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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 20-F/A

(Amendment No. 6)

 

x

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

¨

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 001-35530

BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

(Exact name of Registrant as specified in its charter)

Bermuda

(Jurisdiction of incorporation or organization)

73 Front Street, 5th Floor, Hamilton HM 12, Bermuda

(Address of principal executive offices)

Jane Sheere, +1.441.295.1443

(Name, telephone, e-mail and/or facsimile number and address of company contact person)

Copies to:

Andrew J. Beck

Torys LLP

1114 Avenue of the Americas

New York, NY 10036

Telephone: 212-880-6000

Fax: 212-880-0200

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of class

 

Name of each exchange on which registered

Limited Partnership Units   New York Stock Exchange; Toronto Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes  ¨   No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.   Yes  ¨  No  ¨

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ¨  No  x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ¨  No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

 

Large accelerated filer  ¨   Accelerated filer  ¨    Non-accelerated filer  x

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

           ¨ U.S. GAAP    x  International Financial Reporting Standards as issued by  the International
Accounting Standards Board
   ¨  Other            

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.   Item 17  ¨  Item 18  ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No ¨


Table of Contents

TABLE OF CONTENTS

 

INTRODUCTION AND USE OF CERTAIN TERMS

     4   

FORWARD-LOOKING STATEMENTS

     10   

CAUTIONARY STATEMENT REGARDING THE USE OF NON-IFRS MEASURES

     11   

PART I

     12   
ITEM 1.       IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS      12   
  1.A    DIRECTORS AND SENIOR MANAGEMENT      12   
  1.B    ADVISERS      12   
  1.C    AUDITORS      12   
ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE      13   
ITEM 3.   KEY INFORMATION      13   
  3.A    SELECTED FINANCIAL DATA      13   
  3.B    CAPITALIZATION AND INDEBTEDNESS      15   
  3.C    REASONS FOR THE OFFER AND USE OF PROCEEDS      16   
  3.D    RISK FACTORS      16   
ITEM 4.   INFORMATION ON THE COMPANY      38   
  4.A    HISTORY AND DEVELOPMENT OF THE COMPANY      38   
  4.B    BUSINESS OVERVIEW      42   
  4.C    ORGANIZATIONAL STRUCTURE      58   
  4.D    PROPERTY, PLANT AND EQUIPMENT      62   
ITEM 4A.     UNRESOLVED STAFF COMMENTS      62   
ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS      62   
  5.A   OPERATING RESULTS      62   
  5.B   LIQUIDITY AND CAPITAL RESOURCES      124   
  5.C   RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.      124   
  5.D   TREND INFORMATION      124   
  5.E   OFF-BALANCE SHEET ARRANGEMENTS      124   
  5.F   TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS      124   
ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES      124   
  6.A   DIRECTORS AND SENIOR MANAGEMENT      124   
  6.B   COMPENSATION      130   
  6.C   BOARD PRACTICES      139   
  6.D   EMPLOYEES      146   
  6.E   SHARE OWNERSHIP      146   
ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS      146   
  7.A   MAJOR SHAREHOLDERS      146   
  7.B   RELATED PARTY TRANSACTIONS      146   
  7.C   INTEREST OF EXPERTS AND COUNSEL      156   
 

 

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ITEM 8.   FINANCIAL INFORMATION      156   
  8.A   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION      156   
  8.B   SIGNIFICANT CHANGES      156   
ITEM 9.   THE OFFER AND LISTING      156   
  9.A   OFFER AND LISTING DETAILS      156   
  9.B   PLAN OF DISTRIBUTION      157   
  9.C   MARKETS      157   
  9.D   SELLING SHAREHOLDERS      157   
  9.E   DILUTION      157   
  9.F   EXPENSES OF THE ISSUE      158   
ITEM 10.     ADDITIONAL INFORMATION      158   
  10.A   SHARE CAPITAL      158   
  10.B   MEMORANDUM AND ARTICLES OF ASSOCIATION      158   
  10.C   MATERIAL CONTRACTS      180   
  10.D   EXCHANGE CONTROLS      181   
  10.E   TAXATION      181   
  10.F   DIVIDENDS AND PAYING AGENTS      199   
  10.G   STATEMENT BY EXPERTS      199   
  10.H   DOCUMENTS ON DISPLAY      199   
  10.I   SUBSIDIARY INFORMATION      200   

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     200   

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     200   
PART II      200   

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     200   

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     200   
ITEM 15. CONTROLS AND PROCEDURES      200   
ITEM 16. [RESERVED]      200   
  16A.   AUDIT COMMITTEE FINANCIAL EXPERT      200   
  16B.   CODE OF ETHICS      200   
  16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES      200   
  16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE      200   
  16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER      200   
  16F.   CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT      200   
  16G.   CORPORATE GOVERNANCE      201   
PART III      201   
ITEM 17 FINANCIAL STATEMENTS      201   
ITEM 18. FINANCIAL STATEMENTS      201   
ITEM 19. EXHIBITS      201   
SIGNATURE      202   
INDEX TO FINANCIAL STATEMENTS   
 

 

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INTRODUCTION AND USE OF CERTAIN TERMS

Unless otherwise specified, information provided in this registration statement on Form 20-F (this “ Form 20-F ”) is as of the date of this Form 20-F. Unless the context requires otherwise, when used in this Form 20-F, the terms “Brookfield Renewable Group”, “we”, “us” and “our” refer to Brookfield Renewable, BRELP, the Holding Entities and the Operating Entities, each as defined in this Form 20-F, collectively; “Brookfield Renewable” and “BREP” refer to Brookfield Renewable Energy Partners L.P.; and “Brookfield” refers to Brookfield Asset Management Inc. and its subsidiaries (other than Brookfield Renewable). All references to “our portfolio” include 100% of the capacity and energy of the facilities even though we do not own 100% of the economic output of such facilities (see the table under Item 4.B. “Business Overview — Our Operations” for details on our portfolio).

ABCA ” means the Business Corporations Act (Alberta) , R.S.A. 2000, c. B-9, as amended, including the regulations promulgated under such Act.

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, amortization and management service costs. Refer to “Cautionary Statement Regarding the Use of Non-IFRS Measures.”

affiliate ” of any person is a person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such person.

Amended and Restated Limited Partnership Agreement of BRELP ” means the amended and restated limited partnership agreement of Brookfield Renewable Energy L.P., dated November 20, 2011, as amended May 4, 2012.

Amended and Restated Limited Partnership Agreement of BREP ” means the amended and restated limited partnership agreement of Brookfield Renewable Energy Partners L.P., dated November 20, 2011.

ANEEL ” means National Agency for Electric Energy (Brazil).

Audit Committee ” means the audit committee of the board of directors of the Managing General Partner.

BAIF ” means Brookfield Americas Infrastructure Fund.

BAIF Entities ” has the meaning given to it under Item 7.B “Related Party Transactions — Other Voting Agreements.”

Base Management Fee ” has the meaning given to it under Item 6.A “Directors and Senior Management — Our Master Services Agreement — Management Fee”.

Base Marketing Fee ” has the meaning given to it under Item 7.B “Related Party Transactions — Energy Marketing Agreement”.

BAM’s Compensation Committee ” means Brookfield Asset Management’s compensation committee.

BC Hydro ” means British Columbia Hydro and Power Authority.

BEM LP ” means Brookfield Energy Marketing LP., an indirect wholly-owned subsidiary of Brookfield Asset Management.

Bermuda Holdco ” means BRP Bermuda Holdings I Limited.

BNDES ” means the Brazilian National Bank for Economic Development.

Bond Indenture ” means the amended and restated indenture, dated as of November 23, 2011, among Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC), The Bank of New York Mellon and BNY Trust Company of Canada, as amended and restated from time to time, governing the Finco Bonds.

BPUSHA ” means Brookfield Power US Holding America Co.

BRELP ” means Brookfield Renewable Energy L.P.

BRELP General Partner ” means BRP Bermuda GP Limited, which serves as the general partner of BRELP GP LP.

BRELP GP LP ” means BREP Holding L.P., which serves as the general partner of BRELP.

BREP ” and “ Brookfield Renewable ” mean Brookfield Renewable Energy Partners L.P.

Brookfield ” means Brookfield Asset Management and any subsidiary of Brookfield Asset Management, other than entities within the Brookfield Renewable Group.

Brookfield Asset Management ” means Brookfield Asset Management Inc.

Brookfield Renewable ” and “ BREP ” mean Brookfield Renewable Energy Partners L.P.

Brookfield Renewable Group ” means Brookfield Renewable, BRELP, the Holding Entities and the Operating Entities, taken together.

Brookfield Renewable Power Assets ” means Brookfield’s renewable power assets (other than the assets held by the Fund) that were transferred to Brookfield Renewable pursuant to the Combination.

 

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BRP Equity ” means Brookfield Renewable Power Preferred Equity Inc.

BRPI ” means Brookfield Renewable Power Inc., a subsidiary of Brookfield Asset Management.

BRPT ” means Brookfield Renewable Power Trust, which held the assets of the Fund prior to the Combination.

BRPT Trustees ” means the trustees of BRPT.

CanHoldco ” means Brookfield BRP Holdings (Canada) Inc.

Carry ” has the meaning given to it under Item 6.B “Compensation — Our Management — Cash Bonus and Long Term Incentive Plans”.

Cash Bonus ” has the meaning given to it under Item 6.B “Compensation — Our Management — Compensation Elements Paid by Brookfield”.

CBCA ” means the Canada Business Corporations Act , R.S.C. 1985, c. C-44, as amended, including the regulations promulgated under such Act.

CDS ” means CDS Clearing and Depository Services Inc.

CFA ” means a “controlled foreign affiliate” as defined in the Tax Act.

Class A Limited Voting Shares ” means the Class A Limited Voting Shares of Brookfield Asset Management.

Class A Preference Shares ” means the Class A Preference Shares, issuable in series (which includes the Series 1 Shares, the Series 2 Shares, the Series 3 Shares, the Series 4 Shares, the Series 5 Shares and the Series 6 Shares), of BRP Equity.

Class B Preference Shares ” means the Class B Preference Shares, issuable in series, of BRP Equity.

Code ” means the Code of Business Conduct and Ethics of Brookfield Renewable.

Combination ” means the strategic combination of all the assets of the Fund and the Brookfield Renewable Power Assets into Brookfield Renewable, effected pursuant to a plan of arrangement under Section 182 of the OBCA, effective November 28, 2011.

Combination Agreement ” means the combination agreement, dated as of September 12, 2011, among Brookfield, the Fund, BRPT and Brookfield Renewable providing for, among other things, the Combination.

Common Shares ” means the common shares of BRP Equity.

Compensation Committee ” means the compensation committee of the board of directors of the Managing General Partner.

Conflicts Policy ” has the meaning given to it under Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties — Conflicts of Interest”.

CPI ” means the Canadian consumer price index.

CRA ” has the meaning given to it under Item 3.D “Risk Factors—Risks Related to Taxation—Canada”.

Development Projects Agreement ” means an agreement between CanHoldco and Brookfield for reimbursement of expenses for projects in Canada and the United States.

DRIP ” means Brookfield Renewable’s distribution reinvestment plan.

DRS Statement ” means a Direct Registration System statement.

DSUs ” means deferred share units issued under the DSUP.

DSU Allotment Price ” has the meaning given to it under Item 6.B “Compensation — Our Management — Cash Bonus and Long-Term Incentive Plans”.

DSUP ” means the Deferred Share Unit Plan of Brookfield Asset Management.

DTC ” means The Depository Trust Company.

Energy Marketing Agreement ” has the meaning given to it under Item 7.B “Related Party Transactions — Energy Marketing Agreement”.

Energy Revenue Agreement ” has the meaning given to it under Item 4.A “History and Development of the Company — Three-Year History — Acquisitions and Dispositions”.

EPA ” means the United States Environmental Protection Agency.

Escrowed Stock Plan ” means the Escrowed Stock Plan of Brookfield Asset Management.

Exchange Act ” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

FAPI ” means “foreign accrual property income” as defined in the Tax Act.

 

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FATCA ” means the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010.

FERC ” means the U.S. Federal Energy Regulatory Commission.

FFO ” or “ funds from operations ” means Adjusted EBITDA less interest, current income taxes and management service costs, which is then adjusted for the cash-portion of non-controlling interests. Refer to “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

Finco ” means Brookfield Renewable Energy Partners ULC, formerly named “BRP Finance ULC”.

Finco Bonds ” means all outstanding bonds issued by Finco pursuant to the Bond Indenture.

Fixed Amount ” has the meaning given to it under Item 7.B “Related Party Transactions — Energy Revenue Agreement”.

Foreign Tax Credit Generator Proposals ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Form 20-F ” means this registration statement filed on Form 20-F.

Fund ” means Brookfield Renewable Power Fund, a limited purpose trust established under the laws of the Province of Québec, and where appropriate, includes its subsidiaries.

GLHA ” means Great Lakes Hydro America, LLC.

GLPL ” means Great Lakes Power Limited.

Governing Body ” in relation to an entity, means the board of directors or equivalent of such entity.

Government of Canada Yield ” on any date means the yield to maturity on such date (assuming semi-annual compounding) of a Canadian dollar denominated non-callable Government of Canada bond with a term to maturity of five years as quoted as of 10:00 a.m. (Toronto time) on such date and which appears on the Bloomberg Screen GCAN5YR Page on such date; provided that, if such rate does not appear on the Bloomberg Screen GCAN5YR Page on such date, the Government of Canada Yield will mean the average of the yields determined by two registered Canadian investment dealers selected by BRP Equity, as being the yield to maturity on such date (assuming semi-annual compounding) which a Canadian dollar denominated non-callable Government of Canada bond would carry if issued in Canadian dollars at 100% of its principal amount on such date with a term to maturity of five years.

Guarantors ” means, collectively, Brookfield Renewable, BRELP, CanHoldco and Bermuda Holdco.

GW ” means gigawatt.

“GWh” means gigawatt hours.

“Holdco Date” has the meaning given to it under Item 6.B “Compensation — Our Management — Compensation and Long-Term Incentive Plans”.

Holder ” means an LP Unitholder who, for purposes of the Tax Act and at all relevant times, holds its LP Units as capital property and deals at arm’s length and is not affiliated (within the meaning of the Tax Act) with Brookfield Renewable, BRELP, the Managing General Partner, the BRELP General Partner, BRELP GP LP and their respective affiliates (within the meaning of the Tax Act).

Holding Entities ” means Bermuda Holdco, CanHoldco and any direct wholly-owned subsidiary of BRELP created or acquired after the date of the Amended and Restated Limited Partnership Agreement of BRELP.

HPI ” means Hydro Pontiac Inc.

HSS&E ” means health, safety, security and the environment.

IFRS ” means the International Financial Reporting Standards, as issued by the International Accounting Standards Board.

Income Tax Act ” or “ Tax Act ” means the Canadian Income Tax Act , R.S.C. 1985, c. 1. (5th Supp), as amended, including the regulations promulgated under such Act.

Indirect CFA ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Investco ” has the meaning given to it in Item 6.B “Compensation — Our Management — Cash Bonus and Long-Term Incentive Plans — Escrowed Stock Plan”.

Investment Company Act ” means the United States Investment Company Act of 1940, as amended, and the rules and regulations promulgated under such Act.

IPCC ” means Intergovernmental Panel on Climate Change.

IRS ” means the U.S. Internal Revenue Service.

LIBOR ” means London Interbank Offered Rate.

Licensing Agreement ” has the meaning given to it under Item 7.B “Related Party Transactions — Licensing Agreement”.

LP Unitholders ” means limited partners of Brookfield Renewable, which are holders of LP Units.

 

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LP Units ” means the non-voting limited partnership units in the capital of Brookfield Renewable.

LTA ” means long-term average.

Manager ” means BRP Energy Group L.P., Brookfield Renewable Energy Group LLC and Brookfield Renewable Energy Group (Bermuda) Inc., and, unless the context otherwise requires, includes any other affiliate of such entities that provides services to Brookfield Renewable Group pursuant to our Master Services Agreement or any other service agreement or arrangement.

Managing General Partner ” means Brookfield Renewable Partners Limited, which serves as Brookfield Renewable’s general partner.

Market Price ” means the volume weighted average of the trading price for our LP Units on the NYSE (if our LP Units are listed on the NYSE) or the TSX (until our LP Units are listed for trading on the NYSE) for the five trading days immediately preceding the date the relevant distribution is paid by Brookfield Renewable.

Master Services Agreement ” means the master management and administration agreement, dated November 28, 2011, among the Service Recipients, the Manager and certain other affiliates of Brookfield Asset Management who are party thereto.

MI 61-101 ” means Canadian Multilateral Instrument 61-101 — Protection of Minority Securityholders in Special Transactions .

Minister ” has the meaning given to it under Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

MPT ” means the Mississagi Power Trust.

MRE ” means the hydrological balancing pool administered by the government of Brazil.

MW ” means megawatts.

MWh ” means megawatt hours.

NEOs ” has the meaning given to it under Item 6.B “Compensation — Our Management”.

net asset value ” means our capital at carrying value, on a pre-tax basis prepared in accordance with the procedures and assumptions utilized to prepare Brookfield Renewable’s IFRS financial statements, adjusted to reflect asset values not otherwise recognized under IFRS.

NI 52-110 ” means Canadian National Instrument 52-110 — Audit Committees.

Nominating and Governance Committee ” means the nominating and governance committee of the board of directors of the Managing General Partner.

Non-Resident Entities ” has the meaning given to it under Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Non-Resident Holder ” means a Holder who, for purposes of the Tax Act and at all relevant times, is not, and is not deemed to be, resident in Canada and who does not use or hold and is not deemed to use or hold its LP Units in connection with a business carried on in Canada.

Non-Resident Subsidiaries ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Non-Resident Unitholders ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Non-U.S. Holder ” means a beneficial owner of one or more LP Units, other than an entity classified as a partnership or other fiscally transparent entity for U.S. federal tax purposes.

NYSE ” means the New York Stock Exchange.

OBCA ” means the Business Corporations Act (Ontario) , R.S.O. 1990, c. B-16, as amended, including the regulations promulgated under such Act.

OPA ” means the Ontario Power Authority.

Operating Entities ” means the entities which, from time to time, directly or indirectly hold Brookfield Renewable Group’s operations and hold assets or operations that Brookfield Renewable Group may acquire in the future which are not held by the Service Recipients, including any assets or operations held through joint ventures, partnerships and consortium arrangements.

Original Bond Indenture ” means the trust indenture dated as of December 16, 2004, as amended, supplemented or restated, between Brookfield, Bank of New York Mellon and BNY Trust Company of Canada.

PFIC ” means a passive foreign investment company.

Power Agency Agreements ” has the meaning given to it under Item 7.B “Related Party Transactions — Power Agency Agreements”.

PPA ” means a power purchase agreement, power guarantee agreement or similar long-term agreement between a seller and buyer of electrical power generation.

 

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Preference Share Guarantees ” means the Series 1 Guarantee, the Series 2 Guarantee, the Series 3 Guarantee, the Series 4 Guarantee, the Series 5 Guarantee and the Series 6 Guarantee.

Preference Shares ” means the Class A Preference Shares and the Class B Preference Shares.

QEF Election ” means an election by a U.S. Holder to treat such U.S. Holder’s share of Brookfield Renewable’s interest in a PFIC as a “qualified electing fund”.

Qualifying Income Exception ” has the meaning given to it under Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Partnership Status of Brookfield Renewable and BRELP”.

Redeemable/Exchangeable partnership unit ” means a unit of BRELP that has the rights of the Redemption-Exchange Mechanism.

Redemption-Exchange Mechanism ” means the mechanism by which Brookfield may request redemption of its limited partnership interests in BRELP in whole or in part in exchange for cash, subject to the right of Brookfield Renewable to acquire such interests (in lieu of such redemption) in exchange for LP Units.

Registration Rights Agreement ” means the registration rights agreement, dated November 28, 2011, between Brookfield and Brookfield Renewable.

Regular Distribution Waterfall ” has the meaning given to it under Item 10.B “Memorandum and Articles of Association —Description of the Amended and Restated Limited Partnership Agreement of BRELP — Distributions”.

Relationship Agreement ” means the relationship agreement, dated November 28, 2011, by and among Brookfield Asset Management, Brookfield Renewable, the Manager, BRELP and others.

Relevant Foreign Tax Law ” has the meaning given to it under Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations — Holders Resident in Canada”.

REOP Proposals ” means tax proposals released for public comment on October 31, 2003 by the Department of Finance (Canada) regarding the deductibility of interest and other expenses for purposes of the Tax Act.

Resident Holder ” means a Holder who, for the purposes of the Tax Act and at all relevant times, is or is deemed to be a resident of Canada.

RIC ” means a regulated investment company.

RPS ” means renewable portfolio standards.

RRIF ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

RRSP ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

RSP ” means the Restricted Stock Plan of Brookfield Asset Management.

RSU Allotment Price ” has the meaning given to it under Item 6.B “Compensation — Our Management — Cash Bonus and Long-Term Incentive Plans”.

RSUP ” means the Restricted Share Unit Plan of Brookfield Asset Management.

RSUs ” means restricted share units issued under the RSUP.

S&P ” means Standard & Poor’s Ratings Services.

Sarbanes-Oxley Act ” means the United States Sarbanes-Oxley Act of 2002, including the rules and regulations promulgated thereunder.

SEC ” means the U.S. Securities and Exchange Commission.

Securities Act ” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

SEDAR ” means the System for Electronic Document Analysis and Retrieval administered by the Canadian Securities Administrators.

Series 1 Guarantee ” has the meaning given to it under Item 10.B “Memorandum and Articles of Association — BRP Equity — Class A Preference Shares — Specific Provisions of the Class A Preference Shares, Series 1 — Series 1 Guarantee”.

Series 1 Shares ” means the Class A Preference Shares, Series 1 of BRP Equity.

Series 2 Guarantee ” has the meaning given to it under Item 10.B. “Memorandum and Articles of Association — BRP Equity — Class A Preference Shares — Specific Provisions of Class A Preference Shares, Series 2 — Series 2 Guarantee”.

Series 2 Shares ” means the Class A Preference Shares, Series 2 of BRP Equity.

Series 2 Shares Conversion Date ” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 2 — Series 2 Guarantee”.

Series 3 Guarantee has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 3 — Series 3 Guarantee”.

Series 3 Shares ” means the Class A Preference Shares, Series 3 of BRP Equity.

Series 3 Shares Annual Fixed Dividend Rate ” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 3 — Dividends”.

Series 4 Guarantee ” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 4 — Series 4 Guarantee”.

Series 4 Shares ” means the Class A Preference Shares, Series 4 of BRP Equity.

Series 4 Shares Conversion Date ” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 4 — Redemption”.

Series 5 Guarantee ” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 5 — Series 5 Guarantee”.

Series 5 Shares means the Class A Preference Shares, Series 5 of BRP Equity.

“Series 6 Guarantee” has the meaning given to it in Item 7.B “Related Party Transactions — BRP Equity — Specific Provisions of the Class A Preference Shares, Series 6 — Series 6 Guarantee”.

“Series 6 Shares” means the Class A Preference Shares, Series 6 of BRP Equity.

Service Recipients ” means Brookfield Renewable, BRELP, the Holding Entities and any other entity, at the option of the Holding Entities and the Operating Entities.

SHPP ” means a small hydroelectric power plant, which is a category of hydro power facilities in Brazil with 30 MW of capacity or less.

SIFT Rules ” means the rules in the Tax Act applicable to a “SIFT partnership” as defined in the Tax Act, pursuant to which certain income and gains earned by a SIFT partnership are subject to income tax at the partnership level at a rate similar to a corporation, and allocations of such income and gains to its partners are taxed as a dividend from a taxable Canadian corporation.

 

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Tax Proposals ” means all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister prior to the date hereof.

TFSA ” has the meaning given to it in Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

TJLP ” means BNDES’s long-term interest rate.

Total Capitalization Value ” means, in any quarter, the sum of (i) the fair market value of an LP Unit multiplied by the number of LP Units issued and outstanding on the last trading day of the quarter (assuming full conversion of any limited partnership interests held by any member of Brookfield in BRELP into LP Units), plus (ii) for each class or series of security of a Service Recipient (other than LP Units) issued to third parties, the fair market value of such security multiplied by the number of securities of such class or series issued and outstanding on the last trading day of the quarter (calculated on a fully-diluted basis), plus (iii) the principal amount of all debt not captured by paragraph (ii) owed by each Service Recipient (excluding for this purpose any Operating Entity) on the last trading day of the quarter to any person that is not a member of the Brookfield Renewable Group, which debt has recourse to any Service Recipient, less any amount of cash held by all Service Recipients (excluding for this purpose any Operating Entity) on such day.

Treasury Regulations ” means the Treasury regulations promulgated under the U.S. Internal Revenue Code.

Treaty ” means the Canada-U.S. Income Tax Convention (1980).

TSX ” means the Toronto Stock Exchange.

US Facilities ” means all of the U.S. facilities of Brookfield Renewable.

U.S. Holder ” has the meaning given to it under Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations”.

U.S. Internal Revenue Code ” means the U.S. Internal Revenue Code of 1986, as amended.

Voting Agreement ” means the voting agreement, dated November 28, 2011, between Brookfield Renewable and Brookfield that provides Brookfield Renewable, through the Managing General Partner, with a number of voting rights, including the right to direct all eligible votes in the election of the directors of the BRELP General Partner.

Western Wind ” has the meaning given to it under Item 4.A “History and Development of the Company — Three-Year History — Acquisitions and Dispositions”.

White Pine ” has the meaning given to it under Item 4.A “History and Development of the Company — Three-Year History — Acquisitions and Dispositions”.

 

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FORWARD-LOOKING STATEMENTS

This Form 20-F contains forward-looking statements concerning the business and operations of Brookfield Renewable Group. 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 Form 20-F include statements regarding the quality of Brookfield Renewable Group’s assets and the resiliency of the cash flow they will generate, Brookfield Renewable’s anticipated financial performance, 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 Form 20-F 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 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 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;

 

   

general industry risks relating to 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;

 

   

labor 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;

 

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changes to government regulations that provide incentives for renewable energy;

 

   

our inability to identify and complete sufficient investment opportunities;

 

   

the growth of our portfolio;

 

   

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’s election not to source acquisition opportunities for us and our lack of access to all renewable power acquisitions that Brookfield 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;

 

   

the departure of some or all of Brookfield’s key professionals; and

 

   

other factors described in this Form 20-F, including those set forth under Item 3.D “Key Information — Risk Factors”, Item 5.A “Operating and Financial Review and Prospects — Operating Results” and Item 4.B “Information on the Company — Business Overview”.

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 Form 20-F and should not be relied upon as representing our views as of any date subsequent to the date of this Form 20-F. 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 Item 3.D “Risk Factors”.

Historical Performance and Market Data

This Form 20-F contains information relating to our business as well as historical performance and market data. When considering this data, you should bear in mind that historical results and market data may not be indicative of the future results that you should expect from us.

Financial Information

The financial information contained in this Form 20-F is presented in U.S. dollars and, unless otherwise indicated, has been prepared in accordance with IFRS. All figures are unaudited unless otherwise indicated. In this Form 20-F, all references to “$” are to U.S. dollars. Canadian dollars and Brazilian Reais are identified as “C$” and “R$”, respectively.

CAUTIONARY STATEMENT REGARDING THE USE OF NON-IFRS MEASURES

This Form 20-F contains references to Adjusted EBITDA, funds from operations and net asset value which are not generally accepted accounting measures under IFRS and therefore may differ from definitions of Adjusted EBITDA, funds from operations and net asset value used by other entities. We believe that Adjusted EBITDA, funds from operations and net asset value 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 net asset value 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. As a result of the Combination, we have presented these measurements of the 2011 results on a pro forma basis. Reconciliations of each of Adjusted EBITDA and funds from operations to net income on a consolidated and pro forma basis are presented in Item 5.A “Operating and Financial Review and Prospects — Net Income (loss), Adjusted EBITDA, and Funds from Operations on a Consolidated Basis” and Item 5.A “Operating and Financial Review and Prospects — Reconciliation of Pro Forma Results.”

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

  1.A

DIRECTORS AND SENIOR MANAGEMENT

The following table presents the names, business addresses and functions of members of the board of directors of the Managing General Partner as of the date of this Form 20-F.

 

Name

  

Business Address

  

Position

    

Jeffrey Blidner

  

Brookfield Asset Management

Brookfield Place

181 Bay Street, Suite 300

Toronto, ON M5J 2T3

   Chair   

Eleazar de Carvalho Filho (1)

  

Rua Professor Artur Ramos

339 - Apt. 61

Jardim Paulistano, Sao Paul, SP

Brazil 01454-011

   Director   

John Van Egmond ( 1)

  

6900 N Ozona Drive

Tucson, AZ 8578

   Director   

Lars Josefsson

  

Birger Jarlsgatan 13, 1 tr

Stockholm SE-111 45

Sweden

   Director   

David Mann (1)

  

50 McCurdy Drive

Chester, NS B0J 1J0

   Director   

Lou Maroun ( 1)

  

Dill Lane, Full Fathoms

Devonshire, Bermuda DV07

   Director   

Patricia Zuccotti (1)

  

4612 105th Avenue NE

Kirkland, WA 98033

   Director   
(1) Independent director under NYSE standards.         

The following table presents the names, business addresses and functions of the members of our core senior management team that are principally responsible for our operations as of the date of this Form 20-F.

 

Name and Residence

  

Business Address

  

Position

    

Harry Goldgut
Ontario, Canada

  

Brookfield Place

181 Bay Street, Suite 300

Toronto, ON M5J 2T3

   Group Chairman

Richard Legault
Québec, Canada

  

1700 - 180 Kent Street

Ottawa, ON K1P 0B6

   President and Chief Executive
Officer

Sachin Shah
Ontario, Canada

  

1700 - 180 Kent Street

Ottawa, ON K1P 0B6

   Chief Financial Officer

Jeff Rosenthal
Ontario, Canada

  

Brookfield Place

181 Bay Street, Suite 300

Toronto, ON M5J 2T3

   Chief Operating Officer

Ralf Rank
Ontario, Canada

  

Brookfield Place

181 Bay Street, Suite 300

Toronto, ON M5J 2T3

  

Chief Investment Officer

See Item 6. “Directors, Senior Management and Employees” for additional information.

 

  1.B

ADVISERS

Our legal advisers are Torys LLP, located at Suite 3000, 79 Wellington St. West, Box 270, TD Centre, Toronto Ontario, Canada, M5K 1N2 and 1114 Avenue of the Americas, 23rd Floor, New York, New York 10036.7703.

 

  1.C

AUDITORS

The Managing General Partner has retained Ernst & Young LLP to act as Brookfield Renewable’s independent registered chartered accountants. The address for Ernst & Young LLP is Toronto, Ontario, Canada.

The Fund retained Deloitte LLP to act as its independent registered chartered accountants for the fiscal year ended December 31, 2010. The address for Deloitte LLP is Ottawa, Ontario, Canada.

 

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BRPI retained Deloitte LLP to act as its independent registered chartered accountants for the fiscal year ended December 31, 2010. The address for Deloitte LLP is Toronto, Ontario, Canada.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

 

  3.A

SELECTED FINANCIAL DATA

The information in this section, excluding the Operational Information and distributions per share set forth in the tables below, is derived from and should be read in conjunction with: (i) the unaudited consolidated financial statements of Brookfield Renewable as at March 31, 2013 and for the three months ended March 31, 2013 and 2012 and related notes, (ii) the audited consolidated financial statements of Brookfield Renewable as at and for the years ended December 31, 2012, 2011 and 2010 and related notes, and (iii) the unaudited pro forma condensed combined statement of (loss) income of Brookfield Renewable for the year ended December 31, 2011 and related notes, each of which is included elsewhere in this Form 20-F. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results that can be expected for the full year or any future period.

We are providing unaudited pro forma financial results that include the impact of the Combination, new contracts and contract amendments, management service agreements along with the tax impacts resulting from the Combination, as if each had occurred as of January 1, 2011. The unaudited pro forma financial results have been prepared based upon currently available information and assumptions considered appropriate by management. The unaudited pro forma financial results are provided for information purposes only and may not be indicative of the results that would have occurred had the above transactions been effected on the date indicated. The accounting for certain of the Combination transactions in the audited consolidated financial statements of Brookfield Renewable for the year ended December 31, 2011 required the determination of fair value estimates at the date of the transaction on November 28, 2011 rather than the date assumed in the determination of the pro forma results of January 1, 2011. Capacity, long-term average and actual generation include facilities acquired or commissioned during the respective period ends. Long-term average and actual generation was calculated from the acquisition date or the commercial operation date, whichever is later.

See Item 5. “Operating and Financial Review and Prospects,” Item 8. “Financial Information” and Item 18. “Financial Statements”.

Unless otherwise indicated, the financial data included in this Item 3.A are presented in millions of U.S. dollars and have been prepared in accordance with IFRS.

 

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As at and for the

three months ended
March 31,

    As at and for the year ended December 31, (2)(3)  
(US$ millions, unless otherwise stated)   2013     2012     2012     2011     2010     2009  

Operational Information (1) :

           

Capacity (MW)

    5,858        4,909        5,304        4,536        4,309        4,198   

Long-term average (GWh)

    5,325        4,549        18,202        16,297        15,887        15,529   

Actual generation (GWh)

    5,535        4,817        15,942        15,877        14,480            15,833   

Average revenue per MWh

    79        88        82        74        72        62   

Selected Financial Information:

           

Revenues

    $    437        $    426      $ 1,309      $ 1,169      $ 1,045      $ 984   

Adjusted EBITDA (4)

    319        318        852        804        751        743   

Funds from operations (4)

    162        175        347        332        269        324   

Net income (loss)

    85        31        (95     (451     294        (580

Distributions per share

           

Preferred equity (5)

    0.30        0.33        1.27        1.34        0.82     

General Partnership interest in a holding subsidiary held by Brookfield

    0.36        0.35        1.38        0.34            

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

    0.36        0.35        1.38        0.34            

Limited Partners’ equity

    0.36        0.35        1.38        0.34            
         
   

As at

March 31,

          As at December 31,        
      2013     2012     2012     2011     2010          

Balance sheet data:

      Restated (7)          

Property, plant and equipment at fair value

    $    16,813      $     15,658      $     15,658      $     13,945      $     12,173     

Equity-accounted investments

    326        344        344        405        269     

Total assets

    18,268        16,925        16,925        15,708        13,874     

Long-term debt and credit facilities

    7,230        6,119        6,119        5,519        4,994     

Fund unit liability

                                1,355     

Preferred equity

    659        500        500        241        252     

Participating non-controlling interests - in operating subsidiaries

    1,027        1,028        1,028        629        206     

General partnership interest in a holding subsidiary held by Brookfield

    62        63        63        64        34     

Participating non-controlling interests - in a holding subsidiary - held by Brookfield

    3,041        3,070        3,081        3,097        1,649     

Limited partners’ equity

    3,117        3,147        3,158        3,169        1,689     

Total liabilities and equity

    18,268        16,925        16,925        15,708        13,784           

Net asset value (4)

    8,647        8,548        8,579        8,398        7,480     

Net asset value per LP Unit (4)(6)

    32.60        32.23        32.35        31.67        28.21     

Debt to total capitalization (4)

    41     38     38     37     40        

 

(1)

Includes 100% of generation from equity-accounted investments.

 

(2)

The 2011 balance sheet reflects changes in the accounting policy for construction work-in-progress. See note 2 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this Form 20-F.

 

(3)

The 2011 results reflect changes arising from the Combination. See notes 2, 8, 10 and 18 in the audited consolidated financial statements of Brookfield Renewable as at and for the three years ended December 31, 2012, 2011 and 2010 included elsewhere in this Form 20-F.

 

(4)

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

 

(5)

Represents the weighted-average distribution to the Series 1 Shares, Series 3 Shares and Series 5 Shares, where applicable.

 

(6)

Average LP Units outstanding during the period totaled 132.9 million, (2010 and 2011: 132.8 million).

 

(7)

See note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

NET INCOME (LOSS), ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A CONSOLIDATED BASIS

The following table reflects the Adjusted EBITDA, funds from operations and the reconciliation to net income (loss) for the periods indicated:

 

(US$ millions, unless otherwise stated)

  

For the

three months ended

March 31,

     For the year ended December 31,  
   2013      2012      2012      2011      2010      2009  

Generation (GWh) (1)

     5,535         4,817         15,942         15,877         14,480         15,833   

Revenues

   $ 437       $ 426         1,309         1,169         1,045         984   

Other income

     2         5         16         19         12         9   

Share of cash earnings from equity-accounted investments and long-term investments

     6         4         13         23         22         29   

Direct operating costs

     (126)         (117)         (486)         (407)         (328)         (279)   

Adjusted EBITDA (2)

     319         318         852         804         751         743   

Interest expense - borrowings

     (102)         (110)         (411)         (411)         (404)         (348)   

Management service costs

     (12)         (7)         (36)         (1)         -         -   

Current income taxes

     (3)         (6)         (14)         (8)         (32)         (23)   

Cash portion of non-controlling interests

     (40)         (20)         (44)         (52)         (46)         (48)   

Funds from operations (2)

     162         175         347         332         269         324   

Cash portion of non-controlling interests included in funds from operations

     40         20         44         52         46         48   

Other items:

                 

Depreciation and amortization

     (128)         (126)         (483)         (468)         (446)         (321)   

Unrealized financial instrument (losses) gains

     16         (9)         (23)         (20)         584         (791)   

Fund unit liability revaluation

     -         -         -         (376)         (159)         (244)   

Share of non-cash losses from equity-accounted investments

     (2)         (3)         (18)         (13)         (7)         (13)   

Deferred income tax recovery

     (1)         (13)         54         50         3         335   

Other

     (2)         (13)         (16)         (8)         4         82   

Net (loss) income

   $ 85       $ 31         (95)         (451)         294         (580)   

Net (loss) income attributable to:

                 

Preferred equity

   $ 7       $ 3         16         13         10         -   

Participating non-controlling interests - in operating subsidiaries

     16         (1)         (40)         11         25         28   

General partnership interest in a holding subsidiary held by Brookfield

     1         -         (1)         (5)         3         (6)   

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

     30         14         (35)         (232)         127         (297)   

Limited partners’ equity

     31         15         (35)         (238)         129         (305)   

Basic and diluted earnings (loss) per LP Unit (3)

   $ 0.23       $ 0.11         (0.26)         (1.79)         0.97         (2.29)   

 

(1)  

Variations in generation are described under Item 5.A “Operating Results — Segmented Disclosures.”

(2)  

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

(3)  

Average LP Units outstanding during the period totaled 132.9 million, (2009 to 2011: 132.8 million).

Brookfield Renewable has not included financial information for the year ended December 31, 2008, as such information is not available on a basis consistent with the consolidated financial information for the years ended December 31, 2012, 2011, 2010 and 2009 and cannot be provided on an IFRS basis without unreasonable effort or expense.

NET INCOME, ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A PRO FORMA BASIS

The following table presents unaudited pro forma condensed combined financial data for Brookfield Renewable giving effect to the Combination for the periods indicated as if the Combination had occurred as of January 1, 2011:

 

(US$ millions, unless otherwise stated)

    
 
For the year ended
December 31, 2011
  
  

Selected Financial Information:

  

Revenues

   $         1,309   

Average revenues per MWh

     82   

Adjusted EBITDA (1)

     926   

Funds from operations (1)

     433   

Net income

  

Preferred equity

     13   

Participating non-controlling interests - in operating subsidiaries

     11   

General partnership interest in a holding subsidiary held by Brookfield

       

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

     27   

Limited partners’ equity

     28   
  

 

 

 
     79   
  

 

 

 

Basic and diluted earnings per LP Unit (2)

     0.21   
          
  (1)  

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

 

  (2)  

Average LP Units outstanding during the period totaled 132.8 million.

There are no differences in capacity, long-term average and actual generation since the pro forma results reflect the same portfolio of assets as are reflected in the historical table.

 

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  3.B

CAPITALIZATION AND INDEBTEDNESS

The following table presents Brookfield Renewable’s consolidated capitalization as at March 31, 2013 and as at December 31, 2012 derived from our consolidated financial statements prepared in accordance with IFRS.

 

(US$ millions)  

March 31,

2013

   

December 31,

2012
Restated
(3)

 

Credit facilities (1)

    $      570        $      268   

Corporate borrowings (1)

    1,467        1,504   

Subsidiary borrowings (2)

    5,193        4,347   
 

 

 

   

 

 

 
    7,230        6,119   

Deferred income tax liabilities

    2,395        2,349   

Preferred equity

    659        500   

Participating non-controlling interests - in operating subsidiaries

    1,027        1,028   

General partnership interest in a holding subsidiary held by Brookfield

    62        63   

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

    3,041        3,070   

Limited partners’ equity

    3,117        3,147   

 

  (1)  

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

 

  (2)  

Issued by a subsidiary of Brookfield Renewable and secured against its own assets. The amounts are not guaranteed.

 

  (3)

See note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

You should read this table in conjunction with the unaudited consolidated financial statements of Brookfield Renewable as at March 31, 2013 and for the three months ended March 31, 2013 and 2012 and related notes, the audited consolidated financial statements as at and for the years ended December 31, 2012, 2011 and 2010 and the related notes, Item 3.A “Selected Financial Data” and Item 5. “Operating and Financial Review and Prospects”, in each case, included elsewhere in this Form 20-F.

The significant components of our total consolidated equity are comprised of (a) interests of others in consolidated subsidiaries; (b) the Redeemable/Exchangeable partnership units of BRELP held by Brookfield Asset Management; and (c) the LP Units issued by Brookfield Renewable. The Redeemable/Exchangeable partnership units provide Brookfield Asset Management the direct economic benefits and exposures to the underlying performance of BRELP and accordingly to the variability of the distributions of BRELP, whereas our LP Unitholders have indirect access to the economic benefits and exposures, including the variability of the distributions, of BRELP through direct ownership interest in Brookfield Renewable which owns a direct interest in BRELP. Accordingly, the Redeemable/Exchangeable partnership units are presented as non-controlling interests rather than equity of parent company.

 

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  3.C

REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.

 

  3.D

RISK FACTORS

You should carefully consider the following factors in addition to the other information set forth in this Form 20-F. If any of the following risks actually occur, our business, financial condition, results of operations and prospects could be adversely affected and the value of our LP Units would likely decline, and you could lose all or part of your investment.

Risks Related to Brookfield Renewable

Brookfield Renewable is a newly formed partnership with a limited operating history and the historical and pro forma financial information included in this Form 20-F does not reflect the financial condition or operating results we would have achieved during the periods presented, and therefore may not be a reliable indicator of our future financial performance.

Brookfield Renewable, which was formed on June 27, 2011 and acquired substantially all of its assets pursuant to the Combination in November 2011, has a limited operating history. Our lack of operating history will make it difficult for you to assess our ability to operate profitably and make distributions to LP Unitholders. Financial information for the periods prior to November 28, 2011 is presented based on the historical combined financial information for the contributed operations as previously reported by Brookfield. For the period after completion of the Combination, the results are based on the actual results of the new entity, Brookfield Renewable, including the adjustments associated with the Combination and the execution of several new and amended agreements, including PPAs and management service agreements.

Brookfield Renewable is not, and does not intend to become, regulated as an “investment company” under the Investment Company Act (and similar legislation in other jurisdictions) and if Brookfield Renewable was deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to operate as contemplated.

The Investment Company Act (and similar legislation in other jurisdictions) provides certain protections to investors and imposes certain restrictions on companies that are registered as investment companies. Among other things, such rules limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities and impose certain governance requirements. Brookfield Renewable has not been and does not intend to become regulated as an investment company and Brookfield Renewable intends to conduct its activities so it will not be deemed to be an investment company under the Investment Company Act (and similar legislation in other jurisdictions). In order to ensure that we are not deemed to be an investment company, we may be required to materially restrict or limit the scope of our operations or plans. We will be limited in the types of acquisitions that we may make, and we may need to modify our organizational structure or dispose of assets of which we would not otherwise dispose. Moreover, if anything were to happen, which would potentially cause Brookfield Renewable to be deemed an investment company under the Investment Company Act, it would be impractical for us to operate as intended. Agreements and arrangements between and among us and Brookfield would be impaired, the type and amount of acquisitions that we would be able to make as a principal would be limited, and our business, financial condition and results of operations would be materially adversely affected. Accordingly, we would be required to take extraordinary steps to address the situation, such as the amendment or termination of our Master Services Agreement, the restructuring of Brookfield Renewable and the Holding Entities, the amendment of the Amended and Restated Limited Partnership Agreement of BREP or the termination of Brookfield Renewable, any of which could materially adversely affect the value of our LP Units. In addition, if Brookfield Renewable were deemed to be an investment company under the Investment Company Act, it would be taxable as a corporation for U.S. federal income tax purposes, and such treatment could materially adversely affect the value of our LP Units.

Brookfield Renewable is a “foreign private issuer” under U.S. securities laws and will therefore be subject to disclosure obligations different from requirements applicable to U.S. domestic registrants listed on the NYSE.

Although Brookfield Renewable will be subject to the periodic reporting requirement of the Exchange Act, the periodic disclosure required of foreign private issuers under the Exchange Act is different from periodic disclosure required of U.S. domestic registrants. Therefore, there may be less publicly available information about Brookfield Renewable than is regularly published by or about other public companies in the United States. Brookfield Renewable will be exempt from certain other sections of the Exchange Act to which U.S. domestic issuers are subject, including the requirement to provide our LP Unitholders with information statements or proxy statements that comply with the Exchange Act. In addition, insiders and large LP Unitholders of Brookfield Renewable will not be obligated to file reports under Section 16 of the Exchange Act, and certain corporate governance rules that are imposed by the NYSE will be inapplicable to Brookfield Renewable.

We may be subject to the risks commonly associated with a separation of economic interest from control or the incurrence of debt at multiple levels within an organizational structure.

            Our ownership and organizational structure is similar to structures whereby one company controls another company which in turn holds controlling interests in other companies; thereby, the company at the top of the chain may control the company at the bottom of the chain even if its effective equity position in the bottom company is less than a controlling interest. Brookfield is the sole shareholder of the Managing General Partner and, as a result of such ownership of the Managing General Partner, Brookfield will be able to control the appointment and removal of the Managing General Partner’s directors and, accordingly, will exercise substantial influence over us. In turn, we often have a majority controlling interest or a significant influence in our investments. Even though Brookfield has an effective economic interest in our business of approximately 65% as a result of its ownership of our LP Units and the Redeemable/Exchangeable partnership units, over time Brookfield may reduce this economic interest while still maintaining its controlling interest, and, therefore, Brookfield may use its control rights in a manner that conflicts with the economic interests of our other LP Unitholders. For example, despite the fact that we have the Conflicts Policy in place, which addresses the requirement for independent approval and other requirements for transactions in which there is greater potential for a conflict of interest to arise, including transactions with affiliates of Brookfield, because Brookfield will be able to exert substantial influence over us, and, in turn, over our investments, there is a greater risk of transfer of assets of our investments at non-arm’s length values to Brookfield and its affiliates. In addition, debt incurred at multiple levels within the chain of control could exacerbate the separation of economic interest from controlling interest at such levels, thereby creating an incentive to leverage us and our investments. Any such increase in debt would also make us more sensitive to declines in revenues, increases in expenses and interest rates, and adverse market conditions. The servicing of any such debt would also reduce the amount of funds available to pay distributions to us and ultimately to our LP Unitholders.

Our failure to maintain effective internal controls could have a material adverse effect on our business in the future and the price of our LP Units.

Pursuant to Section 404 of the Sarbanes-Oxley Act, our management will be required to deliver a report that assesses the effectiveness of our internal controls over financial reporting and our independent registered public accounting firm will be required to deliver an attestation report on our management’s assessment of, and the operating effectiveness of, our internal controls over financial reporting in conjunction with their opinion on our audited consolidated financial statements. Any failure to maintain adequate internal controls over financial reporting or to implement required, new or improved controls, or difficulties encountered in their implementation, could cause us to report material weaknesses or other deficiencies in our internal controls over financial reporting and could result in a more than remote possibility of errors or misstatements in our consolidated financial statements that would be material. If we or our independent registered public accounting firm were to conclude that our internal controls over financial reporting were not effective, investors could lose confidence in our reported financial information and the price of our LP Units could decline. Our failure to achieve and maintain effective internal controls could have a material adverse effect on our business in the future, our access to the capital markets and investors’ perception of us. In addition, material weaknesses in our internal controls could require significant expense and management time to remediate.

Risks Related to Our Operations and the Renewable Power Industry

Changes to hydrology at our hydroelectric stations or in wind conditions at our wind energy facilities could materially adversely affect the volume of electricity generated.

The revenues generated by our facilities are proportional to the amount of electricity generated which in turn is dependent upon available water flows and wind conditions. Hydrology and wind conditions have natural variations from season to season and from year to year and may also change permanently because of climate change or other factors. A natural disaster could also impact water flows within the watersheds in which we operate. Water rights are also generally owned or controlled by governments that reserve the right to control water levels or may impose water-use requirements as a condition of license renewal. Wind energy is highly dependent on weather conditions and, in particular, on wind conditions. The profitability of a wind farm depends not only on observed wind conditions at the site, which are inherently variable, but also on whether observed wind conditions are consistent with assumptions made during the project development phase. A sustained decline in water flow at our hydroelectric stations or in wind conditions at our wind energy facilities could lead to a material adverse change in the volume of electricity generated, revenues and cash flow.

In Brazil, hydroelectric power generators have access to the MRE, which, within the limitation referred to below, stabilizes hydrology by assuring that all participant plants in the MRE receive a reference amount of electricity, approximating long-term average irrespective of the actual volume of energy generated whether above or below long-term average and substantially all our assets are part of that pool. In cases of nationwide drought, when the pool as a whole is in shortfall relative to the long-term average, an asset can expect to share the nationwide shortfall pro-rata with the rest of the pool. In addition, specific rules provide the minimum percentages of the reference amount of electricity that must be actually generated each year for assuring participation in the MRE. The energy reference amount is assessed yearly according to the criteria of such regulation, and can be adjusted positively or negatively. If the MRE is terminated or changed or Brookfield Renewable Group reference amount is revised, Brookfield Renewable’s financial results would be exposed to variations in hydrology in Brazil.

Counterparties to our contracts may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms.

A significant portion of the power we generate is sold under long-term PPAs with Brookfield, public utilities or industrial or commercial end-users, some of whom may not be rated by any rating agency. For example, as at December 31, 2012 approximately 43% of our projected annual sales were with Brookfield entities which are not rated and whose obligations are not guaranteed by Brookfield Asset Management. If, for any reason, any of the purchasers of power under such PPAs, including Brookfield, are unable or unwilling to fulfill their contractual obligations under the relevant PPA or if they refuse to accept delivery of power pursuant to the relevant PPA, our assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as we may not be able to replace the agreement with an agreement on equivalent terms and conditions. External events, such as a severe economic downturn, could impair the ability of some counterparties to the PPAs or some end use customers to pay for electricity received.

Certain portions of our hydroelectric portfolio will be subject to re-contracting in the future. We cannot provide any assurance that we will be able to re-negotiate these contracts once their terms expire, and even if we are able to do so, we cannot provide any assurance that we will be able to obtain the same prices or terms we currently receive. If we are unable to renegotiate these contracts, or unable to receive prices at least equal to the current prices we receive, our business, financial condition, results of operation and prospects could be adversely affected.

Conversely, a significant percentage of our sales will be made by facilities subject to indefinite term contracts with Brookfield (taking into account its rights of renewal) at fixed prices per MWh of our electricity sold. Accordingly, with respect to those facilities, our ability to realize improved revenues due to increases in market prices for renewable power may be limited.

Increases in water rental costs (or similar fees) or changes to the regulation of water supply may impose additional obligations on Brookfield Renewable Group.

Water rights are generally owned or controlled by governments that reserve the right to control water levels or may impose water-use requirements as a condition of license renewal that differ from those arrangements in place today. We are required to make rental payments and pay property taxes for water rights or pay similar fees for use of water once our hydroelectric projects are in commercial operation. Significant increases in water rental costs or similar fees in the future or changes in the way that governments regulate water supply could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

 

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Supply and demand in the energy market, including the non-renewable energy market, is volatile and such volatility could have an adverse impact on electricity prices and a material adverse effect on Brookfield Renewable Group assets, liabilities, business, financial condition, results of operations and cash flow.

A portion of Brookfield Renewable’s revenues are tied, either directly or indirectly, to the wholesale market price for electricity in the markets in which Brookfield Renewable Group operates. Wholesale market electricity prices are impacted by a number of factors including: the price of fuel (for example, natural gas) that is used to generate other sources of electricity; the management of generation and the amount of excess generating capacity relative to load in a particular market; the cost of controlling emissions of pollution, including potentially the cost of carbon; the structure of the market; and weather conditions that impact electrical load. More generally, there is uncertainty surrounding the trend in electricity demand growth, which is greatly influenced by macroeconomic conditions, by absolute and relative energy prices, and by developments in energy conservation and demand-side management. Correspondingly, from a supply perspective, there are uncertainties associated with the timing of generating plant retirements – in part driven by environmental regulations – and with the scale, pace and structure of replacement capacity, again reflecting a complex interaction of economic and political pressures and environmental preferences. This volatility and uncertainty in the energy market, including the non-renewable energy market, could have a material adverse effect on Brookfield Renewable’s assets, liabilities, business, financial condition, results of operations and cash flow.

Our operations are highly regulated and may be exposed to increased regulation which could result in additional costs to Brookfield Renewable.

Our generation assets are subject to extensive regulation by various government agencies and regulatory bodies in different countries at the federal, regional, state, provincial and local level. As legal requirements frequently change and are subject to interpretation and discretion, we may be unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. Any new law, rule or regulation could require additional expenditure to achieve or maintain compliance or could adversely impact our ability to generate and deliver energy. Also, operations that are not currently regulated may become subject to regulation which could result in additional cost to our business. Further, changes in wholesale market structures or rules, such as generation curtailment requirements or limitations to access the power grid, could have a material adverse effect on our ability to generate revenues from our facilities. In particular, recent government legislation affecting Brazil’s electricity sector could have a negative impact on power prices in Brazil.

There is a risk that our concessions and licenses will not be renewed.

We hold concessions and licenses and we have rights to operate our facilities which generally include rights to the land and water required for power generation. We expect that our rights and/or our licenses will be renewed by the applicable regulatory bodies in each country. However, if these regulatory bodies do not grant us renewal rights, or if they decide to renew our concessions and licenses, as the case may be, under conditions which would impose additional costs, or if additional restrictions such as setting a price ceiling for energy sales, our profitability and operational activity could be adversely impacted.

The cost of operating our plants could increase for reasons beyond our control.

While we currently maintain a low and competitive cost position, there is a risk that increases in our cost structure that are beyond our control could materially adversely impact our financial performance. Examples of such costs include compliance with new conditions imposed during relicensing processes, municipal property taxes, water rental fees and the cost of procuring materials and services required for our maintenance activities.

We may fail to comply with the conditions in, or may not be able to maintain, our governmental permits.

Our generation assets and construction projects are required to comply with numerous federal, regional, state, provincial and local statutory and regulatory standards and to maintain numerous licenses, permits and governmental approvals required for operation. Some of the licenses, permits and governmental approvals that have been issued to our operations contain conditions and restrictions, or may have limited terms. If we fail to satisfy the conditions or comply with the restrictions imposed by our licenses, permits and governmental approvals, or the restrictions imposed by any statutory or regulatory requirements, we may become subject to regulatory enforcement action and the operation of the assets could be adversely affected or be subject to fines, penalties or additional costs or revocation of regulatory approvals, permits or licenses. In addition, we may not be able to renew, maintain or obtain all necessary licenses, permits and governmental approvals required for the continued operation or further development of our projects, as a result of which the operation or development of our assets may be limited or suspended. Our failure to renew, maintain or obtain all necessary licenses, permits or governmental approvals may have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

 

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We may experience equipment failure.

Our generation assets may not continue to perform as they have in the past and there is a risk of equipment failure due to wear and tear, latent defect, design error or operator error, or early obsolescence, among other things, which could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow. In particular, wind generation turbines are a less mature technology than hydroelectric assets and have shorter lifespans.

The occurrence of dam failures could result in a loss of generating capacity and repairing such failures could require us to expend significant amounts of capital and other resources.

The occurrence of dam failures at any of our hydroelectric generating stations or the occurrence of dam failures at other generating stations or dams operated by third parties whether upstream or downstream of our hydroelectric generating stations could result in a loss of generating capacity and repairing such failures could require us to expend significant amounts of capital and other resources. Such failures could result in damage to the environment or damages and harm to third parties or the public, which could expose us to significant liability.

We may be exposed to force majeure events.

The occurrence of a significant event that disrupts the ability of our generation assets to produce or sell power for an extended period, including events which preclude existing customers from purchasing electricity, could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow. In addition, force majeure events affecting our assets could result in damage to the environment or harm to third parties or the public, which could expose us to significant liability. Our generation assets could be exposed to effects of severe weather conditions, natural disasters and potentially catastrophic events such as a major accident or incident. An assault or an action of malicious destruction, sabotage or terrorism committed on our generation assets could also disrupt our ability to generate or sell power. In certain cases, there is the potential that some events may not excuse Brookfield Renewable Group from performing its obligations pursuant to agreements with third parties. Brookfield Renewable Group may be liable for damages or suffer further losses as a result. In addition, many of our generation assets are located in remote areas which may make access for repair of damage difficult.

We may be exposed to uninsurable losses.

While we maintain insurance coverage, such insurance may not continue to be offered on an economically feasible basis and may not cover all events that could give rise to a loss or claim involving our assets or operations. If our insurance coverage is not adequate and we are forced to bear such losses or claims, our financial position could be materially and adversely affected.

We are subject to foreign currency risk which may adversely affect the performance of our operations.

A significant portion of our current operations are in countries where the U.S. dollar is not the functional currency. These operations pay distributions in currencies other than the U.S. dollar, which we must convert to U.S. dollars prior to making distributions. A significant depreciation in the value of such foreign currencies which could result from measures introduced by foreign governments to control inflation or deflation may have a material adverse effect on our business, financial condition, results of operations and cash flows.

The ability to deliver electricity to our various counterparties requires the availability of and access to interconnection facilities and transmission systems.

Our ability to sell electricity is impacted by the availability of, and access to, the various transmission systems to deliver power to its contractual delivery point and the arrangements and facilities for interconnecting the generation projects to the transmission systems. The absence of this availability and access, our inability to obtain reasonable terms and conditions for interconnection and transmission agreements, the operational failure of existing interconnection facilities or transmission facilities, the lack of adequate capacity on such interconnection or transmission facilities, may have a material adverse effect on our ability to deliver electricity to our various counterparties or the requirement of counterparties to accept and pay for energy delivery, which could materially and adversely affect our assets, liabilities, business, financial condition, results of operations and cash flow.

Our operations are exposed to health, safety, security and environmental risks.

The ownership, construction and operation of our generation assets carry an inherent risk of liability related to public safety, health, safety, security and the environment, including the risk of government imposed orders to remedy unsafe conditions and/or to remediate or otherwise address environmental contamination or damage. We could also be exposed to potential penalties for contravention of health, safety, security and environmental laws and potential civil liability. In the ordinary course of business we incur capital and operating expenditures to comply with health, safety, security and environmental laws to obtain and comply with licenses, permits and other approvals and to assess and manage related risks. The costs to comply with these laws (and any future laws or amendments enacted) may increase over time and result in additional material expenditures. We may become subject to government orders, investigations, inquiries or other proceedings (including civil claims) relating to health, safety, security and environmental matters as a result of which our operations may be limited or suspended. The occurrence of any of these events or any changes, additions to or more rigorous enforcement of health, safety, security and environmental laws could have a material and adverse impact on operations and result in additional material expenditures. Additional environmental, health and safety issues relating to presently known or unknown matters may require unanticipated expenditures, or result in fines, penalties or other consequences (including changes to operations) that may be material and adverse to our business and results of operations.

 

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Our renewable power business may be involved in disputes and possible litigation.

In the normal course of our operations, Brookfield Renewable Group may become involved in various legal actions that could expose it to significant liability for damages. The outcome with respect to outstanding, pending or future actions cannot be predicted with certainty and may be adverse to us and as a result could have a material adverse effect on our assets, liabilities, business, financial condition, results of operations and cash flow.

The operation of our generating facilities could be affected by local communities.

We may become impacted by the interests of local communities and stakeholders, including in some cases, First Nations and other aboriginal peoples, that affect the operation of our facilities. Certain of these communities may have or may develop interests or objectives which are different from or even in conflict with our objectives, including the use of our project lands and waterways near our facilities. Any such differences could have a negative impact on the successful operation of our facilities. As well, disputes surrounding, and settlements of, Aboriginal land claims regarding lands on or near which our generating assets reside could interfere with operations and/or result in additional operating costs or restrictions.

We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events.

We may suffer a significant loss resulting from fraud, bribery, corruption, other illegal acts, inadequate or failed internal processes or systems, or from external events, such as the occurrence of disasters or security threats affecting our ability to operate. We operate in different markets and rely on our employees to follow our policies and processes as well as applicable laws in their activities. Risk of illegal acts or failed systems is managed through our infrastructure, controls, systems and people, complemented by central groups focusing on enterprise-wide management of specific operational risks such as fraud, trading, outsourcing, and business disruption, as well as personnel and systems risks. Specific programs, policies, standards and methodologies have been developed to support the management of these risks. These risks can result in direct or indirect financial loss, reputational impact or regulatory censure.

There are general industry risks associated with operating in the North American and Brazilian power market sectors.

We operate in the North American and Brazilian power market sectors, which are affected by competition, price, supply of and demand for power, the location of import/export transmission lines and overall political, economic and social conditions and policies. A general and extended decline in the North American or Brazilian economy or sustained conservation efforts to reduce electricity consumption could have the effect of reducing demand for electric energy over time.

Advances in technology could impair or eliminate the competitive advantage of our projects.

            There are other alternative technologies that can produce renewable power, such as fuel cells, microturbines and photovoltaic (solar) cells. These alternative technologies currently produce electricity at a higher average price than our generation facilities; however, research and development activities are ongoing to seek improvements in such alternative technologies and their cost of producing electricity is gradually declining. Additionally, research and developments activities are ongoing to seek improvements and reductions in carbon emissions from fossil fuel generation. It is possible that advances will further reduce the cost or increase the competitiveness of alternative methods of power generation. If this were to happen, the competitive advantage of our projects may be significantly impaired or eliminated and our assets, liabilities, business, financial condition, results of operations and cash flow could be materially and adversely affected as a result.

There can be no guarantee that newly developed technologies that we invest in will perform as anticipated.

We may invest in and use newly developed, less proven, technologies in our development projects or in maintaining or enhancing our existing assets. There is no guarantee that such new technologies will perform as anticipated. The failure of a new technology to perform as anticipated may materially and adversely affect the profitability of a particular development project.

Performance of our Operating Entities may be harmed by future labor disruptions and economically unfavorable collective bargaining agreements.

Certain of Brookfield Renewable’s subsidiaries are parties to collective agreements that expire periodically and those subsidiaries may not be able to renew their collective agreements without a labor disruption or without agreeing to significant increases in cost. In the event of a labor disruption such as a strike or lock-out, the ability of our generation assets to generate electricity may be impaired. Our results from operations and cash flow could be materially and adversely affected as a result.

 

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Risks Related to Financing

Our ability to finance our operations is subject to various risks relating to the state of the capital markets.

Brookfield Renewable Group has corporate debt as well as limited recourse project level debt that will need to be replaced from time to time. Brookfield Renewable Group’s financings may contain conditions that limit its ability to repay indebtedness prior to maturity without incurring penalties, which may limit its capital markets flexibility. Refinancing risk includes, among other factors, dependence on continued operating performance of Brookfield Renewable Group’s assets, future electricity market prices, future capital markets conditions, the level of future interest rates and investors’ assessment of Brookfield Renewable’s credit risk at such time. In addition, certain of our financings are, and future financings may be, exposed to floating interest rate risks, and if interest rates increase, an increased proportion of our cash flow may be required to service indebtedness. Future acquisitions, development and construction of new facilities and other capital expenditures will be financed out of cash generated from our operations, borrowings and possible future sales of equity. Our ability to obtain financing to finance our growth is dependent on, among other factors, the overall state of the capital markets, continued operating performance of our assets, future electricity market prices, the level of future interest rates and investors’ assessment of our credit risk at such time, and investor appetite for investments in renewable energy and infrastructure assets in general and in Brookfield Renewable Group’s securities in particular. To the extent that external sources of capital become limited or unavailable or available on onerous terms, our ability to make necessary capital investments to construct new or maintain existing facilities will be impaired, and as a result, our business, financial condition, results of operations and prospects may be materially and adversely affected.

We are subject to operating and financial restrictions through covenants in our loan, debt and security agreements.

Brookfield Renewable, BRELP and its subsidiaries are or will in the future be subject to operating and financial restrictions through covenants in our loan, debt and security agreements. These restrictions may prohibit or limit our ability to, among other things, incur additional debt, provide guarantees for indebtedness, create liens, dispose of assets, liquidate, dissolve, amalgamate, consolidate or effect corporate or capital reorganizations, declare or make distributions, issue equity interests, enter into material or affiliate contracts and create subsidiaries. Financial covenants in our bonds and in our corporate bank credit facilities limit our overall indebtedness to a percentage of total capitalization as well as require us to maintain a minimum tangible net worth, restrictions which may limit our ability to obtain additional financing, withstand downturns in our business and take advantage of business and development opportunities. If we breach our covenants, our credit facilities may be terminated or come due and such event may cause our credit rating to deteriorate and subject Brookfield Renewable to higher interest and financing costs. We may also be required to seek additional debt financing on terms that include more restrictive covenants, require repayment on an accelerated schedule or impose other obligations that limit our ability to grow our business, acquire needed assets or take other actions that we might otherwise consider appropriate or desirable.

Changes in our credit ratings may have an adverse effect on our financial position and ability to raise capital.

We cannot provide any assurance that any credit rating assigned to Brookfield Renewable or any of our subsidiaries’ debt securities will remain in effect for any given period of time or that any rating will not be lowered or withdrawn entirely by the relevant rating agency. A lowering or withdrawal of such ratings may have an adverse effect on our financial position and ability to raise capital, as well as increase the cost of utilizing our corporate bank credit facilities.

Risks Related to Our Growth Strategy

Government regulations providing incentives for renewable energy could change at any time.

            Development of renewable energy sources and the overall growth of the renewable energy industry are dependent on state or provincial, national and international policies in support of such development. In particular, policies to actively support renewable energy have for several years been pursued and in many cases continue to be pursued by Canada and the United States, two of our principal markets, and their respective provinces and states. In Brazil, SHPPs under 30MW operate in a special segment of the market that benefit from certain preferred economic and regulatory rights. Customers that purchase power from these plants benefit from a special discount for the use of the distribution system which, in turn, enables us to capture a portion of this discount through higher prices with end-use customers. Those incentives supporting renewable development are subject to the political process and can therefore be amended or cancelled. Policies which incentivize the development of renewables can vary significantly by market, including renewable energy purchase obligations imposed on load serving entities, tax incentives, including investment tax credits, production tax credits and accelerated depreciation and other direct subsidies.

 

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In certain markets, the cost of renewable energy to purchasers, as well as the economic return available to project sponsors, is often dependent on the level of incentives available, which may change or expire over time. There is a risk that government regulations providing incentives for renewable energy or increasing emission standards or other environmental regulation of traditional thermal coal-fired generation could change at any time. Any such change may impact the competitiveness of renewable energy generally and the economic value and ability to develop our projects in particular. The budget difficulties facing many governments create greater challenges and uncertainty in receiving the renewal of incentives. In addition, even if incentives are renewed prior to their expiration, uncertainty regarding renewal can create substantial risks and delays for developers of renewable power projects. As a result, we may face reduced ability to develop our project pipeline and realize our development growth objectives. We may also suffer material write-offs of development assets as a result.

We may be unable to identify and complete sufficient investment opportunities.

Our strategy for building LP Unitholder value is to seek to acquire or develop high-quality assets and businesses that generate sustainable and increasing cash flows, with the objective of achieving appropriate risk-adjusted returns on our invested capital over the long-term. However, there is no certainty that we will be able to find and complete sufficient investment opportunities that meet our investment criteria. Our investment criteria consider, among other things, the financial, operating, governance and strategic merits of a proposed acquisition and, as such, there is no certainty that we will be able to acquire or develop additional high-quality assets at attractive prices to continue growing our business. Competition for assets is significant and competition from other well-capitalized investors or companies may make the opportunity less attractive or prevent us from completing an acquisition.

Future growth of our portfolio may subject us to additional risks.

Our strategy is to continue to expand our business through acquisitions and developments, however, acquisitions involve risks that could materially and adversely affect our business, including: the failure of the new acquisitions or projects to achieve the expected investment results, risks related to the integration of the assets or businesses and integration or retention of personnel relating to the acquired assets or companies and the inability to achieve potential synergies. In addition, liabilities may exist that Brookfield Renewable Group does not discover in its due diligence prior to the consummation of an acquisition, or circumstances may exist with respect to the entities or assets acquired that could lead to future liabilities and, in each case, Brookfield Renewable Group may not be entitled to sufficient, or any, recourse against the vendors or contractual counterparties to an acquisition agreement. The discovery of any material liabilities subsequent to an acquisition, as well as the failure of a new acquisition to perform according to expectations, could have a material adverse effect on Brookfield Renewable Group’s assets, liabilities, business, financial condition, results of operations and cash flow.

There are several factors which may affect our ability to develop existing sites and find new sites suitable for the development of greenfield power projects.

Our ability to realize our greenfield development growth plans is dependent on our ability to develop existing sites and find new sites suitable for development into viable projects. Ability to maintain a development permit often requires specific development steps to be undertaken within defined timelines. Successful development of greenfield power projects, whether hydroelectric or wind, or other technologies is typically dependent on a number of factors, including the ability to secure an attractive site on reasonable terms; the ability to measure resource availability at levels deemed economically attractive for continued project development; the ability to secure approvals, licenses and permits; the acceptance of local stakeholders, including in some cases, First Nations and other aboriginal peoples; the ability to secure transmission interconnection access or agreements; and the ability to secure a long-term PPA or other power sales contract on terms that made the investment attractive or viable. Each of these factors can be critical in determining whether or not a particular development project might ultimately be suitable for construction. Failure to achieve any one of these elements may prevent the development and construction of a project. When this occurs we may also lose all of our investment in development expenditures and may be required to write-off such project development assets.

The development of our generating facilities is subject to various construction risks and risks associated with the various types of arrangements we enter into with communities and joint venture partners.

Our ability to develop an economically successful project is dependent on, among other things, our ability to construct a particular project on-time and on-budget. The construction and development of generating facilities is subject to various environmental, engineering and construction risks that could result in cost-overruns, delays and reduced performance. A number of factors that could cause such delays, cost over-runs or reduced performance include, but are not limited to, permitting delays, changing engineering and design requirements, the costs of construction, the performance and necessary experience of contractors, labor disruptions and inclement weather. In addition, we enter into various types of arrangements with communities and joint venture partners, including in some cases, First Nations and other aboriginal peoples, for the development of projects. Certain of these communities and partners may have or may develop interests or objectives which are different from or even in conflict with our objectives. Any such differences could have a negative impact on the success of our projects.

 

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Brookfield has no obligation to source acquisition opportunities for us and we may not have access to all renewable power acquisitions that Brookfield identifies.

Our ability to grow through acquisitions depends on Brookfield’s ability to identify and present us with acquisition opportunities. Brookfield established Brookfield Renewable to hold and acquire renewable power generating operations or developments on a global basis. However, Brookfield has no obligation to source acquisition opportunities specifically for us. In addition, Brookfield has not agreed to commit to us any minimum level of dedicated resources for the pursuit of renewable power-related acquisitions. There are a number of factors which could materially and adversely impact the extent to which suitable acquisition opportunities are made available from Brookfield, for example:

 

   

it is an integral part of Brookfield’s (and our) strategy to pursue the acquisition or development of renewable power assets through consortium arrangements with institutional investors, strategic partners or financial sponsors and to form partnerships to pursue such acquisitions on a specialized or global basis. Although Brookfield has agreed with us that it will not enter any such arrangements that are suitable for us without giving us an opportunity to participate in them, there is no minimum level of participation to which we will be entitled;

 

   

the same professionals within Brookfield’s organization that are involved in acquisitions that are suitable for us are responsible for the consortiums and partnerships referred to above, as well as having other responsibilities within Brookfield’s broader asset management business. Limits on the availability of such individuals will likewise result in a limitation on the availability of acquisition opportunities for us;

 

   

Brookfield will only recommend acquisition opportunities that it believes are suitable for us. Our focus is on assets where we believe that our operations-oriented approach can be deployed to create value. Accordingly, opportunities where Brookfield cannot play an active role in influencing the underlying operating company or managing the underlying assets may not be suitable for us, even though they may be attractive from a purely financial perspective. Legal, regulatory, tax and other commercial considerations will likewise be an important consideration in determining whether an opportunity is suitable and could limit our ability to participate in these certain investments;

 

   

in addition to structural limitations, the question of whether a particular acquisition is suitable is highly subjective and is dependent on a number of factors including an assessment by Brookfield relating to our liquidity position at the time, the risk profile of the opportunity, its fit with the balance of our then current operations and other factors. If Brookfield determines that an opportunity is not suitable for us, it may still pursue such opportunity on its own behalf, or on behalf of a Brookfield sponsored partnership or consortium.

In making these determinations, Brookfield may be influenced by factors that result in a misalignment or conflict of interest. See Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

We do not have control over all our operations.

We have structured some of our operations as joint ventures, partnerships and consortium arrangements. An integral part of our strategy is to participate with institutional investors in Brookfield sponsored or co-sponsored consortiums for single asset acquisitions and as a partner in or alongside Brookfield sponsored or co-sponsored partnerships that target acquisitions that suit our profile. These arrangements are driven by the magnitude of capital required to complete acquisitions of renewable assets and other industry-wide trends that we believe will continue. Such arrangements involve risks not present where a third party is not involved, including the possibility that partners or co-venturers might become bankrupt or otherwise fail to fund their share of required capital contributions. Additionally, partners or co-venturers might at any time have economic or other business interests or goals different from Brookfield Renewable and Brookfield.

Joint ventures, partnerships and consortium investments generally provide for a reduced level of control over an acquired company because governance rights are shared with others. Accordingly, decisions relating to the underlying operations, including decisions relating to the management and operation and the timing and nature of any exit, are often made by a majority vote of the investors or by separate agreements that are reached with respect to individual decisions. In addition, such operations may be subject to the risk that the company may make business, financial or management decisions with which we do not agree or the management of the company may take risks or otherwise act in a manner that does not serve our interests. Because we may not have the ability to exercise control over such operations, we may not be able to realize some or all of the benefits that we believe will be created from Brookfield’s involvement. If any of the foregoing were to occur, our financial condition and results of operations could suffer as a result.

In addition, all of our current operations with less than 100% ownership are structured joint ventures, partnerships, consortium arrangements or leasehold interests. The sale or transfer of interests in some of these operations are subject to rights of first refusal or first offer, tag along rights or drag along rights and some agreements in these operations provide for buy-sell or similar arrangements. Such rights may be triggered at a time when we may not want them to be exercised and such rights may inhibit our ability to sell our interest in an entity within the desired time frame or on any other desired basis. In addition, the operations are also all subject to pre-emptive or default rights which may lead to the joint venture or third parties compulsorily acquiring assets from the joint venture.

 

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We may be required to issue equity or debt for future acquisitions and developments which will be dependent on the overall state of the capital markets.

Future acquisitions and developments, construction of new facilities and other capital expenditures will be financed out of cash generated from our operations, borrowings and possible future sales of equity. As such, financing our growth may depend on raising additional equity and/or debt capital. Our ability to do so is dependent on, among other factors, our credit rating, the overall state of the capital markets and investor appetite for investments in renewable energy assets in general and our securities in particular.

We may pursue acquisitions in new markets that are subject to foreign laws or regulation that are more onerous than the laws and regulations we are currently subject to.

We may pursue acquisitions in new markets that are subject to regulation by various foreign governments and regulatory authorities and to the application of foreign laws. Such foreign laws or regulations may not provide for the same type of legal certainty and rights, in connection with our contractual relationships in such countries, as are afforded to our projects in Canada, the United States and Brazil, which may adversely affect our ability to receive revenues or enforce our rights in connection with our foreign operations. In addition, the laws and regulations of some countries may limit our ability to hold a majority interest in some of the projects that we may develop or acquire, thus limiting our ability to control the development, construction and operation of such projects. Any existing or new operations may also be subject to significant political, economic and financial risks, which vary by country, and may include:

 

   

changes in government policies or personnel;

 

   

changes in general economic conditions;

 

   

restrictions on currency transfer or convertibility;

 

   

changes in labor relations;

 

   

political instability and civil unrest;

 

   

regulatory or other changes in the local electricity market; and

 

   

breach or repudiation of important contractual undertakings by governmental entities and expropriation and confiscation of assets and facilities for less than fair market value.

Risks Related to Our Relationship with Brookfield

Brookfield will exercise substantial influence over Brookfield Renewable and we are highly dependent on the Manager.

A subsidiary of Brookfield Asset Management is the sole shareholder of the Managing General Partner. As a result of its ownership of the Managing General Partner, Brookfield will be able to control the appointment and removal of the Managing General Partner’s directors and, accordingly, exercise substantial influence over Brookfield Renewable. In addition, Brookfield Renewable holds its interest in the Operating Entities indirectly and will hold any future acquisitions indirectly through BRELP, the general partner of which is indirectly owned by Brookfield. As Brookfield Renewable’s only substantial asset is the limited partnership interests that it holds in BRELP, except future rights under the Voting Agreement, Brookfield Renewable will not have a right to participate directly in the management or activities of BRELP or the Holding Entities, including with respect to the making of decisions (although it will have the right to remove and replace the BRELP GP LP).

Brookfield Renewable and BRELP depend on the management and administration services provided by or under the direction of the Manager under our Master Services Agreement. Brookfield personnel and support staff that provide services to us under our Master Services Agreement are not required to have as their primary responsibility the management and administration of Brookfield Renewable or BRELP or to act exclusively for either of us and our Master Services Agreement does not require any specific individuals to be provided by Brookfield or Brookfield Renewable. Any failure to effectively manage our current operations or to implement our strategy could have a material adverse effect on our business, financial condition and results of operations. Our Master Services Agreement continues in perpetuity, until terminated in accordance with its terms.

The departure of some or all of Brookfield’s professionals could prevent us from achieving our objectives.

We will depend on the diligence, skill and business contacts of Brookfield’s professionals and the information and opportunities they generate during the normal course of their activities. Our future success will depend on the continued service of these individuals, who are not obligated to remain employed with Brookfield. Brookfield has experienced departures of key professionals in the past and may do so in the future, and we cannot predict the impact that any such departures will have on our ability to achieve our objectives. The departure of a significant number of Brookfield’s professionals for any reason, or the failure to appoint qualified or effective successors in the event of such departures, could have a material adverse effect on our ability to achieve our objectives. The Amended and Restated Limited Partnership Agreement of BREP and our Master Services Agreement do not require Brookfield to maintain the employment of any of its professionals or to cause any particular professionals to provide services to us or on our behalf.

 

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The role and ownership of Brookfield may change.

Our arrangements with Brookfield do not require Brookfield to maintain any ownership level in Brookfield Renewable or in BRELP. Accordingly, the Managing General Partner may transfer its general partnership interest to a third party, including in a merger or consolidation or in a transfer of all or substantially all of its assets, without the consent of our LP Unitholders provided the transferee is an affiliate of the BRELP General Partner. In addition, Brookfield may sell or transfer all or part of its interests in the Manager or in the Managing General Partner, in each case, without the approval of our LP Unitholders. If a new owner were to acquire ownership of the Managing General Partner and to appoint new directors or officers of its own choosing, it would be able to exercise substantial influence over Brookfield Renewable’s policies and procedures and exercise substantial influence over our management and the types of acquisitions that we make. Such changes could result in Brookfield Renewable’s capital being used to make acquisitions in which Brookfield has no involvement or in making acquisitions that are substantially different from our targeted acquisitions. Additionally, Brookfield Renewable cannot predict with any certainty the effect that any transfer in the ownership of the Managing General Partner would have on the trading price of our LP Units or Brookfield Renewable’s ability to raise capital or make investments in the future, because such matters would depend to a large extent on the identity of the new owner and the new owner’s intentions with regard to Brookfield Renewable. As a result, the future of Brookfield Renewable would be uncertain and Brookfield Renewable’s business, financial condition and results of operations may suffer.

Brookfield is not necessarily required to act in the best interests of the Service Recipients, Brookfield Renewable or our LP Unitholders.

Our Master Services Agreement and our other arrangements with Brookfield do not impose any duty on the Manager to act in the best interest of the Service Recipients, and the Manager is not prohibited from engaging in other business activities that compete with the Service Recipients. Additionally, the Managing General Partner, the general partner of BRELP, the Managers and their affiliates will have access to material confidential information. Although some of these entities will be subject to confidentiality obligations pursuant to confidentiality agreements or pursuant to implied duties of confidence, none of the Amended and Restated Limited Partnership Agreement of BREP, the Amended and Restated Limited Partnership Agreement of BRELP nor our Master Services Agreement contains general confidentiality provisions. See Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any fiduciary duties to act in the best interests of our LP Unitholders.

Our Master Services Agreement and our other arrangements with Brookfield do not impose on Brookfield any duty (statutory or otherwise) to act in the best interests of the Service Recipients, nor do they impose other duties that are fiduciary in nature. As a result, the Managing General Partner, a wholly-owned subsidiary of Brookfield Asset Management, in its capacity as our general partner, will have sole authority to enforce the terms of such agreements and to consent to any waiver, modification or amendment of their provisions in accordance with our conflicts policy.

            The Bermuda Limited Partnership Act of 1883, under which Brookfield Renewable and BRELP were established, does not impose statutory fiduciary duties on a general partner of a limited partnership in the same manner that corporate statutes, such as the Canada Business Corporations Act and the Delaware Revised Uniform Limited Partnership Act , impose fiduciary duties on directors of a corporation. In general, under applicable Bermudian legislation, a general partner has certain limited duties to its limited partners, such as the duty to render accounts, account for private profits and not compete with the partnership in business. In addition, Bermuda common law recognizes that a general partner owes a duty of utmost good faith to its limited partners. These duties are, in most respects, similar to duties imposed on a general partner of a limited partnership under U.S. and Canadian law. However, to the extent that the Managing General Partner and BRELP GP LP owe any fiduciary duties to Brookfield Renewable and our LP Unitholders, these duties have been modified pursuant to the Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP as a matter of contract law. We have been advised by Bermuda counsel that such modifications are not prohibited under Bermuda law, subject to typical qualifications as to enforceability of contractual provisions, such as the application of general equitable principles. This is similar to Delaware law which expressly permits modifications to the fiduciary duties owed to partners, other than an implied contractual covenant of good faith and fair dealing.

The Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP contain various provisions that modify the fiduciary duties that might otherwise be owed to Brookfield Renewable and our LP Unitholders, including when conflicts of interest arise. For example, the agreements provide that the Managing General Partner, the BRELP General Partner and their affiliates do not have any obligation under the Amended and Restated Limited Partnership Agreements of BREP or the Amended and Restated Limited Partnership Agreement of BRELP, or as a result of any duties stated or implied by law or equity, including fiduciary duties, to present business or investment opportunities to BREP, BRELP, any Holding Entity or any other holding entity established by us. They also allow affiliates of the Managing General Partner and BRELP General Partner to engage in activities that may compete with us or our activities. In addition, the agreements permit the Managing General Partner and the BRELP General Partner to take into account the interests of third parties, including Brookfield, when resolving conflicts of interest. The agreements each prohibit the limited partners from advancing claims that otherwise might raise issues as to compliance with fiduciary duties or applicable law. These modifications to the fiduciary duties are detrimental to our LP Unitholders because they restrict the remedies available for actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that is not in the best interests of Brookfield Renewable or the best interests of our LP Unitholders. See Item 7.B. “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

 

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Our organizational and ownership structure may create significant conflicts of interest that may be resolved in a manner that is not in the best interests of Brookfield Renewable or the best interests of our LP Unitholders.

Our organizational and ownership structure involves a number of relationships that may give rise to conflicts of interest between Brookfield Renewable and our LP Unitholders, on the one hand, and Brookfield, on the other hand. In certain instances, the interests of Brookfield may differ from the interests of Brookfield Renewable and our LP Unitholders, including with respect to the types of acquisitions made, the timing and amount of distributions by Brookfield Renewable, the reinvestment of returns generated by our operations, the use of leverage when making acquisitions and the appointment of outside advisors and service providers, including as a result of the reasons described under Item 7.B “Related Party Transactions”.

In addition, the Manager, an affiliate of Brookfield, will provide management services to us pursuant to our Master Services Agreement. Pursuant to our Master Services Agreement, we pay a base management fee to the Manager equal to $20 million (which amount shall be adjusted for inflation annually beginning on January 1, 2013, at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the Total Capitalization Value (which is generally determined with reference to the aggregate of the value of all outstanding LP Units, assuming full conversion of Brookfield’s limited partnership interests in BRELP into LP Units, and securities of the other Service Recipients that are not held by Brookfield Renewable Group, plus all outstanding third party debt with recourse to Brookfield Renewable, BRELP or a Holding Entity, less all cash held by such entities) of Brookfield Renewable exceeds an initial reference value determined based on its market capitalization immediately following the Combination. In the event that the measured Total Capitalization Value of Brookfield Renewable in a given period is less than the initial reference value, the Manager will receive a base management fee of $20 million annually (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). BRELP GP LP will also receive incentive distributions based on the amount by which quarterly distributions on the limited partnership units of BRELP exceed specified target levels as set forth in the Amended and Restated Limited Partnership Agreement of BRELP. For a further explanation of the management fee and incentive distributions, see Item 6.A “Directors and Senior Management — Our Master Services Agreement — Management Fee” and Item 7.B “Related Party Transactions — Incentive Distributions”. This relationship may give rise to conflicts of interest between us and our LP Unitholders, on the one hand, and Brookfield, on the other, as Brookfield’s interests may differ from the interests of Brookfield Renewable and our LP Unitholders.

The Managing General Partner, the sole shareholder of which is Brookfield, has sole authority to determine whether we will make distributions and the amount and timing of these distributions. The arrangements we have with Brookfield may create an incentive for Brookfield to take actions which would have the effect of increasing distributions and fees payable to it, which may be to the detriment of us and our LP Unitholders. For example, because the base management fee is calculated based on the Total Capitalization Value it may create an incentive for Brookfield to increase or maintain the Total Capitalization Value over the near-term when other actions may be more favorable to us or our LP Unitholders. Similarly, Brookfield may take actions to increase our distributions in order to ensure Brookfield is paid incentive distributions in the near-term when other investments or actions may be more favorable to us or our LP Unitholders. Also, through Brookfield’s ownership of our LP Units and the Redeemable/Exchangeable partnership units, it will have an effective economic interest in our business of approximately 65% and therefore may be incented to increase distributions payable to our LP Unitholders and thereby to Brookfield.

The Managing General Partner may be unable or unwilling to terminate our Master Services Agreement.

Our Master Services Agreement provides that the Service Recipients may terminate the agreement only if: the Manager defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 60 days after written notice of the breach is given to the Manager; the Manager engages in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to us; the Manager is grossly negligent in the performance of its duties under the agreement and such negligence results in material harm to the Service Recipients; or upon the happening of certain events relating to the bankruptcy or insolvency of the Manager. The Managing General Partner cannot terminate the agreement for any other reason, including if the Manager or Brookfield experiences a change of control or due solely to the poor performance or under-performance of Brookfield Renewable Group’s operations or assets, and the agreement continues in perpetuity, until terminated in accordance with its terms. In addition, because the Managing General Partner is an affiliate of Brookfield, it may be unwilling to terminate our Master Services Agreement, even in the case of a default. If the Manager’s performance does not meet the expectations of investors, and the Managing General Partner is unable or unwilling to terminate our Master Services Agreement, the market price of our LP Units could suffer. Furthermore, the termination of our Master Services Agreement would terminate Brookfield Renewable’s rights under the Relationship Agreement and the Licensing Agreement. See Item 7.B “Related Party Transactions — Relationship Agreement” and Item 7.B “Related Party Transactions — Licensing Agreement”.

The liability of the Manager is limited under our arrangements with it and we have agreed to indemnify the Manager against claims that it may face in connection with such arrangements, which may lead it to assume greater risks when making decisions relating to us than it otherwise would if acting solely for its own account.

Under our Master Services Agreement, the Manager has not assumed any responsibility other than to provide or arrange for the provision of the services described in our Master Services Agreement in good faith and will not be responsible for any action that the Managing General Partner takes in following or declining to follow its advice or recommendations. In addition, under the Amended and Restated Limited Partnership Agreement of BREP, the liability of the Managing General Partner and its affiliates, including the Manager, is limited to the fullest extent permitted by law to conduct involving bad faith, fraud or willful misconduct or, in the case of a criminal matter, action that was known to have been unlawful. The liability of the Manager under our Master Services Agreement is similarly limited, except that the Manager is also liable for liabilities arising from gross negligence. In addition, Brookfield Renewable has agreed to indemnify the Manager to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses incurred by an indemnified person or threatened in connection with our operations, investments and activities or in respect of or arising from our Master Services Agreement or the services provided by the Manager, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the conduct in respect of which such persons have liability as described above. These protections may result in the Manager tolerating greater risks when making decisions than otherwise would be the case, including when determining whether to use leverage in connection with acquisitions. The indemnification arrangements to which the Manager is a party may also give rise to legal claims for indemnification that are adverse to Brookfield Renewable and our LP Unitholders.

 

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Risks Related to Our LP Units

Our LP Units, which have only been trading on the TSX since November 30, 2011, are not currently included in major market indices, and an active and liquid trading market for our LP Units may not develop.

Our LP Units have only been trading on the TSX since November 30, 2011 and are not included in major market indices. In addition, we have received conditional approval to list our LP Units on the NYSE. We cannot predict the extent to which investor interest will lead to the development of an active and liquid trading market for our LP Units or, if such a market develops, whether it will be maintained. We cannot predict the effects on the price of our LP Units if a liquid and active trading market for our LP Units does not develop and if our LP Units continue to not be eligible for inclusion in trading indices. In addition, if such a market does not develop, relatively small sales of our LP Units may have a significant negative impact on the price of our LP Units.

We may need additional funds in the future and Brookfield Renewable may issue additional LP Units in lieu of incurring indebtedness which may dilute existing holders of our LP Units or Brookfield Renewable may issue securities that have rights and privileges that are more favorable than the rights and privileges accorded to our LP Unitholders.

Under the Amended and Restated Limited Partnership Agreement of BREP, Brookfield Renewable may issue additional partnership securities, including LP Units and options, rights, warrants and appreciation rights relating to partnership securities for any purpose and for such consideration and on such terms and conditions as the Managing General Partner may determine. The Managing General Partner’s board of directors will be able to determine the class, designations, preferences, rights, powers and duties of any additional partnership securities, including any rights to share in Brookfield Renewable’s profits, losses and distributions, any rights to receive partnership assets upon a dissolution or liquidation of Brookfield Renewable and any redemption, conversion and exchange rights. The Managing General Partner may use such authority to issue additional LP Units, which could dilute holders of our LP Units,

 

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or to issue securities with rights and privileges that are more favorable than those of our LP Units. Holders of LP Units will not have any pre-emptive right or any right to consent to or otherwise approve the issuance of any such securities or the terms on which any such securities may be issued.

Our LP Unitholders do not have a right to vote on Brookfield Renewable matters or to take part in the management of Brookfield Renewable.

Under the Amended and Restated Limited Partnership Agreement of BREP, our LP Unitholders are not entitled to vote on matters relating to Brookfield Renewable, such as acquisitions, dispositions or financing, or to participate in the management or control of Brookfield Renewable. In particular, our LP Unitholders do not have the right to remove the Managing General Partner, to cause the Managing General Partner to withdraw from Brookfield Renewable, to cause a new general partner to be admitted to Brookfield Renewable, to appoint new directors to the Managing General Partner’s board of directors, to remove existing directors from the Managing General Partner’s board of directors or to prevent a change of control of the Managing General Partner. In addition, except as prescribed by applicable laws, our LP Unitholders’ consent rights apply only with respect to certain amendments to the Amended and Restated Limited Partnership Agreement of BREP. As a result, unlike holders of common shares of a corporation, our LP Unitholders are not able to influence the direction of Brookfield Renewable, including its policies and procedures, or to cause a change in its management, even if they are unsatisfied with the performance of Brookfield Renewable. Consequently, our LP Unitholders may be deprived of an opportunity to receive a premium for their LP Units in the future through a sale of Brookfield Renewable and the trading price of our LP Units may be adversely affected by the absence or a reduction of a takeover premium in the trading price.

The market price of our LP Units may be volatile.

The market price of our LP Units may be highly volatile and could be subject to wide fluctuations. Some of the factors that could negatively affect the price of our LP Units include: general market and economic conditions, including disruptions, downgrades, credit events and perceived problems in the credit markets; actual or anticipated variations in our quarterly operating results or distributions; changes in our investments or asset composition; write-downs or perceived credit or liquidity issues affecting our assets; market perception of Brookfield Renewable, our business and our assets; our level of indebtedness and/or adverse market reaction to any indebtedness we incur in the future; our ability to raise capital on favorable terms; loss of any major funding source; the termination of our Master Services Agreement or additions or departures of our or Brookfield’s key personnel; changes in market valuations of similar renewable power companies; speculation in the press or investment community regarding us or Brookfield; and changes in U.S. tax laws that make it impractical or impossible for Brookfield Renewable to continue to be taxable as a partnership for U.S. federal income tax purposes.

Securities markets in general have experienced extreme volatility that has often been unrelated to the operating performance of particular companies or partnerships. Any broad market fluctuations may adversely affect the trading price of our LP Units.

Non-U.S. Holders will be subject to foreign currency risk associated with Brookfield Renewable’s distributions.

A significant number of Brookfield Renewable’s LP Unitholders will reside in countries where the U.S. dollar is not the functional currency. Our distributions are denominated in U.S. dollars but are settled in the local currency of the LP Unitholder receiving the distribution. For each Non-U.S. Holder, the value received in the local currency from the distribution will be determined based on the exchange rate between the U.S. dollar and the applicable local currency at the time of payment. As such, if the U.S. dollar depreciates significantly against the local currency of the Non-U.S. Holder, the value received by such LP Unitholder in its local currency will be adversely affected.

U.S. investors in our LP Units may find it difficult or impossible to enforce service of process and enforcement of judgments against us and directors and officers of the Managing General Partner and the Manager.

We were established under the laws of Bermuda, and most of our subsidiaries are organized in jurisdictions outside of the United States. In addition, our executive officers and the experts identified in this Form 20-F are located outside of the United States. Certain of the directors and officers of the Managing General Partner and the Manager reside outside of the United States. A substantial portion of our assets are, and the assets of the directors and officers of the Managing General Partner and the Manager and the experts identified in this Form 20-F may be, located outside of the United States. It may not be possible for investors to effect service of process within the United States upon the directors and officers of the Managing General Partner and the Manager. It may also not be possible to enforce against us, the experts identified in this Form 20-F or the directors and officers of the Managing General Partner and the Manager judgments obtained in U.S. courts predicated upon the civil liability provisions of applicable securities law in the United States.

