we get into the peak summer months, you would expect spot price to <unk>.
Settle much lower.
It's sort of a combination of things firstly, when youre looking at that 72% over 40%. So 40 40 over 40% in total of the 100% of Baseload, our long duration contracts with some of those are quite far out and that was done intentionally when we.
We realized we're in a period of very high prices in 'twenty, one and 'twenty, two but with supply coming on in a couple of years, we expect those prices to come down so given the amount of incremental length that we have with the Genesee one and two it with prudent in our perspective to take on those longer term contracts.
And lock in that length.
When youre looking at just the hedging for 2022, only contracts, where only 32% hedged and and that's in the low $80 per megawatt hour range. So you have to appreciate that as we step into hedge positions over time be a forward price has sort of moved up to where it is now.
In the high 90 and.
So we continue to look at at hedge is out of the book, but what's really driving that relatively higher hedge position are the longer term duration contracts that do have a lower price. So they would be contracted at a level that would be more representative of the long term forwards versus the current year forward.
Okay that makes sense. Thank you.
And last one for me just curious if you're experiencing any inflationary pressures on your maintenance activities.
Or if you've been able to mitigate the risk around your sustaining capex guidance for the year.
And then also maybe you can just dovetailing a quick comment on how we should be thinking about your O&M in general just across your.
Entire contracted fleets elsewhere outside of over them.
Yes, Hello, like Oh go ahead, sorry go.
Go ahead Sandra.
So it's going to stay on the on the maintenance side or L. P. S. A's are quite insulated from the impacts of inflation. So we are seeing that Oh, we don't have a lot of risk from that perspective. So all in all we see a fair fairly mitigated our exposure to two inflation overall.
I was going to add that that's how.
How we see the maintenance operating and maintenance costs lineup for this year and beyond as well with a lot of the work that we've done last year and some of the work we're anticipating doing this year it actually positions us for a lower spend so we see.
That is of being positive and I think we went through that.
During our Investor day in terms of inflation, along the activities associated with holidays, and and wind up or just ongoing maintenance activity is labor related.
So it's more driven by what are their union contracts.
And also the availability of labor.
As we move forward in the various regions. So that's a very significant component of our costs and we don't see that although rising we don't see it getting too far out of control and not like what we've seen on steel prices and other things have gone up quite a bit but of course.
There there are coming down right now as we speak so they'll.
Do do not expect our inflation.
Inflation that was a significant impact on our costs going forward.
Okay. That's great. Thank you.
The next question comes from John Mould with TD Securities.
Please go ahead.
Hi, everybody. Thanks for taking my question.
Really just I guess, one broad one on the carbon side as.
We're going through some fairly large policy reviews I think over the next few months I'm just wondering what your current base case assumptions are for Alberta, specifically.
On the tier review and how you expect or how you think that might unfold in the context of the federal backstop as it's currently constituted and then how you're thinking about the.
The clean electricity standard more broadly.
Appreciate we we don't have that policy yet.
We've got the contours at least.
Including and in Ontic.
Ontario, you know outside of the assets were Genesee, specifically, I guess, where youre looking at.
Significant target carbon abatement can can you maybe just tackle those two are bigger picture topics.
So I think from a from an Alberta perspective, what we see is.
The Alberta government.
Very much committed to continue with the tier I E having its own regime.
And as it moves forward with with negotiating those agreements with the federal government of course.
Needs to be aware of it and so on.
Whatever changing federal policies, there may be around around carbon and.
Various standards.
We do believe that the Alberta government.
<unk>.
The current intensity the 0.37.
<unk> is where it should be and.
Would would endeavor to be maintaining that through to <unk>.
130, and again, we will see when they can when it comes to the discussions and negotiations but we.
We see and it goes to an earlier question, we do see that the Alberta Craig's for carbon will keep walk step with what happens from a federal perspective. So that's one element of negotiation and commonality between the federal backstop.
What we would see in Alberta.
The biggest issue of course is what happens in regards to the oil and gas industry. So from that perspective.
I'm not sure what's going to happen there and again, that's where there'll be we believe that the the focus of discussions.
And from an Ontario perspective.
In Ontario are assets <unk>.
Generally the implications of carbon tend to be borne by the ISO who holds who is the counterparty on the contract.
Not perfect but.
In terms of being perfectly covered but still.
I think in all material respects, it's generally covered there.
The interesting thing about an escalating carbon price.
Pending on where your asset is in the queue and how efficient it is.
Generally drives less efficient assets, our dispatch less and more efficient assets of course are more dispatch more so what we see in Alberta and in what we would expect in other jurisdictions and in but as you know there may be no escalating carbon prices generally our assets on a call.