 

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We may not be able to continue paying comparable or growing cash distributions to our LP Unitholders in the future.

The amount of cash we can distribute to our LP Unitholders depends upon the amount of cash we receive from BRELP and, indirectly, the Holding Entities and the Operating Entities. The amount of cash BRELP, the Holding Entities and the Operating Entities generate will fluctuate from quarter to quarter and will depend upon, among other things: the weather in the jurisdictions in which they operate; the level of their operating costs; and prevailing economic conditions. In addition, the actual amount of cash we will have available for distribution will also depend on other factors, such as: the level of costs related to litigation and regulatory compliance matters; the cost of acquisitions, if any; our debt service requirements; fluctuations in our working capital needs; our ability to borrow under our credit facilities; our ability to access capital markets; restrictions on distributions contained in our debt agreements; and the amount, if any, of cash reserves established by our Managing General Partner in its discretion for the proper conduct of our business. As a result of all these factors, we cannot guarantee that we will have sufficient available cash to pay a specific level of cash distributions to our LP Unitholders. Furthermore, our LP Unitholders should be aware that the amount of cash we have available for distribution depends primarily upon the cash flow of BRELP, the Holding Entities and the Operating Entities, and is not solely a function of profitability, which is affected by non-cash items. As a result, we may declare and/or pay cash distributions during periods when we record net losses.

We rely on BRELP and, indirectly, the Holding Entities and the Operating Entities to provide us with the funds necessary to pay distributions and meet our financial obligations.

Our sole direct investment is our limited partnership interest in BRELP, which owns all of the common shares or equity interests, as applicable, of the Holding Entities, through which we hold all of our interests in the Operating Entities. We have no independent means of generating revenue. As a result, we depend on distributions and other payments from BRELP and, indirectly, the Holding Entities and the Operating Entities to provide us with the funds necessary to pay distributions on our LP Units and to meet our financial obligations. BRELP, the Holding Entities and the Operating Entities are legally distinct from BREP and they will generally be required to service their debt obligations before making distributions to us or their parent entity, as applicable, thereby reducing the amount of our cash flow available to pay distributions on our LP Units, fund working capital and satisfy other needs. Any other entities through which we may conduct operations in the future will also be legally distinct from BREP and may be restricted in their ability to pay dividends and distributions or otherwise make fund available to us under certain conditions.

We anticipate that the only distributions we will receive in respect of our limited partnership interests in BRELP will consist of amounts that are intended to assist us in making distributions to our LP unitholders in accordance with our distribution policy and to allow us to pay expenses as they become due.

Risks Related to Taxation

General

Changes in tax law and practice may have a material adverse effect on the operations of Brookfield Renewable, the Holding Entities, and the Operating Entities and, as a consequence, the value of Brookfield Renewable’s assets and the net amount of distributions payable to LP Unitholders.

The Brookfield Renewable structure, including the structure of the Holding Entities and the Operating Entities, is based on prevailing taxation law and practice in the local jurisdictions (such as Canada, the United States, and Brazil) in which the Brookfield Renewable entities operate. Any change in tax legislation (including in relation to taxation rates) and practice in these jurisdictions could adversely affect these entities, as well as the net amount of distributions payable to LP Unitholders. Taxes and other constraints that would apply to the Brookfield Renewable entities in such jurisdictions may not apply to local institutions or other parties, and such parties may therefore have a significantly lower effective cost of capital and a corresponding competitive advantage in pursuing such acquisitions.

Brookfield Renewable’s ability to make distributions depends on it receiving sufficient cash distributions from its underlying operations, and Brookfield Renewable cannot assure LP Unitholders that it will be able to make cash distributions to them in amounts that are sufficient to fund their tax liabilities, in which case certain LP Unitholders may be required to pay income taxes on their share of Brookfield Renewable’s income even though they have not received sufficient cash distributions from Brookfield Renewable.

The Holding Entities and Operating Entities of Brookfield Renewable may be subject to local taxes in each of the relevant territories and jurisdictions in which they operate, including taxes on income, profits or gains and withholding taxes. As a result, Brookfield Renewable’s cash available for distribution is indirectly reduced by such taxes, and the post-tax return to LP Unitholders is similarly reduced by such taxes. Brookfield Renewable intends for future acquisitions to be assessed on a case-by-case basis and, where possible and commercially viable, structured so as to minimize any adverse tax consequences to LP Unitholders as a result of making such acquisitions.

In general, an LP Unitholder that is subject to income tax in Canada or the United States must include in income its allocable share of Brookfield Renewable’s items of income, gain, loss, and deduction (including, so long as it is treated as a partnership for tax purposes, Brookfield Renewable’s allocable share of those items of BRELP) for each of Brookfield Renewable’s fiscal years ending with or within such LP Unitholder’s tax year. See Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations” and “Taxation — Material U.S. Federal Income Tax Considerations”. However, the cash distributed to an LP Unitholder may not be sufficient to pay the full amount of such LP Unitholder’s tax liability in respect of its investment in Brookfield Renewable, because each LP Unitholder’s tax liability depends on such holder’s particular tax situation. If Brookfield Renewable is unable to distribute cash in amounts that are sufficient to fund our LP Unitholders’ tax liabilities, each of our LP Unitholders will still be required to pay income taxes on its share of Brookfield Renewable’s taxable income.

As a result of holding LP Units, LP Unitholders may be subject to U.S. state, local or non-U.S. taxes and return filing obligations in jurisdictions in which they are not resident for tax purposes or otherwise not subject to tax.

LP Unitholders may be subject to U.S. state, local, and non-U.S. taxes, including unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which Brookfield Renewable entities do business or own property now or in the future, even if LP Unitholders do not reside in any of those jurisdictions. LP Unitholders may be required to file income tax returns and pay income taxes in some or all of these jurisdictions. Further, LP Unitholders may be subject to penalties for failure to comply with these requirements. Although Brookfield Renewable will attempt, to the extent reasonably

 

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practicable, to structure Brookfield Renewable operations and investments so as to minimize income tax filing obligations by LP Unitholders in such jurisdictions, there may be circumstances in which Brookfield Renewable is unable to do so. It is the responsibility of each LP Unitholder to file all U.S. federal, state, local, and non-U.S. tax returns that may be required of such LP Unitholder.

LP Unitholders may be exposed to transfer pricing risks.

To the extent that Brookfield Renewable, BRELP, the Holding Entities or the Operating Entities enter into transactions or arrangements with parties with whom they do not deal at arm’s length, including Brookfield, pursuant to the applicable law relating to transfer pricing, the relevant tax authorities may seek to adjust the quantum or nature of the amounts received or paid by such entities if they consider that the terms and conditions of such transactions or arrangements differ from those that would have been made between persons dealing at arm’s length and could impose penalties for failing to comply with applicable law relating to transfer pricing. This could result in more tax (and penalties and interest) being paid by such entities, and therefore the return to investors could be reduced. For Canadian tax purposes, a transfer pricing adjustment may in certain circumstances result in additional income being allocated to an LP Unitholder with no corresponding cash distribution or in a dividend being deemed to be paid by a Canadian resident to a non-arm’s length non-resident, which deemed dividend is subject to Canadian withholding tax.

The Managing General Partner and the BRELP General Partner believe the fees charged by or paid to non-arm’s length persons are consistent with applicable law relating to transfer pricing, however, no assurance can be given in this regard.

United States

If either Brookfield Renewable or BRELP were to be treated as a corporation for U.S. federal income tax purposes, the value of LP Units might be adversely affected.

The value of LP Units to LP Unitholders will depend in part on the treatment of Brookfield Renewable and BRELP as partnerships for U.S. federal income tax purposes. However, in order for Brookfield Renewable to be treated as a partnership for U.S. federal income tax purposes, under present law, 90% or more of Brookfield Renewable’s gross income for every taxable year must consist of qualifying income, as defined in Section 7704 of the U.S. Internal Revenue Code, and the partnership must not be required to register, if it were a U.S. corporation, as an investment company under the Investment Company Act and related rules. Although the Managing General Partner intends to manage Brookfield Renewable’s affairs so that Brookfield Renewable will not need to be registered as an investment company if it were a U.S. corporation and so that it will meet the 90% test described above in each taxable year, Brookfield Renewable may not meet these requirements, or current law may change so as to cause, in either event, Brookfield Renewable to be treated as a corporation for U.S. federal income tax purposes. If Brookfield Renewable were treated as a corporation for U.S. federal income tax purposes, (i) the deemed conversion to corporate status could result in recognition of gain to U.S. investors, if Brookfield Renewable were to have liabilities in excess of the tax basis of its assets; (ii) Brookfield Renewable would likely be subject to U.S. corporate income tax and potentially branch profits tax with respect to income, if any, that is effectively connected to a U.S. trade or business; (iii) distributions to U.S. Holders would be taxable as dividends to the extent of Brookfield Renewable’s earnings and profits; and (iv) Brookfield Renewable could be classified as a “passive foreign investment company” (as defined in the U.S. Internal Revenue Code), and such classification could have adverse tax consequences to U.S. Holders with respect to distributions and gain recognized on the sale of LP Units. If BRELP were to be treated as a corporation for U.S. federal income tax purposes, consequences similar to those described above would apply.

Neither Brookfield Renewable nor BRELP has requested or plans to request a ruling from the U.S. Internal Revenue Service (the “ IRS ”) regarding the tax classification of either entity for U.S. federal income tax purposes.

Brookfield Renewable may be subject to U.S. backup withholding tax if any LP Unitholder fails to comply with U.S. federal tax reporting rules, and such excess withholding tax cost will be an expense borne by Brookfield Renewable and, therefore, by all of our LP Unitholders on a pro rata basis.

Brookfield Renewable may become subject to U.S. backup withholding tax with respect to any LP Unitholder who fails to timely provide Brookfield Renewable, or the applicable nominee, broker, clearing agent, or other intermediary, with an IRS Form W-9 or IRS Form W-8, as applicable. See Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Administrative Matters — Backup Withholding”. To the extent that any LP Unitholder fails to timely provide the applicable form (or such form is not properly completed), Brookfield Renewable might treat such U.S. backup withholding taxes as an expense, which would be borne indirectly by all LP Unitholders on a pro rata basis. As a result, LP Unitholders that fully comply with their U.S. tax reporting obligations may bear a share of such burden created by other LP Unitholders that do not comply with the U.S. tax reporting rules.

Tax-exempt organizations may face certain adverse U.S. tax consequences from owning LP Units.

The Managing General Partner and the BRELP General Partner intend to use commercially reasonable efforts to structure the activities of Brookfield Renewable and BRELP, respectively, to avoid generating income connected with the conduct of a trade or

 

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business (which income generally would constitute “unrelated business taxable income” (“ UBTI ”) to the extent allocated to a tax-exempt organization). Brookfield Renewable and BRELP are not prohibited from incurring indebtedness, and at times either or both may do so. If any such indebtedness were used to acquire property by Brookfield Renewable or by BRELP, such property generally would constitute “debt–financed property”, and any income from or gain from the disposition of such debt-financed property allocated to a tax-exempt organization generally would constitute UBTI. In addition, even if such indebtedness were not used by Brookfield Renewable or BRELP to acquire property but were instead used to fund distributions to LP Unitholders, if a tax-exempt organization otherwise exempt from taxation in the United States were to use such proceeds to make an investment outside Brookfield Renewable, the IRS could assert that such investment constituted debt-financed property to such LP Unitholder with the consequences noted above. Brookfield Renewable and BRELP currently do not have any outstanding indebtedness used to acquire property, and the Managing General Partner and the BRELP General Partner do not believe that Brookfield Renewable or BRELP will generate UBTI attributable to debt-financed property in the future. However, neither Brookfield Renewable nor BRELP is prohibited from incurring indebtedness, and no assurance can be provided that neither Brookfield Renewable nor BRELP will generate UBTI attributable to debt-financed property in the future. The potential for income to be characterized as UBTI could make LP Units an unsuitable investment for a tax-exempt organization. Each tax-exempt organization should consult an independent tax adviser to determine the U.S. federal income tax consequences with respect to an investment in LP Units.

There may be limitations on the deductibility of Brookfield Renewable’s interest expense.

So long as Brookfield Renewable is treated as a partnership for U.S. federal income tax purposes, each of our LP Unitholders that is a U.S. Holder (as defined in Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations”) generally will be taxed on its share of Brookfield Renewable’s net taxable income. However, U.S. federal income tax law may limit the deductibility of such LP Unitholder’s share of Brookfield Renewable’s interest expense. In addition, deductions for such LP Unitholder’s share of Brookfield Renewable’s interest expense may be limited or disallowed for U.S. state and local tax purposes. Therefore, any such LP Unitholder may be taxed on amounts in excess of such LP Unitholder’s share of the net income of Brookfield Renewable. This could adversely impact the value of LP Units if Brookfield Renewable were to incur (either directly or indirectly) a significant amount of indebtedness. See Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Consequences to U.S. Holders — Holding of LP Units — Limitations on Interest Deductions”.

If Brookfield Renewable were engaged in a U.S. trade or business, non-U.S. persons would face certain adverse U.S. tax consequences from owning LP Units.

The Managing General Partner and the BRELP General Partner intend to use commercially reasonable efforts to structure the activities of Brookfield Renewable and BRELP, respectively, to avoid generating income treated as effectively connected with a U.S. trade or business, including effectively connected income attributable to the sale of a “United States real property interest”, as defined in the U.S. Internal Revenue Code. Accordingly, non-U.S. LP Unitholders generally will not be subject to U.S. federal income tax on interest, dividends, and gain realized by Brookfield Renewable from non-U.S. sources. It is possible, however, that the IRS could disagree with this conclusion or that the U.S. federal tax laws and Treasury Regulations could change and that Brookfield Renewable would be deemed to be engaged in a U.S. trade or business, which could have a material adverse effect on non-U.S. LP Unitholders. If, contrary to the Managing General Partner’s expectations, Brookfield Renewable is considered to be engaged in a U.S. trade or business or realizes gain from the sale or other disposition of a United States real property interest, non-U.S. LP Unitholders would be required to file U.S. federal income tax returns and would be subject to U.S. federal income tax at the regular graduated rates, which Brookfield Renewable could be required to withhold.

To meet U.S. federal income tax and other objectives, Brookfield Renewable and BRELP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax.

To meet U.S. federal income tax and other objectives, Brookfield Renewable and BRELP may invest through U.S. and non-U.S. Holding Entities that are treated as corporations for U.S. federal income tax purposes, and such Holding Entities may be subject to corporate income tax. Consequently, items of income, gain, loss, deduction, or credit realized in the first instance by the Operating Entities will not flow, for U.S. federal income tax purposes, directly to BRELP, Brookfield Renewable, or LP Unitholders, and any such income or gain may be subject to a corporate income tax, in the United States or other jurisdictions, at the level of the Holding Entity. Any such additional taxes may adversely affect Brookfield Renewable’s ability to maximize its cash flow.

 

LP Unitholders taxable in the United States may be viewed as holding an indirect interest in an entity classified as a “passive foreign investment company” for U.S. federal income tax purposes.

U.S. Holders may face adverse U.S. tax consequences arising from the ownership of a direct or indirect interest in a “passive foreign investment company” (“ PFIC ”). Based on the organizational structure of Brookfield Renewable, as well as Brookfield Renewable’s expected income and assets, the Managing General Partner and the BRELP General Partner currently believe that a U.S. Holder is unlikely to be regarded as owning

 

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an interest in a PFIC solely by reason of owning LP Units during the taxable year ending December 31, 2013. However, there can be no assurance that an existing Brookfield Renewable entity or a future entity in which Brookfield Renewable acquires an interest will not be classified as a PFIC with respect to a U.S. Holder, because PFIC status is a factual determination that depends on the assets and income of a given entity and must be made on an annual basis. In general, gain realized by a U.S. Holder from the sale of stock of a PFIC is subject to tax at ordinary income rates, and an interest charge generally applies. Alternatively, a U.S. Holder that makes certain elections with respect to a direct or indirect interest in a PFIC may be required to recognize taxable income prior to the receipt of cash relating to such income. The adverse consequences of owning an interest in a PFIC, as well as certain tax elections for mitigating these adverse consequences, are described in greater detail in Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Consequences to U.S. Holders — Passive Foreign Investment Companies”. Each U.S. Holder should consult an independent tax adviser regarding the implication of the PFIC rules for an investment in LP Units.

Tax gain or loss from the disposition of LP Units could be more or less than expected.

If a sale of LP Units by an LP Unitholder is taxable in the United States, the LP Unitholder will recognize gain or loss for U.S. federal income tax purposes equal to the difference between the amount realized and the LP Unitholder’s adjusted tax basis in those LP Units. Prior distributions to an LP Unitholder in excess of the total net taxable income allocated to such LP Unitholder will have decreased such holder’s tax basis in its LP Units. Therefore, such excess distributions will increase an LP Unitholder’s taxable gain or decrease such holder’s taxable loss when our LP Units are sold, and may result in a taxable gain even if the sale price is less than the original cost. A portion of the amount realized, whether or not representing gain, could be ordinary income to such LP Unitholder.

The Brookfield Renewable structure involves complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. The tax characterization of the Brookfield Renewable structure is also subject to potential legislative, judicial, or administrative change and differing interpretations, possibly on a retroactive basis.

The U.S. federal income tax treatment of LP Unitholders depends in some instances on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. LP Unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review (including currently) by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the U.S. Treasury Department and the courts, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations, any of which could adversely affect the value of LP Units and be effective on a retroactive basis. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible for Brookfield Renewable to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, affect the tax considerations of owning LP Units, change the character or treatment of portions of Brookfield Renewable’s income, and adversely affect an investment in LP Units. Such changes could also affect or cause Brookfield Renewable to change the way it conducts its activities, affect the tax considerations of an investment in Brookfield Renewable, and otherwise change the character or treatment of portions of Brookfield Renewable’s income (including changes that recharacterize certain allocations as potentially non-deductible fees).

Brookfield Renewable’s organizational documents and agreements permit the Managing General Partner to modify the limited partnership agreement of Brookfield Renewable from time to time, without the consent of our LP Unitholders, to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all LP Unitholders.

The IRS may not agree with certain assumptions and conventions that Brookfield Renewable uses in order to comply with applicable U.S. federal income tax laws or that Brookfield Renewable uses to report income, gain, loss, deduction, and credit to LP Unitholders.

Brookfield Renewable will apply certain assumptions and conventions in order to comply with applicable tax laws and to report income, gain, deduction, loss, and credit to an LP Unitholder in a manner that reflects such LP Unitholder’s beneficial ownership of partnership items, taking into account variation in ownership interests during each taxable year because of trading activity. Because Brookfield Renewable cannot match transferors and transferees of LP Units, Brookfield Renewable will adopt depreciation, amortization, and other tax accounting conventions that may not conform to all aspects of existing Treasury Regulations. In order to maintain the fungibility of our LP Units at all times, Brookfield Renewable will seek to achieve the uniformity of U.S. tax treatment for all purchasers of LP Units which are acquired at the same time and price (irrespective of the identity of the particular seller of LP Units or the time when LP Units are issued by Brookfield Renewable) through the application of certain accounting principles that Brookfield Renewable believes are reasonable. A successful IRS challenge to any of the foregoing assumptions or conventions could adversely affect the amount of tax benefits available to LP Unitholders and could require that items of income, gain, deduction, loss,

 

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or credit, including interest deductions, be adjusted, reallocated or disallowed in a manner that adversely affects LP Unitholders. A successful challenge could also affect the timing of these tax benefits or the amount of gain from the sale of LP Units and could have a negative impact on the value of LP Units or result in audits of and adjustments to LP Unitholders’ tax returns.

Brookfield Renewable’s delivery of required tax information for a taxable year may be subject to delay, which could require an LP Unitholder who is a U.S. taxpayer to request an extension of the due date for such LP Unitholder’s income tax return.

Brookfield Renewable has agreed to use commercially reasonable efforts to provide U.S. tax information (including IRS Schedule K-1 information needed to determine an LP Unitholder’s allocable share of Brookfield Renewable’s income, gain, losses and deductions) no later than 90 days after the close of each calendar year. However, providing this U.S. tax information to LP Unitholders will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible that, in any taxable year, an LP Unitholder will need to apply for an extension of time to file such LP Unitholder’s tax returns. See Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Administrative Matters — Information Returns”.

The sale or exchange of 50% or more of our LP Units will result in the constructive termination of Brookfield Renewable for U.S. federal income tax purposes.

Brookfield Renewable will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of our LP Units within a 12-month period. A constructive termination of Brookfield Renewable would, among other things, result in the closing of its taxable year for U.S. federal income tax purposes for all LP Unitholders and could result in the possible acceleration of income to certain LP Unitholders and certain other consequences that could adversely affect the value of LP Units. However, the Managing General Partner does not expect a constructive termination, should it occur, to have a material impact on the computation of the future taxable income generated by Brookfield Renewable for U.S. income tax purposes. See Item 10.E “Taxation — Material U.S. Federal Income Tax Considerations — Administrative Matters — Constructive Termination”.

The U.S. Congress has considered legislation that could, if enacted, adversely affect Brookfield Renewable’s qualification as a partnership for U.S. federal tax purposes under the publicly traded partnership rules and subject certain income and gains to tax at increased rates. If this or similar legislation were to be enacted and to apply to Brookfield Renewable, then the after-tax income of Brookfield Renewable, as well as the market price of LP Units, could be reduced.

Over the past several years, a number of legislative proposals have been introduced in the U.S. Congress which could have had adverse tax consequences for Brookfield Renewable or BRELP, including the recharacterization of certain items of capital gain income as ordinary income for U.S. federal income tax purposes. However, such legislation was not enacted into law.

The Obama administration has indicated it supports such legislation and has proposed that the current law regarding the treatment of such items of capital gain income be changed to subject such income to ordinary income tax. For further detail on such proposed legislation, see Item 10.E. “Taxation — Material U.S. Federal Income Tax Considerations — Proposed Legislation”.

It remains unclear whether any legislation related to such revenue proposals or similar to the legislation described above will be proposed or enacted by the U.S. Congress and, if enacted, whether such legislation would affect an investment in Brookfield Renewable. Each LP Unitholder should consult an independent tax adviser as to the potential effect of any proposed or future legislation on an investment in Brookfield Renewable.

Under the Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010, commonly known as “FATCA”, certain payments made or received by Brookfield Renewable on or after January 1, 2014 could be subject to a 30% federal withholding tax, unless certain requirements are met.

Under FATCA, certain payments of U.S.-source income made on or after January 1, 2014 to Brookfield Renewable, BRELP, the Holding Entities, or the Operating Entities, or by Brookfield Renewable to an LP Unitholder (as well as certain payments made on or after January 1, 2017 that are attributable to such income or that constitute gross proceeds from the disposition of property that could produce U.S.-source dividends or interest) could be subject to a 30% withholding tax, unless certain requirements are met, as described in greater detail in Item 10.E “Taxation – Material U.S. Federal Income Tax Considerations – Administrative Matters – Foreign Account Tax Compliance”. In addition, to ensure compliance with FATCA, information regarding certain LP Unitholders’ ownership of our LP Units may be reported to the U.S. Internal Revenue Service or to a non-U.S. governmental authority. Each of our LP Unitholders should consult an independent tax adviser regarding the consequences under FATCA of an investment in LP Units.

 

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Canada

The Canadian federal income tax consequences to LP Unitholders could be materially different in certain respects from those described in this Form 20-F if Brookfield Renewable or BRELP is a “SIFT partnership” (as defined in the Income Tax Act (Canada), together with the regulations thereunder (the “Tax Act”).

Under the rules in the Tax Act applicable to a “SIFT partnership” (the “ SIFT Rules ”), certain income and gains earned by a “SIFT partnership” are subject to income tax at the partnership level at a rate similar to a corporation and allocations of such income and gains to its partners are taxed as a dividend from a taxable Canadian corporation. In particular, a “SIFT partnership” will be required to pay a tax on the total of its income from businesses carried on in Canada, income from “non-portfolio properties” (as defined in the Tax Act) other than taxable dividends, and taxable capital gains from dispositions of “non-portfolio properties”. “Non-portfolio properties” include, among other things, equity interests or debt of corporations, trusts or partnerships that are resident in Canada, and of non-resident persons or partnerships the principal source of income of which is one or any combination of sources in Canada, that are held by the “SIFT partnership” and have a fair market value that is greater than 10% of the equity value of such entity, or that have, together with debt or equity that the “SIFT partnership” holds of entities affiliated (within the meaning of the Tax Act) with such entity, an aggregate fair market value that is greater than 50% of the equity value of the “SIFT partnership”. The tax rate applied to the above mentioned sources of income and gains is set at a rate equal to the “net corporate income tax rate”, plus the “provincial SIFT tax rate” (each as defined in the Tax Act).

A partnership will be a “SIFT partnership” throughout a taxation year if at any time in the taxation year (i) it is a “Canadian resident partnership” (as defined in the Tax Act), (ii) “investments” (as defined in the Tax Act) in the partnership are listed or traded on a stock exchange or other public market, and (iii) it holds one or more “non-portfolio properties”. For these purposes, a partnership will be a “Canadian resident partnership” at a particular time if (a) it is a “Canadian partnership” (as defined in the Tax Act) at that time, (b) it would, if it were a corporation, be resident in Canada (including, for greater certainty, a partnership that has its central management and control located in Canada), or (c) it was formed under the laws of a province. A “Canadian partnership” for these purposes is a partnership all of whose members are resident in Canada or are partnerships that are “Canadian partnerships”.

Under the SIFT Rules, Brookfield Renewable and BRELP could each be a “SIFT partnership” if it is a “Canadian resident partnership”. However, BRELP would not be a “SIFT partnership” if Brookfield Renewable is a “SIFT partnership” regardless of whether BRELP is a “Canadian resident partnership” on the basis that BRELP would be an “excluded subsidiary entity” (as defined in the Tax Act as proposed to be amended under proposed amendments to the Tax Act announced by the Minister of Finance (Canada) (the “ Minister ”) on July 25, 2012).

Brookfield Renewable and BRELP will be a “Canadian resident partnership” if the central management and control of these partnerships is located in Canada. This determination is a question of fact and is expected to depend on where the Managing General Partner and the BRELP General Partner are located and exercise central management and control of the respective partnerships. The Managing General Partner and the BRELP General Partner will each take appropriate steps so that the central management and control of these entities is not located in Canada such that the SIFT Rules should not apply to Brookfield Renewable or BRELP at any relevant time. However, no assurance can be given in this regard. If Brookfield Renewable or BRELP is a “SIFT partnership”, the Canadian federal income tax consequences to our LP Unitholders could be materially different in certain respects from those described in Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations”. In addition, there can be no assurance that the SIFT Rules will not be revised or amended in the future such that the SIFT Rules will apply.

If the subsidiaries that are corporations and that are not resident or deemed to be resident in Canada for purposes of the Tax Act (“Non-Resident Subsidiaries”) and that are “controlled foreign affiliates” (as defined in the Tax Act and referred to in this Form 20-F as “CFAs”) in which BRELP directly invests earn income that is “foreign accrual property income” (as defined in the Tax Act and referred to in this Form 20-F as “FAPI”) our LP Unitholders may be required to include amounts allocated from Brookfield Renewable in computing their income for Canadian federal income tax purposes even though there may be no corresponding cash distribution.

Any Non-Resident Subsidiaries in which BRELP directly invests are expected to be CFAs of BRELP. If any CFA of BRELP or any direct or indirect subsidiary thereof that itself is a CFA of BRELP (an “ Indirect CFA ”) earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI allocable to BRELP must be included in computing the income of BRELP for Canadian federal income tax purposes for the fiscal period of BRELP in which the taxation year of that CFA or Indirect CFA ends, whether or not BRELP actually receives a distribution of that FAPI. Brookfield Renewable will include its share of such FAPI of BRELP in computing its income for Canadian federal income tax purposes and LP Unitholders will be required to include

 

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their proportionate share of such FAPI allocated from Brookfield Renewable in computing their income for Canadian federal income tax purposes. As a result, LP Unitholders may be required to include amounts in their income for Canadian federal income tax purposes even though they have not and may not receive an actual cash distribution of such amounts. Bill C-48, which is currently proceeding through the legislative process, contains anti-avoidance rules to address certain foreign tax credit generator transactions (the “ F oreign Tax Credit Generator Proposals ”). Under the Foreign Tax Credit Generator Proposals, the “foreign accrual tax” (as defined in the Tax Act) applicable to a particular amount of FAPI included in BRELP’s income in respect of a particular CFA of BRELP may be limited in certain specified circumstances. See Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations”.

LP Unitholders may be required to include imputed amounts in their income for Canadian federal income tax purposes in accordance with section 94.1 of the Tax Act as proposed to be amended under proposed amendments to the Tax Act announced on March 4, 2010 and contained in Bill C-48, which is currently proceeding through the legislative process.

On March 4, 2010, the Minister announced as part of the 2010 Canadian federal budget that the outstanding tax proposals regarding investments in “foreign investment entities” would be replaced with revised tax proposals under which the existing rules in section 94.1 of the Tax Act relating to investments in “offshore investment fund property” would remain in place subject to certain limited enhancements. Legislation to implement the revised tax proposals is contained in Bill C-48, which is currently proceeding through the legislative process. Section 94.1 of the Tax Act contains rules relating to investments in entities that are not resident or deemed to be resident for purposes of the Tax Act or not situated in Canada, other than a CFA of the taxpayer ( “Non-Resident Entities ”), that could in certain circumstances cause income to be imputed to LP Unitholders for Canadian federal income tax purposes, either directly or by way of allocation of such income imputed to Brookfield Renewable or to BRELP. See Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations”.

Our LP Units may not continue to be “qualified investments” under the Tax Act for registered plans.

Provided that our LP Units are listed on a “designated stock exchange” (as defined in the Tax Act), which currently includes the TSX and the NYSE, our LP Units will be “qualified investments” under the Tax Act for a trust governed by a registered retirement savings plan (“ RRSP ”), deferred profit sharing plan, registered retirement income fund (“ RRIF ”), registered education savings plan, registered disability savings plan, and a tax-free savings account (“ TFSA ”). However, there can be no assurance that tax laws relating to qualified investments will not be changed. Taxes may be imposed in respect of the acquisition or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or holding of “prohibited investments” (as defined in the Tax Act) by a TFSA or an RRSP or RRIF.

Notwithstanding the foregoing, a holder of a TFSA or an annuitant under an RRSP or RRIF, as the case may be, will be subject to a penalty tax if our LP Units held in the TFSA, RRSP or RRIF are a “prohibited investment” as defined in the Tax Act for the TFSA, RRSP or RRIF, as the case may be. Generally, our LP Units will not be a “prohibited investment” if the holder of the TFSA or the annuitant under the RRSP or RRIF, as applicable, (i) deals at arm’s length with Brookfield Renewable for purposes of the Tax Act and (ii) under Tax Proposals (as defined herein) announced by the Minister on December 21, 2012, does not have a “significant interest” as defined in the Tax Act in Brookfield Renewable. Prospective holders who intend to hold our LP Units in a TFSA, RRSP or RRIF should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules having regard to their particular circumstances.

Proposed amendments to the Tax Act may deny the deductibility of losses arising from our LP Unitholders’ LP Units in computing their income for Canadian federal income tax purposes.

On October 31, 2003, the Department of Finance (Canada) released for public comment proposed amendments to the Tax Act regarding the deductibility of interest and other expenses for purposes of the Tax Act (the “ REOP Proposals ”). Under the REOP Proposals, a taxpayer would be considered to have a loss from a source that is a business or property for a taxation year only if, in that year, it is reasonable to assume that the taxpayer will realize a cumulative profit (excluding capital gains or losses) from the business or property during the period that the business is carried on or that the property is held. In general, these proposals may deny the deduction of losses by our LP Unitholders arising from their investment in Brookfield Renewable in computing their income for Canadian federal income tax purposes in a particular taxation year, if, in the year the loss is claimed, it is not reasonable to expect that an overall cumulative profit would be

 

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earned from the investment in Brookfield Renewable for the period in which our LP Unitholders held and can reasonably be expected to hold the investment. The Managing General Partner and the BRELP General Partner do not anticipate that the activities of Brookfield Renewable and BRELP will, in and of themselves, generate losses. However, investors may incur expenses in connection with an acquisition of our LP Units that could result in a loss that could be affected by the REOP Proposals. As part of the 2005 Canadian federal budget, the Minister announced that an alternative proposal to reflect the REOP Proposals would be released for comment at an early opportunity. No such alternative proposal has been released to date. There can be no assurance that such alternative proposal will not adversely affect our LP Unitholders, or that any revised proposal may not differ significantly from the REOP Proposals described above and in Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations”.

LP Unitholders’ foreign tax credits for Canadian federal income tax purposes will be limited if the Foreign Tax Credit Generator Proposals apply in respect of the foreign “business-income tax” or “non-business-income tax” (each as defined in the Tax Act) paid by Brookfield Renewable or BRELP to a foreign country.

Under the Foreign Tax Credit Generator Proposals contained in Bill C-48, which is currently proceeding through the legislative process, the foreign “business-income tax” or “non-business-income tax” for Canadian federal income tax purposes for any taxation year may be limited in certain circumstances. If the Foreign Tax Credit Generator Proposals apply, the allocation to an LP Unitholder of foreign “business-income tax” or “non-business-income tax” paid by Brookfield Renewable or BRELP, and therefore such LP Unitholder’s foreign tax credits for Canadian federal income tax purposes, will be limited. See Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations”.

LP Unitholders who are not and are not deemed to be resident in Canada for purposes of the Tax Act and who do not use or hold and are not deemed to use or hold their LP Units in connection with a business carried on in Canada (“Non-Resident LP Unitholders”) may be subject to Canadian federal income tax with respect to any Canadian source business income earned by Brookfield Renewable or BRELP if Brookfield Renewable or BRELP were considered to carry on business in Canada.

If Brookfield Renewable or BRELP were considered to carry on a business in Canada for purposes of the Tax Act, Non-Resident LP Unitholders would be subject to Canadian federal income tax on their proportionate share of any Canadian source business income earned or considered to be earned by Brookfield Renewable, subject to the potential application of the safe harbor rule in section 115.2 of the Tax Act, as proposed to be amended under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, and any relief that may be provided by any relevant income tax treaty or convention.

 

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The Managing General Partner and the BRELP General Partner intend to manage the affairs of Brookfield Renewable and BRELP, to the extent possible, so that they do not carry on business in Canada and are not considered or deemed to carry on business in Canada for purposes of the Tax Act. Nevertheless, because the determination of whether Brookfield Renewable or BRELP is carrying on business and, if so, whether that business is carried on in Canada, is a question of fact that is dependent upon the surrounding circumstances, the Canada Revenue Agency (“ CRA ”) might contend successfully that either or both of Brookfield Renewable and BRELP carries on business in Canada for purposes of the Tax Act.

If Brookfield Renewable or BRELP is considered to carry on business in Canada or is deemed to carry on business in Canada for the purposes of the Tax Act, Non-Resident LP Unitholders that are corporations would be required to file a Canadian federal income tax return for each taxation year in which they are a Non-Resident LP Unitholder regardless of whether relief from Canadian taxation is available under an applicable income tax treaty or convention. Non-Resident LP Unitholders who are individuals would be required to file a Canadian federal income tax return for any taxation year in which they are allocated income from Brookfield Renewable from carrying on business in Canada that is not exempt from Canadian taxation under the terms of an applicable income tax treaty or convention.

Non-Resident LP Unitholders may be subject to Canadian federal income tax on capital gains realized by Brookfield Renewable or BRELP on dispositions of “taxable Canadian property” (as defined in the Tax Act).

A Non-Resident LP Unitholder will be subject to Canadian federal income tax on its proportionate share of capital gains realized by Brookfield Renewable or BRELP on the disposition of “taxable Canadian property” other than “treaty-protected property” (as defined in the Tax Act). “Taxable Canadian property” includes, but is not limited to, property that is used or held in a business carried on in Canada and shares of corporations that are not listed on a “designated stock exchange” if more than 50% of the fair market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the particular time. Property of Brookfield Renewable and BRELP generally will be “treaty-protected property” to a Non-Resident LP Unitholder if the gain from the disposition of the property would, because of an applicable income tax treaty or convention, be exempt from tax under the Tax Act. The Managing General Partner and the BRELP General Partner do not expect Brookfield Renewable and BRELP to realize capital gains or losses from dispositions of “taxable Canadian property”. However, no assurance can be given in this regard. Non-Resident LP Unitholders will be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by Brookfield Renewable or BRELP unless the disposition is an “excluded disposition” for the purposes of section 150 of the Tax Act. However, Non-Resident LP Unitholders that are corporations will still be required to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” that is an “excluded disposition” for purposes of section 150 of the Tax Act if tax would otherwise be payable under Part I of the Tax Act by such Non-Resident LP Unitholders in respect of the disposition but is not because of an applicable income tax treaty or convention (otherwise than in respect of a disposition of “taxable Canadian property” that is “treaty-protected property” of the corporation). In general, an “excluded disposition” is a disposition of property by a taxpayer in a taxation year where (a) the taxpayer is a non-resident of Canada at the time of the disposition; (b) no tax is payable by the taxpayer under Part I of the Tax Act for the taxation year; (c) the taxpayer is not liable to pay any amounts under the Tax Act in respect of any previous taxation year (other than certain amounts for which the CRA holds adequate security); and (d) each “taxable Canadian property” disposed of by the taxpayer in the taxation year is either (i) “excluded property” (as defined in subsection 116(6) of the Tax Act) or (ii) property in respect of the disposition of which a certificate under subsection 116(2), (4) or (5.2) has been issued by the CRA. Non-Resident LP Unitholders should consult their own tax advisors with respect to the requirements to file a Canadian federal income tax return in respect of a disposition of “taxable Canadian property” by Brookfield Renewable or BRELP.

Non-Resident LP Unitholders may be subject to Canadian federal income tax on capital gains realized on the disposition of LP Units if our LP Units are “taxable Canadian property”.

Any capital gain arising from the disposition or deemed disposition of LP Units by a Non-Resident LP Unitholder will be subject to taxation in Canada, if, at the time of the disposition or deemed disposition, our LP Units are “taxable Canadian property”, unless our LP Units are “treaty-protected property” to such Non-Resident LP Unitholder. In general, our LP Units will not constitute “taxable Canadian property” of any Non-Resident LP Unitholder at the time of disposition or deemed disposition, unless (a) at any time in the 60-month period immediately preceding the disposition or deemed disposition, more than 50% of the fair market value of our LP Units was derived, directly or indirectly (under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), from one or any combination of (i) real or immovable property situated in Canada, (ii) “Canadian resource property” (as defined in the Tax Act), (iii) “timber resource property” (as defined in the Tax Act), and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether or not such property exists, or (b) our LP Units are otherwise deemed to be “taxable Canadian

 

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property”. Since Brookfield Renewable’s assets will consist principally of units of BRELP, our LP Units would generally be “taxable Canadian property” at a particular time, if the units of BRELP held by Brookfield Renewable derived, directly or indirectly (under proposed amendments to the Tax Act contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), more than 50% of their fair market value from properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. Our LP Units will be “treaty-protected property” if the gain on the disposition of our LP Units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. The Managing General Partner does not expect our LP Units to be “taxable Canadian property” of any Non-Resident LP Unitholder at any time but no assurance can be given in this regard. See Item 10.E “Taxation — Material Canadian Federal Income Tax Considerations — Holders Not Resident in Canada”. Even if our LP Units constitute “taxable Canadian property”, our LP Units will be “treaty-protected property” if the gain on the disposition of our LP Units is exempt from tax under the Tax Act under the terms of an applicable income tax treaty or convention. If our LP Units constitute “taxable Canadian property”, Non-Resident LP Unitholders will be required to file a Canadian federal income tax return in respect of a disposition of our LP Units unless the disposition is an “excluded disposition” (as discussed above). If our LP Units constitute “taxable Canadian property”, Non-Resident LP Unitholders should consult their own tax advisors with respect to the requirement to file a Canadian federal income tax return in respect of a disposition of LP Units.

Non-Resident LP Unitholders may be subject to Canadian federal income tax reporting and withholding tax requirements on the disposition of “taxable Canadian property”.

Non-Resident LP Unitholders who dispose of “taxable Canadian property”, other than “excluded property” (as defined in subsection 116(6) of the Tax Act) and certain other property described in subsection 116(5.2) of the Tax Act, (or who are considered to have disposed of such property on the disposition of such property by Brookfield Renewable or BRELP), are obligated to comply with the procedures set out in section 116 of the Tax Act and obtain a certificate pursuant to the Tax Act. In order to obtain such certificate, the Non-Resident LP Unitholder is required to report certain particulars relating to the transaction to the CRA not later than 10 days after the disposition occurs. The Managing General Partner and the BRELP General Partner do not expect our LP Units to be “taxable Canadian property” of any Non-Resident LP Unitholder and do not expect Brookfield Renewable or BRELP to dispose of property that is “taxable Canadian property” but no assurance can be given in these regards.

Payments of dividends or interest (other than interest exempt from Canadian federal withholding tax) by residents of Canada to BRELP will be subject to Canadian federal withholding tax and the payers may be unable to apply a reduced rate taking into account the residency or entitlement to relief under an applicable income tax treaty or convention of our LP Unitholders.

Brookfield Renewable and BRELP will be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest exempt from Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to BRELP will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA’s administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-resident limited partners may be entitled to under an applicable income tax treaty or convention provided that the residency status and entitlement to treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to BRELP, the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through BRELP and Brookfield Renewable to the residency of Brookfield Renewable’s partners (including partners who are residents of Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to BRELP. However, there can be no assurance that the CRA would apply its administrative practice in this context. If the CRA’s administrative practice is not applied and the Holding Entities withhold Canadian federal withholding tax from applicable payments on a look-through basis, the Holding Entities may be liable for additional amounts of Canadian federal withholding tax plus any associated interest and penalties. Under the Canada-United States Tax Convention (1980) (the “ Treaty ”), a Canadian-resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as Brookfield Renewable and BRELP, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty. Under the Amended and Restated Limited Partnership Agreement of BREP, the amount of any taxes withheld or paid by Brookfield Renewable, BRELP or the Holding Entities in respect of our LP Units may be treated either as a distribution to our LP Unitholders or as a general expense of Brookfield Renewable as determined by the Managing General Partner in its sole discretion. However, it is the current intention of the Managing General Partner to treat all such amounts as a distribution to our LP Unitholders.

While the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through Brookfield Renewable and BRELP in determining the rate of Canadian federal withholding tax applicable to amounts paid or deemed to be paid by the Holding Entities to BRELP, we may be unable to accurately or timely determine the residency of our LP Unitholders for purposes of establishing the extent to which Canadian federal withholding taxes apply or whether reduced rates of withholding tax apply to some or all of our LP Unitholders. In such a case, the Holding Entities will withhold Canadian federal withholding tax from all payments made to BRELP that are subject to Canadian federal withholding tax at the rate of 25%. Canadian-resident LP Unitholders will be

 

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entitled to claim a credit for such taxes against their Canadian federal income tax liability but Non-Resident LP Unitholders will need to take certain steps to receive a refund or credit in respect of any such Canadian federal withholding taxes withheld equal to the difference between the withholding tax at a rate of 25% and the withholding tax at the reduced rate they are entitled to under an applicable income tax treaty or convention. LP Unitholders should consult their own tax advisors concerning all aspects of Canadian federal withholding taxes.

 

ITEM 4. INFORMATION ON THE COMPANY

 

  4.A

HISTORY AND DEVELOPMENT OF THE COMPANY

Overview

Brookfield Renewable owns one of the world’s largest, publicly-traded, pure-play renewable power portfolios with approximately 5,900 MW of installed capacity. The portfolio includes 196 hydroelectric generating stations on 70 river systems and 11 wind facilities. Our portfolio is diversified across 12 power markets in Canada, the United States and Brazil, providing significant geographic and operational diversification.

Our objective is to pay a distribution to our LP Unitholders that is sustainable on a long-term basis while retaining within our operations sufficient liquidity for recurring growth capital expenditures and general purposes. We currently have a target payout ratio of approximately 60% to 70% of funds from operations, which we believe will leave us with approximately $100 million of available cash per year to further invest in accretive projects or acquisitions. We expect funds from operations to improve further in the long-term with the reinvestment of surplus cash flows. We intend to continue with a highly stable cash flow profile sourced from predominantly long-life hydroelectric assets, the vast majority of which sell electricity under long-term, fixed price contracts with creditworthy counterparties, including Brookfield, while supporting an attractive distribution yield and growth target. We intend to pursue a long-term distribution growth rate target in the range of 3% to 5% annually.

We believe that our scale, significant capitalization and sound investment-grade ratings will continue to enhance our ability to secure and fund new transactions globally. As such, we believe we are well–positioned to be a premium vehicle for investors seeking to invest in the renewable power sector. Our LP Units are listed on the TSX under the symbol “BEP.UN” and have been conditionally approved for listing on the NYSE, which once listed is expected to enhance our trading liquidity, deepen our investor base, broaden our access to capital and improve our ability to fund growth globally.

We anticipate that the only distributions we will receive in respect of our limited partnership interests in BRELP will consist of amounts that are intended to assist us in making distributions to our LP Unitholders in accordance with our distribution policy and to allow us to pay expenses as they become due.

History and Development of Our Business

Brookfield Renewable is a Bermuda exempted limited partnership that was established on June 27, 2011 under the provisions of the Exempted Partnerships Act 1992 of Bermuda and the Limited Partnership Act 1883 of Bermuda. Our registered and head office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda, and the telephone number is +1.441.295.1443.

Brookfield Renewable was established to serve as the primary vehicle through which Brookfield will acquire renewable power assets on a global basis. As a result of the Combination completed on November 28, 2011, all of the renewable power assets of the Fund, a publicly traded entity in Canada, and BRPI were combined and are now indirectly held by Brookfield Renewable through BRELP and BRELP’s subsidiaries. On completion of the Combination, public unitholders of the Fund received one LP Unit in exchange for each trust unit of the Fund held and the Fund was wound up. Prior to the Combination, Brookfield owned an approximate 34% interest in the Fund on a fully-exchanged basis. On completion of the Combination, Brookfield owned 73% of Brookfield Renewable on a fully-exchanged basis. Brookfield now owns 65% of Brookfield Renewable on a fully exchanged basis and the remaining 35% is held by the public.

Three-Year History

The following is a summary of the material developments affecting our business since January 2010. Because Brookfield Renewable was established in June 2011 and commenced operations in November 2011, the developments described below include material developments relating to the Fund and material developments relating to the Brookfield Renewable Power Assets which were contributed to Brookfield Renewable as a result of the Combination.

 

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Acquisitions and Dispositions

In December 2010, the Fund acquired from Brookfield our 166 MW Comber wind project in southwestern Ontario. The acquisition of the Comber wind project represented an investment by the Fund of C$567 million. The Comber Wind project benefits from two 20-year power purchase agreements (“ PPAs ”) with the Ontario Power Authority (the “ OPA ”) pursuant to its Feed-in Tariff program.

In early 2011, we acquired, with certain institutional investors, a 50% interest in the 30 MW Malacha hydroelectric project located in northern California, which has long-term PPAs for the majority of its power generation.

In February 2011, we acquired, with certain institutional investors, an 89.5% interest in the late stage 99 MW Granite Reliable wind project, which has since been constructed and which has long-term PPAs for the majority of its power generation.

In July 2011, we acquired, with certain institutional investors, the 30 MW Sacre II hydroelectric facility in the southeast region of Brazil.

In November 2011, the Fund and Brookfield completed the Combination pursuant to which all assets of the Fund and the Brookfield Renewable Power Assets were combined and are now indirectly held by Brookfield Renewable through BRELP and BRELP’s subsidiaries. On completion of the Combination, public unitholders of the Fund received one LP Unit in exchange for each trust unit of the Fund held and the Fund was wound up. Prior to the Combination, Brookfield owned an approximate 34% interest in the Fund on a fully-exchanged basis. On completion of the Combination, Brookfield owned 73% of Brookfield Renewable on a fully-exchanged basis and the remaining 27% was held by the public. In connection with the Combination, Brookfield Renewable amended certain existing PPAs with Brookfield and entered into the energy revenue agreement (“ Energy Revenue Agreement ”) pursuant to which Brookfield agreed to support the price we receive for the energy generated by certain of our US Facilities. See Item 7.B “Related Party Transactions”.

In the first quarter of 2012, we acquired, with certain institutional investors, new wind generation assets in California, including a 150 MW wind farm in the Tehachapi region. This new facility comes with a 24-year PPA with Southern California Edison. We also acquired the remaining 50% stake in our adjacent Coram wind project from our partner, along with a further 22 MW of additional operating wind generation capacity in the vicinity.

In July 2012, we also completed the acquisition of a 6 MW hydroelectric facility in Brazil with our institutional partners. The facility benefits from a PPA expiring in 2019.

On November 15, 2012, Brookfield Renewable and certain institutional partners acquired a portfolio of four hydroelectric generating stations located in Tennessee and North Carolina for a total enterprise value of $600 million. These assets have an installed capacity of 378 MW and average annual generation of 1.4 million MWh.

On November 26, 2012, we launched an offer to purchase, through WWE Equity Holdings Inc., an indirect wholly-owned subsidiary, all of the issued and outstanding common shares of Western Wind Energy Corp. (“ Western Wind ”) (excluding those we already owned) for C$2.50 in cash per common share, which was subsequently increased to C$2.60 per common share. Western Wind has 165 MW of wind and solar assets operating in California and Arizona. On February 21, 2013, we announced that we were successful in our bid for Western Wind. We currently own approximately 93% of the issued and outstanding common shares of Western Wind. We have launched the compulsory acquisition provisions under British Columbia corporate law to acquire the remaining common shares.

On March 1, 2013, Brookfield Renewable acquired a portfolio of hydroelectric generating stations in Maine (“White Pine”) from a subsidiary of NextEra Energy Resources, LLC, for a total enterprise value of approximately $760 million, subject to typical closing adjustments. The portfolio consists of 19 hydroelectric facilities and eight upstream storage reservoir dams primarily on the Kennebec, Androscoggin and Saco rivers in Maine, with an aggregate capacity of 360 MW and expected average annual generation of approximately 1.6 million MWh.

On March 20, 2013, we acquired the remaining 50% interest held by our partner in Powell River Energy Inc. for C$33 million plus the assumption of related debt.

Portfolio Activities

Construction and Development of New Facilities

In September 2010, our 51 MW Gosfield wind farm located in southwestern Ontario was commissioned. The facility is expected to generate an average of 153 GWh annually, with all energy sold under a 22-year PPA with the OPA. The project was completed ahead of schedule and below budget, with total construction costs of approximately C$142 million.

In November 2011, our 166 MW Comber wind project, located near the Gosfield wind farm was commissioned. A credit facility of C$354 million from a syndicate of six banks for the construction and first two years of operations was secured in September 2010.

 

 

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In the first quarter of 2012, our 102 MW and 150 MW wind farms in California, which we own with certain institutional investors, each reached commercial operation.

In December 2011, we completed construction and, in February 2012, entered into commercial operation at our 99 MW Granite Reliable wind project in New Hampshire, the largest wind project in the state. Our ownership interest in this project is held with certain institutional investors.

We completed construction of two of our hydroelectric facilities in Brazil in November 2012 and February 2013. These facilities have a total installed capacity of 48 MW and are expected to be capable of generating a combined 218 GWh of generation annually. Total construction costs were approximately R$400 million.

In 2012, construction commenced on our 45 MW hydroelectric facility in British Columbia. This facility is expected to enter commercial operation in 2014 and will benefit from a 40-year PPA with BC Hydro.

Treasury

Project Financings

In addition to the project financings referred to above, the following project financings were completed for our portfolio:

 

   

In May 2010, our Rumford Falls operations in Maine were refinanced with a non-revolving credit facility of $95 million maturing in 2017.

 

   

In May 2011, we obtained construction financing of $150 million for our 102 MW Coram Wind project.

 

   

In July 2011, we obtained a R$120 million loan, maturing in 2023, for our 30 MW Sacre II facility located in Brazil. This debt was subsequently prepaid in the first quarter of 2013.

 

   

In September 2011, a $113 million 20-year construction loan was put in place for our Granite Reliable wind project, in addition to a $56 million cash grant bridge loan, a maintenance reserve loan and a letter of credit facility. The $56 million cash grant bridge loan was repaid in 2012.

 

   

In May 2012, Brookfield Renewable refinanced indebtedness associated with its 50%-owned hydroelectric pumped storage facility in New England through a $125 million loan for a term of five years.

 

   

In November 2012, Brookfield Renewable completed a C$175 million private placement bond financing for its 45 MW hydroelectric project in British Columbia. The senior bonds are fully amortizing over their term of 41 years.

 

   

In November 2012, Brookfield Renewable refinanced indebtedness associated with its Prince Wind facility in Ontario through a C$232 million loan for a term of 15 years.

 

   

In February 2013, Brookfield Renewable refinanced indebtedness associated with its Comber Wind facility through a C$450 million broadly marketed private placement bond financing. The senior bonds are fully amortizing and mature in 2030.

 

   

In March 2013, approximately 88% of the $575 million in project level notes outstanding with respect to our newly acquired Maine portfolio were tendered and accepted for purchase by an affiliate of Brookfield Renewable pursuant to a previously announced cash tender offer. The purchase of the tendered notes was partially funded through a non-recourse, 24-month bridge loan of up to $350 million from a syndicate of banks that closed on March 6, 2013. On May 8, 2013 the same affiliate purchased an additional $125 million in other holdco level notes pursuant to a previously announced change of control offer which purchase was partially funding using the same bridge loan.

 

   

In March 2013, Brookfield Renewable refinanced indebtedness associated with its Gosfield Wind facility through a C$130 million floating rate credit facility.

Corporate Financings

 

In March 2010, BRP Equity, a wholly-owned subsidiary of Brookfield Renewable, issued 10,000,000 Series 1 Shares at C$25 per share for gross proceeds of C$250 million. The proceeds were used to, among other things, repay the C$200 million note issued to Brookfield as partial consideration for the purchase by the Fund of Brookfield’s Canadian portfolio in August 2009.

In connection with the Combination, Finco, a wholly-owned subsidiary of Brookfield Renewable, assumed the obligations under approximately C$1.1 billion aggregate principal amount of publicly-issued Finco Bonds. The Finco Bonds are guaranteed by Brookfield Renewable and the other Guarantors.

 

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Concurrent with the completion of the Combination, Brookfield Renewable and certain of our key holding companies entered into six separate credit agreements with six lenders, providing for an aggregate of $600 million in committed unsecured revolving credit availability. Each of these facilities, which replace the facilities that had been in place for BRPI and the Fund. In 2012, we increased the size of our revolving credit facilities from $600 million to $990 million, while extending maturities to October 2016.

On January 23, 2012, we filed a base shelf prospectus in Canada qualifying the issuance of up to US$2 billion of LP Units, Class A Preference Shares and new series of Finco Bonds.

On February 7, 2012, we completed a public offering of C$400 million aggregate principal amount of Finco Bonds, Series 8, due February 2022, which will bear interest at an annual rate of 4.79%, payable semi-annually. We used the net proceeds of the offering to refinance existing indebtedness and for general business purposes.

In October 2012, BRP Equity, a wholly-owned subsidiary of Brookfield Renewable, issued 10,000,000 Series 3 Shares at C$25 per share for gross proceeds of C$250 million. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

In January 2013, BRP Equity, a wholly-owned subsidiary of Brookfield Renewable, issued 7,000,000 Series 5 Shares at C$25 per share for gross proceeds of C$175 million. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

In May 2013, BRP Equity, a wholly-owned subsidiary of Brookfield Renewable, issued 7,000,000 Series 6 Shares at C$25 per share for gross proceeds of C$175 million. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

Other

On February 2, 2012, a wholly-owned subsidiary of Brookfield sold 11,430,000 LP Units of Brookfield Renewable at an offering price of C$26.25 per LP Unit pursuant to a bought-deal secondary offering with a syndicate of underwriters. In connection with this offering, the underwriters were granted, and exercised in full, an over-allotment option to purchase an additional 1,714,500 LP Units from Brookfield at the offering price.

On March 13, 2013, a wholly-owned subsidiary of Brookfield sold 8,065,000 LP Units of Brookfield Renewable at an offering price of C$31.00 per LP Unit pursuant to a bought-deal secondary offering with a syndicate of underwriters.

 

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  4.B

BUSINESS OVERVIEW

Our Operations

We operate our facilities through three regional operating centers in the United States, Canada and Brazil, which are designed to maintain and enhance the value of our assets, while cultivating positive relations with local stakeholders. We own and manage 196 hydroelectric generating stations, 11 wind facilities and two natural gas-fired plants. Overall, the assets we own or manage have 5,858 MW of generating capacity and annual generation of 22,204 GWh based on long-term averages. We also have one hydroelectric facility under construction that is scheduled to be commissioned within the next 18 months, thereby increasing the total capacity of our portfolio by 45 MW to 5,903 MW. The table below outlines our portfolio as at the date of this Form 20-F :

 

Markets

    

 

    River

Systems

  

  

    
 
    Generating
Stations
  
  
    
 
    Generating
Units
  
  
    
 
    Capacity (1)
(MW)
  
  
    
 
    LTA ( 2 ) (3)
(GWh)
  
  
    
 
    Storage
(GWh)
  
  

Operating assets

                 

Hydroelectric

generation (4)

                 

United States

     28         126         371         2,696         9,951         3,582   

Canada

     18         32         72         1,323         5,062         1,261   

Brazil

     24         38         85         680         3,701         N/A (5)   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     70         196         528         4,699         18,714         4,843   

Wind energy

                 

United States

     -         8         724         538         1,394         -   

Canada

     -         3         220         406         1,197         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -         11         944         944         2,591         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     -         2         6         215         899         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total from operating assets

     70         209         1,478         5,858         22,204         4,843   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Assets under construction

                 

Hydroelectric generation

                 

Canada

     1         1         4         45         138         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     71         210         1,482         5,903         22,342         4,843   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
  (1)

Total capacity of our operating assets including our share of equity-accounted investments is 5,483 MW.

  (2)  

Long-term average is calculated on an annualized basis from the beginning of the year, regardless of the acquisition or commercial operation date.

  (3)

Total long-term average of our operating assets including our share of equity-accounted investments is 21,617 GWh.

  (4)  

Long-term average is the expected average level of generation, as obtained from the results of a simulation based on historical inflow data performed over a period of typically 30 years. In Brazil, assured generation levels are used as a proxy for long-term average.

  (5)  

Brazilian hydroelectric assets benefit from a market framework which levelizes generation risk across producers.

The following table presents the annualized long-term average generation of our operating portfolio on a quarterly basis:

 

LTA generation (GWh) (1)

       Q1          Q2          Q3          Q4          Total  

Operating Assets

              

Hydroelectric generation (2)

              

United States

     2,659         2,829         2,013         2,450         9,951   

Canada

     1,196         1,461         1,234         1,171         5,062   

Brazil (3)

     958         903         905         935         3,701   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     4,813         5,193         4,152         4,556         18,714   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Wind energy

              

United States

     311         468         341         274         1,394   

Canada

     324         292         238         343         1,197   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     635         760         579         617         2,591   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Other

     222         218         240         219         899   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total LTA generation

     5,670         6,171         4,971         5,392         22,204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (1)

Long-term average is calculated on an annualized basis from the beginning of the year, regardless of the acquisition or commercial operation date.

  (2)  

Long-term average is the expected average level of generation, as obtained from the results of a simulation based on historical inflow data performed over a period of typically 30 years. In Brazil, assured generation levels are used as a proxy for long-term average.

  (3)  

Brazilian hydroelectric assets benefit from a market framework which levelizes generation risk across producers.

All figures, including capacity and long-term average, include facilities acquired or commissioned to the date of this Form 20-F.

We have a comprehensive power operations and development platform located in each of our regional markets that positions us to maintain and increase the value of our asset base while competitively positioning us with strong economies of scale for continued growth. Our business has approximately 1,200 employees throughout North America and Brazil. See Item 6.D “Employees”. We also maintain a portfolio of hydroelectric, wind and pumped storage development projects in each of Canada, the United States and Brazil. See Item 7.B “Related Party Transactions — Development Projects”.

 

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Regional Operating Platforms

 

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Canadian Platform

Our facilities in Canada are situated in Québec, Ontario and British Columbia, Canada’s three largest power markets, representing approximately three-quarters of the Canadian population. Each of these provinces has adopted policies to increase the contribution of renewables in the supply mix by offering long-term contracts with government-owned utilities through competitive RFPs or feed-in-tariffs.

Most of our Canadian hydroelectric assets are larger utility-scale facilities with water storage reservoirs that can store approximately 1,300 GWh, or approximately 25% of Brookfield Renewable’s annual average hydroelectric generation in Canada.

We entered the Canadian wind business in 2004 and since then have completed the development, construction and operation of three wind farms in Ontario, with a combined installed capacity of 406 MW. In addition to our renewable power assets, we own one combined cycle natural gas-fired facility in Ontario which sells its power to the Ontario Electricity Financial Corporation under a contract that expires in 2014.

We have several projects in various stages of development. One of our more advanced development projects is the 45 MW Kokish hydroelectric project for which we have secured a 40-year PPA with BC Hydro and began construction in the second quarter of 2012. The project is expected to achieve commercial operation in 2014.

Our Canadian headquarters are located in Gatineau, Québec, along with our National System Control Center which allows remote monitoring and control of all of our assets in Canada. Our platform includes full hydroelectric and wind operating capabilities, as well as development and construction oversight expertise. We employ approximately 245 people in our Canadian operations and approximately 33% of our employees in Canadian operations are covered by collective agreements. We have experienced positive relations with our unionized work force in Canada.

We hold a variety of long-term waterpower licenses issued by the provinces where our operations are situated. These waterpower licenses permit us to use land, water and waterways for the generation of electricity. These licenses also contain terms that deal with water management, land use, public safety, recreation and the environment. At the end of the license period, license holders can apply to the requisite government body to have their licenses renewed.

 

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U.S. Platform

In the United States, we are strategically focused on the power markets in the northeast (in the mid-Atlantic) and California, with operations in other states such as Minnesota, Tennessee, North Carolina and Louisiana.

The majority of our U.S. capacity is located in New York and New England. In New York State, we are one of the largest independent power producers with 75 hydroelectric facilities with an aggregate installed capacity of 711 MW. We have 1,204 MW of operating hydroelectric capacity in New England, including a 50% joint-venture operating interest in a 600 MW hydroelectric pumped storage facility located in Massachusetts. Pumped storage is a unique form of hydroelectric power which uses reversible turbines permitting energy to be stored by pumping water up into a reservoir, and then producing power at a later time by releasing the water during a period in which power prices are higher.

We also own eight wind farms located primarily in New Hampshire and California with a combined installed capacity of 538 MW. The California wind farms are located in the Tehachapi area, one of the most proven wind resource areas in the United States, attractively located near Los Angeles. We also own one combined cycle, natural gas-fired facility in New York State, which sells its power output on a merchant basis and is predominantly used to meet power needs at times of peak demand.

Our U.S. headquarters are located just outside of Boston, Massachusetts, along with our U.S. National System Control Center, which can remotely control and monitor nearly all of our facilities in the country. We employ approximately 490 people in the United States. Approximately 32% of our employees are covered by collective agreements. We have experienced positive relations with our unionized work force in the United States.

Our rights to operate our hydroelectric facilities in the United States are secured primarily through long-term licenses from the Federal Energy Regulatory Commission (the “ FERC ”), the federal agency that regulates the licensing of substantially all hydroelectric power plants in the United States. The FERC has oversight of all ongoing hydroelectric project operations, including dam safety inspections, environmental monitoring, compliance with license conditions, and the license renewal process. Our ability to sell power from certain of our generation facilities is also subject to the receipt and maintenance of certain approvals from the FERC, including market-based rate authority.

 

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Brazilian Platform

Brookfield has been an investor and operator in Brazil for over 100 years. Brookfield re-entered the Brazilian power market in 2003 and, since then, has grown its hydroelectric asset base significantly to 38 facilities on 24 river systems totaling 680 MW of installed capacity. We own facilities located in the seven developed states of Brazil located in the south, southeast and mid-west regions. Such regions represent approximately 80% of the country’s population and economic activity. As such, we believe our business in Brazil is particularly well positioned to participate in one of the world’s fastest growing electricity markets and economies.

We have developed and built 14 facilities totaling 313 MW of capacity since 2003 and we have several hydro projects in various stages of development. In November 2012, we completed the construction of and commissioned a 19 MW hydroelectric facility and in February 2013, we completed construction of a 29 MW hydroelectric facility.

Our Brazilian headquarters are located in Rio de Janeiro, while our National System Control Center is located in Curitiba, Paraná from which we centrally control and monitor our Brazilian hydroelectric power stations. We employ approximately 316 people across our operations in Brazil and all of our employees are covered by annual collective agreements. We have experienced positive relations with our work force in Brazil. Our operating platform has full development, construction management and operating capability with an integrated power marketing team.

Rights to hydroelectric sites are secured in Brazil by obtaining authorizations and concessions from the Brazilian Ministry of Mines and Energy through the National Agency for Electric Energy (“ ANEEL ”). We generally focus on the SHPP segment of plants below 30 MW of capacity as these sites can be secured directly from ANEEL, whereas sites for hydroelectric plants above 50 MW can only be granted by public auction, where developers bid the lowest tariff to win the concession and a PPA with local utilities. Of our authorizations and concessions, 81% have terms exceeding 17 years. Generally, concessions and authorizations provide for an initial term of 30 years and renewal rights for an additional 20-year period.

See “Risk Factors — Risks Relating to our Operations and the Renewable Power Industry — Our operations are highly regulated and may be exposed to increased regulation which could result in additional costs to Brookfield Renewable” and “Risk Factors — Risk Factors Relating to our Operations and the Renewable Power Industry — There is a risk that our concessions and licenses will not be renewed”.

 

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Our Competitive Strengths

We are an owner and operator of a diversified portfolio of high quality assets that produce electricity from renewable resources and have evolved into one of the world’s largest listed pure-play renewable power businesses.

Our assets generate high quality, stable cash flows derived from a virtually fully contracted portfolio. Our business model is simple: utilize our global reach to identify and acquire high quality renewable power assets at favorable valuations, finance them on a long-term, low-risk basis, and enhance the cash flows and values of these assets using our experienced operating teams to earn reliable, attractive, long-term total returns for the benefit of our LP Unitholders.

 

   

One of the largest, listed pure-play renewable platforms. We own one of the world’s largest, publicly-traded, pure-play renewable power portfolios with $17 billion in power generating assets, approximately 5,900 MW of installed capacity and long-term average generation of approximately 22,200 GWh annually. Our portfolio includes 196 hydroelectric generating stations on 70 river systems and 11 wind facilities, diversified across 12 power markets in the United States, Canada and Brazil.

 

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Focus on attractive hydroelectric asset class. Our assets are predominantly hydroelectric and represent one of the longest life, lowest cost and most environmentally preferred forms of power generation. Our North American assets have the ability to store water in reservoirs approximating 32% of our annual generation. Our assets in Brazil benefit from a framework that exists in the country to levelize generation risk across producers. This ability to store water and have levelized generation in Brazil provides partial protection against short-term changes in water supply. As a result of our scale and the quality of our assets, we are competitively positioned compared to other listed renewable power platforms, providing significant scarcity value to investors.

 

   

Well positioned for global growth mandate. Over the last ten years, we have acquired or developed approximately 160 hydroelectric assets totaling approximately 3,200 MW and 11 wind generating assets totaling approximately 950 MW. Since the beginning of 2013, we acquired or developed hydroelectric generating assets that have an installed capacity of 389 MW and 165 MW of wind generating assets. We also have strong organic growth potential with a 2,000 MW development pipeline spread across all of our operating jurisdictions. Our net asset value in renewable power has grown from approximately $900 million in 1999 to approximately $8.6 billion as at March 31, 2013, representing a 18% compounded annualized growth rate. We are able to acquire and develop assets due to our established operating and project development teams, strategic relationship with Brookfield and our strong liquidity and capitalization profile.

 

   

Attractive distribution profile . We pursue a strategy which we expect will provide for highly stable, predictable cash flows sourced from predominantly long-life hydroelectric assets ensuring an attractive distribution yield. We target a distribution payout ratio in the range of approximately 60% to 70% of funds from operations and pursue a long-term distribution growth rate target in the range of 3% to 5% annually.

 

   

Stable, high quality cash flows with attractive long-term value for LP Unitholders. We intend to maintain a highly stable, predictable pricing profile sourced from a diversified portfolio of low operating cost, long-life hydroelectric and wind power assets that sell electricity under long-term, fixed price contracts with creditworthy counterparties. Over 90% of our generation output is sold pursuant to PPAs, to public power authorities, load-serving utilities, industrial users or to affiliates of Brookfield Asset Management. The PPAs for our assets have a weighted-average remaining duration of 20 years, providing long-term cash flow stability.

 

   

Strong financial profile. With $17 billion of power generating assets and a conservative leverage profile, consolidated debt-to-capitalization is approximately 41%. Our liquidity position remains strong with $680 million of cash and unutilized portion of committed bank lines, as of May 10, 2013, the date of our most recent Interim Report. Over 72% of our borrowings are non-recourse to Brookfield Renewable. Both corporate borrowings and subsidiary borrowings have a weighted-average term of approximately nine and 13 years, respectively.

 

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Renewable Power Growth Opportunity

The renewable power generation sector is increasingly becoming a meaningful portion of new electricity supply globally. Significant new renewable generation supply continues to be built, consisting primarily of new hydro and wind capacity. Global installed renewable power now stands at over 1,300 GW worldwide, and the industry is adding in the range of 100 GW or $200 billion of new renewable power supply each year. The following chart illustrates the global growth in various renewable power generation sectors from 2000 to 2011.

 

 

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_________________

 

Sources: BP Statistical Review of World Energy, 2012 (for wind, geothermal and solar capacity (from 2000 to 2011); U.S. Energy Information Administration — International Energy Statistics (for Hydro capacity from 2000 to 2010). For 2011 hydroelectric capacity, figures were estimated by adding to the 2010 capacity an assumed additional capacity based on the additional actual generation in 2011 sourced from BP Statistical Review of World Energy, 2012.

  

Global Renewable Power Drivers

We believe that, over time, strong continued growth in renewable power generation will be driven by the following:

Conventional coal and nuclear generation face challenges. The continued reliance on large-scale coal and nuclear facilities is causing concern with power system regulators and the general public. Coal plants are increasingly facing legislative pressures to undertake significant environmental compliance expenditures. This in turn is accelerating the retirement of coal plants, which need to be replaced by new capacity. Following the Fukushima nuclear disaster in Japan, and in light of on-going cost uncertainties and concern over waste disposal, public concern over new nuclear construction and continued life extension of existing facilities has increased. This has delayed or halted most new nuclear development activities in the United States and has even caused some countries, despite relying on meaningful nuclear power, to legislate the early retirement of existing nuclear capacity.

Renewables are a cost effective way of diversifying fuel risk. The abundance of low cost natural gas in North America presents a unique opportunity to potentially replace aging coal and nuclear facilities with a domestic fuel source that is cost effective and has a lower environmental impact. As natural gas gains further acceptance, we expect the need to diversify exposure to potentially rising fuel costs will increase the demand for renewable technologies, particularly hydroelectric and wind energy. In addition, technological developments over the last decade continue to reduce the costs of renewable technologies enhancing their position as a cost competitive complement to gas-fired generation and a means to meeting more stringent environmental standards.

 

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Supported by government policies and incentives. There are a number of strategies that governments are using to encourage development of renewable power resources which generally include renewable portfolio standards (“ RPS ”) (requiring electricity distributors to obtain a minimum percentage of their power from renewable energy resources by specified target dates) and tax incentives or subsidies. Globally, at least 64 countries, including all 27 European Union countries, have national targets for renewable energy supply, and 37 U.S. states, the District of Columbia, Puerto Rico and nine Canadian provinces have RPS or policy goals that require load-serving utilities to offer long-term power purchase contracts for new renewable supply.

Widespread acceptance of climate change. Over the last five years, it has become generally accepted that the combustion of fossil fuels contributes to global warming. In 2007, the Intergovernmental Panel on Climate Change (“ IPCC ”) released a series of four reports to build awareness of climate change and observed that average temperatures in the world’s northern hemisphere were likely the highest in at least the past 1,300 years, and in 2005, atmospheric concentrations of carbon dioxide exceeded by far the natural range over the last 650,000 years. According to the IPCC, the ramifications of global warming for society are significant. As the electricity sector is one of the largest contributors to carbon dioxide emissions globally we have observed that universal concern about global warming has become a catalyst for governments to take environmental policy action, often through legislation of renewable power procurement targets or implementation of feed-in-tariffs.

Our Core Markets

Our operating platforms in Canada, the United States and Brazil make us particularly well positioned to continue our growth in these markets. In addition, due to our relationship with Brookfield, we have access to Brookfield’s investment platforms in Europe and Australasia, giving us the capability to source transactions globally.

Canada

In Canada, renewable energy policy is predominantly implemented at the provincial level. We are currently active in Ontario, Québec and British Columbia, and all of these jurisdictions have adopted policies to increase the contribution of renewables in the supply mix. In Ontario alone, approximately 6,000 MW of new renewable power generation is expected to be developed and come on-line in the next five years, some of which, in addition to other developments across the country, we believe will present attractive acquisition opportunities.

There is currently over 4,700 MW of renewable capacity contracted in Ontario as the province seeks to phase out or repower with alternative fuels approximately 3,300 MW of its existing coal capacity by 2014. Furthermore, approximately half of Ontario’s nuclear capacity is aging and approaching the end of its useful life in this decade. The Ontario government has also announced a $7 billion transmission expansion plan to facilitate the integration of more renewable resources. In Québec, while most generating capacity is provincially owned, since 2003, Hydro-Québec Distribution has contracted for over 3,300 MW of renewable capacity, consisting primarily of wind-power. In British Columbia, the 2010 Clean Energy Act outlines a vision for “clean energy leadership” in the province with goals of self-sufficiency in electricity generation by 2016, while securing over 90% of total generation requirements from clean or renewable generation sources, leading to the award of power purchase contracts for approximately 2,200 MW.

United States

We believe that in the last few years, the United States has offered consistent, broad-based policy momentum to transition the country’s electricity producers to cleaner generation and promote increased energy independence. The United States is now the world’s second largest wind market and is estimated to have reached 60,000 MW of installed capacity by the end of 2012. One of the most significant drivers of renewable power growth in the United States has been the adoption of RPSs in 29 states and the District of Columbia with renewable targets set to as high as 33% of the total supply mix by 2020. In addition, growth has been driven by various government incentive programs supporting investment in new renewables.

Concurrent with expanding policy supporting renewables, the environmental regulation of traditional thermal coal-fired generation has become significantly more stringent. In particular, the United States Environmental Protection Agency’s (the “ EPA ”) “Utility MACT” rule – effective 2015 – requires the application of “maximum available control technology emissions standards for hazardous air pollutants (among others, mercury, metals and acid gases) from coal-fired and oil-fired electric generating units. Other EPA regulations in force or in preparation – addressed to other air pollutants as well as to cooling water use and to disposal of combustion residuals – will impose very significant compliance capital expenditures for coal-fired facilities. Since over half of this coal-fired capacity is over 30 years old, and approximately 50% of total U.S. coal capacity lacks significant emissions control technology, we believe these regulations will accelerate retirement decisions. This supply will need to be replaced by new capacity and we believe renewable and gas generation are complementary solutions to fill this gap.

In the United States, we are strategically focused on the power markets in the northeast (New York, New England), the mid-Atlantic and California, with operations in other states such as Minnesota, Tennessee, North Carolina and Louisiana. Together these markets cover over 70% of the U.S. population, some of which have among the most ambitious RPS targets. We believe we are focused on the markets representing the highest value and highest barrier-to-entry markets.

Brazil

With the world’s fifth largest population and seventh largest economy, Brazil offers a rapidly growing market with sound, investment-grade, macro-economic fundamentals. Electricity demand has grown by 4.4% annually over the last 30 years, a trend we expect will continue in line with rising incomes and per capita consumption (which today is still less than one-fifth of that in the United States).

 

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As a result, we expect Brazil will require approximately 6,000 MW of new supply annually to meet its growing demand. By 2020, Brazil’s energy planning agency projects that 53,000 MW of new supply will be needed, with only approximately 32,000 MW of capacity currently under construction in the country. Much of this planned supply growth relies on large-scale hydroelectric, transmission and thermal generation infrastructure construction, some of which is facing environmental, permitting and labor challenges. As a result, notwithstanding certain regulatory measures adopted in September 2012 affecting concession renewals which had the goal of reducing end-user electricity costs by an average of 20%, we believe supply constraints will continue to increase prices and give rise to opportunities to build or acquire new capacity.

In addition to a growing SHPP segment in Brazil, other segments of the renewable power industry are growing, notably biomass cogeneration and wind power. Brazil has 5,500 MW of installed biomass capacity with another 3,500 MW to be developed until 2020, which for the most part is integrated with existing sugar or ethanol mills. Brazil is the world’s leading and most efficient producer of these commodities making this a growing segment of the renewable power industry and one which we expect to increasingly focus on.

We believe there are two aspects of the market in Brazil that make our business particularly compelling. First, substantially all of our facilities participate in a government-regulated hydrological “balancing pool” or energy reallocation mechanism (“ MRE ”) that significantly reduces the impact of hydrology variability on our cash flows. Through this pool, hydroelectric power generators are paid on the basis of “assured energy”, or long-term average generation established through government-approved hydrological studies, rather than actual production. Participating generators effectively share hydrology risk as generators experiencing below average generation conditions purchase power from generators experiencing above average conditions at prices based on a marginal production cost formula, or when producing more than normal generation, sell that power on the same basis. Secondly, in Brazil, SHPPs under 30MW operate in a special segment of the market that benefit from certain preferred economic and regulatory rights. Customers that purchase power from these plants benefit from a special discount for the use of the distribution system which, in turn, enables us to capture a portion of this discount through higher prices with end-use customers.

Other Markets

While we do not currently operate renewable power assets outside of Canada, the United States and Brazil, Brookfield has investment platforms in South America, Europe and Australasia, regions which also offer significant renewable power growth potential.

In South America, Colombia and Peru are investment-grade rated countries that have established competitive electricity markets and each country needs over 500 MW of new power supply annually to meet strong economic and natural resource driven demand growth. These countries benefit from significant undeveloped hydroelectric potential and power prices remain relatively low on a global scale but should increase over the long-term as new supply needs to be built to meet demand growth.

Europe has long been at the forefront of renewable power policy and has approximately 170 GW of installed hydroelectric capacity and 97 GW of installed wind capacity. In certain countries, such as Denmark, Germany, the United Kingdom, Spain and Portugal, renewable power is supplying up to 20% of total electricity needs and more than 30% in some smaller countries such as Austria, Finland, Sweden and Norway. The reliance on renewables will continue as Europe is predominantly an importer of fossil fuels and countries such as Germany consider accelerating the phase-out of nuclear and fossil fuel generation.

Australia is a market where Brookfield has a significant real estate and infrastructure presence and in 2012 became one of the first jurisdictions globally to implement fixed carbon pricing that by 2015 is expected to evolve into a carbon cap-and-trade regime. More than 60% of the 51 GW of installed capacity in Australia’s National Electricity Market is coal-fired, and the country is experiencing strong growth driven by Asian demand for its resources. We expect that this will drive significant additions of new renewable power capacity throughout the next decade.

Our Growth Opportunity

We believe that the current transaction environment offers attractive acquisition opportunities to invest in renewable power acquisitions or developments that we expect will allow us to deploy capital, on an accretive basis, in the following opportunities:

 

   

Asset monetizations and divestitures. Significant renewable power generation capacity is owned by industrial companies, smaller independent power producers, private equity investors or foreign companies. These types of owners sell renewable power assets either because power generation is not their core business, their investment horizons are shorter, or a particular market ceases to be strategic.

 

   

Privatizations. We believe that in the current fiscal climate, governments will continue to engage the private sector in providing funding solutions for infrastructure requirements which could increasingly involve sales of existing assets. Our proven operating track record, global scale and ability to partner with local pension and institutional investors may better competitively position us to participate in such opportunities.

 

   

Development cycle divestitures. Renewable power assets are often developed or built by smaller developers or construction companies who, in our experience, seek to capture development-stage returns. We have been, and believe

 

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will continue to be, a logical acquirer of, or partner in, such projects. Our focus on acquisitions in this area also gives us a unique perspective on pursuing the best development-stage opportunities through acquisitions or by building projects in our own portfolio.

 

   

Brookfield Renewable Group’s development project portfolio. In addition to growing our business through acquisitions, we intend to pursue organic growth by developing our portfolio of greenfield projects. We indirectly own over 25 development projects in Brazil, Canada and the United States totaling an estimated 1,800 MW of potential capacity. See Item 7.B “Related Party Transactions — Development Projects”. Over the past ten years, Brookfield has completed or commenced construction on approximately 21 development projects totaling an aggregate of over 1,000 MW of capacity giving us a successful execution track record in each of our focus markets as a developer of both hydroelectric and wind capacity. Our regional operating platforms have the development expertise and capability to advance our renewable power projects from the development stage to commercial operation. We also have the necessary expertise to oversee the regulatory, engineering, construction execution, transmission, permitting, licensing, environmental and legal activities required for successful project development.

Revenue and Cash Flow Profile

We believe that our portfolio offers high quality cash flows derived from predominantly hydroelectric assets. Our cash flow profile, which we believe will be highly stable and predictable, is derived from the combination of long-term, fixed price contracts, a unique hydro-focused portfolio with a low cost structure, and a prudent financing strategy focused on non-recourse debt with an investment grade balance sheet. Accordingly, we believe that we have a high degree of predictability in respect of revenue and costs on a per MWh basis.

We expect our current business to generate approximately $1.2 billion of Adjusted EBITDA and $575 million of funds from operations, annually, based on long-term average generation and assuming the completion of projects currently under construction, although we can provide no assurance that we will achieve such results in the near- or long-term. Our ability to achieve the results based on long-term average is dependent on various risks and uncertainties that our operations face, many of which are beyond our control. Some of these risks and uncertainties include hydrology or wind conditions at our facilities, and the risk that counterparties to our contracts may not fulfill their obligations. Refer to Item 3D. “Risk Factors — Risks Related to Brookfield Renewable” for the risks and uncertainties associated with achieving these results.

Our Adjusted EBITDA and funds from operations for the three months ended March 31, 2013 totaled $319 million and $162 million, respectively. For the three months ended March 31, 2012, our Adjusted EBITDA and funds from operations totaled $318 million and $175 million, respectively.

Our Adjusted EBITDA and funds from operations in 2012 totaled $852 million and $347 million, respectively.

Our Adjusted EBITDA and funds from operations in 2011 totaled $804 million and $332 million, respectively. These amounts reflect 11 months of earnings from both the Fund and privately held power assets of Brookfield, without the benefit of contracts in place in Brookfield Renewable, plus one month of Brookfield Renewable’s results after completion of the Combination on November 28, 2011.

In 2011, our annual Adjusted EBITDA and funds from operations, assuming Brookfield Renewable was in place on January 1, 2011 and generation was consistent with long-term averages would have totaled approximately $986 million and $495 million, respectively. As described in Item 5.A “Operating Results — Performance Measurement”, Adjusted EBITDA and funds from operations do not have any standardized meaning prescribed by IFRS and therefore are unlikely to be similar measures presented by other companies. For additional information, see Item 5.A “Operating Results — Net Income (loss), Adjusted EBITDA, and Funds from Operations on a Consolidated Basis” and Item 5.A “Operating Results — Reconciliation of Pro Forma Results.”

The following table presents revenue, Adjusted EBITDA and funds from operations on a segmented basis for the three months ended March 31, 2013 and 2012 and for the fiscal years ended December 31, 2012 and 2011, by hydroelectric, wind and other facilities. Hydroelectric and wind information is further segmented by hydroelectric facilities located in the United States, Canada and Brazil.

 

      

Hydroelectric

    

Wind energy

     Other       Total  
(MILLIONS)    U.S.        Canada        Brazil      U.S.        Canada               

For the three months ended March 31, 2013:

                   

Revenues (1)

     $      185         $      94         $      75         $      23         $      40         $20        $      437   

Adjusted EBITDA (2)

     143         78         55         14         35         (6     319   

Funds from operations (2)

     82         62         42         1         21         (46     162   

For the three months ended March 31, 2012:

                   

Revenues (1)

     $      164         $      100         $      91         $      7         $      44         $20        $      426   

Adjusted EBITDA (2)

     130         83         68         5         39         (7     318   

Funds from operations (2)

     83         66         30         2         29         (35     175   

 

(1)

Based on unaudited consolidated financial data which is derived from and should be read in conjunction with unaudited consolidated financial statements of Brookfield Renewable as at and for the three months ended March 31, 2013 and 2012.

(2)  

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

 

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Hydroelectric

    

Wind

    

Other

   

  Total

 
Millions      United
  States
     Canada        Brazil      United
States
       Canada               

For the year ended December 31, 2012:

                   

Revenues (1)

   $ 438       $ 272       $ 340       $ 58       $ 131       $ 70      $ 1,309   

Adjusted EBITDA (2)

     294         213         236         31         113         (35     852   

Funds from operations (2)

     148         148         151         2         69         (171     347   

For the year ended December 31, 2011:

                   

Revenues (1)

   $ 467       $ 237       $ 335         -       $ 70       $ 60      $ 1,169   

Adjusted EBITDA (2)

     336         179         269         -         58         (38     804   

Funds from operations (2)

     163         116         147         -         33         (127     332   

 

(1)  

Based on audited consolidated financial data which is derived from and should be read in conjunction with the audited consolidated financial statements of Brookfield Renewable as at and for the years ended December 31, 2012, 2011 and 2010.

(2)

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

We believe that we have a predictable pricing profile driven by long-term PPAs with a weighted average remaining duration of 20 years, which combined with a well-diversified portfolio that reduces variability in our generation volumes enhances the stability of our cash flow profile. As outlined in the graph below, the majority of our long-term PPAs are with investment-grade rated or creditworthy counterparties such as government-owned utilities or power authorities, Brookfield or industrial power users. See Item 3.D “Risk Factors — Risks Related to Our Operations and the Renewable Power Industry — Counterparties to our contracts may not fulfill their obligations and, as our contracts expire, we may not be able to replace them with agreements on similar terms”.

Counterparties to Brookfield Renewable Group’s Power Contracts

 

LOGO

As at March 31, 2013, Brookfield Renewable had contracted 91% of the balance of 2013 generation at an average price of $82 per MWh. The following table sets out contracts as at March 31, 2013 over the next five years for generation from existing facilities as of that date, assuming long-term average hydrology and wind conditions:

 

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     Balance of
    2013
        2014         2015         2016         2017  

Contracted generation (1)

              

% of total

     91         84         78         77         74   

 

(1)

Assets under construction are included when long-term average and pricing details are available and the commercial operations date is established in a definitive construction contract.

As of March 31, 2013, over the next three years Brookfield Renewable has on average approximately 3,157 GWh of energy annually which is uncontracted. All of this energy can be sold into the current wholesale or bilateral market, however we intend to maintain flexibility in re-contracting to position ourselves to achieve the most optimal pricing.

Our portfolio benefits from significant hydrology diversification, with assets distributed on 70 river systems in three countries. Our water storage capabilities and our access to the hydrological balancing pool administered by the government of Brazil amount to approximately 38% of annual generation, allowing us to mitigate hydrological fluctuations, optimize production and minimize losses due to outages.

North America. In North America, we generate revenues primarily through energy sales by way of long-term PPAs with creditworthy counterparties such as government-owned entities or power authorities (including for example, the Ontario Power Authority, Ontario Electricity Financial Corporation, Hydro-Québec, BC Hydro and the Long Island Power Authority), load-serving utilities (such as Entergy Louisiana), Brookfield and its subsidiaries, and in some cases industrial power users. Currently, our North American portfolio is almost fully contracted pursuant to long-term PPAs that are generally structured on a “take or pay” basis without fixed or minimum volume commitments. As a result, there is minimal risk of having to supply power from the market to customers when we are experiencing low water or wind conditions. Most of our PPAs also provide for annual escalation of the realized price, typically linked to inflation. In respect of power sold to Brookfield, Brookfield will in some cases have entered into back to back power resale agreements in respect to output purchased from Brookfield Renewable Group (see Item 4.B “Business Overview — The Manager — Energy Marketing”).

Brazil. In the Brazilian electricity market, energy is typically sold under long-term contracts either to regulated load-serving distribution companies, or “free customers”, which are customers with more than 0.5 MW of annual demand and who can choose their own electricity supplier. Both types of customers are required to demonstrate that they have contracts in place to meet all forecast demand annually. In the regulated market, Brookfield has typically entered into 20-30 year PPAs with creditworthy state-owned utilities. In the “free customer” market, Brookfield has typically entered into three to eight year PPAs with large industrial and commercial customers, generally engaged in producing essential services or products such as the telephone, food and pharmaceutical industries. Our PPAs in Brazil typically provide a fixed price that is fully indexed to inflation annually. Our Brazilian portfolio has a weighted average remaining contract term of nine years and we believe that it is well positioned to capitalize on market opportunities in the medium term as 18% of the portfolio is scheduled to be re-contracted in 2014 and a further 37% is scheduled to be re-contracted in 2015.

Operating Philosophy

We employ a hands-on, operations-oriented, long-term owner’s approach in the management of our portfolio, which is designed to ensure that we maintain and, where possible, enhance the value of our assets while cultivating positive relationships with local stakeholders. The operation of our generating facilities is largely decentralized through three regional operating centers covering Canada, the United States and Brazil. We supplement our regional operating platforms with a strong corporate team that provides strategic direction, commercial and business development, oversight of operations and establishes consistent policies in areas such as compliance, information technology, health, safety and security, human resources, stakeholder relations and procurement.

In addition, we benefit from the expertise of Brookfield, who provides strategic direction, corporate oversight, commercial and business development, and oversees decisions with regard to the funding and growth of our business. We believe this approach leads to a strong decision-making culture and long-term owner-oriented investment philosophy to build value.

The cornerstones of our operations philosophy are:

Strong regional operating platforms. In each of our core markets, we have built strong regional platforms with full construction oversight and operational and development capabilities. Each of our regional platforms has a centralized, automated plant dispatch and control center allowing remote operation of most of our facilities and a central interface with regulatory and market authorities. This capability allows us to benefit from economies of scale by leveraging our operating platform when growing our business.

Disciplined management of operating costs. Our operations are focused on maintaining the cost competitive position of our portfolio through disciplined management of operating costs with the objective of offsetting the costs of inflation annually. In addition, the scalability of our platforms allow us to grow the portfolio with little incremental fixed costs ensuring a stable and predictable cost profile over the long term.

 

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Focus on asset reliability and availability. Maintaining high reliability and availability of our plants is critical as our long-term contracts provide for us to be paid for all energy delivered. To the greatest extent possible, our operating teams perform all periodic and planned maintenance activities during periods of low hydrology or wind, in order to minimize lost revenue opportunities and take advantage of excess capacity at our plants.

Long-term ownership and asset reinvestment. We seek to preserve and enhance the productivity, reliability and longevity of each of our generating facilities. The cornerstone of our asset maintenance and enhancement program is a 20-year forward-looking capital reinvestment plan. A detailed plan is prepared for each asset by our teams working together with independent engineering firms, recognized as industry leaders in hydroelectric and wind energy production and maintenance. We develop and implement our plans by taking a long-term owner’s perspective and believe the low capital expenditure maintenance requirements and long useful life of our assets are attractive attributes of hydroelectric assets. Hydroelectric power generation is a mature, efficient and relatively simple technology that has not changed dramatically over the past century.

Culture of health, safety, security and environmental leadership. We strive to achieve excellence in safety performance and to be recognized as an industry leader in accident prevention. Our overall objective is to incur zero high risk safety incidents and zero lost time injuries. We have adopted written health, safety, security and environmental (“ HSS&E ”) policies that include frameworks for oversight, compliance, compliance audits and sharing best practices both within our operations and the global Brookfield group. We maintain a HSS&E Steering Committee, consisting of the Chief Executive Officer, President and the Chief Operating Officers of the regional operations, and require all employees, contractors, agents and others involved in our operations to comply with our established HSS&E practices.

Positive local stakeholder relationships. We seek to have transparent and well-established relationships with local stakeholder groups and the communities in which we operate, which we believe is a key element of successfully operating and developing renewable power facilities. In order to ensure the successful renewal and implementation of our water power licenses and land leases, we consult and work proactively with local stakeholders and communities potentially affected by our operations.

We maintain a performance-based culture in our operations and develop annual performance targets in each of the above areas to measure the performance of our operating teams.

Our Growth Strategy

We expect to continue focusing primarily on long-life renewable power assets that provide stable, long-term contracted cash flows, and which are well positioned to appreciate in value over time. We intend to combine our industry, operating, development and transaction expertise with our ability to commit capital to transactions in order to secure opportunities at attractive returns for securityholders. To grow Brookfield Renewable, we benefit from a proactive and focused business development strategy in each of our markets and Brookfield’s global investment platform that may lead to originating attractive opportunities for investment. We expect that our growth will be focused on the following:

 

   

Focusing on core markets and pursuing opportunities in other high-value markets. Geographically, we expect to continue our growth in the United States, Canada and Brazil, where our existing renewable power operating platforms allow us to efficiently integrate operating or development-stage renewable power assets and capture economies of scale. Within each of these countries, our growth strategy is focused on the higher-value regional electricity markets. For example, in the United States, our strategy is to continue our growth in the eastern and western power markets, where higher electricity prices and renewable portfolio standards offer more attractive returns and better long-term value. Similarly in Brazil, our operations and growth objectives are focused on the southern and mid west portion of the country where over 80% of the population and economic activity is located. Over time, we would also pursue new markets that offer attractive opportunities to enhance the geographic diversifications of our operations, the ability to add operating platforms that we can grow over time and offer attractive risk-adjusted returns. We have access to Brookfield’s infrastructure investment platforms in Europe and Australasia, giving us the capability to secure transactions globally.

 

   

Maintaining our predominantly hydroelectric focus. We intend to maintain our predominantly hydroelectric focus as we believe hydroelectric assets are the longest-life, lowest cost, power generation assets. We believe that investing in the highest quality assets within a particular asset class offers an investment that typically can maintain a premium valuation and funds from operations performance throughout market cycles, and is better positioned to appreciate in value over time. We believe hydroelectric assets are the most attractive segment of the power generation infrastructure asset class as they benefit from high barriers to entry and a sustainable competitive cost advantage. In addition, wind power is a proven technology and one of the fastest growing renewable power segments globally. Also, we plan to grow our wind platform by continuing to focus on high-quality sites that benefit from a proven wind resource and are located in high-value markets where wind has significant scarcity value. Over time, we may invest in other proven renewable power technologies that share the long-life and low-cost attributes of our hydroelectric and wind assets.

 

   

Optimizing capital allocation to “build or buy” opportunities. We intend to grow our business by pursuing the acquisition of both operating and development-stage assets, or by developing and building projects from our own

 

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development project portfolio. Market conditions in some cases lead to periods where operating assets are valued at significant premiums or discounts to their replacement cost or long-term fundamental value. Similarly, renewable power policy may at certain times be particularly conducive to new developments, leading to opportunities to earn superior risk-adjusted returns by developing and building greenfield projects. For this reason, we believe a sound investment and capital allocation strategy continuously compares acquisition or “buy” investment opportunities with similar development-stage or “build” opportunities, whether sourced from our own development pipeline or through the acquisition of development-stage projects. We plan to allocate capital to the best acquisition and development opportunities sourced through our global renewable power platform and believe our ability to do so globally is one of our competitive advantages in creating value for our LP Unitholders. While we intend to pursue development projects, we expect that our development-stage capital commitments will be a relatively small portion of our cash flows and invested capital as our predominant focus will be on sites with significant competitive advantage in high-value markets that we would build once the project is ‘construction-ready’ and that benefit from sound commercial arrangements that limit construction risk and secures long-term stable cash flows.

Our Distribution Policy

We believe our high-quality assets and PPA portfolio will provide Brookfield Renewable with stable and predictable annual cash flow to fund our distributions. See Item 5.A “Operating Results — Summary of Historical Quarterly Results on a Consolidated Basis” for the quarterly distributions made by the Fund prior to the Combination. Distributions paid by the Fund from January 1, 2008 to completion of the Combination on November 28, 2011 were C$1.25 per trust unit in 2009, C$1.29 per trust unit in 2010, and C$0.975 per trust unit in 2011. In 2011, the Fund made distributions only in respect of the first three quarters as the Fund was wound up on November 28, 2011.

In December 2011, Brookfield Renewable declared its first cash distribution of $0.3375 ($1.35 annually) per LP Unit for the fourth quarter of 2011. The distribution was paid on January 31, 2012 to LP Unitholders of record on December 31, 2011. Brookfield Renewable increased its regular quarterly distribution to $0.345 ($1.38 annually) per LP Unit commencing with the declaration of the first quarter distribution for fiscal 2012. The fourth quarter distribution was paid on January 31, 2013 to LP Unitholders of record on December 31, 2012. Brookfield Renewable also declared first quarter distributions for fiscal 2013 in the amount of $0.3625 ($1.45 annually) per LP Unit with the first increased distribution paid on April 30, 2013 to LP Unitholders of record on March 31, 2013. We intend to continue to operate as a growth-oriented entity with a focus on increasing the amount of cash available for distributions on each LP unit.

The declaration and payment of distributions are subject to the discretion of the board of directors of the Managing General Partner. Distributions will be paid quarterly on the last business day of January, April, July and October of each year, to LP Unitholders of record on the last day of December, March, June and September, respectively. The amount of any distribution payable by us is always at the discretion of the board of directors of the Managing General Partner and will be evaluated periodically, and may be revised subject to business circumstances and expected capital requirements depending on, among other things, our earnings, financial requirements for our operations, growth opportunities, the satisfaction of applicable solvency tests for the declaration and payment of distributions and other conditions existing from time to time (see Item 10.B “Memorandum and Articles of Association – Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP — Distributions”).

Our ability to continue paying or growing cash distributions are impacted by the cash we generate from our operations. The amount of cash we generate from our operations will fluctuate from quarter to quarter and will depend on various factors, several of which are outside our control, including the weather in the jurisdictions in which we operate, the level of certain operating costs and prevailing economic conditions. As a result, cash distributions to the LP Unitholders are not guaranteed. Refer to Item 3.D “Key Information — Risk Factors — Risks Related to our LP Units” for a list of the primary risks, whether at previous levels or higher, that impact our ability to continue paying comparable or growing cash distributions.

We expect to have a payout ratio of approximately 60 to 70% of funds from operations, allowing us to reinvest surplus cash flow in attractive and accretive opportunities in the renewable power sector and position us to grow our distributions per LP Unit over time. Historically, funds from operations was not used as a key financial measure for the Fund. However, prior to the Combination the Fund’s target payout ratio was approximately 80% of distributable cash (funds from operations less levelized capital expenditures and debt amortization). This is substantially equivalent to a 60% to 70% target payout ratio based on funds from operations, which would approximate 80% of distributable cash, as defined above.

We are pursuing a long-term distribution growth rate target in the range of 3% to 5% annually. The 3% to 5% annual growth rate target for distributions compares to a historical annualized distribution growth rate of the Fund of 2.2% per LP Unit from inception in 1999 up to the date of the Combination. The increase from the historical growth rate of the Fund to the current target of 3% to 5% for Brookfield Renewable reflects the expected benefits of the Combination, including a broader set of growth opportunities from new and expanded geographies, significantly greater generating assets and capitalization and enhanced access to capital.

Pursuant to the terms of the Preference Share Guarantees, if the declaration or payment of dividends on the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares, Series 6 Shares is in arrears, Brookfield Renewable will not make distributions on our LP Units.

 

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Our Distribution Reinvestment Plan

In February 2012, Brookfield Renewable adopted a DRIP for LP Unitholders who are residents of Canada. Subject to regulatory approval and U.S. securities law registration requirements, we may in the future expand our DRIP to include LP Unitholders resident in the United States. LP Unitholders who are not residents of Canada or the United States may participate in our DRIP provided that there are not any laws or governmental regulations that prohibit them from participating in our DRIP. The following is a summary description of the principal terms of our DRIP.

Pursuant to our DRIP, Canadian holders of our LP Units are able to elect to have distributions paid on our LP Units held by them automatically reinvested in additional LP Units to be held for the account of the LP Unitholder in accordance with the terms of our DRIP.

Distributions due to DRIP participants will be paid to the plan agent, for the benefit of the DRIP participants. If a DRIP participant has elected to have his or her distributions automatically reinvested, or applied, on behalf of such DRIP participant, to the purchase of additional LP Units, such purchases will be made from Brookfield Renewable on the distribution date at the Market Price.

As soon as reasonably practicable after each distribution payment date, a statement of account will be mailed to each participant setting out the amount of the relevant cash distribution reinvested, the applicable Market Price, the number of LP Units purchased under our DRIP on the distribution payment date and the total number of LP Units, computed to four decimal places, held for the account of the participant under our DRIP (or, in the case of CDS participants, CDS will receive such statement on behalf of beneficial owners participating in our DRIP). While Brookfield Renewable will not issue fractional LP Units, a DRIP participant’s entitlement to LP Units purchased under our DRIP may include a fraction of an LP Unit and such fractional LP Units shall accumulate. A cash adjustment for any fractional LP Units will be paid by the plan agent upon the termination by a DRIP participant of his or her participation in our DRIP or upon termination of our DRIP. A registered holder may, at any time, obtain a Direct Registration System statement (a “ DRS Statement ”) for any number of whole LP Units held for the participant’s account under the DRIP by notifying the plan agent. DRS Statements for LP Units acquired under our DRIP will not be issued to participants unless specifically requested. Prior to pledging, selling or otherwise transferring LP Units held for a participant’s account (except for a sale of LP Units through the plan agent), a registered holder must request a DRS Statement be issued. The automatic reinvestment of distributions under our DRIP will not relieve participants of any income tax obligations applicable to such distributions. No brokerage commissions will be payable in connection with the purchase of our LP Units under our DRIP and all administrative costs will be borne by Brookfield Renewable.

LP Unitholders will be able to terminate their participation in our DRIP by providing, or by causing to be provided, notice to the plan agent. Such notice, if actually received by the plan agent no later than five business days prior to a record date, will have effect in respect of the distribution to be made as of such date. Thereafter, distributions to such LP Unitholders will be paid directly to the LP Unitholder. In addition, LP Unitholders may request that all or part of their LP Units held under the DRIP in cash be sold. When LP Units are sold through the plan agent, a holder will receive the proceeds less any handling charges and brokerage trading fees. Brookfield Renewable will be able to terminate our DRIP, in its sole discretion, upon notice to the DRIP participants and the plan agent, but such action will have no retroactive effect that would prejudice a participant’s interest. Brookfield Renewable will also be able to amend, modify or suspend our DRIP at any time in its sole discretion, provided that the plan agent gives written notice of that amendment, modification or suspension to our LP Unitholders, for any amendment, modification or suspension to our DRIP that in Brookfield Renewable’s opinion may materially prejudice participants.

BRELP has a corresponding distribution reinvestment plan in respect of distributions made to Brookfield Renewable and Brookfield. Brookfield Renewable does not intend to reinvest distributions it receives from BRELP in BRELP’s distribution reinvestment plan except to the extent that holders of our LP Units elect to reinvest distributions pursuant to our DRIP. Brookfield has advised Brookfield Renewable that it may from time-to-time reinvest distributions it receives from Brookfield Renewable or BRELP pursuant to our DRIP or BRELP’s distribution reinvestment plan. The limited partnership units of BRELP to be issued to Brookfield under the distribution reinvestment plan will become subject to the Redemption-Exchange Mechanism and may therefore result in Brookfield acquiring additional LP Units of Brookfield Renewable. See Item 10.B “Memorandum and Articles of Association – Description of the Amended and Restated Limited Partnership Agreement of BRELP — Redemption–Exchange Mechanism”.

BRP Equity

BRP Equity will pay dividends to the holders of its Series 1 Shares, Series 3 Shares, Series 5 Shares and Series 6 Shares and, if applicable, Series 2 Shares and Series 4 Shares, as and when declared by the board of directors of BRP Equity. BRP Equity’s Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares are guaranteed by Brookfield Renewable and the other Guarantors under the Preference Share Guarantees described under Item 10.B “Memorandum and Articles of Association – BRP Equity — Class B Preference Shares — Preference Share Guarantees”.

For the initial five-year period commencing on March 10, 2010 and ending on and including April 30, 2015, the holders of Series 1 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of

 

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BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.3125 per share. The initial dividend of C$0.1834 per share was paid on April 30, 2010 and a total dividend of C$0.83965 per share was paid in 2010. A total dividend of C$1.3125 per share was paid in 2011 and 2012. BRP Equity paid a dividend of C$0.3281 per share on January 31, 2013.

For the initial seven-year period commencing on October 11, 2012 and ending on and including July 31, 2019, the holders of Series 3 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.10 per share. The initial dividend of C$0.3375 per share was paid on January 31, 2013.

The holders of Series 5 Shares and Series 6 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.25 per share. The initial dividend on the Series 5 Shares of C$0.3116 per share was declared by the board of directors of BRP Equity on February 6, 2013 and was paid to holders of the Series 5 Shares on April 30, 2013. The initial dividend on the Series 6 Shares of C$0.3116 per share was declared by the board of directors of BRP Equity on May 7, 2013 and will be paid to holders of the Series 6 Shares on July 31, 2013.

The Manager

Brookfield Asset Management

Brookfield Asset Management is a global alternative asset manager with more than $175 billion in assets under management. It has over a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. It has a range of public and private investment products and services, which leverage its expertise and experience and provide it with a distinct competitive advantage in the markets where it operates. Brookfield Asset Management is listed on the NYSE, TSX and NYSE Euronext under the symbol “BAM”, “BAM.A” and “BAMA”, respectively.

Brookfield was the manager and administrator of the Fund since its inception in 1999 and we continue to benefit from its global asset management platform and depth of experience in creating LP Unitholder value. In addition, Brookfield Renewable continues to benefit from the same management team at Brookfield who created and drove the success of the Fund. We are Brookfield’s primary vehicle through which it will acquire renewable power assets on a global basis and we benefit from its reputation and global platform to grow our business.

The Manager complements our operating platforms in three key areas:

 

   

Executive oversight of our business : The Manager provides leadership to our operating platforms and oversees the implementation of our annual and long-term operating plans, capital expenditure plans, and our power marketing plans to ensure compliance with our performance-based operating objectives and applicable laws. The Manager also oversees the implementation of our operational policies, and our management, accounting, regulatory reporting, legal and treasury functions.

 

   

Growing our business: We also benefit from the strategic advice, transaction origination capabilities and corporate development services of the Manager to grow our business. Brookfield Renewable benefits from the Manager’s renewable power acquisition experience focused in our target markets as well as market research capabilities that support evaluating opportunities to grow our business in our existing and new power markets.

 

   

Funding our business: The Manager recommends and oversees the implementation of funding strategies for our existing business and in connection with our acquisitions or developments. In doing so, the Manager advises upon and assists in the execution of our equity or debt financings. The Manager also arranges for the preparation of our tax planning and filing of tax returns.

Energy Marketing

Pursuant to a number of agreements, BEM LP is responsible for selling and dispatching all energy and energy related products generated by our assets in Canada and the United States. In addition, BEM LP acts as counterparty to various agreements with us pursuant to which BEM LP purchases, supports or guarantees the price that we receive for power generation.

With approximately 116 employees and 24 hours/day, 365 days/year operations, BEM LP performs transaction execution, risk management, settlement, information technology, regulatory, legal and human resource functions. These groups provide valuable market intelligence regarding pricing dynamics, regulatory regimes and market participants, which serve to support Brookfield Renewable’s strategy. In 2012, BEM LP was responsible for the sale and dispatch of over 14,000 GWh of generation in Canada and the United States.

BEM LP and CanHoldco entered into the Energy Marketing Agreement pursuant to which BEM LP provides energy marketing services to CanHoldco. See Item 7.B “Related Party Transactions — Energy Marketing Agreement”.

Competition and Marketing

We operate in the North American and Brazilian power market sectors. The nature and extent of competition we face varies from jurisdiction to jurisdiction. Brookfield Renewable Group’s main competition in its electricity markets are coal, nuclear, oil and natural gas electricity generators as well as other renewable energy suppliers who use hydro, wind, geothermal and photovoltaic technologies. The market price of commodities, such as natural gas and coal, are important drivers of energy pricing and competition in most energy markets, especially in North America.

Our marketing efforts focus on leveraging our competitive advantages described in Item 4.B “Business Overview — Our Competitive Strengths” and our world class operating platforms described in Item 4.B “Business Overview — Operating Philosophy”.

 

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We also leverage our relationship with Brookfield, which we believe provides a unique competitive advantage considering Brookfield’s strong reputation in the energy marketing, asset management, infrastructure and global real estate industries. See Item 5.A. “Operating and Financial Review and Prospects — The Manager — Energy Marketing” and Item 7.B “Major Shareholders and Related Party Transactions — Related Party Transactions — Licensing Agreement”.

Employees

Brookfield Renewable does not currently have any senior executives who carry out management, oversight and other strategic activities. The personnel that carry out these activities are employees of Brookfield, and their services are provided to Brookfield Renewable or for our benefit under our Master Services Agreement. For a discussion of the individuals from Brookfield’s management team that are expected to be involved in our business, see Item 6.A. “Directors, Senior Management and Employees — Directors and Senior Management — Our Management” and for a discussion of our employees see Item 6.D “Employees”.

Intellectual Property

Brookfield Renewable, as licensee, entered into the Licensing Agreement with Brookfield pursuant to which Brookfield granted us a non-exclusive, royalty-free license to use the name “Brookfield” and the Brookfield logo in the United States and Canada. Other than under this limited license, we do not have a legal right to the “Brookfield” name and the Brookfield logo. Brookfield may terminate the Licensing Agreement immediately upon termination of our Master Services Agreement and it may be terminated in the circumstances described under Item 7.B “Major Shareholders and Related Party Transactions — Related Party Transactions — Licensing Agreement”.

Governmental, Legal and Arbitration Proceedings

We have not been and are not currently subject to any material governmental, legal or arbitration proceedings which may have or have had a significant impact on our financial position or profitability nor are we aware of any such proceedings that are pending or threatened.

We are occasionally named as a party in various claims and legal proceedings which arise during the normal course of our business. We review each of these claims, including the nature of the claim, the amount in dispute or claimed and the availability of insurance coverage. Although there can be no assurance as to the resolution of any particular claim, we do not believe that the outcome of any claims or potential claims of which we are currently aware will have a material adverse effect on us.

Regulation

Various activities of Brookfield Renewable Group require registrations, permits, licenses, inspections and approvals from governmental agencies and regulatory authorities and we strive to comply with all regulations applicable to our operations. Water rights are generally owned or controlled by governments that reserve the right to control water levels or may impose water-use requirements. We hold concessions, licenses and permits to operate our facilities, which generally include rights to the land and water required for power generation. Wholesale market structures or rules provide us with rights to access the power grid.

We are also subject to various laws relating to health, safety, security and environmental matters. These laws and regulations may change and we may become subject to more stringent laws and regulations in the future. Compliance with more stringent laws and regulations could have an adverse effect on our business, financial condition or results of operations. We have established policies and procedures for environmental management and compliance, and we have incurred and will continue to incur significant capital and operating expenditures to comply with health, safety, security and environmental laws and to obtain and comply with licenses, permits and other approvals and to assess and manage potential liability exposure.

Environmental Protection

We are an owner and operator of a diversified portfolio of high quality assets that produce electricity from renewable resources. Our assets are predominantly hydroelectric and represent one of the most environmentally preferred forms of power generation. We may benefit from future environmental regulations under consideration to encourage the use of clean energy technologies and regulate emissions of greenhouse gases to address climate change.

Our goal is to be responsible stewards of our resources, and good citizens in all that we do. We have adopted written environmental policies that include frameworks for oversight, compliance, compliance audits and sharing best practices both within our operations and the global Brookfield group. We require all employees, contractors, agents and others involved in our operations to comply with our established environmental practices. We seek to have transparent and well-established relationships with local stakeholder groups and the communities in which we operate, which we believe is a key element of successfully operating and developing renewable power facilities. We consult and work proactively with local stakeholders and communities potentially affected by our operations.

We are an active contributor in the communities where we conduct business. We are proud of the commitment we have made to corporate social responsibility. The initiatives we undertake and the investments we make in building our business are guided by our core set of values around sustainable development, as we create a culture and organization that can be successful today and in the future.

 

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  4.C

ORGANIZATIONAL STRUCTURE

Organizational Chart

The simplified chart below presents a summary of our ownership and organizational structure. Please note that on this chart all interests are 100% unless otherwise indicated and “GP Interest” denotes a general partnership interest and “LP Interest” denotes a limited partnership interest. Our sole material asset is a 50.1% LP Interest in BRELP. Brookfield indirectly holds the remaining 48.9% LP Interest in BRELP, a 30.1% LP Interest in Brookfield Renewable and a 0.01% and 1% GP Interest in Brookfield Renewable and BRELP, respectively, for an aggregate 65% indirect ownership interest in Brookfield Renewable (on a fully-exchanged basis). For more details on the exchange mechanism see Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP — Redemption-Exchange Mechanism”. Brookfield’s indirect 1% GP Interest in BRELP entitles it to receive incentive distributions linked to the growth of BRELP’s distributions. This simplified chart should be read in conjunction with the explanation of our ownership and organizational structure below and the information included under Item 6.A “Directors and Senior Management” and Item 7. “Major Shareholders and Related Party Transactions”.

 

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LOGO

 

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Brookfield Renewable Energy Partners L.P.

Brookfield Renewable is a Bermuda exempted limited partnership that was established on June 27, 2011 under the provisions of the Exempted Partnerships Act 1992 of Bermuda and the Limited Partnership Act 1883 of Bermuda. Our registered and head office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda, and the telephone number is +1.441.295.1443. Brookfield Renewable’s sole material asset is a 50.1% limited partnership interest in BRELP. Brookfield Renewable anticipates that the only distributions that it will receive in respect of its limited partnership interests in BRELP will consist of amounts that are intended to assist it in making distributions to LP Unitholders in accordance with its distribution policy and to allow it to pay expenses as they become due. The declaration and payment of cash distributions by Brookfield Renewable is at the discretion of the Managing General Partner which is not required to make such distributions and Brookfield Renewable cannot assure you that it will make such distributions as intended. See Item 4.B “Business Overview — Our Distribution Policy”.

The Manager and Brookfield

The Service Recipients have engaged the Manager, an affiliate of Brookfield, to provide management and administration services pursuant to our Master Services Agreement. See Item 4.B “Business Overview — The Manager” and Item 6.A “Directors and Senior Management — Our Master Services Agreement” for more information on Brookfield and these arrangements.

The Managing General Partner

The Managing General Partner serves as Brookfield Renewable’s general partner and has sole authority for the management and control of Brookfield Renewable, which is exercised exclusively by its board of directors. Brookfield Renewable’s only interest in BRELP consists of limited partnership interests in BRELP, which by law do not entitle the holders thereof to participate in partnership decisions. Pursuant to the Voting Agreement, however, Brookfield Renewable, through the Managing General Partner, has a number of voting rights, including the right to direct all eligible votes in the election of the directors of the BRELP General Partner. See Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP” and Item 7.B “Related Party Transactions — Voting Agreement”.

BRELP and the Holding Entities

Brookfield Renewable indirectly holds its interests in the Operating Entities through BRELP and through CanHoldco, Bermuda Holdco and the Holding Entities. BRELP owns all of the common shares of the Holding Entities. Brookfield has provided an aggregate of $5 million of working capital to Bermuda Holdco through a subscription for shares of Bermuda Holdco. These shares are entitled to receive a cumulative preferential dividend equal to 6% of their redemption value as and when declared by the board of directors of Bermuda Holdco and will be redeemable at the option of Bermuda Holdco, subject to certain limitations, at any time after the tenth anniversary of their issuance. The shares are not entitled to vote, except as required by law.

BRELP GP LP and the BRELP General Partner

The BRELP GP LP serves as the general partner of BRELP and has sole authority for the management and control of BRELP. The general partner of BRELP GP LP is the BRELP General Partner, a corporation owned indirectly by Brookfield but controlled by Brookfield Renewable, through the Managing General Partner, pursuant to the Voting Agreement. See Item 7.B “Related Party Transactions — Voting Agreement”. BRELP GP LP is entitled to receive incentive distributions from BRELP as a result of its ownership of the general partnership interests of BRELP. See Item 7.B “Related Party Transactions — Incentive Distributions”.

See also the information contained in this Form 20-F under Item 3.D “Risk Factors — Risks Related to Brookfield Renewable” and Item 3.D “Risk Factors — Risks Related to our Relationship with Brookfield”, Item 6.A “Directors and Senior Management”, Item 7.B “Related Party Transactions” and Item 10.B “Memorandum and Articles of Association—Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP”, Item 10.B “Memorandum and Articles of Association—Description of the Amended and Restated Limited Partnership Agreement of BRELP”, and Item 7.A “Major Shareholders”.

BRP Equity

BRP Equity is an indirect wholly-owned subsidiary of Brookfield Renewable incorporated under the CBCA on February 10, 2010. Other than a receivable from an indirect wholly-owned subsidiary of Brookfield Renewable, BRP Equity has no significant assets or liabilities, no subsidiaries and no operations of its own. BRP Equity has C$250 million of Class A Preference Shares, Series 1 (the “ Series 1 Shares ”) outstanding, guaranteed by Brookfield Renewable, BRELP, CanHoldco and Bermuda Holdco (collectively, the “ Guarantors ”). The Series 1 Shares are listed on the TSX under the symbol “BRF.PR.A”. BRP Equity also has C$250 million of Class A Preference Shares, Series 3 (the “ Series 3 Shares ”) outstanding, guaranteed by the Guarantors. The Series 3 Shares are listed on the TSX under the symbol “BRF.PR.C”. BRP Equity also has C$175 million of Class A Preference Shares, Series 5 (the “ Series 5 Shares ”) outstanding, guaranteed by the Guarantors. The Series 5 Shares are listed on the TSX under the symbol “BRF.PR.E”. BRP Equity will also have C$175 million of Class A Preference Shares, Series 6 (the “ Series 6 Shares ”), which will be guaranteed by the Guarantors. The Series 6 Shares will be listed on the TSX under the symbol “BRF.PR.F”. See Item 10.B “Memorandum and Articles of Association — BRP Equity”.

 

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Finco

Finco is an indirect, wholly-owned subsidiary of Brookfield Renewable incorporated under the ABCA on September 14, 2011. Other than approximately C$1.5 billion aggregate principal amount of publicly-issued Finco Bonds and notes receivable from an indirect wholly-owned subsidiary of Brookfield Renewable, Finco has no significant assets or liabilities, no subsidiaries and no operations of its own. The Finco Bonds are guaranteed by Brookfield Renewable and the other Guarantors. See Item 10.B “Memorandum and Articles of Association”.

Inter-Corporate Relationships

The following table provides the name, the percentage of voting securities owned, or controlled or directed, directly or indirectly, by us, and the jurisdiction of incorporation, continuance, formation or organization of our significant subsidiaries.

 

Name of Subsidiary

   Jurisdiction of
Incorporation
  or Organization  
   Percentage of
Voting Securities
  Owned or Controlled  

Alta Wind VIII LLC

   Delaware    100.0% (1)

Bear Swamp Power Company LLC

   Delaware    50.0%

Brookfield BRP Holdings (Canada) Inc.

   Ontario    100.0%

Brookfield Energia Renovável S.A.

   Brazil    100.0%

Brookfield Power US Holding America Co.

   Delaware    100.0%

Brookfield Power Wind Prince LP

   Ontario    100.0%

Brookfield Renewable Energy L.P.

   Bermuda    100.0%

Brookfield Renewable Energy Partners ULC

   Alberta    100.0%

Brookfield Renewable Power Preferred Equity Inc.

   Canada    100.0%

Brookfield Smoky Mountain Hydropower LLC

   Delaware    100.0% (1)

Brookfield White Pine Hydro LLC

   Delaware    100.0%

BRP Bermuda Holdings I Limited

   Bermuda    100.0%

Brookfield BRP Canada Corp.

   Alberta    100.0%

Catalyst Old River Hydroelectric L.P.

   Louisiana    75.0% ( 2 )

Comber Wind Limited Partnership

   Ontario    100.0%

Coram California Development L.P.

   Delaware    100.0% (1)

Erie Boulevard Hydropower L.P.

   New York    100.0%

Gosfield Wind Limited Partnership

   Ontario    100.0%

Granite Reliable Power LLC

   Delaware    89.5% (1)

Great Lakes Hydro America, LLC

   Delaware    100.0%

Great Lakes Power Limited

   Ontario    100.0%

Hawks Nest Hydro LLC

   Delaware    100.0%

Itiquira Energetica S.A.

   Brazil    100.0%

Lake Superior Power Limited Partnership

   Ontario    100.0%

Lièvre Power LP

   Québec    100.0%

Mississagi Power Trust

   Québec    100.0%

Powell River Energy Inc.

   Canada    100.0%

Rumford Falls Hydro LLC

   Delaware    100.0%

Western Wind Energy Corp. 

   British Columbia      93.0% (3)

 

  (1)  

Voting control held through voting agreements with Brookfield.

  (2)  

Non-voting economic interest held through preferred shares and secured notes.

  (3)

Commenced compulsory acquisition process to acquire 100%.

 

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  4.D

PROPERTY, PLANT AND EQUIPMENT

Brookfield Renewable’s registered and head office is 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda. Brookfield Renewable does not directly own any real property and its sole material asset is a 50.1% limited partnership interest in BRELP. See also the information contained in this Form 20-F under Item 3.D “Risk Factors—Risks Related to Our Operations and the Renewable Power Industry” and Item 5. “Operating and Financial Review and Prospects”.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

  5.A

OPERATING RESULTS

Basis of Presentation

Brookfield Renewable Group’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.

The Combination

The Combination does not represent a business combination in accordance with IFRS 3 Business Combinations (“ IFRS 3R ”) as it represents a reorganization of entities under common control of Brookfield Asset Management. Accordingly, the consolidated financial statements of Brookfield Renewable are presented to reflect such continuing control and no adjustments were made to reflect fair values or to recognize any new assets or liabilities, as a result of the Combination. Brookfield Renewable’s consolidated balance sheets, statements of income (loss), and statements of cash flows are presented as if these arrangements had been in place from the time that the operations were originally acquired by Brookfield Asset Management. For periods prior to November 28, 2011, the financial information for Brookfield Renewable represents the combined financial information for the Brookfield Renewable Power Division, a division of Brookfield Asset Management. Transactions entered into as part of the Combination are accounted for effective November 28, 2011.

Voting Agreements with Affiliates

Effective December 2011, Brookfield Renewable entered into voting arrangements with various affiliates of Brookfield Asset Management, whereby Brookfield Renewable gained control of the entities that own certain United States and Brazil renewable power generating operations (the “ Voting Arrangements ”). The Voting Arrangements provide Brookfield Renewable with all of the voting rights to elect the boards of directors of the relevant entities and therefore provides Brookfield Renewable with control. Accordingly, Brookfield Renewable consolidates the accounts of these entities.

The Combination and the Voting Arrangements do not represent business combinations in accordance with IFRS 3R, as all combining businesses are ultimately controlled by Brookfield Asset Management both before and after the transactions were completed. Brookfield Renewable accounts for these reorganizations of entities under common control in a manner similar to a pooling of interest, which requires the presentation of pre-Combination and Voting Arrangement financial information as if the transactions had always been in place. Refer to Note 2(o)(ii) in our audited consolidated financial statements for the year ended December 31, 2012 for our policy on accounting for transactions under common control.

Reconciliations of each of Adjusted EBITDA and funds from operations to net income on a consolidated basis are presented in Item 5.A “Operating and Financial Review and Prospects — Net Income (loss), Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

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

PRESENTATION TO PUBLIC STAKEHOLDERS

Brookfield Renewable’s consolidated equity interests include LP Units held by public unitholders and Redeemable/Exchangeable partnership units in BRELP, a holding subsidiary of Brookfield Renewable, held by Brookfield (“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 after two years from the date of issuance. 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 (loss), per unit or share information, or total consolidated equity. For information on our restatement due to a change in accounting policy, see Note 26 - Restatement in the audited consolidated financial statements of Brookfield included elsewhere in this Form 20-F.

PERFORMANCE MEASUREMENT

We present our key financial metrics based on total results prior to distributions made to both LP Unitholders and the Redeemable/Exchangeable 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) net asset value.

We also present these same measurements for our 2011 results on a pro forma basis (since Brookfield Renewable was only formed in November 2011) as if new contracts and contract amendments, along with the tax implications of the Combination, had each occurred as of January 1, 2011.

It is important to highlight that Adjusted EBITDA, funds from operations, and net asset value 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 net asset value and we provide reconciliations to net income. See Item 5.A “Operating and Financial Review and Prospects — Net Income (loss), Adjusted EBITDA, and Funds from Operations on a Consolidated Basis” and Item 5.A “Operating and Financial Review and Prospects — Reconciliation of Pro Forma Results.”

 

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FINANCIAL REVIEW FOR THE THREE MONTHS ENDED MARCH 31, 2013

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

 

                                           Variance of Results  
   
       Actual Generation      LTA Generation      Actual vs. LTA     

Actual vs.

Prior Year

 
   
GENERATION (GWh)    2013      2012      2013      2012      2013      2012           

Hydroelectric generation

                        
   

United States

     2,561         1,958         2,389         1,883         172         75         603   
   

Canada

     1,282         1,308         1,196         1,158         86         150         (26)   
   

Brazil (1)

     936         867         936         867         -         -         69   
       4,779         4,133         4,521         3,908         258         225         646   

Wind energy

                        
   

United States

     216         90         258         100         (42)         (10)         126   
   

Canada

     323         368         324         324         (1)         44         (45)   
       539         458         582         424         (43)         34         81   

Other

     217         226         222         217         (5)         9         (9)   

Total generation (2)

     5,535         4,817         5,325         4,549         210         268         718   

 

(1)  

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

(2)  

Includes 100% of generation from equity-accounted investments.

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. Accordingly, we present our generation and the corresponding Adjusted EBITDA and funds from operations on both an actual generation and a long-term average basis. See “Adjusted EBITDA and Funds from Operations on a Pro forma Basis”.

Generation levels during the three months ended March 31, 2013 totaled 5,535 GWh, an increase of 718 GWh as compared to the same period of the prior year.

Generation from the hydroelectric portfolio totaled 4,779 GWh, an increase of 646 GWh as compared to the same period of the prior year. The recently acquired portfolios in Tennessee, North Carolina and Maine provided additional generation of 750 GWh compared to prior year.

The variance in year-over-year results from existing facilities reflects generation levels that were above long-term average across many regions in the prior year. Generation from our hydroelectric portfolio in Brazil was positively impacted by facilities acquired and commissioned in the last 12 months.

Generation from the wind portfolio totaled 539 GWh, an increase of 81 GWh, as compared to the same period of the prior year with contributions from facilities acquired or commissioned in California and New England during the last 12 months.

 

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NET INCOME, ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A CONSOLIDATED BASIS

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

 

(MILLIONS, EXCEPT AS NOTED)    2013      2012  

Generation (GWh)

     5,535         4,817   

Revenues

   $ 437       $ 426   

Other income

     2         5   

Share of cash earnings from equity-accounted investments

     6         4   

Direct operating costs

     (126)         (117)   

Adjusted EBITDA (1)

     319         318   

Interest expense - borrowings

     (102)         (110)   

Management service costs

     (12)         (7)   

Current income taxes

     (3)         (6)   

Less: cash portion of non-controlling interests

     (40)         (20)   

Funds from operations (1)

     162         175   

Add: cash portion of non-controlling interests

     40         20   

Other items:

     

Depreciation and amortization

     (128)         (126)   

Unrealized financial instrument gain (loss)

     16         (9)   

Share of non-cash loss from equity-accounted investments

     (2)         (3)   

Deferred income tax recovery

     (1)         (13)   

Other

     (2)         (13)   

 

 

Net income

   $ 85       $ 31   

 

 

Net income (loss) attributable to:

     

Non-controlling interests

     

Preferred equity

   $ 7       $ 3   

Participating non-controlling interests - in operating subsidiaries

     16         (1)   

General partnership interest in a holding subsidiary held by Brookfield

     1         -   

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

     30         14   

Limited partners’ equity

     31         15   

Basic and diluted earnings per LP Unit (2)

   $ 0.23       $ 0.11   

 

(1)  

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

(2)  

Average LP Units outstanding during the period totaled 132.9 million.

Net income (loss) is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income (loss) 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.

 

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As a result, we also measure our financial results based on Adjusted EBITDA, funds from operations and net asset value 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 $437 million for the three months ended March 31, 2013, representing a year-over-year increase of $11 million. Approximately $50 million of the increase in revenues was attributable to generation from facilities acquired or commissioned during the past 12 months. Offsetting the increase was approximately $27 million from generation levels and wind conditions at existing facilities that while in line with the long-term average this quarter, were modestly below the prior year which experienced above average precipitation, particularly in regions with higher priced power purchase agreements.

Direct operating costs totaled $126 million for the three months ended March 31, 2013, representing a year-over-year increase of $9 million. The increase is primarily attributable to facilities acquired or commissioned during the past 12 months, partially offset by cost savings due to appreciation of the U.S. dollar relative to the Brazilian real.

Interest expense totaled $102 million for the three months ended March 31, 2013, representing a year-over-year decrease of $8 million. Interest expense on borrowings reflects the $5.2 billion of non-recourse asset-specific borrowings and $2.0 billion of corporate borrowings and credit facilities. In 2012, we repaid higher yielding subsidiary borrowings and thus lowered borrowing costs by $30 million. Borrowing costs increased by $22 million with the financing related to the growth in our portfolio.

Management service costs reflect a base fee of $20 million annually plus 1.25% of the growth in total capitalization value. The total capitalization value increased from the initial value of $8.1 billion to $10.3 billion at March 31, 2013, primarily due to the increase in the fair market value of LP Units and the issuance of the preferred equity, on an accretive basis.

Funds from operations totaled $162 million for the three months ended March 31, 2013, which while in line with plan, was $13 million lower year-over-year as generation in 2012 exceeded long-term average, particularly at assets with higher priced long-term contracts. Funds from operations were impacted by the increase in non-controlling interests and management service costs and the net interest expense savings.

Depreciation expense for the three months ended March 31, 2013 increased by $12 million due to assets acquired or commissioned within the past 12 months, offset by $10 million decrease in depreciation due to change in estimated service lives of certain assets.

The net income was $85 million for the three months ended March 31, 2013 (2012: $31 million).

 

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SEGMENTED DISCLOSURES

HYDROELECTRIC

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

 

(MILLIONS, EXCEPT AS NOTED)    2013  
       United
States
     Canada      Brazil      Total  

Generation (GWh) – LTA (1)

     2,389         1,196         936         4,521   

Generation (GWh) – actual (1)

     2,561         1,282         936         4,779   

Revenues

   $ 185       $ 94       $ 75       $ 354   

Other income

     -         -         2         2   

Share of cash earnings from equity-accounted investments

     3         1         2         6   

Direct operating costs

     (45)         (17)         (24)         (86)   

Adjusted EBITDA (2)

     143         78         55         276   

Interest expense – borrowings

     (35)         (16)         (7)         (58)   

Current income taxes

     -         -         (4)         (4)   

Cash portion of non-controlling interests

     (26)         -         (2)         (28)   

Funds from operations (2)

   $ 82       $ 62       $ 42       $ 186   

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

(MILLIONS, EXCEPT AS NOTED)    2012  
       United
States
     Canada      Brazil      Total  

Generation (GWh) – LTA (1)

     1,883         1,158         867         3,908   

Generation (GWh) – actual (1)

     1,958         1,308         867         4,133   

Revenues

   $ 164       $ 100       $ 91       $ 355   

Other income

     1         -         4         5   

Share of cash earnings from equity-accounted investments

     3         -         1         4   

Direct operating costs

     (38)         (17)         (28)         (83)   

Adjusted EBITDA (2)

     130         83         68         281   

Interest expense – borrowings

     (34)         (17)         (31)         (82)   

Current income taxes

     (2)         -         (4)         (6)   

Cash portion of non-controlling interests

     (11)         -         (3)         (14)   

Funds from operations (2)

   $ 83       $ 66       $ 30       $ 179   

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

United States

Generation from the U.S. portfolio was 2,561 GWh for the three months ended March 31, 2013 compared to the long-term average of 2,389 GWh and compared to the prior year generation of 1,958 GWh. The increase of 750 GWh from the recently acquired assets located in Tennessee, North Carolina, and in Maine, was partly offset by lower generation from the facilities in New York and Louisiana. In 2012, extremely wet conditions and above average inflows on the Mississippi River, and higher levels of precipitation in the eastern United States, resulted in generation levels being well above long-term average.

 

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Revenues totaled $185 million for the three months ended March 31, 2013 representing a year-over-year increase of $21 million. Approximately $36 million of the increase in revenues is attributable to generation from the facilities acquired in the last 12 months. Offsetting the increase was approximately $15 million resulting from generation returning to long-term average levels in New York and Louisiana. The decrease in generation occurred at facilities where the power purchase agreement prices are higher than our average, thus having a disproportionate impact on financial results.

Funds from operations totaled $82 million for the three months ended March 31, 2013, virtually unchanged from prior year. Funds from operations were impacted by the increase in Adjusted EBITDA net of non-controlling interests.

Canada

Generation from the Canadian portfolio was 1,282 GWh for the three months ended March 31, 2013 compared to the long-term average of 1,196 GWh and compared to prior year generation of 1,308 GWh. Results were above long-term average overall, with strong inflows at our Quebec assets and some regions in Ontario. The decrease in generation from prior year was primarily due to the well above average hydrological conditions with the early arrival of spring conditions across eastern Canada in the prior year.

Revenues totaled $94 million for the three months ended March 31, 2013, representing a year-over-year decrease of $6 million, primarily due to generation levels returning to average conditions in the current quarter.

Funds from operations totaled $62 million for the three months ended March 31, 2013, representing a year-over-year decrease of $4 million.

Brazil

Generation from the Brazilian portfolio was 936 GWh for the three months ended March 31, 2013 compared to the prior year generation of 867 GWh. The increase in generation is primarily attributable to one facility acquired and one commissioned during the past 12 months.

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.

Revenues totaled $75 million for the three months ended March 31, 2013, representing a year-over-year decrease of $16 million. Revenues were higher by $3 million with generation from facilities acquired or commission in the last 12 months. Revenues declined with appreciation of the U.S. dollar compared to the Brazilian real by $11 million. In addition, lower allocated energy volumes which allow us to purchase power at cost and re-sell at contracted rates added $8 million to costs, with incremental revenues included in revenues.

Funds from operations totaled $42 million for the three months ended March 31, 2013 representing a year-over-year increase of $12 million. Fund from operations were positively impacted by the $25 million reduction in interest expense from the repayment of subsidiary borrowing during the first quarter of 2012. Partly offsetting the increase in funds from operations was the decrease in revenues.

 

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WIND

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

 

(MILLIONS, EXCEPT FOR AS NOTED)    2013  
       United
States
     Canada      Total  

Generation (GWh) – LTA (1)

             258             324         582   

Generation (GWh) – actual (1)

     216         323         539   

Revenues

   $ 23       $ 40       $ 63   

Direct operating costs

     (9)         (5)         (14)   

Adjusted EBITDA (2)

     14         35         49   

Interest expense – borrowings

     (8)         (14)         (22)   

Cash portion of non-controlling interests

     (5)         -         (5)   

Funds from operations (2)

   $ 1       $ 21       $ 22   

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

(MILLIONS, EXCEPT FOR AS NOTED)    2012  
       United
States
     Canada      Total  

Generation (GWh) – LTA (1)

             100             324         424   

Generation (GWh) – actual (1)

     90         368         458   

Revenues

   $ 7       $ 44       $ 51   

Direct operating costs

     (2)         (5)         (7)   

Adjusted EBITDA (2)

     5         39         44   

Interest expense – borrowings

     -         (10)         (10)   

Cash portion of non-controlling interests

     (3)         -         (3)   

Funds from operations (2)

   $ 2       $ 29       $ 31   

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income, Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

United States

Generation from our U.S. wind portfolio was 216 GWh for the three months ended March 31, 2013 compared to the long-term average of 258 GWh and compared to the prior year generation of 90 GWh. The increase in generation from prior year is primarily attributable to the facilities acquired or commissioned in California and New England during the last 12 months. Generation was below long-term average in the quarter as a result of lower wind conditions.

Revenues totaled $23 million for the three months ended March 31, 2013, representing a year-over-year increase of $16 million. The increase in revenues is attributable to generation from the assets acquired or commissioned.

Funds from operations totaled $1 million for the three months ended March 31, 2013, virtually unchanged from same period in prior year. Funds from operations were positively impacted by the increase in revenues, which was offset by interest expense and direct operating costs associated with the recently acquired assets in California. The prior year result also does not reflect a full quarter of operations for assets acquired or commissioned.

 

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Canada

Generation from our Canadian wind portfolio was 323 GWh for the three months ended March 31, 2013 and in line with the long-term average of 324 GWh, and compared to the prior year generation of 368 GWh. Generation was lower than the prior year due to stronger wind conditions experienced in the first quarter of 2012.

Revenues totaled $40 million for the three months ended March 31, 2013, representing a year-over-year decrease of $4 million. The decrease is primarily attributable to lower generation.

Funds from operations totaled $21 million for the three months ended March 31, 2013, representing a year-over-year decrease of $8 million. The decrease is attributable to the decrease in revenue and increase in interest expense associated with the re-financing of an Ontario wind facility.

ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION

NET ASSET VALUE

The following table presents our net asset value:

 

       Total      Per Share  
(MILLIONS, EXCEPT AS NOTED)    Mar 31
2013
     Dec 31
2012
     Mar 31
2013
     Dec 31
2012
 

Property, plant and equipment, at fair value

           

Hydroelectric (1)

   $ 13,946       $ 13,005       $ 52.58       $ 49.04   

Wind energy

     2,629         2,244         9.91         8.46   

Other

     69         71         0.26         0.27   
     16,644         15,320         62.75         57.77   

Development assets

     338         382         1.27         1.44   

Equity-accounted investments

     326         344         1.23         1.30   

Working capital and other, net

     255         149         0.96         0.56   

Long-term debt and credit facilities

     (7,230)         (6,119)         (27.26)         (23.07)   

Participating non-controlling interests - in operating subsidiaries

     (1,027)         (1,028)         (3.87)         (3.88)   

Preferred equity

     (659)         (500)         (2.48)         (1.89)   

Net asset value (2)

   $ 8,647       $ 8,548       $ 32.60       $ 32.23   

Net asset value attributable to: (3)

           

General partnership interest in a holding subsidiary held by Brookfield

   $ 86       $ 85       $ 32.60       $ 32.23   

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

     4,228         4,179         32.60         32.23   

Limited partners’ equity

     4,333         4,284         32.60         32.23   
     $ 8,647       $ 8,548                     

 

(1)  

Includes $43 million of intangible assets (2012: $44 million).

(2)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

(3)  

Net asset value per share is based on the average LP Units, Redeemable/Exchangeable units and General partnership units outstanding during the period totaling 132.9 million, 129.7 million and 2.6 million respectively.

Net asset value totaled approximately $8.6 billion as at March 31, 2013 or an increase of $99 million from December 31, 2012. During the quarter, over 560 MW of hydroelectric and wind facilities were acquired and consolidated into the operating results. The net asset value was impacted by the additional long-term debt from portfolio growth, the issuance of preferred shares, and by an increase in working capital.

 

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Property, Plant, Equipment and Development Assets

The assets deployed in our renewable power operations are revalued on an annual basis, with the exception of foreign exchange impacts which are calculated quarterly.

We value our assets based on discounted cash flows over a 20-year period and key assumptions utilized in 2012 were as follows:

 

       United
States
     Canada      Brazil  

Discount rate

     5.7%         5.2%         9.4%   

Terminal capitalization rate

     7.0%         6.5%         N/A   

Exit date

     2032         2032         2029   

NET ASSET VALUE FOR HYDROELECTRIC FACILITIES

The following table presents the net asset value of the hydroelectric facilities:

 

(MILLIONS)    United
States
     Canada      Brazil     

Mar 31

2013

    

Dec 31

2012

 

Hydroelectric power assets (1)

   $ 5,963       $ 5,263       $ 2,720       $ 13,946       $ 13,005   

Development assets

     64         205         21         290         369   

Equity-accounted investments

     202         57         67         326         344   
     6,229         5,525         2,808         14,562         13,718   

Working capital and other, net

     227         65         89         381         286   

Subsidiary borrowings

     (2,227)         (1,203)         (288)         (3,718)         (3,258)   

Participating non-controlling interests - in operating subsidiaries

     (460)         (27)         (250)         (737)         (737)   

Net asset value (2)

   $ 3,769       $ 4,360       $ 2,359       $ 10,488       $ 10,009   

 

(1)  

Includes $43 million of intangible assets (2012: $44 million).

(2)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

The net asset value of hydroelectric facilities was $10.5 billion as at March 31, 2013, an increase of $479 million from December 31, 2012. The increase was primarily attributable to the acquisition of a 360 MW portfolio of hydroelectric facilities in Maine, the acquisition of the 83 MW facility in British Columbia and an increase in working capital. Offsetting these amounts were additional borrowings as a result of our portfolio growth.

 

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NET ASSET VALUE FOR WIND FACILITIES

The following table presents the net asset value of our wind facilities:

 

(MILLIONS)    United
States
     Canada      Mar 31
2013
     Dec 31
2012
 

Wind power assets

   $ 1,251       $ 1,378       $ 2,629       $ 2,244   

Development assets

     24         24         48         13   
     1,275         1,402         2,677         2,257   

Working capital and other, net

     15         (35)         (20)         (55)   

Subsidiary borrowings

     (695)         (780)         (1,475)         (1,089)   

Participating non-controlling interests - in operating subsidiaries

     (282)         (8)         (290)         (291)   

Net asset value (1)

   $ 313       $ 579       $ 892       $ 822   

 

(1)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

The net asset value of wind facilities was $892 million as at March 31, 2013, compared to $822 million as at December 31, 2012. This increase is primarily due to the acquisition of 165 MW of wind assets in California. Offsetting the increases were subsidiary borrowings attributable to the recent acquisitions as well as the re-financing associated with an Ontario wind facility.

SEGMENTED NET ASSET VALUE

The following table provides a breakdown of our consolidated net asset value:

 

(MILLIONS)    Hydroelectric      Wind
energy
    

Corporate

and other

     Mar 31
2013
    

Dec 31

2012

Restated (3)

 

Property, plant and equipment, at fair value (1)

   $ 13,946       $ 2,629       $ 69       $ 16,644       $ 15,320   

Development assets

     290         48         -         338         382   

Equity-accounted investments

     326         -         -         326         344   
       14,562         2,677         69         17,308         16,046   

Working capital and other, net

     381         (20)         (106)         255         149   

Long-term debt and credit facilities

     (3,718)         (1,475)         (2,037)         (7,230)         (6,119)   

Participating non-controlling interests - in operating subsidiaries

     (737)         (290)         -         (1,027)         (1,028)   

Preferred equity

              -         (659)         (659)         (500)   

Net asset value (2)

   $ 10,488       $ 892       $ (2,733)       $ 8,647       $ 8,548   

Deferred income tax liabilities

              (2,395)         (2,349)   

Deferred income tax assets

              94         81   

Depreciation of property, plant and equipment

                                (126)         -   
                                $ 6,220       $ 6,280   

General partnership interest in a holding subsidiary held by Brookfield

            $ 62       $ 63   

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

              3,041         3,070   

Limited partners’ equity

                                3,117         3,147   
                                $ 6,220       $ 6,280   

 

(1)  

Includes $43 million of intangible assets (2012: $44 million).

(2)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

(3)  

See note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

 

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LIQUIDITY AND CAPITAL RESOURCES

We operate with sufficient 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. As part of our financing strategy, we raise the majority of debt in the form of asset-specific, non-recourse borrowings at our subsidiaries. As at March 31, 2013, long-term indebtedness increased from December 31, 2012 as a result of the portfolio growth. The debt to capitalization ratio increased to 41% from 38% at December 31, 2012 primarily due to the increase in subsidiary borrowings and drawings on credit facilities, both to fund the portfolio growth.

Capitalization

The following table summarizes the capitalization using book values:

 

(MILLIONS)    Mar 31
2013
     Dec 31
2012
 

Credit facilities (1)

   $ 570       $ 268   

Corporate borrowings (1)

     1,467         1,504   

Subsidiary borrowings (2)

     5,193         4,347   

Long-term indebtedness

     7,230         6,119   

Preferred equity

     659         500   

Participating non-controlling interests - in operating subsidiaries

     1,027         1,028   

Net asset value (3)

     8,647         8,548   

Total capitalization

   $ 17,563       $ 16,195   

Debt to total capitalization (3)

     41%         38%   

 

(1)  

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

(2)  

Issued by a subsidiary of Brookfield Renewable and secured against its assets. The amounts are not guaranteed.

(3)  

Non-IFRS measures. See “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

During the three months ended March 31, 2013, we completed a number of financings associated with the growth in our portfolio. Highlights include the following:

 

   

Purchased 88% of the $575 million in notes previously outstanding with respect to the acquired hydroelectric portfolio in Maine. The purchase of the tendered notes was partially funded through a non-recourse, 24-month bridge loan of up to $350 million.

 

   

Refinanced indebtedness on a 166 MW Ontario wind facility through a C$450 million loan for a term of 18 years at 5.1%.

 

   

Refinanced indebtedness on a 51 MW Ontario wind facility through a C$130 million loan for a term of 19 years at 5.0%.

 

   

Issued C$175 million of Class A Preference Shares with a fixed, annual, yield of 5%.

 

   

With the acquisition of 93% of the issued and outstanding common shares of Western Wind, subsidiary borrowings increased by $250 million.

Subsequent to quarter end, we issued C$175 million of Class A Preference Shares with a fixed annual yield of 5%.

 

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Available liquidity

Available liquidity is comprised of cash and the unused portion of credit facilities. As at March 31, 2013, we had $407 million of available liquidity (December 31, 2012: $677 million) which provides the flexibility to fund ongoing portfolio growth initiatives and to protect against short-term fluctuations in generation.

The increase in cash and cash equivalents relates primarily to the cash acquired with the portfolio growth and the change in net working capital balances. Draws on the credit facilities relate primarily to the purchase of common shares of Western Wind and project-level notes on the acquired hydroelectric portfolio in Maine. The increase in issued letters of credit is primarily a result of the acquisition of a portfolio of hydroelectric facilities and the refinancing of two Ontario wind facilities.

The following table summarizes the available liquidity:

 

(MILLIONS)    As of the date
of Interim
Report
(2)
     Mar 31
2013
     Dec 31
2012
 

Cash and cash equivalents

   $ 230       $ 227       $ 137   

Credit facilities

        

Authorized credit facilities (1)

     1,190         990         990   

Draws on credit facilities

     (513)         (570)         (268)   

Issued letters of credit

     (227)         (240)         (182)   

Available portion of credit facilities

     450         180         540   

Available liquidity

   $ 680       $ 407       $ 677   

 

(1)  

Includes a $200 million committed unsecured revolving credit facility provided by Brookfield Asset Management that was in place at May 7, 2013.

( 2)  

As at May 10, 2013, the date of our latest Interim Report.

Long-term debt and credit facilities

The following table summarizes our principal repayments and maturities as at March 31, 2013:

 

(MILLIONS)    Balance of 2013      2014      2015      2016      2017      Thereafter      Total  

Principal repayments

                    

Subsidiary borrowings

   $ 155       $ 524       $ 528       $ 270       $ 580       $ 3,172       $ 5,229   

Corporate borrowings

     -         -         -         865         -         1,179         2,044   

Equity-accounted investments

     -         -         35         1         126         8         170   
     $ 155       $ 524       $ 563       $ 1,136       $ 706       $ 4,359       $ 7,443   

Subsidiary borrowings maturing in 2014 include $125 million on a New England hydroelectric facility and $250 million on a recently acquired portfolio of hydroelectric facilities in Tennessee and North Carolina. All 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
2013
  
  
      
 
Dec 31
2012
  
  
      
 
Mar 31
2013
  
  
      
 
Dec 31
2012
  
  

Corporate borrowings

       8.5           8.7           5.3           5.3   

Subsidiary borrowings

       12.6           11.8           6.2           6.4   

Credit facilities

       3.6           3.8           1.5           2.0   

 

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CONTRACT PROFILE

We have a predictable pricing profile driven by both long-term power purchase agreements with a weighted-average remaining duration of 20 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.

As at March 31, 2013, we had contracted 92% of the 2013 generation at an average price of $82 per MWh. The following table sets out contracts over the next five years for generation from existing facilities assuming long-term average hydrology and wind conditions:

 

           
FOR THE YEAR ENDED DECEMBER 31   Balance of 2013      2014      2015      2016      2017  

Generation (GWh)

             

Contracted (1)

             

Hydroelectric (2)

    12,499         15,582         14,201         13,968         13,350   

Wind energy

    1,921         2,490         2,490         2,489         2,489   

Other

    296         134         -         -         -   
    14,716         18,206         16,691         16,457         15,839   

Uncontracted

    1,421         3,350         4,748         4,955         5,573   

Total long-term average

    16,137         21,556         21,439         21,412         21,412   

Long-term average on a proportionate basis (3)

    13,751         17,727         17,598         17,571         17,571   

Contracted generation – as at March 31, 2013

             

% of total generation

    91%         84%         78%         77%         74%   

% of total generation on a proportionate basis (3)

    92%         90%         85%         84%         81%   

Price per MWh

    $        82       $ 83       $ 85       $ 85       $ 84   

 

(1)  

Assets under construction are included when long-term average and pricing details are available and the commercial operations date is established in a definitive construction contract.

(2)  

Long-term average for 2014 to 2017 includes generation from one facility in Canada that is currently under construction with estimated commercial operation date in mid-2014.

(3)  

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

The majority of the long-term power purchase agreements are with investment-grade rated or creditworthy counterparties such as Brookfield Asset Management and its subsidiaries (43%), government-owned utilities or power authorities (24%), industrial power users (27%) and distribution companies (6%), with all percentages as at March 31, 2013.

Over the next three years we have on average approximately 3,157 GWh of energy annually which is uncontracted. All energy can be sold in the wholesale or bilateral market, however we intend to maintain flexibility in re-contracting to position ourselves to achieve the most optimal pricing.

 

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SUMMARY CONSOLIDATED BALANCE SHEETS

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

 

(MILLIONS)    Mar 31
2013
     Dec 31
2012
Restated
( 1 )
 

Property, plant and equipment, at fair value

   $ 16,813       $ 15,658   

Equity-accounted investments

     326         344   

Total assets

     18,268         16,925   

Long-term debt and credit facilities

     7,230         6,119   

Deferred income tax liabilities

     2,395         2,349   

Total liabilities

     10,362         9,117   

Preferred equity

     659         500   

Participating non-controlling interests - in operating subsidiaries

     1,027         1,028   

General partnership interest in a holding subsidiary held by Brookfield

     62         63   

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

     3,041         3,070   

Limited partners’ equity

     3,117         3,147   

Total liabilities and equity

     18,268         16,925   

 

(1)  

Sees note 2(c) to the unaudited consolidated financial statements as at and for the three months ended March 31, 2013 and 2012.

CAPITAL EXPENDITURES

Total sustaining capital expenditures are in line with the long-term plan for 2013 and are expected to be between $50 million to $70 million annually.

Project costs on the 45 MW hydroelectric project in British Columbia are expected to be $200 million.

GUARANTEES

Brookfield Renewable, on behalf of its subsidiaries, and subsidiaries of Brookfield Renewable 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, 2013 letters of credit issued by subsidiaries of Brookfield Renewable amounted to $91 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 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.

 

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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 8 — Related Party Transactions in our December 31, 2012 audited consolidated financial statements.

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

 

(MILLIONS)    2013      2012  

Revenues

     

Purchase and revenue support agreements

   $ 103       $ 139   

Wind levelization agreement

     1         (2)   
     $ 104       $ 137   

Direct operating costs

     

Energy purchases

   $ (10)       $ (17)   

Energy marketing fee

     (5)         (5)   

Insurance services

     (6)         (4)   
     $ (21)       $ (26)   

Management service costs

   $ (12)       $ (7)   

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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

 

(MILLIONS)    2013      2012  

Cash flow provided by (used in):

     

Operating activities

   $   201       $   204   

Financing activities

     155         (66)   

Investing activities

     (266)         (167)   

Foreign exchange (loss) gain on cash held in foreign currencies

     -         7   

Increase in cash and cash equivalents

   $     90       $   (22)   

Cash and cash equivalents as at March 31, 2013 totaled $227 million, representing an increase of $90 million since December 31, 2012.

Operating Activities

Cash flows provided by operating activities totaled $201 million for three months ended March 31, 2013, resulting in a year-over-year decrease of $3 million.

Financing Activities

Cash flows provided by financing activities totaled $155 million for the three months ended March 31, 2013. Long-term debt and credit facilities increased by $1.1 billion as a result of subsidiary re-financings at two Ontario wind facilities and with portfolio growth. Repayments related to subsidiary borrowings were approximately $1.0 billion. The capital provided by participating non-controlling interests also relates to the growth of the business, and the capital provided by preferred equity is from the issuance of C$175 million Class A Preference Shares.

For the three months ended March 31, 2013 cash distributions to shareholders and preferred shareholders were $91 million and $7 million, respectively (2012: $90 million and $3 million, respectively). The remaining $62 million in distributions was related to participating non-controlling interests - in operating subsidiaries (2012: $nil).

Investing Activities

Cash flows used in investing activities for the three months ended March 31, 2013 totaled $266 million. Our investments were with respect to the acquisition of hydroelectric facilities in Maine, a wind portfolio in California, and the acquisition of the 83 MW hydroelectric facility in British Columbia that when combined totaled $228 million. In addition, our continued investment in sustainable capital expenditures totaled $8 million and construction of renewable power generating assets amounted to $27 million.

NON-CONTROLLING INTERESTS

Preferred equity

In January 2013, we issued C$175 million of Class A Series 5 preference shares with fixed, annual, cumulative dividends yielding 5%. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

For three months ended March 31, 2013, dividends declared on all classes and series of preference shares were $7 million (2012: $3 million).

As at March 31, 2013, no preference shares have been redeemed.

 

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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. During the three months ended March 31, 2013, no incentive distributions have been paid.

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 after a mandatory two-year holding period from the date of issuance. 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.

For the three months ended March 31, 2013, BRELP declared distributions on Redeemable/Exchangeable partnership unit to Brookfield Asset Management of $47 million (2012: $44 million).

As at March 31, 2013, Redeemable/Exchangeable partnership units outstanding were 129,658,623.

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 at an offering price of C$31.00 per LP Unit. 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. The fully-exchanged amounts assume the exchange of LP Units for the participating non-controlling interests in BRELP, which may or may not occur since Brookfield can elect to continue to hold its direct interest in BRELP through Redeemable/Exchangeable partnership units rather than exchanging this interest for LP Units.

Brookfield Renewable maintains a distribution reinvestment plan, which allows holders of LP Units who are resident in Canada to acquire additional LP Units by reinvesting all or a portion of their cash distributions without paying commissions. The LP Units increased by 17,703 for the three months ended March 31, 2013.

As at March 31, 2013, the total amount of LP Units outstanding was 132,919,619.

Distributions

For the three months ended March 31, 2013, Brookfield Renewable declared distributions on its LP Units of $48 million or $0.3625 per LP Unit (2012: $45 million or $0.345 per LP Unit), consisting of $14 million (2012: $16 million) payable to Brookfield Asset Management and $34 million (2012: $29 million) payable to external unitholders.

 

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In March 2013, unitholder distributions were increased to $1.45 per unit from $1.38 per unit, on an annualized basis.

CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The consolidated annual 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 audited consolidated financial statements for the year ended December 31, 2012 are considered critical accounting estimates as defined in regulation 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 in Mississagi Power Trust and Great Lakes Power Limited. 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 analysis of business and environmental risks section of the 2012 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, 2015. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.

ADOPTION OF ACCOUNTING STANDARDS

The following new accounting standards were applied or adopted by Brookfield Renewable during the quarter and overall had no material impact on the interim 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 the audited consolidated financial statements for the year ended December 31, 2012.

 

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IAS 1, Presentation of Items of Other Comprehensive Income – Amendments to IAS 1,

   

IFRS 10, Consolidated Financial Statements,

   

IFRS 11, Joint Arrangements , and IAS 28, Investment in Associates and Joint Ventures,

   

IFRS 12, Disclosure of Interests in Other Entities,

   

IFRS 13, Fair Value Measurement,

   

IAS 19, Employee Benefits (Revised 2011) (IAS 19R), and

   

IAS 34, Interim financial reporting and segment information for total assets and liabilities

SUMMARY OF HISTORICAL QUARTERLY RESULTS ON A CONSOLIDATED BASIS

The following is a summary of unaudited quarterly financial information:

 

         
       2013      2012      2011 (1)      2010  
     
(MILLIONS, EXCEPT AS NOTED)    Q1      Q4      Q3      Q2      Q1      Q4      Q3      Q2      Q1      Q4      Q3      Q2      Q1  

Generation (GWh) (2)

     5,535         4,053         2,971         4,101         4,817         3,848         3,614         4,491         3,924         4,002         2,890         3,407         4,181   

Revenues

   $ 437       $ 317       $ 229       $ 337       $ 426       $ 267       $ 280       $ 329       $ 293       $ 281       $ 222       $ 244       $ 298   

Adjusted EBITDA (3)

     319         195         118         221         318         154         197         238         215         201         166         174         210   

Funds from operations (3)

     162         74         11         87         175         34         79         116         103         68         39         73         89   

Net (loss) income:

                                            

Preferred equity

     7         6         4         3         3         3         3         4         3         3         3         3         1   

Participating non-controlling interests - in operating subsidiaries

     16         (14)         (11)         (14)         (1)         1         7         9         (6)         3         8         8         6   

General partnership interest in a holding subsidiary held by Brookfield

     1         (1)         -         -         -         (1)         (3)         -         (1)         4         (1)         (1)         -   

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

     30         (27)         (26)         4         14         (44)         (123)         (21)         (44)         202         (27)         (27)         (22)   

Limited partners’ equity

     31         (28)         (26)         4         15         (45)         (126)         (22)         (45)         208         (27)         (27)         (23)   
       85         (64)         (59)         (3)         31         (86)         (242)         (30)         (93)         420         (44)         (44)         (38)   
     

Basic and diluted earnings (loss) income per LP Unit (4)

     0.23         (0.20)         (0.20)         0.03         0.11         (0.33)         (0.95)         (0.17)         (0.34)         1.56         (0.21)         (0.21)         (0.17)   

Distributions:

                                            

Preferred equity

     7         6         3         4         3         3         3         4         3         3         3         3         1   

General partnership interest in a holding subsidiary held by Brookfield

     1         1         1         1         1         1         -         -         -         -         -         -         -   

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

     47         45         45         45         44         43         -         -         -         -         -         -         -   

Limited partners’ equity

     48         45         46         47         45         45         -         -         -         -         -         -         -   

 

(1)  

Comparative quarterly consolidated financial information for the year ended December 31, 2011 was revised to reflect adjustments, primarily related to deferred income tax and foreign currency translation, which were identified through the completion of the Combination. The adjustments do not impact the comparative annual consolidated financial information for the year ended December 31, 2011.

(2)  

Actual generation includes 100% of generation from equity-accounted investments.

(3)  

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

(4)  

Average LP Units outstanding during 2013 and 2012 totaled 132.9 million (2010 and 2011: 132.8 million).

ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A PRO FORMA BASIS

Revenues on a pro forma basis are computed by using long-term average for each facility, and multiplied by the pricing in the respective power purchase agreements, where applicable. The majority of direct operating costs are fixed, regardless of changes in generation levels or revenue, except for certain items such as water royalty fees which are charged based on generation or revenues and will vary from time to time. The following table reflects Adjusted EBITDA and funds from operations, assuming long-term average, for the three months ended March 31:

 

(MILLIONS, EXCEPT AS NOTED)    2013     2012  

Generation (GWh)

     5,325        4,549   

Revenues

   $ 429      $ 398   

Other income

     2        5   

Share of cash earnings from equity-accounted investments

     6        4   

Direct operating costs

     (126     (114

Adjusted EBITDA (1)

     311        293   

Interest expense - borrowings

     (102     (110

Management service costs

     (12     (7

Current income taxes

     (3     (6

Less: cash portion of non-controlling interests

     (37     (15

Funds from operations (1)

   $ 157      $ 155   

 

  (1)

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

 

 

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FINANCIAL REVIEW FOR THE YEAR ENDED DECEMBER 31, 2012

The following table reflects the actual and long-term average generation for the year ended December 31:

 

                                           Variance of Results  
   
       Actual Generation      LTA Generation      Actual vs. LTA      Actual vs.
Prior Year
 
   
GENERATION (GWh)    2012      2011      2012      2011      2012      2011      2012  

Hydroelectric generation

                        
   

United States

     5,913        7,150        7,205        6,811        (1,292)         339        (1,237)   
   

Canada

     3,953        4,056        4,972        5,061        (1,019)         (1,005)         (103)   
   

Brazil (1)

     3,470        3,307        3,470        3,307        -         -         163  
       13,336        14,513        15,647        15,179        (2,311)         (666)         (1,177)   

Wind energy

                        
   

Canada

     1,090        662        1,197        712        (107)         (50)         428  
   

United States

     619        -         837        -         (218)         -         619  
       1,709        662        2,034        712        (325)         (50)         1,047  

Other

     897        702        521        406        376        296        195  

Total generation (2)

     15,942        15,877        18,202        16,297        (2,260)         (420)         65  

 

(1)  

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

(2)  

Includes 100% of generation from equity-accounted investments.

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. Accordingly, we present our generation and the corresponding Adjusted EBITDA and funds from operations on both an actual generation and a long-term average basis.

Generation levels during the year ended December 31, 2012 totaled 15,942 GWh, an increase of 65 GWh as compared to the same period of the prior year. Lower generation in our North American hydroelectric portfolio was offset by an increase in generation from our wind assets acquired or commissioned in the last 18 months, and higher than planned generation from our co-generation facilities.

Generation from our hydroelectric portfolio totaled 13,336 GWh, a decrease of 1,177 GWh, as a result of lower levels of precipitation and warmer than average temperatures in the northeastern United States and mid-western United States. The variance in our year-over-year results also reflects the above average precipitation and record rainfall levels in 2011 resulting from Hurricane Irene. Generation from our hydroelectric portfolio in Brazil was positively impacted by the full year’s contribution of a facility acquired in mid-2011.

Generation from our wind portfolio totaled 1,709 GWh, an increase of 1,047 GWh, as a result of the contributions from facilities acquired or commissioned in California and New England in early 2012, and the full year’s contribution from an Eastern Canada facility commissioned in 2011. Results were below long-term average as a result of lower wind conditions across the portfolio.

 

 

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NET INCOME (LOSS), ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A CONSOLIDATED BASIS

The following table reflects Adjusted EBITDA, funds from operations, and reconciliation to net income (loss) for the year ended December 31:

 

(MILLIONS, EXCEPT AS NOTED)    2012      2011 (1)  

Generation (GWh)

     15,942        15,877  

Revenues

   $ 1,309      $ 1,169  

Other income

     16        19  

Share of cash earnings from equity-accounted investments

     13        23  

Direct operating costs

     (486)         (407)   

Adjusted EBITDA (2)

     852        804  

Interest expense - borrowings

     (411)         (411)   

Management service costs

     (36)         (1)   

Current income taxes

     (14)         (8)   

Cash portion of non-controlling interests

     (44)         (52)   

Funds from operations (2)

   $ 347      $ 332  

Cash portion of non-controlling interests included in funds from operations

     44        52  

Other items:

     

Depreciation and amortization (3)

     (483)         (468)   

Unrealized financial instrument gain (loss)

     (23)         (20)   

Loss on Fund unit liability

     -         (376)   

Share of non-cash earnings from equity-accounted investments

     (18)         (13)   

Deferred income tax recovery

     54        50  

Other

     (16)         (8)   

Net loss

     (95)         (451)   

Net income (loss) attributable to:

     

Preferred equity

     16        13  

Participating non-controlling interests - in operating subsidiaries

     (40)         11  

General partnership interest in a holding subsidiary held by Brookfield

     (1)         (5)   

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

     (35)         (232)   

Limited partners’ equity

     (35)         (238)   

Basic and diluted loss per LP Unit (4)

     (0.26)         (1.79)   

 

(1)  

For periods prior to November 28, 2011, the financial information for Brookfield Renewable represents the combined financial information for the Brookfield Renewable Power Division, a division of Brookfield Asset Management. Transactions entered into as part of the Combination are accounted for effective November 28, 2011.

(2)  

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

(3)  

See Note 2(e) — Change in accounting estimates in our audited consolidated financial statements concerning changes in estimates related to depreciation expense.

(4)  

Average LP Units outstanding during the period totaled 132.9 million (2011:132.8 million).

Net income (loss) is one important measure of profitability, in particular because it has a standardized meaning under IFRS. The presentation of net income (loss) 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

 

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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 net asset value 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 $1,309 million for the year ended December 31, 2012, representing a year-over-year increase of $140 million. Approximately $126 million of the increase in revenues is attributable to generation from facilities acquired or commissioned in 2012 as well as a full year’s contribution from facilities acquired or commissioned during 2011. A further $132 million of the increase is primarily attributable to the amended power purchase agreement entered into at the time of the Combination. Offsetting the increase was $121 million resulting from reduced generation levels at existing facilities and the appreciation of the U.S. dollar relative to the Brazilian real.

Direct operating costs totaled $486 million for the year ended December 31, 2012, representing a year-over-year increase of $79 million. New facilities acquired or commissioned in the last 18 months added $38 million to operating costs, consistent with our underwriting assumptions. Energy marketing costs not included in the prior year’s Combined statements added $18 million, and fuel purchases in excess of the prior year associated with our co-generation facility in Ontario accounted for $4 million as we took advantage of lower gas prices during the year. Lastly, lower allocated energy volumes in Brazil, which allow us to purchase power at cost and re-sell at our contracted rates, added $16 million to costs. The added revenues are included in revenues above.

Adjusted EBITDA totaled $852 million for the year ended December 31, 2012, representing a year-over-year increase of $48 million. Adjusted EBITDA was impacted by an increase in revenues partially offset by an increase in direct operating costs.

Interest expense totaled $411 million for the year ended year ended December 31, 2012, which was consistent with the prior year. Interest expense on borrowings reflects the cost related to approximately $4.4 billion of non-recourse asset-specific borrowings and $1.8 billion of corporate borrowings and credit facilities. During the year, we proactively took advantage of the low interest rate environment to reduce our cost of capital and increase the duration of borrowings. We issued C$400 million of 10-year term corporate notes and successfully financed subsidiary borrowings related to the growth in our portfolio during the year as well as construction of new assets. As a result, borrowing costs on our portfolio decreased on an annualized basis by approximately $30 million.

Management service costs, which came into effect as part of the Combination in 2011, reflect a base fee of $20 million annually plus 1.25% of the growth in total capitalization value. Our total capitalization value increased from an initial value of $8.1 billion to $10.1 billion as at year ended December 31, 2012. The growth in total capitalization value during 2012 was primarily due to the increase in fair market value of LP Units, and the issuance of corporate debt and preferred equity, on an accretive basis.

Funds from operations totaled $347 million for the year ended December 31, 2012, an increase of $15 million year-over-year. Funds from operations were impacted by the increase in Adjusted EBITDA net of non-controlling interests and the increase in management service costs.

Throughout the year, analyses were performed on the useful lives of certain components of property, plant and equipment and we have determined that changes in their estimated service lives will more accurately reflect the period over which they provide economic benefits. Brookfield Renewable applied these changes in accounting estimates on a prospective basis effective January 1, 2012, April 1, 2012 or July 1, 2012 based on timing of completion of the review. Depreciation expense for the year ended December 31, 2012 was $112 million lower as a result of the changes in estimates. Assets acquired or commissioned within the past 12 months increased depreciation expense by $86 million.

 

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2011 results also included a revaluation amount on the Fund unit liability. In accordance with IFRS, Fund units held by the public, which have a feature that allows the holder to redeem the units for cash, were presented as a liability and recorded at fair value, with the change in fair value recorded in net income. For the year ended December 31, 2011, the Fund unit price appreciated significantly resulting in a revaluation amount of $376 million. As a result of the Combination, the Fund units were exchanged for limited partnership units and the Fund was dissolved. Thus, for the year ended December 31, 2012, there was no impact from the valuation on the Fund unit liability.

The net loss was $95 million for the year ended December 31, 2012 (2011: $451 million). The net loss reflects the normal course depreciation and amortization expense of $483 million (2011: $468 million).

SEGMENTED DISCLOSURES

HYDROELECTRIC

The following table reflects the results of our hydroelectric operations for the years ended December 31:

 

(MILLIONS, EXCEPT AS NOTED)    2012  
       United
States
     Canada      Brazil      Total  

Generation (GWh) – LTA (1)

     7,205        4,972        3,470        15,647  

Generation (GWh) – actual (1)

     5,913        3,953        3,470        13,336  

Revenues

   $ 438      $ 272      $ 340      $ 1,050  

Other income

     1        4        11        16  

Share of cash earnings from equity-accounted investments

     6        2        5        13  

Direct operating costs

     (151)         (65)         (120)         (336)   

Adjusted EBITDA (2)

     294        213        236        743  

Interest expense – borrowings

     (137)         (65)         (58)         (260)   

Current income taxes

     2        -         (16)         (14)   

Cash portion of non-controlling interests

     (11)         -         (11)         (22)   

Funds from operations (2)

   $ 148      $ 148      $ 151      $ 447  

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income (Loss), Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

 

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(MILLIONS, EXCEPT AS NOTED)    2011  
       United
States
     Canada      Brazil      Total  

Generation (GWh) – LTA (1)

     6,811        5,061        3,307        15,179  

Generation (GWh) – actual (1)

     7,150        4,056        3,307        14,513  

Revenues

   $ 467      $ 237      $ 335      $ 1,039  

Other income

     -         -         19        19  

Share of cash earnings from equity-accounted investments

     13        4        6        23  

Direct operating costs

     (144)         (62)         (91)         (297)   

Adjusted EBITDA (2)

     336        179        269        784  

Interest expense – borrowings

     (149)         (68)         (94)         (311)   

Current income taxes

     2        5        (15)         (8)   

Cash portion of non-controlling interests

     (26)         -         (13)         (39)   

Funds from operations (2)

   $ 163      $ 116      $ 147      $ 426  

 

(1)  

Includes 100% generation from equity-accounted investments.

(2)  

Non-IFRS measures. See “Net Income (Loss), Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

United States

Generation from our U.S. portfolio was 5,913 GWh for the year ended December 31, 2012 compared to the long-term average of 7,205 GWh and compared to the prior year generation of 7,150 GWh. The decrease is attributable to lower inflows and generation given the warmer temperatures and below average rainfall in New York state and in the mid-western United States. The variance in our year-over-year results also reflects the above average precipitation and record rainfall levels in 2011, with Hurricane Irene impacting the mid-western and eastern United States.

Revenues totaled $438 million for the year ended December 31, 2012 representing a year-over-year decrease of $29 million. The decrease in generation affected assets in regions where PPA prices are higher than our average, which had a disproportionate impact on our financial results. The amended PPAs, executed on the date of the Combination partly offset the impact of lower generation.

Funds from operations totaled $148 million for the year ended December 31, 2012, representing a year-over-year decrease of $15 million. Funds from operations were impacted by the decrease in Adjusted EBITDA net of non-controlling interest and lower interest expense from refinancing of certain borrowings.

Canada

Generation from our Canadian portfolio was 3,953 GWh for the year ended December 31, 2012 compared to the long-term average of 4,972 GWh and compared to the prior year generation of 4,056 GWh. The decrease in generation is primarily attributable to lower inflows resulting from drier than usual conditions in Ontario and Québec.

Revenues totaled $272 million for the year ended December 31, 2012, representing a year-over-year increase of $35 million. Although generation had decreased in the period, the amended PPAs, executed on the date of the Combination more than offset the impact of lower generation.

Funds from operations totaled $148 million for the year ended December 31, 2012, representing a year-over-year increase of $32 million. Fund from operations were impacted by the increase in revenues.

 

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Brazil

Generation from our Brazilian portfolio was 3,470 GWh for the year ended December 31, 2012 compared to the prior year generation of 3,307 GWh. Generation was positively impacted by the addition of three hydroelectric facilities acquired or commissioned during the last 18 months.

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.

Revenues totaled $340 million for the year ended December 31, 2012, representing a year-over-year increase of $5 million. The increase in revenues is primarily attributable to generation from the new facilities acquired or commissioned in the last 18 months.

Funds from operations totaled $151 million for the year ended December 31, 2012 representing a year-over-year increase of $4 million.

WIND

The following table reflects the results of our wind operations for the years ended December 31:

 

(MILLIONS, EXCEPT FOR AS NOTED)    United
States
     Canada      2012      2011 (1)  

Generation (GWh) – LTA (2)

             837            1,197            2,034                712  

Generation (GWh) – actual (2)

     619        1,090        1,709        662  

Revenues

   $ 58      $ 131      $ 189      $ 70  

Direct operating costs

     (27)         (18)         (45)         (12)   

Adjusted EBITDA (3)

     31        113        144        58  

Interest expense – borrowings

     (23)         (44)         (67)         (25)   

Cash portion of non-controlling interests

     (6)         -         (6)         -   

Funds from operations (3)

   $ 2      $ 69      $ 71      $ 33  

 

(1)  

Results for 2011 are entirely from Canadian assets.

(2)  

Includes 100% generation from equity-accounted investments.

(3)  

Non-IFRS measures. See “Net Income (Loss), Adjusted EBITDA and Funds from Operations on a Consolidated Basis”.

United States

Generation from our U.S. wind portfolio was 619 GWh for the year ended December 31, 2012 compared to the long-term average of 837 GWh. In 2011, we held no U.S. operating wind assets in our portfolio. In the first quarter of 2012, we acquired or commissioned four facilities in California and the northeastern United States. Results were below long-term average as a result of lower wind conditions.

Funds from operations totaled $2 million for the year ended December 31, 2012. Funds from operations were impacted by the shortfall in revenues resulting from lower generation.

Canada

Generation from our Canadian wind portfolio was 1,090 GWh for the year ended December 31, 2012 compared to the long-term average of 1,197 GWh and to the prior year generation of 662 GWh. The increase in generation from prior year of 396 GWh is primarily attributable to the full year’s contribution from our Ontario facility integrated in the fourth quarter of 2011. Results were below long-term average for the year due to lower wind conditions.

 

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Revenues totaled $131 million for the year ended December 31, 2012, representing a year-over-year increase of $61 million. Approximately $66 million of the increase is attributable to generation from the eastern Canadian facility integrated in the fourth quarter of 2011.

Funds from operations totaled $69 million for the year ended December 31, 2012, representing a year-over-year increase of $36 million. The increase is attributable to the growth of the portfolio.

 

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ANALYSIS OF CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION

NET ASSET VALUE

The following table presents our net asset value as at December 31:

 

       Total      Per Share  
(MILLIONS, EXCEPT AS NOTED)    2012      2011      2012      2011  

Property, plant and equipment, at fair value

           

Hydroelectric (1)

   $ 13,005      $ 12,138      $ 49.04      $ 45.78  

Wind energy

     2,244        1,400        8.46        5.28  

Other

     71        86        0.27        0.32  
     15,320        13,624        57.77        51.38  

Development assets

     382        378        1.44        1.43  

Equity-accounted investments

     344        405        1.30        1.53  

Working capital and other, net

     180        380        0.68        1.43  

Long-term debt and credit facilities

     (6,119)         (5,519)         (23.07)         (20.82)   

Participating non-controlling interests - in operating subsidiaries

     (1,028)         (629)         (3.88)         (2.37)   

Preferred equity

     (500)         (241)         (1.89)         (0.91)   

Net asset value (2)

   $ 8,579      $ 8,398      $ 32.35      $ 31.67  

Net asset value attributable to:

           

General partnership interest in a holding subsidiary held by Brookfield

     85        85        32.35        31.67  

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

     4,194        4,109        32.35        31.67  

Limited partners’ equity

     4,300        4,204        32.35        31.67  
     $ 8,579      $ 8,398                    

 

(1)  

Includes $44 million of intangible assets (2011: $57 million).

(2)  

Non-IFRS measure used by management in assessing the value of Brookfield Renewable’s operations on a consolidated and per unit basis. Net asset value includes the participating non-controlling interests in BRELP held by Brookfield, comprised of the Redeemable/Exchangeable partnership units, because these units have the same economic attributes as LP Units in all respects, except that the Redeemable/Exchangeable partnership units provide Brookfield the right to request that its units be redeemed for cash consideration after two years from the date of issuance. 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. By contrast, non-controlling interests in operating subsidiaries of BRELP are excluded from net asset value because such interests do not have the same economic attributes as LP Units. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

Our net asset value totaled approximately $8.6 billion as at December 31, 2012 which was an increase of $181 million from December 31, 2011. Net asset value increased by $1.3 billion from assets acquired or commissioned in 2012 net of participating non-controlling interests – in operating subsidiaries. Over 600 MW of hydroelectric and wind facilities in our portfolio have been acquired with institutional partners and are consolidated into our operating results. Our net ownership of these facilities is 22% to 25%. Net asset value was impacted by the additional long-term debt from portfolio growth, the issuance of preferred shares, and a decrease in working capital which amounted to $1.1 billion.

 

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NET ASSET VALUE FOR HYDROELECTRIC FACILITIES

The following table presents our net asset value of the hydroelectric facilities as at December 31:

 

(MILLIONS)    United
States
     Canada      Brazil      2012      2011  

Hydroelectric power assets (1)

   $ 5,244      $ 5,191      $ 2,570      $ 13,005      $ 12,138  

Development assets

     55        186        128        369        147  

Equity-accounted investments

     196        81        67        344        325  
     5,495        5,458        2,765        13,718        12,610  

Working capital and other, net

     81        157        79        317        300  

Subsidiary borrowings

     (1,784)         (1,126)         (348)         (3,258)         (3,411)   

Participating non-controlling interests - in operating subsidiaries

     (490)         (36)         (211)         (737)         (459)   

Net asset value (2)

   $ 3,302      $ 4,453      $ 2,285      $ 10,040      $ 9,040  

 

(1)  

Includes intangibles for 2012: $44 million and 2011: $57 million.

(2)  

Non-IFRS measure. See “Segmented Net Assets Value”.

The net asset value of our hydroelectric facilities was $10.0 billion as at December 31, 2012, an increase of $1.0 billion from December 31, 2011. The increase in net asset value was primarily attributable to the acquisition of a 378 MW portfolio of hydroelectric facilities in southern United States net of participating non-controlling interests. The hydroelectric facilities under construction in Brazil and British Columbia also contributed to the increase over the prior year. During the year ended December 31, 2012, we repaid over $350 million in higher-yielding subsidiary borrowings related to our hydroelectric facilities, further increasing the net asset value of our hydroelectric facilities.

NET ASSET VALUE FOR WIND FACILITIES

The following table presents the net asset value of our wind facilities as at December 31:

 

(MILLIONS)    United
States
     Canada      2012      2011  

Wind power assets

   $ 834      $ 1,410      $ 2,244      $ 1,400  

Development assets

     -         13        13        231  

Equity-accounted investments

     -         -         -         80  
     834        1,423        2,257        1,711  

Working capital and other, net

     4        (59)         (55)         (26)   

Subsidiary borrowings

     (460)         (629)         (1,089)         (785)   

Participating non-controlling interests - in operating subsidiaries

     (291)         -         (291)         (170)   

Net asset value (1)

   $ 87      $ 735      $ 822      $ 730  

 

(1)  

Non-IFRS measures. See “Segmented Net Asset Value”.

The net asset value of our wind facilities was $822 million as at December 31, 2012, compared to $730 million as at December 31, 2011. This increase is primarily due to the acquisitions and commissioning of approximately 225 MW of wind facilities in California. The commissioning of a wind facility in northeastern United States also caused the decrease in development assets. Equity-accounted investments declined in 2012 as we acquired the remaining 50% of a California wind facility which is now consolidated. Offsetting the increases from assets acquired and commissioned is the increase in the subsidiary borrowings attributable to these acquisitions.

 

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SEGMENTED NET ASSET VALUE

The following table provides a breakdown of our consolidated net asset value as at December 31:

 

(MILLIONS)    Hydroelectric      Wind
energy
    

Corporate

and other

     2012      2011  

Property, plant and equipment, at fair value (1)

   $ 13,005      $ 2,244      $ 71      $ 15,320      $ 13,624  

Development assets

     369        13        -         382        378  

Equity-accounted investments

     344        -         -         344        405  
       13,718        2,257        71        16,046        14,407  

Working capital and other, net

     317        (55)         (82)         180        380  

Long-term debt and credit facilities

     (3,258)         (1,089)         (1,772)         (6,119)         (5,519)   

Participating non-controlling interests - in operating subsidiaries

     (737)         (291)         -         (1,028)         (629)   

Preferred equity

     -         -         (500)         (500)         (241)   

Net asset value (2)

   $ 10,040      $ 822      $ (2,283)       $ 8,579      $ 8,398  

Net asset value attributable to:

              

General partnership interest in a holding subsidiary held by Brookfield

   $ 100      $ 8      $ (23)       $ 85      $ 85  

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

     4,908        402        (1,116)         4,194        4,109  

Limited partners’ equity

     5,032        412        (1,144)         4,300        4,204  
     10,040        822        (2,283)         8,579        8,398  

Deferred income tax liabilities

     (2,145)         (232)         19        (2,358)         (2,374)   

Deferred income tax assets

     -         4        77        81        306  
     $ 7,895      $ 594      $ (2,187)       $ 6,302      $ 6,330  

General partnership interest in a holding subsidiary held by Brookfield

   $ 79      $ 6      $ (22)       $ 63      $ 64  

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

     3,860        290        (1,069)         3,081        3,097  

Limited partners’ equity

     3,956        298        (1,096)         3,158        3,169  
     $ 7,895      $ 594      $ (2,187)       $ 6,302      $ 6,330  

Net asset value - per share (3) :

              

General partnership interest in a holding subsidiary held by Brookfield

            $ 32.35      $ 31.67  

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

              32.35        31.67  

Limited partners’ equity

                                32.35        31.67  

 

(1)  

Includes $44 million of intangible assets (2011: $57 million).

(2)  

Non-IFRS measures used by management in assessing the value of Brookfield Renewable’s operations on a consolidated and per unit basis. Net asset value includes the participating non-controlling interests in BRELP held by Brookfield, comprised of the Redeemable/Exchangeable partnership units, because these units have the same economic attributes as LP Units in all respects, except that the Redeemable/Exchangeable partnership units provide Brookfield the right to request that its units be redeemed for cash consideration after two years from the date of issuance. 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. By contrast, non-controlling interests in operating subsidiaries of BRELP are excluded from net asset value because such interests do not have the same economic attributes as LP Units. See “Cautionary Statement Regarding Use of Non-IFRS Measures”.

(3)  

Net asset value per share is based on the average LP Units, Redeemable/Exchangeable partnership units and General partnership units outstanding during the period totaling 132.9 million (2011: 132.8 million), 129.7 million and 2.6 million, respectively.

 

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REVALUATION OF 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 31 st 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. The property, plant and equipment assets that are revalued use a discounted cash flow model over a 20-year period and incorporates Brookfield Renewable’s expectations about several inputs, including future inflation rates and discount rates, as well as estimates regarding future electricity prices, anticipated long-term average generation, operating and capital expenditures, including future major maintenance expenditures all over a twenty-year period. Brookfield Renewable valued the property, plant and equipment using inputs, which vary according to the type and geographic location of the asset.

Brookfield Renewable elected to change its accounting policy for the revaluation of property plant and equipment to include development assets effective December 31, 2011. We record development assets at an estimate of fair value based on the value expected on completion, less the costs remaining to complete the project.

Brookfield Renewable’s equity can vary with changing discount and terminal capitalization rates. The table below summarizes the impact of a 50 bps change in discount rates on the fair value of property, plant and equipment.

 

Effect on fair value of property, plant and equipment

 
(BILLIONS)    2012      2011  

50 bps increase in discount rates

   $                 (1.2)       $                 (1.0)   

50 bps decrease in discount rates

   $ 1.4      $ 1.0  

 

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LIQUIDITY AND CAPITAL RESOURCES

We operate with sufficient 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. As part of our financing strategy, we raise the majority of our debt in the form of asset-specific, non-recourse borrowings at our subsidiaries. As at December 31, 2012, long-term indebtedness increased from December 31, 2011 as a result of the growth of our portfolio during the period. Our debt to capitalization ratio was 38% as at December 31, 2012, which is consistent with December 31, 2011.

Capitalization

The following table summarizes our capitalization using book values as at December 31:

 

(MILLIONS)    2012      2011  

Credit facilities (1)

   $ 268      $ 251  

Corporate borrowings (1)

     1,504        1,071  

Subsidiary borrowings (2)

     4,347        4,197  

Long-term indebtedness

     6,119        5,519  

Participating non-controlling interests - in operating subsidiaries

     1,028        629  

Preferred equity

     500        241  

Net asset value (3)

     8,579        8,398  

Total capitalization

   $ 16,226      $ 14,787  

Debt to total capitalization (3)

     38%         37%   

 

(1)  

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

(2)  

Issued by a subsidiary of Brookfield Renewable and secured against its assets. The amounts are not guaranteed.

(3)  

Non-IFRS measures. Refer to “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

During 2012, we completed more than $2.8 billion of financing and capital market activity which has meaningfully lowered our borrowing costs while increasing the overall terms of our maturities. Highlights include the following:

 

   

We increased the size of our revolving credit facilities from $600 million to $990 million, while extending maturities to October 2016.

 

   

We issued C$400 million of 10-year term corporate notes bearing interest at 4.79% per annum. Proceeds of the offering were used to reduce subsidiary borrowings, extend the term on our overall maturity profile and reduce overall cost of capital.

 

   

Subsidiary borrowings increased with assets acquired or commissioned in 2012 and the financing of a new hydroelectric development project.

Participating non-controlling interests – in operating subsidiaries increased as a result of the portfolio growth of our assets, in which we invested alongside our institutional investors.

We issued C$250 million of 4.40% rate-reset Class A preference shares with fixed, annual dividends.

In the first quarter of 2013, we issued an additional C$175 million Class A Preference Shares with a fixed, annual dividends yielding 5%.

Available liquidity

Total liquidity is comprised of cash and the available portion of credit facilities. As at December 31, 2012, we had $677 million of available liquidity (December 31, 2011: $415 million) which provides the flexibility to fund ongoing portfolio growth initiatives and to protect against short-term fluctuations in generation.

 

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For the year ended December 31, 2012, available liquidity increased by $262 million primarily as a result of the $390 million increase in available credit facilities partially offset by a reduction in cash and cash equivalents.

With cash on hand and cash generated by our operations, we have continued to invest in growth initiatives and pay unitholder distributions. Despite generation levels that have been below long-term average in 2012, we have not significantly drawn on credit facilities, demonstrating the financial resilience of the operations and our ability to mitigate the impact that the short-term fluctuations in generation have on funds from operations.

The following table summarizes our available liquidity as at December 31:

 

(MILLIONS)    2012     2011  

Cash and cash equivalents (1)

   $ 137     $ 225  

Credit facilities

    

Authorized credit facilities

     990       601  

Issued letters of credit

     (182     (160

Draws on credit facilities

     (268     (251

Available portion of credit facilities

     540       190  

Available liquidity

   $ 677     $ 415  

 

(1)  

Cash and cash equivalents are net of restricted cash of $157 million (2011: $42 million).

Long-term debt and credit facilities

The following table summarizes our significant contractual obligations as at December 31:

 

(MILLIONS)    2013      2014      2015      2016      2017      Thereafter      Total  

Principal repayments

                    

Subsidiary borrowings

   $ 532      $ 552      $ 124      $ 144      $ 512      $ 2,529      $ 4,393  

Corporate borrowings

     -         -         -         302        -         1,210        1,512  

Equity-accounted investments

     1        1        36        97        126        27        288  
       533        553        160        543        638        3,766        6,193  

Interest payable (1)

                    

Subsidiary borrowings

     203        174        157        152        144        996        1,826  

Corporate borrowings

     81        81        81        81        61        335        720  

Equity-accounted investments

     16        16        15        14        6        13        80  
       300        271        253        247        211        1,344        2,626  

Total

   $ 833      $ 824      $ 413      $ 790      $ 849      $ 5,110      $ 8,819  

 

(1)

Represents aggregate interest payable expected to be paid over the entire term of the obligations, if held to maturity. Variable rate interest payments have been calculated based on current rates.

Subsidiary borrowings of $400 million maturing in December 2013 relate to two Ontario wind assets. Subsidiary borrowings maturing in 2014 include $125 million on a New England hydroelectric facility, and $250 million on a recently acquired portfolio of hydroelectric facilities in Tennessee and North Carolina. All borrowings are expected to be refinanced in the normal course.

 

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The overall maturity profile and average interest rates associated with our borrowings and credit facilities are as follows at December 31:

 

         Average term (years)        Average interest rate (%)  
         2012          2011          2012          2011  

Corporate borrowings

       8.7          9.6          5.3          5.5  

Subsidiary borrowings

    

 

 

 

11.8

 

 

    

 

 

 

10.0

 

 

    

 

 

 

6.4

 

 

    

 

 

 

7.5

 

 

Credit facilities

    

 

 

 

3.8

 

 

    

 

 

 

2.3

 

 

    

 

 

 

2.0

 

 

    

 

 

 

2.8

 

 

 

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CONTRACT PROFILE

We have a predictable pricing profile driven by both long-term PPAs with a weighted-average remaining duration of 18 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.

As at December 31, 2012, we had contracted 98% of the 2013 generation at an average price of $83 per MWh. The following table sets out contracts over the next five years for generation from existing facilities assuming long-term average hydrology and wind conditions:

 

           
FOR THE YEAR ENDED DECEMBER 31    2013      2014      2015      2016      2017  

Generation (GWh)

              

Contracted (1)

              

Hydroelectric (2)

     16,723        15,409        14,064        13,926        13,308  

Wind energy

     2,104        2,104        2,104        2,104        2,104  

Other

     398        134        -         -         -   
     19,225        17,647        16,168        16,030        15,412  

Uncontracted

     295        1,721        3,114        3,252        3,870  

Long-term average

     19,520        19,368        19,282        19,282        19,282  

Contracted generation – as at December 31, 2012

              

% of total generation

     98 %         91 %         84 %         83 %         80 %   

Price per MWh

   $ 83       $ 84       $ 86       $ 86       $ 85  

 

(1)  

Assets under construction are included when long-term average and pricing details are available and the commercial operations date is established in a definitive construction contract.