On more.
As opposed to less so.
We don't necessarily see escalating carbon black prices it would be negative.
As we move forward.
Yeah.
Okay, I will leave it there thanks very much for that detail.
The next question comes from Andrew Cooper with Credit Suisse.
Please go ahead.
Thanks, Good morning.
But I think in your slide deck, you had language around islands, stating an intent to aggressively intervening in the PC you see process.
I guess is there just a bigger picture issue with the way that.
BC hydro's behaved in relation to Ireland.
The bigger issue is really the power access for marketing license.
There is not a functional market within British Columbia doesn't that create a bigger problem and so it's just a question really you ultimately probably wind up with some fair resolution of this.
Not really fully aware of all of BC hydro's motivation, but you know how much power x-wave into at empower ex considerations.
Right now they do have a definitive need for a greater security on the island because of the work theyre going to be doing on the amount of transmission lines and then again those trends and the work. They do is not actually going to increase the capacity its just going to be increasing the reliability.
So again not sure if he is actually giving us all the island problems.
Our biggest challenge I would say he has been that.
What we have gone through and you know if you look back at class the previous high ERP and the one before that there has tended to be a lot more information.
A lot more disclosure around just the underlying data that.
Transmission experts could look at and analyze them and Hilton was either agree or disagree.
We are substantially gone on is the fact that we've been dispatched pretty regularly.
It's been no increase in capacity there the increase in demand on the on the on the on the island everything points to.
Not only the historical need being there, but enhance need going forward and it's about the lack of data the lack of transparency that has been a problem, thus far and we expect to overcome that through the BC using process. When you go through information requests and so on we should be able to get at that data.
And determined.
Whether or not you know.
We think its sumo bluntly right now we think they're planning they've got a degree of <unk>.
Also on the island that they believe is acceptable.
We don't see that there's any other logical answer to that situation, but obviously they are not <unk>.
Clothing that publicly to any great degree.
Okay. That's that's very helpful context on things and then.
Second question is really around you know historically your construction expertise has been quite favorable.
One is to deliver a number of projects where then it's.
With tight timelines and within budget.
Because of the construction expertise.
How do you look at that as a competitive matters going forward.
And can you scale up if you wanted to deploy more capital into the market or do you feel you're in the right kind of spot right now for building new things.
So it depends it isn't that all depends on the new things that you're referring to.
When it comes to so for example, with the Repowering, that's taking place now.
We don't talk about it a lot but.
For example, where we are now on that project.
In one year is typically where organizations are in two years.
We compressed the front end of that project considerably and we're and we are meeting our milestones and I think.
It creates that that ability to move quite quickly through a through construction.
And so that's that.
On a major project that takes a lot of effort out of the organization with the Repowering, if youre looking at a wind farm or a solar facility.
We do.
Do you continue to do things a bit differently than many others and what we learn or what we developed with with one solar facility or <unk>.
Wind facility.
Able to apply that just as part of the way we do things so.
Our ability to build a significant number of wind or solar facilities is definitely there. We can greatly expand from a couple of about a year or two.
Two a handful to hill.
Okay and in time, how much beyond that so.
From a renewable perspective.
I think we have great great capacity to build.
At the same time, a number of facilities.
Thanks, Brian that's very helpful.
The next question comes from Mark Jarvi with CIBC capital markets.
Please go ahead.
Thanks, everyone.
And just coming back to the carbon capture storage projects, you talked about Tam infrastructure Bank first nations involvement strategic.
As you've heard how low a percentage could give me is there a minimum that we want to be in terms of economic participation or and I think time is there sort of a sweet spot in terms of a specific target youre looking for new ownership.
I would say we would you know unless there is extraordinary circumstances, I think we'd want to retain at least 50%.
The love the projects. So that's I think that would be kind of the line, where we would start off looking at.
Partners and all of that of course would come first nations, but for example, if there was a 10% interest by the first nations and maybe the other two partners or fortify ourselves and somebody else was 45% each.
A lot will just depend on governance and other issues that drive that but somewhere around 50% would probably be the sweet spot.
So when youre, saying, 50% when if anything from the Central Bank is providing sort of a loan and therefore, it's sort of a net ex the loan from the bank or how do we think about that part of it.
No no I'm I'm speaking more in terms of just if you look at what.
Our ownership interest.
Capital partners would be in the order of <unk>.
Somewhere in the zone of I'll say, 50%.
In terms of the in terms of the Canadian infrastructure Bank, they have guidelines in direction and what they would be potentially willing to.