(2)  

Long-term average for 2013 to 2017 includes generation from one facility in Brazil and one in Canada that are currently under construction with estimated commercial operation dates commencing in early 2013 and mid-2014, respectively.

The majority of the long-term PPAs are with investment-grade rated or creditworthy counterparties such as Brookfield Asset Management and its subsidiaries (43%), government-owned utilities or power authorities (21%), industrial power users (28%) and distribution companies (8%), with all percentages as at December 31, 2012.

Over the next three years we have on average approximately 1,710 GWh of energy annually which is uncontracted. All of this energy can be sold into the current wholesale or bilateral market, however we intend to maintain flexibility in re-contracting to position ourselves to achieve the most optimal pricing.

 

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SUMMARY CONSOLIDATED BALANCE SHEETS

The following table provides a summary of the key line items on the consolidated balance sheets as at December 31:

 

(MILLIONS)    2012      2011  

Property, plant and equipment, at fair value

   $ 15,658      $ 13,945  

Equity-accounted investments

     344        405  

Total assets

     16,925        15,708  

Long-term debt and credit facilities

     6,119        5,519  

Deferred income tax liabilities

     2,358        2,374  

Total liabilities

     9,095        8,508  

Preferred equity

     500        241  

Participating non-controlling interests - in operating subsidiaries

     1,028        629  

General partnership interest in a holding subsidiary held by Brookfield

     63        64  

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

     3,081        3,097  

Limited partners’ equity

     3,158        3,169  

Total liabilities and equity

     16,925        15,708  

CONTRACTUAL OBLIGATIONS

Capital Expenditures

Total sustaining capital expenditures and development and construction of our renewable power generating assets for 2013 are expected to be $67 million and $142 million, respectively.

Commitments

In the fourth quarter of 2012, we announced an agreement to acquire a portfolio of 19 hydroelectric generating stations in Maine for a total enterprise value of $760 million. The transaction is expected to close in the first quarter of 2013. We expect to have institutional partners to co-invest alongside us for up to a 50% interest through a private fund sponsored by Brookfield Asset Management, and will manage and integrate these assets into our North American operating platform. These assets will have an installed capacity of 351 MW and annual generation of 1.6 million MWh.

Project costs on the 45 MW hydroelectric project in British Columbia are expected to total $200 million.

At the balance sheet date, Brookfield Renewable had commitments for future minimum lease payments under non-cancellable leases which fall due as follows:

 

(MILLIONS)    2013      2014      2015      2016      2017      Thereafter      Total  

Operating leases

   $ 8      $ 6      $ 6      $ 6      $ 6      $ 53      $ 85  

Capital leases

     -         -         -         1        1        51        53  

Total

   $ 8      $ 6      $ 6      $ 7      $ 7      $ 104      $ 138  

Guarantees

Brookfield Renewable, on behalf of its subsidiaries, and subsidiaries of Brookfield Renewable provided letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance. As at December 31, 2012, letters of credit issued by subsidiaries of Brookfield Renewable amounted to $92 million.

 

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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 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, except for related party acquisitions, and are recorded at the exchange amount. Brookfield Renewable’s related party transactions are primarily with Brookfield Asset Management.

As discussed in the Significant Accounting Policies Note 2 (b) — Basis of Presentation in our audited consolidated financial statements, effective November 28, 2011, Brookfield Asset Management and Brookfield Renewable completed the Combination agreement. This resulted in the strategic combination of all the renewable power assets of the Fund and certain Brookfield Asset Management subsidiaries to create Brookfield Renewable. Consequently at the date of the Combination, Brookfield Asset Management, Brookfield Renewable’s ultimate parent, held directly or indirectly, approximately a 73% limited partnership interest (68% as at the date of this report) on a fully-exchanged basis and all general partnership units totaling a 0.01% general partnership interest in Brookfield Renewable.

Brookfield Renewable sells electricity to subsidiaries of Brookfield Asset Management through long-term PPAs 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 8 — Related Party Transactions in our audited consolidated financial statements.

In December 2011, Brookfield Renewable entered into voting agreements with subsidiaries of Brookfield Asset Management whereby these subsidiaries, as managing members of entities related to Brookfield Americas Infrastructure Fund, in which Brookfield Renewable holds investments with institutional partners, agreed to assign to Brookfield Renewable their voting rights to appoint the directors of such entities.

 

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The following table reflects the related party agreements and transactions on the consolidated statements of income (loss) for the year ended December 31:

 

(MILLIONS)    2012      2011      2010  

Revenues

        

Purchase and revenue support agreements

   $ 376      $ 254      $ 205   

Wind levelization agreement

     2        7        5   
     $ 378      $ 261      $ 210   

Direct operating costs

        

Energy purchases

   $ (40)       $ (41)       $ (42)   

Energy marketing fee

     (18)         (11)         (17)   

Insurance services

     (18)         (18)         (15)   
     $ (76)       $ (70)       $ (74)   

Interest expense

   $ -       $ (19)       $ (40)   

Management service costs

   $ (36)       $ (1)       $ -   

 

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The following table reflects the impact of the related party agreements and transactions on the consolidated balance sheets as at December 31:

 

(MILLIONS)    Related party    2012      2011  

Current assets

        

Due from related parties

Amounts due from

  

Brookfield Asset Management

   $ 20      $ 227  
    

Equity accounted and other

     14        26  
          $ 34      $ 253  

Due from related parties

        

Amounts due from

  

Brookfield Asset Management,

Brascan Energetica

     
      $ 3      $ 13  

Note receivable

  

Powell River Energy Inc.

     19        19  
          $ 22      $ 32  

Current liabilities

        

Due to related parties

        

Amount due to and current portion of note payable

  

Brookfield Asset Management

   $ 45      $ 74  

Accrued distributions payable on LP units and Redeemable/Exchangeable partnership units

  

Brookfield Asset Management

     61        65  

Amount due to

  

Equity accounted

     1        -   
          $ 107      $ 139  

Due to related parties

        

Note payable

  

Brookfield Asset Management

   $ -       $ 8  

Amount due to

  

Equity accounted

     2        -   
          $ 2      $ 8  

The decrease from $253 million to $34 million in the current portion due from related parties is primarily attributed to the draws on demand deposits and the settlement of amounts related to the acquisition of a wind facility in California.

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

The following table summarizes the key items on the consolidated cash flow statements for the year ended December 31:

 

(MILLIONS)    2012      2011      2010  

Cash flow provided by (used in):

        

Operating activities

     $  398        $  349        $  218   

Financing activities

     335        809        189   

Investing activities

     (698)         (1,090)         (397)   

Foreign exchange (loss) gain on cash held in foreign currencies

     (8)         11        5   

Increase in cash and cash equivalents

     $    27        $    79        $    15   

Cash and cash equivalents as at the end of the year totaled $137 million, net of $157 million of restricted cash, representing a decrease of $88 million since December 31, 2011. Cash and cash equivalents at the end of the 2011 year totaled $225 million, net of $42 million of restricted cash, representing an increase of $61 million since December 31, 2010.

Operating Activities

Cash flows provided by operating activities totaled $398 million for the year ended December 31, 2012, resulting in a year-over-year increase of $49 million. The increase was primarily due to a $15 million increase in funds from operations. We generated $349 million from operating activities for the year ended December 31, 2011, an increase of $131 million from the same period last year primarily due to funds from operations of $318 million. This is compared to operating activities of $218 million, which was primarily due to funds from operations of $269 million in 2010.

Net Change in Non-cash Working Capital

The net change in working capital shown in the consolidated statements of cash flows for the year ended December 31 is comprised of the following:

 

(MILLIONS)    2012      2011      2010  

Trade receivables and other current assets

     $    (36)         $    (12)         $    (9)   

Accounts payable and accrued liabilities

     17        -         (20)   

Other assets and liabilities

     (3)         -         -   
       $    (22)         $    (12)         $    (29)   

Financing Activities

Cash flows provided by financing activities totaled $335 million for the year ended December 31, 2012. Long-term debt – borrowings increased with issuance of C$400 million of 10-year term corporate notes, with approximately $500 million of subsidiary borrowings related to the growth and construction of assets, and over $300 million in refinancing of certain existing facilities. Repayments related to subsidiary borrowings were approximately $1.1 billion. The capital provided by participating non-controlling interests - in operating subsidiaries relates to the growth of the business, and the capital provided by preferred equity is from the issuance of C$250 million Class A Preference Shares.

For the year ended December 31, 2012, cash distributions to shareholders and preferred shareholders were $362 million and $13 million, respectively (2011: $109 million and $13 million, respectively). The remaining $25 million in distributions was related to participating non-controlling interests - in operating subsidiaries (2011: $26 million). Cash flows provided by financing activities totaled $809 million for the year ended December 31, 2011, resulting from borrowings of $880 million offset by $215 million of repayments, and distributions to partners and participating non-controlling interests - in operating subsidiaries of $39 million and $109 million, respectively. This is compared to 2010 cash flows provided by financing activities of $189 million, resulting from $747 million in debt borrowings, $239 million of capital from issuance of preferred equity and the sale of Fund units for $164 million offset by $951 million of debt repayments, $110 million of distributions to unitholders of the Fund and distributions to participating non-controlling interests - in operating subsidiaries.

 

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Investing Activities

Cash flows used in investing activities for the year ended December 31, 2012 totaled $698 million. Our investments were with respect to the acquisition of wind facilities in California, hydroelectric facilities in southern United States and a hydroelectric facility in Brazil that totaled $743 million. In addition, our continued investment in sustainable capital expenditures totaled $55 million and construction of renewable power generating assets amounted to $307 million. Partly offsetting the cash investments were $209 million in investment tax credits received pursuant to government incentives to build new renewable wind facilities, and $172 million from the settlement of certain related party balances. During 2011, we invested $698 million in the construction of two wind projects in Ontario and California and $66 million in sustaining capital expenditures. The acquisition of a Brazil hydroelectric facility and a wind project in northeastern United States were $212 million.

During 2010, we invested $247 million in the development and construction of renewable power generation assets and $53 million in sustaining capital expenditures.

NON-CONTROLLING INTERESTS

Preferred equity

In March 2010, we issued C$250 million of Class A preference shares with rate reset, cumulative dividends yielding 5.25%. For the year ended, December 31, 2012, dividends declared on these preference shares were $13 million (2011: $13 million).

In October 2012, we issued C$250 million of Class A preference shares with fixed, annual, cumulative dividends yielding 4.4%. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes. For the year ended December 31, 2012, dividends declared on these preference shares were $3 million (2011: nil).

As at December 31, 2012, no Class A preference shares have been redeemed.

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. During 2012, BRELP paid $4 million in distributions on general partnership units (2011: $1 million) and no incentive distributions have been paid since the Combination.

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

BRELP has issued Redeemable/Exchangeable partnership units to Brookfield, which may at the request of the holder, require BRELP to redeem these units for cash consideration after a mandatory two-year holding period from the date of issuance. 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.

As at December 31, 2012, Redeemable/Exchangeable partnership units outstanding were 129,658,623.

LIMITED PARTNERS’ EQUITY

With the completion of the Combination in November 2011, the number of outstanding units increased from 104,718,976 to 262,485,747 on a fully-exchanged basis. The fully-exchanged amounts assume the exchange of LP Units for the participating non-controlling interests in BRELP, which may or may not occur since Brookfield can elect to continue to hold its direct interest in BRELP through Redeemable/Exchangeable partnership units rather than exchanging this interest for LP Units.

 

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A secondary offering was completed during the first quarter of 2012 in which, a wholly-owned subsidiary of Brookfield Asset Management sold 13,144,500 of its LP Units at an offering price of C$26.25 per LP Unit. Brookfield Asset Management had owned approximately 73% of Brookfield Renewable on a fully-exchanged basis. Upon the completion of the secondary offering, and giving effect to the over-allotment option, Brookfield Asset Management now owns, directly and indirectly, 177,750,609 LP Units and Redeemable/Exchangeable partnership units, representing approximately 68% of Brookfield Renewable on a fully-exchanged basis.

Brookfield Renewable maintains a distribution reinvestment plan, which allows holders of LP Units who are resident in Canada to acquire additional LP Units by reinvesting all or a portion of their cash distributions without paying commissions. The LP Units increased by 74,792 for the year ended December 31, 2012.

As at December 31, 2012, the total amount of our LP Units outstanding was 132,901,916.

CRITICAL JUDGEMENTS IN APPLYING ACCOUNTING POLICIES

The consolidated annual 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 audited consolidated financial statements are considered critical accounting estimates as defined in regulation 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 in Mississagi Power Trust and Great Lakes Power Limited. 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 analysis of business and environmental risks section of this 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.

 

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CRITICAL ESTIMATES

Brookfield Renewable makes estimates and assumptions that affect the carrying value of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of income and OCI for the year. Actual results could differ from these estimates. The estimates and assumptions that are critical to the determination of the amounts reported in the consolidated financial statements relate to the following:

 

(i) Property, plant and equipment

The fair value of Brookfield Renewable’s property, plant and equipment is calculated using estimates and assumptions about future electricity prices from renewable sources, anticipated long-term average generation, estimated operating and capital expenditures, future inflation rates and discount rates, as described in Note 10 — Property, Plant and Equipment in our audited consolidated financial statements. Judgment is involved in determining the appropriate estimates and assumptions in the valuation of Brookfield Renewable’s property, plant and equipment. See Note 2 (o) — Critical judgments in applying accounting policies in our audited consolidated financial statements for further details.

Estimates of useful lives and residual values are used in determining depreciation and amortization. To ensure the accuracy of useful lives and residual values, these estimates are reviewed on an annual basis.

 

(ii) Financial instruments

Brookfield Renewable makes estimates and assumptions that affect the carrying value of its financial instruments, including estimates and assumptions about future electricity prices, long-term average generation, capacity prices, discount rates and the timing of energy delivery. Non-financial instruments are valued using estimates of future electricity prices which are estimated by considering broker quotes for the years in which there is a liquid market and for the subsequent years Brookfield Renewable’s best estimate of electricity prices that would allow new entrants into the market. See Note 7 – Risk Management and Financial Instruments in our audited consolidated financial statements for more details.

 

(iii) Deferred income taxes

The consolidated financial statements include estimates and assumptions for determining the future tax rates applicable to subsidiaries and identifying the temporary differences that relate to each subsidiary. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply during the year when the assets are realized or the liabilities settled, using the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates. Operating plans and forecasts are used to estimate when the temporary difference will reverse.

CRITICAL JUDGMENTS IN APPLYING ACCOUNTING POLICIES

The following are the critical judgments that have been made in applying the accounting policies used in the consolidated financial statements and that have the most significant effect on the amounts in the consolidated financial statements:

 

(i) Preparation of consolidated financial statements

These consolidated financial statements present the financial position, results of operations and cash flows of Brookfield Renewable. Judgment is required in determining what assets, liabilities and transactions are recognized in the consolidated financial statements as pertaining to Brookfield Renewable’s operations.

 

(ii) Common control transactions

Common control business combinations specifically fall outside of scope of IFRS 3R and as such management has used its judgment to determine an appropriate policy to account for these transactions. Consideration was given to other relevant accounting guidance within the framework of principles in IFRS and that reflects the economic reality of the transactions, in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. As a result, the consolidated financial statements account for assets and liabilities acquired at the previous carrying value on the predecessor’s financial statements. Differences between the consideration given and the assets and liabilities received are recorded directly to equity.

 

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(iii) Property, plant and equipment

The accounting policy relating to Brookfield Renewable’s property, plant and equipment is described in Note 2 (e) — Property plant and equipment and revaluation method in our audited consolidated financial statements. In applying this policy, judgment is used in determining whether certain costs are additions to the carrying amount of the property, plant and equipment as opposed to repairs and maintenance. If an asset has been developed, judgment is required to identify the point at which the asset is capable of being used as intended and to identify the directly attributable costs to be included in the carrying value of the development asset. The useful lives of property, plant and equipment are determined by independent engineers periodically with an annual review by management.

Annually, Brookfield Renewable determines the fair value of its property, plant and equipment using a methodology that it has judged to be reasonable. The methodology is a 20 year discounted cash flow model. Twenty years is the period considered reasonable as Brookfield Renewable has 20 year capital plans and it believes a reasonable third party would be indifferent between extending the cash flows further in the model versus using a discounted terminal value.

The valuation model incorporates future cash flows from the 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. With respect to estimated future generation that does not incorporate power purchase agreement pricing, the cash flow model uses estimates of future electricity prices, considering broker quotes for the years in which there is a liquid market and for the subsequent years, its best estimate of electricity prices from renewable sources that would allow new entrants into the market.

Discount rates are determined each year by considering the current interest rates, average market cost of capital as well as the price risk and the geographical location of the operational facilities as judged by management. Inflation rates are also determined by considering the current inflation rates and the expectations of future rates by economists. Operating costs are based on long-term budgets escalated thereafter for inflation. Each operational facility has a 20 year capital plan that it follows to ensure the maximum life of its assets is achieved. Foreign exchange rates are forecasted by using the spot rates and the available forward rates, extrapolated beyond the period available. The inputs described above to the discounted cash flow model require management to consider facts, trends and plans in making its judgments as to what derives a reasonable fair value of its property, plant and equipment.

 

(iv) Consolidation of Brookfield Renewable Power Fund

Brookfield Renewable held a 34% investment in the Fund, on a fully-exchanged basis prior to November 28, 2011. As a result, Brookfield Renewable assessed whether it continued to control the Fund, given its reduced ownership level. In making this assessment, Brookfield Renewable considered the definition of control and guidance as set out in IAS 27, Consolidated and Separate Financial Statements (“ IAS 27 ”). Brookfield Renewable concluded that control did exist as it had the power to govern the financial and operating policies of the Fund under specific agreements. Effective November 28, 2011, public unitholders of the Fund received one LP Unit of Brookfield Renewable for each trust unit of the Fund held, and the Fund was wound up.

 

(v) Financial instruments

The accounting policy relating to Brookfield Renewable’s financial instruments is described in Note 2 (i) — Financial instruments in our audited consolidated financial statements. In applying the policy, judgments are made in applying the criteria set out in IAS 39, Financial Instruments: Recognition and Measurement (“ IAS 39 ”), to record financial instruments at fair value through profit and loss, and the assessments of the effectiveness of hedging relationships.

 

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(vi)

Deferred income taxes

The accounting policy relating to Brookfield Renewable’s income taxes is described in Note 2 (k) — Income taxes in our audited consolidated financial statements. In applying this policy, judgments are made in determining the probability of whether deductions, tax credits and tax losses can be utilized.

RECENTLY ADOPTED ACCOUNTING POLICIES

 

(i)

Income Taxes

On January 1, 2012, Brookfield Renewable adopted amendments to IAS 12, Income Taxes . Under these amendments, an entity is required to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. Implementation of amendments to IAS 12 did not have any material impact on Brookfield Renewable’s annual consolidated financial statements.

 

(ii)

Consolidation

IFRS 10, Consolidation (“ IFRS 10 ”) was issued by the IASB on May 12, 2011, and replaces SIC-12, Consolidation – Special Purpose Entities and parts of IAS 27. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under IAS 27, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 is effective for annual periods beginning on or after January 1, 2013. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

 

(iii)

Joint arrangements

IFRS 11, Joint Arrangements (“ IFRS 11 ”) was issued by the IASB on May 12, 2011, and replaces IAS 31, Interests in Joint Ventures (“ IAS 31 ”), and SIC-13, Jointly Controlled Entities – Non-monetary Contributions by Venturers. IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, and revenue and expenses of the joint operation. Under IAS 31, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 is effective for annual periods beginning on or after January 1, 2013. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

 

(iv)

Fair value measurement

IFRS 13, Fair Value Measurement (“ IFRS 13 ”) a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards, was issued by the IASB on May 12, 2011. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It supersedes the fair value guidance that currently exists in IAS 16, Property, Plant and Equipment (“ IAS 16 ”) concerning the use of the revaluation method. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

 

(v)

Accounting for employee benefits and minimum funding requirements

In June 2011, the IASB issued significant amendments to IAS 19, Employee Benefits (“ IAS 19 ”). These changes affect the recognition of actuarial gains and losses by removing the option to use the corridor approach and requiring immediate recognition in other comprehensive income (“ OCI ”). These OCI amounts cannot be recycled to the income statement. There are also changes to the recognition, measurement and presentation of past service costs, cost of benefits and finance expense or income relating to employee benefits. Further, termination benefits are recognized as a liability only when the entity can no longer withdraw the offer of the termination benefit or recognizes any related restructuring costs. There are additional disclosure requirements. The amendment is effective for periods beginning on or after January 1, 2013. The adoption of the amendments to IAS 19 in 2013 required Brookfield Renewable to retrospectively change its accounting for actuarial gains and losses. Please see Note 2(c) of the interim consolidated financial statements.

 

 

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(vi)  

Presentation of items of OCI

In June 2011, IASB issued amendments to IAS 1, Presentation of Financial Statements. These amendments include a requirement for entities to group items presented in OCI on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments), and emphasize the importance of presenting profit or loss and OCI together and with equal prominence. The amendment is effective for annual periods starting on or after July 1, 2012. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

 

(vii)  

Consolidation and Separate Financial Statements

In May 2011, IASB amended and reissued IAS 27. The amended standard is to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. The amendment is effective for annual periods starting on or after January 1, 2013. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

 

(viii)  

Investment in Associates

In May 2011, IASB amended and reissued IAS 28, Investment in Associates and Joint Ventures. The amended standard prescribes the accounting treatment for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amendment is effective for annual periods starting on or after January 1, 2013. There was no material impact on Brookfield Renewable’s interim consolidated financial statements.

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, 2015. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.

 

(ii)

Disclosure of interests in other entities

IFRS 12, Disclosure of Interests in Other Entities (“ IFRS 12 ”) was issued by the IASB on May 12, 2011. IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off-balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact of IFRS 12 on the consolidated financial statements.

 

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DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROL OVER FINANCIAL REPORTING

The Chief Executive Officer and the Chief Financial Officer have evaluated the effectiveness of Brookfield Renewable’s disclosure controls and procedures and internal controls over financial reporting. Based on those evaluations, the Chief Executive Officer and Chief Financial Officer concluded that such disclosure, controls and procedures and internal controls over financial reporting were adequate and effective as of December 31, 2012 in providing reasonable assurance that material information relating to Brookfield Renewable and its consolidated subsidiaries would be made known to them within those entities as well as in regards to the reliability of financial reporting and preparation of financial statements for external purposes in accordance with IFRS. While disclosure controls and procedures and internal controls over financial reporting were adequate and effective we continue to implement certain measures to strengthen control processes and procedures.

 

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OPERATIONAL REVIEW FOR THE THREE MONTHS ENDED DECEMBER 31, 2012

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

 

                                           Variance of Results  
   
       Actual Generation      LTA Generation      Actual vs. LTA      Actual vs.
Prior year
 
   
GENERATION (GWH)    2012      2011      2012      2011      2012      2011      2012  

Hydroelectric generation

                    

United States

     1,447        1,756        1,869        1,655        (422)         101        (309)   

Canada

     954        756        1,175        1,189        (221)         (433)         198  

Brazil (1)

     924        879        924        879        -         -         45  
       3,325        3,391        3,968        3,723        (643)         (332)         (66)   

Wind energy

                    

Canada

     325        255        343        249        (18)         6        70  

United States

     158        -         191        -         (33)         -         158  
       483        255        534        249        (51)         6        228  

Other

     245        202        104        104        141        98        43  

Total generation (2)

     4,053        3,848        4,606        4,076        (553)         (228)         205  

 

(1)  

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

(2)  

Includes 100% of generation from equity-accounted investments.

Generation levels for the three months ended December 31, 2012 totaled 4,053 GWh, an increase of 205 GWh or 5% as compared to the same period of the prior year, and 553 GWh below long-term average.

Generation from our hydroelectric portfolio totaled 3,325 GWh, a decrease of 66 GWh as a result of lower inflows from the drier than normal conditions in New York state, and in the mid-western United States which was partly offset by additional generation from the recently acquired facilities in the southern United States and higher generation in eastern Canada. Generation from our hydroelectric portfolio in Brazil was higher due to new facilities acquired or commissioned during the last 18 months.

Generation from our wind portfolio totaled 483 GWh, an increase of 228 GWh, as a result of the recently acquired or commissioned facilities in California and New England, and from an Ontario facility commissioned in late 2011. Results were below long-term average for the current period primarily due to lower wind conditions.

 

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RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

 

(a)

Market risk

Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.

 

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Brookfield Renewable faces market risk from foreign currency assets and liabilities, the impact of changes in interest rates, and floating rate liabilities. Market risk is managed by funding assets with financial liabilities in the same currency and with similar interest rate characteristics and holding financial contracts, such as interest rate swaps and foreign exchange contracts, to minimize residual exposures. Financial instruments held by Brookfield Renewable that are subject to market risk include borrowings and financial instruments, such as interest rate, currency and commodity contracts. The categories of financial instruments that can give rise to significant variability are described below:

 

(i)

Commodity price risk

Commodity price risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in commodity prices. Commodity price risk arises from the sale of Brookfield Renewable’s uncontracted generation, stabilization of the gas purchases, as well as impacts on the carrying values of Brookfield Renewable’s non-financial derivative contracts.

Brookfield Renewable sells electricity under long-term contracts to secure stable prices and mitigate its exposure to wholesale markets. As at December 31, 2012, virtually all (98%) of Brookfield Renewable’s generation was sold pursuant to purchase price agreements, either to third parties or through entities of Brookfield. During 2012, certain of the long-term contracts were considered financial instruments, and were recorded at fair value in the consolidated financial statements. The change in fair value of long-term contracts was recorded in either income as “unrealized financial instrument (losses) gains” or OCI, as applicable.

The table below summarizes the impact of changes in the market price of electricity and gas as at December 31, expressed in terms of the effect on net income and OCI. The sensitivities are based on the assumption that the market price changes by five percent with all other variables held constant.

Impact of a 5% change in the market price of gas and electricity for the year ended December 31:

 

       Effect on net income         Effect on OCI   
(MILLIONS)    2012          2011      2010      2012      2011      2010  

5% increase

   $          1      $     2      $  (125)       $ -      $ -       $ -   

5% decrease

   $ (1)       $ (2)       $ 139       $ -      $ -      $ -  

 

(ii)

Interest rate risk

Interest rate risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument will fluctuate, because of changes in interest rates.

Brookfield Renewable’s assets largely consist of long duration physical assets. Brookfield Renewable’s financial liabilities consist primarily of long-term fixed rate debt or floating-rate debt that has been swapped to fixed rates with interest rate financial instruments. All non-derivative financial liabilities are recorded at their amortized cost. Brookfield Renewable also holds interest rate contracts to lock-in fixed rates on anticipated future debt issuances.

Fluctuations in interest rates could impact Brookfield Renewable’s cash flows, primarily with respect to the interest payable against Brookfield Renewable’s variable rate debt, which is limited to certain subsidiary borrowings with a total principal value of $1,592 million (2011: $1,382 million). Of this amount, $1,102 million (2011: $730 million) has been hedged through the use of interest rate swaps. Brookfield Renewable’s subsidiaries will enter into agreements designed to minimize the exposure to interest rate fluctuations on these debts. The fair values of the recognized liability for these agreements were calculated using a valuation model with observable interest rates.

The table below summarizes the impact of changes in the interest rate as at December 31. The impact is expressed in terms of the effect on income and OCI. The sensitivities are based on the assumption that the interest rate changes by one percent with all other variables held constant.

 

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Impact of a 1% change in interest rates for the year ended December 31:

 

       Effect on net income         Effect on OCI   
(MILLIONS)    2012          2011      2010      2012      2011      2010  

1% increase

   $ (7)       $ (7)       $ (7)       $     51      $     48      $     1   

1% decrease

   $       7      $     7            7       $ (51)       $ (48)       $ (1)   

 

(b)

Credit risk

Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations. Brookfield Renewable’s exposure to credit risk in respect of financial instruments relates primarily to counterparty obligations regarding energy contracts, interest rate swaps, forward foreign exchange contracts and physical electricity and gas transactions.

Brookfield Renewable minimizes credit risk with counterparties through the selection, monitoring and diversification of counterparties, and the use of standard trading contracts, and other credit risk mitigation techniques. In addition, Brookfield Renewable’s purchase price agreements are reviewed regularly and are almost exclusively with customers having long standing credit histories or investment grade ratings, which limit the risk of non-collection. As at December 31, 2012, 99% (2011: 100%) of Brookfield Renewable’s trade receivables of $106 million were current. See Note 6 — Trade receivables and other current assets in our audited consolidated financial statements for additional details regarding Brookfield Renewable’s trade receivables balance.

The maximum credit exposure at December 31 was as follows:

 

(MILLIONS)    2012      2011  

Cash and cash equivalents

   $ 294      $ 267  

Trade receivables and other current assets

     194        158  

Other long-term assets

     

Restricted cash

     80        139  

Other

     2        -  

Due from related parties (1)

     56        285  
     $ 626      $ 849  
(1)  

Includes both the current and long-term amounts.

 

(c)

Liquidity risk

Liquidity risk is the risk that Brookfield Renewable cannot meet a demand for cash or fund an obligation when due. Liquidity risk is mitigated by cash and cash equivalent balances and access to undrawn credit facilities. Details of the undrawn credit facilities are included in Note 14 — Long-term debt and credit facilities in our audited consolidated financial statements. We also ensure that we have access to public debt markets by maintaining a strong credit rating of BBB high.

We are also subject to the risk associated with debt financing. This risk is mitigated by the long-term duration of debt instruments and the diversification in maturity dates over an extended period of time.

The sensitivity analysis discussed above reflects only the risks associated with instruments that we consider are market sensitive and the potential loss resulting from one or more selected hypothetical changes. Therefore, the discussion above is not intended to reflect fully the market risk exposure that we may have.

 

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SUBSEQUENT EVENTS

On May 1, 2013, Brookfield Renewable issued C$175 million of Class A Preference Shares with a fixed annual dividend yielding 5%. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

On May 7, 2013, Brookfield Asset Management provided a $200 million committed unsecured revolving credit facility, expiring in December 2013, at LIBOR plus 2%.

On May 8, 2013, Brookfield Renewable purchased $125 million of holding level notes associated with the hydroelectric portfolio acquired in Maine.

 

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PRO FORMA FINANCIAL REVIEW FOR THE YEAR ENDED DECEMBER 31, 2011

We are providing pro forma financial results that include the impact of the Combination, new contracts and contract amendments, management and other service agreements along with the tax impacts resulting from the Combination, as if each had occurred as of January 1, 2011. The unaudited pro forma financial results have been prepared based upon currently available information and assumptions deemed appropriate by management. The pro forma financial results give effect to the following transactions:

Items affecting future cash flows:

 

   

amendment and execution of power purchase agreements; and

 

   

execution of management and other service agreements.

Items not affecting cash flows:

 

   

changes in the fair value of property, plant and equipment due to the change in power purchase agreements and the resulting change in depreciation expense;

 

   

settlement of intercompany balances as at the date of the transaction; and

 

   

elimination of the Fund unit liability and related unrealized gain or loss on remeasurement.

For additional information on the pro forma adjustments see “—Summary of Pro Forma Adjustments as They Relate to the Comparative Financial Results”.

The unaudited pro forma financial results are provided for information purposes only and may not be indicative of the results that would have occurred had the above transaction been effected on the date indicated. The accounting for certain of the Combination transactions required the determination of fair value estimates as at the date of the transaction on November 28, 2011 rather than the date assumed in the determination of the pro forma results of January 1, 2011.

 

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ADJUSTED EBITDA AND FUNDS FROM OPERATIONS ON A PRO FORMA BASIS

The following table reflects the Adjusted EBITDA and funds from operations for the year ended December 31, 2011 (1) :

 

(MILLIONS, EXCEPT AS NOTED)         

Generation (GWh)

     15,877  

Revenues

   $ 1,309  

Other income

     19  

Share of cash earnings from equity-accounted investments

     23  

Direct operating costs

     (425)   

Adjusted EBITDA (2)

     926  

Interest expense - borrowings

     (411)   

Management service costs

     (22)   

Current income taxes

     (8)   

Cash portion of non-controlling interests

     (52)   

Funds from operations (2)

   $ 433  
(1)  

Pro forma results reflect new contracts and contract amendments, along with the tax implications of the Combination, as if each had occurred as of January 1, 2011.

(2)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures” and “Reconciliation of Pro Forma Results”.

 

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RECONCILIATION OF PRO FORMA RESULTS

The following table reconciles Adjusted EBITDA, funds from operations and net loss on a consolidated basis to Adjusted EBITDA, funds from operations and net income for the year ended December 31, 2011:

 

(MILLIONS)    Notes     Pro forma  Basis  

 

Adjusted EBITDA on a consolidated basis

       $ 804  

 

Change in revenues due to revised PPA

   (i)     140  

 

Change in direct operating costs

   (ii)     (18

 

Adjusted EBITDA on a pro forma basis

       $ 926  

 

Funds from operations on a consolidated basis

       $ 332  

 

Change in revenues due to revised PPA

   (i)     140  

 

Change in direct operating costs

   (ii)     (18

 

Management service costs

   (ii)     (21

 

Funds from operations on a pro forma basis

       $ 433  

 

Net loss on a consolidated basis

       $ (451

 

Change in revenues due to revised PPA

   (i)     140  

 

Change in direct operating costs

   (ii)     (18

 

Management service costs

   (ii)     (21

 

Elimination of loss on Fund unit liability

   (iii)     376  

 

Transfer of revaluation to OCI

   (iv)     20  

 

Intercompany settlements

   (v)     19  

 

Change in depreciation expense

   (vi)     4  

 

Deferred income taxes

   (vii)     10  

 

Net income on a pro forma basis

       $ 79  

 

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SUMMARY OF PRO FORMA ADJUSTMENTS AS THEY RELATE TO THE COMPARATIVE FINANCIAL RESULTS:

 

(i)

Power Purchase Agreements

Pro forma net income reflects the following contract changes that took effect at the time of the Combination; pursuant an amendment to the power purchase agreement between Brookfield Asset Management and an indirect wholly-owned subsidiary of Brookfield Renewable (the “ GLPL PPA ”). Brookfield Asset Management guarantees the price of electricity generated by facilities owned by Great Lakes Power Limited, a subsidiary of Brookfield Renewable, at C$82 per MWh. This price is to be increased annually on January 1 by an amount equal to forty percent (40%) of the increase in the consumer price index during the previous calendar year.

Brookfield Energy Marketing LP (“ BEM LP ”) and Mississagi Power Trust (“ MPT ”), an indirect wholly-owned subsidiary of Brookfield Renewable, entered into an amendment to the existing Master Power Purchase and Sale Agreement (the “ Mississagi PPA ”) to adjust the price of electricity purchased to C$103 per MWh. This price is to be increased annually by an amount equal to twenty percent (20%) of the increase in the consumer price index during the previous calendar year.

Additionally, BEM LP and Brookfield Power U.S. Holding America Co. (“ BPUSHA ”), an indirect wholly-owned subsidiary of Brookfield Renewable, entered into an Energy Revenue Agreement under which BEM LP will guarantee the price for energy delivered by certain facilities in the United States at $75 per MWh. This price is to be increased annually on January 1 by an amount equal to forty percent (40%) of the increase in the consumer price index during the previous calendar year, but not exceeding an increase of three percent (3%) in any calendar year.

The impacts of these contract price amendments and agreements for the year ended December 31, 2011 are summarized as follows:

 

(MILLIONS, EXCEPT AS NOTED)    Actual generation (GWh)      Incremental Revenue  

GLPL PPA

     964      $ 13  

Mississagi PPA

     473        17  

Energy Revenue Agreement

     3,512        110  
       4,949      $ 140  

 

(ii)

Management and Other Service Agreements

An exclusive agreement with Brookfield Asset Management to provide operating, management and consulting services to Brookfield Renewable provides for a management service fee to be paid on a quarterly basis and will continue in perpetuity. The fee has a fixed quarterly component of $5 million and a variable component calculated as a percentage of the increase in the total capitalization value of Brookfield Renewable. For the year ended December 31, 2011, pro forma results for management services costs reflect an expense of $22 million.

Brookfield Renewable will also pay an annual marketing service fee of $18 million to a subsidiary of Brookfield Asset Management to reflect an agreement to provide energy marketing services. The fee will be increased annually on January 1 by an amount equal to the increase in the U.S. consumer price index during the previous calendar year. Pro forma results for the year ended December 31, 2011 reflects an expense of $18 million, included in direct operating costs.

 

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(iii)

Transfer of Brookfield Renewable Power Fund Units

The transfer of the 66% of the Fund units not previously owned by Brookfield Asset Management was completed at fair value satisfied by the issuance of Partnership units. The result of this transaction is to reflect the settlement of the Fund unit liability and the issuance of Partnership units to satisfy the transfer as equity of Brookfield Renewable. As a result of this transaction, the loss on Fund unit liability, related to the change in fair value of the units and the distributions made for the year ended December 31, 2011 of $376 million, was eliminated.

 

(iv)

Changes in Fair Value of Financial Instruments

During the year ended December 31, 2011, certain power guarantee agreements between Brookfield Renewable and Brookfield Asset Management were accounted for as financial instruments with unrealized losses of $20 million.

As a result of new agreements and changes in existing agreements with Brookfield Asset Management and its subsidiaries arising from the Combination, the contracts are not accounted for as financial instruments by Brookfield Renewable. Thus the unrealized financial instrument losses described above have been eliminated.

 

(v)

Intercompany Settlements

Brookfield Renewable and its subsidiaries settled certain intercompany loans and transactions with Brookfield Asset Management upon completion of the Combination. During the year ended December 31, 2011 $19 million, of interest income was recorded in the pro forma statement of income to reflect these transactions.

 

(vi)

Change in Depreciation Expense

The reduction in fair value of the power generating assets from Brookfield Renewable’s statement of income and loss results in a decrease in pro forma depreciation expense for the year ended December 31, 2011 of $4 million.

 

(vii)

Deferred Income Tax

Net income on a pro forma basis for the year ended December 31 2011, reflects an increase in deferred taxes by $10 million.

 

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OVERVIEW OF PERFORMANCE ON A CONSOLIDATED BASIS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

 

                         Variance of Results  
   
For the years ended December 31    Actual Generation      LTA Generation      Actual vs. LTA     

Actual vs.

Prior year

 

 

Generation (GWh)

   2011      2010      2011      2010      2011      2010      2011  

Hydroelectric generation

                    

United States

     7,150         6,651         6,811         6,727         339         (76)         499   

Canada

     4,056         3,557         5,061         5,076         (1,005)         (1,519)         499   

Brazil (1)

     3,307         3,206         3,307         3,206         -         -         101   
       14,513         13,414         15,179         15,009         (666)         (1,595)         1,099   

Wind energy (2)

     662         499         712         506         (50)         (7)         163   

Other

     702         567         406         372         296         195         135   

Total generation (3)

     15,877         14,480         16,297         15,887         (420)         (1,407)         1,397   

% variance

                                         (3)%         (9)%         10%   

 

(1)  

Assured generation levels.

(2)  

Wind energy relates to Canadian wind assets.

(3)  

Actual and long-term average generation includes 100% of generation from equity-accounted investments.

Generation for the year ended December 31, 2011 was 15,877 GWh or 10% higher than in the prior year, and 3% lower than the long-term average of 16,297 GWh. The improvement over the prior year reflects stronger hydrological conditions in Eastern Canada and New York. Although hydrology did return to more normalized levels, it was modestly below the long-term averages due to mild conditions and below-average inflows in Ontario and Québec.

The following table presents Net Income (loss), Adjusted EBITDA and funds from operations for the years ended 2011 and 2010 on a consolidated basis as described in Item 5.A “Operating Results — Performance Measurement.”

 

For the years ended December 31

(Millions, except as noted)

   2011      2010  

Generation (GWh) (1)

     15,877         14,480   

Revenues

     1,169         1,045   

Other income

     19         12   

Share of cash earnings from equity-accounted investments and long-term investments

     23         22   

Direct operating costs

     (407)         (328)   

Adjusted EBITDA (2)

     804         751   

Interest expense - borrowings

     (411)         (404)   

Management service costs

     (1)         -   

Current income taxes

     (8)         (32)   

Cash portion of non-controlling interests

     (52)         (46)   

Funds from operations (FFO) (2)

     332         269   

Cash portion of non-controlling interests included in funds from operations

     52         46   

Other items:

     

Depreciation and amortization

     (468)         (446)   

Unrealized financial instrument (losses) gains

     (20)         584   

Fund unit liability revaluation

     (376)         (159)   

Share of non-cash losses from equity-accounted investments

     (13)         (7)   

Deferred income tax recovery

     50         3   

Other

     (8)         4   

Net (loss) income

     (451)         294   

Net (loss) income attributable to:

     

Preferred equity

     13         10   

Participating non-controlling interests - in operating subsidiaries

     11         25   

General partnership interest in a holding subsidiary held by Brookfield

     (5)         3   

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

     (232)         127   

Limited partners’ equity

     (238)         129   

Basic and diluted (loss) earnings per LP Unit (3)

     (1.79)         0.97   

 

(1)  

Variations in generation are described under Item 5.A “Operating Results — Segmented Disclosures.”

(2)  

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

(3)  

Average LP Units outstanding during the period totaled 132.8 million.

 

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Net income (loss) is an important measure of profitability. However, the presentation of net income on an IFRS basis for our business often leads 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. This occurs largely for two reasons. First, under IFRS, we recognize a significantly higher level of depreciation than we are required to reinvest in the business as sustaining capital expenditures. Second, we are often required to recognize changes in the fair value of energy contracts, which are serviced by our assets and interests held by others in assets we manage through income, where the corresponding change in the asset values are recognized through equity. Therefore, when factors which are positive to the long-term prospects of our business occur, such as rising energy prices or increased asset values, the outcome is the recognition of losses related to the revaluation of fixed price contracts or our partners’ share of assets.

As a result, we also measure our financial results based on Adjusted EBITDA, 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 LP Unitholder distributions and growth initiatives.

Overall, revenues were $1,169 million or 12% higher than the prior year. Adjusted EBITDA for the year ended December 31, 2011 was $804 million or an increase of 7% from $751 million in the prior year. Funds from operations for the year ended December 31, 2011 was $318 million or an increase year-over-year by $49 million or 18%.

Net loss for the year ended December 31, 2011 was $451 million and reflects normal course depreciation and amortization expense of $468 million (2010: $446 million). It also includes a revaluation amount on the Fund unit liability. Under IFRS, Fund units held by the public, which have a feature that allows the holder to redeem the units for cash, are presented as a liability and recorded at fair value, with the change in fair value recorded in net income. In 2011, the Fund unit price appreciated significantly resulting in a revaluation amount of $376 million (2010: $159 million). As a result of the Combination, the Fund units were exchanged for LP Units and the Fund was dissolved.

Net income for the year ended December 31, 2010 was $294 million and reflects normal course depreciation and amortization expense of $446 million. It also includes an unrealized financial instrument gain of $584 million and a revaluation amount on the Fund unit liability of $159 million. On April 1, 2011, Brookfield Renewable Group designated its two significant long-term energy contracts with related parties as cash-flow hedges. As a result of new agreements and changes in existing agreements with Brookfield and its subsidiaries arising from the Combination, these contracts are no longer accounted for as derivatives by Brookfield Renewable Group effective November 28, 2011. For the period from April 1, 2011 to November 28, 2011, Brookfield Renewable Group recorded accounting losses of $708 million related to these contracts that were recorded in Other Comprehensive Income. On formation of Brookfield Renewable Group, $704 million of unrealized accounting losses were reversed.

Prior to the formation of Brookfield Renewable Group, certain contracts for energy sales were treated as derivatives for accounting purposes. In 2010, energy prices declined resulting in a relative gain on the fixed price related to those energy contracts. These contracts did provide protection against changing prices, however the gain or loss reflected in our net income reflects the value over the life of the contract and not the actual cash flow benefit realized in the year. Accordingly, we do not include revaluation gains of this nature in our funds from operations.

 

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SEGMENTED DISCLOSURES

HYDROELECTRIC

The following tables present Adjusted EBITDA and funds from operations for the years ended 2011 and 2010 on a consolidated basis as described in Item 5.A “Operating Results — Performance Measurement.”

 

For the years ended December 31

(Millions, except as noted)

   2011  
       United
States
       Canada        Brazil        Total        Pro
forma
 

Generation (GWh) – LTA (1)

     6,811           5,061           3,307           15,179           15,179   

Generation (GWh) – actual (1)

     7,150           4,056           3,307           14,513           14,513   

Revenues

   $ 467         $ 237         $ 335         $ 1,039         $ 1,179   

Other income

     -           -           19           19           19   

Share of cash earnings from equity-accounted and long-term investments

     13           4           6           23           23   

Direct operating costs

     (144)           (62)           (91)           (297)           (297)   

Adjusted EBITDA (2)

     336           179           269           784           924   

Interest expense – borrowings

     (149)           (68)           (94)           (311)           (311)   

Current income taxes

     2           5           (15)           (8)           (8)   

Cash portion of non-controlling interests

     (26)           -           (13)           (39)           (39)   

Funds from operations (FFO) (2)

   $ 163         $ 116         $ 147         $ 426         $ 566   

Average revenue per MWh (3)

   $ 71         $ 70         $ 107         $ 79         $ 90   

Average direct operating costs per MWh (3)

   $ 22         $ 18         $ 29         $ 23         $ 23   
       2010   
      
 
United
States
  
  
       Canada           Brazil           Total   

Generation (GWh) – LTA (1)

     6,727           5,076           3,206           15,009   

Generation (GWh) – actual (1)

     6,651           3,557           3,206           13,414   

Revenues

   $ 459         $ 205         $ 271         $ 935   

Other income

     -           -           12           12   

Share of cash earnings from equity-accounted and long-term investments

     15           4           3           22   

Direct operating costs

     (142)           (49)           (85)           (276)   

Adjusted EBITDA (4)

     332           160           201           693   

Interest expense - borrowings

     (152)           (64)           (95)           (311)   

Current income taxes

     (16)           -           (16)           (32)   

Cash portion of non-controlling interests

     (31)           -           (4)           (35)   

Funds from operations (FFO) (4)

   $ 133         $ 96         $ 86         $ 315   

Average revenue per MWh (3)

   $ 75         $ 71         $ 89         $ 77   

Average direct operating costs per MWh (3)

   $ 23         $ 17         $ 28         $ 23   

 

(1)  

Actual and long-term average generation includes 100% of generation from equity-accounted investments.

(2)  

Non-IFRS measure. See Item 5.A “Operating and Financial Review and Prospects — Net Income (loss), Adjusted EBITDA and Funds from Operations on a Consolidated Basis” and Item 5.A “Operating and Financial Review and Prospects —Reconciliation of Pro Forma Results.”

(3)  

Average revenue and direct operating costs per MWh excludes generation from equity-accounted investments.

(4)  

Non-IFRS measure. Refer to “Cautionary Statement Regarding the Use of Non-IFRS Measures”.

 

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United States

Generation from our U.S. renewable asset portfolio for the year ended December 31, 2011 was 7,150 GWh, meaningfully higher than long-term average by 339 GWh or 5%. Results were also 8% ahead of the prior year. Essentially, all regions produced inflows and generation levels in 2011 that were higher than the long-term average. With an extremely wet spring and record setting floods on the Mississippi River, generation levels were well above long-term average in the second quarter and the third quarter for our Louisiana facility. Regions in the Northeastern United States had record levels of rainfall in the second quarter, very dry conditions in July and the wettest August in history as Hurricane Irene brought twice the level of precipitation compared to the long-term average. The Northeastern region represents 60% of our U.S. renewable asset portfolio, and thus served to impact the overall results.

During 2011, we acquired and integrated into the business our first hydroelectric generating facility in California, which contributed 90 GWh of generation.

Consequently, revenues for the year ended December 31, 2011 were $467 million or 2% ahead of the prior year. Direct operating costs were in line with the prior year and funds from operations was $163 million, $30 million higher than the prior year due to the decreased taxes, increased revenues and decreased interest expense due to lower interest rates. Average revenues were $71 per MWh, which was slightly lower than last year.

Canada

For the year ended December 31, 2011, generation from our Canadian renewable asset portfolio was 4,056 GWh or 20% below long-term average of 5,061 GWh and ahead of the prior year generation of 3,557 GWh. Mild weather conditions and below-average inflows persisted in Ontario throughout most of the year. At December 31, 2011, these regions experienced more seasonal levels of precipitation and with it a return to more normal hydrology conditions.

Generation levels in Québec were slightly below plan for 2011 and our Western Canadian assets generated at above long-term average levels for the year. Consequently, revenues for the year ended December 31, 2011 were $237 million, or 16% ahead of the prior year.

Average revenues were $70 per MWh and in line with the prior year.

Generation for the year ended December 31, 2010 was 3,557 GWh, 30% lower than long-term average of 5,076 GWh. This was due to lower than average precipitation levels in Eastern Canada for the majority of the year.

Revenues for the year ended December 31, 2010, were $205 million and reflects the decrease in generation offset by the benefit of having secured a long-term PPA for Ontario generation and the favorable exchange rates.

Brazil

Generation from our Brazilian renewable asset portfolio for the year ended December 31, 2011 was 3,307 GWh, and in line with long-term average. Results for 2011 include the addition of a new hydroelectric facility, which was acquired and integrated during the third quarter and generated 116 GWh of electricity.

Generation for the year ended December 31, 2010 was 3,206 GWh, but was consistent with long-term average. In early 2010, we completed the construction of a 25 MW hydroelectric power plant in Brazil, capable of generating 146 GWh of electricity annually.

Revenues for the year ended December 31, 2011 were $335 million, an increase over the prior year by $64 million primarily due to inflation-based escalation with our power sales agreements and increased generation from the new facility. Funds from operations and results on a per MWh basis were in line with expectations.

 

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WIND

The following tables present Adjusted EBITDA and funds from operations for the years ended 2011 and 2010 on a consolidated basis as described in Item 5.A “Operating Results — Performance Measurement.”

 

 

For the years ended December 31

(Millions, except for per MWh)

   2011      2010  

Generation (GWh) – LTA (1)

     712         506   

Generation (GWh) – actual (1)

     662         499   

Revenues

   $ 70       $ 52   

Direct operating costs

     (12)         (7)   

Adjusted EBITDA (2)

     58         45   

Interest expense - borrowings

     (25)         (17)   

Funds from operations (FFO) (2)

     33         28   

Average revenue per MWh (3)

   $         106       $         104   

Average direct operating costs per MWh (3 )

   $ 18       $ 14   

 

(1)  

Actual and long-term average generation includes 100% of generation from equity-accounted investments.

(2)  

Non-IFRS measure. See “Cautionary Statement Regarding Use of Non-IFRS Measures.”

(3)  

Average revenue and direct operating costs per MWh excludes generation from equity-accounted investments.

Generation from our renewable wind portfolio in Canada was 662 GWh, or lower than long-term average by 7% or 50 GWh, due to below average wind conditions for the year. Generation was ahead of the prior year by 33% due to a full year of generation from an Ontario wind facility, which was commissioned in September 2010. The successful commercial operation and integration of another Ontario wind facility in the fourth quarter of 2011 also contributed to the increase in generation.

Revenues for the year ended December 31, 2011 were $70 million or 35% higher than the previous year primarily due to the increased generation from new asset commercialization.

 

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Fourth Quarter Results for 2011

Generation for the three months ended December 31, 2011 was 3,848 GWh compared to 4,002 GWh in the same period last year and long-term average of 4,076 GWh. This is a decrease of 154 GWh or 4% in the quarter compared to last year and a 228 GWh or 6% decrease from long-term average.

Hydroelectric generation for the three months ended December 31, 2011 was 3,391 GWh compared to 3,586 GWh in the same period last year and long-term average of 3,723 GWh. This is a decrease of 195 GWh or 5% in the quarter compared to last year and 332 GWh or 9% decrease than long-term average.

Wind generation for the three months ended December 31, 2011 was 255 GWh compared to 186 GWh in the same period last year and long-term average of 249 GWh. This is an increase of 69 GWh or 37% in the quarter compared to last year and an increase of 6 GWh or 2% increase from long-term average.

 

               
                                                                  

For the three months ended December 31

(GWh)

   Actual Generation      LTA Generation     

Actual vs.

LTA

     Actual vs.
Prior Year
 
       2011      2010      2011      2010      2011      2010      2011  

Hydroelectric generation

                    
   

United States

     1,756         1,711         1,655         1,621         101         90         45   
   

Canada

     756         1,054         1,189         1,193         (433)         (139)         (298)   
   

Brazil (1)

     879         821         879         821         -         -         58   
     3,391         3,586         3,723         3,635         (332)         (49)         (195)   

Wind energy

     255         186         249         154         6         32         69   

Other

     202         230         104         104         98         126         (28)   

Total generation (2)

     3,848         4,002         4,076         3,893         228         109         (154)   

 

(1)  

Assured generation levels.

(2)  

Actual and long-term average generation includes 100% of generation from equity-accounted investments.

 

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  5.B

LIQUIDITY AND CAPITAL RESOURCES

See Item 5.A “Operating and Financial Review and Prospects — Liquidity and Capital Resources”.

 

  5.C

RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

Not applicable.

 

  5.D

TREND INFORMATION

See Item 4.B “Business Overview — Renewable Power Growth Opportunity” beginning on page 47 to understand our global renewable power drivers, core markets and growth opportunities.

See Item 5.A “Operating and Financial Review and Prospects — Operating Results” for information on the following trend information:

 

   

“— Financial Review for the Three Months Ended March 31, 2013” beginning on page 63 (variability of generation);

 

   

“— Financial Review for the Year Ended December 31, 2012” beginning on page 81 (variability of generation);

 

   

“— Contract Profile” beginning on page 74 (predictability in funds from operations);

 

   

“— Contract Profile” beginning on page 95 (predictability in funds from operations);

 

   

“— Liquidity and Capital Resources” beginning on page 72 (funding of growth initiatives, capital expenditures, distributions and general business purposes); and

 

   

“— Liquidity and Capital Resources” beginning on page 92 (funding of growth initiatives, capital expenditures, distributions and general business purposes).

 

  5.E

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

  5.F

TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

See Item 5.A “Operating and Financial Review and Prospects — Liquidity and Capital Resources — Contractual Obligations”.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

  6.A

DIRECTORS AND SENIOR MANAGEMENT

Board of Directors of the Managing General Partner

As required by Bermuda law, the Amended and Restated Limited Partnership Agreement of BREP provides for the management and control of Brookfield Renewable by a general partner rather than a board of directors and officers. The Managing General Partner, which is a wholly-owned subsidiary of Brookfield Asset Management, serves as Brookfield Renewable’s general partner and has a board of directors. The Managing General Partner has no executive officers. The Managing General Partner has sole responsibility and authority for the central management and control of Brookfield Renewable, which is exercised through its board of directors. The directors of the Managing General Partner each serve as a director until a successor is appointed to replace them.

 

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The board of directors of the Managing General Partner is comprised of seven directors, five of whom are independent pursuant to the NYSE Listed Company Manual and within the meaning of Canadian National Instrument 58-101 - Disclosure of Corporate Governance Practices . The following table presents certain information concerning the current board of directors of the Managing General Partner as of the date of this Form 20-F.

 

Name and Residence

  

Position

  

Election Date

  

Principal Occupation

Jeffrey Blidner

Ontario, Canada

   Chair    August 2, 2011    Senior Managing Partner of Brookfield Asset Management

Eleazar de Carvalho Filho (1)(3)

Sao Paulo, Brazil

   Director    November 28, 2011    Founder of Virtus BR Partners and Corporate Director

John Van Egmond (2)(3)

Arizona, United States

   Director    November 28, 2011    Financial Consultant, Ozona Corporation

Lars Josefsson

Stockholm, Sweden

   Director    October 1, 2012   

Managing Director,

Contributor AB

David Mann (1)(2)

Nova Scotia, Canada

   Director    November 28, 2011    Counsel, Cox & Palmer

Lou Maroun (2)(3)

Devonshire, Bermuda

   Director    August 2, 2011    Executive Chairman of Sigma Real Estate Advisors/Sigma Capital Corporation

Patricia Zuccotti (1)

Washington, United States

   Director    November 28, 2011    Corporate Director

 

(1) Member of the Audit Committee.

(2) Member of the Nominating and Governance Committee.

(3) Member of the Compensation Committee.

Biographical information for each of the directors is included below.

Jeffrey Blidner . Jeffrey is the Chair of the board of directors of the Managing General Partner. Jeffrey is the Senior Managing Partner responsible for strategic planning as well as transaction execution. He is also the Chief Executive Officer of Brookfield’s Private Funds Group, Chairman and a director of Rouse Properties, Inc. and a director of Brookfield Infrastructure Partners L.P. Prior to joining Brookfield in 2000, Jeffrey was senior partner at a Canadian law firm.

Eleazar de Carvalho Filho . Eleazar is a Director of the Managing General Partner. Eleazar was formerly the President and Managing Director of the Brazilian National Development Bank and has served as the Chief Executive Officer for Unibanco Investment Bank. He is a founding partner of Iposeira Capital, established in 2003 as an independent advisory and asset management company, as well as Virtus BR Partners. From 2006 to 2011, Eleazar served as the non-executive Chairman of BHP Billiton Brazil. He also served on the board of directors of Petrobras, Eletrobrás and Vale, among others. Eleazar is currently a director of FMC Technologies, Inc. and of Companhia Brasileira de Distribuição Grupo Pão de Açúcar (GPA), President of the Board of Trustees of the Brazilian Symphony Orchestra. Born in Sao Paulo, Eleazar holds a Master of Arts in International Relations from The Johns Hopkins University in Washington, D.C. and a Bachelor of Arts with a major in Economics from New York University.

John Van Egmond . John is a Director of the Managing General Partner. John is presently a financial consultant with Ozona Corporation (a general consulting company) in Tucson, Arizona. Prior to this role, he was the acting President and Chief Executive Officer and Director of Wilshire Technologies, Inc. (located in Carlsbad, California) where he was responsible for all financial, operational, sales and marketing and human resource functions. John is the past President of Century Power Corporation, an independent power producer based in Tucson, Arizona. John is a Certified Public Accountant and received a Bachelor of Science in accounting in 1972 from Montana State University.

               Lars Josefsson . Lars is a Director of the Managing General Partner. His prior positions include President and Chief Executive Officer of Vattenfall AB (2000-2010), Celsius AB (1997-2000) and various positions with Ericsson over a 24-year period. Lars is also a member of the boards of directors of Robert Bosch GmbH and Holmen AB. He is Chairman of the Board of Green Circle Bioenergy Inc., and Burntisland Fabrication Ltd., as well as Chairman and Managing Partner of BioElectric Solutions LGJ AB, the founder of Biomass for Electricity Initiative and Foundation and a member of the Board of Trustees of Hand in Hand International. Lars graduated from Chalmers University of Technology in Applied Physics with a Master of Science in 1973 and in 1986 graduated from IMD, Lausanne, PED. Lars is an Honorary Professor in Physics, Brandenburg Technical University, Cottbus, Germany.

David Mann . David is a Director of the Managing General Partner. David formerly served as President and Chief Executive Officer of Nova Scotia Power Inc. (1996-2004) and Vice Chairman (2004-2005) and President and Chief Executive Officer (1995-

 

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2004) of Emera Inc., TSX-listed energy and services companies that invest in electrical generation, transmission and distribution. David currently serves as Counsel at Cox & Palmer (a law firm) and has over 30 years of experience in the practice of corporate and commercial law, with a particular emphasis on corporate finance and public utility regulation. He also serves as Chairman of Logistec Corporation and is the Audit Committee Chairman of Logistec Corporation and also New Growth Corporation, Acadian Timber Corp., and Allbanc Split Corp II. David holds a Bachelor of Commerce and a Bachelor of Laws from Dalhousie University and a Master of Laws from the University of London, England.

Lou Maroun . Lou is a Director of the Managing General Partner. Lou is also a Director of Brookfield Infrastructure Partners L.P. and is the Founder and Executive Chairman of Sigma Real Estate Advisors/Sigma Capital Corporation, which specializes in international real estate advisory. Prior to this role, Lou was the Executive Chairman of ING Real Estate Canada, and held executive positions in a number of real estate companies where he was responsible for overseeing operations, real estate transactions, asset and property management, as well as many other related functions. Lou also is on the board of directors of Acadian Timber Corp. and Partners REIT. Lou graduated from the University of New Brunswick in 1972 with a Bachelor’s degree followed by a series of post graduate studies, majoring in psychology. In January of 2007, after a long and successful career in investment real estate, Lou was elected to the position of Fellow of the Royal Institute of Chartered Surveyors.

Patricia Zuccotti . Patricia is a Director of the Managing General Partner. Patricia served as Senior Vice President, Chief Accounting Officer and Controller of Expedia, Inc. from October 2005 to November 2011. Prior to joining Expedia, Patricia was the Director, Enterprise Risk Services of Deloitte & Touche LLP from June 2003 until October 2005. Patricia is a Certified Public Accountant in the State of Washington and received her Masters of Business Administration, majoring in accounting and finance, from the University of Washington and a Bachelor of Arts, majoring in political science, from Trinity College.

Our Management

The Managing General Partner does not have any employees. Instead, members of Brookfield’s senior management and other individuals from Brookfield’s global affiliates are drawn upon to fulfill the Manager’s obligations to provide us with management services under our Master Services Agreement. The following table presents certain information concerning our core senior management team that is principally responsible for our operations and their positions with the Manager as of the date of this Form 20-F.

 

Name

  

Years of
experience
in relevant
industry
or role

  

Years at
Brookfield

  

Current Position with the Manager  

Harry Goldgut

   28    16    Group Chairman

Richard Legault

   28    24    President and Chief Executive Officer

Sachin Shah

   14    11    Chief Financial Officer

Jeff Rosenthal

   28    6    Chief Operating Officer

Ralf Rank

   12    4   

Chief Investment Officer

Each of the members of our core senior management team has substantial operational and transaction origination and execution expertise. Members of this team have also been integral in building and developing Brookfield’s renewable power operations and, although certain members of the senior management team are also managing partners of Brookfield or have some responsibilities in other Brookfield businesses, these members devote substantially all of their time to the management and development of the renewable power business. Biographical information for each of the members of this team is included below.

Harry Goldgut. Harry is the Group Chairman of the Manager. Harry is also a Senior Managing Partner of Brookfield Asset Management and the Chairman of Brookfield’s Power & Utilities Group comprising Brookfield’s renewable power generation and electric utilities businesses. He has been involved in the electric power industry since 1985. Harry joined Brookfield in 1997 as Vice President, Power Generation and since then has held various senior positions in BRPI, becoming its Co-Chairman and Chief Executive Officer in 2000, adding Chairman in 2005. He has been actively involved in developing and expanding Brookfield’s power operations and has had primary responsibility for its acquisitions and its senior regulatory relationships. He has played an active role in the restructuring of the electricity industry in Ontario as a member of several governmental and regulatory committees and task forces including the Market Design Committee, the Minister of Energy’s Advisory Committee, the Clean Energy Task Force and the Ontario Energy Board Chair’s Advisory Roundtable. Harry received an LL.B. in 1980 from York University’s Osgoode Hall Law School in Ontario, and was called to the Ontario Bar in 1982.

 

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Richard Legault. Richard is the President and Chief Executive Officer of the Manager. Richard is also a Senior Managing Partner of Brookfield Asset Management, Chief Executive Officer of BRPI and was the Chief Executive Officer of the Fund. Richard oversees Brookfield’s Power & Utilities Group, comprising Brookfield’s renewable power generation and electric utilities businesses. He has led the growth of Brookfield’s renewable power operations in North and South America, helping to make Brookfield Renewable one of the largest pure play renewable power portfolios. Richard was Chief Financial Officer of Brookfield from 2000 to 2001, prior to which he held several senior positions in operations, finance, and corporate development with Brookfield’s forest products operations. Richard received a Bachelor of Accounting from the Université du Québec in Hull.

Sachin Shah. Sachin is the Chief Financial Officer of the Manager. Sachin joined Brookfield Asset Management in 2002 as part of the corporate finance team and most recently served as its Managing Partner, Finance. In that capacity, working with Brookfield Asset Management’s Chief Financial Officer, Sachin focused on financial reporting, treasury, risk management and investor relations. In February 2011, he joined BRPI as Chief Financial Officer. Sachin received a Bachelor of Commerce degree from the University of Toronto in 1999.

Jeff Rosenthal. Jeff is the Chief Operating Officer of the Manager. He joined Brookfield in 2007 to oversee Brookfield’s management of transmission and distribution assets in North America. He is responsible for ensuring all operations and development activities are conducted with the utmost importance placed on health, safety, security and the environment. He leads the strategic initiatives that foster development activities, in addition to supporting mergers and acquisition opportunities for both generation and transmission. Previously, Jeff was President and Chief Executive Officer of Oshawa Power and Utilities and has held other senior positions in the utility industry. Jeff is a Professional Engineer and has a Masters of Business Administration from the Schulich School of Business at York University.

Ralf Rank. Ralf leads Brookfield’s power and utilities mergers and acquisitions group with responsibility for investment strategy and oversight of originating, evaluating and structuring power and utility investments across Brookfield’s global platform. Prior to joining Brookfield, Ralf was an Associate Director, at a leading Canadian investment bank with an industry specialization in the infrastructure, power and utilities group. Ralf has an Honours Bachelor of Applied Science (Mechanical Engineering) and a Minor in Economics from the University of Waterloo and is also a holder of the Chartered Financial Analyst designation.

See also information contained under Item 3.D “Risk Factors — Risks Related to Our Relationship with Brookfield” and Item 7.B “Related Party Transactions”.

Our Master Services Agreement

Brookfield Renewable, BRELP and the Holding Entities entered into our Master Services Agreement pursuant to which the Manager has agreed to provide oversight of our business and provide the services of senior management to Brookfield Renewable. In addition, the Manager has agreed to provide services relating to acquisitions or dispositions, financings, business planning and strategy and oversight and supervision of various day to day management and administrative activities. The Operating Entities are not a party to our Master Services Agreement.

Under our Master Services Agreement, the Service Recipients have appointed the Manager, as the service provider, to provide or arrange for the provision by an appropriate service provider of the following services:

 

   

causing or supervising the carrying out of all day to day management, secretarial, accounting, banking, treasury, administrative, liaison, representative, regulatory and reporting functions and obligations;

 

   

providing overall strategic advice to the Holding Entities including advising with respect to the expansion of their business into new markets;

 

   

establishing and maintaining or supervising the establishment and maintenance of books and records;

 

   

identifying, evaluating and recommending to the Holding Entities acquisitions or dispositions from time to time and, where requested to do so, assisting in negotiating the terms of such acquisitions or dispositions;

 

   

recommending and, where requested to do so, assisting in the raising of funds whether by way of debt, equity or otherwise, including the preparation, review or distribution of any prospectus or offering memorandum in respect thereof and assisting with communications support in connection therewith;

 

   

causing or supervising the preparation and implementation of any operating plan, capital expenditure plan or marketing plan;

 

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recommending to the Holding Entities suitable candidates to serve on the Governing Bodies of the Operating Entities;

 

   

making recommendations with respect to the exercise of any voting rights to which the Holding Entities are entitled in respect of the Operating Entities;

 

   

making recommendations with respect to the payment of dividends by the Holding Entities or any other distributions by the Service Recipients, including distributions by us to our LP Unitholders;

 

   

monitoring and/or oversight of the applicable Service Recipient’s accountants, legal counsel and other accounting, financial or legal advisors and technical, commercial, marketing and other independent experts and managing litigation in which a Service Recipient is sued or commencing litigation after consulting with, and subject to the approval of, the relevant Governing Body;

 

   

attending to all matters necessary for any reorganization, bankruptcy proceedings, dissolution or winding up of a Service Recipient, subject to approval by the relevant Governing Body;

 

   

supervising the timely calculation and payment of taxes payable, and the filing of all tax returns due, by each Service Recipient;

 

   

causing or supervising the preparation of the Service Recipients’ annual consolidated financial statements, quarterly interim financial statements and other public disclosure;

 

   

making recommendations in relation to and effecting the entry into insurance of each Service Recipient’s assets, together with other insurances against other risks including directors and officers insurance, as the relevant service provider and the relevant Governing Body may from time to time agree;

 

   

arranging for individuals to carry out the functions of the principal executive, accounting and financial officers for Brookfield Renewable only for purposes of applicable securities laws;

 

   

providing individuals to act as senior officers of Holding Entities as agreed from time to time, subject to the approval of the relevant Governing Body;

 

   

advising the Service Recipients regarding the maintenance of compliance with applicable laws and other obligations; and

 

   

providing all such other services as may from time to time be agreed with the Service Recipients that are reasonably related to the Service Recipient’s day to day operations.

The Manager’s activities are subject to the supervision of the board of directors of the Managing General Partner and the Governing Bodies of each of the other Service Recipients, as applicable. The Manager has agreed to exercise the power and discharge the duties conferred under our Master Services Agreement honestly and in good faith, and will exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, subject to, and after taking into account, the terms and conditions of the Relationship Agreement.

Management Fee

Pursuant to our Master Services Agreement, we pay an annual base management fee, referred to as the “ Base Management Fee ”, to the Manager equal to $20 million (which amount shall be adjusted for inflation annually beginning on January 1, 2013, at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the Total Capitalization Value (which is generally determined with reference to the aggregate of the value of all outstanding LP Units, assuming full conversion of Brookfield’s limited partnership interests in BRELP into LP units, and securities of the other Service Recipients that are not held by Brookfield Renewable Group, plus all outstanding third party debt with recourse to Brookfield Renewable, BRELP or a Holding Entity, less all cash held by such entities) of Brookfield Renewable exceeds an initial reference value determined based on its market capitalization immediately following the Combination. In the event that the measured Total Capitalization Value of Brookfield Renewable in a given period is less than the initial reference value, the Manager will receive a Base Management Fee of $20 million annually (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). The Base Management Fee will be calculated and paid on a quarterly basis.

Total Capitalization Value as of the latest balance sheet date (March 31, 2013) is $10,292,360,296, which against the initial reference value of $8,093,033,167 and factoring in the annual amount of $20 million, resulted in a Base Management Fee payment for the first quarter of 2013 in the amount of approximately $12.0 million. The Base Management Fee payment for the year ended December 31, 2012 and for the period between the Combination and December 31, 2011 was approximately $35.8 million and $2.2 million, respectively.

 

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To the extent that under any other arrangement we are obligated to pay a base management fee (directly or indirectly through an equivalent arrangement) to the Manager (or any affiliate) on a portion of our capital that is comparable to the Base Management Fee, the Base Management Fee payable for each quarter in respect thereof will be reduced on a dollar for dollar basis by our proportionate share of the comparable base management fee (or equivalent amount) under such other arrangement for that quarter. The Base Management Fee will not be reduced by the amount of any incentive distribution payable by any Service Recipient or Operating Entity to the Manager (or any other affiliate) (for which there is a separate credit mechanism under the Amended and Restated Limited Partnership Agreement of BRELP), or any other fees that are payable by any Operating Entity to Brookfield for financial advisory, operations and maintenance, development, operations management and other services. See Item 7.B “Related Party Transactions — Other Services” and “— Incentive Distributions”.

Increase in Capitalization Value as at March 31, 2013

 

(MILLIONS, EXCEPT LP UNITS AMOUNTS)    Initial Value     March 31,
2013
    Increase  

Fair market value of LP Units (1)

   $ 24.94      $ 28.91      $ 3.97   

Units issued and outstanding (2)

     262.5        262.6        262.6   
   $ 6,545.1      $ 7,591.1      $ 1,046.0   

Principal value of corporate borrowings, credit facilities and preferred shares

     1,552.9        2,707.2        1,154.3   

Cash held: Service Recipients

     (5.0     (6.0     (1.0

Total Capitalization Value

   $ 8,093.0      $ 10,292.3      $ 2,199.3   

Management fee calculation for the three months ended March 31, 2013

 

(MILLIONS, UNLESS OTHERWISE NOTED)            Total  

Base management fee (3)

     $ 5.1   

Variable management fee

    

Increase in Total Capitalization Value

     2,199.3     

Rate (4)

     0.3125     6.9   

Total management fee

           $ 12.0   

 

(1)

Represents the five-day volume-weighted average price in Canadian dollars converted to U.S. dollars.

(2)

All outstanding LP Units, assuming full conversion of Brookfield's limited partnership interest in BRELP into LP Units.

(3)  

$20 million annual fee, calculated quarterly in arrears (subject to an annual escalation by a specified inflation factor beginning January 1, 2013).

(4)  

1.25% of the increase in Total Capitalization Value, calculated at 0.3125% quarterly.

Reimbursement of Expenses and Certain Taxes

The relevant Service Recipient will reimburse the Manager for all out-of-pocket fees, costs and expenses incurred in connection with the provision of the services including those of any third party. Such out-of-pocket fees, costs and expenses include, among other things, (i) fees, costs and expenses relating to any debt or equity financing; (ii) fees, costs and expenses incurred in connection with the general administration of any Service Recipient; (iii) taxes, licenses and other statutory fees or penalties levied against or in respect of a Service Recipient; (iv) amounts owed under indemnification, contribution or similar arrangements; (v) fees, costs and expenses relating to our financial reporting, regulatory filings and investor relations and the fees, costs and expenses of agents, advisors and other persons who provide services to or on behalf of a Service Recipient; and (vi) any other fees, costs and expenses incurred by the Manager that are reasonably necessary for the performance by the Manager of its duties and functions under our Master Services Agreement. However, the Service Recipients will not be required to reimburse the Manager for the salaries and other remuneration of its management, personnel or support staff who carry out any services or functions for such Service Recipients or overhead for such persons.

In addition, the Service Recipients will be required to pay all fees, expenses and costs incurred in connection with the investigation, acquisition, holding or disposal of any acquisition that is made or that is proposed to be made by us. Where the acquisition or proposed acquisition involves a joint acquisition that is made alongside one or more other persons, the Manager will be required to allocate such fees, costs and expenses in proportion to the notional amount of the acquisition made (or that would have been made in the case of an unconsummated acquisition) among all joint investors. Such additional fees, expenses and costs represent out-of-pocket costs associated with investment activities that will be undertaken pursuant to our Master Services Agreement.

The Service Recipients will also be required to pay or reimburse the Manager for all sales, use, value added, goods and services, harmonized sales, withholding or other taxes or customs duties or other governmental charges levied or imposed by reason of our Master Services Agreement or any agreement it contemplates, other than income taxes, corporation taxes, capital taxes or other similar taxes payable by the Manager, which are personal to the Manager.

Termination

Our Master Services Agreement continues in perpetuity, until terminated in accordance with its terms. However, the Service Recipients may terminate our Master Services Agreement effective upon written notice of termination to the Manager if any of the following occurs:

 

   

the Manager defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Service Recipients and the default continues unremedied for a period of 60 days after written notice of the breach is given to the Manager;

 

   

the Manager engages in any act of fraud, misappropriation of funds or embezzlement against any Service Recipient that results in material harm to the Service Recipients;

 

   

the Manager is grossly negligent in the performance of its duties under the agreement and such gross negligence results in material harm to the Service Recipients; or

 

   

certain events relating to the bankruptcy or insolvency of the Manager.

The Service Recipients have no right to terminate for any other reason, including if the Manager or Brookfield experiences a change of control. The Managing General Partner may only terminate our Master Services Agreement on behalf of Brookfield Renewable with the prior unanimous approval of the Managing General Partner’s independent directors.

Our Master Services Agreement expressly provides that the agreement may not be terminated by the Service Recipients due solely to the poor performance or the underperformance of any of our operations.

 

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The Manager may terminate our Master Services Agreement effective upon written notice of termination to the Service Recipients if any Service Recipient defaults in the performance or observance of any material term, condition or covenant contained in the agreement in a manner that results in material harm to the Manager and the default continues unremedied for a period of 60 days after written notice of the breach is given to the Service Recipients. The Manager may also terminate our Master Services Agreement upon the occurrence of certain events relating to the bankruptcy or insolvency of any Service Recipient.

If our Master Services Agreement is terminated, the Licensing Agreement, the Relationship Agreement and any of Brookfield’s obligations under the Relationship Agreement would also terminate. See Item 7.B “Related Party Transactions — Relationship Agreement” and Item 3.D “Risk Factors — Risks Related to Our Relationship with Brookfield”.

Indemnification and Limitations on Liability

Under our Master Services Agreement, the Manager has not assumed and will not assume any responsibility other than to provide or arrange for the provision of the services called for under such agreement in good faith and will not be responsible for any action that the Service Recipients take in following or declining to follow the advice or recommendations of the Manager. The Managers have agreed to indemnify each of the Service Recipients and their affiliates, and their directors, officers, agents, members, partners, shareholders, employees and other representatives to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses (including legal fees) resulting from the Manager’s bad faith, fraud, willful misconduct, gross negligence and, in the case of a criminal matter, conduct undertaken with the knowledge that the conduct was unlawful. The maximum amount of the aggregate liability of the Manager and its affiliates, the directors, officers, employees, contractors, agents, advisors and other representatives of the Manager and its affiliates, will be equal to the amounts previously paid in respect of services pursuant to our Master Services Agreement or any other agreement or arrangement contemplated by our Master Services Agreement in the two most recent calendar years by the Service Recipients. The Service Recipients have also agreed to indemnify each of the Manager, Brookfield and their directors, officers, agents, subcontractors, delegates, members, partners, shareholders and employees to the fullest extent permitted by law from and against any claims, liabilities, losses, damages, costs or expenses (including legal fees) incurred by an indemnified person or threatened in connection with our respective businesses, investments and activities or in respect of or arising from our Master Services Agreement or the services provided by the Manager, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person’s bad faith, fraud, willful misconduct, gross negligence or in the case of a criminal matter, action that the indemnified person knew to have been unlawful. In addition, under our Master Services Agreement, the indemnified persons will not be liable to the Service Recipients to the fullest extent permitted by law, except for conduct that involved bad faith, fraud, willful misconduct, gross negligence, or in the case of a criminal matter, conduct that the indemnified person knew to have been unlawful.

Outside Activities

Our Master Services Agreement does not prohibit the Manager or its affiliates from pursuing other business activities or providing services to third parties that compete directly or indirectly with us. For a description of related aspects of the relationship between Brookfield and the Service Recipients, see Item 7.B “Related Party Transactions — Relationship Agreement”.

See also information contained in this Form 20-F under Item 6.C “Board Practices,” Item 3.D “Risk Factors — Risks Related to our Relationship with Brookfield” and Item 6.A “Directors and Senior Management”.

 

  6.B

COMPENSATION

Our Management

The Managing General Partner does not have any employees. We have entered into our Master Services Agreement with the Manager pursuant to which the Manager and certain other affiliates of Brookfield provide or arrange for other service providers to provide management services to Brookfield Renewable, BRELP and the Holding Entities. The fees payable under the Master Services Agreement are set forth under Item 6.A “Directors and Senior Management — Our Master Services Agreement — Management Fee”. In addition, Brookfield is entitled to receive incentive distributions from BRELP described under Item 7.B “Related Party Transactions — Incentive Distributions”.

Pursuant to our Master Services Agreement, members of Brookfield’s senior management and other individuals from Brookfield’s global affiliates are drawn upon to fulfill obligations under our Master Services Agreement. These individuals, including the Brookfield employees identified in the table below under Item 6.A “Directors and Senior Management — Our Management”, are aligned to the long term value creation of Brookfield by nature of being participants in Brookfield’s various long term incentive plans, as outlined below.

The following individuals performed functions similar to a chief executive officer and chief financial officer for Brookfield Renewable (only for the purpose of compliance with applicable securities laws) and the other individuals are the three most highly paid members of our core senior management team for the year ended December 31, 2012 (collectively, our “ Named Executive Officers ” or “ NEOs ”):

Richard Legault, Chief Executive Officer of the Manager;

 

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Sachin Shah, Chief Financial Officer of the Manager;

Harry Goldgut, Group Chairman of the Manager;

Ralf Rank, Chief Investment Officer of the Manager; and

Felipe Pinel, Chief Operating Officer, Latin America (LATAM) Operations.

Under Canadian securities laws, we are required to disclose the following executive compensation information relating to the Named Executive Officers. The compensation philosophy of Brookfield, which determines the compensation of our senior management, and the compensation elements paid to them outlined below, are provided for full disclosure.

Compensation Philosophy of Brookfield

Brookfield determines the compensation of its employees and the executives and senior managers of its subsidiaries, which includes the NEOs. Brookfield has adopted an approach to compensation that is intended to foster an entrepreneurial environment that encourages management to make decisions and take actions that will create long-term sustainable cash flow growth and will result in improvement in long-term shareholder value.

Compensation Elements Paid by Brookfield

The primary elements of total compensation paid by Brookfield to the NEOs are: base salary, annual management incentive plan awards (“ Cash Bonus ”) and participation in long-term incentive plans.

Total annual compensation awarded to senior executives, including the Named Executive Officers, generally does not change significantly from year to year. This practice recognizes that rewarding short-term performance would not necessarily be consistent with Brookfield’s focus of long-term value creation. A significant amount of annual compensation for these executives is represented by awards pursuant to long-term share ownership plans which vest over time, in order for the executives to increase their ownership interest in Class A Limited Voting Shares of Brookfield Asset Management (“ Class A Limited Voting Shares ”).

Total compensation for executives who are at earlier stages in their careers also includes awards pursuant to long-term share ownership plans but tends to include a larger percentage of their total compensation in the form of base salary and Cash Bonus awards in recognition of their personal needs and to be competitive within the financial services industry. Furthermore, changes in total compensation from year to year may vary more for these executives as they take on increasing responsibility.

As executives progress within Brookfield, they have the opportunity to reinvest their Cash Bonus into deferred share units under the Deferred Share Unit Plan (“ DSUP ”) or restricted shares under the Restricted Stock Plan of Brookfield, thereby enabling them to increase their ownership interests. In addition, notwithstanding the fact that regular total compensation for individuals may not change significantly year over year, management may request that Brookfield Asset Management’s compensation committee (“ BAM’s Compensation Committee ”) grant special compensation awards to executives who have demonstrated a clear ability to take on additional responsibilities and have consistently performed at an exceptional level. These special awards are granted in the form of options to acquire Class A Limited Voting Shares, restricted shares of Class A Limited Voting Shares or escrowed shares as described below.

Brookfield Renewable has no control over the form or amount of the compensation paid by Brookfield to the NEOs and participation in long-term incentive plans is not allocated to or payable by Brookfield Renewable.

Base Salaries

Base salaries of the NEOs are determined and approved by Brookfield. Base salaries tend to remain fairly constant from one year to another unless the scope and responsibility of the position has changed.

Cash Bonus and Long-Term Incentive Plans

Brookfield believes that, for the NEOs, given their focus on long-term decision making, the impact of which is difficult to assess in the short term, a formula calculation based on specific operational or individual targets may not appropriately reflect their long-term objectives. Accordingly, for the NEOs, the Cash Bonus and compensation under long-term incentive plans are determined primarily through an evaluation by Brookfield of the progress in executing Brookfield Renewable’s strategy and business plan as a whole; no specific weight is given to the achievement of any individual objective.

The Cash Bonuses and compensation under long-term incentive plans granted to the NEOs by Brookfield are directly related to the performance and achievements of the NEOs, the performance and success of Brookfield Renewable Group, as well as significant contributions to the business strategy of Brookfield as a whole. The level of Cash Bonus and long-term incentive

 

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compensation granted to each NEO is discretionary, based on his achievement of specific objectives that are set at the beginning of the year with Brookfield’s Chief Executive Officer and pertain, in part to the performance of Brookfield Renewable Group with respect to its funds from operations, capital improvement programs, operational expenditures, environment, health and safety programs, growth of the portfolio of assets, financing activities, as well as sound management governance practices.

The objectives relating to Brookfield Renewable are driven by Brookfield Renewable Group’s business plan and are meant to be aggressive and indicative of the entrepreneurial and opportunistic culture of the organization. They support the long-term strategy of Brookfield Renewable Group by translating into concrete and specific terms various transactions and initiatives that Brookfield’s and our Manager’s management believe will create shareholder value over the long-term.

Brookfield’s long-term incentive plans are intended to enable participants to create wealth through increases in the value of Class A Limited Voting Shares. The purpose of these arrangements is to achieve an alignment of interest between Brookfield’s shareholders and management and to motivate executives to improve Brookfield’s long-term financial success, measured in terms of enhanced shareholder wealth over the long term.

Brookfield has five long-term incentive plans in which NEOs of Brookfield Renewable participate. They are described below in more detail.

Management Share Option Plans . The management share option plans govern the granting to executives of options to purchase Class A Limited Voting Shares at a fixed price. The options typically vest as to 20% at the end of each year commencing on the first anniversary of the date of the award and are exercisable over a ten-year period. The management share option plans are administered by the board of directors of Brookfield. Options are granted to the NEOs in late February or early March of each year as part of the annual compensation review. BAM’s Compensation Committee has a specific written mandate to review and approve executive compensation. BAM’s Compensation Committee makes recommendations to the board of directors of Brookfield Asset Management with respect to the proposed allocation of options to the NEOs based in part upon the recommendations of the Chief Executive Officer of the Manager and the board of directors of Brookfield Asset Management gives final approval on these compensation matters.

The number of options granted to NEOs is determined based on the scope of their roles, level of responsibilities and performance against objectives set out for the Brookfield Renewable Group. In doing so, consideration is given to the number and value of previous grants of options. Since the annual option awards are generally made during a blackout period, the effective grant date for such options is set six business days after the end of the blackout period. The exercise price for such options is the volume-weighted average trading price for Class A Limited Voting Shares on the NYSE for the five business days preceding the effective grant date.

Deferred Share Unit Plan . The DSUP provides for the issuance of deferred share units (“ DSUs ”) of Brookfield, the value of which are equal to the value of a Class A Limited Voting Share. The DSUP is administered by BAM’s Compensation Committee. DSUs vest over periods of up to five years, with the exception of DSUs awarded in lieu of a Cash Bonus which vest immediately. DSUs can only be redeemed for cash upon cessation of employment through retirement, resignation, termination or death.

DSUs are issued based on the value of Class A Limited Voting Shares at the time of the award (the “ DSU Allotment Price ”). In the case of DSUs acquired through the reinvestment of Cash Bonus awards, the DSU Allotment Price is equal to the exercise price for options granted at the same time as described above. Holders of DSUs will be allotted additional DSUs as dividends are paid on Class A Limited Voting Shares on the same basis as if the dividends were reinvested pursuant to Brookfield Asset Management’s dividend reinvestment plan. These additional DSUs are subject to vesting provisions (except in the case of dividends on DSUs acquired through the reinvestment of Cash Bonus awards). The redemption value of DSUs will be equivalent to the market value of an equivalent number of Class A Limited Voting Shares on the date employment with Brookfield or Brookfield Renewable Group ceases.

Restricted Share Unit Plan. The Restricted Share Unit Plan (the “ RSUP ”) provides for the issuance of restricted share units (“ RSUs ”), the value of which are equal to the increase in market value of a Class A Limited Voting Share over the market value as at the date of issuance (the “ RSU Allotment Price ”). The RSUP is administered by BAM’s Compensation Committee. RSUs vest over periods of up to five years.

RSUs can only be redeemed for cash upon cessation of employment through retirement, resignation, termination or death.

RSUs are not adjusted for regular dividends paid on Class A Limited Voting Shares. The redemption value of RSUs is equal to the difference between the market value of an equivalent number of Class A Limited Voting Shares on the date employment with Brookfield or Brookfield Renewable Group ceases and the original RSU Allotment Price for such RSUs.

In limited circumstances, senior executives were awarded RSUs as additional compensation subject to limits approved by Brookfield Asset Management’s board of directors. No RSUs have been awarded since February 2005.

Restricted Stock Plans. Brookfield Asset Management has two restricted stock plans: the Restricted Stock Plan and the Escrowed Stock Plan. These plans were established on February 17, 2011 to provide Brookfield and its executives with alternatives to Brookfield Asset Management’s existing plans which allow executives to increase their share ownership. Restricted shares have the advantage of allowing executives to become Brookfield Asset Management shareholders, receive dividends, and to have full ownership of the shares after the restriction period ends.

 

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Restricted Stock Plan. The Restricted Stock Plan (the “ RSP ”) governs the award to executives of Class A Limited Voting Shares purchased on the open market. BAM’s Compensation Committee administers the RSP. Restricted shares vest over periods of up to five years, except that restricted shares awarded in lieu of a Cash Bonus vest immediately. Vested and unvested restricted shares must be held until the fifth anniversary of the award date or another date determined at the time of the award (the Hold Date ). Holders of restricted shares are entitled to vote their shares and to receive dividends that are paid on the Class A Limited Voting Shares. Prior to the Hold Date, these dividends are distributed in the form of additional restricted shares, equivalent in value to the cash dividends paid on the restricted shares net of required withholding taxes and subject to the same vesting and hold provisions as the original restricted shares.

Escrowed Stock Plan. The Escrowed Stock Plan governs the award of non-voting common shares (“ escrowed shares ”) of one or more private companies (each an “ Investco ”) to designated executives or other individuals designated by BAM’s Compensation Committee. Each Investco is capitalized with common shares and preferred shares issued to Brookfield for cash proceeds. Each Investco uses its cash resources to directly and indirectly purchase Class A Limited Voting Shares on the open market. Dividends paid to each Investco on the Class A Limited Voting Shares acquired by the Investco will be used to pay dividends on the preferred shares which are held by Brookfield. The Class A Limited Voting Shares acquired by an Investco will not be voted.

Escrowed shares typically vest 20% each year commencing on the date of the first anniversary of the date of the award and must be held until the fifth anniversary of the award date. Each holder may exchange escrowed shares for Class A Limited Voting Shares issued from treasury of Brookfield Asset Management at a date at least five years from and no more than 10 years from the award date.

BAIF Long Term Incentive. Mr. Rank participates in the BAIF long term incentive, which provides for payments based on the returns generated by the BAIF. No amounts have been earned by Mr. Rank under the BAIF long term incentive to date.

Brookfield believes that, for the NEOs, given their focus on long term decision making, the impact of which is difficult to assess in the short term, a formula calculation based on annual operational targets or individual performance targets may not appropriately reflect the long term strategy. Accordingly, as a whole, no specific weight is given to the achievement of any individual objective.

For 2011, the Cash Bonuses and compensation under long-term incentive plans paid to the NEOs by Brookfield were based on the overall performance of Brookfield Renewable Group and significant contributions to the business strategy of Brookfield as a whole. Listed below are several of the key accomplishments which drove Brookfield Renewable Group’s strategy and business plan and which influenced the level of Cash Bonus and long-term incentives received by each of the NEOs.

 

   

Together with our institutional partners, we announced the acquisition of nearly 1,000 MW of renewable power generating assets. Approximately 80% of the new generating capacity is in the form of hydroelectric stations located in Maine, Tennessee, North Carolina and Brazil with the balance being wind facilities located in California.

 

   

We completed construction of 48 MWs of hydroelectric facilities in Brazil on scope, schedule and budget. We commenced construction on a 45 MW hydroelectric project in British Columbia, which is expected to enter commercial operation in 2014.

 

   

During 2012, we completed more than $2.8 billion of financing and capital markets activity which has funded our growth initiatives and meaningfully lowered our borrowing costs while increasing the overall terms of our maturities. We achieved this through a combination of increasing our credit facilities to nearly $1 billion and by reducing our borrowing costs by refinancing existing indebtedness.

 

   

Further details on many of our 2012 accomplishments are described under Item 4.A “History and Development of our Business”.

BAIF Long Term Incentive Plan . Mr. Rank participates in the BAIF Long Term Incentive Plan. The plan is sponsored by Brookfield and operates by providing for payments based on the notional sharing of the carried interest (the “ Carry ”). The Carry is substantially similar to “carried interest” arrangements typically provided in private equity fund arrangements and effectively provides for a sharing of returns generated by BAIF, provided the BAIF performance exceeds return thresholds. No amounts have been earned by Mr. Rank under the BAIF Long Term Incentive Plan to date.

 

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Performance Graph

LOGO

 

                                                                                                                 
       Jan 1, 2008      2008      2009      2010      2011      2012  

 

Brookfield Renewable Power Fund / Brookfield

Renewable Energy Partners L.P.

     100.0         83.4         108.1         123.7         172.0         194.7   

S&P / TSX Composite Index Total Return

     100.0         67.0         90.2         106.4         97.1         104.1   

The graph above shows the performance of our LP Units (and, prior to the Combination, the Fund’s trust units) as compared to the S&P/TSX Composite Index for the past five years. The performance of the LP Units is one of the considerations but not a direct factor in the determination of compensation for NEOs.

 

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Summary Compensation Table

The NEOs are all employed by Brookfield and their services are provided to us pursuant to our Master Services Agreement. We are not responsible for determining or paying their compensation. For the purpose of full disclosure, the following table presents the compensation for the NEOs for the period from January 1, 2012 to December 31, 2012 and for the previous two years (which includes payments to the NEOs by Brookfield prior to the Combination). With the exception of Mr. Pinel’s 2012 annual base salary and non-equity incentive plan compensation, the NEOs are all remunerated in Canadian dollars. However, in order to provide for comparability with the financial statements, which are reported in U.S. dollars, all Canadian dollar compensation amounts have been converted to U.S. dollars at an exchange rate of C$1.00 to US$1.0004, which was the average Bloomberg mid-market exchange rate for 2012, unless otherwise noted. Mr. Pinel’s 2012 base salary and non-equity incentive plan compensation was paid to him in Brazilian Reais and have been converted into U.S. dollars at the average Bloomberg mid-market exchange rate for 2012 of R$1.00 to US$0.5136.

 

     

Year 

    Annual Base 
Salary
    Share-based 
Awards 
     Options-based  
 Awards  
    Non-equity  
Incentive plan  
compensation 
(g)  
   

Pension 
Value 

   

All Other 
Compensation 
(h) 

   

Total Annual 
Compensation 

 

Name and Principal  

Position

      (a), (b), (c), 
(g) 
    (d), (e), (f)          
              ($)      ($)      ($)      ($)       ($)      ($)      ($)   

Harry Goldgut

    2012 (i),(j)       500,200         1,198,500                500,200                30,572         2,229,472   

Group Chairman of the  

    2011        450,180         981,000                450,180                28,824         1,910,184   

Manager

    2010        400,160         1,180,500                400,160                25,336         2,006,156   

Richard Legault

    2012 (k)       500,200         1,598,000                500,200                37,004         2,635,404   

Chief Executive Officer of  

    2011        500,200         1,308,000                500,200                41,666         2,350,066   

the Manager

    2010        500,200         1,180,500                500,200                33,654         2,214,554   

Sachin Shah

    2012 (l)       350,140                 1,549,500         350,140                28,763         2,278,543   

Chief Financial Officer of  

    2011        300,120         250,100         457,800         225,090                30,912         1,264,022   

the Manager

    2010        265,106           275,450         200,080                18,383         759,019   

Ralf Rank

    2012 (m)       325,130                 671,450         245,098                22,279         1,263,957   

Chief Investment Officer of  

    2011        275,110         750,300         359,700         275,110                19,510         1,679,730   

the Manager

    2010        235,094           520,404         160,064                17,446         933,007   

Felipe Pinel

    2012        379,065         500,200         309,900         179,760                199,983         1,568,908   

Chief Operating Officer,  

    2011        275,110           130,800         205,082                27,050         638,042   

LATAM Operations

    2010        206,082                 157,400         100,040                14,036         477,558   

 

  (a)

Includes escrowed share grants. The grant date fair value of escrowed shares is determined by the board of directors of Brookfield Asset Management and considers the stock market price of the Class A Limited Voting Shares at the time of the award and the potential increase in value assuming a hold on average of 7.5 years, a volatility of 31.2%, a risk free rate of 1.3% and a dividend growth rate of 3.1%. This value has been discounted by 25% to reflect the mandatory hold until the fifth anniversary of the award. 2012 value reflects grant made in February 2013.

 

  (b)

Includes restricted share grants. Restricted shares granted to the executive vest 20% per year over 5 years. The restricted shares in this column for 2012 were awarded on February 26, 2013 at a price of C$38.66 per share, the volume weighted average price of the Class A Limited Voting Shares on the TSX for the 5 business days preceding the award date less the value of the required withholding taxes. Mr. Pinel received a restricted share grant of 13,221 shares on February 26, 2013 at a price of US$37.82 per share.

 

  (c)

The DSU awards are issued in lieu of a Cash Bonus, at the election of the individual. The DSU awards in 2012 were granted on February 26, 2013 and were awarded at a price of US$37.82, which was the volume weighted average price of the Class A Limited Voting Share on the NYSE for the five business days preceding the award date.

 

  (d)

The 2012 option awards are based on the grant date fair value of the options issued on February 26, 2013 of US$10.33 per option, calculated using the Black-Scholes option pricing model, discounted by 25% to reflect the five-year vesting and one-year holding provisions of Brookfield’s management share option plans. The options granted at this date are exercisable at the price of US$37.82.

 

  (e)

The 2011 option awards are based on the grant date fair value of the options issued on February 29, 2012 of US$6.54 per option, calculated using the Black-Scholes option pricing model, discounted by 25% to reflect the five-year vesting and one-year holding provisions of Brookfield’s management share option plans. The options granted at this date are exercisable at the price of US$31.32.

 

  (f)

The 2010 option awards are based on the grant date fair value of the options issued on March 1, 2011 of US$7.87 per option calculated, using the Black-Scholes option pricing model, discounted by 25% to reflect the five-year vesting and one-year holding provisions of Brookfield’s management share option plans. The options granted at this date are exercisable at a price of US$32.61.

 

  (g)

Some of the NEOs have elected to reinvest a portion of their Cash Bonus in Brookfield Asset Management and receive it in share-based awards (DSUs or restricted shares). In 2012, Mr. Goldgut elected to defer his Cash Bonus and was awarded 7,449.8 restricted shares. Mr. Legault elected to defer a portion of his Cash Bonus and was awarded 3,724.9 restricted shares. Mr. Shah elected to defer a portion of his Cash Bonus and was awarded 4,541.35 DSUs.

 

  (h)

These amounts include annual retirement savings contributions, participation in an executive group benefits program and vehicle benefits. In late 2011, Mr. Pinel relocated to Brazil. His expenses in 2011 and 2012 include amounts associated with his relocation.

 

  (i)

The values in this row do not include C$1,888,067 of in-the-money value from 83,000 options that were disposed of in 2012 in exchange for 61,849.53 restricted shares. These options were to expire February 2012.

 

  (j)

The values in this row do not include C$2,915,449 of in-the-money value from 118,125 options which Mr. Goldgut exercised in 2012.

 

  (k)

The values in this row do not include C$745,150 of in-the-money value from 40,000 options which Mr. Legault exercised in 2012.

 

  (l)

The values in this row do not include C$866,443 of in-the-money value from 50,050 options which Mr. Shah exercised in 2012.

 

  (m)

The values in this row do not include C$329,550 of in-the-money value from 20,000 options which Mr. Rank exercised in 2012.

 

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Incentive Plan Awards - Outstanding Share-Based Awards and Option Based Awards

The following table shows the options, restricted share awards and unvested DSUs outstanding at December 31, 2012.

Option Awards and Share-Based Awards at December 31, 2012

 

      Option Awards (a) (b)
Vested and Unvested
   Restricted Share Units
(RSU) Awards (b), (c)
Vested and Unvested
   Share-Based Awards (a)  
            Escrowed Shares    Deferred Share Units (DSUs)  
      Number of
Securities
Underlying
Unexercised
Options
   Market
Value of
Unexercised
in-the-money
Options
   Number of
Securities
Underlying
Outstanding
RSUs
   Market
Value of
Outstanding
in-the-money
RSUs
   Number of
Unvested
ESs
   Market
Value of
Unvested
ESs (e)
   Market
Value
of

Vested
ESs (e)
   Number of
Unvested
DSUs
   Market
Value of
Unvested
DSUs
   Market
Value  of
Vested
DSUs (f)
 
      (#)    ($)    (#)    ($)    (#)    ($)    ($)    (#)    ($)    ($)  

 

  

 

  

 

  

 

 

Harry Goldgut

  896,875    13,277,270    253,125    7,044,095    300,000    1,405,500    -    -    -      5,885,249   

Richard Legault

  1,494,375    21,721,212    253,125    7,044,095    350,000    1,672,000    -    -    -      3,844,570   

Sachin Shah

  585,200    7,477,668    -    -    -    -    -    -    -      643,753   

Ralf Rank

  236,125    1,746,681    -    -    -    -    -    -    -      94,140   

Felipe Pinel

  174,000    1,957,243    -    -    -    -    -    -    -      121,664   
(a)

These values do not include awards made to the NEOs on February 26, 2013.

 

(b)

The market value is the amount by which the value of the Class A Limited Voting Shares on December 31, 2012 exceeded the exercise price of the options or the RSU awards. The closing price of Class A Limited Voting Shares on the TSX on December 31, 2012 was US$36.73 (C$36.44 converted into U.S. dollars at the Bloomberg mid-market exchange rate on that day of C$1.00 = US$1.0079) and on the NYSE on December 31, 2012 of US$36.65, as applicable.

 

(c)

Restricted Share Units are not redeemable until cessation of employment and have no expiration date.

 

(d)

The market value is calculated as the number of restricted shares multiplied by the closing price of the Class A Limited Voting Share on December 31, 2012. The closing price of Class A Limited Voting Shares on the TSX on December 31, 2012 was US$36.73 (C$36.44 converted into U.S. dollars at the Bloomberg mid-market exchange rate on that day of C$1.00 = US$1.0079) and on the NYSE on December 31, 2012 of US$36.65 as applicable.

 

(e)

The value of the escrowed shares is equal to the value of the Class A Limited Voting Shares held by Investco less the net liabilities and preferred share obligations of the Investco. There are no vested escrowed shares.

 

(f)

The market value is calculated as the number of vested DSUs multiplied by the closing price of the Class A Limited Voting Shares on December 31, 2012. The closing price of Class A Limited Voting Shares on the TSX on December 31, 2012 was US$36.73 (C$36.44 converted into U.S. dollars at the Bloomberg mid-market exchange rate on that day of C$1.00 = US$1.0079) and on the NYSE on December 31, 2012 of US$36.65 as applicable.

 

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Incentive Plan Awards - Outstanding Option Awards and Restricted Share Units at December 31, 2012

The following table shows the details of each option and restricted share unit outstanding at December 31, 2012.

 

      Option-based Awards         Restricted Share Units (RSUs)   

Name and

principal position

 

Number of
securities
underlying
unexercised
options

(#)

    Options
exercise
price (C$)
   

Options
exercise
price

($) (a)

   

  Options  

  expiration date  

 

Market

value of
unexercised
options at
Dec 31,

2012

($) (b)

   

Number of
RSUs

(#)

   

Issuance
price

($) (a), (c)

   

Market value

of RSUs

December 31,
2012

($) (b)

 
             

Harry Goldgut

Group Chairman of the Manager

    84,375      $ 13.37      $ 13.47      February 11, 2014    $ 1,962,255        253,125      $ 8.90      $ 7,044,095   
    168,750      $ 20.42      $ 20.58      February 11, 2015   $ 2,725,110        -            -            -       
    56,250      $ 27.30      $ 27.51      February 14, 2016   $ 518,313        -            -            -       
    37,500      $ 39.03      $ 39.34      February 13, 2017   $ -        -            -            -       
    50,000      $ 31.62      $ 31.87      February 20, 2018   $ 242,904        -            -            -       
    200,000      $ 17.65      $ 17.79      February 25, 2019   $ 3,787,688        -            -            -       
    300,000        $ 23.18      March 2, 2020   $ 4,041,000        -            -            -       
    896,875                          $ 13,277,270        253,125              $ 7,044,095   
             
Richard Legault     44,375      $ 13.37      $ 13.47      February 11, 2014   $ 1,032,001        253,125      $ 8.90      $ 7,044,095   

Chief Executive Officer of

the Manager

    393,750      $ 20.42      $ 20.58      February 11, 2015   $ 6,358,589        -            -            -       
    168,750      $ 27.30      $ 27.51      February 14, 2016   $ 1,554,938        -            -            -       
      37,500      $ 39.03      $ 39.34      February 13, 2017   $ -        -            -            -       
      100,000      $ 31.62      $ 31.87      February 20, 2018   $ 485,808        -            -            -       
      400,000      $ 17.65      $ 17.79      February 25, 2019   $ 7,575,376        -            -            -       
      350,000        $ 23.18      March 2, 2020   $ 4,714,500        -            -            -       
      1,494,375                          $ 21,721,212        253,125              $ 7,044,095   
             

Sachin Shah

    6,750      $ 20.42      $ 20.58      February 11, 2015   $ 109,004        -            -            -       

 

Chief Financial Officer of the Manager

    11,250      $ 27.30      $ 27.51      February 14, 2016   $ 103,662        -            -            -       
    38,250      $ 39.03      $ 39.34      February 13, 2017   $ -        -            -            -       
    42,250      $ 31.62      $ 31.87      February 20, 2018   $ 205,254        -            -            -       
    256,700      $ 17.65      $ 17.79      February 25, 2019   $ 4,861,498        -            -            -       
    125,000        $ 23.18      March 2, 2020   $ 1,683,750        -            -            -       
    35,000        $ 32.61      March 1, 2021   $ 141,400        -            -            -       
    70,000        $ 31.32      March 1, 2022   $ 373,100        -            -            -       
    585,200                          $ 7,477,688        -                  $ -        
             

Ralf Rank

    15,000      $ 39.03      $ 39.34      February 13, 2017   $ -        -            -            -       

Chief Investment Officer of

the Manager

    25,000      $ 31.62      $ 31.87      February 20, 2018   $ 121,452        -            -            -       
    10,000      $ 17.65      $ 17.79      February 25, 2019   $ 189,384        -            -            -       
      65,000        $ 23.18      March 2, 2020   $ 875,550        -            -            -       
      66,125        $ 32.61      March 1, 2021   $ 267,145        -            -            -       
      55,000        $ 31.32      March 1, 2022   $ 293,150        -            -            -       
      236,125                          $ 1,746,681        -                  $ -       
             

Feliipe Pinel

    9,000      $ 39.03      $ 39.34      February 13, 2017   $ -        -            -            -       
      25,000      $ 31.62      $ 31.87      February 20, 2018   $ 121,452        -            -            -       

Chief Operating Officer, LATAM Operations

    70,000      $ 17.65      $ 17.79      February 25, 2019   $ 1,325,691        -            -            -       
    20,000        $ 23.18      March 2, 2020   $ 269,400        -            -            -       
      20,000        $ 32.61      March 1, 2021   $ 80,800        -            -            -       
      30,000        $ 31.32      March 1, 2022   $ 159,900        -            -            -       
      174,000                          $ 1,957,243        -                  $ -       

 

  (a)

The 2012 option exercise price and the RSU issuance price are in Canadian dollars and are presented in the table converted into U.S dollars at the Bloomberg mid-market exchange rate on December 31, 2012 of C$1.00 = US$1.0079.

 

  (b)

The market value of the Class A Limited Voting Shares under option and RSUs is the amount by which the closing price of Class A Limited Voting Shares on December 31, 2012 exceeded the exercise price of the options and/or the issuance price of the RSUs. All values are calculated using the closing price of Class A Limited Voting Shares on December 31, 2012 on the TSX for options issued prior to March 2, 2010 and on the NYSE for options issued thereafter. The closing price of the Class A Limited Voting Shares on the TSX on December 31, 2012 was US$36.73 (C$36.44 converted into U.S. dollars at the Bloomberg mid-market exchange rate on December 31, 2012 of C$1.00 = US$1.0079.) The closing value of the Class A Limited Voting Shares on December 31, 2012 on the NYSE was US$36.65.

 

  (c)

RSUs are not redeemable until cessation of employment and have no expiration date.

 

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Incentive Plan Awards - Value Vested or Earned During the Year

The following table shows the value of all option and share-based awards which vested during 2012.

Option and Share-Based Awards Vested During 2012

 

                 

Non-equity    
incentive plan    
compensation –

Value earned    
during the year

      Value Vested During 2012  (a)       
     

Options

 

 

DSUs

 

 

Restricted Shares (b)

 

 
Named Executive Officer   ($)   ($)   ($)  

Harry Goldgut

  1,056,125   -   1,717,903   500,200    
     

Richard Legault

  1,701,250   -   -   500,200    
     

Sachin Shah

  1,048,905   -   68,072   350,140    
     

Ralf Rank

  185,089   -   83,201   245,098    
     

Felipe Pinel

  230,050   102,685   -   179,760    

 

  (a)

All values are calculated using the closing price of a Class A Limited Voting Share on the vesting date on the TSX and on the NYSE as applicable and converted into U.S. dollars using the average Bloomberg mid-market exchange rate for 2012 of C$1.00 = US $1.0004.

  (b)

Values in this column represent the value of the restricted shares awarded on February 29, 2012 in lieu of the Cash Bonus related to performance in 2011 and from options that were disposed of in exchange for restricted shares.

Pension Plan

Brookfield Renewable sponsors a defined benefit pension plan and a defined contribution pension plan. The defined benefit pension plan provides its employees, upon their normal retirement age of 65 years or upon early retirement at the time when age plus service is equal to or greater than 85 years, with a pension payable for the retiree’s life and 60% of that pension continuing to the retiree’s spouse upon the employee’s death. If the employee does not have a spouse at retirement, the lifetime pension is payable for the retiree’s life with a ten year guarantee. If the employee retires prior to the age of 65, a temporary bridge benefit is also payable. The annual pension under the defined benefit plan at an employee’s normal retirement date is calculated as the product of (i) 2.0% of the employee’s highest five-year average annual eligible earnings less 0.5% of the five-year average of Year’s Maximum Pensionable Earnings under the Canada/Québec Pension Plan, and (ii) the employee’s years of credited service.

Mr. Legault participated in the defined benefit pension plan until December 31, 2005. Since January 1, 2006, he has not accrued additional pension credits in any pension plan sponsored by Brookfield Renewable or its subsidiaries. The annual pension payable to Mr. Legault under the defined benefit pension plan when he reaches age 65 or when his age plus service is equal to 85 years is C$68,500.

The following table sets out certain information with respect to Mr. Legault’s accrued benefits in the defined benefit pension plan in which he participated until December 31, 2005.

Pension Plan Benefit Table

 

      Number of years 
of  credited 
service 
  Annual benefits payable ($)   

Accrued 

obligation at start 
of year ($) 

 

Compensatory 

change 

($) 

 

Non- 
compensatory 
change 

($) 

 

Accrued 

obligation at 

year end 

($) 

Name     At year end    At age 65         

Richard Legault

  16.31    68,527    68,527    759,304      154,062    913,365 
               

President and Chief

Executive Officer of the

Manager

                           

Note: Amounts have been converted to U.S. dollars at the average Bloomberg mid-market exchange rate for 2012 of C$1.00 = US$1.0004.

 

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Termination and Change of Control Benefits

There are no employment contracts between the NEOs and Brookfield Renewable. None of the NEOs have any termination, change of control arrangement or other compensatory plan, contract or arrangement with Brookfield Renewable.

While the NEOs participate in Brookfield’s long-term incentive plans, Brookfield Renewable does not reimburse the Manager for such participation and has no obligations under these plans to the NEOs in the event of a change of control or a termination of their employment.

Board of Directors of the Managing General Partner

The Managing General Partner pays each of its directors $60,000 per year for serving on its board of directors and various board committees. The Managing General Partner pays the chairperson/lead director of the board of directors an additional $35,000 per year and each chairperson of the committees of the board of directors an additional $10,000 ($20,000 for the chairperson of the Audit Committee). Only those directors who are not employed by Brookfield or its affiliates are entitled to receive compensation for acting as a director of the Managing General Partner.

We believe that directors of the Managing General Partner can better represent LP Unitholders if they are LP Unitholders themselves. Accordingly, within five years of joining the board of directors, directors of the Managing General Partner are required to hold sufficient LP Units such that either the acquisition cost or current market value is equal to at least two times their annual retainer, as established by the board. This minimum ownership requirement is currently $120,000. We consider this minimum ownership requirement to be consistent with best practices.

The Compensation Committee is responsible for reviewing and making recommendations to the board of directors of the Managing General Partner concerning the remuneration of directors and committee members. See Item 6.C “Board Practices — Committees of the Board — Compensation Committee”.

Indebtedness of Directors and Executive Officers

As at the date of this Form 20-F, and at all times since January 1, 2012, none of the directors, officers, employees and former directors, officers and employees of the Managing General Partner, the Manager or any of their respective subsidiaries (or of the Fund or Brookfield or their respective subsidiaries prior to the Combination), nor any of their associates, has or had any indebtedness owing to Brookfield Renewable or any of its subsidiaries (or to the Fund or Brookfield or their respective subsidiaries prior to the Combination).

 

  6.C

BOARD PRACTICES

Board Structure, Practices and Committees

The structure, practices and committees of the Managing General Partner’s board of directors, including matters relating to the size, independence and composition of the board of directors, the election and removal of directors, requirements relating to board action and the powers delegated to board committees, are governed by the Managing General Partner’s bye-laws. The Managing General Partner’s board of directors is responsible for exercising the management, control, power and authority of the Managing General Partner except as required by applicable law or the bye-laws of the Managing General Partner. The following is a summary of certain provisions of those bye-laws that affect Brookfield Renewable’s governance.

Size, Independence and Composition of the Board of Directors

The Managing General Partner’s board of directors is currently set at seven directors. The board may consist of between three and 11 directors or such other number of directors as may be determined from time-to-time by a resolution of the Managing General Partner’s shareholders and subject to its bye-laws. At least three directors and at least a majority of the directors holding office must be independent of the Managing General Partner and Brookfield, as determined by the full board of directors using the standards for independence established under applicable securities laws.

If the death, resignation or removal of an independent director results in the board of directors consisting of less than a majority of independent directors, the vacancy must be filled promptly. Pending the filling of such vacancy, the board of directors may temporarily consist of less than a majority of independent directors and those directors who do not meet the standards for independence may continue to hold office. In addition, the Managing General Partner’s bye-laws provide that not more than 50% of the directors (as a group) or the independent directors (as a group) may be residents of any one jurisdiction (other than Bermuda and any other jurisdiction designated by the board of directors from time to time).

 

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Election and Removal of Directors

The Managing General Partner’s board of directors was appointed by its sole shareholder and each of its current directors will serve until the close of the next annual meeting of shareholders of the Managing General Partner or his or her death, resignation or removal from office, whichever occurs first. Vacancies on the board of directors may be filled and additional directors may be added by a resolution of the Managing General Partner’s shareholders or a vote of the directors then in office. A director may be removed from office by a resolution duly passed by the Managing General Partner’s shareholders or, if the director has been absent without leave from three consecutive meetings of the board of directors, by a written resolution requesting resignation signed by all other directors then holding office. A director will be automatically removed from the board of directors if he or she becomes bankrupt, insolvent or suspends payments to his or her creditors or becomes prohibited by law from acting as a director.

Action by the Board of Directors

The Managing General Partner’s board of directors may take action in a duly convened meeting at which a quorum is present or by a written resolution signed by all directors then holding office. When action is to be taken at a meeting of the board of directors, the affirmative vote of a majority of the votes cast is required for any action to be taken.

Transactions Requiring Approval by Independent Directors

The Managing General Partner’s independent directors approved the Conflicts Policy which addresses the approval and other requirements for transactions in which there is potential for a conflict of interest to arise. These transactions include, but are not limited to:

 

   

the dissolution of BRELP;

 

   

any material amendment to our Master Services Agreement, the Amended and Restated Limited Partnership Agreement of BRELP or the Amended and Restated Limited Partnership Agreement of BREP;

 

   

any material service agreement or other arrangement pursuant to which Brookfield will be paid a fee, or other consideration other than any agreement or arrangement contemplated by our Master Services Agreement;

 

   

subject to certain exceptions, acquisitions by us from, and dispositions by us to, Brookfield;

 

   

subject to certain exceptions, any other material transaction involving us and Brookfield; and

 

   

termination of, or any determinations regarding indemnification under, our Master Services Agreement.

The Conflicts Policy requires the transactions described above to be approved by a majority of the Managing General Partner’s independent directors. Pursuant to the Conflicts Policy, independent directors may grant approvals for any of the transactions described above in the form of general guidelines, policies or procedures in which case no further special approval will be required in connection with a particular transaction or matter permitted thereby. The Conflicts Policy can be amended at the discretion of the Managing General Partner. See Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

Transactions in Which a Director Has an Interest

A director who directly or indirectly has an interest in a contract, transaction or arrangement with the Managing General Partner, Brookfield Renewable or certain of our affiliates is required to disclose the nature of his or her interest to the full board of directors. Such disclosure may generally take the form of a general notice given to the board of directors to the effect that the director has an interest in a specified company or firm and is to be regarded as interested in any contract, transaction or arrangement made with that company or firm or its affiliates after the date of the notice. A director may participate in any meeting called to discuss or any vote called to approve the transaction in which the director has an interest and any transaction approved by the board of directors will not be void or voidable solely because the director was present at or participated in the meeting in which the approval was given provided that the board of directors or a board committee authorizes the transaction in good faith after the director’s interest has been disclosed or the transaction is fair to the Managing General Partner and Brookfield Renewable at the time it is approved.

Service Contracts

There are no service contracts with directors that provide benefit upon termination of office or services.

 

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Indemnification and Limitations on Liability

The Amended and Restated Limited Partnership Agreement of BREP

The laws of Bermuda permit the partnership agreement of a limited partnership, such as Brookfield Renewable, to provide for the indemnification of a partner, the officers and directors of a partner and any other person against any and all claims and demands whatsoever, except to the extent that the indemnification may be held by the courts of Bermuda to be contrary to public policy or to the extent that the laws of Bermuda prohibit indemnification against personal liability that may be imposed under specific provisions of the laws of Bermuda. The laws of Bermuda also permit a partnership to pay or reimburse an indemnified person’s expenses in advance of a final disposition of a proceeding for which indemnification is sought. See Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and The Amended and Restated Limited Partnership Agreement of BREP — Indemnification; Limitations on Liability” for a description of the indemnification arrangements in place under the Amended and Restated Limited Partnership Agreement of BREP.

The Managing General Partner’s Bye-laws

The laws of Bermuda permit the bye-laws of an exempted company, such as our Managing General Partner, to provide for the indemnification of its officers, directors and shareholders and any other person designated by the company against any and all claims and demands whatsoever, except to the extent that the indemnification may be held by the courts of Bermuda to be contrary to public policy or to the extent that the laws of Bermuda prohibit indemnification against personal liability that may be imposed under specific provisions of the laws of Bermuda. Bermuda company law also permits an exempted company to pay or reimburse an indemnified person’s expenses in advance of a final disposition of a proceeding for which indemnification is sought.

Under the Managing General Partner’s bye-laws, the Managing General Partner is required to indemnify, to the fullest extent permitted by law, its affiliates, directors, officers, resident representative, shareholders and employees, any person who serves on a Governing Body of BRELP or any of its subsidiaries and certain others against any and all losses, claims, damages, liabilities, costs or expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, incurred by an indemnified person in connection with Brookfield Renewable’s investments and activities or in respect of or arising from their holding such positions, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person’s bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew or ought reasonably to have known was unlawful. In addition, under the Managing General Partner’s bye-laws, (i) the liability of such persons has been limited to the fullest extent permitted by law and except to the extent that their conduct involves bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew or ought reasonably to have known was unlawful; and (ii) any matter that is approved by the independent directors will not constitute a breach of any duties stated or implied by law or equity, including fiduciary duties. The Managing General Partner’s bye-laws require it to advance funds to pay the expenses of an indemnified person in connection with a matter in which indemnification may be sought until it is determined that the indemnified person is not entitled to indemnification.

Insurance

Brookfield Renewable has obtained insurance coverage under which the directors of the Managing General Partner are insured, subject to the limits of the policy, against certain losses arising from claims made against such directors by reason of any acts or omissions covered under the policy in their respective capacities as directors of the Managing General Partner, including certain liabilities under securities laws.

Corporate Governance Disclosure

The Managing General Partner’s board of directors encourages sound corporate governance practices designed to promote the well-being and ongoing development of Brookfield Renewable, including advancing the best interests of Brookfield Renewable.

The Managing General Partner’s board of directors is of the view that its corporate governance policies and practices, outlined below, are comprehensive and consistent with the guidelines for corporate governance adopted by Canadian securities administrators. The board is also of the view that these policies and practices are consistent with the requirements of the New York Stock Exchange and the applicable provisions under the Sarbanes-Oxley Act.

Board of Directors of the Managing General Partner

Mandate of the Board

The Managing General Partner’s board of directors oversees the management of Brookfield Renewable’s affairs directly and through three existing standing committees. The responsibilities of the board and each committee are set out in written charters , which are reviewed and approved annually. These charters are also posted on Brookfield Renewable’s website, www.brookfieldrenewable.com under “About - Governance”. See also Item 6.C “Board Practices”.

 

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In fulfilling its mandate, the board is, among other things, responsible for the following:

 

   

assessing the principal risks of Brookfield Renewable’s business and reviewing, approving and monitoring the systems in place to manage these risks;

 

   

reviewing and approving the reports issued to LP Unitholders, including annual and interim financial statements; and

 

   

promoting the effective operation of the board.

Meetings of the Board

The Managing General Partner’s board of directors meets at least four times each year, with additional meetings held to consider specific items of business or as deemed necessary. Meeting frequency and agenda items may change depending on the opportunities or risks faced by Brookfield Renewable. The board is responsible for its agenda. Prior to each board meeting, the Chair of the board discusses agenda items for the meeting with the Manager.

In 2012, the board of directors of the Managing General Partner had four regular quarterly meetings as well as three special meetings. All of the directors were present or could be heard at the regular quarterly meetings. At the special meeting, held on September 27, 2012, Mr. David Mann was not in attendance and at the special meeting, held on December 10, 2012, Mr. Lou Maroun was not in attendance.

Size and Composition of the Board

The Managing General Partner’s board of directors is currently set at seven directors. See Item 6.C “Board Practices — Size, Independence and Composition of the Board of Directors”.

Independent Directors

At least three directors and at least a majority of the directors holding office must be independent of the Managing General Partner and Brookfield, as determined by the full board of directors using the standards for independence established under applicable securities laws. See Item 6.C “Board Practices — Size, Independence and Composition of the Board of Directors”.

The following table describes the independence status of the directors of the Managing General Partner.

 

Director

  

Independence Status

  

Reason for Related Status

Jeffrey Blidner

   Related   

Mr. Blidner is a Senior Managing Partner of

Brookfield Asset Management.

Eleazar de Carvalho Filho

   Independent   

John Van Egmond

   Independent   

Lars Josefsson

   Related   

Mr. Josefsson is a consultant to Brookfield

Asset Management.

David Mann

   Independent   

Lou Maroun

   Independent   

Patricia Zuccotti

   Independent   

The Chair of the Managing General Partner’s board of directors is Jeffrey Blidner, who is not an independent director. However, each of the committees of the board is fully comprised of independent directors. In addition, special committees of independent directors may be formed from time to time to review particular matter or transactions. The board encourages regular open dialogue between the independent directors and the Chair to discuss matters raised by independent directors.

At all quarterly meetings held since the Combination, the independent directors held meetings without the presence of management and the directors that are not independent. The board has also adopted the Conflicts Policy to govern its practices in circumstances in which conflicts of interest with Brookfield may arise. See Item 6.C “Board Practices — Transactions Requiring Approval by Independent Directors” and “— Transactions in Which a Director Has an Interest” and Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

 

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Other Directorships

The following directors of the Managing General Partner are also directors of other reporting issuers (or the equivalent in foreign jurisdictions).

 

   

Blidner: Brookfield Infrastructure Partners L.P.; Rouse Properties, Inc.

 

   

de Carvalho Filho: FMC Technologies, Inc. and Companhia Brasileira de Distribuição Grupo Pão de Açúcar (GPA)

 

   

Josefsson: Holmen AB

 

   

Mann: Acadian Timber Corp.; New Growth Corp; AllBanc Split Corp. II; Logistec Corp.

 

   

Maroun: Brookfield Infrastructure Partners L.P.; Acadian Timber Corp.; Partners REIT; Brookfield Property Partners L.P.

Director Orientation and Education

New directors of the Managing General Partner are provided with comprehensive information about Brookfield Renewable and its affiliates. Arrangements are made for specific briefing sessions from appropriate senior personnel to help new directors better understand Brookfield Renewable’s strategies and operations. They also participate in the continuing education measures discussed below.

The Managing General Partner’s board of directors receives annual operating plans for each of Brookfield Renewable’s strategic business units and more detailed presentations on particular strategies. Existing directors are invited to join the orientation sessions for new directors as a refresher. The directors are also invited to participate in guided tours of Brookfield Renewable’s various operational facilities. They have the opportunity to meet and participate in work sessions with management to obtain insight into the operations of Brookfield Renewable and its affiliates. Directors are regularly briefed to help better understand industry related issues such as accounting rule changes, transaction activity, capital markets initiatives, significant regulatory developments, as well as trends in corporate governance.

Director Expectations

The Managing General Partner’s board of directors has adopted a Charter of Expectations for Directors, which sets out the expectations in regard to personal and professional competencies, share ownership, meeting attendance, conflicts of interest, changes of circumstance and resignation events. Directors are expected to identify in advance any potential conflict of interest regarding a matter coming before the board or its committees, bring these to the attention of the board or committee chairman and refrain from voting on such matters. Directors are also expected to submit their resignations to the Chair of the board if they become unable to attend at least 75% of the board’s regularly scheduled meetings or if they become involved in a legal dispute, regulatory or similar proceedings, take on new responsibilities or experience other changes in personal or professional circumstances that could adversely impact Brookfield Renewable or their ability to serve as director. Further information on director share ownership requirements is set out under “Board Practices”.

Committees of the Board

The Managing General Partner’s board of directors believes that its committees assist in the effective functioning of the board and help ensure that the views of independent directors are effectively represented.

The board has three committees:

 

   

the Audit Committee;

 

   

the Nominating and Governance Committee; and

 

   

the Compensation Committee.

The responsibilities of these Committees are set out in written charters, which are reviewed and approved annually by the board of directors. The charters of these committees can be found on our website, www.brookfieldrenewable.com under “About - Governance”. All members of these committees must be independent directors, as described above. Special committees may be formed from time to time as required to review particular matters or transactions. While the board retains overall responsibility for corporate governance matters, the Audit Committee, the Nominating and Governance Committee and the Compensation Committee each have specific responsibilities for certain aspects of corporate governance, in addition to their other responsibilities as described below.  

 

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Audit Committee

The Managing General Partner’s board of directors has established an audit committee (the “ Audit Committee ”) that operates pursuant to a written charter. The Audit Committee consists solely of independent directors, each member is financially literate and there will be at least one member at all times designated as an audit committee financial expert. Audit Committee members may not serve on more than two other public company audit committees, except with the prior approval of the Managing General Partner’s board of directors. Not more than 50% of the Audit Committee members may be directors who are residents of any one jurisdiction (other than Bermuda and any other jurisdiction designated by the board of directors from time to time).

The Audit Committee is responsible for assisting and advising the Managing General Partner’s board of directors with matters relating to:

 

   

our accounting and financial reporting processes;

 

   

the integrity and audits of our financial statements;

 

   

our compliance with legal and regulatory requirements; and

 

   

the qualifications, performance and independence of our independent accountants.

The Audit Committee is also responsible for engaging our independent auditors, reviewing the plans and results of each audit engagement with our independent auditors, approving professional services provided by our independent auditors, considering the range of audit and non-audit fees charged by our independent auditors and reviewing the adequacy of our internal accounting controls.

As of the date of this Form 20-F, the Audit Committee was comprised of the following three directors: Patricia Zuccotti (Chair), David Mann and Eleazar de Carvalho Filho, all of whom are independent directors.

In 2012, the Audit Committee had four regular quarterly meetings as well as two special meetings. All of the committee members were present at the meetings. Four regular meetings are scheduled for 2013.

Nominating and Governance Committee

The Managing General Partner’s board of directors has established a nominating and governance committee (the “ Nominating and Governance Committee ”) that operates pursuant to a written charter. The Nominating and Governance Committee consists entirely of independent directors and not more than 50% of the Nominating and Governance Committee members may be directors who are residents of any one jurisdiction (other than Bermuda and any other jurisdiction designated by the board of directors from time to time).

The Nominating and Governance Committee is responsible for approving the appointment by the sitting directors of a person to the office of director and for recommending a slate of nominees for election as directors by the Managing General Partner’s shareholders. The Nominating and Governance Committee is also responsible for assisting and advising the Managing General Partner’s board of directors with respect to matters relating to the general operation of the board of directors, Brookfield Renewable’s governance, the governance of the Managing General Partner and the performance of its board of directors and individual directors.

It is the responsibility of the Nominating and Governance Committee to assess the size and composition of the Managing General Partner’s board of directors and its committees; to review the effectiveness of the board’s operations and its relations with the Manager; to assess the performance of the board, individual directors and the Manager; and to review Brookfield Renewable’s corporate governance practices.  The Nominating and Governance Committee met three times in 2012.

The Nominating and Governance Committee annually reviews the performance of the board and its committees and the individual contribution of directors through a self-survey.

The Nominating and Governance Committee is also responsible for evaluating candidates put forward by Brookfield as candidates for nomination to the board. As Brookfield Asset Management is entitled to elect all of the directors of the Managing General Partner, the directors of the Managing General Partner consult with Brookfield to identify and assess the credentials of appropriate individuals with the skills, knowledge, experience and talents needed to act as an independent member of the board of directors of the Managing General Partner. Brookfield maintains an “evergreen” list of potential independent board members to ensure that outstanding candidates with the needed skills can be quickly identified to fill planned or unplanned vacancies. Candidates from that list and any other candidates familiar to Brookfield or Brookfield Renewable are assessed to ensure the Managing General Partner’s board of directors has the appropriate mix of talent, quality, skills and other requirements necessary to promote sound governance and board effectiveness. Individuals who meet those requirements are recommended by Brookfield to the Nominating and Governance Committee for its review as potential candidates for nomination to the board.

As of the date of this Form 20-F, the Nominating and Governance Committee was comprised of the following three directors, David Mann (Chair), Lou Maroun and John Van Egmond, all of whom are independent directors.

 

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Compensation Committee

The Managing General Partner’s board of directors has established a compensation committee (the “ Compensation Committee ”) that operates pursuant to a written charter. The Compensation Committee consists solely of independent directors. Not more than 50% of the Compensation Committee members may be directors who are residents of any one jurisdiction (other than Bermuda and any other jurisdiction designated by the board of directors from time to time).

It is the responsibility of the Compensation Committee to review and make recommendations to the board of directors of the Managing General Partner concerning the remuneration of directors and committee members and supervise any changes in the fees to be paid pursuant to our Master Services Agreement.  The Compensation Committee met once in 2012.

On recommendation of the Compensation Committee, the Managing General Partner’s board of directors sets compensation of the directors by seeking to ensure that the compensation reflects the responsibilities and risks involved in being a director and aligns the interests of the directors with the best interests of Brookfield Renewable and our LP Unitholders. Compensation of the directors is periodically assessed by the Compensation Committee and the board to ensure that it is competitive in the marketplace and fair in relation to the scope of the duties and responsibilities of the directors.

The Managing General Partner does not have any executive officers. As the Manager manages Brookfield Renewable pursuant to our Master Services Agreement, the compensation of our core senior management team is determined by Brookfield. Our Compensation Committee is responsible for supervising any changes in the fees to be paid pursuant to our Master Services Agreement. See Item 6.A “Directors and Senior Management — Our Management” and Item 6.B “Compensation — Our Management”.

As of the date of this Form 20-F, the Compensation Committee was comprised of the following three directors, John Van Egmond (Chair), Eleazar de Carvalho Filho and Lou Maroun, all of whom are independent directors.

Board, Committees and Director Evaluation

The Managing General Partner’s board of directors believes that a regular and formal process of evaluation improves the performance of the board as a whole, its committees and individual directors. Each year, a survey is sent to directors regarding the effectiveness of the board and its committees, inviting comments and suggestions on areas for improvement. The results of this survey are reviewed by the Nominating and Governance Committee, which makes recommendations to the board as required. Each director also receives a list of questions for completing a self-assessment. The Chair of the board holds private interviews with each director annually to discuss the operations of the board and its committees and to provide any feedback on the individual director’s contributions.

Board and Management Responsibilities

The Managing General Partner’s board of directors has not developed written position descriptions for the Chair of the board or the chair of any of the committees of the board. However, each chair takes responsibility for ensuring the board or committee, as applicable, addresses the matters within its written charter.

The Managing General Partner’s board of directors has not developed a written position description for any members of our core senior management team. The services of our core senior management team are provided by the Manager pursuant to our Master Services Agreement.

Code of Business Conduct and Ethics

Brookfield Renewable has adopted a Code of Business Conduct and Ethics (the “ Code ”), a copy of which can be found on Brookfield Renewable’s web site at www.brookfieldrenewable.com or on Brookfield Renewable’s SEDAR profile at www.sedar.com. The Code provides guidelines to ensure that all employees, including directors of the Managing General Partner, respect Brookfield Renewable’s commitment to conducting business relationships with respect, openness and integrity. Management provides regular instructions and updates to the Code to our employees. Employees may report activities which they feel are not consistent with the spirit and intent of the Code through a hotline set up specifically to monitor compliance with the Code. Monitoring of calls is managed by an independent third party called The Network. The Audit Committee is to be notified of significant calls made to this hotline reporting activities that are not consistent with the Code by Brookfield’s internal auditor. If the Audit Committee considers it appropriate, it will notify the Nominating and Governance Committee and/or the board of directors of significant calls. The board has not granted any waivers of the Code to date.

The Managing General Partner’s board of directors promotes the highest ethical business conduct. The board has taken measures to ensure directors exercise independent judgment in considering transactions and agreements in respect of which a director or our core senior management team has a material interest. Any director with a material interest in a transaction declares his/her

 

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interest and refrains from voting on such matter. Significant related party transactions, if any, are reviewed and approved by an independent committee made up of independent directors who may be advised by independent counsel and independent advisors. See Item 6.C “Board Practices — Transactions Requiring Approval by Independent Directors” and “— Transactions in Which a Director Has an Interest” and Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

 

  6.D

EMPLOYEES

We do not employ the individuals who provide management services to us under our Master Services Agreement, including the individuals who serve as the Managing General Partner’s Chief Executive Officer and Chief Financial Officer. The personnel that carry out these activities are employees of Brookfield, and their services are provided to Brookfield Renewable or for our benefit under our Master Services Agreement. For a discussion of the individuals from Brookfield’s management team that are involved in our renewable power business, see Item 6. “Directors and Senior Management — Our Management”. However, through our subsidiaries, we have approximately 1,208 employees involved in the day-to-day operations of our facilities and the development of our business, of which 245 operations and 136 corporate employees are located in Canada, 511 are located in the United States and 316 are located in Brazil. Approximately 562, or 46% of these employees, are covered by collective agreements expiring between 2013 and 2018. We maintain very good relations with represented and salaried employees across all facilities. Relationships with the various unions in Canada, the United States and Brazil have also been positive, without the occurrence of any work disruptions that would have had a negative impact on the business.

 

  6.E

SHARE OWNERSHIP

Except as described below under Item 7.A “Major Shareholders and Related Party Transactions — Major Shareholders”, as of the date of this Form 20-F, the directors and officers of the Managing General Partner and the employees of the Manager who perform executive functions for Brookfield Renewable, and their respective associates, as a group, beneficially owned, directly or indirectly, or exercised control or direction over, less than 1% of the outstanding LP Units.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

  7.A

MAJOR SHAREHOLDERS

As of the date of this Form 20-F, there are 132,937,869 LP Units outstanding. To our knowledge, as at the date of this Form 20-F, no person or company, other than Brookfield, beneficially owns or controls or directs, directly or indirectly, more than 5% of our LP Units. Brookfield beneficially owns 40,026,986 LP Units and 129,658,623 Redeemable/Exchangeable partnership units, or a 65% interest in Brookfield Renewable (on a fully-exchanged basis) including its indirect general partnership interest in the Managing General Partner and the BRELP GP LP. All LP Units, including those held by Brookfield, are non-voting. See also the information contained in this Form 20-F under Item 10.B “Memorandum and Articles of Association — Description of our LP Units and the Amended and Restated Limited Partnership Agreement of BREP”.

As of May 15, 2013, none of our outstanding LP Units were held by holders of record in the United States, not including LP Units held of record by DTC. As of May 15, 2013, DTC was the holder of record of 2,697,004 LP Units.

The following tables set forth information, as of date of this Form 20-F, regarding the beneficial ownership of LP Units by each person that is a beneficial owner of more than 5% of our LP Units.

 

Principal Beneficial Owners

  

LP Units

  

Percentage of LP

Units

Brookfield Renewable Power Inc.

   169,685,609 (1)    65% (2)

 

 

  (1)

Includes 129,658,623 Redeemable/Exchangeable partnership units held by Brookfield which are redeemable for cash or exchangeable for LP Units in accordance with the Redemption-Exchange Mechanism. All Redeemable/Exchangeable partnership units and all limited partnership units of BRELP held by BREP are non-voting. For additional information, see Item 10.B “Memorandum and Articles of Association —Description of the Amended and Restated Limited Partnership Agreement of BRELP — Units”.

 

 

  (2)

Assuming the exchange of all Redeemable/Exchangeable partnership units held by Brookfield Asset Management and including Brookfield Asset Management’s indirect general partnership interests.

 

See also the information contained in this Form 20-F under Item 3.D “Risk Factors—Risks Related to our Relationship with Brookfield”, Item 6.A “Directors and Senior Management”, Item 6.C “Board Practices” and Item 7.B “Related Party Transactions”.

 

  7.B

RELATED PARTY TRANSACTIONS

We are an affiliate of Brookfield. We have entered into a number of agreements and arrangements with Brookfield in order to enable us to be established as a separate entity and to pursue our vision of being a leading owner and operator of high-quality renewable power assets. While we believe that this ongoing relationship with Brookfield provides us with a strong competitive advantage as well as access to opportunities that would otherwise not be available to us, we operate as an independent, stand-alone entity. We describe below these relationships as well as potential conflicts of interest (and the methods for resolving them) and other material considerations arising from our relationship with Brookfield.

 

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See also the information contained in this Form 20-F under Item 3.D “Risk Factors — Risks Related to Our Relationship with Brookfield”, Item 5.A “Operating Results — Related Party Transactions”, Item 6.A “Directors and Senior Management”, Item 6.C “Board Practices” and Item 7.A “Major Shareholders” and Note 8 to our audited consolidated financial statements for the year ended December 31, 2011 and our unaudited quarterly financial statements for the three and nine months ended September 30, 2012, respectively.

Relationship Agreement

Brookfield Asset Management and certain of its subsidiaries entered into an agreement with Brookfield Renewable, referred to as the Relationship Agreement that governs aspects of the relationship among them. Pursuant to the Relationship Agreement, Brookfield Asset Management has agreed that Brookfield Renewable will serve as its primary vehicle through which it will acquire renewable power assets on a global basis. See Item 4.B “Business Overview — The Manager” for further details on Brookfield Asset Management.

Each of Brookfield Renewable, BRELP and the Holding Entities acknowledge and agree that Brookfield Asset Management is not required under the Relationship Agreement to allocate any minimum level of dedicated resources for the pursuit of acquisitions of power generation operations or developments and that Brookfield has established or advised, and may continue to establish or advise, other entities that rely on the diligence, skill and business contacts of Brookfield’s professionals and the information and acquisition opportunities they generate during the normal course of their activities (including in the power generation sector). Brookfield Asset Management also agrees that it will not sponsor transactions that are suitable for us in the renewable power sector unless we are given an opportunity to participate. Further, Brookfield may, but is not required to, offer Brookfield Renewable Group the opportunity to acquire an integrated utility even if a significant component of such utility’s operations consist of renewable power generation, a non-renewable power generation operation or development, such as a power generation operation that uses coal or natural gas, a portfolio of power operations, if a significant component of such portfolio’s operations consist of non-renewable power generation, or renewable power generation operations or developments that comprise part of a broader enterprise, unless the primary purpose of such acquisition, as determined by Brookfield, acting in good faith, is to acquire the underlying operation or development.

Brookfield Renewable, BRELP and the Holding Entities also acknowledge and agree that members of Brookfield carry on a diverse range of businesses worldwide, including the development, ownership and/or management of power, transmission and other infrastructure assets, and investing and advising on investing in any of the foregoing or loans, debt instruments and other securities with underlying infrastructure collateral or exposure including renewable power generation operations or developments, both as principal and through other public companies that are affiliates of Brookfield or through private investment vehicles and accounts established or managed by affiliates of Brookfield and that except as explicitly provided in the Relationship Agreement, the Relationship Agreement will not in any way limit or restrict members of Brookfield from carrying on their respective business.

If we intend to pursue an acquisition opportunity presented by Brookfield, one or more members of Brookfield may participate in the acquisition opportunity if we do not have the financial capacity (as determined by Brookfield) to acquire all of the opportunity or if Brookfield allocates participation in the opportunity between Brookfield Renewable and one or more members of Brookfield, after taking into consideration the purpose of the investment opportunity, the risk/return profile, the source of the investment opportunity and other factors that Brookfield considers relevant. In the event that we decline an acquisition opportunity presented by Brookfield, Brookfield may pursue such acquisition opportunity for its own account, without restriction. Due to the foregoing, we expect to compete from time-to-time with Brookfield or other third parties for access to the benefits that we expect to realize from Brookfield Asset Management’s involvement in our business. See Item 3.D “Risk Factors — Risks Related to Our Relationship with Brookfield — Brookfield is not necessarily required to act in the best interests of the Service Recipients, Brookfield Renewable or our LP Unitholders”.

An integral part of our strategy is to participate with institutional investors in Brookfield sponsored or co-sponsored consortiums or funds for acquisitions that fit our strategy. Brookfield has a strong track record of leading such consortiums and funds and actively manages underlying assets to improve performance. Currently, Brookfield manages the Brookfield Americas Infrastructure Fund, a $2.7 billion infrastructure fund focused on North and South America. Brookfield is the fund manager and typically invests approximately 25% of the capital required for a transaction alongside its institutional investors. It is currently intended that future renewable power acquisitions identified by Brookfield may be funded with commitments pursuant to these funds and we would fund Brookfield’s participation where renewable power investments are made by Brookfield’s sponsored institutional funds.

In the event of the termination of our Master Services Agreement, the Relationship Agreement would also terminate, including Brookfield’s commitments to provide us with acquisition opportunities, as described above.

 

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Master Services Agreement

Brookfield Renewable, BRELP and the Holding Entities entered into our Master Services Agreement pursuant to which the Manager has agreed to provide oversight of the business and provide the services of senior officers to Brookfield Renewable Group. In addition, the Manager has agreed to provide services relating to acquisitions or dispositions, financings, business planning and strategy and oversight and supervision of various day to day management and administration activities. In exchange for providing these services, the Manager is entitled to a Base Management Fee equal to $20 million which amount shall be adjusted for inflation annually beginning on January 1, 2013, at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the Total Capitalization Value (which is generally determined with reference to the aggregate of the value of all outstanding LP Units and securities of the other Service Recipients that are not held by Brookfield Renewable Group, plus all outstanding third party debt with recourse to Brookfield Renewable, BRELP or a Holding Entity, less all cash held by such entities) of Brookfield Renewable exceeds an initial reference value determined based on its market capitalization immediately following the Combination. In the event that the measured Total Capitalization Value of Brookfield Renewable in a given period is less than the initial reference value, the Manager will receive a Base Management Fee of $20 million annually (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). The Base Management Fee will be calculated and paid on a quarterly basis. For a detailed description of our Master Services Agreement, see Item 6.A “Directors and Senior Management — Our Master Services Agreement”.

Total Capitalization Value as of the latest balance sheet date (March 31, 2013) is $10,292,360,296, which against the initial reference value of $8,093,033,167 and factoring in the annual amount of $20 million, resulted in a Base Management Fee payment for the first quarter of 2013 in the amount of approximately $12.0 million. The Base Management Fee payment for the year ended December 31, 2012 and for the period between the Combination and December 31, 2011 was approximately $35.8 million and $2.2 million, respectively. For components of the management fee, see Item 6.A— “Directors and Senior Management — Our Master Services Agreement — Management Fee”.

Combination Agreement

BRPI, the Fund, BRPT and BREP entered into a Combination Agreement resulting in Brookfield Renewable being established to serve as the primary vehicle through which Brookfield will acquire renewable power assets on a global basis. As a result of the Combination completed on November 28, 2011, all of the renewable power assets of the Fund, at the time a publicly traded entity in Canada, and Brookfield were combined and are now indirectly held by Brookfield Renewable through BRELP and BRELP’s subsidiaries. On completion of the Combination, public unitholders of the Fund received one LP Unit in exchange for each trust unit of the Fund held and the Fund was wound up. Prior to the Combination, Brookfield owned an approximate 34% interest in the Fund on a fully-exchanged basis. On completion of the Combination, Brookfield owned 73% of Brookfield Renewable on a fully-exchanged basis. Brookfield now owns 65% of Brookfield Renewable on a fully-exchanged basis and the remaining 35% is held by the public.

Incentive Distributions

BRELP GP LP is entitled to receive incentive distributions from BRELP as a result of its ownership of the general partnership interest in BRELP. The incentive distributions are to be calculated in increments based on the amount by which quarterly distributions on the limited partnership units of BRELP exceed specified target levels as set forth in the Amended and Restated Limited Partnership Agreement of BRELP. See Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP — Distributions”.

BRELP GP LP may, at its sole discretion, elect to reinvest incentive distributions in exchange for Redeemable/Exchangeable partnership units.

To the extent that any of the Holding Entities or any operating entity pays to Brookfield any comparable performance or incentive distribution, the amount of any future incentive distributions will be reduced in an equitable manner to avoid duplication of distributions.

General Partner Distributions

Pursuant to the Amended and Restated Limited Partnership Agreement of BREP, the Managing General Partner is entitled to receive a general partner distribution equal to 0.01% of the total distributions of Brookfield Renewable. See Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP —Distributions”.

Pursuant to the Amended and Restated Limited Partnership Agreement of BRELP, BRELP GP LP is entitled to receive a general partner distribution from BRELP equal to a share of the total distributions of BRELP in proportion to BRELP GP LP’s percentage interest in BRELP which is equal to 1% of the total distributions of BRELP. In addition, it is entitled to receive the incentive distributions described above under “— Incentive Distributions”. See Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP — Distributions”.

 

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Energy Revenue Agreement

On November 23, 2011, BEM LP, a subsidiary of Brookfield, and BPUSHA, a subsidiary of BRELP that indirectly owns most of our U.S. facilities entered into the Energy Revenue Agreement pursuant to which BEM LP agreed to support the price that BPUSHA receives for the energy generated from certain of those facilities. BEM LP has agreed to pay BPUSHA each month an amount equal to the difference between the Fixed Amount and the total revenues received by BPUSHA from certain of those facilities. The “ Fixed Amount ” is calculated as the energy generated by those facilities multiplied by a price of $75/MWh (subject to an annual adjustment, beginning January 1, 2012, equal to 40% of the increase in the U.S. Consumer Price Index during the previous year, but capped at a 3% increase in the fixed price per year). Should the total revenues received by these facilities from sales of electricity and all ancillary services, capacity and green credits for any month be more than the calculated Fixed Amount at the end of any month, BEM LP will receive from BPUSHA an amount equal to such excess.

In the Energy Revenue Agreement, BEM LP has agreed that at all times it does not have a minimum net worth of $500 million, it will provide a guarantee or other acceptable security of a person with a minimum net worth of $500 million. Initially this guarantee is being provided by Brookfield for a period of not less than three years.

The Energy Revenue Agreement has an initial term of 20 years, with automatic renewals for successive 20-year periods unless 180 days before the end of the applicable term (i) both parties agree in writing not to renew the agreement or (ii) BEM LP provides written notice that the agreement shall terminate with respect to one or more facilities five years after the end of the applicable term. The Energy Revenue Agreement is subject to customary termination provisions in the event of a failure to pay or an insolvency event of BPUSHA or BEM LP.

Other Power Agreements

In addition to the Energy Revenue Agreement, Brookfield Renewable is a party to a number of commercial agreements with Brookfield, including (i) PPAs for the sale of power generated from certain of Brookfield Renewable Group’s North American facilities to subsidiaries of Brookfield; and (ii) revenue support agreements under which Brookfield supports Brookfield Renewable’s revenue from the sale of power generated by certain of Brookfield Renewable Group’s North American facilities. Including the Energy Revenue Agreement, Brookfield purchases or provides revenue support for approximately 43% of Brookfield Renewable Group’s portfolio as of December 31, 2012.

Details of the related party power purchase and revenue support agreements are as follows:

In December 2009, Brookfield entered into a 20-year power sales agreement with the Province of Ontario pursuant to a hydroelectric contracting initiative issued by the provincial government earlier that year. The power sales agreement, which matures in 2029, applies to all power produced by hydro assets in Ontario owned by GLPL and MPT. On the effective date of the Combination, PPAs between Brookfield subsidiaries and GLPL and MPT were amended to increase the price paid by Brookfield to GLPL and MPT and to extend the term of such contracts. These amendments were designed to pass through substantially all of the economics of the new power sales agreement. On the completion of the Combination, Brookfield received aggregate consideration in respect of such amendments valued at C$292 million, which was recorded in equity by Brookfield Renewable as part of the adjustments arising from the Combination since the transactions were between entities under the common control of Brookfield. The GLPL and MPT contract amendments were taken into account in the determination of the valuation of Brookfield Renewable and, ultimately, in the number of LP Units that were issued to the public and the number of Redeemable/Exchangeable partnership units of BRELP that were issued to Brookfield on completion of the Combination. The material terms of the GLPL and MPT contract amendments are described below.

Under a PPA with GLPL, a subsidiary of Brookfield Asset Management supports the price that GLPL receives for energy generated by all of GLPL’s facilities in Ontario at a price of C$82 per MWh (increased from C$68 per MWh by an amendment to the PPA at the effective date of the Combination) subject to an annual adjustment equal to 40% of the increase in the Canadian consumer price index (“ CPI ”) in the previous year. The GLPL PPA has an initial term ending on December 1, 2029 and automatically renews for successive 20-year periods, subject to certain termination provisions. After December 1, 2029, the price under the GLPL PPA will revert back to the original C$68/MWh price (as escalated in accordance with the original inflation linked price escalation provisions in such agreement).

Under a PPA with MPT, a subsidiary of Brookfield Asset Management purchases the energy generated by MPT’s facilities in Ontario at a price of C$103 per MWh (increased from C$68 per MWh by an amendment to the PPA at the effective date of the Combination) subject to an annual adjustment equal to 20% of the increase in the CPI in the previous year. The MPT PPA terminates on December 1, 2029, subject to MPT’s option to terminate the agreement, on 120 days written notice, at certain times between 2017 and 2024.

Pursuant to PPAs with Great Lakes Hydro America, LLC (“ GLHA ”), a subsidiary of Brookfield Asset Management purchases the energy generated by several of GLHA’s power facilities in Maine and New Hampshire at a price of $37 per MWh, subject to an annual adjustment equal to 20% of the increase in the CPI during the previous year. The GLHA PPA has a 20-year term ending in 2022 and 2023.

Pursuant to a PPA with Lievre Power, a subsidiary of Brookfield Asset Management purchases the energy generated by Lievre Power’s facilities in Québec (excluding the Rapides des Cedres facility) at a price of C$68 per MWh, subject to an annual adjustment equal to the lesser of 40% of the increase in the CPI during the previous calendar year or 3%. The Lievre Power PPA has a 20-year term ending in 2019.

Pursuant to a PPA with Hydro Pontiac Inc. (“ HPI ”), a subsidiary of Brookfield Asset Management has agreed to purchase the energy generated by HPI’s two facilities in Québec at a price of C$68 per MWh, subject to an annual adjustment beginning in 2010 equal to 40% of the increase in the CPI during the previous calendar year. This power guarantee agreement is scheduled to commence in 2019 for one facility and in 2020 for the other, upon the expiration of existing PPAs. The HPI PPAs with Brookfield will have an initial term ending in 2029, and automatically renew for successive 20-year periods.

Pursuant to a 10-year wind levelization agreement expiring in 2019, a subsidiary of Brookfield Asset Management mitigates any potential wind variation from the expected annual generation of 506 GWh for our Prince Wind assets in Ontario. Any excess generation compared to the expected generation results in a payment from Brookfield Renewable to the subsidiary of Brookfield Asset Management, while a shortfall would result in a payment from a subsidiary of Brookfield Asset Management to Brookfield Renewable.

 

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Pursuant to a 20-year PPA guarantee, expiring in 2021, Brookfield guarantees to Powell River the payment obligations of an industrial power purchaser for an annual fee of $0.5 million.

Energy Marketing Agreement

BEM LP and CanHoldco entered into an energy marketing agreement on November 28, 2011 pursuant to which BEM LP has agreed to provide energy marketing services to CanHoldco (the “ Energy Marketing Agreement ”). Under the Energy Marketing Agreement, CanHoldco has appointed BEM LP to provide the following energy marketing services to CanHoldco for our North American power generating facilities:

 

   

preparing and assisting with compliance with an annual marketing plan which seeks to maximize annual generation, taking into account (among other things) (i) the hydrologic or wind resource available to each power generating facility in a prudent manner having regard to obligations under applicable regulatory authorizations, and (ii) the obligation of the Operating Entities to operate and maintain the power generating facilities in accordance with prudent industry practice and to protect against harm to human life or property of any person;

 

   

preparing and assisting with compliance with a risk management policy; and

 

   

assisting with compliance with the terms of any energy marketing agreement between BEM LP and any subsidiary of CanHoldco holding the power generating facilities.

Pursuant to the Energy Marketing Agreement, CanHoldco pays an annual marketing fee, referred to as the “ Base Marketing Fee ”, to BEM LP equal to $18 million (subject to increase by a specified inflation factor beginning on January 1, 2013), paid in equal monthly installments. To the extent that any amounts are paid to BEM LP (or one of its affiliates) under certain other existing energy marketing agreements or PPAs between certain of the Operating Entities and BEM LP (or one of its affiliates) that BEM LP determines are comparable to the Base Marketing Fee, the Base Marketing Fee will be reduced on a dollar for dollar basis by the comparable amounts.

The Energy Marketing Agreement has a term of 20 years. Provided that no event of default relating to BEM LP has occurred and is continuing, the Energy Marketing Agreement will be automatically renewed for successive periods of 20 years unless BEM LP provides CanHoldco with written notice to the contrary at least 180 days prior to the expiry of the applicable term.

The Energy Marketing Agreement is subject to customary termination provisions in the event of a failure to pay or an insolvency event of the applicable Operating Entity or BEM LP.

The maximum amount of the aggregate liability of BEM LP pursuant to the Energy Marketing Agreement is equal to the fees previously paid pursuant to the Energy Marketing Agreement in the two most recent calendar years by CanHoldco.

The Energy Marketing Agreement does not prohibit BEM LP or its affiliates from pursuing other business activities that compete directly or indirectly with us. For a description of related aspects of the relationship between Brookfield and CanHoldco, see Item 7.B “Related Party Transactions— Relationship Agreement”.

Power Agency Agreements

BEM LP and the owners of many of our North American facilities have entered into power agency agreements (the “ Power Agency Agreements ”). Under each Power Agency Agreement, BEM LP is appointed as the exclusive agent of the owner in respect of the sales of electricity, the procurement of transmission and other additional services. BEM LP also schedules, dispatches and arranges for transmission of the power produced and the power supplied to third parties in accordance with prudent industry practice. Pursuant to each Power Agency Agreement, BEM LP is entitled to be reimbursed for any third party costs incurred, and except in a few cases, no additional fee for its services. To the extent that any fee is payable to BEM LP (or one of its affiliates) under certain existing Power Agency Agreements, the Base Marketing Fee under the Energy Marketing Agreement will be reduced on a dollar for dollar basis.

The Power Agency Agreements that relate to the Energy Revenue Agreement have initial terms of 20 years, with automatic renewals for successive 20-year periods unless 180 days before the end of the applicable term (i) both parties agree in writing not to renew the agreement or (ii) BEM LP has provided the owner with the written notice to terminate the Energy Revenue Agreement as it relates to the particular facility five years after the end of the applicable term. Other Power Agency Agreements have varying terms, renewal and termination rights but are generally long-term arrangements. The Power Agency Agreements are subject to customary termination provisions in the event of a failure to pay or an insolvency event of the applicable Operating Entity or BEM LP.

 

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Development Projects

We indirectly acquired a number of early stage development projects in Brazil, Canada and the United States from Brookfield on completion of the Combination. To further align interests and incentivize continued development success with respect to these specific projects, Brookfield received no upfront proceeds on closing for the transfer of these projects, but is entitled to receive on commercial operation or sale of the projects, in each case if developed or sold in the 25 years following closing, up to 100% of the development costs that it contributed to each project and 50% of the fair market value of the projects in excess of a priority return on each party’s invested capital. These amounts will only be payable on projects upon substantial completion or sale of the project. Fair market value means our pro rata percentage of the fair market value of a development project, as determined by the Manager and the independent directors of CanHoldco, on the date on which substantial completion of the development project has been achieved, or, if earlier, the date that the project is sold. With respect to the projects located in Canada and the United States, we entered into the Development Projects Agreement which provides for the reimbursement of expenses to Brookfield for such projects and each project entity and Brookfield have entered into a separate royalty agreement providing for royalties on each project. With respect to our projects located in Brazil, Brookfield subscribed for special shares which contain a redemption feature that provides for the reimbursement of expenses as well as the sharing of the fair market value of a project on projects located in Brazil. These financial arrangements with Brookfield will not apply to any future projects. Projects in late stage development or construction were transferred for consideration as part of the Combination and are not part of this mechanism.

Voting Agreement

Brookfield and Brookfield Renewable determined that it is advisable for Brookfield Renewable to have control over the BRELP General Partner, BRELP GP LP and BRELP. Accordingly, Brookfield Renewable and Brookfield entered into the Voting Agreement that provides Brookfield Renewable, through the Managing General Partner, a number of rights.

Pursuant to the Voting Agreement, Brookfield has agreed that any voting rights with respect to the BRELP General Partner, the BRELP GP LP and BRELP will be voted in favor of the election of directors approved by Brookfield Renewable. For these purposes, Brookfield Renewable may maintain, from time-to-time, an approved slate of nominees or provide direction with respect to the approval or rejection of any matter in the form of general guidelines, policies or procedures in which case no further approval or direction will be required. Any such general guidelines, policies or procedures may be modified by Brookfield Renewable in its discretion.

In addition, pursuant to the Voting Agreement, Brookfield has also agreed that any voting rights with respect to the BRELP General Partner, the BRELP GP LP and BRELP will be voted in accordance with the direction of Brookfield Renewable with respect to the approval or rejection of the following matters relating to any such entity, as applicable: (i) any sale of all or substantially all of its assets, (ii) any merger, amalgamation, consolidation, business combination or other material corporate transaction, except in connection with any internal reorganization that does not result in a change of control, (iii) any plan or proposal for a complete or partial liquidation or dissolution, or any reorganization or any case, proceeding or action seeking relief under any existing laws or future laws relating to bankruptcy or insolvency, (iv) any amendment to the limited partnership agreement of BRELP GP LP or to the Amended and Restated Limited Partnership Agreement of BRELP, or (v) any commitment or agreement to do any of the foregoing.

In addition, pursuant to the Voting Agreement, Brookfield has agreed that it will not exercise its right under the limited partnership agreement of BRELP GP LP to remove the BRELP General Partner as the general partner of BRELP GP LP except with the prior consent of Brookfield Renewable.

The Voting Agreement terminates (i) at such time that Brookfield ceases to own any interest in BRELP, (ii) at such time that the Managing General Partner (or its successors or permitted assigns) involuntarily ceases to be the general partner of Brookfield Renewable, (iii) at such time that the BRELP GP LP (or its successors or permitted assigns) involuntarily ceases to be the general partner of BRELP, or (iv) at such time that the BRELP General Partner (or its successors or permitted assigns) involuntarily ceases to be the general partner of BRELP GP LP. In addition, we are permitted to terminate the Voting Agreement upon 30 days’ notice.

The Voting Agreement also contains restrictions on transfers of the shares of the BRELP General Partner, except that Brookfield may transfer shares of the BRELP General Partner to any of its affiliates.

Other Voting Agreements

In December 2011, Brookfield Renewable entered into voting agreements with subsidiaries of Brookfield Asset Management whereby these subsidiaries, as managing members of entities related to BAIF (the “ BAIF Entities ”) in which Brookfield Renewable holds investments with institutional investors, agreed to assign to Brookfield Renewable their voting rights to appoint the directors subsidiaries of the BAIF Entities. In March 2012, Brookfield Renewable entered into an amendment to one of those voting agreements to account for the acquisition (with its institutional investors) of certain California wind assets in the first quarter of 2012. Brookfield Renewable’s economic interests in the BAIF Entities in the United States and Brazil are 22% and 25%, respectively.

 

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Registration Rights Agreement

On November 28, 2011, Brookfield and Brookfield Renewable entered into a registration rights agreement (the “ Registration Rights Agreement ”) pursuant to which Brookfield Renewable has agreed that, upon the request of Brookfield, Brookfield Renewable will file one or more registration statements to register for sale under the Securities Act, or one or more prospectuses to qualify the distribution in Canada of, any LP Units held by Brookfield (including LP Units acquired pursuant to the Redemption Exchange Mechanism). Under the Registration Rights Agreement, Brookfield Renewable is not required to file a registration statement or a prospectus unless Brookfield requests that LP Units having a value of at least $50,000,000 be registered or qualified. In the Registration Rights Agreement, Brookfield Renewable has agreed to pay expenses in connection with such registration and sales, except for any underwriting discounts or commissions which will be borne by Brookfield, and will indemnify Brookfield for material misstatements or omissions in the registration statement and/or prospectus.

Licensing Agreement

Pursuant to a licensing agreement, Brookfield has granted to us a non-exclusive, royalty-free license to use the name “Brookfield” and the Brookfield logo (the “ Licensing Agreement ”). Other than under this limited license, we do not have a legal right to the “Brookfield” name and the Brookfield logo in the United States and Canada.

We will be permitted to terminate the Licensing Agreement upon 30 days’ prior written notice if Brookfield defaults in the performance of any material term, condition or agreement contained in the Licensing Agreement and the default continues for a period of 30 days after written notice of termination of the breach is given to Brookfield. Brookfield may terminate the Licensing Agreement effective immediately upon termination of our Master Services Agreement or with respect to any licensee upon 30 days’ prior written notice of termination if any of the following occurs:

 

   

the licensee defaults in the performance of any material term, condition or agreement contained in the Licensing Agreement and the default continues for a period of 30 days after written notice of termination of the breach is given to the licensee;

 

   

the licensee assigns, sublicenses, pledges, mortgages or otherwise encumbers the intellectual property rights granted to it pursuant to the Licensing Agreement;

 

   

certain events relating to a bankruptcy or insolvency of the licensee; or

 

   

the licensee ceases to be an affiliate of Brookfield.

Termination of the Licensing Agreement with respect to one or more licensees will not affect the validity or enforceability of the Licensing Agreement with respect to any other licensees.

Preferred Shares

Brookfield has provided an aggregate of $5 million of working capital to Bermuda Holdco through a subscription for preferred shares of Bermuda Holdco. The preferred shares are entitled to receive a cumulative preferential dividend equal to 6% of their redemption value as and when declared by the board of directors of Bermuda Holdco and are redeemable at the option of Bermuda Holdco, subject to certain limitations, at any time after the tenth anniversary of their issuance. The preferred shares are not entitled to vote, except as required by law.

Redemption-Exchange Mechanism

One or more wholly-owned subsidiaries of Brookfield that hold Redeemable/Exchangeable partnership units have the right to require BRELP to redeem all or a portion of the Redeemable/Exchangeable partnership units, subject to Brookfield Renewable’s right of first refusal, for cash in an amount equal to the market value of one of our LP Units multiplied by the number of LP Units to be redeemed (subject to certain adjustments). See Item 10.B “Memorandum and Articles of Association – Description of the Amended and Restated Limited Partnership Agreement of BRELP — Redemption-Exchange Mechanism”. The redemption right can only be exercised after November 28, 2013. Taken together, the effect of the redemption right and the right of first refusal is that one or more wholly-owned subsidiaries of Brookfield will receive our LP Units, or the value of such LP Units, at the election of Brookfield Renewable. Should Brookfield Renewable determine not to exercise its right of first refusal, cash required to fund a redemption of limited partnership interests of BRELP held by wholly-owned subsidiaries of Brookfield will likely be financed by a public offering of our LP Units.

Indemnification Arrangements

Subject to certain limitations, Brookfield and its directors, officers, agents, members, partners, shareholders and employees generally benefit from indemnification provisions and limitations on liability that are included in the Amended and Restated Limited

 

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Partnership Agreement of BREP, Managing General Partner’s bye-laws, the Amended and Restated Limited Partnership Agreement of BRELP, our Master Services Agreement and other arrangements with Brookfield. See Item 6.A “Directors and Senior Management — Our Master Services Agreement”, Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP — Indemnification; Limitations on Liability” and “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP — Indemnification; Limitations on Liability”.

Other Services

Brookfield may provide to the Operating Entities services which are outside the scope of our Master Services Agreement under arrangements that are on market terms and conditions and pursuant to which Brookfield will receive fees. The services provided under these arrangements will include financial advisory, operations management and other services. Pursuant to our conflict of interest guidelines, those arrangements may require prior approval by a majority of the independent directors, which may be granted in the form of general guidelines, policies or procedures. See Item 7.B “Related Party Transactions— Conflicts of Interest and Fiduciary Duties”.

Conflicts of Interest and Fiduciary Duties

Fiduciary Duties

Each of the Managing General Partner and the BRELP GP LP are required to exercise its powers and carry out its functions as general partner of Brookfield Renewable and BRELP, respectively, honestly and in good faith, and exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, in each case, subject to and after taking into account, the terms and conditions of the Relationship Agreement, our Master Services Agreement and the Conflicts Policy. However, the Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP contain various provisions that modify the fiduciary duties that might otherwise be owed to us and our LP Unitholders. These duties include the duties of care and loyalty. The duty of loyalty, in the absence of provisions in the Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP to the contrary, would generally prohibit the Managing General Partner and BRELP General Partner from taking any action or engaging in any transaction as to which it has a conflict of interest. The Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP each prohibit the limited partners (or LP Unitholders) from advancing claims that otherwise might raise issues as to compliance with fiduciary duties or applicable law. For example, the agreements provide that the Managing General Partner, BRELP General Partner and their affiliates will not have any obligation under the Amended and Restated Limited Partnership Agreement of BREP and the Amended and Restated Limited Partnership Agreement of BRELP, or as a result of any duties stated or implied by law or equity, including fiduciary duties, to present business or investment opportunities to Brookfield Renewable, BRELP, any Holding Entity or any other holding vehicle established by Brookfield Renewable. They also allow affiliates of the Managing General Partner and BRELP General Partner to engage in activities that may compete with us or our activities. In addition, the agreements permit the Managing General Partner and BRELP General Partner to take into account the interests of third parties, including Brookfield, when resolving conflicts of interest.

These modifications to the fiduciary duties may be detrimental to our LP Unitholders because they restrict the remedies available for actions that might otherwise constitute a breach of fiduciary duty and permit conflicts of interest to be resolved in a manner that is not always in the best interests of Brookfield Renewable or the best interests of our LP Unitholders. We believe it is necessary to modify the fiduciary duties that might otherwise be owed to us and our LP Unitholders, as described above, due to our organizational and ownership structure and the potential conflicts of interest created thereby. Without modifying those duties, the ability of the Managing General Partner and BRELP General Partner to attract and retain experienced and capable directors and to take actions that we believe will be necessary for the carrying out of our business would be unduly limited due to their concern about potential liability.

Conflicts of Interest

We maintain a conflicts protocol and guidelines (the “ Conflicts Policy ”) for addressing conflicts and potential conflicts and for providing guidelines for the completion of certain transactions. The Conflicts Policy states that conflicts be resolved based on the principles of transparency and that transactions that are carried out, be carried out at an arm’s length basis, with validation of terms as arm’s length being based upon actual participation of arm’s length third party participants such as co-investors whenever possible, or otherwise through objective, independent professional advice or other satisfactory evidence of market terms. The Conflicts Policy also states that in circumstances of actual conflict, independent director, or where required, LP Unitholder approval be obtained.

The Conflicts Policy recognizes the benefit to us of our relationship with Brookfield and our intent to pursue a strategy that seeks to maximize the benefits from this relationship. The Conflicts Policy also recognizes that the principal areas of potential application of the Conflicts Policy on an ongoing basis will be in connection with our acquisitions and our participation in Brookfield

 

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led consortia and partnership arrangements, together with any management or service arrangements entered into in connection therewith or the ongoing operations of the underlying Operating Entities. The Conflicts Policy may be amended from time to time at the discretion of the Managing General Partner.

In general, the Conflicts Policy provides that acquisitions that are carried out jointly by us and Brookfield, or in the context of a Brookfield led or co-led consortium or partnership, be carried out on the basis that the consideration paid by us be no more, on a per share or proportionate basis, than the consideration paid by Brookfield or other participants, as applicable. The Conflicts Policy also provides that any fees or carried interest payable in respect of our proportionate investment, or in respect of an acquisition made solely by us, must be credited in the manner contemplated by our Master Services Agreement and the Amended and Restated Limited Partnership Agreement of BRELP, where applicable, or that such fees or carried interest must either have been negotiated with another arm’s-length participant or otherwise demonstrated to be on market terms. The Conflicts Policy further provides that if the acquisition involves the purchase by us of an asset from Brookfield, or the participation in a transaction involving the purchase by us and Brookfield of different assets, that a fairness opinion or, in some circumstances, a valuation or appraisal by a qualified expert be obtained, confirming that the consideration paid by us is fair from a financial point of view. These requirements provided for in the Conflicts Policy are in addition to any disclosure, approval and valuation requirements that may arise under applicable law.

With respect to transactions in which there is greater potential for a conflict of interest to arise, the Managing General Partner may be required to seek the prior approval of the independent directors pursuant to the Conflicts Policy guidelines that have been approved by the independent directors from time to time. These transactions include (i) the dissolution of Brookfield Renewable; (ii) any material amendment to our Master Services Agreement, the Amended and Restated Limited Partnership Agreement of BREP or the Amended and Restated Limited Partnership Agreement of BRELP; (iii) acquisitions by us from, and dispositions by us to, Brookfield; (iv) any other material transaction involving us and Brookfield; and (v) termination of, or any determinations regarding indemnification under, our Master Services Agreement or any determinations regarding indemnification under the Amended and Restated Limited Partnership Agreement of BREP or the Amended and Restated Limited Partnership Agreement of BRELP. Pursuant to the Conflicts Policy, independent directors may grant prior approvals for any of these transactions in the form of general guidelines, policies or procedures in which case no further special approval will be required in connection with a particular transaction or matter permitted thereby. In certain circumstances, these transactions may be related party transactions for the purposes of, and subject to certain requirements of, Canadian Multilateral Instrument 61-101— Protection of Minority Securityholders in Special Transactions (“ MI 61-101 ”). MI 61-101 provides a number of circumstances in which a transaction between an issuer and a related party may be subject to valuation and minority approval requirements. An exemption from such requirements is available when the fair market value of the transaction is not more than 25% of the market capitalization of the issuer. Brookfield Renewable has been granted exemptive relief from the requirements of MI 61-101 that, subject to certain conditions, permits it to be exempt from the minority approval and valuation requirements for transactions that would have a value of less than 25% of Brookfield Renewable’s market capitalization, if the indirect equity interest in Brookfield Renewable, which is held in the form of Redeemable/Exchangeable partnership units, is included in the calculation of Brookfield Renewable’s market capitalization. As a result, the 25% threshold, above which the minority approval and valuation requirements apply, is increased to include the approximately 48.9% indirect interest in Brookfield Renewable held by Brookfield in the form of Redeemable/Exchangeable partnership units.

Our organizational and ownership structure and strategy involve a number of relationships that may give rise to conflicts of interest between Brookfield Renewable and our LP Unitholders, on the one hand, and Brookfield, on the other hand. In particular, conflicts of interest could arise, among other reasons, because:

 

   

in originating and recommending acquisition opportunities, Brookfield has significant discretion to determine the suitability of opportunities for us and to allocate such opportunities to us or to itself or third parties;

 

   

because of the scale of typical renewable power acquisitions and because our strategy includes completing acquisitions through consortium or partnership arrangements with pension funds and other financial sponsors, we will likely make co-investments with Brookfield and Brookfield sponsored funds or Brookfield sponsored or co-sponsored consortiums and partnerships, which typically will require that Brookfield owe fiduciary duties to the other partners or consortium members that it does not owe to us;

 

   

there may be circumstances where Brookfield will determine that an acquisition opportunity is not suitable for us because of the fit with our acquisition strategy and/or limits arising due to regulatory or tax considerations and/or limits on our financial capacity or because of the immaturity of the target assets and Brookfield is entitled to pursue the acquisition on its own behalf rather than offering us the opportunity to make the acquisition;

 

   

where Brookfield has made an acquisition, it may transfer it to us at a later date after the assets have been developed or we have obtained sufficient financing;

 

   

our relationship with Brookfield involves a number of arrangements pursuant to which Brookfield provides various services, access to financing arrangements and originates acquisition opportunities, and circumstances may arise in which these arrangements will need to be amended or new arrangements will need to be entered into;

 

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under the Amended and Restated Limited Partnership Agreement of BRELP and the agreements governing the Operating Entities, Brookfield is generally entitled to share in the returns generated by our operations, which could create an incentive for it to assume greater risks when making decisions than it otherwise would in the absence of such arrangements;

 

   

Brookfield is permitted to pursue other business activities and provide services to third parties that compete directly with our business and activities without providing us with an opportunity to participate, which could result in the allocation of Brookfield’s resources, personnel and acquisition opportunities to others who compete with us;

 

   

Brookfield does not owe Brookfield Renewable or our LP Unitholders any fiduciary duties, which may limit our recourse against it;

 

   

the liability of Brookfield is limited under our arrangements with them, and we have agreed to indemnify Brookfield against claims, liabilities, losses, damages, costs or expenses which they may face in connection with those arrangements, which may lead them to assume greater risks when making decisions than they otherwise would if such decisions were being made solely for their own account, or may give rise to legal claims for indemnification that are adverse to the interests of our LP Unitholders;

 

   

Brookfield or a Brookfield sponsored consortium may want to acquire or dispose of the same asset as us;

 

   

we may be, directly or indirectly, purchasing an asset from, or selling an asset to, Brookfield;

 

   

there may be circumstances where we are acquiring different assets as part of the same transaction with Brookfield; and

 

   

other conflicting transactions involving us and Brookfield.

Other Related Party Transactions

On February 4, 2009, the Fund indirectly acquired from Brookfield, its majority unitholder at the time, each of the Prince wind farm and a 50% joint venture interest in the Pingston Creek hydroelectric facility. The aggregate consideration for the transaction was C$130 million, of which C$65 million was paid in cash and the remaining C$65 million was paid through the issuance of shares of a subsidiary of the Fund exchangeable for trust units of the Fund. At the time of the transaction, certain BRPT Trustees and all executive officers of the Fund were also directors and executive officers of BRPI. In order to ensure that the transaction was fair, reasonable and in the best interests of the Fund and its unitholders, the BRPT Trustees established an independent committee made up exclusively of independent BRPT Trustees to review and consider the transaction. The independent committee was advised by independent legal counsel and engaged an independent valuator to render a fairness opinion. Based on the fairness opinion and a review of the transaction, the independent committee determined that the transaction was fair and reasonable and in the best interests of the Fund and its unitholders, and recommended the transaction for approval by the BRPT Trustees.

On August 31, 2009, the Fund indirectly acquired from Brookfield, its majority unitholder at the time, substantially all of the remaining Canadian renewable power generation assets owned by Brookfield, including fifteen hydroelectric generation plants located in Ontario and Québec and the Gosfield wind farm. The aggregate consideration for the acquisition was C$945 million, of which C$365 million was paid in cash, C$200 million was satisfied by a senior unsecured note payable to Brookfield and the issuance to Brookfield of C$380 million in trust units of the Fund (representing 25,562,500 trust units). At the time of the transaction, certain BRPT Trustees and all executive officers of the Fund were also directors and executive officers of BRPI. In order to ensure that the transaction was fair, reasonable and in the best interests of the Fund and its unitholders, the BRPT Trustees established an independent committee made up exclusively of independent BRPT Trustees to review and consider the transaction. The independent committee was advised by independent legal counsel and engaged an independent valuator to render a formal valuation and fairness opinion. Based on the formal valuation and fairness opinion and a review of the transaction, the independent committee determined that the transaction was fair and reasonable and in the best interests of the Fund and its unitholders, and recommended the transaction for approval by the BRPT Trustees. The transaction was approved by a majority of the minority unitholders of the Fund at a special meeting of unitholders held on August 19, 2009.

On November 28, 2011, as a result of the Combination, all of the assets of the Fund and the Brookfield Renewable Power Assets were combined and are now held by Brookfield Renewable. Immediately prior to the Combination, Brookfield owned approximately 34% of the outstanding trust units of the Fund, on a fully-exchanged basis. On completion of the Combination, public unitholders of the Fund received one LP Unit in exchange for each trust-unit of the Fund held and the Fund was wound up. On completion of the Combination, Brookfield owned 73% of Brookfield Renewable on a fully-exchanged basis and the remaining 27% was held by the public. In addition, in connection with the Combination, subsidiaries of Brookfield were appointed as Manager under our Master Services Agreement and provide services under the Energy Marketing Agreement. At the time of the transaction, certain BRPT Trustees and all executive officers of the Fund were also directors and executive officers of BRPI. In order to ensure that the transaction was fair, reasonable and in the best interests of the Fund and its unitholders, the BRPT Trustees established an independent committee made up exclusively of independent BRPT Trustees to review

 

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and consider the transaction. The independent committee was advised by independent legal counsel and engaged an independent valuator to render a formal valuation and fairness opinion. Based on the formal valuation and fairness opinion and a review of the transaction, the independent committee determined that the transaction was fair and reasonable and in the best interests of the Fund and its unitholders, and recommended the transaction for approval by the BRPT Trustees. The transaction was approved by a majority of the minority unitholders of the Fund at a special meeting of unitholders held on November 10, 2011.

On May 7, 2013, Brookfield Asset Management provided a $200 million committed unsecured revolving credit facility, expiring in December 2013, at LIBOR plus 2%.

 

  7.C

INTEREST OF EXPERTS AND COUNSEL

Not applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

  8.A

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

Financial Statements

See Item 18. “Financial Statements”, which contains our audited consolidated financial statements prepared in accordance with IFRS.

Legal Proceedings

To our knowledge, there are no legal proceedings material to Brookfield Renewable or its subsidiaries to which any of Brookfield Renewable or its subsidiaries is or was a party to or of which any of their respective properties are the subject matter, nor are there any such proceedings known to us to be contemplated.

To our knowledge, there were no (i) penalties or sanctions imposed against Brookfield Renewable or its subsidiaries by a court relating to securities legislation or by a securities regulatory authority during Brookfield Renewable’s last financial year; (ii) penalties or sanctions imposed by a court or regulatory body against Brookfield Renewable or its subsidiaries that would likely be considered important to a reasonable investor in making an investment decision; or (iii) settlement agreements Brookfield Renewable or its subsidiaries entered into with a court relating to securities legislation or with a securities regulatory authority during the last financial year.

 

  8.B

SIGNIFICANT CHANGES

A discussion of the significant changes in our business can be found under Item 4. “Information on the Company”, Item 4.A “History and Development of the Company” and Item 5.A “Operating and Financial Review and Prospects — Operating Results — Subsequent Events”.

 

ITEM 9. THE OFFER AND LISTING

 

  9.A

OFFER AND LISTING DETAILS

Our LP Units are listed on the TSX under the symbol “BEP.UN”. We have received conditional approval to list our LP Units on the NYSE under the symbol “BEP”. Listing on the NYSE will be subject to us fulfilling all of the listing requirements of the NYSE. Our LP Units do not have a par value.

Our LP Units began trading on the TSX on November 30, 2011 following the Combination. The following table sets forth the reported high and low prices and the trading volumes of our LP Units on the TSX for the periods indicated:

 

     High    Low    Volume

2013

        

May 1, 2013 to May 15, 2013

   C$31.79    C$30.45    883,834

April 1, 2013 to April 30, 2013

   C$31.50    C$29.72    3,040,735

March 1, 2013 to March 31, 2013

   C$32.02    C$28.76    4,667,542

February 1, 2013 to February 28, 2013

   C$31.29    C$29.66    1,996,194

January

   C$31.37    C$29.12    2,106,859

2012

        

December

   C$30.54    C$28.78    1,490,769

November

   C$30.24    C$28.18    1,827,392

October

   C$29.95    C$28.30    1,399,669

September

   C$30.35    C$27.25    4,094,821

August

   C$31.38    C$29.00    1,690,375

July

   C$29.94    C$28.12    2,170,318

June

   C$28.76    C$25.70    2,095,218

May

   C$28.37    C$26.50    1,936,705

April

   C$27.67    C$25.70    1,572,901

March

   C$27.97    C$25.65    2,157,069

February

   C$27.75    C$26.23    3,993,660

January

   C$27.86    C$26.16    3,784,546

April 1, 2013 to May 15, 2013

   C$31.79    C$30.45    3,924,569

January 1, 2013 to March 31, 2013

   C$32.02    C$28.76    8,770,595

October 1, 2012 to December 31, 2012

   C$30.54    C$28.18    4,717,830

July 1, 2012 to September 30, 2012

   C$31.38    C$27.25    7,955,514

April 1, 2012 to June 30, 2012

   C$28.76    C$25.70    5,604,824

January 1, 2012 to March 31, 2012

   C$27.97    C$25.65    9,935,275

2011

        

December

   C$27.39    C$25.30    4,780,868

November 30 (1)

   C$25.90    C$25.30    888,493

November 30, 2011 to December 31, 2011

   C$27.39    C$25.30   

 

 

  (1)

    Date LP Units commenced trading on the TSX.

 

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Prior to the Combination the Fund’s trust units, which were exchanged for our LP Units on a one-for-one basis pursuant to the Combination, were listed on the TSX under the symbol “BRC.UN”. The following table sets forth the reported high and low prices and the trading volumes of the Fund’s trust units on the TSX for the periods indicated:

 

     High    Low    Volume

 

2011

        

 

November (to November 29)

   C$27.84    C$24.63    7,400,721

 

October

   C$28.10    C$24.42    3,665,714

 

September

   C$26.75    C$22.85    5,661,592

 

August

   C$24.08    C$20.58    2,812,413

 

July

   C$23.70    C$22.51    1,120,832

 

June

   C$23.31    C$21.41    3,093,011

 

May

   C$23.95    C$22.29    2,775,376

 

April

   C$23.50    C$22.01    3,677,132

 

March

   C$23.69    C$21.05    4,048,332

 

February

   C$22.10    C$21.01    3,694,246

 

January

   C$21.49    C$20.63    3,798,991

 

October 1, 2011 to November 29, 2011

   C$28.10    C$24.42   

 

July 1, 2011 to September 30, 2011

   C$26.75    C$20.58   

 

April 1, 2011 to June 30, 2011

   C$23.95    C$21.41   

 

January 1, 2011 to March 31, 2011

   C$23.69    C$20.63   

 

October 1, 2010 to December 31, 2010

   C$22.41    C$20.40   

 

July 1, 2010 to September 30, 2010

   C$21.54    C$19.65   

 

April 1, 2010 to June 30, 2010

   C$21.67    C$18.76   

 

January 1, 2010 to March 31, 2010

   C$21.73    C$19.10   

 

2011

   C$28.10    C$20.58   

 

2010

   C$22.41    C$18.76   

 

2009

   C$20.00    C$14.70   

 

2008

   C$20.71    C$15.25   

 

2007

   C$21.52    C$17.91   

The LP Units do not have a par value. See Item 5.A “Operating and Financial Review and Prospects—Operating Results”, Item 7.B “Related Party Transactions” and Item 10. “Additional Information”.

 

  9.B

PLAN OF DISTRIBUTION

Not applicable.

 

  9.C

MARKETS

See Item 9.A. “The Offer and Listing—Offer and Listing Details”.

 

  9.D

SELLING SHAREHOLDERS

Not applicable.

 

  9.E

DILUTION

Not applicable.

 

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  9.F

EXPENSES OF THE ISSUE

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

  10.A

SHARE CAPITAL

See Item 3.B “Capitalization and Indebtedness”, Item 4. “Information on the Company”, Item 5.A “Operating and Financial Review and Prospects—Operating Results—Limited Partners’ Equity”, Item 6.B “Compensation”, Item 9.A “The Offer and Listing—Offer and Listing Details” and Item 10.B “Memorandum and Articles of Association”.

 

  10.B

MEMORANDUM AND ARTICLES OF ASSOCIATION

Description of our LP Units and the Amended and Restated Limited Partnership Agreement of BREP

The following is a description of the material terms of our LP Units and the Amended and Restated Limited Partnership Agreement of BREP. Because this description is only a summary of the terms of our LP Units and the Amended and Restated Limited Partnership Agreement of BREP, it does not contain all of the information that you may find useful and is qualified in its entirety by reference to all of the provisions of the Amended and Restated Limited Partnership Agreement of BREP. For more complete information, you should read the Amended and Restated Limited Partnership Agreement of BREP which is available electronically on the website of the SEC at www.sec.gov and on our profile on The System for Electronic Document Analysis and Retrieval (“ SEDAR ”) at www.sedar.com and will be made available to LP Unitholders as described under Item 10.C “Material Contracts” and Item 10.H “Documents on Display”.

See also the information contained in this Form 20-F under Item 3.D “Risk Factors—Risks Related to Our Relationship with Brookfield”, Item 6.A “Directors and Senior Management”, Item 6.C “Board Practices” and Item 7.B “Related Party Transactions”.

Formation and Duration

Brookfield Renewable is a Bermuda exempted limited partnership registered under the Limited Partnership Act 1883 and the Exempted Partnerships Act 1992 . Brookfield Renewable has a perpetual existence and will continue as a limited liability partnership unless it is terminated or dissolved in accordance with the Amended and Restated Limited Partnership Agreement of BREP. Brookfield Renewable’s interests consist of our LP Units, which represent limited partnership interests in Brookfield Renewable, and any additional partnership interests representing limited partnership interests that we may issue in the future as described below under “— Issuance of Additional Partnership Interests”.

Nature and Purpose

Under section 2.2 of the Amended and Restated Limited Partnership Agreement of BREP, the purpose of Brookfield Renewable is to: acquire and hold interests in BRELP and, subject to the approval of the Managing General Partner, any other subsidiary of Brookfield Renewable; engage in any activity related to the capitalization and financing of Brookfield Renewable’s interests in such entities; and engage in any other activity that is incidental to or in furtherance of the foregoing and that is approved by the Managing General Partner and that lawfully may be conducted by a limited partnership organized under the Limited Partnership Act 1883 , the Exempted Partnerships Act 1992 and the Amended and Restated Limited Partnership Agreement of BREP.

Management

As required by law, the Amended and Restated Limited Partnership Agreement of BREP provides for the management and control of Brookfield Renewable by a general partner, the Managing General Partner. The Managing General Partner will exercise its powers and carry out its functions honestly and in good faith and the Managing General Partner will exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, in each case, subject to, and after taking into account, the terms and conditions of the Relationship Agreement, our Master Services Agreement and the Conflicts Policy. Except as set out in the Amended and Restated Limited Partnership Agreement of BREP, the Managing General Partner has no additional duty to propose or approve any conduct of Brookfield Renewable, and may decline to propose or approve such conduct free of any additional duty (including fiduciary duty). The Managing General Partner shall not be in breach of any duty to Brookfield Renewable if it takes actions permitted by the Amended and Restated Limited Partnership Agreement of BREP, the Relationship Agreement, our Master Services Agreement or the Conflicts Policy.

Our LP Units

Our LP Units are limited partnership interests in Brookfield Renewable. Holders of our LP Units are not entitled to the withdrawal or return of capital contributions in respect of our LP Units, except to the extent, if any, that distributions are made to such holders pursuant to the Amended and Restated Limited Partnership Agreement of BREP or upon the liquidation of Brookfield Renewable as described below under “— Liquidation and Distribution of Proceeds” or as otherwise required by applicable law.

 

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Except to the extent expressly provided in the Amended and Restated Limited Partnership Agreement of BREP, a holder of our LP Units does not have priority over any other LP Unitholder, either as to the return of capital contributions or as to profits, losses or distributions. Unless otherwise determined by the Managing General Partner, in its sole discretion, LP Unitholders will not be granted any pre-emptive or other similar right to acquire additional interests in Brookfield Renewable. In addition, LP Unitholders do not have any right to have their LP Units redeemed by Brookfield Renewable.

Issuance of Additional Partnership Interests

Subject to any approval required by applicable law and the approval of any applicable securities exchange, the Managing General Partner has broad rights to cause Brookfield Renewable to issue additional partnership interests and may cause Brookfield Renewable to issue additional partnership interests (including new classes of partnership interests and options, rights, warrants and appreciation rights relating to such interests) for any partnership purpose, at any time and on such terms and conditions as it may determine without the approval of any limited partners. Any additional partnership interests may be issued in one or more classes, or one or more series of classes, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and series of partnership interests) as may be determined by the Managing General Partner in its sole discretion, all without approval of our limited partners.

Transfers of LP Units

We are not required to recognize any transfer of our LP Units until certificates, if any, evidencing such LP Units are surrendered for registration of transfer. Each person to whom an LP Unit is transferred or issued (including any nominee holder or an agent or representative acquiring such LP Unit for the account of another person) shall be admitted to Brookfield Renewable as a partner with respect to the unit so transferred or issued when any such transfer or issuance is reflected in the books and records of Brookfield Renewable subject to and in accordance with the terms of the Amended and Restated Limited Partnership Agreement of BREP. Any transfer of an LP Unit shall not entitle the transferee to share in the profits and losses of Brookfield Renewable, to receive distributions, to receive allocations of income, gain, loss, deduction or credit or any similar item or to any other rights to which the transferor was entitled until the transferee becomes a partner and a party to the Amended and Restated Limited Partnership Agreement of BREP.