Supporter fund.
Which would not be.
Entire oh called that check for the project.
Of course any funding associated with first nations would be would be coming out of other areas of the federal or provincial governments. So there'll definitely be a need for public debt financing on the project may will be project financing.
The associated with it again, depending on parkers and approach.
You'd probably see a combination of.
And can even put structure bank support plus more traditional debt.
And then just coming back to the Enbridge hub. It seemed that you still think that's true, but if for some reason it didn't what's plan B then.
So that component.
The issue is finding.
The appropriate geological site important example of our I would say right now if if enbridge decided for whatever strategic reason or whatever they tend to not move forward and it was.
And there was no technical reason.
There was a problem with the site, we've just taken over it's relatively small compared to the Ccs.
Our investment that we're looking at so.
We're just we're just a tick over.
And either look for somebody.
One of the other pipeline organizations that we'd be happy to take it on or or or.
Uh huh.
Do it ourselves if it was a technical reason.
Technical reason being more geological.
They're just be we'd look quickly for an additional geological side. It was relatively close at hand.
The Alberta geology is blessed with a lot of potentials poorer space. So.
Don't believe that that would be no.
So there'll be a huge problem.
Okay and then one last question just on the gas hedges, you're highly hedged for the faithful. If you did have some unplanned outages besides Tennessee.
What risk or how would you deal with that issue the gas and other sort of thoughtful facility. When you just resell the gossiping any risks around as being highly hedged on the gas side.
Yes, we would be able to sell the gas or we redeploy it so very very minimal risk there given the the contract price that we have for a cause of.
Those contracts.
And did you do that in the past years and identity together.
Okay.
We would've had at times. So it would have been some shape to it so yeah, there would've been some some opportunity to lay some of that off for sure yeah.
In general again.
Net a positive on those.
Correct or is there some yes.
Okay perfect. Thanks, so much.
[laughter].
Once again, if you have a question. Please press Star then one.
The next question comes from natural May June with I E capital markets. Please.
Please go ahead.
Hi, just a couple of questions.
Starting with the Genesis suggest project I mean things like clearly that's the.
The next phase of the evolution of capital power I'm. Just wondering you know Scott project doesn't move ahead or has.
That is gonna be materially altered what are some different options.
Thinking about it in terms of other capital allocation priorities, you touched a bit on M&A, but maybe a bit more color on that.
More details on organic growth what that would be helpful.
So as we look at that project obviously.
It moved forward it would have a bit of an impact.
Limiting what else capital power could do I mean, we still could have a.
Significant growth in renewables.
Acquisitions are an over that time period, but certainly.
It would decrease the overall appetite so what what I'd say is that we would.
Continue to look at.
Growth in renewables.
We'd see potentially some additional natural gas acquisition as a whole.
Although we're seeing a lot of activity now and we expect a lot of activity next year.
We do expect that in time those opportunities and when you think of them mid.
Mid life natural gas assets with no significant contracts associated with them.
Those are going to become fewer and farther.
Farther between so don't anticipate say in the last part of this decade, you'd see a lot of activity on that front so more.
More so.
Early part of this early part of this decade.
So you would see a lot of the girls if not.
Some years, all the growth coming from renewables.
Okay. That's very helpful and just maybe tied to your previous comments on competitive edge with the agenda Repowering.
I suppose you're not really considering.
Acquiring other thermal assets in applying the same experience and knowledge to transition them to more efficient or lower carbon.
You know, that's certainly something to think about.
In the future and I would say.
A couple of years from now.
You know with some success.
With.
With Genesee or at least moving well down the road that may be something to look at and certainly in the United States. There's a growing recognition of the need for <unk> U S.
So we'd see there may be some of those kinds of opportunities that might open up for us.
We might apply expertise to them.
Our relatively new natural gas facility.
Again in the U S.
Even in Alberta, when we look at it and we look at Genesee three we would anticipate at some time it would make sense to potentially repower, it and acquire <unk> U S, particularly when they infrastructures in place. So there are those those those are the kinds of opportunities.
May be out there.
We at this point aren't seeing that.
Again other than the Genesee three we're not seeing that as something that's that's kind of on the radar screen, but it definitely has some potential in the future.
Okay.
Yes.
Yes.
This concludes the question and answer session I would like to turn the conference back over to Mr. Randy Mah for any closing remarks.
Okay. If there are no more questions. We will conclude our conference call. Thank you for joining us today and for your interest in capital power have a good day everyone.
This concludes today's conference call you may disconnect your lines. Thank.
Thank you for participating and have a pleasant day.
Okay.
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