By accepting a unit for transfer in accordance with the Amended and Restated Limited Partnership Agreement of BREP, each transferee will be deemed to have:

 

   

executed the Amended and Restated Limited Partnership Agreement of BREP and become bound by the terms thereof;

 

   

granted an irrevocable power of attorney to the Managing General Partner or the liquidator of Brookfield Renewable and any officer thereof to act as such partner’s agent and attorney-in-fact to execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (i) all agreements, certificates, documents and other instruments relating to the existence or qualification of Brookfield Renewable as an exempted limited partnership (or a partnership in which the limited partners have limited liability) in Bermuda and in all jurisdictions in which Brookfield Renewable may conduct activities and affairs or own property; any amendment, change, modification or restatement of the Amended and Restated Limited Partnership Agreement of BREP, subject to the requirements of the Amended and Restated Limited Partnership Agreement of BREP; the dissolution and liquidation of Brookfield Renewable; the admission, withdrawal of any partner of Brookfield Renewable or any capital contribution of any partner of Brookfield Renewable; the determination of the rights, preferences and privileges of any class or series of units or other partnership interests of Brookfield Renewable; and any tax election with any limited partner or general partner on our behalf or on behalf of any limited partner or the general partner, and (ii) subject to the requirements of the Amended and Restated Limited Partnership Agreement of BREP, all ballots, consents, approvals, waivers, certificates, documents and other instruments necessary or appropriate, in the sole discretion of the Managing General Partner or the liquidator of Brookfield Renewable, to make, evidence, give, confirm or ratify any voting consent, approval, agreement or other action that is made or given by Brookfield Renewable’s partners or is consistent with the terms of the Amended and Restated Limited Partnership Agreement of BREP or to effectuate the terms or intent of the Amended and Restated Limited Partnership Agreement of BREP;

 

   

made the consents and waivers contained in the Amended and Restated Limited Partnership Agreement of BREP; and

 

   

ratified and confirmed all contracts, agreements, assignments and instruments entered into on behalf of Brookfield Renewable in accordance with the Amended and Restated Limited Partnership Agreement of BREP, including the granting of any charge or security interest over the assets of Brookfield Renewable and the assumption of any indebtedness in connection with the affairs of Brookfield Renewable.

The transfer of any unit and/or the admission of any new partner to Brookfield Renewable will not constitute an amendment to the Amended and Restated Limited Partnership Agreement of BREP.

 

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Book-Based System

LP Units may be represented in the form of one or more fully registered unit certificates held by, or on behalf of, CDS or DTC, as applicable, as custodian of such certificates for the participants of CDS or DTC, registered in the name of CDS or DTC or their respective nominee, and registration of ownership and transfers of LP Units may be effected through the book-based system administered by CDS or DTC, as applicable.

Investments in BRELP

If and to the extent that Brookfield Renewable raises funds by way of the issuance of equity or debt securities, or otherwise, pursuant to a public offering, private placement or otherwise, an amount equal to the proceeds will be invested in BRELP.

Capital Contributions

Brookfield contributed $1 and the Managing General Partner contributed $100 to the capital of Brookfield Renewable in order to form Brookfield Renewable. Thereafter, Brookfield contributed to Brookfield Renewable its interest in various renewable power businesses in exchange for Redeemable/Exchangeable partnership units and our LP Units. No partner will have the right to withdraw any or all of its capital contribution.

Distributions

Distributions to partners of Brookfield Renewable will be made only as determined by the Managing General Partner in its sole discretion. However, the Managing General Partner will not be permitted to cause Brookfield Renewable to make a distribution if it does not have sufficient cash on hand to make the distribution, the distribution would render it insolvent or if, in the opinion of the Managing General Partner, the distribution would leave it with insufficient funds to meet any future contingent obligations, or the distribution would contravene the Limited Partnership Act 1883 .

The amount of taxes withheld or paid by Brookfield Renewable or by any member of Brookfield Renewable Group in respect of LP Units held by LP Unitholders or the Managing General Partner shall be treated either as a distribution to such partner or as a general expense of Brookfield Renewable as determined by the Managing General Partner in its sole discretion.

Any distributions from Brookfield Renewable will be made to the limited partners as to 99.99% and to the Managing General Partner as to 0.01%. Each limited partner will receive a pro rata share of distributions made to all limited partners in accordance with the proportion of all outstanding LP Units held by that limited partner. Except for receiving 0.01% of distributions from Brookfield Renewable, the Managing General Partner shall not be compensated for its services as Managing General Partner but it shall be reimbursed for certain expenses.

Allocations of Income and Losses

Limited partners will share in the net profits and net losses of Brookfield Renewable generally in accordance with their respective percentage interest in Brookfield Renewable.

Net income and net losses for U.S. federal income tax purposes will be allocated for each taxable year or other relevant period among our partners using a monthly, quarterly or other permissible convention pro rata on a per unit basis, except to the extent otherwise required by law or pursuant to tax elections made by Brookfield Renewable. Each item of income, gain, loss and deduction so allocated to a partner of Brookfield Renewable generally will have the same source and character as though such partner had realized the item directly.

The income for Canadian federal income tax purposes of Brookfield Renewable for a given fiscal year of Brookfield Renewable will be allocated to each partner in an amount calculated by multiplying such income by a fraction, the numerator of which is the sum of the distributions received by such partner with respect to such fiscal year and the denominator of which is the aggregate amount of the distributions made by Brookfield Renewable to partners with respect to such fiscal year. Generally, the source and character of items of income so allocated to a partner with respect to a fiscal year of Brookfield Renewable will be the same source and character as the distributions received by such partner with respect to such fiscal year.

If, with respect to a given fiscal year, no distribution is made by Brookfield Renewable or Brookfield Renewable has a loss for Canadian federal income tax purposes, one quarter of the income, or loss, as the case may be, for Canadian federal income tax purposes of Brookfield Renewable for such fiscal year, will be allocated to the partners of record at the end of each calendar quarter ending in such fiscal year pro rata to their respective percentage interests in Brookfield Renewable, which in the case of the Managing General Partner shall mean 0.01%, and in the case of all limited partners of Brookfield Renewable shall mean in the aggregate 99.99%, which aggregate percentage interest shall be allocated among the limited partners in the proportion that the number of LP Units held at each such date by a limited partner is of the total number of LP Units issued and outstanding at each such date. To

 

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such end, any person who was a partner at any time during such fiscal year but who has transferred all of such person’s LP Units before the least day of that fiscal year may be deemed to be a partner on the last day of such fiscal year for the purposes of subsection 96(1) of the Income Tax Act. Generally, the source and character of such income or losses so allocated to a partner at the end of each calendar quarter will be the same source and character as the income or loss earned or incurred by Brookfield Renewable in such calendar quarter.

However, any gain for Canadian tax purposes allocated by BRELP to Brookfield Renewable in respect of the disposition of the common shares of CanHoldco by BRELP, will be allocated for Canadian tax purposes firstly, in respect of any LP Units held by Brookfield or any affiliates of Brookfield (other than any member of Brookfield Renewable Group) by BRELP that were acquired on the exchange of Redeemable/Exchangeable partnership units, such portion of the gain, if any, that would otherwise have been allocated for Canadian tax purposes to Brookfield or any affiliates of Brookfield (other than any member of Brookfield Renewable Group) in respect of the Redeemable/Exchangeable partnership units on the assumption that such units had not been exchanged for LP Units and remained Redeemable/Exchangeable partnership units, shall be allocated pro rata to Brookfield or any affiliates of Brookfield (other than any member of Brookfield Renewable Group) in respect of our LP Units acquired on the exchange of Redeemable/Exchangeable partnership units, and secondly, the remaining portion of the gain, if any, shall be allocated to LP Unitholders on a per LP Unit basis excluding LP Units owned by Brookfield or any member of the Brookfield group (other than Brookfield Renewable Group) immediately after the completion of the Combination and LP Units acquired by Brookfield or any affiliates of Brookfield (other than any member of Brookfield Renewable Group) pursuant to the Redemption-Exchange Mechanism. The foregoing summary, to the extent it states matters of Canadian or U.S. tax law or legal conclusions, is qualified in its entirety by the sections in this Form 20-F under Item 10.E entitled “Material Canadian Federal Income Tax Considerations” and “Material U.S. Federal Income Tax Considerations”.

Limited Liability

Assuming that a limited partner does not participate in the control or management of Brookfield Renewable or conduct the affairs of, sign or execute documents for or otherwise bind Brookfield Renewable within the meaning of the Limited Partnership Act 1883 and otherwise acts in conformity with the provisions of the Amended and Restated Limited Partnership Agreement of BREP, such partner’s liability under the Limited Partnership Act 1883 and the Amended and Restated Limited Partnership Agreement of BREP will be limited to the amount of capital such partner is obligated to contribute to Brookfield Renewable for its limited partner interest plus its share of any undistributed profits and assets, except as described below.

If it were determined, however, that a limited partner was participating in the control or management of Brookfield Renewable or conducting the affairs of, signing or executing documents for or otherwise binding Brookfield Renewable (or purporting to do any of the foregoing) within the meaning of the Limited Partnership Act 1883 or the Exempted Partnerships Act 1992 , such limited partner would be liable as if it were a general partner of Brookfield Renewable in respect of all debts of Brookfield Renewable incurred while that limited partner was so acting or purporting to act. Neither the Amended and Restated Limited Partnership Agreement of BREP nor the Limited Partnership Act 1883 specifically provides for legal recourse against the Managing General Partner if a limited partner were to lose limited liability through any fault of the Managing General Partner. While this does not mean that a limited partner could not seek legal recourse, we are not aware of any precedent for such a claim in Bermuda case law.

No Management or Control

Brookfield Renewable’s limited partners, in their capacities as such, may not take part in the management or control of the activities and affairs of Brookfield Renewable and do not have any right or authority to act for or to bind Brookfield Renewable or to take part or interfere in the conduct or management of Brookfield Renewable. Limited partners are not entitled to vote on matters relating to Brookfield Renewable, although LP Unitholders are entitled to consent to certain matters as described under “— Amendments to the Amended and Restated Limited Partnership Agreement of BREP”, “— Opinion of Counsel and Limited Partner Approval”, “— Sale or Other Disposition of Assets”, and “— Withdrawal of the Managing General Partner” which may be effected only with the consent of the holders of the percentages of our outstanding LP Units specified below. Each LP Unit shall entitle the LP Unitholder to one vote for the purposes of any approvals of LP Unitholders.

Meetings

The Managing General Partner may call special meetings of partners at a time and place outside of Canada determined by the Managing General Partner on a date not less than 10 days nor more than 60 days after the mailing of notice of the meeting. The limited partners do not have the ability to call a special meeting. Only holders of record on the date set by the Managing General Partner (which may not be less than 10 days nor more than 60 days, before the meeting) are entitled to notice of any meeting.

Written consents may be solicited only by or on behalf of the Managing General Partner. Any such consent solicitation may specify that any written consents must be returned to Brookfield Renewable within the time period, which may not be less than 20 days, specified by the Managing General Partner.

 

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For purposes of determining holders of partnership interests entitled to provide consents to any action described above, the Managing General Partner may set a record date, which may be not less than 10 nor more than 60 days before the date by which record holders are requested in writing by the Managing General Partner to provide such consents. Only those holders of partnership interests on the record date established by the Managing General Partner will be entitled to provide consents with respect to matters as to which a consent right applies.

Amendments to the Amended and Restated Limited Partnership Agreement of BREP

Amendments to the Amended and Restated Limited Partnership Agreement of BREP may only be proposed by or with the consent of the Managing General Partner. To adopt a proposed amendment, other than the amendments that do not require limited partner approval discussed below, the Managing General Partner must seek approval of at least 66 2 / 3 % of the voting power of our outstanding LP Units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment.

Prohibited Amendments

No amendment may be made that would:

 

  (i)

enlarge the obligations of any limited partner without its consent, except that any amendment that would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership interests may be approved by at least a majority of the type or class of partnership interests so affected; or

 

  (ii)

enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by Brookfield Renewable to the Managing General Partner or any of its affiliates without the consent of the Managing General Partner, which may be given or withheld in its sole discretion.

The provision of the Amended and Restated Limited Partnership Agreement of BREP preventing the amendments having the effects described directly above can be amended upon the approval of the holders of at least 90% of the outstanding LP Units, and in the case of (ii) above, with the consent of the Managing General Partner, which may be given or withheld in its sole discretion.

No Limited Partner Approval

Subject to applicable law, the Managing General Partner may generally make amendments to the Amended and Restated Limited Partnership Agreement of BREP without the approval of any limited partner to reflect:

 

   

a change in the name of Brookfield Renewable, the location of Brookfield Renewable’s registered office, or Brookfield Renewable’s registered agent;

 

   

the admission, substitution or withdrawal of partners in accordance with the Amended and Restated Limited Partnership Agreement of BREP;

 

   

a change that the Managing General Partner determines is reasonable and necessary or appropriate for Brookfield Renewable to qualify or to continue Brookfield Renewable’s qualification as an exempted limited partnership under the laws of Bermuda or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or is necessary or advisable in the opinion of the Managing General Partner to ensure that Brookfield Renewable will not be treated as an association taxable as a corporation or otherwise taxed as an entity for tax purposes;

 

   

an amendment that the Managing General Partner determines to be necessary or appropriate to address certain changes in tax regulations, legislation or interpretation;

 

   

an amendment that is necessary, in the opinion of our counsel, to prevent Brookfield Renewable or the Managing General Partner or its directors or officers from in any manner being subjected to the provisions of the Investment Company Act or similar legislation in other jurisdictions;

 

   

an amendment that the Managing General Partner determines in its sole discretion to be necessary or appropriate for the creation, authorization or issuance of any class or series of partnership interests or options, rights, warrants or appreciation rights relating to partnership securities;

 

   

any amendment expressly permitted in the Amended and Restated Limited Partnership Agreement of BREP to be made by the Managing General Partner acting alone;

 

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any amendment that, in the sole discretion of the Managing General Partner, is necessary or appropriate to reflect and account for the formation by Brookfield Renewable of, or its investment in, any partnership, association, body corporate or other entity, as otherwise permitted by the Amended and Restated Limited Partnership Agreement of BREP;

 

   

a change in Brookfield Renewable’s fiscal year and related changes; or

 

   

any other amendments substantially similar to any of the matters described directly above.

In addition, the Managing General Partner may make amendments to the Amended and Restated Limited Partnership Agreement of BREP without the approval of any limited partner if those amendments, in the discretion of the Managing General Partner:

 

   

do not adversely affect Brookfield Renewable’s limited partners considered as a whole (including any particular class of partnership interests as compared to other classes of partnership interests) in any material respect;

 

   

are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion or binding directive, order, ruling or regulation of any governmental agency or judicial authority;

 

   

are necessary or appropriate to facilitate the trading of our LP Units or to comply with any rule, regulation, guideline or requirement of any securities exchange on which our LP Units are or will be listed for trading;

 

   

are necessary or appropriate for any action taken by the Managing General Partner relating to splits or combinations of LP Units made in accordance with the provisions of the Amended and Restated Limited Partnership Agreement of BREP; or

 

   

are required to effect the intent of the provisions of the Amended and Restated Limited Partnership Agreement of BREP or are otherwise contemplated by the Amended and Restated Limited Partnership Agreement of BREP.

Opinion of Counsel and Limited Partner Approval

The Managing General Partner will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners if one of the amendments described above under “— No Limited Partner Approval” should occur. No other amendments to the Amended and Restated Limited Partnership Agreement of BREP will become effective without the approval of holders of at least 90% of our LP Units, unless Brookfield Renewable obtains an opinion of counsel to the effect that the amendment will not cause Brookfield Renewable to be treated as an association taxable as a corporation or otherwise taxable as an entity for tax purposes (provided that for U.S. tax purposes the Managing General Partner has not made the election described below under “— Election to be Treated as a Corporation”) or affect the limited liability under the Limited Partnership Act 1883 of any of Brookfield Renewable’s limited partners.

In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of partnership interests in relation to other classes of partnership interests will also require the approval of the holders of at least a majority of the outstanding partnership interests of the class so affected.

In addition, any amendment that reduces the voting percentage required to take any action must be approved by the written consent or affirmative vote of limited partners whose aggregate outstanding voting units constitute not less than the voting requirement sought to be reduced.

Sale or Other Disposition of Assets

The Amended and Restated Limited Partnership Agreement of BREP generally prohibits the Managing General Partner, without the prior approval of the holders of at least 66 2 / 3 % of the voting power of our LP Units, from causing Brookfield Renewable to, among other things, sell, exchange or otherwise dispose of all or substantially all of Brookfield Renewable’s assets in a single transaction or a series of related transactions, including by approving on Brookfield Renewable’s behalf the sale, exchange or other disposition of all or substantially all of the assets of Brookfield Renewable’s subsidiaries. However, the Managing General Partner, in its sole discretion, may mortgage, pledge, hypothecate or grant a security interest in all or substantially all of Brookfield Renewable’s assets (including for the benefit of persons who are not Brookfield Renewable or Brookfield Renewable’s subsidiaries) without that approval. The Managing General Partner may also sell all or substantially all of Brookfield Renewable’s assets under any forced sale of any or all of Brookfield Renewable’s assets pursuant to the foreclosure or other realization upon those encumbrances without that approval.

 

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Take-Over Bids

If, within 120 days after the date of a take-over bid, as defined in the Securities Act (Ontario) , the take-over bid is accepted by holders of not less than 90% of our outstanding LP Units, other than our LP Units held at the date of the take-over bid by the offeror or any affiliate or associate of the offeror, and the offeror acquires all of such LP Units deposited or tendered under the take-over bid, the offeror will be entitled to acquire our LP Units not deposited under the take-over bid on the same terms as our LP Units acquired under the take-over bid.

Election to be Treated as a Corporation

If the Managing General Partner determines in its sole discretion that it is no longer in Brookfield Renewable’s best interests to continue as a partnership for U.S. federal income tax purposes, the Managing General Partner may elect to treat Brookfield Renewable as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes.

Termination and Dissolution

Brookfield Renewable will terminate upon the earlier to occur of (i) the date on which all of Brookfield Renewable’s assets have been disposed of or otherwise realized by Brookfield Renewable and the proceeds of such disposals or realizations have been distributed to partners, (ii) the service of notice by the Managing General Partner, with the special approval of a majority of its independent directors, that in its opinion the coming into force of any law, regulation or binding authority has or will render illegal or impracticable the continuation of Brookfield Renewable, and (iii) at the election of the Managing General Partner, with the special approval of its independent directors, if Brookfield Renewable, as determined by the Managing General Partner, based on an opinion of counsel, is required to register as an “investment company” under the Investment Company Act or similar legislation in other jurisdictions.

Brookfield Renewable will be dissolved upon the withdrawal of the Managing General Partner as the general partner of Brookfield Renewable (unless a successor entity becomes the general partner as described in the following sentence or the withdrawal is effected in compliance with the provisions of the Amended and Restated Limited Partnership Agreement of BREP that are described below under “— Withdrawal of the Managing General Partner”) or the entry by a court of competent jurisdiction of a decree of judicial dissolution of Brookfield Renewable or an order to wind-up or liquidate the Managing General Partner without the appointment of a successor in compliance with the provisions of the Amended and Restated Limited Partnership Agreement of BREP that are described below under “— Withdrawal of the Managing General Partner”. Brookfield Renewable will be reconstituted and continue without dissolution if within 30 days of the date of dissolution (and so long as a notice of dissolution has not been filed with the Bermuda Monetary Authority), a successor general partner executes a transfer deed pursuant to which it becomes the general partner and assumes the rights and undertakes the obligations of the general partner and Brookfield Renewable receives an opinion of counsel that the admission of the new general partner will not result in the loss of the limited liability of any limited partner.

Liquidation and Distribution of Proceeds

Upon our dissolution, unless Brookfield Renewable is continued as a new limited partnership, the liquidator authorized to wind-up Brookfield Renewable’s affairs will, acting with all of the powers of the Managing General Partner that the liquidator deems necessary or appropriate in its judgment, liquidate Brookfield Renewable’s assets and apply the proceeds of the liquidation first, to discharge Brookfield Renewable’s liabilities as provided in the Amended and Restated Limited Partnership Agreement of BREP and by law and thereafter to the partners pro rata according to the percentages of their respective partnership interests as of a record date selected by the liquidator. The liquidator may defer liquidation of Brookfield Renewable’s assets for a reasonable period of time or distribute assets to partners in kind if it determines that an immediate sale or distribution of all or some of Brookfield Renewable’s assets would be impractical or would cause undue loss to the partners.

Withdrawal of the Managing General Partner

The Managing General Partner may withdraw as Managing General Partner without first obtaining approval of our Unitholders by giving 180 days’ advance written notice to the other partners, and that withdrawal will not constitute a violation of the Amended and Restated Limited Partnership Agreement of BREP.

Upon the withdrawal of the Managing General Partner, the holders of at least 66 2 / 3 % of the voting power of our outstanding LP Units may select a successor to that withdrawing Managing General Partner. If a successor is not elected, or is elected but an opinion of counsel regarding limited liability, tax matters and the Investment Company Act (and similar legislation in other jurisdictions) cannot be obtained, Brookfield Renewable will be dissolved, wound up and liquidated. See “— Termination and Dissolution” above.

 

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In the event of withdrawal of a general partner where that withdrawal violates the Amended and Restated Limited Partnership Agreement of BREP, a successor general partner will have the option to purchase the general partnership interest of the departing general partner for a cash payment equal to its fair market value. Under all other circumstances where a general partner withdraws, the departing general partner will have the option to require the successor general partner to purchase the general partnership interest of the departing general partner for a cash payment equal to its fair market value. In each case, this fair market value will be determined by agreement between the departing general partner and the successor general partner. If no agreement is reached within 30 days of the general partner’s departure, an independent investment banking firm or other independent expert selected by the departing general partner and the successor general partner will determine the fair market value. If the departing general partner and the successor general partner cannot agree upon an expert within 45 days of the general partner’s departure, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.

If the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner’s general partnership interests will automatically convert into LP Units pursuant to a valuation of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.

Transfer of the General Partnership Interest

The Managing General Partner may transfer all or any part of its general partnership interest without first obtaining approval of any LP Unitholder. As a condition of this transfer, the transferee must (i) be an affiliate of the general partner of BRELP (or the transfer must be made concurrently with a transfer of the general partnership units of BRELP to an affiliate of the transferee), (ii) agree to assume the rights and duties of the Managing General Partner to whose interest that transferee has succeeded, (iii) agree to be bound by the provisions of the Amended and Restated Limited Partnership Agreement of BREP and (iv) furnish an opinion of counsel regarding limited liability and tax matters. Any transfer of the general partnership interest is subject to prior notice to and approval of the relevant Bermuda regulatory authorities. At any time, the shareholder of the Managing General Partner may sell or transfer all or part of its shares in the Managing General Partner without the approval of the unitholders.

Partnership Name

If the Managing General Partner ceases to be the general partner of Brookfield Renewable and our new general partner is not an affiliate of Brookfield, Brookfield Renewable will be required by the Amended and Restated Limited Partnership Agreement of BREP to change the name of Brookfield Renewable to a name that does not include “Brookfield” and which could not be capable of confusion in any way with such name. The Amended and Restated Limited Partnership Agreement of BREP explicitly provides that this obligation shall be enforceable and waivable by the Managing General Partner notwithstanding that it may have ceased to be the general partner of Brookfield Renewable.

Transactions with Interested Parties

The Managing General Partner, the Manager and their respective partners, members, shareholders, directors, officers, employees and shareholders, which we refer to as “ interested parties ”, may become limited partners or beneficially interested in limited partners and may hold, dispose of or otherwise deal with our LP Units with the same rights they would have if the Managing General Partner was not a party to the Amended and Restated Limited Partnership Agreement of BREP. An interested party will not be liable to account either to other interested parties or to Brookfield Renewable, Brookfield Renewable’s partners or any other persons for any profits or benefits made or derived by or in connection with any such transaction.

The Amended and Restated Limited Partnership Agreement of BREP permits an interested party to sell investments to, purchase assets from, vest assets in and enter into any contract, arrangement or transaction with Brookfield Renewable, BRELP, any of the Holding Entities, any operating entity or any other holding vehicle established by Brookfield Renewable and may be interested in any such contract, transaction or arrangement and shall not be liable to account either to Brookfield Renewable, BRELP, any of the Holding Entities, any operating entity or any other holding vehicle established by Brookfield Renewable or any other person in respect of any such contract, transaction or arrangement, or any benefits or profits made or derived therefrom, by virtue only of the relationship between the parties concerned, subject to any approval requirements that are contained in the Conflicts Policy. See Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

Outside Activities of the Managing General Partner; Conflicts of Interest

Under the Amended and Restated Limited Partnership Agreement of BREP, the Managing General Partner is required to maintain as its sole activity the role of general partner of Brookfield Renewable. The Managing General Partner is not permitted to engage in any business or activity or incur or guarantee any debts or liabilities except in connection with or incidental to its performance as general partner or incurring, guaranteeing, acquiring, owning or disposing of debt or equity securities of BRELP, a Holding Entity or any other holding vehicle established by Brookfield Renewable.

 

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The Amended and Restated Limited Partnership Agreement of BREP provides that each person who is entitled to be indemnified by Brookfield Renewable (other than the Managing General Partner), as described below under “— Indemnification; Limitations on Liability”, shall have the right to engage in businesses of every type and description and other activities for profit, and to engage in and possess interests in business ventures of any and every type or description, irrespective of whether (i) such activities are similar to our affairs or activities or (ii) such affairs and activities directly compete with, or disfavor or exclude, the Managing General Partner, Brookfield Renewable, BRELP, any Holding Entity, any operating entity or any other holding vehicle established by Brookfield Renewable. Such business interests, activities and engagements will be deemed not to constitute a breach of the Amended and Restated Limited Partnership Agreement of BREP or any duties stated or implied by law or equity, including fiduciary duties, owed to any of the Managing General Partner, Brookfield Renewable, BRELP, any Holding Entity, any operating entity and any other holding vehicle established by Brookfield Renewable (or any of their respective investors), and shall be deemed not to be a breach of the Managing General Partner’s fiduciary duties or any other obligation of any type whatsoever of the Managing General Partner. None of the Managing General Partner, Brookfield Renewable, BRELP, any Holding Entity, any operating entity, any other holding vehicle established by Brookfield Renewable or any other person shall have any rights by virtue of the Amended and Restated Limited Partnership Agreement of BREP or the partnership relationship established thereby or otherwise in any business ventures of any person who is entitled to be indemnified by Brookfield Renewable as described below under “— Indemnification; Limitations on Liability”.

The Managing General Partner and the other indemnified persons described in the preceding paragraph do not have any obligation under the Amended and Restated Limited Partnership Agreement of BREP to present business or investment opportunities to Brookfield Renewable, BRELP, any Holding Entity, any operating entity or any other holding vehicle established by Brookfield Renewable. These provisions will not affect any obligation of an indemnified person to present business or investment opportunities to Brookfield Renewable, BRELP, any Holding Entity, any operating entity or any other holding vehicle established by Brookfield Renewable pursuant to the Relationship Agreement or any other separate written agreement between such persons.

Any conflicts of interest and potential conflicts of interest that are approved by a majority of the Managing General Partner’s independent directors from time-to-time will be deemed approved by all partners. Pursuant to the Conflicts Policy, independent directors may grant approvals for any matters that may give rise to a conflict of interest or potential conflict of interest in the form of general guidelines, policies or procedures that are adopted by the Managing General Partner’s independent directors, and amended from time-to-time with the approval of a majority of the independent directors of the Managing General Partner, in which case no further special approval will be required in connection with a particular transaction or matter permitted thereby other than any approvals required by law. See Item 7.B “Related Party Transactions — Conflicts of Interest and Fiduciary Duties”.

Indemnification; Limitations on Liability

Under the Amended and Restated Limited Partnership Agreement of BREP, Brookfield Renewable is required to indemnify on an after-tax basis out of the assets of Brookfield Renewable to the fullest extent permitted by law the Managing General Partner, the Manager and any of their respective affiliates (and their respective officers, directors, agents, shareholders, partners, members and employees), any person who serves on a Governing Body of BRELP, a Holding Entity, operating entity or any other holding vehicle established by Brookfield Renewable and any other person designated by the Managing General Partner as an indemnified person, in each case, against all losses, claims, damages, liabilities, costs or expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all claims, demands, actions, suits or proceedings, incurred by an indemnified person in connection with our investments and activities or by reason of their holding such positions, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person’s gross negligence, bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew to have been unlawful. In addition, under the Amended and Restated Limited Partnership Agreement of BREP, (i) the liability of such persons has been limited to the fullest extent permitted by law, except to the extent that their conduct involves gross negligence, bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew to have been unlawful and (ii) any matter that is approved by the independent directors of the Managing General Partner will not constitute a breach of the Amended and Restated Limited Partnership Agreement of BREP or any duties stated or implied by law or equity, including fiduciary duties. The Amended and Restated Limited Partnership Agreement of BREP requires us to advance funds to pay the expenses of an indemnified person in connection with a matter in which indemnification may be sought until it is determined that the indemnified person is not entitled to indemnification.

Accounts, Reports and Other Information

Under the Amended and Restated Limited Partnership Agreement of BREP, the Managing General Partner is required to prepare financial statements in accordance with IFRS as determined by the IASB. Brookfield Renewable’s financial statements must be made publicly available together with a statement of the accounting policies used in their preparation, such information as may be required by applicable laws and regulations and such information as the Managing General Partner deems appropriate. Brookfield Renewable’s annual financial statements must be audited by an independent accounting firm of international standing and made publicly available within such period of time as is required to comply with applicable laws and

 

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regulations, including any rules of any applicable securities exchange. Brookfield Renewable’s quarterly financial statements may be unaudited and are made available publicly as and within the time period required by applicable laws and regulations, including any rules of any applicable securities exchange. The Managing General Partner is also required to prepare all other press releases, proxy circulars and other disclosure documentation as by be required by applicable laws, including any rules of any applicable securities exchange.

The Managing General Partner is also required to use commercially reasonable efforts to prepare and send to the limited partners of Brookfield Renewable on an annual basis, additional information regarding Brookfield Renewable, including Schedule K-1 (or equivalent) and information related to the passive foreign investment company status of certain non-U.S. corporations that we control. The Managing General Partner will, where reasonably possible, prepare and send information required by the non-U.S. limited partners of Brookfield Renewable for U.S. federal income tax reporting purposes. The Managing General Partner will also, where reasonably possible and applicable, prepare and send information required by limited partners of Brookfield Renewable for Canadian federal income tax purposes.

Governing Law; Submission to Jurisdiction

The Amended and Restated Limited Partnership Agreement of BREP is governed by and will be construed in accordance with the laws of Bermuda. Under the Amended and Restated Limited Partnership Agreement of BREP, each of Brookfield Renewable’s partners (other than governmental entities prohibited from submitting to the jurisdiction of a particular jurisdiction) will submit to the non-exclusive jurisdiction of any court in Bermuda in any dispute, suit, action or proceeding arising out of or relating to the Amended and Restated Limited Partnership Agreement of BREP. Each partner waives, to the fullest extent permitted by law, any immunity from jurisdiction of any such court or from any legal process of any such court and further waives, to the fullest extent permitted by law, any claim of inconvenient forum, improper venue or that any such court does not have jurisdiction over the partner. Any final judgment against a partner in any proceedings brought in a court in Bermuda will be conclusive and binding upon the partner and may be enforced in the courts of any other jurisdiction of which the partner is or may be subject, by suit upon such judgment. The foregoing submission to jurisdiction and waivers will survive the dissolution, liquidation, winding up and termination of Brookfield Renewable.

Description of the Amended and Restated Limited Partnership Agreement of BRELP

The following is a description of the material terms of the Amended and Restated Limited Partnership Agreement of BRELP. Holders of LP Units in Brookfield Renewable are not limited partners of BRELP and do not have any rights under the Amended and Restated Limited Partnership Agreement of BRELP. Pursuant to the Voting Agreement, however, Brookfield Renewable, through the Managing General Partner, has the right to direct all eligible votes in the election of the directors of the BRELP General Partner, through which Brookfield Renewable participates in the management and activities of BRELP and the Holding Entities. See Item 7.B “Related Party Transactions—Voting Agreements”.

Because this description is only a summary of the terms of the agreement, it does not necessarily contain all of the information that you may find useful. For more complete information, you should read the Amended and Restated Limited Partnership Agreement of BRELP which is available electronically on the website of the SEC at www.sec.gov and on our SEDAR profile at www.sedar.com and will be made available to LP Unitholders as described under Item 10.C “Material Contracts” and Item 10.H “Documents on Display”.

Formation and Duration

BRELP is a Bermuda exempted limited partnership registered under the Limited Partnership Act 1883 and the Exempted Partnerships Act 1992 . BRELP has a perpetual existence and will continue as a limited liability partnership unless Brookfield Renewable is terminated or dissolved in accordance with the Amended and Restated Limited Partnership Agreement of BRELP.

Nature and Purpose

Under the Amended and Restated Limited Partnership Agreement of BRELP, the purpose of BRELP is to: acquire and hold interests in the Holding Entities and, subject to the approval of the BRELP GP LP, any other subsidiary of BRELP; engage in any activity related to the capitalization and financing of BRELP’s interests in such entities; and engage in any other activity that is incidental to or in furtherance of the foregoing and that is approved by the BRELP GP LP and that lawfully may be conducted by a limited partnership organized under the Limited Partnership Act 1883 , the Exempted Partnerships Act 1992 and the Amended and Restated Limited Partnership Agreement of BRELP.

 

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Management

As required by law, the Amended and Restated Limited Partnership Agreement of BRELP provides for the management and control of BRELP by a general partner, the BRELP GP LP. The BRELP GP LP will exercise its powers and carry out its functions honestly and in good faith and the BRELP GP LP will exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances, in each case, subject to, and after taking into account, the terms and conditions of the Relationship Agreement, our Master Services Agreement and the Conflicts Policy. Except as set out in the Amended and Restated Limited Partnership Agreement of BRELP, the BRELP GP LP has no additional duty to propose or approve any conduct of BRELP, and may decline to propose or approve such conduct free of any additional duty (including fiduciary duty). The BRELP GP LP shall not be in breach of any duty to BRELP if it takes actions permitted by the Amended and Restated Limited Partnership Agreement of BRELP, the Relationship Agreement, our Master Services Agreement or the Conflicts Policy.

Units

BRELP’s units are limited partnership interests. Holders of units of BRELP are not entitled to the withdrawal or return of capital contributions in respect of their units, except to the extent, if any, that distributions are made to such holders pursuant to the Amended and Restated Limited Partnership Agreement of BRELP or upon the dissolution of BRELP or as otherwise required by applicable law. Except to the extent expressly provided in the Amended and Restated Limited Partnership Agreement of BRELP, a holder of units of BRELP does not have priority over any other holder of units, either as to the return of capital contributions or as to profits, losses or distributions.

In connection with the Combination, BRELP issued two classes of units. The first class of units was issued to Brookfield and subsequently transferred to Brookfield Renewable and the second class of units, referred to as the Redeemable/Exchangeable partnership units, were issued to wholly-owned subsidiaries of Brookfield. Redeemable/Exchangeable partnership units are identical to the limited partnership units held by Brookfield Renewable, except as described below under “— Distributions” and “— Withdrawal of the General Partner” and except that they have the right of redemption described below under the heading “— Redemption-Exchange Mechanism”.

Issuance of Additional Partnership Interests

Subject to any approval required by applicable law, BRELP may issue additional partnership interests (including new classes of partnership interests and options, rights, warrants and appreciation rights relating to such interests) for any partnership purpose, at any time and from time to time and on such terms and conditions as its general partner may determine. Any additional partnership interests authorized to be issued by Amended and Restated Limited Partnership Agreement of BRELP may be issued in one or more classes, or one or more series of classes, with such designations, preferences, rights, powers and duties (which may be senior to existing classes and series of partnership interests) as its general partner may determine in its sole discretion.

Redemption-Exchange Mechanism

At any time after November 28, 2013, one or more wholly owned subsidiaries of Brookfield that hold Redeemable/Exchangeable partnership units will have the right to require BRELP to redeem for cash all or a portion of the Redeemable/Exchangeable partnership units held by such subsidiary, subject to Brookfield Renewable’s right to acquire such Redeemable/Exchangeable partnership units, as described below, provided that exercise of the right of redemption or the payment of the redemption amount would not otherwise cause BRELP to be in breach or violation of any agreement material to BRELP or Brookfield Renewable Group or applicable law. Any such redeeming subsidiary may exercise its right of redemption by delivering a notice of redemption to BRELP and Brookfield Renewable. After presentation for redemption, such redeeming subsidiary will receive, subject to Brookfield Renewable’s right to acquire Redeemable/Exchangeable partnership units, as described below, for each unit that is presented, cash in an amount equal to the market value of one of our units multiplied by the number of units to be redeemed (as determined by reference to the five day volume weighted average of the trading price of our units and subject to certain customary adjustments). Upon its receipt of the redemption notice, Brookfield Renewable will have a right to acquire Redeemable/Exchangeable partnership units entitling it, at its sole discretion, to elect to acquire all (but not less than all) units described in such notice and presented to BRELP for redemption in exchange for LP Units on a one for one basis (subject to certain customary adjustments). Upon a redemption for cash, the holder’s right to receive distributions with respect to BRELP’s Redeemable/Exchangeable partnership units so redeemed will cease.

Brookfield’s aggregate interest in Brookfield Renewable, including its interest in the Managing General Partner and the BRELP GP LP, would be approximately 65% if it exercised its redemption right in full and Brookfield Renewable exercised its right of first refusal on BRELP’s Redeemable/Exchangeable partnership units redeemed. Brookfield’s total percentage interest in Brookfield Renewable would be increased if it participates in BRELP’s distribution reinvestment plan.

 

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Distributions

Distributions by BRELP will be made in the sole discretion of its general partner, the BRELP GP LP. However, the BRELP GP LP will not be permitted to cause BRELP to make a distribution if BRELP does not have sufficient cash on hand to make the distribution, the distribution would render BRELP insolvent or if, in the opinion of the BRELP GP LP, the distribution would or might leave BRELP with insufficient funds to meet any future contingent obligations or the distribution would contravene the Limited Partnership Act 1883 .

Except as set forth below, prior to the dissolution of BRELP, distributions of available cash (if any) in any given quarter will be made by BRELP as follows, referred to as the “ Regular Distribution Waterfall ”:

 

   

first, 100% of any available cash to Brookfield Renewable until BRELP has distributed an amount equal to Brookfield Renewable’s expenses and outlays for the quarter properly incurred;

 

   

second, 100% of any available cash then remaining to the owners of BRELP’s partnership interests, pro rata to their percentage interests, until an amount equal to $0.375 has been distributed in respect of each limited partnership unit of BRELP during such quarter, referred to as the First Distribution Threshold;

 

   

third, 85% of any available cash then remaining to the owners of BRELP’s partnership interests, pro rata to their percentage interests, and 15% to its general partner, until an amount equal to $0.4225 has been distributed in respect of each limited partnership unit of BRELP during such quarter, referred to as the Second Distribution Threshold; and

 

   

thereafter, 75% of any available cash then remaining to the owners of BRELP’s partnership interests, pro rata to their percentage interests, and 25% to its general partner.

 

Set forth below is an example of how the incentive distributions described above are calculated on a quarterly and annualized basis. The figures used below are for illustrative purposes only and are not indicative of Brookfield Renewable’s expectations.

 

            Quarterly      Annually  

(MILLIONS, EXCEPT PER UNIT AMOUNTS)

   Units      Per Unit      Total      Per Unit      Total  

Illustrative distribution

      $ 0.5000          $ 2.00      

First distribution threshold

      $ 0.3750          $ 1.50      

Total units of BRELP (1)

     265               
        

 

 

       

 

 

 

Total first distribution

         $ 99.4          $ 397.6   
           

 

 

    

Distribution in excess of first distribution threshold

      $ 0.0475          $ 0.19      

Total units of BRELP (1)

     265               

Second distribution to partners

         $ 12.6          $ 50.4   

15% incentive distribution to general partner

           2.2            8.8   
        

 

 

       

 

 

 

Total second distribution

         $ 14.8          $ 59.2   
           

 

 

    

Distribution in excess of second distribution threshold

      $ 0.0775          $ 0.31      

Total units of BRELP (1)

     265               

Third distribution to partners

         $ 20.5          $ 82.0   

25% incentive distribution to general partner

           6.8            27.2   
        

 

 

       

 

 

 

Total third distribution

         $ 27.3          $ 109.2   
        

 

 

       

 

 

 

Total distributions to partners (including incentive distributions)

         $ 141.5          $ 566.0   
        

 

 

       

 

 

 

Total incentive distributions to general partner

         $ 9.0          $ 36.0   
        

 

 

       

 

 

 

Notes:

(1)

Includes (a) class A non-voting limited partnership interests in BRELP held by Brookfield Renewable, (b) Redeemable/Exchangeable partnership units of BRELP that are held by Brookfield and that are redeemable for cash or exchangeable for LP Units in accordance with the Redemption-Exchange Mechanism and (c) general partnership interests in BRELP.

The table below sets forth, on a quarterly and aggregate basis, all management fees and incentive distributions that have been earned since the Combination.

 

(MILLIONS)    Q4 2011 (1)      Q1 2012      Q2 2012      Q3 2012      Q4 2012      Q1 2013      Total  

Base management fee (2)

   $ 2.4       $ 6.6       $ 7.7       $ 10.3       $ 11.2       $ 12.0       $ 50.2   

Incentive distribution

     -         -         -         -         -         -         -   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

  

$

2.4

  

   $ 6.6       $ 7.7       $ 10.3       $ 11.2      

$

12.0

  

   $ 50.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

The Combination was effected on November 28, 2011. The amounts for the fourth quarter of 2011 set forth in the table represent the base management fee and the incentive distribution for the stub period from such date until December 31, 2011.

(2)

Pursuant to our Master Services Agreement, we pay the Manager a fixed base management fee equal to $20 million (which amount shall be adjusted for inflation annually beginning on January 1, 2013, at an inflation factor based on year over year United States consumer price index) plus 1.25% of the amount by which the Total Capitalization Value (which is generally determined with reference to the aggregate of the value of all outstanding LP Units, assuming full conversion of Brookfield’s limited partnership interests in BRELP into LP Units, and securities of the other Service Recipients that are not held by Brookfield Renewable Group, plus all outstanding third party debt with recourse to Brookfield Renewable, BRELP or a Holding Entity, less all cash held by such entities) of Brookfield Renewable exceeds an initial reference value determined based on its market capitalization immediately following the Combination. In the event that the measured Total Capitalization Value of Brookfield Renewable in a given period is less than the initial reference value, the Manager will receive a base management fee of $20 million annually (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). For any quarter in which the Managing General Partner determines that there is insufficient available cash to pay the base management fee as well as the next regular distribution on our LP Units, we may elect to pay all or a portion of the base management fee in our LP Units or in limited partnership units of BRELP, subject to certain conditions.

 

(MILLIONS, EXCEPT LP
UNITS AMOUNTS)

  Initial
Value
    Q4
2011 (1)
    Increase     Q1
2012
    Increase     Q2
2012
    Increase     Q3
2012
    Increase     Q4
2012
    Increase     Q1
2013
    Increase  

Fair market value of LP Units (2)

  $ 24.94      $ 26.50      $ 1.56      $ 26.01      $ 1.07      $ 27.31      $ 2.37      $ 29.97      $ 5.03      $ 29.63      $ 4.69      $ 28.91      $ 3.97   

Units issued and outstanding (3)

    262.5        262.5        262.5        262.5        262.5        262.5        262.5        262.5        262.5        262.6        262.6        262.6        262.6   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  $ 6,545.1      $ 6,955.3      $ 410.2      $ 6,827.8      $ 282.7      $ 7,168.7      $ 623.6      $ 7,868.4      $ 1,323.3      $ 7,779.7      $ 1,234.6      $ 7,591.1      $ 1046.0   

Principal value of corporate borrowings, credit facilities and preferred shares

    1,552.9        1,572.5        19.60        1,782.6        229.7        1,779.1        226.2        1,915.2        362.3        2,283.3        730.4        2,707.2        1154.3   

Cash held: Service Recipients

    (5.0     (4.9     0.1        (10.7     (5.7     (6.1     (1.1     (4.2     0.8        (1.4     3.6        (6.0     (1.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Capitalization Value

  $ 8,093.0      $ 8,522.9      $ 429.96      $ 8,599.7      $ 506.7      $ 8,941.7      $ 848.7      $ 9,779.4      $ 1,686.4      $ 10,061.6      $ 1,968.6      $ 10,292.3      $ 2,199.3   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(MILLIONS, UNLESS
OTHERWISE NOTED)

        Q4
2011
    Total     Q1
2012
    Total     Q2
2012
    Total     Q3
2012
    Total     Q4
2012
    Total     Q1
2013
    Total  

Base management fee (4)

      $ 1.9        $ 5.0        $ 5.0        $ 5.0        $ 5.0        $ 5.1   

Variable management fees

                         

Increase in Total Capitalization Value

   

 

429.9

  

      506.79          848.7          1,686.4          1,968.6          2,199.3     

Rate (5)

    0.3125       0.5          1.6          2.7          5.3          6.2          6.9   
 

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Total management fee

      $ 2.4        $ 6.6        $ 7.7        $ 10.3        $ 11.2        $ 12.0   
     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

(1)

The Combination was effected on November 28, 2011. The amounts for the fourth quarter of 2011 set forth in the table represent the base management fee and the incentive distribution for the stub period from such date until December 31, 2011.

(2)

Represents the five-day volume-weighted average price in Canadian dollars converted to U.S. dollars.

(3)

All outstanding LP Units, assuming full conversion of Brookfield's limited partnership interest in BRELP into LP Units.

(4)

$20 million annual fee, calculated quarterly in arrears (subject to an annual escalation by a specified inflation factor beginning January 1, 2013).

(5)

1.25% of the increase in Total Capitalization Value, calculated at 0.3125% quarterly.

If, prior to the dissolution of BRELP, available cash is deemed by its general partner, in its sole discretion, to be (i) attributable to sales or other dispositions of BRELP’s assets and (ii) representative of unrecovered capital, then such available cash shall be distributed to the partners of BRELP in proportion to the unrecovered capital attributable to BRELP’s partnership interests held by the partners until such time as the unrecovered capital attributable to each such partnership interest is equal to zero. Thereafter, distributions of available cash made by BRELP (to the extent made prior to dissolution) will be made in accordance with the Regular Distribution Waterfall.

Upon the occurrence of an event resulting in the dissolution of BRELP, all cash and property of BRELP in excess of that required to discharge BRELP’s liabilities will be distributed as follows: (i) to the extent such cash and/or property is attributable to a realization event occurring prior to the event of dissolution, such cash and/or property will be distributed in accordance with the Regular Distribution Waterfall and/or the distribution waterfall applicable to unrecovered capital; and (ii) all other cash and/or property will be distributed in the manner set forth below:

 

   

first, 100% to Brookfield Renewable until Brookfield Renewable has received an amount equal to the excess of (i) the amount of Brookfield Renewable’s outlays and expenses incurred during the term of BRELP, over (ii) the aggregate amount of distributions received by Brookfield Renewable pursuant to the first tier of the Regular Distribution Waterfall during the term of BRELP;

 

   

second, 100% to the partners of BRELP, in proportion to their respective amounts of unrecovered capital in BRELP;

 

   

third, 100% to the owners of BRELP’s partnership interests, pro rata to their percentage interests, until an amount has been distributed in respect of each limited partnership unit of BRELP equal to the excess of (i) the First Distribution Threshold for each quarter during the term of BRELP (subject to adjustment upon the subsequent issuance of additional partnership interests in BRELP), over (ii) the aggregate amount of distributions made in respect of a BRELP’s limited partnership unit pursuant to the second tier of the Regular Distribution Waterfall during the term of BRELP (subject to adjustment upon the subsequent issuance of additional partnership interests in BRELP);

 

   

fourth, 85% to the owners of BRELP’s partnership interests, pro rata to their percentage interests, and 15% to its general partner, until an amount has been distributed in respect of each limited partnership unit of BRELP equal to the excess of (i) the Second Distribution Threshold less the First Distribution Threshold for each quarter during the term of BRELP (subject to adjustment upon the subsequent issuance of additional partnership interests in BRELP), over (ii) the aggregate amount of distributions made in respect of a limited partnership unit of BRELP pursuant to the third tier of the Regular Distribution Waterfall during the term of BRELP (subject to adjustment upon the subsequent issuance of additional partnership interests in BRELP); and

 

   

thereafter, 75% to the owners of BRELP’s partnership interests, pro rata to their percentage interests, and 25% to its general partner.

 

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Each partner’s percentage interest is determined by the relative portion of all outstanding partnership interests held by that partner from time to time and is adjusted upon and reflects the issuance of additional partnership interests of BRELP. In addition, the unreturned capital attributable to each of the partnership interests, as well as certain of the distribution thresholds set forth above, may be adjusted pursuant to the terms of the Amended and Restated Limited Partnership Agreement of BRELP so as to ensure the uniformity of the economic rights and entitlements of (i) the previously outstanding partnership interests of BRELP, and (ii) the subsequently-issued partnership interests of BRELP.

The Amended and Restated Limited Partnership Agreement of BRELP provides that, to the extent that any Holding Entity or any operating entity pays to Brookfield any comparable performance or incentive distribution, the amount of any incentive distributions paid to the BRELP GP LP in accordance with the distribution entitlements described above will be reduced in an equitable manner to avoid duplication of distributions.

BRELP GP LP may elect, at its sole discretion, to reinvest incentive distributions in Redeemable/Exchangeable partnership units.

Sale or Other Disposition of Assets

The Amended and Restated Limited Partnership Agreement of BRELP generally prohibits the general partner of BRELP, without the prior approval of the holders of at least 50% of the voting power of the units of BRELP, from causing BRELP to, among other things, sell, exchange or otherwise dispose of all or substantially all of BRELP or Brookfield Renewable Group’s assets in a single transaction or a series of related transactions.

No Management or Control

BRELP’s limited partners, in their capacities as such, may not take part in the management or control of the activities and affairs of BRELP and do not have any right or authority to act for or to bind BRELP or to take part or interfere in the conduct or management of BRELP.

Limited partners are not entitled to vote on matters relating to BRELP, although holders of units are entitled to consent to certain matters as described under “— Amendment of the Amended and Restated Limited Partnership Agreement of BRELP”, “— Opinion of Counsel and Limited Partner Approval” and “— Withdrawal of the General Partner” which may be effected only with the consent of the holders of the percentages of outstanding units specified below. Each unit shall entitle the holder thereof to one vote for the purposes of any approvals of holders of units.

In addition, pursuant to the Voting Agreement, Brookfield Renewable, through the Managing General Partner, has a number of voting rights, including the right to direct all eligible votes in the election of the directors of the BRELP General Partner. See Item 7.B “Related Party Transactions — Voting Agreement”.

Meetings

Special meetings of the limited partners of BRELP may be called by its general partner at a time and place outside of Canada determined by it on a date not less than 10 days nor more than 60 days after the mailing of notice of the meeting. Special meetings of the limited partners may also be called by limited partners holding 50% or more of the voting power of the outstanding partnership interests of the class or classes for which a meeting is proposed. For this purpose, the partnership interests outstanding do not include partnership interests owned by its general partner or any of its affiliates other than any member of Brookfield Renewable Group. Only holders of partnership interests of BRELP of record on the date set by its general partner (which may not be less than 10 days nor more than 60 days, before the meeting) are entitled to notice of any meeting.

Amendment of the Amended and Restated Limited Partnership Agreement of BRELP

Amendments to the Amended and Restated Limited Partnership Agreement of BRELP may only be proposed by or with the consent of its general partner. To adopt a proposed amendment, other than the amendments that do not require limited partner approval discussed below, the general partner must seek approval of at least 66 2 / 3 % of the voting power of BRELP’s outstanding units required to approve the amendment or call a meeting of the limited partners to consider and vote upon the proposed amendment.

Prohibited Amendments

No amendment may be made that would:

 

   

enlarge the obligations of any limited partner without its consent, except that any amendment that would have a material adverse effect on the rights or preferences of any class of partnership interests in relation to other classes of partnership interests may be approved by at least a majority of the type or class of partnership interests so affected; or

 

   

enlarge the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by BRELP to the BRELP GP LP or any of its affiliates without the consent of the BRELP GP LP which may be given or withheld in its sole discretion.

 

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The provision of the Amended and Restated Limited Partnership Agreement of BRELP preventing the amendments having the effects described directly above can be amended upon the approval of the holders of not less than 90% of the outstanding units.

No Limited Partner Approval

Subject to applicable law, the BRELP GP LP may generally make amendments to the Amended and Restated Limited Partnership Agreement of BRELP without the approval of any limited partner to reflect:

 

   

a change in the name of Brookfield Renewable, the location of Brookfield Renewable’s registered office or Brookfield Renewable’s registered agent;

 

   

the admission, substitution or withdrawal or removal of partners in accordance with the Amended and Restated Limited Partnership Agreement of BRELP;

 

   

a change that its general partner determines is reasonable and necessary or appropriate for Brookfield Renewable to qualify or to continue its qualification as an exempted limited partnership under the laws of Bermuda or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or is necessary or advisable in the opinion of its general partner to ensure that BRELP will not be treated as an association taxable as a corporation or otherwise taxed as an entity for tax purposes;

 

   

an amendment that the BRELP GP LP determines to be necessary or appropriate to address certain changes in tax regulations, legislation or interpretation;

 

   

an amendment that is necessary, in the opinion of counsel, to prevent BRELP or its general partner or its directors, officers, agents or trustees, from having a material risk of being in any manner subjected to the provisions of the Investment Company Act or similar legislation in other jurisdictions;

 

   

an amendment that its general partner determines in its sole discretion to be necessary or appropriate for the creation, authorization or issuance of any class or series of partnership interests or options, rights, warrants or appreciation rights relating to partnership securities;

 

   

any amendment expressly permitted in the Amended and Restated Limited Partnership Agreement of BRELP to be made by its general partner acting alone;

 

   

any amendment that in the sole discretion of the BRELP GP LP is necessary or appropriate to reflect and account for the formation by Brookfield Renewable of, or its investment in, any person, as otherwise permitted by the Amended and Restated Limited Partnership Agreement of BRELP;

 

   

a change in its fiscal year and related changes;

 

   

any amendment concerning the computation or allocation of specific items of income, gain, expense or loss among the partners that, in the sole discretion of its general partner, is necessary or appropriate to (i) comply with the requirements of applicable law, (ii) reflect the partners’ interests in BRELP, or (iii) consistently reflect the distributions made by BRELP to the partners pursuant to the terms of the Amended and Restated Limited Partnership Agreement of BRELP;

 

   

any amendment that in the sole discretion of the BRELP GP LP is necessary or appropriate to address any statute, rule, regulation, notice, or announcement that affects or could affect the U.S. federal income tax treatment of any allocation or distribution related to any interest of the BRELP GP LP in the profits of BRELP; and

 

   

any other amendments substantially similar to any of the matters described directly above.

In addition, amendments to the Amended and Restated Limited Partnership Agreement of BRELP may be made by the BRELP GP LP without the approval of any limited partner if those amendments, in the discretion of the BRELP GP LP:

 

   

do not adversely affect BRELP’s limited partners considered as a whole (including any particular class of partnership interests as compared to other classes of partnership interests) in any material respect;

 

   

are necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion or binding directive, order, ruling or regulation of any governmental agency or judicial authority;

 

   

are necessary or appropriate to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading;

 

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are necessary or appropriate for any action taken by its general partner relating to splits or combinations of units made in accordance with the provisions of the Amended and Restated Limited Partnership Agreement of BRELP; or

 

   

are required to effect the intent of the provisions of the Amended and Restated Limited Partnership Agreement of BRELP or are otherwise contemplated by the Amended and Restated Limited Partnership Agreement of BRELP.

Opinion of Counsel and Limited Partner Approval

The BRELP GP LP will not be required to obtain an opinion of counsel that an amendment will not result in a loss of limited liability to the limited partners if one of the amendments described above under “— No Limited Partner Approval” should occur. No other amendments to the Amended and Restated Limited Partnership Agreement of BRELP will become effective without the approval of holders of at least 90% of the voting power of BRELP’s units, unless it obtains an opinion of counsel to the effect that the amendment will not (i) cause BRELP to be treated as an association taxable as a corporation or otherwise taxable as an entity for tax purposes (provided that for U.S. tax purposes its general partner has not made the election described below under “— Election to be Treated as a Corporation”) or (ii) affect the limited liability under the Limited Partnership Act 1883 of any of BRELP’s limited partners.

In addition to the above restrictions, any amendment that would have a material adverse effect on the rights or preferences of any type or class of partnership interests in relation to other classes of partnership interests will also require the approval of the holders of at least a majority of the outstanding partnership interests of the class so affected.

In addition, any amendment that reduces the voting percentage required to take any action must be approved by the affirmative vote of limited partners whose aggregate outstanding voting units constitute not less than the voting requirement sought to be reduced.

Election to be Treated as a Corporation

If, in the determination of its general partner, it is no longer in BRELP’s best interests to continue as a partnership for U.S. federal income tax purposes, the BRELP GP LP may elect to treat BRELP as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes.

Dissolution

BRELP shall dissolve and its affairs shall be wound up, upon the earlier of (i) the service of notice by its general partner, with the approval of a majority of the members of the independent directors of the Managing General Partner, that, in the opinion of the general partner, the coming into force of any law, regulation or binding authority renders illegal or impracticable the continuation of BRELP; (ii) the election of its general partner, with the approval of its independent directors, if BRELP, as determined by its general partner, based on an opinion of counsel, is required to register as an “investment company” under the Investment Company Act or similar legislation in other jurisdictions; (iii) the date that its general partner withdraws from the partnership (unless a successor entity becomes the general partner of BRELP as described below under “— Withdrawal of the General Partner”); (iv) the date on which any court of competent jurisdiction enters a decree of judicial dissolution of BRELP or an order to wind-up or liquidate its general partner without the appointment of a successor in compliance with the provisions of the Amended and Restated Limited Partnership Agreement of BRELP that are described below under “— Withdrawal of the General Partner”; and (v) the date on which its general partner decides to dispose of, or otherwise realize proceeds in respect of, all or substantially all of BRELP’s assets in a single transaction or series of transactions.

BRELP will be reconstituted and continue without dissolution if, within 30 days of the date of dissolution (and provided that a notice of dissolution with respect to BRELP has not been filed with the Bermuda Monetary Authority), a successor general partner executes a transfer deed pursuant to which the new general partner assumes the rights and undertakes the obligations of the original general partner, but only if BRELP receives an opinion of counsel that the admission of the new general partner will not result in the loss of limited liability of any limited partner of BRELP.

Withdrawal of the General Partner

The BRELP GP LP may withdraw as general partner without first obtaining approval of BRELP’s limited partners by giving 180 days advance notice, and that withdrawal will not constitute a violation of the Amended and Restated Limited Partnership Agreement of BRELP.

Upon the withdrawal of the BRELP GP LP, the holders of at least a majority of the voting power of the outstanding class of units that are not Redeemable/Exchangeable partnership units may elect a successor to the BRELP GP LP. If a successor is not selected, or is elected but an opinion of counsel regarding limited liability, tax matters and the Investment Company Act (and similar legislation in other jurisdictions) cannot be obtained, BRELP will be dissolved, wound up and liquidated. See “— Dissolution” above.

 

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The BRELP GP LP may not be removed unless that removal is approved by the vote of the holders of at least 66 2 / 3 % of the outstanding class of units that are not Redeemable/Exchangeable partnership units and it receives a withdrawal opinion of counsel regarding limited liability, tax matters and the Investment Company Act (and similar legislation in other jurisdictions). Any removal of the BRELP GP LP is also subject to the approval of a successor general partner by the vote of the holders of a majority of the voting power of its outstanding units that are not Redeemable/Exchangeable partnership units.

In the event of the removal of the BRELP GP LP under circumstances where cause exists or withdrawal of the BRELP GP LP where that withdrawal violates the Amended and Restated Limited Partnership Agreement of BRELP, a successor general partner will have the option to purchase the general partnership interest of the BRELP GP LP for a cash payment equal to its fair market value. Under all other circumstances where the BRELP GP LP withdraws or is removed by the limited partners, BRELP GP LP will have the option to require the successor general partner to purchase the general partnership interest of BRELP GP LP for a cash payment equal to its fair market value. In each case, this fair market value will be determined by agreement between BRELP GP LP and the successor general partner. If no agreement is reached within 30 days of BRELP GP LP’s departure, an independent investment banking firm or other independent expert selected by BRELP GP LP and the successor general partner will determine the fair market value. If BRELP GP LP and the successor general partner cannot agree upon an expert within 45 days of BRELP GP LP’s departure, then an expert chosen by agreement of the experts selected by each of them will determine the fair market value.

If the option described above is not exercised by either the departing general partner or the successor general partner, the departing general partner’s general partnership interests will automatically convert into units pursuant to a valuation of those interests as determined by an investment banking firm or other independent expert selected in the manner described in the preceding paragraph.

Transfer of the General Partnership Interest

BRELP GP LP may transfer all or any part of its general partnership interest without first obtaining approval of any holders of BRELP limited partnership units. As a condition of this transfer, the transferee must (i) be an affiliate of the general partner of Brookfield Renewable (or the transfer must be made concurrently with a transfer of the general partnership units of Brookfield Renewable to an affiliate of the transferee), (ii) agree to assume the rights and duties of the general partner to whose interest that transferee has succeeded, (iii) agree to be bound by the provisions of the Amended and Restated Limited Partnership Agreement of BRELP and (iv) furnish an opinion of counsel regarding limited liability and tax matters. Any transfer of the general partnership interest is subject to prior notice to and approval of the relevant Bermuda regulatory authority. At any time, the members of the BRELP GP LP may sell or transfer all or part of their units in the BRELP GP LP without the approval of the holders of BRELP limited partnership units.

Transactions with Interested Parties

The general partner of BRELP, its affiliates and its respective partners, members, shareholders, directors, officers, employees and shareholders, which we refer to as “interested parties”, may become limited partners or beneficially interested in limited partners and may hold, dispose of or otherwise deal with units of BRELP with the same rights they would have if the general partner of BRELP were not a party to the Amended and Restated Limited Partnership Agreement of BRELP. An interested party will not be liable to account either to other interested parties or to BRELP, its partners or any other persons for any profits or benefits made or derived by or in connection with any such transaction.

The Amended and Restated Limited Partnership Agreement of BRELP permits an interested party to sell investments to, purchase assets from, invest assets in and enter into any contract, arrangement or transaction with BRELP, any of the Holding Entities, any operating entity or any other holding vehicle established by BRELP and may be interested in any such contract, transaction or arrangement and shall not be liable to account either to BRELP, any of the Holding Entities, any operating entity or any other holding vehicle established by BRELP or any other person in respect of any such contract, transaction or arrangement, or any benefits or profits made or derived therefrom, by virtue only of the relationship between the parties concerned, subject to the Conflicts Policy.

Outside Activities of the General Partner

Under the Amended and Restated Limited Partnership Agreement of BRELP, the general partner will be required to maintain as its sole activity the role of the general partner of BRELP. The general partner will not be permitted to engage in any activity or incur or guarantee any debts or liabilities except in connection with or incidental to its performance as general partner or incurring, guaranteeing, acquiring, owning or disposing of debt or equity securities of a subsidiary of an Holding Entity or any other holding vehicle established by BRELP.

The Amended and Restated Limited Partnership Agreement of BRELP provides that each person who is entitled to be indemnified by BRELP, as described below under “— Indemnification; Limitations on Liability” (other than the general partner) will have the right to engage in businesses of every type and description and other activities for profit, and to engage in and possess interests in business ventures of any and every type or description, irrespective of whether (i) such businesses and activities are similar

 

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to our activities, or (ii) such businesses and activities directly compete with, or disfavor or exclude, BRELP, its general partner, any Holding Entity, operating entity, or any other holding vehicle established by BRELP. Such business interests, activities and engagements will be deemed not to constitute a breach of the Amended and Restated Limited Partnership Agreement of BRELP or any duties stated or implied by law or equity, including fiduciary duties, owed to any of BRELP, its general partner, any Holding Entity, operating entity, and any other holding vehicle established by BRELP (or any of their respective investors), and shall be deemed not to be a breach of its general partner’s fiduciary duties or any other obligation of any type whatsoever of the general partner. None of BRELP, its general partner, any Holding Entity, operating entity, any other holding vehicle established by BRELP or any other person shall have any rights by virtue of the Amended and Restated Limited Partnership Agreement of BRELP or the partnership relationship established thereby or otherwise in any business ventures of any person who is entitled to be indemnified by BRELP as described below under “— Indemnification; Limitations on Liability”.

The BRELP GP LP and the other indemnified persons described in the preceding paragraph will not have any obligation under the Amended and Restated Limited Partnership Agreement of BRELP to present business or investment opportunities to BRELP, any Holding Entity, operating entity, or any other holding vehicle established by BRELP. These provisions will not affect any obligation of such indemnified person to present business or investment opportunities to BRELP, any Holding Entity, operating entity or any other holding vehicle established by BRELP pursuant to the Relationship Agreement or any other separate written agreement between such persons.

Indemnification; Limitations on Liability

Under the Amended and Restated Limited Partnership Agreement of BRELP, BRELP is required to indemnify on an after-tax basis out of the assets and to the fullest extent permitted by law its general partner, the Manager and any of their respective affiliates (and their respective officers, directors, agents, shareholders, partners, members and employees), any person who serves on a Governing Body of BRELP, a Holding Entity, operating entity or any other holding vehicle established by Brookfield Renewable and any other person designated by its general partner as an indemnified person, in each case, against all losses, claims, damages, liabilities, costs or expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements and other amounts arising from any and all claims, demands, actions, suits or proceedings, incurred by an indemnified person in connection with its business, investments and activities or by reason of their holding such positions, except to the extent that the claims, liabilities, losses, damages, costs or expenses are determined to have resulted from the indemnified person’s gross negligence, bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew to have been unlawful. In addition, under the Amended and Restated Limited Partnership Agreement of BRELP, (i) the liability of such persons has been limited to the fullest extent permitted by law, except to the extent that their conduct involves gross negligence, bad faith, fraud or willful misconduct, or in the case of a criminal matter, action that the indemnified person knew to have been unlawful and (ii) any matter that is approved by the independent directors will not constitute a breach of any duties stated or implied by law or equity, including fiduciary duties. The Amended and Restated Limited Partnership Agreement of BRELP requires it to advance funds to pay the expenses of an indemnified person in connection with a matter in which indemnification may be sought until it is determined that the indemnified person is not entitled to indemnification. In addition, under the Amended and Restated Limited Partnership Agreement of BRELP, the general partner of BRELP, on behalf of Brookfield, is required under certain circumstances to indemnify BRELP and Brookfield Renewable for U.S. federal income taxes imposed under Sections 897, 1445, or 1461 of the U.S. Internal Revenue Code of 1986, as amended, on BRELP or Brookfield Renewable as a result of the exercise of the redemption right or the exchange right by Brookfield or Brookfield Renewable, as the case may be, pursuant to the Amended and Restated Limited Partnership Agreement of BRELP.

Governing Law

The Amended and Restated Limited Partnership Agreement of BRELP is governed by and will be construed in accordance with the laws of Bermuda.

BRP Equity

BRP Equity is an indirect wholly owned subsidiary of Brookfield Renewable incorporated under the CBCA on February 10, 2010. Other than a receivable from an indirect wholly-owned subsidiary of Brookfield Renewable, BRP Equity has no significant assets or liabilities, no subsidiaries and no ongoing business operations of its own. BRP Equity’s Series 1 Shares and Series 2 Shares are guaranteed by Brookfield Renewable and the other Guarantors under the Preference Share Guarantees described under Item 10.B “Memorandum and Articles of Association — BRP Equity — Preference Share Guarantees”.

Pursuant to BRP Equity’s articles of incorporation, BRP Equity is authorized to issue an unlimited number of common shares (the “ Common Shares ”), an unlimited number of Class A Preference Shares (the “ Class A Preference Shares ”), issuable in series (which includes the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares), and an unlimited number of Class B preference shares (the “ Class B Preference Shares ”), issuable in series. As of the date of this Form 20-F, one Common Share held indirectly by Brookfield Renewable was issued and outstanding, and 10 million Series 1 Shares, 10 million Series 3 Shares, 7 million Series 5 Shares and 7 million Series 6 Shares were issued and trading on the TSX. No series of Class B Preference Shares have been created to date. The following is a summary of rights, privileges, restrictions and conditions attached to the Common Shares, Class A Preference Shares, Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares, Series 6 Shares, and the Class B Preference Shares.

 

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Common Shares

Holders of Common Shares are entitled to one vote for each such share held on all votes taken at meetings of the shareholders of BRP Equity, except meetings at which only the holders of a specified class or series of shares of BRP Equity are entitled to vote. Subject to the rights of holders of Class A Preference Shares or any series thereof, Class B Preference Shares or any series thereof, and other shares of BRP Equity ranking prior to the Common Shares, the holders of Common Shares are entitled to dividends as may be declared from time to time by the board of directors of BRP Equity. Holders of Common Shares may make use of various shareholder remedies available pursuant to the CBCA.

Class A Preference Shares

Issuance in Series

The board of directors of BRP Equity may from time to time issue Class A Preference Shares in one or more series, each series to consist of such number of shares as will before issuance thereof be fixed by the directors who will at the same time determine the designation, rights, privileges, restrictions and conditions attaching to that series of Class A Preference Shares.

Priority

The Class A Preference Shares rank senior to the Class B Preference Shares, the Common Shares and all other shares ranking junior to the Class A Preference Shares with respect to priority in payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity. Pursuant to the CBCA, each series of Class A Preference Shares participates rateably with every other series of Class A Preference Shares in respect of accumulated dividends and return of capital.

Voting

Subject to applicable corporate law or unless provision is made in the articles relating to any series of Class A Preference Shares, the holders of the Class A Preference Shares or of a series thereof are not entitled as holders of that class or series to receive notice of, to attend or to vote at any meeting of the shareholders of BRP Equity.

Approval

The approval of the holders of the Class A Preference Shares of any matters to be approved by a separate vote of the holders of the Class A Preference Shares may be given by special resolution in accordance with the share conditions for the Class A Preference Shares. Each holder of Class A Preference Shares entitled to vote at a class meeting of holders of Class A Preference Shares, or at a joint meeting of the holders of two or more series of Class A Preference Shares, has one vote in respect of each C$25.00 of the issue price of each Class A Preference Share held by such holder.

Specific Provisions of the Class A Preference Shares, Series 1

Dividends

The holders of Series 1 Shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year, at an annual rate equal to C$1.3125 per share until April 30, 2015. The annual fixed dividend rate (the “ Annual Fixed Dividend Rate ”) for each subsequent 5-year fixed rate period will be payable quarterly on the last day of January, April, July and October in an amount equal to the sum of the Government of Canada Yield on the 30th day prior to the first day of such subsequent fixed rate period plus 2.62%. The annual fixed dividend for each such period will be equal to the applicable Annual Fixed Dividend Rate multiplied by C$25.00.

Series 1 Guarantee

The Series 1 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to guarantee indentures among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 1 Guarantee ”). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 1 Shares will not be redeemable by BRP Equity prior to April 30, 2015. On April 30, 2015 and on April 30 every five years thereafter, and subject to certain other restrictions set out under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may, at its option, redeem all or from time to time any part of the outstanding Series 1 Shares by payment in cash of a per share sum equal to C$25.00, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

 

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For so long as the Series 1 Guarantee remains in full force and effect, if, in contravention of the Series 1 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 1 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Conversion of Series 1 Shares into Series 2 Shares

Subject to applicable law and the provisions of the Series 1 Shares, holders of the Series 1 Shares will have the right, at their option, on April 30, 2015 and on April 30 every five years thereafter, to convert all or any of their Series 1 Shares into Series 2 Shares on the basis of one Series 2 Share for each Series 1 Share. Under certain circumstances, the Series 1 Shares automatically convert into Series 2 Shares on the basis of one Series 2 Share for each Series 1 Share.

Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may at any time purchase for cancellation the whole or any part of the Series 1 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 1 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 1 Shares. The holders of the Series 1 Shares will not be entitled to share in any further distribution of the assets of BRP Equity. The payment of the amount to be paid to the holders of the Series 1 Shares upon liquidation, dissolution and winding-up of BRP Equity is fully and unconditionally guaranteed by the Guarantors.

Priority

The Series 1 Shares rank senior to the Class B Preference Shares and the Common Shares of BRP Equity with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 1 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 1 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 1 Shares:

 

  a.

declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 1 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 1 Shares;

 

  b.

except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 1 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 1 Shares;

 

  c.

redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 1 Shares then outstanding; or

 

  d.

except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 1 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 1 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 1 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

 

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Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 1 Shares as a series and any other approval to be given by the holders of the Series 1 Shares may be given by a resolution carried by an affirmative vote of at least 66 2 / 3 % of the votes cast at a meeting at which the holders of a majority of the outstanding Series 1 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 1 Shares then present would form the necessary quorum. At any meeting of holders of Series 1 Shares as a series, each such holder shall be entitled to one vote in respect of each C$25.00 of issue price of the Series 1 Shares held by such holder.

Voting Rights

The holders of the Series 1 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 1 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 1 Shares, whether or not consecutive. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 1 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 1 Shares held by such holder.

Specific Provisions of the Class A Preference Shares, Series 2

Dividends

The holders of Series 2 Shares will be entitled to receive floating rate cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October, in the amount per share determined by multiplying the applicable floating quarterly dividend rate by C$25.00. The floating quarterly dividend rate for each applicable quarterly period will be calculated on the 30th day prior to the first day of the period and will be equal to the sum of the average yield expressed as a percentage per year on three-month Government of Canada Treasury Bills, as reported by the Bank of Canada, for the most recent treasury bills auction preceding the applicable calculation date, plus 2.62% calculated on the basis of the actual number of days elapsed in the period divided by 365.

Series 2 Guarantee

The Series 2 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to guarantee indentures among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 2 Guarantee ”). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 2 Shares will not be redeemable by BRP Equity prior to April 30, 2015. Subject to certain other restrictions set out under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may, at its option, redeem all or from time to time any part of the outstanding Series 2 Shares by payment in cash of a per share sum equal to (i) C$25.00 in the case of redemptions on April 30, 2020 and on April 30 every five years thereafter (each, a “ Series 2 Shares Conversion Date ”), or (ii) C$25.50 in the case of redemptions on any date which is not a Series 2 Shares Conversion Date on or after April 30, 2015, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

For so long as the Series 2 Guarantee remains in full force and effect, if, in contravention of the Series 2 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 2 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Conversion of Series 2 Shares into Series 1 Shares

Subject to applicable law and the provisions of the Series 2 Shares, holders of the Series 2 Shares will have the right, at their option, on each Series 2 Shares Conversion Date, to convert all or any of their Series 2 Shares into Series 1 Shares on the basis of one Series 1 Share for each Series 2 Share. Under certain circumstances, the Series 2 Shares automatically convert into Series 1 Shares on the basis of one Series 1 Share for each Series 2 Share.

 

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Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may at any time purchase for cancellation the whole or any part of the Series 2 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 2 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 2 Shares. The holders of the Series 2 Shares will not be entitled to share in any further distribution of the assets of BRP Equity. The payment of the amount to be paid to the holders of the Series 2 Shares upon liquidation, dissolution and winding-up of BRP Equity is fully and unconditionally guaranteed by the Guarantors.

Priority

The Series 2 Shares rank senior to the Class B Preference Shares and the Common Shares of BRP Equity with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 2 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 2 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 2 Shares:

 

  a.

declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 2 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 2 Shares;

 

  b.

except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 2 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 2 Shares;

 

  c.

redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 2 Shares then outstanding; or

 

  d.

except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 2 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 2 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 2 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 2 Shares as a series and any other approval to be given by the holders of the Series 2 Shares may be given by a resolution carried by an affirmative vote of at least 66 2 / 3 % of the votes cast at a meeting at which the holders of a majority of the outstanding Series 2 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 2 Shares then present would form the necessary quorum. At any meeting of holders of Series 2 Shares as a series, each such holder shall be entitled to one vote in respect of each C$25.00 of issue price of the Series 2 Shares held by such holder.

 

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Table of Contents

Voting Rights

The holders of the Series 2 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 2 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 2 Shares, whether or not consecutive. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 2 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 2 Shares held by such holder.

Specific Provisions of the Class A Preference Shares, Series 3

Dividends

The holders of Series 3 Shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year, at an annual rate equal to C$1.10 per share until July 31, 2019. The annual fixed dividend rate (the “ Series 3 Shares Annual Fixed Dividend Rate ”)) for each subsequent 5-year fixed rate period will be payable quarterly on the last day of January, April, July and October in an amount equal to the sum of the Government of Canada Yield on the 30th day prior to the first day of such subsequent fixed rate period plus 2.94%. The annual fixed dividend for each such period will be equal to the applicable Series 3 Shares Annual Fixed Dividend Rate multiplied by C$25.00.

Series 3 Guarantee

The Series 3 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to guarantee indentures among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 3 Guarantee ”). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 3 Shares will not be redeemable by BRP Equity prior to July 31, 2019. On July 31, 2019 and on July 31 every five years thereafter, and subject to certain other restrictions set out under “— Restrictions on Dividends and Retirement and Issue of Shares”), BRP Equity may, at its option, redeem all or from time to time any part of the outstanding Series 3 Shares by payment in cash of a per share sum equal to C$25.00, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

For so long as the Series 3 Guarantee remains in full force and effect, if, in contravention of the Series 3 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 3 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Conversion of Series 3 Shares into Series 4 Shares

Subject to applicable law and the provisions of the Series 3 Shares, holders of the Series 3 Shares will have the right, at their option, on July 31, 2019 and on July 31 every five years thereafter, to convert all or any of their Series 3 Shares into Series 4 Shares on the basis of one Series 4 Share for each Series 3 Share. Under certain circumstances, the Series 3 Shares automatically convert into Series 4 Shares on the basis of one Series 4 Share for each Series 3 Share.

Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”), BRP Equity may at any time purchase for cancellation the whole or any part of the Series 3 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 3 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 3 Shares. The holders of the Series 3 Shares will not be entitled to share in any further distribution of the assets of BRP Equity. The payment of the amount to be paid to the holders of the Series 3 Shares upon liquidation, dissolution and winding-up of BRP Equity is fully and unconditionally guaranteed by the Guarantors.

Priority

The Series 3 Shares rank senior to the Class B Preference Shares and the Common Shares of BRP Equity with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 3 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 3 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 3 Shares:

 

  a. declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 3 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 3 Shares;

 

  b. except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 3 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 3 Shares;

 

  c. redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 3 Shares then outstanding; or

 

  d. except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 3 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 3 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 3 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 3 Shares as a series and any other approval to be given by the holders of the Series 3 Shares may be given by a resolution carried by an affirmative vote of at least 66  2 / 3 % of the votes cast at a meeting at which the holders of a majority of the outstanding Series 3 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 3 Shares then present would form the necessary quorum. At any meeting of holders of Series 3 Shares as a series, each such holder shall be entitled to one vote in respect of each C$25.00 of issue price of the Series 3 Shares held by such holder.

Voting Rights

The holders of the Series 3 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 3 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 3 Shares, whether or not consecutive. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 3 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 3 Shares held by such holder.

Specific Provisions of the Class A Preference Shares, Series 4

Dividends

The holders of Series 4 Shares will be entitled to receive floating rate cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October, in the amount per share determined by multiplying the applicable floating quarterly dividend rate by C$25.00. The floating quarterly dividend rate for each applicable quarterly period will be calculated on the 30th day prior to the first day of the period and will be equal to the sum of the average yield expressed as a percentage per year on three-month Government of Canada Treasury Bills, as reported by the Bank of Canada, for the most recent treasury bills auction preceding the applicable calculation date, plus 2.94% calculated on the basis of the actual number of days elapsed in the period divided by 365.

Series 4 Guarantee

The Series 4 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to guarantee indentures among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 4 Guarantee ”). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 4 Shares will not be redeemable by BRP Equity prior to July 31, 2019. Subject to certain other restrictions set out under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may, at its option, redeem all or from time to time any part of the outstanding Series 4 Shares by payment in cash of a per share sum equal to (i) C$25.00 in the case of redemptions on July 31, 2024 and on July 31 every five years thereafter (each, a “ Series 4 Shares Conversion Date ”), or (ii) C$25.50 in the case of redemptions on any date which is not a Series 4 Shares Conversion Date on or after July 31, 2019, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

For so long as the Series 4 Guarantee remains in full force and effect, if, in contravention of the Series 4 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 4 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Conversion of Series 4 Shares into Series 3 Shares

Subject to applicable law and the provisions of the Series 4 Shares, holders of the Series 4 Shares will have the right, at their option, on each Series 4 Shares Conversion Date, to convert all or any of their Series 4 Shares into Series 3 Shares on the basis of one Series 3 Share for each Series 4 Share. Under certain circumstances, the Series 4 Shares automatically convert into Series 3 Shares on the basis of one Series 3 Share for each Series 4 Share.

Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may at any time purchase for cancellation the whole or any part of the Series 4 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 4 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 4 Shares. The holders of the Series 4 Shares will not be entitled to share in any further distribution of the assets of BRP Equity. The payment of the amount to be paid to the holders of the Series 4 Shares upon liquidation, dissolution and winding-up of BRP Equity is fully and unconditionally guaranteed by the Guarantors.

Priority

The Series 4 Shares rank senior to the Class B Preference Shares and the Common Shares of BRP Equity with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 4 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 4 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 4 Shares:

 

  a.

declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 4 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 4 Shares;

 

  b.

except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 4 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 4 Shares;

 

  c.

redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 4 Shares then outstanding; or

 

  d.

except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 4 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 4 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 4 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 4 Shares as a series and any other approval to be given by the holders of the Series 4 Shares may be given by a resolution carried by an affirmative vote of at least 66 2 / 3 % of the votes cast at a meeting at which the holders of a majority of the outstanding Series 4 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 4 Shares then present would form the necessary quorum. At any meeting of holders of Series 4 Shares as a series, each such holder shall be entitled to one vote in respect of each C$25.00 of issue price of the Series 4 Shares held by such holder.

Voting Rights

The holders of the Series 4 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 4 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 4 Shares, whether or not consecutive. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 4 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 4 Shares held by such holder.

Specific Provisions of the Class A Preference Shares, Series 5

Dividends

The holders of Series 5 Shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year, at an annual rate equal to C$1.25 per share.

Series 5 Guarantee

The Series 5 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to a guarantee indenture among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 5 Guarantee ” and collectively with the Series 1 Guarantee, the Series 2 Guarantee, the Series 3 Guarantee and the Series 4 Guarantee, the “ Preference Share Guarantees” ). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 5 Shares will not be redeemable by BRP Equity prior to April 30, 2018. On and after April 30, 2018, BRP Equity may, at its option upon not less than 30 days and not more than 60 days prior notice, redeem for cash the Series 5 Shares, in whole at any time or in part from time to time, at C$26.00 per share if redeemed before April 30, 2019, C$25.75 per share if redeemed on or after April 30, 2019 but before April 30, 2020, C$25.50 per share if redeemed on or after April 30, 2020 but before April 30, 2021, C$25.25 per share if redeemed on or after April 30, 2021 but before April 30, 2022, and C$25.00 per share if redeemed on or after April 30, 2022, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

For so long as the Series 5 Guarantee remains in full force and effect, if, in contravention of the Series 5 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 5 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may at any time purchase for cancellation the whole or any part of the Series 5 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 5 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 5 Shares. Upon payment of such amounts, the holders of the Series 5 Shares will not be entitled to share in any further distribution of the assets of BRP Equity.

Priority

The Series 5 Shares rank senior to the Class B Preference Shares, the Common Shares and all other shares of BRP Equity ranking junior to the Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity, whether voluntary or involuntary or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 5 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity, whether voluntarily or involuntarily, or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 5 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 5 Shares:

 

  a.

declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 5 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 5 Shares;

 

  b.

except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 5 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 5 Shares;

 

  c.

redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 5 Shares then outstanding; or

 

  d.

except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 5 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 5 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 5 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 5 Shares as a series and any other approval to be given by the holders of the Series 5 Shares may be given by a resolution carried by an affirmative vote of at least 66 2 / 3 % of the votes cast at a meeting at which the holders of at least 25% of the outstanding Series 5 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 5 Shares then present would form the necessary quorum. At any meeting of holders of Series 5 Shares as a series, each such holder shall be entitled to one vote in respect of each Series 5 Share held.

Voting Rights

The holders of the Series 5 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 5 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 5 Shares, whether or not consecutive and whether or not such dividends have been declared and whether or not there are any monies of BRP Equity properly applicable to the payment of dividends. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 5 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 5 Shares held by such holder.

Specific Provisions of the Class A Preference Shares, Series 6

Dividends

The holders of Series 6 Shares are entitled to receive fixed cumulative preferential cash dividends, as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year, at an annual rate equal to C$1.25 per share.

Series 6 Guarantee

The Series 6 Shares are fully and unconditionally guaranteed by the Guarantors pursuant to a guarantee indenture among each of the Guarantors, BRP Equity and Computershare Trust Company of Canada (the “ Series 6 Guarantee ” and collectively with the Series 1 Guarantee, the Series 2 Guarantee, the Series 3 Guarantee, the Series 4 Guarantee and the Series 5 Guarantee, the “ Preference Share Guarantees” ). See the description of the Preference Share Guarantees under “— Preference Share Guarantees”.

Redemption

The Series 6 Shares will not be redeemable by BRP Equity prior to July 31, 2018. On and after July 31, 2018, BRP Equity may, at its option upon not less than 30 days and not more than 60 days prior notice, redeem for cash the Series 6 Shares, in whole at any time or in part from time to time, at C$26.00 per share if redeemed before July 31, 2019, C$25.75 per share if redeemed on or after July 31, 2019 but before July 31, 2020, C$25.50 per share if redeemed on or after July 31, 2020 but before July 31, 2021, C$25.25 per share if redeemed on or after July 31, 2021 but before July 31, 2022, and C$25.00 per share if redeemed on or after July 31, 2022, in each case together with all accrued and unpaid dividends up to but excluding the date fixed for redemption (less any tax required to be deducted and withheld by BRP Equity).

For so long as the Series 6 Guarantee remains in full force and effect, if, in contravention of the Series 6 Guarantee, there is a liquidation, dissolution or winding-up of Brookfield Renewable (whether voluntary or involuntary) or any other distribution of assets of Brookfield Renewable to our securityholders for the purpose of winding-up Brookfield Renewable’s affairs, the Series 6 Shares shall be redeemed by BRP Equity by payment in cash of a per share sum equal to C$25.00, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity).

Purchase for Cancellation

Subject to applicable law and to the provisions described under “— Restrictions on Dividends and Retirement and Issue of Shares”, BRP Equity may at any time purchase for cancellation the whole or any part of the Series 6 Shares at the lowest price or prices at which in the opinion of the board of directors of BRP Equity such shares are obtainable.

Rights on Liquidation

In the event of the liquidation, dissolution or winding-up of BRP Equity or any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs, the holders of the Series 6 Shares will be entitled to receive C$25.00 per share, together with all accrued and unpaid dividends up to but excluding the date of payment or distribution (less any tax required to be deducted and withheld by BRP Equity), before any amount is paid or any assets of BRP Equity are distributed to the holders of any shares ranking junior as to capital to the Series 6 Shares. Upon payment of such amounts, the holders of the Series 6 Shares will not be entitled to share in any further distribution of the assets of BRP Equity.

Priority

The Series 6 Shares rank senior to the Class B Preference Shares, the Common Shares and all other shares of BRP Equity ranking junior to the Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity, whether voluntary or involuntary or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs. The Series 6 Shares rank on a parity with every other series of Class A Preference Shares with respect to priority in the payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity, whether voluntarily or involuntarily, or in the event of any other distribution of assets of BRP Equity among its shareholders for the purpose of winding-up its affairs.

Restrictions on Dividends and Retirement and Issue of Shares

So long as any of the Series 6 Shares are outstanding, BRP Equity will not, without the approval of the holders of the Series 6 Shares:

 

  a.

declare, pay or set apart for payment any dividends (other than stock dividends payable in shares of BRP Equity ranking as to capital and dividends junior to the Series 6 Shares) on shares of BRP Equity ranking as to dividends junior to the Series 6 Shares;

 

  b.

except out of the net cash proceeds of a substantially concurrent issue of shares of BRP Equity ranking as to return of capital and dividends junior to the Series 6 Shares, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any shares of BRP Equity ranking as to capital junior to the Series 6 Shares;

 

  c.

redeem or call for redemption, purchase or otherwise pay off or retire for value or make any return of capital in respect of less than all of the Series 6 Shares then outstanding; or

 

  d.

except pursuant to any purchase obligation, sinking fund, retraction privilege or mandatory redemption provisions attaching thereto, redeem or call for redemption, purchase or otherwise pay off, retire or make any return of capital in respect of any Class A Preference Shares, ranking as to the payment of dividends or return of capital on a parity with the Series 6 Shares;

unless, in each case under a. to d. above, all accrued and unpaid dividends up to and including the dividend payable for the last completed period for which dividends were payable on the Series 6 Shares and on all other shares of BRP Equity ranking prior to or on a parity with the Series 6 Shares with respect to the payment of dividends have been declared and paid or set apart for payment.

Shareholder Approvals

In addition to any other approvals required by law, the approval of all amendments to the rights, privileges, restrictions and conditions attaching to the Series 6 Shares as a series and any other approval to be given by the holders of the Series 6 Shares may be given by a resolution carried by an affirmative vote of at least 66 2 / 3 % of the votes cast at a meeting at which the holders of at least 25% of the outstanding Series 6 Shares are present or represented by proxy or, if no quorum is present at such meeting, at an adjourned meeting at which the holders of Series 6 Shares then present would form the necessary quorum. At any meeting of holders of Series 6 Shares as a series, each such holder shall be entitled to one vote in respect of each Series 6 Share held.

Voting Rights

The holders of the Series 6 Shares will not (except as otherwise provided by law and except for meetings of the holders of Class A Preference Shares as a class and meetings of all holders of Series 6 Shares as a series) be entitled to receive notice of, attend, or vote at, any meeting of shareholders of BRP Equity unless and until BRP Equity shall have failed to pay eight quarterly dividends on the Series 6 Shares, whether or not consecutive and whether or not such dividends have been declared and whether or not there are any monies of BRP Equity properly applicable to the payment of dividends. In the event of such non-payment, and for only so long as any such dividends remain in arrears, the holders of the Series 6 Shares will be entitled to receive notice of and to attend each meeting of BRP Equity’s shareholders, other than meetings at which only holders of another specified class or series are entitled to vote, and to one vote in respect of each C$25.00 of issue price of the Series 6 Shares held by such holder.

Class B Preference Shares

Issuance in Series

The board of directors of BRP Equity may from time to time issue Class B Preference Shares in one or more series, each series to consist of such number of shares as will before issuance thereof be fixed by the directors who will at the same time determine the designation, rights, privileges, restrictions and conditions attaching to that series of Class B Preference Shares.

Priority

The Class B Preference Shares rank junior to the Class A Preference Shares and senior to the Common Shares and all other shares ranking junior to the Class B Preference Shares with respect to priority in payment of dividends and in the distribution of assets in the event of the liquidation, dissolution or winding-up of BRP Equity. Pursuant to the CBCA, each series of Class B Preference Shares participates rateably with every other series of Class B Preference Shares in respect of accumulated dividends and return of capital.

Voting

Subject to applicable corporate law or unless provision is made in the articles relating to any series of Class B Preference Shares, the holders of the Class B Preference Shares or of a series thereof are not entitled as holders of that class or series to receive notice of, to attend or to vote at any meeting of the shareholders of BRP Equity.

Approval

The approval of the holders of the Class B Preference Shares of any matters to be approved by a separate vote of the holders of the Class B Preference Shares may be given by special resolution in accordance with the share conditions for the Class B Preference Shares. Each holder of Class B Preference Shares entitled to vote at a class meeting of holders of Class B Preference Shares, or at a joint meeting of the holders of two or more series of Class B Preference Shares, has one vote in respect of each C$25.00 of the issue price of each Class B Preference Share held by such holder.

Preference Share Guarantees

            The Preference Share Guarantees provide that the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares will be fully and unconditionally guaranteed by Brookfield Renewable and the other Guarantors as to (i) payment of dividends, as and when declared, (ii) payment of amounts due on redemption of the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares, and (iii) payment of amounts due on the liquidation, dissolution or winding up of BRP Equity. As long as the declaration or payments of dividends on the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares are in arrears, Brookfield Renewable will not make any distributions on our LP Units nor will any other Guarantor make any distributions or pay any dividends on equity securities of such Guarantor. The Preference Share Guarantees by the Guarantors will be subordinated to all of their respective senior and subordinated debt and will rank senior to the LP Units. The Preference Share Guarantees will rank on a pro rata and pari passu basis with each other. The rights, obligations and liabilities of a Guarantor pursuant to the Preference Share Guarantees will terminate upon the conveyance, distribution, transfer or lease of all or substantially all of its properties, securities and assets to another Guarantor. A Guarantor may not otherwise convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to another person, unless the person which acquires the properties, securities and assets of such Guarantor assumes such Guarantor’s obligations under the Preference Share Guarantees.

Finco

Finco is an indirect wholly-owned subsidiary of Brookfield Renewable incorporated under the ABCA on September 14, 2011. Other than approximately C$1.5 billion aggregate principal amount of publicly-issued Finco Bonds and notes receivable from an indirect wholly-owned subsidiary of Brookfield Renewable. Finco has no significant assets or liabilities, no subsidiaries and no operations of its own.

 

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Pursuant to Finco’s articles of incorporation, Finco is authorized to issue an unlimited number of common shares. As of the date of this Form 20-F, one common share held indirectly by Brookfield Renewable was issued and outstanding. Holders of common shares are entitled to one vote for each such share held on all votes taken at meetings of the shareholders of Finco, except meetings at which only the holders of a specified class or series of shares of Finco are entitled to vote. Subject to the rights of holders of any shares of Finco ranking prior to the common shares, the holders of common shares are entitled to dividends as may be declared from time to time by the board of directors of Finco. Holders of common shares may make use of various shareholder remedies available pursuant to the ABCA.

The Finco Bonds are governed under the Bond Indenture and guaranteed by Brookfield Renewable and the other Guarantors as described under “— Bond Indenture and Guarantees”. The Finco Bonds consist of the following fixed rate medium term notes:

 

Medium-term notes

             Maturity                       Interest Rate            Principal Amount as 
 at December 31, 2012 
 (in millions) 

Series 3 (C$200 million)

   2018    5.25%   C$200 million

Series 4 (C$150 million)

   2036    5.84%   C$150 million

Series 6 (C$300 million)

   2016    6.13%   C$300 million

Series 7 (C$450 million)

   2020    5.14%   C$450 million

Series 8 (C$400 million)

   2022    4.79%   C$400 million

Bond Indenture and Guarantees

The Bond Indenture provides for the issuance of one or more series of unsecured debentures or notes of Finco, a wholly-owned subsidiary of Brookfield Renewable, by way of supplemental indenture. The Bond Indenture amends and restates the trust indenture dated as of December 16, 2004, as amended, supplemented or restated, between Brookfield, Bank of New York Mellon and BNY Trust Company of Canada (the “ Original Bond Indenture ”), and gives effect to the assumption of the Finco Bonds by Finco from Brookfield in connection with the Combination. In connection with the Combination, Finco assumed the Series 3, Series 4, Series 6 and Series 7 notes issued under supplemental indentures to the Original Bond Indenture. The Amended and Restated Second Supplemental Indenture to the Original Bond Indenture, dated October 27, 2006, provides for the issue of C$200 million aggregate principal amount of Series 3 medium term notes and C$150 million aggregate principal amount of Series 4 medium term notes. The Amended and Restated Fourth Supplemental Indenture to the Original Bond Indenture, dated November 27, 2009, provides for the issue of C$300 million aggregate principal amount of Series 6 notes. The Fifth Supplemental Indenture to the Original Bond Indenture, dated November 27, 2009, provides for the issue of C$450 million aggregate principal amount of Series 7 notes. The Seventh Supplemental Indenture dated February 7, 2012, provides for the issue of C$400 million aggregate principal amount of the Series 8 Notes. The Finco Bonds are unconditionally guaranteed by Brookfield Renewable and the other Guarantors as to payment of the principal of, premium, if any, and interest on all debentures issued by Finco under the Bond Indenture from time to time and all other obligations and liabilities owing by Finco to the trustee under the Bond Indenture. Pursuant to the guarantees, each of the Guarantors has agreed to not enter into any transaction whereby all or substantially all of the undertaking, property and assets of the Guarantor would become the property of any other person unless the other person assumed the obligations of the Guarantor under the guarantee and certain other conditions are met or unless the transaction is between or among any one or more of Finco, the Guarantor, another Guarantor and/or any subsidiary of any of them. The rights, obligations and liabilities of a Guarantor will terminate in the event that it transfers all or substantially all of its assets to another Guarantor.

 

  10.C

MATERIAL CONTRACTS

The following are the only material contracts, other than contracts entered into in the ordinary course of business, to which we have been a party within the past two years:

 

   

the Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy Partners L.P., dated November 20, 2011 (see Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP”);

 

   

the Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated November 20, 2011 (see Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP”);

 

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First Amendment to Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated May 4, 2012 (see Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP”);

 

   

our Master Services Agreement, dated November 28, 2011, by and among Brookfield Asset Management Inc., Brookfield Renewable Energy Partners L.P. and Brookfield Renewable Energy L.P., and others (see Item 6.A “Directors and Senior Management – Our Master Services Agreement”);

 

   

the Registration Rights Agreement, dated November 28, 2011, between Brookfield Renewable Energy Partners L.P. and Brookfield Asset Management Inc. (see Item 7.B “Related Party Transactions – Registration Rights Agreement”);

 

   

the Relationship Agreement, dated November 28, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., the Manager, and Brookfield Asset Management Inc., and others (see Item 7.B “Related Party Transactions – Relationship Agreement”);

 

   

the Combination Agreement, dated September 12, 2011, by and among Brookfield Renewable Power Inc., Brookfield Renewable Power Fund, Brookfield Renewable Power Trust and Brookfield Renewable Energy Partners L.P. (see Item 7.B “Related Party Transactions – Combination Agreement”);

 

   

the Amended and Restated Indenture, dated as of November 23, 2011, among Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC), BNY Trust Company of Canada and The Bank of New York Mellon (see Item 10.B “Memorandum and Articles of Association – Finco – Bond Indenture and Guarantees”);

 

   

the Amended and Restated Guarantee Indenture, dated November 25, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited (collectively, the “ Guarantors ”), Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 1) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

the Amended and Restated Guarantee Indenture, dated November 25, 2011, by and among the Guarantors, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 2) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

the Amended and Restated Guarantee Indenture, dated October 11, 2012, by and among the Guarantors, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 3) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

the Amended and Restated Guarantee Indenture, dated October 11, 2012, by and among the Guarantors, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 4) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

the Amended and Restated Guarantee Indenture, dated January 29, 2013, by and among the Guarantors, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 5) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

Guarantee Indenture, dated May 1, 2013, by and among the Guarantors, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 6) (see Item 10.B “Memorandum and Articles of Association – BRP Equity – Preference Share Guarantees”);

 

   

the Guarantee, dated November 23, 2011, by Brookfield Renewable Energy L.P and BNY Trust Company of Canada (see Item 10.B “Memorandum and Articles of Association – Finco – Bond Indenture and Guarantees”);

 

   

the Guarantee, dated November 23, 2011, by Brookfield Renewable Energy Partners L.P and BNY Trust Company of Canada (see Item 10.B “Memorandum and Articles of Association – Finco – Bond Indenture and Guarantees”);

 

   

the Guarantee, dated November 23, 2011, by BRP Bermuda Holdings I Limited and BNY Trust Company of Canada (see Item 10.B “Memorandum and Articles of Association – Finco – Bond Indenture and Guarantees”);

 

   

the Guarantee, dated November 23, 2011, by Brookfield BRP Holdings (Canada) Inc. and BNY Trust Company of Canada (see Item 10.B “Memorandum and Articles of Association – Finco – Bond Indenture and Guarantees”); and

 

   

the Energy Revenue Agreement, dated November 23, 2011, between Brookfield Energy Marketing LP and Brookfield Power US Holding America Co. (see Item 7.B “Related Party Transactions – Energy Revenue Agreement”).

Copies of the agreements noted above will be made available, free of charge, by the Managing General Partner and are available electronically on the website of the SEC at www.sec.gov and on our SEDAR profile at www.sedar.com. Written requests for such documents should be directed to our Corporate Secretary at 73 Front Street, 5 th Floor, Hamilton, HM 12, Bermuda, +1.441.295.1443.

 

  10.D

EXCHANGE CONTROLS

There are currently no governmental laws, decrees, regulations or other legislation of Bermuda or the United States which restrict the import or export of capital, including the availability of cash and cash equivalents for use by Brookfield Renewable and its subsidiaries, or the remittance of distributions, interest or other payments to non-residents of Bermuda or the United States holding our LP Units.

 

  10.E

TAXATION

The following summary discusses the material United States, Canadian and Bermudian tax considerations related to the holding and disposition of our LP Units as of the date of this Form 20-F. Holders of our LP Units are advised to consult their own tax advisors concerning the consequences under the tax laws of the country of which they are resident or in which they are otherwise subject to tax of making an investment in our LP Units.

Material U.S. Federal Income Tax Considerations

This summary discusses the material United States federal income tax considerations for LP Unitholders relating to the ownership and disposition of LP Units as of the date hereof. This summary is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “ U.S. Internal Revenue Code ”), on the regulations promulgated under the U.S. Internal Revenue Code, and on published administrative rulings, judicial decisions, and other applicable authorities, all as in effect on the date hereof and all of which are subject to change at any time, possibly with retroactive effect. This summary is necessarily general and may not apply to all categories of investors, some of whom may be subject to special rules, including, without limitation, persons that own (directly or indirectly, applying certain attribution rules) 5% or more of our LP Units, dealers in securities or currencies, financial institutions or financial services entities, life insurance companies, persons that hold LP Units as part of a straddle, hedge, constructive sale or conversion transaction with other investments, persons whose functional currency is not the U.S. dollar, persons who have elected mark-to-market accounting, persons who hold LP Units through a partnership or other entity treated as a pass-through entity for U.S. federal income tax purposes, persons for whom LP Units are not a capital asset, persons who are liable for the alternative minimum tax and certain U.S. expatriates or former long-term residents of the United States. Tax-exempt organizations are addressed separately below. The actual tax consequences of the ownership and disposition of LP Units will vary depending on an LP Unitholder’s individual circumstances.

For purposes of this discussion, a “ U.S. Holder ” is a beneficial owner of LP Units who is for U.S. federal tax purposes: (i) an individual citizen or resident of the United States; (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust (a) the primary supervision of which is subject to a court within the United States and all substantial decisions of which one or more U.S. persons have the authority to control or (b) that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

A “ Non-U.S. Holder ” is a beneficial owner of LP Units, other than a U.S. Holder or an entity classified as a partnership or other fiscally transparent entity for U.S. federal tax purposes.

If a partnership holds LP Units, the tax treatment of a partner of such partnership generally will depend upon the status of the partner and the activities of the partnership. Partners of partnerships that hold LP Units should consult an independent tax adviser.

This discussion does not constitute tax advice and is not intended to be a substitute for tax planning. Each LP Unitholder should consult an independent tax adviser concerning the U.S. federal, state and local income tax consequences particular to the ownership and disposition of LP Units, as well as any tax consequences under the laws of any other taxing jurisdiction.

Partnership Status of Brookfield Renewable and BRELP

Each of Brookfield Renewable and BRELP has made a protective election to be classified as a partnership for U.S. federal tax purposes. An entity that is treated as a partnership for U.S. federal tax purposes incurs no U.S. federal income tax liability. Instead, each partner is required to take into account its allocable share of items of income, gain, loss, deduction, or credit of the partnership in computing its U.S. federal income tax liability, regardless of whether cash distributions are made. Distributions of cash by a partnership to a partner generally are not taxable unless the amount of cash distributed to a partner is in excess of the partner’s adjusted basis in its partnership interest.

An entity that would otherwise be classified as a partnership for U.S. federal income tax purposes may nonetheless be taxable as a corporation if it is a “publicly traded partnership”, unless an exception applies. Brookfield Renewable will be publicly traded. However, an exception, referred to as the “ Qualifying Income Exception ”, exists with respect to a publicly traded partnership if (i) at least 90% of such partnership’s gross income for every taxable year consists of “qualifying income” and (ii) the partnership would not be required to register under the Investment Company Act if it were a U.S. corporation. Qualifying income includes certain interest income, dividends, real property rents, gains from the sale or other disposition of real property, and any gain from the sale or disposition of a capital asset or other property held for the production of income that otherwise constitutes qualifying income.

The Managing General Partner and the BRELP General Partner intend to manage the affairs of Brookfield Renewable and BRELP, respectively, so that Brookfield Renewable will meet the Qualifying Income Exception in each taxable year. Accordingly, the Managing General Partner believes that Brookfield Renewable will be treated as a partnership and not as a corporation for U.S. federal income tax purposes.

If Brookfield Renewable fails to meet the Qualifying Income Exception, other than a failure which is determined by the IRS to be inadvertent and which is cured within a reasonable time after discovery, or if Brookfield Renewable is required to register under the Investment Company Act, Brookfield Renewable will be treated as if it had transferred all of its assets, subject to liabilities, to a

 

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newly formed corporation, on the first day of the year in which Brookfield Renewable fails to meet the Qualifying Income Exception, in return for stock in such corporation, and then distributed the stock to our LP Unitholders in liquidation. This deemed contribution and liquidation generally would be tax-free to a U.S. Holder, unless Brookfield Renewable were to have liabilities in excess of the tax basis of its assets at such time. Thereafter, Brookfield Renewable would be treated as a corporation for U.S. federal income tax purposes.

If Brookfield Renewable were treated as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception, an election by the Managing General Partner or otherwise, Brookfield Renewable’s items of income, gain, loss, deduction, or credit would be reflected only on Brookfield Renewable’s tax return rather than being passed through to LP Unitholders, and Brookfield Renewable would be subject to U.S. corporate income tax and potentially branch profits tax with respect to its income, if any, effectively connected with a U.S. trade or business. Moreover, under certain circumstances, Brookfield Renewable might be classified as a passive foreign investment company (“ PFIC ”) for U.S. federal income tax purposes, and a U.S. Holder would be subject to the rules applicable to PFICs discussed below. See “— Consequences to U.S. Holders — Passive Foreign Investment Companies”. Subject to the PFIC rules, distributions made to U.S. Holders would be treated as taxable dividend income to the extent of Brookfield Renewable’s current or accumulated earnings and profits. Any distribution in excess of current and accumulated earnings and profits would first be treated as a tax-free return of capital to the extent of a U.S. Holder’s adjusted tax basis in its LP Units. Thereafter, to the extent such distribution were to exceed a U.S. Holder’s adjusted tax basis in its LP Units, the distribution would be treated as gain from the sale or exchange of such LP Units. The amount of a distribution treated as a dividend could be eligible for reduced rates of taxation, provided certain conditions are met, including that Brookfield Renewable is not a PFIC for the taxable year of such distribution or for the preceding year. Based on the foregoing consequences, the treatment of Brookfield Renewable as a corporation could materially reduce a holder’s after-tax return and therefore could result in a substantial reduction of the value of LP Units. If BRELP were to be treated as a corporation for U.S. federal income tax purposes, consequences similar to those described above would apply to Brookfield Renewable’s interests in BRELP.

The remainder of this summary assumes that Brookfield Renewable and BRELP will be treated as partnerships for U.S. federal tax purposes. Brookfield Renewable expects that a substantial portion of the items of income, gain, deduction, loss, or credit realized by Brookfield Renewable will be realized in the first instance by BRELP and allocated to Brookfield Renewable for reallocation to LP Unitholders. Unless otherwise specified, references in this section to realization of Brookfield Renewable’s items of income, gain, loss, deduction, or credit include a realization of such items by BRELP and the allocation of such items to Brookfield Renewable.

Proposed Legislation

Over the past several years, a number of legislative and administrative proposals relating to partnership taxation have been introduced and, in certain cases, have been passed by the U.S. House of Representatives. On May 28, 2010, the U.S. House of Representatives passed legislation which, if it had been finally enacted into law and applied to Brookfield Renewable or to BRELP, could have had adverse consequences, including (i) the recharacterization of capital gain income as “ordinary income”, (ii) the potential reclassification of qualified dividend income as “ordinary income” subject to a higher rate of U.S. income tax, and (iii) potential limitations on the ability of our partnership to meet the “qualifying income” exception for taxation as a partnership for U.S. federal income tax purposes. This legislation was not passed by the U.S. Senate and therefore was not enacted into law. However, similar legislation was introduced in both the U.S. House of Representatives and the U.S. Senate in February 2013.

The Obama administration has indicated it supports the adoption of legislation that similarly changes the treatment of carried interest for U.S. federal income tax purposes. In its published revenue proposals for 2014 the Obama administration proposed that the current law governing the treatment of carried interest be changed to subject such income to ordinary income tax. The Obama administration’s published revenue proposals for previous years contained similar proposals.

It remains unclear whether any legislation related to such revenue proposals or similar to the legislation described above will be proposed or enacted by the U.S. Congress and, if enacted, whether such legislation would affect an investment in Brookfield Renewable. Each LP Unitholder should consult an independent tax adviser as to the potential effect of any proposed or future legislation on an investment in Brookfield Renewable. The remainder of this discussion is based on current law without regard to the proposed legislation or administrative proposals discussed above.

 

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Consequences to U.S. Holders

Holding of LP Units

Income and loss. Each U.S. Holder must take into account, as described below, its allocable share of Brookfield Renewable’s items of income, gain, loss, deduction, and credit for each of Brookfield Renewable’s taxable years ending with or within such U.S. Holder’s taxable year. Each item generally will have the same character and source as though such holder had realized the item directly. Each U.S. Holder must report such items without regard to whether any distribution has been or will be received from Brookfield Renewable. Although not required by the Amended and Restated Limited Partnership Agreement of BREP, Brookfield Renewable intends to make cash distributions to all LP Unitholders on a quarterly basis in amounts generally expected to be sufficient to permit U.S. Holders to fund their estimated U.S. tax obligations (including U.S. federal, state, and local income taxes) with respect to their allocable shares of Brookfield Renewable’s net income or gain. However, based upon a U.S. Holder’s particular tax situation and simplifying assumptions that Brookfield Renewable will make in determining the amount of such distributions, and depending upon whether a U.S. Holder elects to reinvest such distributions pursuant to the distribution reinvestment plan, if available, a U.S. Holder’s tax liability might exceed cash distributions made by Brookfield Renewable, in which case any tax liabilities arising from the ownership of LP Units would need to be satisfied from such U.S. Holder’s own funds.

With respect to U.S. Holders who are individuals, certain dividends paid by a corporation (including certain qualified foreign corporations) to Brookfield Renewable and that are allocable to such U.S. Holders may qualify for reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of specified income tax treaties with the United States. In addition, a foreign corporation is treated as a qualified corporation with respect to its shares that are readily tradable on an established securities market in the United States. Among other exceptions, U.S. Holders who are individuals will not be eligible for reduced rates of taxation on any dividends if the payer is a PFIC for the taxable year in which such dividends are paid or for the preceding taxable year. Dividends received by non-corporate U.S. Holders may be subject to an additional Medicare tax on unearned income of 3.8% (see “— Medicare Tax” below). U.S. Holders that are corporations generally will not be entitled to a “dividends received deduction” in respect of dividends paid by non-U.S. corporations in which Brookfield Renewable (through BRELP) owns stock. Each U.S. Holder should consult an independent tax adviser regarding the application of the foregoing rules in light of its particular circumstances.

For U.S. federal income tax purposes, a U.S. Holder’s allocable share of Brookfield Renewable’s items of income, gain, loss, deduction, or credit will be governed by the Brookfield Renewable limited partnership agreement if such allocations have “substantial economic effect” or are determined to be in accordance with such U.S. Holder’s interest in Brookfield Renewable. Similarly, Brookfield Renewable’s allocable share of items of income, gain, loss, deduction, or credit of BRELP will be governed by the BRELP limited partnership agreement if such allocations have “substantial economic effect” or are determined to be in accordance with Brookfield Renewable’s interest in BRELP. The Managing General Partner and the BRELP General Partner believe that, for U.S. federal income tax purposes, such allocations should be given effect, and the Managing General Partner and the BRELP General Partner intend to prepare and file tax returns based on such allocations for 2013 and future fiscal periods of Brookfield Renewable. If the IRS were to successfully challenge the allocations made pursuant to either the Brookfield Renewable limited partnership agreement or the BRELP limited partnership agreement, the resulting allocations for U.S. federal income tax purposes might be less favorable than the allocations set forth in such agreements.

Basis. Each U.S. Holder will have an initial tax basis in its LP Units equal to the amount of cash paid for such LP Units, increased by such holder’s share of Brookfield Renewable liabilities, if any. That basis will be increased by such U.S. Holder’s share of Brookfield Renewable’s income and by increases in such U.S. Holder’s share of Brookfield Renewable’s liabilities, if any. That basis will be decreased, but not below zero, by distributions a U.S. Holder receives from Brookfield Renewable, by such U.S. Holder’s share of Brookfield Renewable’s losses, and by any decrease in such U.S. Holder’s share of Brookfield Renewable’s liabilities. The IRS has ruled that a partner in a partnership, unlike a stockholder of a corporation, has a single, or “unitary”, tax basis in his or her partnership interest. As a result, any amount a U.S. Holder pays to acquire additional LP Units in Brookfield Renewable (including through the distribution reinvestment plan, if available) will be averaged with the adjusted tax basis of LP Units owned by such holder prior to the acquisition of such additional LP Units. The Managing General Partner and the BRELP General Partner express no opinion regarding the appropriate methodology to be used in making this determination.

For purposes of the foregoing rules, the rules discussed immediately below, and the rules applicable to a sale or exchange of LP Units, Brookfield Renewable’s liabilities generally will include Brookfield Renewable’s share of any liabilities of BRELP.

Limits on deductions for losses and expenses. A U.S. Holder’s deduction of its allocable share of Brookfield Renewable’s losses will be limited to such U.S. Holder’s tax basis in LP Units and, if the holder is an individual or a corporate holder that is subject to the “at risk” rules, to the amount for which the holder is considered to be “at risk” with respect to Brookfield Renewable’s activities, if that is less than such U.S. Holder’s tax basis. In general, a U.S. Holder will be at risk to the extent of such holder’s tax basis in LP Units, reduced by (i) the portion of that basis attributable to such U.S. Holder’s share of Brookfield Renewable’s liabilities for which the holder will not be personally liable (excluding certain qualified non-recourse financing) and (ii) any amount of money the U.S. Holder borrows to acquire or hold LP Units, if the lender of those borrowed funds owns an interest in Brookfield Renewable, is related to the U.S. Holder, or can look only to LP Units for repayment. A U.S. Holder’s at-risk amount generally will increase by such U.S. Holder’s allocable share of Brookfield Renewable’s income and gain and decrease by distributions received from Brookfield Renewable and such U.S. Holder’s allocable share of losses and deductions. A U.S. Holder must recapture losses deducted in previous years to the extent that distributions cause such U.S. Holder’s at-risk amount to be less than zero at the end of any taxable

 

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year. Losses disallowed or recaptured as a result of these limitations will carry forward and will be allowable to the extent that such U.S. Holder’s tax basis or at-risk amount, whichever is the limiting factor, subsequently increases. Upon the taxable disposition of LP Units, any gain recognized by a U.S. Holder can be offset by losses that were previously suspended by the at-risk limitation, but may not be offset by losses suspended by the basis limitation. Any excess loss above the gain previously suspended by the at-risk or basis limitations may no longer be used. Each U.S. Holder should consult an independent tax adviser as to the effects of the at-risk rules.

The Managing General Partner and the BRELP General Partner do not expect to generate income or losses from “passive activities” for purposes of Section 469 of the U.S. Internal Revenue Code. Accordingly, income allocated to a U.S. Holder may not be offset by such holder’s Section 469 passive losses, and losses allocated to a U.S. Holder may not be used to offset such holder’s Section 469 passive income. In addition, other provisions of the U.S. Internal Revenue Code may limit or disallow any deduction for losses by a U.S. Holder or deductions associated with certain assets of Brookfield Renewable or BRELP in certain cases. Each U.S. Holder should consult an independent tax adviser regarding the limitations on the deductibility of losses that such holder may be subject to under applicable sections of the U.S. Internal Revenue Code.

Limitations on deductibility of organizational expenses and syndication fees. In general, neither Brookfield Renewable nor any U.S. Holder may deduct organizational or syndication expenses. Similar rules apply to organizational or syndication expenses incurred by BRELP. Syndication fees (which would include any sales or placement fees or commissions) must be capitalized and cannot be amortized or otherwise deducted.

Limitations on interest deductions. A U.S. Holder’s share of Brookfield Renewable’s interest expense is likely to be treated as “investment interest” expense. For a non-corporate U.S. Holder, the deductibility of “investment interest” expense generally is limited to the amount of such holder’s “net investment income”. A U.S. Holder’s share of Brookfield Renewable’s dividend and interest income will be treated as investment income, although “qualified dividend income” subject to reduced rates of tax in the hands of an individual will only be treated as investment income if such individual elects to treat such dividend as ordinary income not subject to reduced rates of tax. In addition, state and local tax laws may disallow deductions for a U.S. Holder’s share of Brookfield Renewable’s interest expense.

Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive loss rules, less deductible expenses, other than interest, directly connected with the production of investment income, but generally does not include gains attributable to the disposition of property held for investment.

Deductibility of partnership investment expenditures by individual partners and by trusts and estates. Subject to certain exceptions, all miscellaneous itemized deductions of an individual taxpayer, and certain of such deductions of an estate or trust, are deductible only to the extent that such deductions exceed 2% of the taxpayer’s adjusted gross income. Moreover, the otherwise allowable itemized deductions of individuals whose gross income exceeds an applicable threshold amount are subject to reduction by an amount equal to the lesser of (i) 3% of the excess of the individual’s adjusted gross income over the threshold amount, and (ii) 80% of the amount of the individual’s itemized deductions. The operating expenses of Brookfield Renewable, including Brookfield Renewable’s allocable share of any management fees, may be treated as miscellaneous itemized deductions subject to the foregoing rule. Accordingly, a non-corporate U.S. Holder should consult an independent tax adviser regarding the application of these limitations.

Treatment of Distributions

Distributions of cash by Brookfield Renewable generally will not be taxable to a U.S. Holder to the extent of such holder’s adjusted tax basis (described above) in LP Units. Any cash distributions in excess of a U.S. Holder’s adjusted tax basis generally will be considered to be gain from the sale or exchange of LP Units (described below). Such gain generally will be treated as capital gain and will be long-term capital gain if a U.S. Holder’s holding period for LP Units exceeds one year. A reduction in a U.S. Holder’s allocable share of Brookfield Renewable liabilities, and certain distributions of marketable securities by Brookfield Renewable, if any, will be treated similar to cash distributions for U.S. federal income tax purposes.

Sale or Exchange of LP Units

A U.S. Holder will recognize gain or loss on the sale or taxable exchange of LP Units equal to the difference, if any, between the amount realized and such U.S. Holder’s tax basis in LP Units sold or exchanged. A U.S. Holder’s amount realized will be measured by the sum of the cash or the fair market value of other property received plus such U.S. Holder’s share of Brookfield Renewable’s liabilities, if any.

Gain or loss recognized by a U.S. Holder upon the sale or exchange of LP Units generally will be taxable as capital gain or loss and will be long-term capital gain or loss if the U.S. Holder held our LP Units for more than one year on the date of such sale or exchange. Assuming a U.S. Holder has not elected to treat its share of Brookfield Renewable’s investment in any PFIC as a “qualified electing fund”, gain attributable to such investment in a PFIC would be taxable in the manner described below in “— Passive Foreign

 

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Investment Companies”. In addition, certain gain attributable to “unrealized receivables” or “inventory items” could be characterized as ordinary income rather than capital gain. For example, if Brookfield Renewable were to hold debt acquired at a market discount, accrued market discount on such debt would be treated as “unrealized receivables”. The deductibility of capital losses is subject to limitations.

Each U.S. Holder who acquires LP Units at different times and intends to sell all or a portion of our LP Units within a year of the most recent purchase is urged to consult an independent tax adviser regarding the application of certain “split holding period” rules to such sale and the treatment of any gain or loss as long-term or short-term capital gain or loss.

Medicare Tax

U.S. Holders that are individuals, estates, or trusts may be required to pay a 3.8% Medicare tax on the lesser of (i) such U.S. Holders’ “modified adjusted gross income” (or “adjusted gross income” in the case of estates and trusts) over certain thresholds and (ii) such U.S. Holders’ “net investment income” (or “undistributed net investment income” in the case of estates and trusts). Net investment income generally is expected to include an LP Unitholder’s allocable share of Brookfield Renewable’s income, as well as gain realized by an LP Unitholder from a sale of LP Units.

Foreign Tax Credit Limitations

Each U.S. Holder generally will be entitled to a foreign tax credit with respect to such U.S. Holder’s allocable share of creditable foreign taxes paid on Brookfield Renewable’s income and gains. Complex rules may, depending on such U.S. Holder’s particular circumstances, limit the availability or use of foreign tax credits. Gain from the sale of Brookfield Renewable’s investments may be treated as U.S.-source gain. Consequently, a U.S. Holder may not be able to use the foreign tax credit arising from any foreign taxes imposed on such gains unless the credit can be applied (subject to applicable limitations) against U.S. tax due on other income treated as derived from foreign sources. Certain losses that Brookfield Renewable incurs may be treated as foreign-source losses, which could reduce the amount of foreign tax credits otherwise available.

Section 754 Election

Brookfield Renewable and BRELP have each made the election permitted by Section 754 of the U.S. Internal Revenue Code, or the Section 754 Election. The Section 754 Election cannot be revoked without the consent of the IRS. The Section 754 Election generally requires Brookfield Renewable to adjust the tax basis in its assets, or inside basis, attributable to a transferee of LP Units under Section 743(b) of the U.S. Internal Revenue Code to reflect the purchase price paid by the transferee for LP Units. This election does not apply to a person who purchases LP Units directly from Brookfield Renewable. For purposes of this discussion, a transferee’s inside basis in Brookfield Renewable’s assets will be considered to have two components: (i) the transferee’s share of Brookfield Renewable’s tax basis in Brookfield Renewable’s assets, or common basis, and (ii) the adjustment under Section 743(b) of the U.S. Internal Revenue Code to that basis. The foregoing rules would also apply to BRELP.

Generally, a Section 754 Election would be advantageous to a transferee U.S. Holder if such U.S. Holder’s tax basis in its LP Units were higher than such LP Units’ share of the aggregate tax basis of Brookfield Renewable’s assets immediately prior to the transfer. In that case, as a result of the Section 754 Election, the transferee U.S. Holder would have a higher tax basis in its share of Brookfield Renewable’s assets for purposes of calculating, among other items, such holder’s share of any gain or loss on a sale of Brookfield Renewable’s assets. Conversely, a Section 754 Election would be disadvantageous to a transferee U.S. Holder if such U.S. Holder’s tax basis in its LP Units were lower than such LP Units’ share of the aggregate tax basis of Brookfield Renewable’s assets immediately prior to the transfer. Thus, the fair market value of LP Units may be affected either favorably or adversely by the election.

Without regard to whether the Section 754 Election is made, if LP Units are transferred at a time when Brookfield Renewable has a “substantial built-in loss” in its assets, Brookfield Renewable will be obligated to reduce the tax basis in the portion of such assets attributable to such LP Units.

The calculations involved in the Section 754 Election are complex, and the Managing General Partner and the BRELP General Partner advise that each will make such calculations on the basis of assumptions as to the value of Brookfield Renewable assets and other matters. Each U.S. Holder should consult an independent tax adviser as to the effects of the Section 754 Election.

Uniformity of LP Units

Because Brookfield Renewable cannot match transferors and transferees of LP Units, Brookfield Renewable must maintain uniformity of the economic and tax characteristics of LP Units to a purchaser of LP Units. In the absence of uniformity, Brookfield Renewable may be unable to comply fully with a number of U.S. federal income tax requirements. A lack of uniformity can result from a literal application of certain Treasury Regulations to Brookfield Renewable’s Section 743(b) adjustments, a determination that Brookfield Renewable’s Section 704(c) allocations are unreasonable, or other reasons. Section 704(c) allocations would be intended to reduce or eliminate the disparity between tax basis and the value of Brookfield Renewable’s assets in certain circumstances, including on the issuance of additional LP Units. In order to maintain the fungibility of all LP Units at all times, Brookfield Renewable will seek to achieve the uniformity of U.S. tax treatment for all purchasers of LP Units which are acquired at the same time and price (irrespective of the identity of the particular seller of LP Units or the time when LP Units are issued by Brookfield Renewable), through the application of certain tax accounting principles that the Managing General Partner believes are reasonable for Brookfield Renewable. However, the IRS may disagree with Brookfield Renewable and may successfully challenge its application of such tax accounting principles. Any non-uniformity could have a negative impact on the value of LP Units.

 

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Foreign Currency Gain or Loss

Brookfield Renewable’s functional currency is the U.S. dollar, and Brookfield Renewable’s income or loss is calculated in U.S. dollars. It is likely that Brookfield Renewable will recognize “foreign currency” gain or loss with respect to transactions involving non-U.S. dollar currencies. In general, foreign currency gain or loss is treated as ordinary income or loss. Each U.S. Holder should consult an independent tax adviser regarding the tax treatment of foreign currency gain or loss.

Passive Foreign Investment Companies

U.S. Holders may be subject to special rules applicable to indirect investments in foreign corporations, including an investment through Brookfield Renewable in a PFIC. A PFIC is defined as any foreign corporation with respect to which (after applying certain look-through rules) either (i) 75% or more of its gross income for a taxable year is “passive income” or (ii) 50% or more of its assets in any taxable year (generally based on the quarterly average of the value of its assets) produce or are held for the production of “passive income”. There are no minimum stock ownership requirements for PFICs. If a U.S. Holder holds an interest in a foreign corporation for any taxable year during which the corporation is classified as a PFIC with respect to such holder, then the corporation will continue to be classified as a PFIC with respect to that U.S. Holder for any subsequent taxable year during which the U.S. Holder continues to hold an interest in the corporation, even if the corporation’s income or assets would not cause it to be a PFIC in such subsequent taxable year, unless an exception applies.

Subject to certain elections described below, any gain on the disposition of stock of a PFIC owned by a U.S. Holder indirectly through Brookfield Renewable, as well as income realized on certain “excess distributions” by such PFIC, would be treated as though realized ratably over the shorter of such U.S. Holder’s holding period of LP Units or Brookfield Renewable’s holding period for the PFIC. Such gain or income generally would be taxable as ordinary income and dividends paid by the PFIC would not be eligible for the preferential tax rates for dividends paid to non-corporate U.S. Holders. In addition, an interest charge would apply, based on the tax deemed deferred from prior years.

If a U.S. Holder were to make an election to treat such U.S. Holder’s share of Brookfield Renewable’s interest in a PFIC as a “qualified electing fund”, such election a “ QEF Election ”, for the first year such holder were treated as holding such interest, then in lieu of the tax consequences described in the paragraph immediately above, the U.S. Holder would be required to include in income each year a portion of the ordinary earnings and net capital gains of the PFIC, even if not distributed to Brookfield Renewable or to the holder. A QEF Election must be made by a U.S. Holder on an entity-by-entity basis. To make a QEF Election, a U.S. Holder must, among other things, (i) obtain a PFIC annual information statement (through an intermediary statement supplied by Brookfield Renewable) and (ii) prepare and submit IRS Form 8621 with such U.S. Holder’s annual income tax return. To the extent reasonably practicable, Brookfield Renewable intends to timely provide U.S. Holders with the information necessary to make a QEF Election with respect to any Brookfield Renewable entity that the Managing General Partner and the BRELP General Partner believe is a PFIC with respect to a U.S. Holder. Accordingly, each U.S. Holder is urged to consider timely filing a QEF Election with respect to such entity for which Brookfield Renewable provides the necessary information. Any such election should be made for the first year Brookfield Renewable holds an interest in such entity or for the first year in which a U.S. Holder holds LP Units, if later.

Once a U.S. Holder has made a QEF Election for an entity, such election applies to any additional shares of interest in such entity acquired directly or indirectly, including through additional LP Units acquired after the QEF Election is made (such as LP Units acquired under the distribution reinvestment plan, if available). If a U.S. Holder were to make a QEF Election after the first year that the holder were treated as holding an interest in a PFIC, the adverse tax consequences relating to PFIC stock would continue to apply with respect to the pre-QEF Election period, unless the holder were to make a “purging election”. The purging election would create a deemed sale of such U.S. Holder’s previously held share of Brookfield Renewable’s interests in a PFIC. The gain recognized by the purging election would be subject to the special tax and interest charge rules, which treat the gain as an excess distribution, as described above. As a result of the purging election, a U.S. Holder would have a new basis and holding period in such U.S. Holder’s share of Brookfield Renewable’s interests in the PFIC. U.S. Holders should consult an independent tax adviser as to the manner in which such direct inclusions could affect their allocable share of Brookfield Renewable’s income and their tax basis in their LP Units and the advisability of making a QEF Election or a purging election.

In the case of a PFIC that is a publicly traded foreign company, and in lieu of making a QEF Election, an election may be made to “mark to market” the stock of such foreign company on an annual basis. Pursuant to such an election, a U.S. Holder would include in each year as ordinary income the excess, if any, of the fair market value of such stock over its adjusted basis at the end of the taxable year. However, none of the existing Brookfield Renewable entities are expected to be publicly traded, although Brookfield Renewable may in the future acquire interests in PFICs which are publicly traded foreign companies. Thus the mark-to-market election is not expected to be available to any U.S. Holder in respect of its indirect ownership interest in any foreign corporation owned by Brookfield Renewable.

Based on the organizational structure of Brookfield Renewable, as well as Brookfield Renewable’s expected income and assets, the Managing General Partner and the BRELP General Partner currently believe that a U.S. Holder is unlikely to be regarded as owning an interest in a PFIC solely by reason of owning LP Units during the taxable year ending December 31, 2013. However, there can be no assurance that an existing Brookfield Renewable entity or a future entity in which Brookfield Renewable acquires an interest will not be classified as a PFIC with respect to a U.S. Holder, because PFIC status is a factual determination that depends on the assets and income of a given entity and must be made on an annual basis. Moreover, in order to ensure that it satisfies the Qualifying Income Exception, Brookfield Renewable may decide to hold an existing or future Operating Entity through a Holding Entity that would be classified as a PFIC. See “— Investment Structure” below.

 

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Recently enacted U.S. legislation requires each U.S. person who directly or indirectly owns an interest in a PFIC to file an annual report with the IRS, and failure to file such report could result in the imposition of penalties on such U.S. person and in the extension of the statute of limitations with respect to federal income tax returns filed by such U.S. person. Each U.S. Holder should consult an independent tax adviser regarding the PFIC rules, including the potential effect of this legislation on such U.S. Holder’s filing requirements and the advisability of making a QEF Election, a special election under the proposed Treasury Regulations relating to the 3.8% Medicare tax, or, if applicable, a mark-to-market election, with respect to any PFIC in which such holder is treated as owning an interest through Brookfield Renewable.

Investment Structure

To ensure that it meets the Qualifying Income Exception for publicly traded partnerships (discussed above) and complies with certain requirements in its limited partnership agreement, Brookfield Renewable may structure certain investments through an entity classified as a corporation for U.S. federal income tax purposes. Such investments will be structured as determined in the sole discretion of the Managing General Partner and the BRELP General Partner generally to be efficient for LP Unitholders. However, because LP Unitholders will be located in numerous taxing jurisdictions, no assurance can be given that any such investment structure will benefit all LP Unitholders to the same extent, and such an investment structure might even result in additional tax burdens on some LP Unitholders. As discussed above, if any such entity were a non-U.S. corporation, it might be considered a PFIC. If any such entity were a U.S. corporation, it would be subject to U.S. federal net income tax on its income, including any gain recognized on the disposition of its investments. In addition, if the investment were to involve U.S. real property, gain recognized on the disposition of the investment by a corporation generally would be subject to corporate-level tax, whether the corporation were a U.S. or a non-U.S. corporation.

Taxes in Other Jurisdictions

In addition to U.S. federal income tax consequences, an investment in Brookfield Renewable could subject a U.S. Holder to U.S. state and local taxes in the U.S. state or locality in which such holder is a resident for tax purposes. A U.S. Holder could also be subject to tax return filing obligations and income, franchise, or other taxes, including withholding taxes, in non-U.S. jurisdictions in which Brookfield Renewable invests. Brookfield Renewable will attempt, to the extent reasonably practicable, to structure its operations and investments so as to avoid income tax filing obligations by U.S. Holders in non-U.S. jurisdictions. However, there may be circumstances in which Brookfield Renewable is unable to do so. Income or gain from investments held by Brookfield Renewable may be subject to withholding or other taxes in jurisdictions outside the U.S., except to the extent an income tax treaty applies. A U.S. Holder who wishes to claim the benefit of an applicable income tax treaty might be required to submit information to tax authorities in such jurisdictions. Each U.S. Holder should consult an independent tax adviser regarding the U.S. state, local, and non-U.S. tax consequences of an investment in Brookfield Renewable.

Transferor/Transferee Allocations

Brookfield Renewable may allocate items of income, gain, loss, and deduction using a monthly or other convention, whereby any such items recognized in a given month by Brookfield Renewable are allocated to our LP Unitholders as of a specified date of such month. As a result, a U.S. Holder who transfers LP Units might be allocated income, gain, loss, and deduction realized by Brookfield Renewable after the date of the transfer. Similarly, if a U.S. Holder acquires additional LP Units, such holder may be allocated income, gain, loss, and deduction realized by Brookfield Renewable prior to such U.S. Holder’s ownership of such LP Units.

Although Section 706 of the U.S. Internal Revenue Code generally governs allocations of items of partnership income and deductions between transferors and transferees of partnership interests, it is not clear that Brookfield Renewable’s allocation method complies with the requirements. If Brookfield Renewable’s convention were not permitted, the IRS might contend that Brookfield Renewable’s taxable income or losses must be reallocated among LP Unitholders. If such a contention were sustained, a U.S. Holder’s tax liabilities might be adjusted to such holder’s detriment. The Managing General Partner is authorized to revise Brookfield Renewable’s method of allocation between transferors and transferees (as well as among investors whose interests otherwise vary during a taxable period).

U.S. Federal Estate Tax Consequences

If LP Units are included in the gross estate of a U.S. citizen or resident for U.S. federal estate tax purposes, then a U.S. federal estate tax might be payable in connection with the death of such person. Individual U.S. Holders should consult an independent tax adviser concerning the potential U.S. federal estate tax consequences with respect to LP Units.

 

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Certain Reporting Requirements

A U.S. Holder who invests more than $100,000 in Brookfield Renewable may be required to file IRS Form 8865 reporting the investment with such U.S. Holder’s U.S. federal income tax return for the year that includes the date of the investment. A U.S. Holder may be subject to substantial penalties if it fails to comply with this and other information reporting requirements with respect to an investment in LP Units. Each U.S. Holder should consult an independent tax adviser regarding such reporting requirements.

U.S. Taxation of Tax-Exempt U.S. Holders of LP Units

Income recognized by a U.S. tax-exempt organization is exempt from U.S. federal income tax except to the extent of the organization’s UBTI. UBTI is defined generally as any gross income derived by a tax-exempt organization from an unrelated trade or business that it regularly carries on, less the deductions directly connected with that trade or business. In addition, income arising from a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) that holds operating assets or is otherwise engaged in a trade or business generally will constitute UBTI. Notwithstanding the foregoing, UBTI generally does not include any dividend income, interest income, certain other categories of passive income, or capital gains realized by a tax-exempt organization, so long as such income is not “debt financed”, as discussed below. The Managing General Partner believes that Brookfield Renewable should not be regarded as engaged in a trade or business, and anticipates that any operating assets held by Brookfield Renewable will be held through entities that are treated as corporations for U.S. federal income tax purposes.

The exclusion from UBTI does not apply to income from “debt financed property”, which is treated as UBTI to the extent of the percentage of such income that the average acquisition indebtedness with respect to the property bears to the average tax basis of the property for the taxable year. If an entity treated as a partnership for U.S. federal income tax purposes incurs acquisition indebtedness, a tax-exempt partner in such partnership will be deemed to have acquisition indebtedness equal to its allocable portion of such acquisition indebtedness. If any such indebtedness were used by Brookfield Renewable or by BRELP to acquire property, such property generally would constitute debt-financed property, and any income from or gain from the disposition of such debt-financed property allocated to a tax-exempt organization generally would constitute UBTI to such tax-exempt organization. In addition, even if such indebtedness were not used either by Brookfield Renewable or by BRELP to acquire property but were instead used to fund distributions to LP Unitholders, if a tax-exempt organization subject to taxation in the United States were to use such proceeds to make an investment outside Brookfield Renewable, the IRS might assert that such investment constitutes debt-financed property to such LP Unitholder with the consequences noted above. Brookfield Renewable and BRELP currently do not have any outstanding indebtedness used to acquire property, and the Managing General Partner and the BRELP General Partner do not believe that Brookfield Renewable or BRELP will generate UBTI attributable to debt-financed property in the future. However, neither Brookfield Renewable nor BRELP is prohibited from incurring indebtedness, and no assurance can be provided that neither Brookfield Renewable nor BRELP will generate UBTI attributable to debt-financed property in the future. Tax-exempt U.S. Holders should consult an independent tax adviser regarding the tax consequences of an investment in LP Units.

Investments by U.S. Mutual Funds

A U.S. mutual fund that is treated as a regulated investment company (“ RIC ”), for U.S. federal income tax purposes is required, among other things, to meet an annual 90% gross income and a quarterly 50% asset value test under Section 851(b) of the U.S. Internal Revenue Code to maintain its favorable U.S. federal income tax status. The treatment of an investment by a RIC in LP Units for purposes of these tests will depend on whether Brookfield Renewable is treated as a “qualified publicly traded partnership”. If Brookfield Renewable is so treated, then LP Units themselves are the relevant assets for purposes of the 50% asset value test, and the net income from LP Units is the relevant gross income for purposes of the 90% gross income test. If, however, Brookfield Renewable is not so treated, then the relevant assets are the RIC’s allocable share of the underlying assets held by Brookfield Renewable, and the relevant gross income is the RIC’s allocable share of the underlying gross income earned by Brookfield Renewable. Whether Brookfield Renewable will qualify as a qualified publicly traded partnership depends on the exact nature of its future investments, but the Managing General Partner believes it is likely that Brookfield Renewable will not be treated as a qualified publicly traded partnership. RICs should consult an independent tax adviser regarding the U.S. tax consequences of an investment in LP Units.

Consequences to Non-U.S. Holders

Holding of LP Units and Other Considerations

The Managing General Partner and the BRELP General Partner intend to use commercially reasonable efforts to structure the activities of Brookfield Renewable and BRELP, respectively, to avoid the realization by Brookfield Renewable and BRELP of income treated as effectively connected with a U.S. trade or business, including effectively connected income attributable to the sale of a “United States real property interest”, as defined in the U.S. Internal Revenue Code. Specifically, Brookfield Renewable intends not to make an investment, whether directly or through an entity which would be treated as a partnership for U.S. federal income tax purposes, if the Managing General Partner believes at the time of such investment that such investment would generate income treated as effectively connected with a U.S. trade or business. If, as

 

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anticipated, Brookfield Renewable is not treated as engaged in a U.S. trade or business or as deriving income which is treated as effectively connected with a U.S. trade or business, and provided that a Non-U.S. Holder is not itself engaged in a U.S. trade or business, then such Non-U.S. Holder generally will not be subject to U.S. tax return filing requirements solely as a result of owning LP Units and generally will not be subject to U.S. federal income tax on its allocable share of Brookfield Renewable’s interest and dividends from non-U.S. sources or gain from the sale or other disposition of securities or real property located outside of the United States.

However, there can be no assurance that the law will not change or that the IRS will not deem Brookfield Renewable to be engaged in a U.S. trade or business. If, contrary to the Managing General Partner’s expectations, Brookfield Renewable is treated as engaged in a U.S. trade or business, then a Non-U.S. Holder generally would be required to file a U.S. federal income tax return, even if no effectively connected income were allocable to it. If Brookfield Renewable were to have income treated as effectively connected with a U.S. trade or business, then a Non-U.S. Holder would be required to report that income and would be subject to U.S. federal income tax at the regular graduated rates. In addition, Brookfield Renewable generally would be required to withhold U.S. federal income tax on such Non-U.S. Holder’s distributive share of such income. A corporate Non-U.S. Holder might also be subject to branch profits tax at a rate of 30%, or at a lower treaty rate, if applicable.

In general, even if Brookfield Renewable is not engaged in a U.S. trade or business, and assuming a Non-U.S. Holder is not otherwise engaged in a U.S. trade or business, such holder will nonetheless be subject to a federal withholding tax equal to 30% of the gross amount of its allocable share of certain U.S.-source income (such as dividends and interest) which is not effectively connected with a U.S. trade or business. However, the Managing General Partner does not expect Brookfield Renewable to earn any such U.S.-source income. Accordingly, the 30% withholding tax is not expected to apply. If, contrary to expectation, Brookfield Renewable were to earn such income, then a Non-U.S. Holder’s allocable share of distributions of such income generally would be subject to U.S. withholding tax at a rate of 30%, or at a lower treaty rate, if applicable. A Non-U.S. Holder might be required to take additional steps to receive a credit or refund of any excess withholding tax paid on such holder’s account, which could include the filing of a non-resident U.S. income tax return with the IRS, unless such holder were not subject to U.S. tax based on its tax status or were otherwise eligible for a reduced rate of U.S. withholding under an applicable income tax treaty. Each Non-U.S. Holder should consult an independent tax adviser regarding the potential for the 30% withholding tax to apply to its allocable share of income of Brookfield Renewable.

Special rules may apply in the case of a Non-U.S. Holder subject to special rules, including, without limitation, any Non-U.S. Holder (i) that has an office or fixed place of business in the United States; (ii) that is present in the United States for 183 days or more in a taxable year; or (iii) that is (a) a former citizen or long-term resident of the United States, (b) a foreign insurance company that is treated as holding a partnership interest in Brookfield Renewable in connection with its U.S. business, (c) a PFIC, or (d) a corporation that accumulates earnings to avoid U.S. federal income tax. Each Non-U.S. Holder should consult an independent tax adviser regarding the application of these special rules.

Administrative Matters

Tax Matters Partner

The Managing General Partner will act as Brookfield Renewable’s “tax matters partner”. As the tax matters partner, the Managing General Partner will have the authority, subject to certain restrictions, to act on behalf of Brookfield Renewable in connection with any administrative or judicial review of Brookfield Renewable’s items of income, gain, loss, deduction, or credit.

Information Returns

Brookfield Renewable has agreed to use commercially reasonable efforts to provide U.S. tax information on its website (including IRS Schedule K-1 information needed to determine an LP Unitholder’s allocable share of Brookfield Renewable’s income, gain, losses, and deductions) no later than 90 days after the end of Brookfield Renewable’s taxable year. In addition, Brookfield Renewable will provide an IRS Schedule K-1 to any LP Unitholder that furnishes Brookfield Renewable or its agents with certain basic information regarding such holder’s LP Units. To assist each LP Unitholder in this regard, Brookfield Renewable maintains a website in respect of 2012 and subsequent taxation years. However, providing this U.S. tax information to LP Unitholders will be subject to delay in the event of, among other reasons, the late receipt of any necessary tax information from lower-tier entities. It is therefore possible that, in any taxable year, an LP Unitholder will need to apply for an extension of time to file such LP Unitholder’s tax returns.

In preparing this U.S. tax information, Brookfield Renewable will use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine an LP Unitholder’s share of income, gain, loss, and deduction. The IRS may successfully contend that certain of these reporting conventions are impermissible, which could result in an adjustment to an LP Unitholder’s income or loss.

Brookfield Renewable may be audited by the IRS. Adjustments resulting from an IRS audit could require an LP Unitholder to adjust a prior year’s tax liability and result in an audit of such holder’s own tax return. Any audit of an LP Unitholder’s tax return could result in adjustments not related to Brookfield Renewable’s tax returns, as well as those related to Brookfield Renewable’s tax returns.

 

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Tax Shelter Regulations and Related Reporting Requirements

If Brookfield Renewable were to engage in a “reportable transaction”, Brookfield Renewable (and possibly LP Unitholders) would be required to make a detailed disclosure of the transaction to the IRS in accordance with regulations governing tax shelters and other potentially tax-motivated transactions. A transaction may be a reportable transaction based upon any of several factors, including the fact that it is a type of tax avoidance transaction publicly identified by the IRS as a “listed transaction” or “transaction of interest”, or that it produces certain kinds of losses equal to or exceeding $2 million (or, in the case of certain foreign currency transactions, losses equal to or exceeding $50,000). An investment in Brookfield Renewable may be considered a “reportable transaction” if, for example, Brookfield Renewable were to recognize certain significant losses in the future. In certain circumstances, an LP Unitholder who disposes of an interest in a transaction resulting in the recognition by such holder of significant losses in excess of certain threshold amounts may be obligated to disclose its participation in such transaction. Certain of these rules are unclear, and the scope of reportable transactions can change retroactively. Therefore, it is possible that the rules may apply to transactions other than significant loss transactions.

Moreover, if Brookfield Renewable were to participate in a reportable transaction with a significant purpose to avoid or evade tax, or in any listed transaction, an LP Unitholder might be subject to significant accuracy-related penalties with a broad scope, for those persons otherwise entitled to deduct interest on federal tax deficiencies, non-deductibility of interest on any resulting tax liability, and in the case of a listed transaction, an extended statute of limitations. Brookfield Renewable does not intend to participate in any reportable transaction with a significant purpose to avoid or evade tax, nor does Brookfield Renewable intend to participate in any listed transactions. However, no assurance can be provided that the IRS will not assert that Brookfield Renewable has participated in such a transaction.

Each LP Unitholder should consult an independent tax adviser concerning any possible disclosure obligation under the regulations governing tax shelters with respect to the disposition of LP Units.

Taxable Year

Brookfield Renewable currently uses the calendar year as its taxable year for U.S. federal income tax purposes. Under certain circumstances which Brookfield Renewable currently believes are unlikely to apply, a taxable year other than the calendar year may be required for such purposes.

Constructive Termination

Subject to the electing large partnership rules described below, Brookfield Renewable will be considered to have been terminated for U.S. federal income tax purposes if there is a sale or exchange of 50% or more of our LP Units within a 12-month period.

A constructive termination of Brookfield Renewable would result in the close of its taxable year for all LP Unitholders. If an LP Unitholder reports on a taxable year other than a fiscal year ending on Brookfield Renewable’s year-end, and the LP Unitholder is otherwise subject to U.S. federal income tax, the closing of Brookfield Renewable’s taxable year may result in more than 12 months of Brookfield Renewable’s taxable income or loss being includable in such LP Unitholder’s taxable income for the year of the termination. Brookfield Renewable would be required to make new tax elections after a termination, including a new Section 754 Election. A constructive termination could also result in penalties and other adverse tax consequences if Brookfield Renewable were unable to determine that the termination had occurred. Moreover, a constructive termination might either accelerate the application of, or subject Brookfield Renewable to, any tax legislation enacted before the termination.

Elective Procedures for Large Partnerships

The U.S. Internal Revenue Code allows large partnerships to elect streamlined procedures for income tax reporting. This election would reduce the number of items that must be separately stated on the IRS Schedules K-1 that are issued to our LP Unitholders, and such IRS Schedules K-1 would have to be provided to holders on or before the first March 15 following the close of each taxable year. In addition, this election would prevent Brookfield Renewable from suffering a “technical termination” (which would close Brookfield Renewable’s taxable year and require that Brookfield Renewable make a new Section 754 Election) if, within a 12-month period, there were a sale or exchange of 50% or more of Brookfield Renewable’s total LP Units. Despite the foregoing benefits, there are also costs and administrative burdens associated with such an election. Consequently, as of this time, Brookfield Renewable has not elected to be subject to the reporting procedures applicable to large partnerships.

 

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Backup Withholding

For each calendar year, Brookfield Renewable may be required to report to each LP Unitholder and to the IRS the amount of distributions that Brookfield Renewable pays, and the amount of tax (if any) that Brookfield Renewable withholds on these distributions. Under the backup withholding rules, an LP Unitholder may be subject to backup withholding tax with respect to distributions paid unless: (i) such holder is an exempt recipient and demonstrates this fact when required; or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding tax, and otherwise complies with the applicable requirements of the backup withholding tax rules. A U.S. Holder that is exempt should certify such status on a properly completed IRS Form W-9. A Non-U.S. Holder may qualify as an exempt recipient by submitting a properly completed IRS Form W-8. Backup withholding is not an additional tax. The amount of any backup withholding from a payment to an LP Unitholder will be allowed as a credit against such LP Unitholder’s U.S. federal income tax liability and may entitle such LP Unitholder to a refund from the IRS, provided the LP Unitholder supplies the required information to the IRS in a timely manner.

If an LP Unitholder does not timely provide Brookfield Renewable, or the applicable nominee, broker, clearing agent, or other intermediary, with IRS Form W-9 or IRS Form W-8, as applicable, or such form is not properly completed, then Brookfield Renewable may become subject to U.S. backup withholding taxes in excess of what would have been imposed had Brookfield Renewable or the applicable intermediary received properly completed forms from all LP Unitholders. For administrative reasons, and in order to maintain the fungibility of our LP Units, such excess U.S. backup withholding taxes, and if necessary similar items, may be treated by Brookfield Renewable as an expense that will be borne indirectly by all LP Unitholders on a pro rata basis (e.g., since it may be impractical for Brookfield Renewable to allocate any such excess withholding tax cost to our LP Unitholders that failed to timely provide the proper U.S. tax forms).

Foreign Account Tax Compliance

The Foreign Account Tax Compliance provisions of the Hiring Incentives to Restore Employment Act of 2010, commonly known as “ FATCA ”, impose a 30% withholding tax on “withholdable payments” made to a “foreign financial institution” or a “non-financial foreign entity”, unless such financial institution or entity satisfies certain information reporting or other requirements. Withholdable payments include certain U.S.-source income (such as interest, dividends, and other passive income) and gross proceeds from the sale or disposition of property that can produce U.S.-source interest or dividends. The withholding tax applies to withholdable payments made on or after January 1, 2014 (or January 1, 2017 in the case of gross proceeds). Based on the organizational structure of Brookfield Renewable, as well as Brookfield Renewable’s expected income and assets, our Managing General Partner currently believes that Brookfield Renewable is unlikely to receive or to make any such “withholdable payments” subject to 30% withholding tax under FATCA. Moreover, our Managing General Partner intends to ensure that Brookfield Renewable complies with FATCA, including by entering into an agreement with the IRS if necessary, so as to ensure that the 30% withholding tax does not apply to withholdable payments, if any, received by the Holding Entities or the Operating Entities.

The 30% withholding tax may also apply to any “foreign passthru payment” made by Brookfield Renewable on or after January 1, 2017 to any LP Unitholder that is (i) a foreign financial institution that fails to meet certain requirements under FATCA or (ii) a “recalcitrant account holder” for FATCA purposes. The scope of foreign passthru payments must be determined under Treasury Regulations that have yet to be issued. Thus it is unclear whether any payments made by Brookfield Renewable in the future with respect to our LP Units will be treated as foreign passthru payments subject to the 30% withholding tax. Moreover, the foregoing rules may be modified by an applicable intergovernmental agreement between the United States and another country or by other future Treasury Regulations or guidance.

To ensure compliance with FATCA, each LP Unitholder may be asked to provide certain information and certifications (including information regarding such LP Unitholder’s direct and indirect owners) to enable Brookfield Renewable or any other withholding agent to comply with FATCA, and information regarding certain LP Unitholders’ ownership of our LP Units may be reported to the IRS or to a non-U.S. governmental authority. Each of our LP Unitholders should consult an independent tax adviser regarding the consequences under FATCA of an investment in LP Units.

Information Reporting with Respect to Foreign Financial Assets

Under Treasury Regulations, U.S. individuals that own “specified foreign financial assets” with an aggregate fair market value exceeding either $50,000 on the last day of the taxable year or $75,000 at any time during the taxable year generally are required to file an information report with respect to such assets with their tax returns. Significant penalties may apply to persons who fail to comply with these rules. Specified foreign financial assets include not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person, and any interest in a foreign entity. Upon the issuance of future Treasury Regulations, these information reporting requirements may apply to certain U.S. entities that own specified foreign financial assets. The failure to report information required under the current regulations could result in substantial penalties and in the extension of the statute of limitations with respect to federal income tax returns filed by an LP Unitholder. Each LP Unitholder should consult an independent tax adviser regarding the possible implications of these Treasury Regulations for an investment in LP Units.

Certain Effects of a Transfer of LP Units

Brookfield Renewable may allocate items of income, gain, loss, deduction, and credit using a monthly or other convention, whereby any such items recognized in a given month by Brookfield Renewable are allocated to LP Unitholders as of a specified date of such month. BRELP may invest in debt obligations or other securities for which the accrual of interest or income thereon is not matched by a contemporaneous receipt of cash. Any such accrued interest or other income would be allocated pursuant to such monthly or other convention. Consequently, LP Unitholders may recognize income in excess of cash distributions received from Brookfield Renewable, and any income so included by an LP Unitholder would increase the basis such LP Unitholder has in LP Units and would offset any gain (or increase the amount of loss) realized by such LP Unitholder on a subsequent disposition of its LP Units.

BRELP has invested and will continue to invest in certain Holding Entities and Operating Entities organized in non-U.S. jurisdictions, and income and gain from such investments may be subject to withholding and other taxes in such jurisdictions. If any such non-U.S. taxes were imposed on income allocable to an LP Unitholder, and such LP Unitholder were thereafter to dispose of

 

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its LP Units prior to the date distributions were made in respect of such income, under applicable provisions of the U.S. Internal Revenue Code and Treasury Regulations, the LP Unitholder to whom such income was allocated (and not the LP Unitholder to whom distributions were ultimately made) would, subject to other applicable limitations, be the party permitted to claim a credit for such non-U.S. taxes for U.S. federal income tax purposes. Thus an LP Unitholder may be affected either favorably or adversely by the foregoing rules. Complex rules may, depending on an LP Unitholder’s particular circumstances, limit the availability or use of foreign tax credits, and investors are urged to consult an independent tax adviser regarding all aspects of foreign tax credits.

Nominee Reporting

Persons who hold an interest in Brookfield Renewable as a nominee for another person may be required to furnish to Brookfield Renewable:

 

  (i)

the name, address and taxpayer identification number of the beneficial owner and the nominee;

 

  (ii)

whether the beneficial owner is (a) a person that is not a U.S. person, (b) a foreign government, an international organization, or any wholly-owned agency or instrumentality of either of the foregoing, or (c) a tax-exempt entity;

 

  (iii)

the amount and description of LP Units held, acquired, or transferred for the beneficial owner; and

 

  (iv)

specific information including the dates of acquisitions and transfers, means of acquisitions and transfers, and acquisition cost for purchases, as well as the amount of net proceeds from sales.

Brokers and financial institutions may be required to furnish additional information, including whether they are U.S. persons and specific information on LP Units they acquire, hold, or transfer for their own account. A penalty of $100 per failure, up to a maximum of $1,500,000 per calendar year, generally is imposed by the U.S. Internal Revenue Code for the failure to report such information to Brookfield Renewable. The nominee is required to supply the beneficial owner of LP Units with the information furnished to Brookfield Renewable.

New Legislation or Administrative or Judicial Action

The U.S. federal income tax treatment of LP Unitholders depends, in some instances, on determinations of fact and interpretations of complex provisions of U.S. federal income tax law for which no clear precedent or authority may be available. LP Unitholders should be aware that the U.S. federal income tax rules, particularly those applicable to partnerships, are constantly under review (including currently) by the Congressional tax-writing committees and other persons involved in the legislative process, the IRS, the U.S. Treasury Department and the courts, frequently resulting in revised interpretations of established concepts, statutory changes, revisions to regulations and other modifications and interpretations, any of which could adversely affect the value of LP Units and be effective on a retroactive basis. For example, changes to the U.S. federal tax laws and interpretations thereof could make it more difficult or impossible for Brookfield Renewable to be treated as a partnership that is not taxable as a corporation for U.S. federal income tax purposes, affect the tax considerations of owning LP Units, change the character or treatment of portions of Brookfield Renewable’s income, and adversely affect an investment in LP Units. Such changes could also affect or cause Brookfield Renewable to change the way it conducts its activities, affect the tax considerations of an investment in Brookfield Renewable, and otherwise change the character or treatment of portions of Brookfield Renewable’s income (including changes that recharacterize certain allocations as potentially non-deductible fees).

Brookfield Renewable’s organizational documents and agreements permit the Managing General Partner to modify the limited partnership agreement of Brookfield Renewable from time to time, without the consent of our LP Unitholders, to elect to treat Brookfield Renewable as a corporation for U.S. federal tax purposes, or to address certain changes in U.S. federal income tax regulations, legislation or interpretation. In some circumstances, such revisions could have a material adverse impact on some or all LP Unitholders.

THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. THE TAX MATTERS RELATING TO BROOKFIELD RENEWABLE AND LP UNITHOLDERS ARE COMPLEX AND ARE SUBJECT TO VARYING INTERPRETATIONS. MOREOVER, THE EFFECT OF EXISTING INCOME TAX LAWS, THE MEANING AND IMPACT OF WHICH IS UNCERTAIN, AND OF PROPOSED CHANGES IN INCOME TAX LAWS WILL VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH LP UNITHOLDER, AND IN REVIEWING THIS REGISTRATION STATEMENT THESE MATTERS SHOULD BE CONSIDERED. EACH LP UNITHOLDER SHOULD CONSULT AN INDEPENDENT TAX ADVISER WITH RESPECT TO THE U.S. FEDERAL, STATE, LOCAL, AND OTHER TAX CONSEQUENCES OF ANY INVESTMENT IN LP UNITS.

 

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Material Canadian Federal Income Tax Considerations

The following is an accurate summary of the material Canadian federal income tax consequences under the Tax Act of the holding and disposition of our LP Units generally applicable to an LP Unitholder who, for the purposes of the Tax Act and at all relevant times, holds the LP Units as capital property, deals at arm’s length and is not affiliated with Brookfield Renewable, BRELP, the Managing General Partner, the BRELP General Partner, the BRELP GP LP and their respective affiliates (a “ Holder ”). Generally, our LP Units will be considered to be capital property to a Holder, provided that the Holder does not use or hold the LP Units in the course of carrying on a business of trading or dealing in securities, and has not acquired them in one or more transactions considered to be an adventure or concern in the nature of trade.

This summary is not applicable to (i) a Holder that is a “financial institution” (as defined in the Tax Act) for the purpose of the “mark-to-market” rules, (ii) a Holder that is a “specified financial institution” (as defined in the Tax Act), (iii) a Holder who makes or has made a functional currency reporting election pursuant to section 261 of the Tax Act, (iv) a Holder an interest in which would be a “tax shelter investment” (as defined in the Tax Act) or a Holder who acquires an LP Unit as a “tax shelter investment” (and this summary assumes that no such persons hold our LP Units), (v) a Holder that has, directly or indirectly, a “significant interest” (as defined in subsection 34.2(1) of the Tax Act) in Brookfield Renewable, (vi) a Holder to whom any affiliate of BRELP is a “foreign affiliate” (as defined in the Tax Act, or (vii) that enters into a “derivative forward agreement” as such term is defined in the proposed amendments to the Tax Act contained in the Notice of Ways and Means Motion that accompanied the Federal budget tabled by the Minister on March 21, 2013, in respect of LP Units). Any such Holders should consult their own tax advisors with respect to an investment in our LP Units.

This summary is based on the current provisions of the Tax Act, all specific proposals to amend the Tax Act publicly announced by or on behalf of the Minister prior to the date hereof (the “ Tax Proposals ”) and the current published administrative and assessing policies and practices of the CRA. This summary assumes that all Tax Proposals will be enacted in the form proposed but no assurance can be given that the Tax Proposals will be enacted in the form proposed or at all.

This summary does not otherwise take into account or anticipate any changes in law, whether by judicial, administrative or legislative action or decision, or changes in the CRA’s administrative and assessing policies and practices, nor does it take into account provincial, territorial or foreign income tax legislation or considerations, which may differ significantly from those described herein. A Holder should consult their own tax advisors in respect of the provincial, territorial, or foreign income tax consequences to them of holding and disposing of our LP Units.

This summary assumes that neither Brookfield Renewable nor BRELP will be considered to carry on business in Canada. The Managing General Partner and the BRELP General Partner intend to organize and conduct the affairs of each of these entities, to the extent possible, so that neither of these entities should be considered to carry on business in Canada for purposes of the Tax Act. However, no assurance can be given in this regard. If Brookfield Renewable or BRELP carry on business in Canada, the tax implications to Brookfield Renewable or BRELP and to LP Unitholders may be materially and adversely different than as set out in this Form 20-F. This summary also assumes that except for corporations that are organized in and resident in Canada, no subsidiary of Brookfield Renewable or BRELP will invest in any property in Canada or receive dividends, rents, interest or royalties from any Canadian resident person. However, no assurance can be given in this regard.

This summary also assumes that neither Brookfield Renewable nor BRELP is a “tax shelter” (as defined in the Tax Act) or “tax shelter investment”. However, no assurance can be given in this regard.

This summary also assumes that neither Brookfield Renewable nor BRELP will be a “SIFT partnership” at any relevant time for the purposes of SIFT Rules on the basis that neither Brookfield Renewable nor BRELP will be a “Canadian resident partnership” at any relevant time. However, there can be no assurance that the SIFT Rules will not be revised or amended such that the SIFT Rules will apply.

This summary does not address the deductibility of interest on money borrowed to acquire our LP Units.

This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular Holder, and no representation with respect to the Canadian federal income tax consequences to any particular Holder is made. Consequently, Holders are advised to consult their own tax advisors with respect to their particular circumstances. See also Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

For purposes of the Tax Act, all amounts relating to the acquisition, holding or disposition of our LP Units must be expressed in Canadian dollars including any distributions, adjusted cost base and proceeds of disposition. For purposes of the Tax Act, amounts denominated in a currency other than the Canadian dollar generally must be converted into Canadian dollars using the rate of exchange quoted by the Bank of Canada at noon on the date such amounts arose, or such other rate of exchange as is acceptable to the CRA.

 

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Holders Resident in Canada

The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and at all relevant times, is or is deemed to be resident in Canada (a “ Resident Holder ”).

Computation of Income or Loss

Each Resident Holder is required to include (or, subject to the “at-risk rules” discussed below, entitled to deduct) in computing his or her income for a particular taxation year, the Resident Holder’s pro rata share of Brookfield Renewable’s income (or loss) for its fiscal year ending in, or coincidentally with, the Resident Holder’s taxation year end, whether or not any of that income is distributed to the Resident Holder in the taxation year and regardless of whether our LP Units were held throughout such year.

Brookfield Renewable will not itself be a taxable entity and is not expected to be required to file an income tax return in Canada for any taxation year. However, Brookfield Renewable’s income (or loss) for a fiscal period for purposes of the Tax Act will be computed as if Brookfield Renewable were a separate person resident in Canada and the partners will be allocated a share of that income (or loss) in accordance with the Amended and Restated Limited Partnership Agreement of BREP. Brookfield Renewable’s income (or loss) will include its share of the income (or loss) of BRELP for a fiscal year determined in accordance with the Amended and Restated Limited Partnership Agreement of BRELP. For this purpose, Brookfield Renewable’s fiscal year end and that of BRELP will be December 31.

Brookfield Renewable’s income for tax purposes for a given fiscal year will be allocated to each Resident Holder in an amount calculated by multiplying such income that is allocable to LP Unitholders by a fraction, the numerator of which is the sum of the distributions received by such Resident Holder with respect to such fiscal year and the denominator of which is the aggregate amount of the distributions made by Brookfield Renewable to all LP Unitholders with respect to such fiscal year.

If, with respect to a given fiscal year, no distribution is made by Brookfield Renewable to LP Unitholders or Brookfield Renewable has a loss for tax purposes, one quarter of its income, or loss, as the case may be, for tax purposes for such fiscal year that is allocable to our LP Unitholders, will be allocated to the LP Unitholders of record at the end of each calendar quarter ending in such fiscal year in the proportion that the number of our LP Units held at each such date by an LP Unitholder is of the total number of our LP Units that are issued and outstanding at each such date.

Brookfield Renewable’s income as determined for purposes of the Tax Act may differ from its income as determined for accounting purposes and may not be matched by cash distributions. The above allocations of income for Canadian tax purposes are subject to a special allocation of income for Canadian tax purposes, that would allocate to Brookfield or certain of its affiliates for Canadian income tax purposes only, a portion of certain gains recognized in respect of a disposition of shares of CanHoldco which will reduce, to the extent provided in the relevant partnership agreement, the income for Canadian tax purposes, if any, allocated to LP Unitholders associated with such gains, if any. In addition, for purposes of the Tax Act, all income (or losses) of Brookfield Renewable and BRELP must be calculated in Canadian currency. Where Brookfield Renewable (or BRELP) holds investments denominated in U.S. dollars or other foreign currencies, gains and losses may be realized by Brookfield Renewable as a consequence of fluctuations in the relative values of the Canadian and foreign currencies.

In computing Brookfield Renewable’s income (or loss), deductions may be claimed in respect of reasonable administrative costs, interest and other expenses incurred by Brookfield Renewable for the purpose of earning income, subject to the relevant provisions of the Tax Act. Brookfield Renewable may also deduct from its income for the year a portion of the reasonable expenses, if any, incurred by Brookfield Renewable to issue our LP Units. The portion of such issue expenses deductible by Brookfield Renewable in a taxation year is 20% of such issue expenses, pro-rated where Brookfield Renewable’s taxation year is less than 365 days. Brookfield Renewable and BRELP may be required to withhold and remit Canadian federal withholding tax on any management or administration fees or charges paid or credited to a non-resident person, to the extent that such management or administration fees or charges are deductible in computing Brookfield Renewable’s or BRELP’s income from a source in Canada.

In general, a Resident Holder’s share of Brookfield Renewable’s income (or loss) from a particular source will be treated as if it were income (or loss) of the Resident Holder from that source, and any provisions of the Tax Act applicable to that type of income (or loss) will apply to the Resident Holder. Brookfield Renewable will invest in limited partnership units of BRELP. In computing Brookfield Renewable’s income (or loss) under the Tax Act, BRELP will itself be deemed to be a separate person resident in Canada which computes its income (or loss) and allocates to its partners their respective share of such income (or loss). Accordingly, the source and character of amounts included in (or deducted from) the income of Resident Holders on account of income (or loss) earned by BRELP generally will be determined by reference to the source and character of such amounts when earned by BRELP.

The characterization by the CRA of gains realized by Brookfield Renewable or BRELP on the disposition of investments as either capital gains or income gains will depend largely on factual considerations, and no conclusions are expressed in this Form 20-F.

 

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A Resident Holder’s share of taxable dividends received or considered to be received by Brookfield Renewable in a fiscal year from a corporation resident in Canada will be treated as a dividend received by the Resident Holder and will be subject to the normal rules in the Tax Act applicable to such dividends, including the enhanced gross-up and dividend tax credit for “eligible dividends” (as defined in the Tax Act) when the dividend received is designated as an “eligible dividend”.

Foreign taxes paid by Brookfield Renewable or BRELP and taxes withheld at source on amounts paid or credited to Brookfield Renewable or BRELP (other than for the account of a particular LP Unitholder) will be allocated pursuant to the governing partnership agreement. Each Resident Holder’s share of the “business-income tax” and “non-business-income tax” paid to the government of a foreign country for a year will be creditable against its Canadian federal income tax liability to the extent permitted by the detailed foreign tax credit rules contained in the Tax Act. Although the foreign tax credit provisions are designed to avoid double taxation, the maximum credit is limited. Because of this, and because of timing differences in recognition of expenses and income and other factors, the foreign tax credit provisions may not provide a full foreign tax credit for the “business-income tax” and “non-buisness-income tax” paid by Brookfield Renewable or BRELP to the government of a foreign country. Under the Foreign Tax Credit Generator Proposals, the foreign “business-income tax” or “non-business-income tax” allocated to a Resident Holder for the purpose of determining such Resident Holder’s foreign tax credit for any taxation year may be limited in certain circumstances, including where a Resident Holder’s share of Brookfield Renewable’s income under the income tax laws of any country (other than Canada) under whose laws any income of Brookfield Renewable is subject to income taxation (the “ Relevant Foreign Tax Law ”) is less than the Resident Holder’s share of such income for purposes of the Tax Act. For this purpose, a Resident Holder is not considered to have a lesser direct or indirect share of the income of Brookfield Renewable or BRELP under the Relevant Foreign Tax Law than for the purposes of the Tax Act solely because, among other reasons, of a difference between the Relevant Foreign Tax Law and the Tax Act in the manner of computing the income of Brookfield Renewable or BRELP or in the manner of allocating the income of Brookfield Renewable or BRELP because of the admission or withdrawal of a partner. No assurance can be given that the Foreign Tax Credit Generator Proposals will not apply to any Resident Holder. If the Foreign Tax Credit Generator Proposals apply, the allocation to a Resident Holder of foreign “business-income tax” or “non-business-income tax” paid by Brookfield Renewable or BRELP, and therefore such Resident Holder’s foreign tax credits, will be limited.

Brookfield Renewable and BRELP will be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest exempt from Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to BRELP will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA’s administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and entitlement to the treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to BRELP, the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through BRELP and Brookfield Renewable to the residency of Brookfield Renewable’s partners (including partners who are residents of Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to BRELP. However, there can be no assurance that the CRA would apply its administrative practice in this context. Under the Treaty, a Canadian-resident payer is required in certain circumstances to look-through fiscally transparent partnerships, such as Brookfield Renewable and BRELP, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty. Under the Amended and Restated Limited Partnership Agreement of BREP, the amount of any taxes withheld or paid by Brookfield Renewable, BRELP or the Holding Entities in respect of our LP Units may be treated either as a distribution to our LP Unitholders or as a general expense of Brookfield Renewable, as determined by the Managing General Partner in its sole discretion. However, the Managing General Partner’s current intention is to treat all such amounts as a distribution to our LP Unitholders.

If Brookfield Renewable incurs losses for tax purposes, each Resident Holder will, subject to the REOP Proposals (discussed below), be entitled to deduct in the computation of income for tax purposes the Resident Holder’s pro rata share of any net losses for tax purposes of Brookfield Renewable for its fiscal year to the extent that the Resident Holder’s investment is “at-risk” within the meaning of the Tax Act. The Tax Act contains “at-risk rules” which may, in certain circumstances, restrict the deduction of a limited partner’s share of any losses of a limited partnership. The Managing General Partner and the BRELP General Partner do not anticipate that Brookfield Renewable or BRELP will incur losses but no assurance can be given in this regard. Accordingly, Resident Holders should consult their own tax advisors for specific advice with respect to the potential application of the “at-risk rules”.

On October 31, 2003, the Department of Finance (Canada) released the REOP Proposals for public comment. Under the REOP Proposals, a taxpayer would be considered to have a loss from a source that is a business or property for a taxation year only if, in that year, it is reasonable to assume that the taxpayer will realize a cumulative profit (excluding capital gains or losses) from the business or property during the period that the business is carried on or that the property is held. In general, these proposals may deny the realization of losses by Resident Holders from their investment in Brookfield Renewable in a particular taxation year, if, in the year the loss is claimed, it is not reasonable to expect that an overall cumulative profit would be earned from the investment in Brookfield Renewable for the period in which the Resident Holder has held and can reasonably be expected to hold the investment. The Managing General Partner and the BRELP General Partner do not anticipate that the activities of Brookfield Renewable or BRELP will, in and of themselves, generate losses, but no assurance can be given in this regard. However, Resident Holders may incur expenses in connection with an acquisition of our LP Units that could result in a loss that could be affected by the REOP Proposals. As part of the 2005 Canadian federal budget, the Minister announced that an alternative proposal to reflect the REOP Proposals would be released for comment at an early opportunity. No such alternative proposal has been released to date. There can be no assurance that such alternative proposal will not adversely affect Resident Holders, or that any revised proposal may not differ significantly from the REOP Proposals described in this Form 20-F.

 

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On March 4, 2010, the Minister announced as part of the 2010 Canadian federal budget that the outstanding Tax Proposals regarding investments in “foreign investment entities” would be replaced with revised Tax Proposals under which the existing rules in section 94.1 of the Tax Act relating to investments in “offshore investment fund property” would remain in place subject to certain limited enhancements. Legislation to implement the revised Tax Proposals is contained in Bill C-48, which is currently proceeding through the legislative process. Section 94.1 of the Tax Act contains rules relating to investments by a taxpayer in Non-Resident Entities that could, in certain circumstances, cause income to be imputed to Resident Holders, either directly or by way of allocation of such income imputed to Brookfield Renewable or BRELP. These rules would apply if it is reasonable to conclude, having regard to all the circumstances, that one of the main reasons for the Resident Holder, Brookfield Renewable or BRELP acquiring, holding or having an investment in a Non-Resident Entity is to derive a benefit from portfolio investments in certain assets from which the Non-Resident Entity may reasonably be considered to derive its value in such a manner that taxes under the Tax Act on income, profits and gains from such assets for any year are significantly less than they would have been if such income, profits and gains had been earned directly. In determining whether this is the case, section 94.1 of the Tax Act provides that consideration must be given to, among other factors, the extent to which the income, profits and gains for any fiscal period are distributed in that or the immediately following fiscal period. No assurance can be given that section 94.1 of the Tax Act as proposed to be amended will not apply to a Resident Holder, Brookfield Renewable or BRELP. If these rules apply to a Resident Holder, Brookfield Renewable or BRELP, income, determined by reference to a prescribed rate of interest applied to the “designated cost”, as defined in section 94.1 of the Tax Act, of the interest in the Non-Resident Entity, will be imputed directly to the Resident Holder or to Brookfield Renewable or BRELP and allocated to the Resident Holder in accordance with the rules in section 94.1 of the Tax Act. The rules in section 94.1 of the Tax Act are complex and Resident Holders should consult their own tax advisors regarding the application of these rules to them in their particular circumstances.

Any Non-Resident Subsidiaries in which BRELP directly invests are expected to be CFAs of BRELP. Dividends paid to BRELP by a CFA of BRELP will be included in computing the income of BRELP. To the extent that any CFA of BRELP or any Indirect CFA earns income that is characterized as FAPI in a particular taxation year of the CFA or Indirect CFA, the FAPI allocable to BRELP under the rules in the Tax Act must be included in computing the income of BRELP for Canadian federal income tax purposes for the fiscal period of BRELP in which the taxation year of that CFA or Indirect CFA ends, whether or not BRELP actually receives a distribution of that FAPI. Brookfield Renewable will include its share of such FAPI of BRELP in computing its income for Canadian federal income tax purposes and Resident Holders will be required to include their proportionate share of such FAPI allocated from Brookfield Renewable in computing their income for Canadian federal income tax purposes. As a result, Resident Holders may be required to include amounts in their income even though they have not and may not receive an actual cash distribution of such amounts. If an amount of FAPI is included in computing the income of BRELP for Canadian federal income tax purposes, an amount may be deductible in respect of the “foreign accrual tax” applicable to the FAPI. Any amount of FAPI included in income net of the amount of any deduction in respect of “foreign accrual tax” will increase the adjusted cost base to BRELP of its shares of the particular CFA in respect of which the FAPI was included. At such time as BRELP receives a dividend of this type of income that was previously included in BRELP’s income as FAPI, such dividend will, under the Tax Proposals in Bill C-48 (which is currently proceeding through the legislative process) effectively not be included in computing the income of BRELP and there will be a corresponding reduction in the adjusted cost base to BRELP of the particular CFA shares. Under the Foreign Tax Credit Generator Proposals, the “foreign accrual tax” applicable to a particular amount of FAPI included in BRELP’s income in respect of a particular CFA of BRELP may be limited in certain specified circumstances, including where the direct or indirect share of the income of any member of BRELP (which is deemed for this purpose to include a Resident Holder that is a person resident in Canada or a “foreign affiliate” of such a person is, under a Relevant Foreign Tax Law, less than such member’s share of such income for purposes of the Tax Act. No assurance can be given that the Foreign Tax Credit Generator Proposals will not apply to BRELP. For this purpose, a Resident Holder is not considered to have a lesser direct or indirect share of the income of BRELP under the Relevant Foreign Tax Law than for purposes of the Tax Act solely because, among other reasons, of a difference between the Relevant Foreign Tax Law and the Tax Act in the manner of computing the income of BRELP or in the manner of allocating the income of BRELP because of the admission or withdrawal of a partner. If the Foreign Tax Credit Generator Proposals apply, the “foreign accrual tax” applicable to a particular amount of FAPI included in BRELP’s income in respect of a particular “foreign affiliate” of BRELP will be limited.

Disposition of LP Units

The disposition by a Resident Holder of an LP Unit will result in the realization of a capital gain (or capital loss) by such Resident Holder in the amount, if any, by which the proceeds of disposition of the LP Unit, less any reasonable costs of disposition, exceed (or are exceeded by) the adjusted cost base of such LP Unit. In general, the adjusted cost base of a Resident Holder’s LP Units will be equal to: (i) the actual cost of our LP Units (excluding any portion thereof financed with limited recourse indebtedness); plus (ii) the pro rata share of Brookfield Renewable’s income allocated to the Resident Holder for Brookfield Renewable’s fiscal years ending before the relevant time; less (iii) the aggregate of the pro rata share of Brookfield Renewable’s losses allocated to the Resident Holder (other than losses which cannot be deducted because they exceed the Resident Holder’s “at-risk” amount) for Brookfield Renewable’s fiscal years ending before the relevant time; and less (iv) the Resident Holder’s distributions received from Brookfield Renewable before the relevant time. The adjusted cost base of each of our LP Units will be subject to the averaging provisions contained in the Tax Act.

 

 

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Where a Resident Holder disposes of all of its LP Units, it will no longer be a partner of Brookfield Renewable. If, however, a Resident Holder is entitled to receive a distribution from Brookfield Renewable after the disposition of all such LP Units, then the Resident Holder will be deemed to dispose of our LP Units at the later of: (i) the end of Brookfield Renewable’s fiscal year during which the disposition occurred; and (ii) the date of the last distribution made by Brookfield Renewable to which the Resident Holder was entitled. Pursuant to Tax Proposals contained in Bill C-48, which is currently proceeding through the legislative process, the pro rata share of Brookfield Renewable’s income (or loss) for tax purposes for a particular fiscal year which is allocated to a Resident Holder who has ceased to be a partner will generally be added (or deducted) in the computation of the adjusted cost base of the Resident Holder’s LP Units immediately prior to the time of the disposition. These rules are complex and Resident Holders should consult their own tax advisors for advice with respect to the specific tax consequences to them of disposing of our LP Units.

A Resident Holder will realize a deemed capital gain if, and to the extent that, the adjusted cost base of the Resident Holder’s LP Units is negative at the end of any fiscal year of Brookfield Renewable. In such a case, the adjusted cost base of the Resident Holder’s LP Units will be nil at the beginning of Brookfield Renewable’s next fiscal year.

Taxation of Capital Gains and Capital Losses

In general, one-half of a capital gain realized by a Resident Holder must be included in computing such Resident Holder’s income as a taxable capital gain. One-half of a capital loss is deducted as an allowable capital loss against taxable capital gains realized in the year and any remainder may be deducted against net taxable capital gains in any of the three years preceding the year or any year following the year to the extent and under the circumstances described in the Tax Act. Special rules in the Tax Act may apply to disallow the one-half treatment on all or a portion of a capital gain realized on a disposition of our LP Units to a tax-exempt person or a non-resident person. Resident Holders contemplating such a disposition should consult their own tax advisors in this regard.

A Resident Holder that is throughout the relevant taxation year a “Canadian-controlled private corporation” (as defined in the Tax Act) may be liable to pay an additional refundable tax of 6  2 / 3 % on its “aggregate investment income” (as defined in the Tax Act) for the year, which is defined to include taxable capital gains.

Eligibility for Investment

Provided that our LP Units are listed on a “designated stock exchange”, which currently includes the TSX and the NYSE, our LP Units will be “qualified investments” under the Tax Act for a trust governed by an RRSP, deferred profit sharing plan, RRIF, registered education savings plan, registered disability savings plan, and a TFSA. However, there can be no assurance that tax laws relating to qualified investments will not change. Taxes may be imposed in respect of the acquisition or holding of non-qualified investments by such registered plans and certain other taxpayers and with respect to the acquisition or holding of “prohibited investments” by a TFSA or an RRSP or RRIF.

Notwithstanding the foregoing, a holder of a TFSA or an annuitant under an RRSP or RRIF, as the case may be, will be subject to a penalty tax if our LP Units held in the TFSA, RRSP or RRIF are a “prohibited investment” as defined in the Tax Act for the TFSA, RRSP or RRIF, as the case may be. Generally, our LP Units will not be a “prohibited investment” if the holder of the TFSA or the annuitant under the RRSP or RRIF, as applicable, (i) deals at arm’s length with Brookfield Renewable for purposes of the Tax Act and (ii) under Tax Proposals announced by the Minister on December 21, 2012, does not have a “significant interest” as defined in the Tax Act in Brookfield Renewable. Prospective holders who intend to hold our LP Units in a TFSA, RRSP or RRIF should consult with their own tax advisors regarding the application of the foregoing prohibited investment rules having regard to their particular circumstances.

Alternative Minimum Tax

Resident Holders that are individuals or trusts may be subject to the alternative minimum tax rules. Such Resident Holders should consult their own tax advisors.

Holders Not Resident in Canada

The following portion of the summary is generally applicable to a Holder who, for purposes of the Tax Act and at all relevant times, is not, and is not deemed to be, resident in Canada and who does not use or hold and is not deemed to use or hold its LP Units in connection with a business carried on in Canada (a “ Non-Resident Holder ”).

 

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The following portion of the summary assumes that (i) our LP Units are not and will not, at any relevant time, constitute “taxable Canadian property” of any Non-Resident Holder and (ii) Brookfield Renewable and BRELP will not dispose of property that is “taxable Canadian property”. “Taxable Canadian property” includes, but is not limited to, property that is used or held in a business carried on in Canada and shares of corporations that are not listed on a “designated stock exchange” if more than 50% of the fair market value of the shares is derived from certain Canadian properties during the 60-month period immediately preceding the particular time. In general, our LP Units will not constitute “taxable Canadian property” of any Non-Resident Holder at a particular time, unless (a) at any time during the 60-month period immediately preceding the particular time, more than 50% of the fair market value of our LP Units was derived, directly or indirectly (under Tax Proposals contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), from one or any combination of (i) real or immovable property situated in Canada, (ii) “Canadian resource property”, (iii) “timber resource property”, and (iv) options in respect of, or interests in, or for civil law rights in, such property, whether or not such property exists, or (b) our LP Units are otherwise deemed to be “taxable Canadian property”. Since Brookfield Renewable’s assets will consist principally of units of BRELP, our LP Units would generally be “taxable Canadian property” at a particular time if the units of BRELP held by Brookfield Renewable derived, directly or indirectly (under Tax Proposals contained in Bill C-48, which is currently proceeding through the legislative process, excluding through a corporation, partnership or trust, the shares or interests in which were not themselves “taxable Canadian property”), more than 50% of their fair market value from properties described in (i) to (iv) above, at any time in the 60-month period preceding the particular time. The Managing General Partner and the BRELP General Partner do not expect our LP Units to be “taxable Canadian property” of any Non-Resident Holder and they do not expect Brookfield Renewable or BRELP to dispose of “taxable Canadian property”. However, no assurance can be given in these regards. See Item 3.D “Risk Factors — Risks Related to Taxation — Canada”.

Special rules, which are not discussed in this summary, may apply to a Non-Resident Holder that is an insurer carrying on business in Canada and elsewhere.

Taxation of Income or Loss

A Non-Resident Holder will not be subject to Canadian federal income tax under Part I of the Tax Act on its share of income from a business carried on by Brookfield Renewable (or BRELP) outside Canada or the non-business income earned by Brookfield Renewable (or BRELP) from sources in Canada. However, a Non- Resident Holder may be subject to Canadian federal withholding tax under Part XIII of the Tax Act, as described below. The Managing General Partner and the BRELP General Partner intend to organize and conduct the affairs of Brookfield Renewable and BRELP, to the extent possible, such that Non-Resident Holders should not be considered to be carrying on business in Canada solely by virtue of holding our LP Units. However, no assurance can be given in this regard.

Brookfield Renewable and BRELP will be deemed to be a non-resident person in respect of certain amounts paid or credited or deemed to be paid or credited to them by a person resident or deemed to be resident in Canada, including dividends or interest. Dividends or interest (other than interest exempt from Canadian federal withholding tax) paid or deemed to be paid by a person resident or deemed to be resident in Canada to BRELP will be subject to withholding tax under Part XIII of the Tax Act at the rate of 25%. However, the CRA’s administrative practice in similar circumstances is to permit the rate of Canadian federal withholding tax applicable to such payments to be computed by looking through the partnership and taking into account the residency of the partners (including partners who are resident in Canada) and any reduced rates of Canadian federal withholding tax that any non-resident partners may be entitled to under an applicable income tax treaty or convention, provided that the residency status and entitlement to the treaty benefits can be established. In determining the rate of Canadian federal withholding tax applicable to amounts paid by the Holding Entities to BRELP, the Managing General Partner and the BRELP General Partner expect the Holding Entities to look-through BRELP and Brookfield Renewable to the residency of Brookfield Renewable’s partners (including partners who are residents of Canada) and to take into account any reduced rates of Canadian federal withholding tax that non-resident partners may be entitled to under an applicable income tax treaty or convention in order to determine the appropriate amount of Canadian federal withholding tax to withhold from dividends or interest paid to BRELP. However, there can be no assurance that the CRA would apply its administrative practice in this context. Under the Treaty, a Canadian-resident payer is required in certain circumstances to look through fiscally transparent partnerships, such as Brookfield Renewable and BRELP, to the residency and Treaty entitlements of their partners and take into account the reduced rates of Canadian federal withholding tax that such partners may be entitled to under the Treaty. Under the Amended and Restated Limited Partnership Agreement of Brookfield Renewable, the amount of any taxes withheld or paid by Brookfield Renewable, BRELP or the Holding Entities in respect of our LP Units may be treated either as a distribution to our LP Unitholders or as a general expense of Brookfield Renewable, as determined by the Managing General Partner in its sole discretion. However, the Managing General Partner’s current intention is to treat all such amounts as a distribution to our LP Unitholders.

Bermuda Tax Considerations

As a Bermuda exempted limited partnership and under current Bermuda law, neither Brookfield Renewable nor BRELP is subject to tax on profits, income or dividends, nor is there any capital gains tax, estate duty or death duty in Bermuda.

Furthermore, each of Brookfield Renewable and BRELP has received an assurance from the Minister of Finance of Bermuda under the Exempted Undertakings Tax Protection Act 1966 (as amended), that in the event that Bermuda enacts any legislation

 

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imposing tax computed on profits, income, any capital asset, gain or appreciation or any tax in the nature of estate duty or inheritance tax, each of Brookfield Renewable and BRELP and none of its operations or its shares, debentures or other obligations shall be exempt from the imposition of such tax until 31 March 2035, provided that such exemption shall not prevent the application of any tax payable in accordance with the provisions of the Land Tax Act, 1967 or otherwise payable in relation to land in Bermuda leased to Brookfield Renewable or BRELP.

 

  10.F

DIVIDENDS AND PAYING AGENTS

Distribution Policy

We believe our high-quality assets and PPA profile will provide Brookfield Renewable with stable and predictable annual cash flow to fund our distributions, which we expect will be at an annual level of $1.45 per LP Unit, commencing with Brookfield Renewable’s quarterly distribution paid on April 30, 2013. The declaration and payment of distributions are subject to the discretion of the board of directors of the Managing General Partner. Distributions will be paid quarterly on the last business day of January, April, July and October of each year, to LP Unitholders of record on the last day of December, March, June and September, respectively. The amount of any distribution payable by us is always at the discretion of the board of directors of the Managing General Partner and will be evaluated periodically, and may be revised subject to business circumstances and expected capital requirements depending on, among other things, our earnings, financial requirements for our operations, growth opportunities, the satisfaction of applicable solvency tests for the declaration and payment of distributions and other conditions existing from time to time (see Item 10.B “Memorandum and Articles of Association — Description of Our LP Units and the Amended and Restated Limited Partnership Agreement of BREP — Distributions”). We expect to have a payout ratio of approximately 60-70% of funds from operations, allowing us to reinvest surplus cash flow in attractive and accretive opportunities in the renewable power sector and position us to grow our distributions per LP Unit over time. We are pursuing a long-term distribution growth rate target in the range of 3% to 5% annually.

Pursuant to the terms of the Preference Share Guarantees, if the declaration or payment of dividends on the Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares or Series 6 Shares is in arrears, Brookfield Renewable will not make distributions on our LP Units.

In December 2011, Brookfield Renewable declared its first cash distribution of $0.3375 ($1.35 annually) per LP Unit for the fourth quarter of 2011. The distribution was paid on January 31, 2012 to LP Unitholders of record on December 31, 2011. Brookfield Renewable also declared first, second, third and fourth quarter distributions for fiscal 2012 with the first, second and third quarter distributions each of $0.345 per LP Unit having been paid on April 30, 2012 to LP Unitholders of record on March 31, 2012, on July 31, 2012 to LP Unitholders of record on June 30, 2012, and on October 31, 2012 to LP Unitholders of record on September 30, 2012, respectively. The fourth quarter distribution of $0.345 per LP Unit was paid on January 31, 2013 to LP Unitholders of record on December 31, 2012. Brookfield Renewable also declared first quarter distributions for fiscal 2013 in the amount of $0.3625 per LP Unit paid on April 30, 2013 to LP Unitholders of record on March 31, 2013. We intend to continue to operate as a growth-oriented entity with a focus on increasing the amount of cash available for distributions on each LP Unit.

Distributions paid by the Fund from January 1, 2008 to completion of the Combination on November 28, 2011 were C$1.25 per trust unit in 2009, C$1.29 per trust unit in 2010, and C$0.975 per trust unit in 2011. In 2011, the Fund made distributions only in respect of the first three quarters as the Fund was wound up on November 28, 2011.

Distribution Reinvestment Plan

In February 2012, Brookfield Renewable adopted a DRIP for LP Unitholders who are residents of Canada. Subject to regulatory approval and U.S. securities law registration requirements, we may in the future expand our DRIP to include LP Unitholders resident in the United States. LP Unitholders who are not residents of Canada or the United States may participate in our DRIP provided that there are not any laws or governmental regulations that prohibit them from participating in our DRIP. The following is a summary description of the principal terms of our DRIP.

Pursuant to our DRIP, Canadian holders of our LP Units are able to elect to have distributions paid on our LP Units held by them automatically reinvested in additional LP Units to be held for the account of the LP Unitholder in accordance with the terms of our DRIP.

Distributions due to DRIP participants will be paid to the plan agent, for the benefit of the DRIP participants. If a DRIP participant has elected to have his or her distributions automatically reinvested, or applied, on behalf of such DRIP participant, to the purchase of additional LP Units, such purchases will be made from Brookfield Renewable on the distribution date at the Market Price.

              As soon as reasonably practicable after each distribution payment date, a statement of account will be mailed to each participant setting out the amount of the relevant cash distribution reinvested, the applicable Market Price, the number of LP Units purchased under our DRIP on the distribution payment date and the total number of LP Units, computed to four decimal places, held for the account of the participant under our DRIP (or, in the case of CDS participants, CDS will receive such statement on behalf of beneficial owners participating in our DRIP). While Brookfield Renewable will not issue fractional LP Units, a DRIP participant’s entitlement to LP Units purchased under our DRIP may include a fraction of an LP Unit and such fractional LP Units shall accumulate. A cash adjustment for any fractional LP Units will be paid by the plan agent upon the termination by a DRIP participant of his or her participation in our DRIP or upon termination of our DRIP. A registered holder may, at any time, obtain a DRS Statement for any number of whole LP Units held for the participant’s account under the DRIP by notifying the plan agent. DRS Statements for LP Units acquired under our DRIP will not be issued to participants unless specifically requested. Prior to pledging, selling or otherwise transferring LP Units held for a participant’s account (except for a sale of LP Units through the plan agent), a registered holder must request a DRS Statement be issued. The automatic reinvestment of distributions under our DRIP will not relieve participants of any income tax obligations applicable to such distributions. No brokerage commissions will be payable in connection with the purchase of our LP Units under our DRIP and all administrative costs will be borne by Brookfield Renewable.

LP Unitholders will be able to terminate their participation in our DRIP by providing, or by causing to be provided, notice to the plan agent. Such notice, if actually received by the plan agent no later than five business days prior to a record date, will have effect in respect of the distribution to be made as of such date. Thereafter, distributions to such LP Unitholders will be paid directly to the LP Unitholder. In addition, LP Unitholders may request that all or part of their LP Units held under the DRIP in cash be sold. When LP Units are sold through the plan agent, a holder will receive the proceeds less any handling charges and brokerage trading fees. Brookfield Renewable will be able to terminate our DRIP, in its sole discretion, upon notice to the DRIP participants and the plan agent, but such action will have no retroactive effect that would prejudice a participant’s interest. Brookfield Renewable will also be able to amend, modify or suspend our DRIP at any time in its sole discretion, provided that the plan agent gives written notice of that amendment, modification or suspension to our LP Unitholders, for any amendment, modification or suspension to our DRIP that in Brookfield Renewable’s opinion may materially prejudice participants.

BRELP has a corresponding distribution reinvestment plan in respect of distributions made to Brookfield Renewable and Brookfield. Brookfield Renewable does not intend to reinvest distributions it receives from BRELP in BRELP’s distribution reinvestment plan except to the extent that holders of our LP Units elect to reinvest distributions pursuant to our DRIP. Brookfield has advised Brookfield Renewable that it may from time-to-time reinvest distributions it receives from Brookfield Renewable or BRELP pursuant to our DRIP or BRELP’s distribution reinvestment plan. The limited partnership units of BRELP to be issued to Brookfield under the distribution reinvestment plan will become subject to the Redemption-Exchange Mechanism and may therefore result in Brookfield acquiring additional LP Units of Brookfield Renewable. See Item 10.B “Memorandum and Articles of Association — Description of the Amended and Restated Limited Partnership Agreement of BRELP — Redemption-Exchange Mechanism”.

BRP Equity

BRP Equity will pay dividends to the holders of its Series 1 Shares, Series 3 Shares, Series 5 Shares and Series 6 Shares and, if applicable, Series 2 Shares and Series 4 Shares, as and when declared by the board of directors of BRP Equity. BRP Equity’s Series 1 Shares, Series 2 Shares, Series 3 Shares, Series 4 Shares, Series 5 Shares and Series 6 Shares are guaranteed by Brookfield Renewable and the other Guarantors under the Preference Share Guarantees described under Item 10.B “Memorandum and Articles of Association — BRP Equity — Preference Share Guarantees”.

For the initial five-year period commencing on March 10, 2010 and ending on and including April 30, 2015, the holders of Series 1 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.3125 per share. The initial dividend of C$0.1834 per share was paid on April 30, 2010 and a total dividend of C$0.83965 per share was paid in 2010. A total dividend of C$1.3125 per share was paid in 2011. As of the date of this Form 20-F, BRP Equity has paid a total dividend of C$1.3125 per share in 2012.

For the initial seven-year period commencing on October 11, 2012 and ending on and including July 31, 2019, the holders of Series 3 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.10 per share. The initial dividend of C$0.3375 per share was paid on January 31, 2013.

The holders of Series 5 Shares and Series 6 Shares are entitled to receive fixed cumulative preferential cash dividends as and when declared by the board of directors of BRP Equity, payable quarterly on the last day of January, April, July and October in each year at an annual rate equal to C$1.25 per share. The initial dividend on the Series 5 Shares of C$0.3116 per share was declared by the board of directors of BRP Equity on February 6, 2013 and was paid to holders of the Series 5 Shares on April 30, 2013. The initial dividend on the Series 6 Shares of C$0.3116 per share was declared by the board of directors of BRP Equity on May 7, 2013 and will be paid to holders of the Series 6 Shares on July 31, 2013.

Paying Agent

Computershare Limited was appointed to act as paying agent for distributions by Brookfield Renewable in 2012.

 

  10.G

STATEMENT BY EXPERTS

The audited consolidated financial statements of Brookfield Renewable as at and for the years ended December 31, 2012 and 2011, appearing in this Form 20-F have been audited by Ernst & Young LLP, independent registered public accounting firm, and for the year ended December 31, 2010, by Deloitte LLP, independent registered chartered accountants, as set forth in their respective reports thereon appearing elsewhere in this Form 20-F, and are included in reliance upon such reports given on the authority of such firms as experts in accounting and auditing.

 

  10.H

DOCUMENTS ON DISPLAY

Any statement in this Form 20-F about any of our contracts or other documents is not necessarily complete. If the contract or document is filed as an exhibit to this Form 20-F the contract or document is deemed to modify the description contained in this Form 20-F. You must review the exhibits themselves for a complete description of the contract or document.

Brookfield Asset Management is subject to the information filing requirements of the Exchange Act, and accordingly is required to file periodic reports and other information with the SEC. As a foreign private issuer under the SEC’s regulations, we will file annual reports on a Form 20-F and other reports on Form 6-K. The information disclosed in our reports may be less extensive than that required to be disclosed in annual and quarterly reports on Forms 10-K and 10-Q required to be filed with the SEC by U.S. issuers. Moreover, as a foreign private issuer, we will not be subject to the proxy requirements under Section 14 of the Exchange Act, and our directors and principal shareholders are not subject to the insider short swing profit reporting and recovery rules under Section 16 of the Exchange Act.

              The contracts and other documents referred to in this Form 20-F, and our and Brookfield Asset Management’s SEC filings are and will be available at the SEC’s website at www.sec.gov, respectively. You may also read and copy any document Brookfield Renewable or Brookfield Asset Management files with the SEC at the public reference facilities maintained by the SEC at SEC Headquarters, Public Reference Section, 100 F Street, N.E., Washington D.C. 20549. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330.

In addition, Brookfield Renewable and Brookfield Asset Management are required to file documents required by Canadian securities laws electronically with Canadian securities regulatory authorities and these filings are available on Brookfield Renewable’s or Brookfield Asset Management’s SEDAR profile at www.sedar.com. Written requests for such documents should be directed to our Corporate Secretary at 73 Front Street, 5 th Floor, Hamilton, HM 12, Bermuda.

 

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  10.I

SUBSIDIARY INFORMATION

Not applicable.

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the information contained in this Form 20-F under Item 5.A “Operating Results — Risk Management and Financial Instruments”.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

ITEM 15. CONTROLS AND PROCEDURES

Not applicable.

 

ITEM 16. [RESERVED]

 

  16A.

AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable.

 

  16B.

CODE OF ETHICS

Not applicable.

 

  16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable.

 

  16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEE

Not applicable.

 

  16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASER

Brookfield Renewable may from time-to-time, subject to applicable law, purchase our LP Units for cancellation in the open market, provided that any necessary approval has been obtained. Brookfield has also advised our partnership that it may from time-to-time, subject to applicable law, purchase our LP Units in the market without making an offer to all LP Unitholders.

 

  16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Each of BRPI and the Fund appointed Ernst & Young LLP to replace Deloitte LLP as its independent registered public accounting firm for the fiscal year ended December 31, 2011. On March 29, 2011, BRPI’s Audit Committee and Board of Directors and the Fund’s Audit Committee and Board of Trustees considered and approved the decision not to propose Deloitte LLP for re-appointment and to appoint Ernst & Young LLP as the successor auditor.

Deloitte LLP’s audit reports regarding the financial statements of Brookfield Renewable, BRPI, “Brookfield’s renewable power division” and the Fund for the fiscal years ended December 31, 2010 and 2009 did not contain any adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope or accounting principles. For the fiscal years ended December 31, 2010 and 2009, none of Brookfield Renewable, BRPI, “Brookfield’s renewable power division” or the Fund had any disagreement(s) with Deloitte LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreement(s), if not resolved to Deloitte LLP’s satisfaction, would have caused them to make reference to the subject matter of the disagreement(s) in connection with their audit reports.

Ernst & Young LLP has acted as the independent auditor of Brookfield Renewable since its inception. During the fiscal years ended December 31, 2010 and 2009 and the subsequent interim period prior to March 29, 2011, none of “Brookfield’s renewable power division” the Fund, or anyone on their behalf, consulted with Ernst & Young LLP with respect to either a) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of Brookfield Renewable, “Brookfield’s renewable power division” or the Fund , and neither a written report nor oral advice was provided to Brookfield Renewable, “Brookfield’s renewable power division” or the Fund that Ernst & Young LLP concluded was an important factor considered by Brookfield Renewable, “Brookfield’s renewable power division” or the Fund in reaching a decision as to any accounting, auditing or financial reporting issue or b) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).

 

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Brookfield Renewable provided Deloitte LLP with a copy of the foregoing disclosures and requested Deloitte LLP to furnish to Brookfield Renewable a letter addressed to the SEC stating whether Deloitte LLP agrees with such disclosures. A copy of such letter is attached as Exhibit 15.3 to this Form 20-F.

 

  16G.

CORPORATE GOVERNANCE

Not applicable.

PART III

 

ITEM 17 FINANCIAL STATEMENTS

Not applicable.

 

ITEM 18. FINANCIAL STATEMENTS

See the list of financial statements on page F-1, which are filed as part of this Form 20-F.

 

ITEM 19. EXHIBITS

 

Number    Description
1.1   

Certificate of Registration of Brookfield Renewable Energy Partners L.P., registered as of June 27, 2011.

1.2   

Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P., dated August 29, 2011.

1.3   

Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P., dated May 11, 2012.

1.4   

Certificate of Deposit of Supplementary Certificate of Brookfield Renewable Energy Partners L.P. dated December 21, 2011.

1.5   

Certificate of Deposit of Memorandum of Increase of Share Capital, dated November 23, 2011.

1.6   

Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy Partners L.P., dated November 20, 2011.

1.7   

Articles of Incorporation of Brookfield Renewable Partners Limited.

1.8   

Form 13 Amending the Registered Office of Brookfield Renewable Partners Limited.

1.9   

Bye-laws of Brookfield Renewable Partners Limited.

4.1   

Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated November 20, 2011.

4.2   

Master Services Agreement, dated November 28, 2011, by and among Brookfield Asset Management Inc., Brookfield Renewable Energy Partners L.P. and Brookfield Renewable Energy L.P., and others.

4.3   

Relationship Agreement, dated November 28, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., the Manager, and Brookfield Asset Management Inc., and others.

4.4   

Registration Rights Agreement, dated November 28, 2011, between Brookfield Renewable Energy Partners L.P. and Brookfield Asset Management Inc.

4.5   

Combination Agreement, dated September 12, 2011, by and among Brookfield Renewable Power Inc., Brookfield Renewable Power Fund, Brookfield Renewable Power Trust and Brookfield Renewable Energy Partners L.P.

4.6   

Amended and Restated Indenture, dated as of November 23, 2011, among Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC), BNY Trust Company of Canada and The Bank of New York Mellon.

4.7   

Amended and Restated Guarantee Indenture, dated November 25, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 1).

4.8   

Amended and Restated Guarantee Indenture, dated November 25, 2011, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 2).

4.9   

Guarantee, dated November 23, 2011, by Brookfield Renewable Energy L.P. and BNY Trust Company of Canada.

4.10   

Guarantee, dated November 23, 2011, by Brookfield Renewable Energy Partners L.P. and BNY Trust Company of Canada.

4.11   

Guarantee, dated November 23, 2011, by BRP Bermuda Holdings I Limited and BNY Trust Company of Canada.

4.12   

Guarantee, dated November 23, 2011, by Brookfield BRP Holdings (Canada) Inc. and BNY Trust Company of Canada.

4.13   

First Amendment to Amended and Restated Limited Partnership Agreement of Brookfield Renewable Energy L.P., dated May 4, 2012.

4.14   

Energy Revenue Agreement, dated November 23, 2011, between Brookfield Energy Marketing LP and Brookfield Power US Holding America Co.

4.15   

Amended and Restated Guarantee Indenture, dated October 11, 2012, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 3).

4.16   

Amended and Restated Guarantee Indenture, dated October 11, 2012, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 4).

4.17   

Amended and Restated Guarantee Indenture, dated January 29, 2013, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 5).

4.18    Guarantee Indenture, dated May 1, 2013, by and among Brookfield Renewable Energy Partners L.P., Brookfield Renewable Energy L.P., Brookfield BRP Holdings (Canada) Inc., BRP Bermuda Holdings I Limited, Brookfield Renewable Power Preferred Equity Inc., and Computershare Trust Company of Canada (Class A Preference Shares, Series 6).*
8.1   

List of all significant subsidiaries (as defined in §210-1.02(w) of Regulation S-X) of Brookfield Renewable Energy Partners L.P. (incorporated by reference to Item 4.C “Organizational Structure”).

15.1   

Consent of Deloitte LLP.*

15.2   

Consent of Ernst & Young LLP.*

16.1   

Letter dated May 16, 2013 of Deloitte LLP as required by Item 16F of Form 20-F.*

 

*

Filed herewith.

 

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SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing Amendment No. 6 to Form 20-F and that it has duly caused and authorized the undersigned to sign this Form 20-F on its behalf.

 

Dated: May 16, 2013

  BROOKFIELD RENEWABLE ENERGY PARTNERS L.P. by its general partner, Brookfield Renewable Partners Limited
 

By:

 

/s/ Sachin Shah

   

 Name:

 

  Sachin Shah

   

 Title:

 

  Chief Financial Officer of its manager,

  BRP Energy Group L.P.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

INDEX TO FINANCIAL STATEMENTS

 

   

Page

 

Unaudited Consolidated Financial Statements as at March 31, 2013 and for the Three Months Ended March 31, 2013 and 2012

    F-2   

Audited Consolidated Financial Statements as at and for the Years Ended December  31, 2012, 2011 and 2010

    F-25   

Unaudited Pro Forma Condensed Combined Statements of (Loss) Income for the Year Ended December  31, 2011

    F-93   

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

 

UNAUDITED

(MILLIONS)

   Notes      Mar 31
2013
    

Dec 31

2012

Restated
(See Note 2(c))

    

Jan 1

2012

Restated
(See Note 2(c))

 

Assets

           

Current assets

           

Cash and cash equivalents

      $ 227         $137         $225   

Restricted cash

        209         157         42   

Trade receivables and other current assets

        244         194         158   

Due from related parties

              45         34         253   
        725         522         678   

Due from related parties

        -         22         32   

Equity-accounted investments

     6         326         344         405   

Property, plant and equipment, at fair value

     7         16,813         15,658         13,945   

Intangible assets

        43         44         57   

Deferred income tax assets

     10         94         81         306   

Other long-term assets

        267         254         285   
              $ 18,268         $16,925         $15,708   

Liabilities

           

Current liabilities

           

Accounts payable and accrued liabilities

     8       $ 297         $207         $190   

Financial instrument liabilities

     4         97         113         99   

Due to related parties

        119         109         147   

Current portion of long-term debt

     9         174         532         650   
        687         961         1,086   

Financial instrument liabilities

     4         31         32         15   

Long-term debt and credit facilities

     9         7,056         5,587         4,869   

Deferred income tax liabilities

     10         2,395         2,349         2,367   

Other long-term liabilities

        193         188         187   
                10,362         9,117         8,524   

Equity

           

Non-controlling interests

           

Preferred equity

     11         659         500         241   

Participating non-controlling interests - in operating subsidiaries

     11         1,027         1,028         629   

General partnership interest in a holding subsidiary held by Brookfield

     11         62         63         64   

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

     11         3,041         3,070         3,089   

Limited partners’ equity

     12         3,117         3,147         3,161   
                7,906         7,808         7,184   
              $  18,268         $        16,925         $        15,708   

The accompanying notes are an integral part of these interim consolidated financial statements.

Approved on behalf of Brookfield Renewable Energy Partners L.P.:

 

LOGO     LOGO
Patricia Zuccotti     David Mann
Director     Director

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

UNAUDITED

THREE MONTHS ENDED MARCH 31

(MILLIONS, EXCEPT PER SHARE AMOUNTS)

   Notes      2013      2012
Restated
(See note 16)
 

Revenues

     5       $ 437         $426   

Other income

        2         5   

Direct operating costs

        (126)         (117)   

Management service costs

     5         (12)         (7)   

Interest expense – borrowings

        (102)         (110)   

Share of earnings from equity-accounted investments

     6         4         1   

Unrealized financial instrument gain (loss)

     4         16         (9)   

Depreciation and amortization

     7         (128)         (126)   

Other

     3         (2)         (13)   

Income before income taxes

        89         50   

Income tax expense

        

Current

     10         (3)         (6)   

Deferred

     10         (1)         (13)   
                (4)         (19)   

Net income

            $ 85         $31   

Net income (loss) attributable to:

        

Non-controlling interests

        

Preferred equity

     11       $ 7         $3   

Participating non-controlling interests - in operating subsidiaries

     11         16         (1)   

General partnership interest in a holding subsidiary held by Brookfield

     11         1         -   

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

     11         30         14   

Limited partners’ equity

     12         31         15   
              $ 85         $31   

Basic and diluted earnings per LP Unit

            $ 0.23         $        0.11   

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

UNAUDITED

THREE MONTHS ENDED MARCH 31

(MILLIONS)

   Notes      2013     

2012

Restated
(See Note 2 (c) and 16)

 

Net income

      $ 85         $          31   

Other comprehensive income that will not be reclassified to net income (loss)

        

Revaluations of property, plant and equipment

     6,7         -         (17)   

Actuarial losses on defined benefit plans

     2         -         (8)   

Deferred income taxes on above items

     10         -         14   

Total items that will not be reclassified to net income (loss)

              -         (11)   

Other comprehensive income that may be reclassified to net income (loss)

        

Financial instruments designated as cash-flow hedges

        

Gains (losses) arising during the period

     4         (3)         17   

Reclassification adjustments for amounts recognized in net income (loss)

     4         3         11   

Foreign currency translation

        (39)         130   

Deferred income taxes on above items

     10         -         (7)   

Total items that may be reclassified subsequently to net income (loss)

              (39)         151   

Other comprehensive income (loss)

        (39)         140   

Comprehensive income

            $ 46         $        171   

Comprehensive income attributable to:

        

Non-controlling interests

        

Preferred equity

     11       $ (9)         $9   

Participating non-controlling interests - in operating subsidiaries

     11         18         -   

General partnership interest in a holding subsidiary held by Brookfield

     11         -         1   

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

     11         18         79   

Limited partners’ equity

     12         19         82   
              $ 46         $        171   

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

              Accumulated other comprehensive income                                                  
UNAUDITED (MILLIONS)   Limited
partners’
equity
    Foreign
currency
translation
    Revaluation
surplus
    Actuarial
losses on
defined
benefit
plans
    Cash flow
hedges
    Total
limited
partners’
equity
    Preferred
equity
    Participating
non-controlling
interests - in
operating
subsidiaries
    General
partnership
interest in
a holding
subsidiary
held by
Brookfield
    Participating
non-controlling
interests - in a
holding subsidiary
- Redeemable /
Exchangeable
units held by
Brookfield
    Total
equity
 

Balance, as at January 1, 2012

  $ (9   $ 194      $ 3,015      $ -      $ (31   $ 3,169      $ 241      $ 629      $ 64      $ 3,097      $ 7,200   

Effect of retrospectively adopting IAS 19R

    -        -        -        (8     -        (8     -        -        -        (8     (16

Balance at January 1, 2012 (restated)

  $ (9   $ 194      $ 3,015      $ (8   $ (31   $ 3,161      $ 241      $ 629      $ 64      $ 3,089      $ 7,184   

Changes in period

                     

Net income (loss)

    15        -        -          -        15        3        (1     -        14        31   

Other comprehensive income (loss)

    -        59        5        (3     6        67        6        1        1        65        140   

Acquisitions

    -        -        -          -        -        -        129        -        -        129   

Distributions

    (45     -        -          -        (45     (3     -        (1     (44     (93

Other

    -        -        -                -        -        -        2        -        -        2   

Change in period

    (30     59        5        (3     6        37        6        131        -        35        209   

Balance, as at March 31, 2012 (restated)

  $ (39   $ 253      $ 3,020      $ (11   $ (25   $ 3,198      $ 247      $ 760      $ 64      $ 3,124      $ 7,393   

Changes in period

                     

Net income (loss)

    (50     -        -        -        -        (50     13        (39     (1     (49     (126

Other comprehensive income (loss)

    -        (128     265        -        -        137        1        13        3        133        287   

Shares issued

    -        -        -        -        -        -        252        -        -        -        252   

Acquisitions

    -        -        -        -        -        -        -        317        -        -        317   

Distributions

    (138     -        -        -        -        (138     (13     (24     (3     (135     (313

Other

    -        -        -        -        -        -        -        1        -        (3     (2

Change in period

    (188     (128     265        -        -        (51     253        268        (1     (54     415   

Balance, as at December 31, 2012 (restated)

  $ (227   $ 125      $ 3,285      $ (11   $ (25   $ 3,147      $ 500      $ 1,028      $ 63      $ 3,070      $ 7,808   

Balance, as at January 1, 2013

  $ (227   $ 125      $ 3,285      $ -      $ (25   $ 3,158      $ 500      $ 1,028      $ 63      $ 3,081      $ 7,830   

Effect of retrospectively adopting IAS 19R

    -        -        -        (11     -        (11     -        -        -        (11     (22

Balance as at January 1, 2013 (restated)

  $ (227   $ 125      $ 3,285      $ (11   $ (25   $ 3,147      $ 500      $ 1,028      $ 63      $ 3,070      $ 7,808   

Changes in period

                     

Net income

    31        -        -        -        -        31        7        16        1        30        85   

Other comprehensive income (loss)

    -        (12     -        -        -        (12     (16     2        (1     (12     (39

Shares issued

    -        -        -        -        -        -        175        -        -        -        175   

Acquisitions (note 3)

    14        -        (14     -        -        -        -        -        -        -        -   

Distributions

    (48     -        -        -        -        (48     (7     (62     (1     (47     (165

Contributions and other

    (1     -        -        -        -        (1     -        43        -        -        42   

Change in period

    (4     (12     (14     -        -        (30     159        (1     (1     (29     98   

Balance, as at March 31, 2013

  $ (231   $ 113      $ 3,271      $ (11   $ (25   $ 3,117      $ 659      $ 1,027      $ 62      $ 3,041      $ 7,906   

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

UNAUDITED

THREE MONTHS ENDED MARCH 31

(MILLIONS)

   Notes      2013      2012  

Operating activities

        

Net income

      $ 85       $ 31   

Adjustments for the following non-cash items:

        

Depreciation and amortization

     7         128         126   

Unrealized financial instrument (gain) loss

     4         (16)         9   

Share of earnings from equity accounted investments

     6         (4)         (1)   

Deferred income tax expense

     10         1         13   

Other non-cash items

        (2)         9   

Dividends received from equity-accounted investments

        3         -   

Net change in working capital balances

              6         17   
                201         204   

Financing activities

        

Long-term debt – borrowings

     9         1,112         574   

Long-term debt – repayments

     9         (1,007)         (664)   

Capital provided by participating non-controlling interests - in operating subsidiaries

        41         117   

Issuance of preferred equity

     11         169         -   

Distributions:

        

To participating non-controlling interests - in operating subsidiaries and preferred equity

     11         (69)         (3)   

To unitholders of Brookfield Renewable or BRELP

     11,12         (91)         (90)   
                155         (66)   

Investing activities

        

Acquisitions

     3         (228)         (162)   

Investment in:

        

Sustaining capital expenditures

        (8)         (12)   

Development and construction of renewable power generating assets

        (27)         (63)   

Due to related parties

        1         82   

Restricted cash and other

              (4)         (12)   
                (266)         (167)   

Foreign exchange gain on cash held in foreign currencies

              -         7   

Cash and cash equivalents

        

Increase (decrease)

        90         (22)   

Balance, beginning of period

              137         225   

Balance, end of period

            $ 227       $ 203   

Supplemental cash flow information:

        

Interest paid

      $ 39       $ 41   

Interest received

        2         6   

Income taxes paid

              14         6   

The accompanying notes are an integral part of these interim consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND DESCRIPTION OF THE BUSINESS

The business activities of Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”) consist of owning a portfolio of renewable power generating facilities in Canada, the United States and Brazil.

Brookfield Renewable is a publicly traded limited partnership established under the laws of Bermuda pursuant to an amended and restated limited partnership agreement dated November 20, 2011.

The registered office of Brookfield Renewable is 73 Front Street, Fifth Floor, Hamilton HM12, Bermuda.

The immediate parent of Brookfield Renewable is its general partner. The ultimate parent of Brookfield Renewable is Brookfield Asset Management Inc. (“Brookfield Asset Management”).

2.    BASIS OF PREPARATION AND CHANGES TO BROOKFIELD RENEWABLE’S ACCOUNTING POLICIES

(a) Statement of compliance

The interim consolidated financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended December 31, 2012, with the exception of the changes in accounting policy related to IAS 19, Employee Benefits .

Certain information and footnote disclosure normally included in the annual audited consolidated financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”) have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with Brookfield Renewable’s audited 2012 annual consolidated financial statements.

The interim consolidated financial statements are unaudited and reflect any adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary to a fair statement of results for the interim periods in accordance with IFRS.

The results reported in these interim consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for an entire year. Certain comparative figures have been reclassified to conform to the current year’s presentation.

These interim consolidated financial statements have been authorized for issuance by the Board of Directors of its general partner, Brookfield Renewable Partners Limited, on May 7, 2013.

All figures are presented in millions of United States (“U.S.”) dollars unless otherwise noted.

(b) Basis of preparation

The interim consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of property, plant and equipment and certain assets and liabilities which have been measured at fair value. Cost is recorded based on the fair value of the consideration given in exchange for assets.

Consolidation

These interim consolidated financial statements include the accounts of Brookfield Renewable and its subsidiaries, which are the entities over which Brookfield Renewable has control. An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Non-controlling interests in the equity of Brookfield Renewable’s subsidiaries are shown separately in equity in the consolidated balance sheets.

 

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(c) New standards, interpretations and amendments adopted by Brookfield Renewable

The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of Brookfield Renewable’s audited 2012 annual consolidated financial statements, except for the adoption of new standards and interpretations effective January 1, 2013.

The following new accounting standards applied or adopted had no material impact on the interim consolidated financial statements. Please see Note 2 (q) – Future changes in accounting policies in the audited consolidated financial statements for the year ended December 31, 2012.

 

   

IFRS 10, Consolidated Financial Statements,

 

   

IFRS 11, Joint Arrangements , and IAS 28, Investment in Associates and Joint Ventures,

 

   

IFRS 12, Disclosure of Interests in Other Entities,

 

   

IFRS 13, Fair Value Measurement, and

 

   

IAS 34, Interim financial reporting and segment information for total assets and liabilities

Brookfield Renewable applied, for the first time, certain standards and amendments that require restatement of previous financial statements. These include IAS 19 (Revised 2011), Employee Benefits , and amendments to IAS 1, Presentation of Financial Statements . The nature and the impact of the new standard/amendment are described below:

IAS 1 Presentation of Items of Other Comprehensive Income – Amendments to IAS 1

The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or recycled) to profit or loss at a future point in time (e.g., net gain on hedge of net investment, exchange differences on translation of foreign operations, net movement on cash flow hedges and net loss or gain on available-for-sale financial assets) now have to be presented separately from items that will never be reclassified (e.g., actuarial gains and losses on defined benefit plans and revaluation of power generating assets). The amendment affected presentation only and had no impact on Brookfield Renewable’s financial position or performance.

IAS 19 Employee Benefits (Revised 2011) (IAS 19R)

IAS 19R introduces amendments to the accounting for defined benefit plans, including the treatment of actuarial gains and losses that are now recognised in OCI and permanently excluded from profit and loss. Also, expected returns on plan assets are no longer recognised in profit or loss, instead there is a requirement to recognise interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation.

Brookfield Renewable assessed its accounting policy on the recognition of actuarial gains and losses from its defined benefit plans. Brookfield Renewable previously recognized the net cumulative unrecognised actuarial gains and losses, which exceeded 10% of the higher of the defined benefit obligation and the fair value of the plan assets.

 

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The adoption of IAS 19R, Employee Benefits , requires Brookfield Renewable to retroactively restate its consolidated financial statements. The following table summarizes these amounts:

 

      As at December 31, 2012           As at January 1, 2012  
(MILLIONS)   Previously
presented
    Adjustment     Restated           Previously
presented
    Adjustment     Restated  

Consolidated Balance Sheets:

               

Other long-term liabilities

  $ 157      $ 31      $ 188          $ 164      $ 23      $ 187   

Deferred income tax liabilities

    2,358        (9)        2,349            2,374        (7)        2,367   

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

    3,081        (11)        3,070            3,097        (8)        3,089   

Limited partners’ equity

    3,158        (11)        3,147            3,169        (8)        3,161   

Consolidated Statements of Changes in Equity:

               

Actuarial losses on defined benefit plans

  $ -      $ (11)      $ (11)             
 
For the three months ended March 31, 2012                          

Consolidated Statements of Comprehensive Income (Loss):

               

Actuarial losses on defined benefit plans

  $ -      $ (8)      $ (8)             

Deferred income taxes on above items, net

    5        2        7             

There was no impact to earnings per LP Unit.

(d) Future changes

There are no future changes to IFRS with potential impact on Brookfield Renewable other than the changes disclosed in the 2012 annual consolidated financial statements.

3.    BUSINESS COMBINATIONS

The following investments were accounted for using the acquisition method, and the results of operations have been included in the consolidated financial statements since the respective dates of acquisition.

Northeastern United States Hydroelectric Generation Assets

In March 2013, Brookfield Renewable acquired a 100% interest in a portfolio of hydroelectric generation facilities, located in New England. Total consideration paid of $57 million included $55 million in cash and $2 million related to the pre-closing payments and working capital adjustments. Holding and project level notes, with a face value of $700 million, were also assumed. The acquisition costs of $6 million were expensed as incurred. Upon the closing of a private fund sponsored by Brookfield Asset Management, up to 50% of the equity interest in the portfolio will be offered for transfer to non-Brookfield institutional partners.

California Wind Generation Assets

In August 2012, Brookfield Renewable acquired 16% of the outstanding common shares of Western Wind Energy Corp. (“Western Wind”) for a total cash consideration of $25 million.

On March 1, 2013, the Board of Directors were replaced by directors appointed by Brookfield Renewable and, as a result Brookfield Renewable began consolidating the operating results, cash flows and net assets of Western Wind. Further, Brookfield Renewable was required to re-measure its previously held 16% interest to fair value, and the net impact of this re-measurement was not material.

 

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On March 7, 2013, Brookfield Renewable increased its ownership to 93% of the outstanding common shares for additional cash consideration of $143 million. As more than 90% of the common shares are now held by Brookfield Renewable, it intends to acquire all of the remaining common shares on the same terms that the common shares were acquired under the Offer, for the purpose of Western Wind becoming a wholly-owned subsidiary. As at March 31, 2013, the fair value of the common shares that Brookfield Renewable intends to acquire is $15 million.

Canadian Hydroelectric Generation Asset

Brookfield Renewable acquired the remaining 50% interest, previously held by its partner, in a hydroelectric generation facility in Canada taking its total investment to 100% (the “Step Acquisition”).

The Step Acquisition included cash consideration of $32 million and the assumption of the partner’s portion of the non-recourse debt. Prior to the Step Acquisition, Brookfield Renewable’s financial interest amounted to $22 million. Brookfield Renewable re-measured its previously held 50% interest to fair value and reversed any amounts previously recorded in OCI. In addition, $30 million related to revaluation surplus on the initial 50% interest was reclassified within equity of which $14 million related to limited partners’ equity.

Purchase price allocations, at fair values, with respect to the acquisitions were as follows:

 

(MILLIONS)    Northeastern
United States
     California      Canada      Total  

Cash and cash equivalents

   $ -       $ 2       $ 6       $ 8   

Restricted cash

     32         8         -         40   

Other current assets

     12         9         9         30   

Property, plant and equipment

     721         444         213         1,378   

Other long-term assets

     22         30         -         52   

Current liabilities

     (10)         (26)         (29)         (65)   

Long-term debt

     (720)         (250)         (105)         (1,075)   

Other long-term liabilities

     -         (31)         (39)         (70)   

Non-controlling interests

     -         (68)         -         (68)   

Net assets acquired

   $ 57       $ 118       $ 55       $ 230   

The estimated fair values of the assets acquired and liabilities assumed are expected to be finalized within the next twelve months.

4. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

Risk Management

Brookfield Renewable’s activities expose it to a variety of financial risks, including market risk (i.e., commodity price risk, interest rate risk, and foreign currency risk), credit risk and liquidity risk. Brookfield Renewable uses financial instruments primarily to manage these risks.

There have been no material changes in exposure to these risks since the December 31, 2012 audited annual consolidated financial statements.

 

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Financial Instrument Disclosures

The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable willing parties who are under no compulsion to act.

Fair values determined using the valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those assumptions, management looks primarily to external readily observable market inputs such as interest rate yield curves, currency rates, and price, as applicable. The fair value of interest rate swap contracts, which form part of financing arrangements, is calculated by way of discounted cash flows, using market interest rates and applicable credit spreads.

Financial instruments measured at fair value are categorized into one of three hierarchy levels, described below. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities.

Level 1 – inputs are based on unadjusted quoted prices in active markets for identical assets and liabilities;

Level 2 – inputs, other than quoted prices in Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 – inputs for the asset or liability that are not based on observable market data.

The following table presents Brookfield Renewable’s financial assets and financial liabilities measured at fair value classified by the fair value hierarchy:

 

       Mar 31, 2013      Dec 31, 2012  
(MILLIONS)    Level 1      Level 2      Level 3      Total           

Cash and cash equivalents

   $ 227       $ -       $ -       $ 227       $ 137   

Restricted cash

     209         -            209         157   

Available-for-sale investments (1)

     -         -         -         -         26   

Energy derivative contracts

     1         (7)         -         (6)         (13)   

Interest rate swaps

     -         (122)         -         (122)         (132)   

Total

   $ 437       $ (129)       $  -       $ 308       $ 175   

 

(1)  

Available-for-sale investments represent an investment in securities of Western Wind and were included in Other long-term assets.

There were no transfers between levels during the three months ended March 31, 2013.

The aggregate amount of Brookfield Renewable’s financial instrument positions are as follows:

 

       Mar 31, 2013      Dec 31, 2012  
(MILLIONS)    Asset      Liabilities      Net Liabilities      Net Liabilities  

Energy derivative contracts

   $ 24       $ 30       $ 6       $ 13   

Interest rate swaps

     -         122         122         132   

Total

     24         152         128         145   

Less: current portion

     24         121         97         113   

Long-term portion

   $ -       $ 31       $ 31       $ 32   

 

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Energy derivative contracts

Brookfield Renewable has entered into long-term energy derivative contracts primarily to stabilize the price of gas purchases or eliminate the price risk on the sale of certain future power generation. Certain energy contracts are recorded in Brookfield Renewable’s interim consolidated financial statements at an amount equal to fair value, using quoted market prices or, in their absence, a valuation model using both internal and third-party evidence and forecasts.

For the three months ended March 31, 2013, unrealized gains of $9 million were recognized in the statement of income (loss) (2012: unrealized losses of $1 million).

Interest rate swaps

Brookfield Renewable has entered into interest rate swap contracts primarily to minimize exposure to interest rate fluctuations on its variable rate debt or to lock in interest rates on future debt refinancing. All interest rate swap contracts are recorded in the interim consolidated financial statements at an amount equal to fair value.

For the three months ended March 31, 2013, unrealized gains of $7 million were recognized in the statement of income (loss) (2012: unrealized gains of $3 million). For the three months ended March 31, 2013, unrealized losses of $3 million was recognized in OCI (2012: unrealized gains of $17 million).

For the three months ended March 31, 2013, gains of $3 million relating to cash flow hedges were reclassified from OCI to net income (loss) (2012: gains of $11 million).

 

5.

RELATED PARTY TRANSACTIONS

Brookfield Renewable’s related party transactions are recorded at the exchange amount. Brookfield Renewable’s related party transactions are primarily with Brookfield Asset Management and its subsidiaries.

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

 

(MILLIONS)    2013      2012  

Revenues

     

Purchase and revenue support agreements

   $ 103       $ 139   

Wind levelization agreement

     1         (2)   
     $ 104       $ 137   

Direct operating costs

     

Energy purchases

   $ (10)       $ (17)   

Energy marketing fee

     (5)         (5)   

Insurance services

     (6)         (4)   
     $ (21)       $ (26)   

Management service costs

   $ (12)       $ (7)   

 

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6.

EQUITY-ACCOUNTED INVESTMENTS

The following table presents the changes in Brookfield Renewable’s equity-accounted investments:

 

(MILLIONS)    Three months ended
Mar 31, 2013
     Year ended
Dec 31, 2012
 

Balance, beginning of period

   $ 344       $ 405   

Step acquisitions

     (22)         (63)   

Revaluation recognized through OCI

     -         16   

Share of net income (loss)

     4         (5)   

Other

     -         (9)   

Balance, end of period

   $ 326       $ 344   

The following table summarizes certain financial information of equity-accounted investments for the three months ended March 31:

 

(MILLIONS)    2013      2012  

Revenue

   $ 33       $ 23   

Net income

     7         3   

Share of net income

     

Cash earnings

     6         4   

Non-cash loss

     (2)         (3)   

 

7.

PROPERTY, PLANT AND EQUIPMENT, AT FAIR VALUE

The composition of the net book value of Brookfield Renewable’s property, plant and equipment, is presented in the following table:

 

(MILLIONS)    Hydroelectric      Wind energy      CWIP      Other (1)      Total  

As at December 31, 2012

   $ 12,947       $ 2,249       $ 392       $ 70       $ 15,658   

Foreign exchange

     (90)         (34)         (3)         (1)         (128)   

Additions (2)

     927         420         66         -         1,413   

Transfers

     123         (6)         (117)         -         -   

Disposals

     (4)         -         -         -         (4)   

Depreciation (3)

     (91)         (32)         -         (3)         (126)   

As at March 31, 2013

   $ 13,812       $ 2,597       $ 338       $ 66       $ 16,813   

 

(1)  

Included in “Other” gas-fired generating (“co-gen”) units.

(2)  

Includes acquisitions of $1,378 (Note 3).

(3)  

Assets not subject to depreciation include construction work in process (“CWIP”) and land.

 

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8.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The composition of accounts payable and accrued liabilities are as follows:

 

(MILLIONS)    Mar 31
2013
     Dec 31
2012
 

Operating accrued liabilities

   $ 119       $ 97   

Interest payable on corporate and subsidiary borrowings

     98         41   

Accounts payable

     31         23   

LP Unitholders’ distribution and preferred dividends payable

     39         34   

Other

     10         12   
     $ 297       $ 207   

 

9.

LONG-TERM DEBT AND CREDIT FACILITIES

The composition of debt obligations is presented in the following table:

 

       Mar 31, 2013      Dec 31, 2012  
     Weighted-average             Weighted-average         
(MILLIONS EXCEPT AS NOTED)   

Interest

rate (%)

    

Term

(years)

             

Interest

rate (%)

    

Term

(years)

          

Corporate borrowings

                 

Series 3 (CDN$200)

     5.3         5.6       $ 197         5.3         5.8       $ 202   

Series 4 (CDN$150)

     5.8         23.6         147         5.8         23.9         151   

Series 6 (CDN$300)

     6.1         3.7         295         6.1         3.9         302   

Series 7 (CDN$450)

     5.1         7.5         442         5.1         7.8         454   

Series 8 (CDN$400)

     4.8         8.9         393         4.8         9.1         403   
       5.3         8.5       $   1,474         5.3         8.7       $   1,512   

Subsidiary borrowings

                 

United States

     6.3         10.4       $ 2,945         6.4         11.4       $ 2,264   

Canada

     5.8         15.9         1,996         5.9         12.7         1,781   

Brazil

     7.5         11.1         288         8.5         9.7         348   
       6.2         12.6       $ 5,229         6.4         11.8       $ 4,393   

Credit facilities (1)

     1.5         3.6       $ 570         2.0         3.8       $ 268   

Total debt

         $ 7,273             $ 6,173   

Add: Unamortized premiums (2)

           16               -   

Less: Unamortized financing fees (2)

           (59)               (54)   

Less: Current portion

           (174)               (532)   
                       $ 7,056                         $ 5,587   

 

(1)  

Amounts are unsecured and revolving. Interest rate is at the London Interbank Offered Rate (“LIBOR”) plus 1.25% (2012: 1.75%).

(2)  

Unamortized premiums and unamortized financing fees are amortized to interest expense over the terms of the borrowing.

 

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Corporate borrowings

Corporate borrowings are obligations of a finance subsidiary of Brookfield Renewable (Note 13 – Subsidiary Public Issuers). The finance subsidiary may redeem some or all of the borrowings from time to time, pursuant to the terms of the indenture. The balance is payable upon maturity, and interest on corporate borrowings is paid semi-annually.

Subsidiary borrowings

Subsidiary borrowings are generally asset-specific, long-term, non-recourse borrowings denominated in the domestic currency of the subsidiary. Subsidiary borrowings in the United States and Canada consist of both fixed and floating interest rate debt. Brookfield Renewable uses interest rate swap agreements to minimize its exposure to floating interest rates. Subsidiary borrowings in Brazil consist of floating interest rates of TJLP, the Brazil National Bank for Economic Development’s long-term interest rate, or Interbank Deposit Certificate rate, plus a margin.

In February 2013, Brookfield Renewable refinanced indebtedness associated with a 166 MW Ontario wind facility through a C$450 million loan for a term of 18 years at 5.1%.

In February 2013, a subsidiary of Brookfield Renewable issued a $75 million floating rate credit facility maturing in 2015.

In March 2013, Brookfield Renewable refinanced indebtedness associated with a 51 MW Ontario wind facility through a C$130 million loan for a term of 19 years at 5.0%.

In March 2013, Brookfield Renewable purchased 88% of the $575 million in project level notes outstanding with respect to a recently acquired hydroelectric portfolio in Maine. Brookfield Renewable financed a portion of the tendered notes through a 24-month, bridge loan of up to $350 million. Subsequent to quarter end, Brookfield Renewable purchased $125 million of holding level notes (Note 17 – Subsequent Events).

As part of the acquisition of wind assets in California, Brookfield Renewable assumed an aggregate of $250 million in subsidiary borrowings, of which $200 million is subject to a fixed interest rate of 7.2% and matures in 2032.

With the Step Acquisition and the assumption of the other partners’ portion of the non-recourse debt, Brookfield Renewable increased subsidiary borrowings by $96 million. The debt matures in 2016 and bears a fixed interest rate of 6.5%.

Net repayments of $441 million made during the three months ended March 31, 2013 were primarily funded from proceeds of preferred shares issuance and drawings on credit facilities.

 

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Credit facilities

All facilities with unrelated parties have an expiry of October 31, 2016, subject to additional one-year extensions.

Brookfield Renewable and its subsidiaries issue letters of credit from its credit facilities for general corporate purposes, which include, but are not limited to, security deposits, performance bonds and guarantees for debt service reserve accounts.

 

(MILLIONS)    Mar 31
2013
     Dec 31
2012
 

Available revolving credit facilities

   $ 990       $ 990   

Drawings

     (570)         (268)   

Issued letters of credit

     (240)         (182)   

Unutilized revolving credit facilities

   $ 180       $ 540   

Net draws of $302 million were made during the three months ended March 31, 2013. The draws were primarily used to fund portfolio growth and repayment of subsidiary borrowings.

 

10.

INCOME TAXES

Brookfield Renewable’s effective income tax rate was 4.5% for the three months ended March 31, 2013 (2012: 38%). The effective tax rate is less than the statutory rate primarily due to rate differentials and non-controlling interests income not subject to tax.

 

11.

NON-CONTROLLING INTERESTS

Brookfield Renewable’s non-controlling interests are comprised of the following:

 

(MILLIONS)    Mar 31
2013
     Dec 31
2012
 

Preferred equity

   $ 659       $ 500   

Participating non-controlling interests - in operating subsidiaries

     1,027         1,028   

General partnership interest in a holding subsidiary held by Brookfield

     62         63   

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

     3,041         3,070   

Total

   $ 4,789       $ 4,661   

Preferred equity

In January 2013, Brookfield Renewable Power Preferred Equity Inc. (“BRP Equity”) Equity issued 7 million Series 5 perpetual preferred shares at a price of C$25 per share. The holders of the preferred shares are entitled to receive fixed cumulative dividends at an annual rate of C$1.25 per share, for a yield of 5%. Brookfield Renewable, Brookfield Renewable Energy L.P. (“BRELP”), and certain key holding company subsidiaries fully and unconditionally guarantee the payment of dividends on the preferred shares, the amount due on redemption, and the amounts due on the liquidation, dissolution or winding-up of BRP Equity.

For the three months ended March 31, 2013, dividends declared on the issued preferred shares were $7 million (2012: $3 million).

 

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As at March 31, 2013, none of the issued preferred shares have been redeemed.

Participating non-controlling interests – in operating subsidiaries

The net change in participating non-controlling interests – in operating entities is as follows:

 

(MILLIONS)    Brookfield
Americas
Infrastructure
Fund
     The Catalyst
Group
     Brascan
Energetica
     Other      Total  

As at December 31, 2011

   $ 380       $ 167       $ 74       $ 8       $ 629   

Net income (loss)

     (44)         2         2         -         (40)   

OCI

     24         (28)         (7)         25         14   

Acquisitions

     447         -         (9)         8         446   

Distributions

     -         (18)         (6)         -         (24)   

Other

     (1)         -         4         -         3   

As at December 31, 2012

   $ 806       $ 123       $ 58       $ 41       $ 1,028   

Net income

     8         8         -         -         16   

OCI

     3         -         -         (1)         2   

Acquisitions and contributions

     42         -         -         1         43   

Distributions

     (62)         -         -         -         (62)   

As at March 31, 2013

   $ 797       $ 131       $ 58       $ 41       $ 1,027   

Interests held by third parties

     75-80%         25%         20-30%         24-50%            

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. For the three months ended March 31, 2013, BRELP declared $1 million in distributions on general partnership units (2012: $1 million) and no incentive distributions have been paid since the formation of Brookfield Renewable.

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

Consolidated equity includes Redeemable/Exchangeable Partnership Units issued by BRELP. The Redeemable/Exchangeable Partnership Units are held 100% by Brookfield Asset Management, which at its discretion has the right to redeem these units for cash consideration after a mandatory holding period expiring on November 28, 2013. Since this redemption right is subject to Brookfield Renewable’s right, at its sole discretion, to satisfy the redemption request with LP Units of Brookfield Renewable, the Redeemable/Exchangeable Partnership Units are classified as equity in accordance with IAS 32, Financial Instruments: Presentation . Both the LP Units issued by Brookfield Renewable and the Redeemable/Exchangeable Partnership Units issued by its subsidiary BRELP have the same economic attributes in all respects, except for the redemption right described above. The Redeemable/Exchangeable Partnership Units participate in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units of Brookfield Renewable.

As at March 31, 2013, Redeemable/Exchangeable Partnership Units outstanding were 129,658,623 (December 31, 2012: 129,658,623).

 

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For the three months ended March 31, 2013, BRELP declared distributions on the Redeemable/Exchangeable Partnership Units to Brookfield Asset Management of $47 million (2012: $44 million).

 

12.

LIMITED PARTNERS’ EQUITY

Limited partners’ equity

Brookfield Renewable’s equity is comprised of general partnership interests and LP Units.

As at March 31, 2013, LP Units outstanding were 132,919,619 (December 31, 2012: 132,901,916) including 40,026,986 held by Brookfield Asset Management. General partnership interests represent 0.01% of Brookfield Renewable.

During 2012, a distribution re-investment plan was implemented, allowing holders of LP Units who are resident in Canada to acquire additional LP Units by reinvesting all or a portion of their cash distributions without paying commissions. During the three months ended March 31, 2013, 17,703 LP Units were issued (2012: nil).

Distributions

Distributions may be made by the general partner of Brookfield Renewable with the exception of instances that there is insufficient cash available, payment rends Brookfield Renewable unable to pay its debt or payment of which might leave Brookfield Renewable unable to meet any future contingent obligations.

For the three months ended March 31, 2013, Brookfield Renewable declared distributions on its LP Units of $48 million or $0.3625 per LP Unit (2012: $45 million or $0.345 per LP Unit), consisting of $14 million (2012: $16 million) payable to Brookfield Asset Management and $34 million (2012: $29 million) payable to external unitholders of Brookfield Renewable.

In March 2013, unitholder distributions were increased to $1.45 per unit from $1.38 per unit, on an annualized basis.

 

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13.    SUBSIDIARY PUBLIC ISSUERS

See Note 9 – Long-term debt and credit facilities for additional details regarding issuances of mid-term corporate notes. See Note 11 – Non-controlling Interests for additional details regarding the issuances of Class A Preference Shares.

The following tables provide consolidated summary financial information for Brookfield Renewable, BRP Equity, and Brookfield Renewable Energy Partners ULC (“BREP Finance”):

 

(MILLIONS)    Brookfield
Renewable
     BRP
Equity
     BREP
Finance
     Other
Subsidiaries (1)
     Consolidating
adjustments (2)
     Brookfield
Renewable
consolidated
 

As at March 31, 2013:

                 

Current assets

   $ 48       $ -       $ 1,502       $ 735       $ (1,560)       $ 725   

Long-term assets

     3,124         650         -         17,537         (3,768)         17,543   

Current liabilities

     55         8         28         2,156         (1,560)         687   

Long-term liabilities

     -         -         1,467         8,853         (645)         9,675   

Preferred equity

     -         659         -         -         -         659   

Participating non-controlling interests - in operating subsidiaries

     -         -         -         1,027         -         1,027   

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

     -         -         -         3,041         -         3,041   

As at December 31, 2012:

                 

Current assets

   $ 46       $ -       $ 1,528       $ 530       $ (1,582)       $ 522   

Long-term assets

     3,153         495         -         16,398         (3,643)         16,403   

Current liabilities

     52         7         16         2,468         (1,582)         961   

Long-term liabilities

     -         -         1,506         7,142         (492)         8,156   

Preferred equity

     -         500         -         -         -         500   

Participating non-controlling interests - in operating subsidiaries

     -         -         -         1,028         -         1,028   

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

     -         -         -         3,070         -         3,070   

 

(1)  

Includes subsidiaries of Brookfield Renewable, other than BRP Equity and BREP Finance.

(2)  

Includes elimination of intercompany transactions and balances necessary to present Brookfield Renewable on a consolidated basis.

 

(MILLIONS)    Brookfield
Renewable
     BRP
Equity
     BREP
Finance
     Other
Subsidiaries (1)
     Consolidating
adjustments (2)
     Brookfield
Renewable
consolidated
 

For the three months ended March 31, 2013

                 

Revenues

   $ -       $ -       $ -       $ 437       $ -       $ 437   

Net income (loss)

     31         -         1         84         (31)         85   

For the three months ended March 31, 2012

                 

Revenues

   $ -       $  -       $ -       $ 426       $ -       $ 426   

Net income (loss)

     15         -         (1)         32         (15)         31   
(1)  

Includes subsidiaries of Brookfield Renewable, other than BRP Equity and BREP Finance, general partnership interest in a holding subsidiary held by Brookfield and participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield.

(2)  

Includes elimination of intercompany transactions and balances necessary to present Brookfield Renewable on a consolidated basis.

 

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14.    SEGMENTED INFORMATION

Brookfield Renewable operates mostly renewable power assets, which include conventional hydroelectric generating assets located in the United States, Canada and Brazil, a pumped storage hydroelectric facility located in the United States and wind farms located in Canada and the United States. Brookfield Renewable also operates two natural gas-fired co-generation facilities (“co-gen”), one in Canada and one in the United States. Management evaluates the business based on the type of power generation (Hydroelectric, Wind and Co-gen). Hydroelectric and wind are further evaluated by major region (United States, Canada and Brazil). “Equity-accounted investments” includes Brookfield Renewable’s interest in hydroelectric facilities. The “Other” segment includes CWIP and corporate costs.

In accordance with IFRS 8, Operating Segments , Brookfield Renewable discloses information about its reportable segments based upon the measures used by management in assessing performance. The accounting policies of the reportable segments are the same as those described in Note 2 of the audited 2012 consolidated financial statements. Brookfield Renewable analyzes the performance of its operating segments based on revenues, earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”), and funds from operations. Adjusted EBITDA means revenues less direct costs (including energy marketing costs), plus Brookfield Renewable’s share of cash earnings from equity-accounted investments and other income, before interest, income taxes, depreciation, amortization and management service costs and the cash portion of non-controlling interests. Funds from operations is defined as Adjusted EBITDA less interest, current income taxes and management service cost, which is then adjusted for the cash portion of non-controlling interests included in funds from operations. Transactions between the reportable segments occur at fair value.

 

       Hydroelectric      Wind energy      Co-gen      Other      Total  
(MILLIONS)    U.S.      Canada      Brazil      U.S.      Canada                             

For the three months ended March 31, 2013:

                       

Revenues

   $   185       $ 94       $ 75       $ 23       $ 40       $ 20       $ -       $ 437   

Adjusted EBITDA

     143         78         55         14         35         8         (14)         319   

Interest expense - borrowings

     (35)         (16)         (7)         (8)         (14)         -         (22)         (102)   

Funds from operations prior to non-controlling interests

     108         62         44         6         21         8         (47)         202   

Cash portion of non-controlling interests

     (26)         -         (2)         (5)         -         -         (7)         (40)   

Funds from operations

     82         62         42         1         21         8         (54)         162   

Depreciation and amortization

     (32)         (21)         (40)         (13)         (19)         (3)         -         (128)   

For the three months ended March 31, 2012:

                       

Revenues

   $ 164       $ 100       $ 91       $ 7       $ 44       $ 20       $ -       $ 426   

Adjusted EBITDA

     130         83         68         5         39         5         (12)         318   

Interest expense - borrowings

     (34)         (17)         (31)         -         (10)         -         (18)         (110)   

Funds from operations prior to non-controlling interests

     94         66         33         5         29         5         (37)         195   

Cash portion on non-controlling interests

     (11)         -         (3)         (3)         -         -         (3)         (20)   

Funds from operations

     83         66         30         2         29         5         (40)         175   

Depreciation and amortization

     (32)         (24)         (42)         (4)         (19)         (5)         -         (126)   

 

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The following table reconciles Adjusted EBITDA and funds from operations, presented in the above tables, to net income as presented in the interim consolidated statements of income (loss) for the three months ended March 31:

 

(MILLIONS)    Notes      2013      2012  

Revenues

     5       $ 437       $ 426   

Other income

        2         5   

Share of cash earnings from equity-accounted investments

     6         6         4   

Direct operating costs

              (126)         (117)   

Adjusted EBITDA

        319         318   

Interest expense - borrowings

     9         (102)         (110)   

Management service costs

     5         (12)         (7)   

Current income tax expense

     10         (3)         (6)   

Funds from operations prior to non-controlling interests

        202         195   

Less: cash portion of non-controlling interests

              (40)         (20)   

Funds from operations

        162         175   

Add: cash portion of non-controlling interests

        40         20   

Depreciation and amortization

     7         (128)         (126)   

Unrealized financial instruments gain (loss)

     3,4         16         (9)   

Share of non-cash loss from equity-accounted investments

     6         (2)         (3)   

Deferred income tax expense

     10         (1)         (13)   

Other

              (2)         (13)   

Net income

            $ 85       $ 31   

 

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The following table presents information about Brookfield Renewable’s certain balance sheet items on a segmented basis:

 

       Hydroelectric      Wind energy      Equity-
accounted
investments
     Co-gen      Other      Total  
(MILLIONS)    U.S.      Canada      Brazil      U.S.      Canada                          

As at March 31, 2013:

                                                                                

Property, plant and equipment

   $ 5,931       $ 5,242       $ 2,639       $ 1,238       $ 1,359       $ -       $ 66       $ 338       $ 16,813   

Additions to property, plant and equipment

     720         207         -         420         -         -         -         66         1,413   

Total assets

     6,295         5,382         2,934         1,352         1,418         326         81         480         18,268   

Total borrowings

     2,227         1,203         288         695         780         -         -         2,037         7,230   

Total liabilities

     3,489         2,265         504         820         1,097         -         9         2,178         10,362   

As at December 31, 2012:

                          

Property, plant and equipment

   $ 5,244       $ 5,191       $ 2,526       $ 834       $ 1,410       $ -       $ 71       $ 382       $ 15,658   

Additions to property, plant and equipment

     621         85         147         610         14         -         5         -         1,482   

Total assets

     5,418         5,386         2,805         910         1,452         344         83         527         16,925   

Total borrowings

     1,784         1,126         348         460         629         -         -         1,772         6,119   

Total liabilities

     2,997         2,162         556         531         957         -         15         1,899         9,117   

15. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

In the course of its operations, Brookfield Renewable and its subsidiaries have entered into agreements for the use of water, land and dams. Payment under those agreements varies with the amount of power generated. The various agreements are renewable and extend up to 2054.

Project costs on the 45 MW hydroelectric project in British Columbia are expected to total $200 million.

Contingencies

Brookfield Renewable and its subsidiaries are subject to various legal proceedings, arbitrations and actions arising in the normal course of business. While the final outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of management that the resolution of such proceedings and actions will not have a material impact on Brookfield Renewable’s consolidated financial position or results of operations.

Guarantees

Brookfield Renewable, on behalf of Brookfield Renewable’s subsidiaries, and the 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. The activity on the issued letters of credit by Brookfield Renewable can be found in Note 9 - Long-term debt and credit facilities. As at March 31, 2013, letters of credit issued by subsidiaries of Brookfield Renewable amounted to $91 million.

In the normal course of operations, Brookfield Renewable and its subsidiaries execute agreements that provide for indemnification and guarantees to third parties of transactions such as business dispositions, capital project purchases, business acquisitions, and sales and purchases of assets and services. Brookfield Renewable has also agreed to indemnify its directors and certain of its officers and employees.

 

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The nature of substantially all of the indemnification undertakings prevents Brookfield Renewable from making a reasonable estimate of the maximum potential amount that Brookfield Renewable could be required to pay third parties as the agreements do not always 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, neither Brookfield Renewable nor its subsidiaries have made material payments under such indemnification agreements.

16. RESTATEMENT

During the year ended December 31, 2012, Brookfield Renewable changed its accounting policy to reflect the Redeemable/Exchangeable Partnership Units issued to Brookfield Asset Management by BRELP as Participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield since the Redeemable/Exchangeable Partnership Units provide Brookfield Asset Management the direct economic benefits and exposures to the underlying performance of BRELP . Brookfield Renewable also reclassified the general partnership interest in BRELP held by Brookfield Asset Management to non-controlling interests.

This restatement has no impact on Brookfield Renewable’s reported consolidated income (loss), income (loss) per LP Unit, comprehensive income (loss) or total equity. The impact of this restatement on the consolidated balance sheet, statements of income (loss), comprehensive income (loss) and changes in equity as at March 31, 2012 and for the three months ended March 31, 2012 is shown in the following table.

 

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The following table also includes Brookfield Renewable’s retroactive restatements to its consolidated financial statements resulting from the adoption of the amended IAS 19, Employee Benefits , as discussed in Note 2(c).

 

(MILLIONS)    Previously
Presented
     Adjustment      Change in
accounting
policy
(Note 2(c))
     Restated  

As at and for the three months ended March 31, 2012:

           

Consolidated Balance Sheet and Consolidated Statements of Changes in Equity

           

General partnership interest in a holding subsidiary held by Brookfield

   $ -       $ 64       $ -       $ 64   

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

     -         3,135         (11)         3,124   

Limited partners’ equity

     6,408         (3,199)         (11)         3,198   

For the three months ended March 31, 2012:

           

Consolidated Statements of Income (Loss)

           

Net income attributable to:

           

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

   $ -       $ 14       $ -       $ 14   

Limited partners’ equity

     29         (14)         -         15   

Consolidated Statements of Comprehensive Income (Loss)

           

Comprehensive income attributable to:

           

General partnership interest in a holding subsidiary held by Brookfield

   $ -       $ 1       $ -       $ 1   

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

     -         82         (3)         79   

Limited partners’ equity

     168         (83)         (3)         82   

17. SUBSEQUENT EVENTS

On May 1, 2013, Brookfield Renewable issued C$175 million of Class A Preference Shares with a fixed annual dividend yielding 5%. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

On May 7, 2013, Brookfield Asset Management provided a $200 million committed unsecured revolving credit facility, expiring in December 2013, at LIBOR plus 2%.

On May 8, 2013, Brookfield Renewable purchased $125 million of holding level notes associated with the hydroelectric portfolio acquired in Maine.

 

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MANAGEMENT’S RESPONSIBILITY

Management’s Responsibility for Financial Statements

The accompanying consolidated financial statements have been prepared by the Brookfield Renewable Energy Partners L.P. (“ Brookfield Renewable ”) management which is responsible for their integrity, consistency, objectivity and reliability. To fulfill this responsibility, Brookfield Renewable maintains policies, procedures and systems of internal control to ensure that its reporting practices and accounting and administrative procedures are appropriate to provide a high degree of assurance that relevant and reliable financial information is produced and assets are safeguarded. These controls include the careful selection and training of employees, the establishment of well-defined areas of responsibility and accountability for performance, and the communication of policies and code of conduct throughout the company.

These consolidated financial statements have been prepared in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and, where appropriate, reflect estimates based on management’s judgment.

Ernst & Young LLP, the Independent Registered Chartered Accountants appointed by the directors of the general partner of Brookfield Renewable, have audited the consolidated financial statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States) to enable them to express to the partners their opinion on the consolidated financial statements. Their report outlines the scope of their examination and opinion on the consolidated financial statements.

The consolidated financial statements have been further reviewed and approved by the Board of Directors of the general partner of Brookfield Renewable acting through its Audit Committee, which is comprised of directors who are not officers or employees of Brookfield Renewable. The Audit Committee, which meets with the auditors and management to review the activities of each and reports to the Board of Directors, oversees management’s responsibilities for the financial reporting and internal control systems. The auditors have full and direct access to the Audit Committee and meet periodically with the committee both with and without management present to discuss their audit and related findings.

 

LOGO

  

LOGO

Richard Legault

Chief Executive Officer

  

Sachin Shah

Chief Financial Officer

February 27, 2013

 

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INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

To the Partners of Brookfield Renewable Energy Partners L.P.

We have audited the accompanying consolidated financial statements of Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”), which comprise the consolidated balance sheets as at December 31, 2012 and 2011, and the consolidated statements of income (loss), comprehensive income (loss), changes in equity and cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. We were not engaged to perform an audit of Brookfield Renewable’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purposes of expressing an opinion on the effectiveness of Brookfield Renewable’s internal control over financial reporting. Accordingly, we express no such opinion.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Brookfield Renewable Energy Partners L.P. as at December 31, 2012 and 2011, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

As discussed in Note 2 to the consolidated financial statements, Brookfield Renewable has elected to prospectively change its method of accounting for construction work-in-process to apply the revaluation method effective December 31, 2011.

As discussed in Note 26 to the consolidated financial statements, Brookfield Renewable has changed its method of accounting for redeemable/exchangeable partnership units of a holding subsidiary from limited partners’ equity to participating non-controlling interests - in a holding subsidiary - Redeemable/Exchangeable units held by Brookfield in 2012.

 

/s/ Ernst & Young LLP

Chartered Accountants

Licensed Public Accountants

Toronto, Canada

February 27, 2013

 

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REPORT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

To the Partners of Brookfield Renewable Energy Partners L.P.

We have audited the accompanying consolidated financial statements of Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”), which comprise the consolidated statement of income (loss), consolidated statement of comprehensive income (loss), consolidated statement of changes in equity and consolidated statement of cash flows for the year ended December 31, 2010, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We were not engaged to perform an audit of Brookfield Renewable’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of Brookfield Renewable’s internal control over financial reporting. Accordingly, we express no such opinion.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial performance and cash flows of Brookfield Renewable Energy Partners L.P. for the year ended December 31, 2010 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

As discussed in Note 26 to the consolidated financial statements, Brookfield Renewable has changed its method of accounting for redeemable/exchangeable partnership units of a holding subsidiary from limited partners’ equity to participating non-controlling interests — in a holding subsidiary — Redeemable/Exchangeable units held by Brookfield.

/s/ Deloitte LLP

Independent Registered Chartered Accountants

Licensed Public Accountants

February 27, 2013

Toronto, Canada

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED BALANCE SHEETS

 

AS AT DECEMBER 31

(MILLIONS)

   Notes      2012     

2011

Restated
(See Note 26)

 

Assets

        

Current assets

        

Cash and cash equivalents

     5      $ 294      $ 267  

Trade receivables and other current assets

     6        194        158  

Due from related parties

     8        34        253  
        522        678  

Due from related parties

     8        22        32  

Equity-accounted investments

     9        344        405  

Property, plant and equipment, at fair value

     10        15,658        13,945  

Intangible assets

     11        44        57  

Deferred income tax assets

     15        81        306  

Other long-term assets

     12        254        285  
              $         16,925      $         15,708  

Liabilities

        

Current liabilities

        

Accounts payable and accrued liabilities

     13      $ 207      $ 190  

Financial instrument liabilities

     7        113        99  

Due to related parties

     8        107        139  

Current portion of long-term debt

     14        532        650  
        959        1,078  

Financial instrument liabilities

     7        32        15  

Due to related parties

     8        2        8  

Long-term debt and credit facilities

     14        5,587        4,869  

Deferred income tax liabilities

     15        2,358        2,374  

Other long-term liabilities

     16        157        164  
                9,095        8,508  

Equity

        

Non-controlling interests

        

Preferred equity

     18        500        241  

Participating non-controlling interests - in operating subsidiaries

     18        1,028        629  

General partnership interest in a holding subsidiary held by Brookfield

     18        63        64  

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

     18        3,081        3,097  

Limited partners’ equity

     19        3,158        3,169  
                7,830        7,200  
              $         16,925      $ 15,708  

The accompanying notes are an integral part of these consolidated financial statements.

Approved on behalf of Brookfield Renewable Energy Partners L.P.:

 

LOGO     LOGO
Patricia Zuccotti     David Mann
Director     Director

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

 

FOR THE YEAR ENDED DECEMBER 31

(MILLIONS, EXCEPT PER SHARE AMOUNTS)

   Notes      2012    

2011

Restated
(see Note 26)

   

2010

Restated

(See Note 26)

 

Revenues

     8      $       1,309     $       1,169     $ 1,045   

Other income

        16       19       12   

Direct operating costs

     21        (486     (407     (328

Management service costs

     8        (36     (1     -   

Interest expense – borrowings

     24        (411     (411     (404

Share of (loss) earnings from equity-accounted investments

     9        (5     10       15   

Unrealized financial instrument loss

     4,7         (23     (20     584   

Loss on Fund unit liability

     19        -       (376     (159

Depreciation and amortization

     10, 11         (483     (468     (446

Other

     4        (16     (8     4   

Income (loss) before income taxes

        (135     (493     323   

Income tax (expense) recovery

         

Current

     15        (14     (8     (32

Deferred

     15        54       50       3   
                40       42       (29

Net income (loss)

            $ (95   $ (451   $ 294   

Net income (loss) attributable to:

         

Non-controlling interests

         

Preferred equity

     18      $ 16     $ 13       10   

Participating non-controlling interests - in operating subsidiaries

     18        (40     11       25   

General partnership interest in a holding subsidiary held by Brookfield

     18        (1     (5     3   

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

     18        (35     (232     127   

Limited partners’ equity

     19        (35     (238     129   
              $ (95   $ (451   $ 294   

Basic and diluted earnings (loss) per LP Unit

     19      $ (0.26   $ (1.79     0.97   

The accompanying notes are an integral part of these consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

FOR THE YEAR ENDED DECEMBER 31

(MILLIONS)

   Notes      2012    

2011
Restated

(See Note 26)

   

2010

Restated

(See Note 26)

 

Net income (loss)

            $ (95   $ (451   $  294   

Other comprehensive income

         

Revaluations of property, plant and equipment

     9,10         784       1,774       (959

Financial instruments designated as cash-flow hedges

     7        21       (774     -   

Foreign currency translation

        (145     (169     168   

Deferred income taxes on above items, net

     15        (227     239       444   
                433       1,070       (347

Comprehensive income (loss)

            $ 338     $ 619     $ (53

Comprehensive income (loss) attributable to:

         

Non-controlling interests

         

Preferred equity

     18      $ 23     $ 7     $ 10   

Participating non-controlling interests - in operating subsidiaries

     18        (26     211       41   

General partnership interest in a holding subsidiary held by Brookfield

     18        3       4       (1

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

     18        166       196       (51

Limited partners’ equity

     19        172       201       (52
              $ 338     $ 619     $ (53

The accompanying notes are an integral part of these consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

 

               Accumulated Other
Comprehensive Income
                                                 
Year ended December 31, (MILLIONS)    Limited
partners’
equity
    Foreign
currency
translation
    Revaluation
surplus
    Cash flow
hedges
    Total
limited
partners’
equity
    Preferred
equity
    Participating
non-controlling
interests - in
operating
subsidiaries
    General
partnership
interest in
a holding
subsidiary
held by
Brookfield
    Participating
non-controlling
interests - in a
holding subsidiary
- Redeemable/
Exchangeable
units held by
Brookfield Asset
Management
    Total
equity
 

Balance, as at December 31, 2009 (Restated—Note 26)

     (599     186        2,475        (4     2,058        -        197        41        2,009        4,305   

Changes in year

                    

Net income (loss)

     129        -        -        -        129        10        25        3        127        294   

Other comprehensive income (loss)

     -        80        (262     -        (182     8        10        (4     (177     (345

Shares issued

     -        -        -        -        -        244        -        -        -        244   

Distributions

     (317     -        -        -        (317     (10     (23     (6     (309     (665

Other

     -        -        -        -        -        -        (3     -        -        (3

Change in year

     (188     80        (262     -        (370     252        9        (7     (359     (475

Balance, as at December 31, 2010 (Restated—Note 26)

     (787     266        2,213        (4     1,688        252        206        34        1,650        3,830   

Changes in year

                    

Net income (loss)

     (238     -        -        -        (238     13        11        (5     (232     (451

Other comprehensive income (loss)

     -        (72     802        (291     439        (6     200        9        428        1,070   

Acquisitions

     -        -        -        -        -        -        223        -        -        223   

Distributions

     (49     -        -        -        (49     (13     (25     (1     (48     (136

Adjustments related to the Combination

                    

Settlement of Fund unit liabilities

     785        -        -        -        785        -        -        16        767        1,568   

Derivative balances

     81        -        -        264        345        -        -        7        338        690   

Settlement of related party balances

     175        -        -        -        175        -        -        4        171        350   

Transfer of assets

     24        -        -        -        24        -        -        -        23        47   

Other

     -        -        -        -        -        (5     14        -        -        9   

Change in year

     778        (72     802        (27     1,481        (11     423        30        1,447        3,370   

Balance, as at December 31, 2011

     (9     194        3,015        (31     3,169        241        629        64        3,097        7,200   

Changes in year

                    

Net income (loss)

     (35     -        -        -        (35     16        (40     (1     (35     (95

Other comprehensive income (loss)

     -        (69     270        6        207        7        14        4        201        433   

Shares issued

     -        -        -        -        -        252        -        -        -        252   

Acquisitions

     -        -        -        -        -        -        446        -        -        446   

Distributions

     (183     -        -        -        (183     (16     (24     (4     (179     (406

Other

     -        -        -        -        -        -        3        -        (3     -   

Change in year

     (218     (69     270        6        (11     259        399        (1     (16     630   

Balance, as at December 31, 2012

     (227     125        3,285        (25     3,158        500        1,028        63        3,081        7,830   

The accompanying notes are an integral part of the consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

FOR THE YEAR ENDED DECEMBER 31

(MILLIONS)

   Notes      2012     2011     2010  

Operating activities

         

Net (loss) income

      $ (95   $ (451   $ 294   

Adjustments for the following non-cash items:

         

Depreciation and amortization

     10,11         483       468       446   

Unrealized financial instrument loss

     7        23       20       (584

Loss on Fund unit liability

     19        -        376       159   

Share of loss (earnings) from equity accounted investments

     9        5       (10     (15

Deferred income tax recovery

     15        (54     (50     (3

Other non-cash items

        46       -        (87

Dividends received from equity-accounted investments

              12       8       37   
        420       361       247   

Net change in working capital balances

     22        (22     (12     (29
                398       349       218   

Financing activities

         

Long-term debt – borrowings

     14        1,193       880       747   

Long-term debt – repayments

     14        (1,140     (215     (951

Capital provided by participating non-controlling interests - in operating subsidiaries

     4        434       186       -   

Issuance of preferred equity

     18        248       -        239   

Sale of Fund Units held by Brookfield Renewable

        -        -        164   

Contributions from common parent

        -        106       100   

Distributions:

         

To participating non-controlling interests - in operating subsidiaries and preferred equity

     18        (38     (39     (33

To unitholders of Brookfield Renewable, BRELP or the Fund

     18,19         (362 )       (109     (77
                335       809       189   

Investing activities

         

Acquisitions

     4        (743     (212     -   

Investment in:

         

Sustaining capital expenditures

     10        (55     (66     (53

Development and construction of renewable power generating assets

     10        (307     (698     (247

Investment tax credits related to renewable power generating assets

     10        209       -        -   

Due to (from) related parties

     8        172       (120     (115

Investment in securities

     7        (28     -        -   

Restricted cash and other

              54       6       18   
                (698     (1,090     (397

Foreign exchange gain (loss) on cash held in foreign currencies

              (8     11       5   

Cash and cash equivalents

         

Increase

        27       79       15   

Balance, beginning of year

              267       188       173   

Balance, end of year

            $ 294     $ 267     $ 188   

Supplemental cash flow information:

         

Interest paid

      $ 380     $ 318     $ 299   

Interest received

        16       27       15   

Income taxes paid

              10       48       39   

The accompanying notes are an integral part of these consolidated financial statements.

 

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BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.    ORGANIZATION AND DESCRIPTION OF THE BUSINESS

The business activities of Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”) consist of owning a portfolio of renewable power generating facilities in Canada, the United States and Brazil, which prior to November 28, 2011 were held as part of the power generating operations of Brookfield Renewable Power Inc. (“BRPI”) and Brookfield Renewable Power Fund (the “Fund”).

Brookfield Renewable is a publicly traded limited partnership established under the laws of Bermuda pursuant to an amended and restated limited partnership agreement dated November 20, 2011.

The registered office of Brookfield Renewable is 73 Front Street, Fifth Floor, Hamilton HM12, Bermuda.

The immediate parent of Brookfield Renewable is its general partner. The ultimate parent of Brookfield Renewable is Brookfield Asset Management Inc. (“Brookfield Asset Management”).

2.    SIGNIFICANT ACCOUNTING POLICIES

(a) Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The accounting policies used in the consolidated financial statements are based on the IFRS applicable as at December 31, 2012, and encompasses individual IFRS, International Accounting Standards (“IAS”), and interpretations made by the International Financial Reporting Interpretations Committee (“IFRIC”) and the Standing Interpretations Committee (“SIC”). The policies set out below are consistently applied to all periods presented, unless otherwise noted.

These consolidated financial statements have been authorized for issuance by the Board of Directors of its general partner, Brookfield Renewable Partners Limited, on February 27, 2013.

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

All figures are presented in millions of United States (“U.S.”) dollars unless otherwise noted.

(b) Basis of presentation

The consolidated financial statements have been prepared on the basis of historical cost, except for the revaluation of property, plant and equipment and certain assets and liabilities which have been measured at fair value. Cost is recorded based on the fair value of the consideration given in exchange for assets.

(i)    Consolidation

These consolidated financial statements include the accounts of Brookfield Renewable and its subsidiaries, which are the entities over which Brookfield Renewable has control. Control exists when Brookfield Renewable has the power, directly or indirectly, to govern the financial and operating policies of an entity, so as to obtain benefits from its activities. Non-controlling interests in the equity of Brookfield Renewable Group’s subsidiaries are shown separately in equity in the consolidated balance sheets.

(ii)    Strategic combination of the renewable power generating operations

On November 28, 2011, upon completion of the strategic combination (the “Combination”) of the renewable power assets of BRPI and the Fund, the public unitholders of the Fund received one non-voting limited partnership unit (“LP Unit”) of Brookfield Renewable in exchange for each trust unit of the Fund held and the Fund was wound up.

 

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Also as part of the Combination, Brookfield Renewable entered into a voting agreement with Brookfield Asset Management and its subsidiaries, which provides Brookfield Renewable with control of the general partner of Brookfield Renewable Energy L.P. (“BRELP”), a holding subsidiary. Accordingly, Brookfield Renewable consolidates the accounts of BRELP and its subsidiaries. In addition, BRELP issued redeemable/exchangeable partnership units (the “Redeemable/Exchangeable Partnership Units”), to a subsidiary of Brookfield Asset Management, pursuant to which the holder may at its request require BRELP to redeem the Redeemable/Exchangeable Partnership Units for cash consideration after a mandatory two-year holding period from the date of issuance. This 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 Redeemable/Exchangeable Partnership Units so presented to BRELP that are tendered for redemption in exchange for Brookfield Renewable 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 as equity of Brookfield Renewable (“Participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield”).

At the date of the Combination, Brookfield Asset Management, held directly or indirectly, approximately a 73% limited partnership interest on a fully-exchanged basis and all general partnership units including a 0.01% general partnership interest in Brookfield Renewable. Brookfield Asset Management and its subsidiaries, other than Brookfield Renewable, are collectively referred to as Brookfield in these financial statements. In the first quarter of 2012, Brookfield sold LP Units in Brookfield Renewable and Brookfield Asset Management currently holds, directly or indirectly, approximately a 68% limited partnership interest on a fully-exchanged basis. On an unexchanged basis, Brookfield Asset Management holds a 36% direct limited partnership interest in Brookfield Renewable, a 49% direct interest in BRELP through the ownership of Redeemable/Exchangeable Partnership Units and a direct 1% general partnership interest in BRELP.

Effective November 30, 2011, Brookfield Renewable’s LP Units traded under the symbol “BEP.UN” on the TSX.

Effective December 2011, Brookfield Renewable entered into voting arrangements with various affiliates of Brookfield Asset Management, whereby Brookfield Renewable gained control of the entities that own U.S. and Brazil renewable power generating operations (the “Voting Arrangements”). The Voting Arrangements provide Brookfield Renewable with all of the voting rights to elect the Boards of Directors of the relevant entities and therefore provides Brookfield Renewable with control. Accordingly, Brookfield Renewable consolidates the accounts of these entities. Refer to Note 8—Related party transactions for further information.

The Combination and Voting Arrangements do not represent business combinations under IFRS 3, Business Combinations (“IFRS 3R”) , as all combining businesses are ultimately controlled by Brookfield Asset Management both before and after the transactions were completed. Brookfield Renewable accounts for these reorganizations of entities under common control in a manner similar to a pooling of interest which requires the presentation of pre-Combination and Voting Arrangement financial information as if the transactions had always been in place. Refer to Note 2(o) (ii) for Brookfield Renewable’s policy on accounting for transactions under common control.

Financial information for the periods prior to November 28, 2011 is presented based on the historical combined financial information for the contributed operations as previously reported by Brookfield Asset Management. For the period since completion of the Combination, the results are based on the actual results of the new entity, Brookfield Renewable, including the adjustments associated with the Combination and the execution of several new and amended agreements, including power purchase agreements and management service agreements. Refer to Note 8—Related party transactions for further information.

 

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(iii)    Equity-accounted investments and joint ventures

Equity-accounted investments are entities over which Brookfield Renewable has significant influence or which it jointly controls. Significant influence is the ability to participate in the financial and operating policy decisions of the investee, but it has no control or joint control over those investees. Such investments are accounted for using the equity method.

A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Brookfield Renewable accounts for its interests in jointly controlled entities using the equity method. Under the equity method, the carrying value of an interest in an investee is initially recognized at cost and adjusted for Brookfield Renewable’s share of net income, other comprehensive income (“OCI”), distributions by the equity-accounted investment and other adjustments to Brookfield Renewable’s proportionate interest in the investee.

(c) Foreign currency translation

All figures reported in the consolidated financial statements and tabular disclosures to the consolidated financial statements are reflected in millions of U.S. dollars, which is the functional currency of Brookfield Renewable. Each of the foreign operations included in these consolidated financial statements determines its own functional currency, and items included in the financial statements of each subsidiary are measured using that functional currency.

Assets and liabilities of foreign operations having a functional currency other than the U.S. dollar are translated at the rate of exchange prevailing at the reporting date and revenues and expenses at the rate of exchange prevailing at the dates of the transactions during the period. Gains or losses on translation of foreign subsidiaries are included in OCI. Gains or losses on foreign currency denominated balances and transactions that are designated as hedges of net investments in these operations are reported in the same manner.

In preparing the consolidated financial statements of Brookfield Renewable, foreign currency denominated monetary assets and liabilities are translated into the functional currency using the closing rate at the applicable consolidated balance sheet dates. Non-monetary assets and liabilities, denominated in a foreign currency and measured at fair value, are translated at the rate of exchange prevailing at the date when the fair value was determined and non-monetary assets measured at historical cost are translated at the historical rate. Revenues and expenses are measured in the functional currency at the rates of exchange prevailing at the dates of the transactions with gains or losses included in income.

(d) Cash and cash equivalents

Cash and cash equivalents include cash, term deposits and money market instruments with original maturities of less than 90 days. Restricted cash expected to be used within the next twelve months has been classified as cash and cash equivalents.

(e) Property, plant and equipment and revaluation method

Power generating assets are classified as property, plant and equipment and are accounted for using the revaluation method under IAS 16, Property, Plant and Equipment (“IAS 16”). Property, plant and equipment are initially measured at cost and subsequently carried at their revalued amount, being the fair value at the date of the revaluation, less any subsequent accumulated depreciation and any subsequent accumulated impairment losses. Effective December 31, 2011 construction work-in-progress (“CWIP”) is

 

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revalued when sufficient information exists to determine fair value using the discounted cash flow method. Revaluations are made on an annual basis as at December 31 to ensure that the carrying amount does not differ significantly from fair value. Third party appraisers are retained to comment on management’s fair value determination of selected Brookfield Renewable’s power generating assets on a rotating basis every three to five years. Third party appraisers were involved in the fair value determinations during the year ended December 31, 2012.

Where the carrying amount of an asset increased as a result of a revaluation, the increase is recognized in income to the extent the increase reverses a previously recognized decrease recorded through income, with the remainder of the increase recognized in OCI and accumulated in equity under revaluation surplus and non-controlling interest. Where the carrying amount of an asset decreased, the decrease is recognized in OCI to the extent that a balance exists in revaluation surplus with respect to the asset, with the remainder of the decrease recognized in income.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset.

Gains and losses on disposal of an item of property, plant and equipment are recognized in ‘Other’ in the consolidated statements of income (loss). The revaluation surplus is not reclassified to OCI when the assets are disposed.

Brookfield Renewable determines the fair value of its property, plant and equipment by using a 20-year discounted cash flow model. This model includes estimates of future electricity prices, anticipated long-term average generation, estimated operating and capital expenditures, and assumptions about future inflation rates by geographical location and discount rates. Discount rates are calculated, giving consideration to the price risk and geographical location of Brookfield Renewable’s facilities.

Depreciation on power generating assets is calculated on a straight-line basis over the estimated service lives of the assets, which are as follows:

 

       Estimated service lives  

Dams

     Up to 115 years   

Penstocks

     Up to 60 years   

Powerhouses

     Up to 115 years   

Hydroelectric generating units

     Up to 115 years   

Wind generating units

     Up to 22 years   

Gas-fired co-generating units

     Up to 40 years   

Other assets

     Up to 60 years   

Costs are allocated to significant components of property, plant and equipment. When items of property, plant and equipment have different useful lives, they are accounted for as separate items (significant components) and depreciated separately. To ensure the accuracy of useful lives and residual values, a review is conducted annually. Depreciation is calculated based on the cost of the asset less its residual value. Depreciation commences when the asset is in the location and conditions necessary for it to be capable of operating in the manner intended by management. It ceases at the earlier of the date the asset is classified as held-for-sale and the date the asset is de-recognized. An item of property, plant and equipment and any significant component is de-recognized upon disposal or when no future economic benefits are expected from its use. Other assets include equipment, buildings, gas-fired co-generating units and leasehold improvements. Buildings, furniture and fixtures, leasehold improvements and office equipment are recorded at historical cost, less accumulated depreciation. Land and CWIP are not subject to depreciation.

 

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The depreciation of property, plant and equipment in Brazil is based on the duration of the concession or authorization. The average remaining concession or authorization duration at December 31, 2012, is 17 years (2011: 18 years). Since land rights are part of the concession or authorization, this cost is also subject to depreciation.

Change in accounting estimates

Brookfield Renewable retained third party engineers to review the estimated useful lives of certain assets. As a result, Brookfield Renewable revised the estimated remaining useful life of certain assets to more accurately reflect the period over which they provide economic benefits. Brookfield Renewable accounted for these changes in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, which requires a change in accounting estimate to be applied prospectively from the date of the change based on timing of completion of the review. The effective dates of changes were January 1, 2012 or April 1, 2012 or July 1, 2012 based on the timing of completion of the review. The consolidated statement of income (loss) reflects a decrease in depreciation of $112 million for the year ended December 31, 2012, as a result of the changes in accounting estimate.

(f) Asset impairment

At each balance sheet date, management assesses whether there is any indication that assets are impaired. For non-financial tangible and intangible assets (including equity-accounted investments), an impairment is recognized, if the recoverable amount, determined as the greater of the estimated fair value, less costs to sell, and the discounted future cash flows generated from use and eventual disposal of an asset or cash generating unit, is less than its carrying value. The projections of future cash flows take into account the relevant operating plans and management’s best estimate of the most probable set of conditions anticipated to prevail. Should an impairment loss subsequently reverse, the carrying amount of the asset is increased to the lesser of the revised estimate of the recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

(g) Trade receivable and other current assets

Trade receivables and other current assets are recognized initially at fair value, and subsequently measured at amortized cost using the effective interest method, less any allowance for uncollectability.

(h) Intangible assets

Intangible assets with finite lives are carried at cost, less any accumulated amortization and any accumulated impairment losses, and are amortized on a straight-line basis over their estimated useful lives of 4 to 25 years. Amortization commences when the asset is in the condition necessary for it to be capable of operating in the manner intended by management and ceases at the earlier of the date the asset is classified as held-for-sale and the date the asset is derecognized.

A service concession arrangement is an arrangement whereby a private sector entity (an operator) constructs or upgrades the infrastructure for public service, and operates and maintains that infrastructure for a specified period of time. The operator is paid for its services over the period of the arrangement. The grantor controls or regulates what services the operator using the assets must provide, to whom, and at what price, and also controls any significant residual interest in the assets at the end of the term of the arrangement. In Brazil, the power industry is regulated by the government and overseen by the National Agency of Electric Energy (“ANEEL”).

At December 31, 2012, the consolidated financial statements include service concession arrangements in place relating to one of the Brazilian subsidiaries. The price of power sold under these concessions is set by ANEEL at the beginning of the concession period and is based on the recovery of Brookfield Renewable’s costs incurred each year. Prices are regulated periodically throughout the term of the

 

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concession at the discretion of ANEEL. Brookfield Renewable is responsible for operating the hydroelectric facilities and to provide energy at ANEEL’s regulatory and industry standards. At the end of the concession arrangement, Brookfield Renewable is obliged to return the hydroelectric facilities and land to ANEEL. Additional investments or expansions made to the facilities operated under these concession arrangements by Brookfield Renewable must be authorized by ANEEL and Brookfield Renewable has the right to be reimbursed for any authorized additions made to the facility at the end of the concession term. No additions were made to the facilities throughout 2012 and no such obligation exists at December 31, 2012. Current service concession arrangements expire within a range of 3 to 18 years, at which time management expects to request renewal from ANEEL.

Revenues earned from the service concession arrangements are recognized in accordance with the revenue recognition policies used in these consolidated financial statements. The service concession arrangements are recognized as intangible assets as Brookfield Renewable has a contractual right to charge users of the public service, through its power purchase agreements. The service concession agreement is initially recognized at fair value and subsequently recorded using amortized cost. Amortization commences upon approval of the arrangement by the grantor, ANEEL, and is amortized on a straight-line basis over the term of the concession.

(i) Financial instruments

All financial instruments are classified into one of the following categories: assets and liabilities at fair value through profit or loss (“FVTPL”) cash, loans and receivables, financial instruments used for hedging, and other financial liabilities. All financial instruments are recorded at fair value at recognition. Subsequent to initial recognition, financial assets classified as loans and receivables, and other financial liabilities are measured at amortized cost using the effective interest method. Financial assets and liabilities classified as financial instruments used for cash-flow hedging continue to be recognized at fair value through OCI. Other financial assets and liabilities and non-hedging financial instruments are recorded at fair value through profit and loss.

Brookfield Renewable presents the liability and equity components separately upon recognition of such financial instruments. The amount of accretion relating to the liability component is recognized in profit or loss; and the amount of consideration relating to the equity component is recognized in equity.

Brookfield Renewable selectively utilizes derivative financial instruments to manage financial risks, including interest rate, commodity and foreign exchange risks. A derivative is a financial instrument, which requires no initial investment, settles at a future date, and has a value that changes in response to the change in a specified variable such as an interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index. Hedge accounting is applied when the derivative is designated as a hedge of a specific exposure, and it is highly probable that it will continue to be effective as a hedge based on an expectation of offsetting cash flows or fair value. Hedge accounting is discontinued prospectively when the derivative no longer qualifies as a hedge or the hedging relationship is terminated. Once discontinued, the cumulative change in fair value of a derivative that was previously recorded in equity by the application of hedge accounting is recognized in income over the remaining term of the original hedging relationship, unless the originally forecasted transaction is no longer expected to occur, at which point it is released to income. The fair values of derivative financial instruments are included in financial instrument assets or financial instrument liabilities, respectively.

(i)    Items qualifying as hedges

Cash flow hedge

The effective portion of unrealized gains and losses on interest rate forward and swap contracts designated as hedges of future interest rate payments are included in equity as cash flow hedges when the interest rate risk relates to an anticipated interest payment. The periodic exchanges of payments on interest rate swap contracts designated as hedges of debt are recorded on an accrual basis as an adjustment to interest expense. The periodic exchanges of payments on interest rate contracts designated as hedges of future interest payments are recorded in income over the term of the corresponding interest payments.

 

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Net investment hedge

Realized and unrealized gains and losses on foreign exchange forward contracts designated as hedges of currency risks are included in equity when the currency risk relates to a net investment in a subsidiary with a functional currency other than the U.S. dollar and are included in income in the period in which the subsidiary is disposed.

(ii)    Items not qualifying as hedges

Upon initial recognition of a derivative financial instrument that is not designated as a hedge, a derivative asset or liability is recorded with an offsetting deferred liability or asset, respectively. Gains or losses arising from changes in fair value of the derivative asset or liability are recognized in income through fair value gains or losses in the period the changes occur. The deferred liability or asset is amortized through income, on a straight-line basis, over the life of the derivative financial instrument.

(iii)    Available-for-sale investments

Investments in publicly quoted equity securities are categorized as available-for-sale when it is not Brookfield Renewable’s strategic intent to sell the securities and the securities were not acquired principally for their near-term sale. Available-for-sale equity investments are recorded at fair value with unrealized gains and losses recorded in OCI. Realized gains and losses are recorded in income when investments are sold and are calculated using the average carrying amount of securities sold. If the fair value of an investment declines below the carrying amount, qualitative and quantitative assessments of whether the impairment is either significant or prolonged is undertaken. All relevant facts and circumstances in this assessment are undertaken to determine, particularly the length of time and extent to which fair value has been less than the carrying amount.

(j) Revenue and expense recognition

Revenue from the sale of electricity is recorded when the power is delivered. The revenue must be considered collectible and the costs incurred to provide the electricity to be measurable before recognizing the related revenue. Costs related to the purchases of power or fuel are recorded upon delivery. All other costs are recorded as incurred.

(k) Income taxes

Current income tax assets and liabilities are measured at the amount expected to be paid to tax authorities, net of recoveries, based on the tax rates and laws enacted or substantively enacted at the balance sheet date. Current income tax assets and liabilities are included in trade receivables and other current assets and accounts payable and accrued liabilities, respectively.

Deferred tax is recognized on taxable temporary differences between the tax bases and the carrying amounts of assets and liabilities. Deferred tax is not recognized if the temporary difference arises from goodwill or from initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither taxable profit nor accounting profit. Deferred income tax assets are recognized for all deductible temporary differences, carry forwards of unused tax credits and unused tax losses, to the extent that it is probable that deductions, tax credits and tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent it is no longer probable that the income tax assets will be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the assets are realized or the liabilities settled, using the tax rates and laws enacted or substantively enacted at the balance sheet dates.

 

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Current and deferred income taxes relating to items recognized directly in OCI are also recognized directly in OCI.

Current and deferred income taxes are recorded based on the accounting records of the individual entities that are included within Brookfield Renewable. No additional allocation was considered necessary, prior to the Combination.

(l) Business combinations

The acquisition of a business is accounted for using the acquisition method. The consideration for an acquisition is measured at the aggregate of the fair values, at the date of exchange, of the assets transferred, the liabilities incurred to former owners of the acquired business, and equity instruments issued by the acquirer in exchange for control of the acquired business. The acquired business’ identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3R are recognized at their fair values at the acquisition date, except for non-current assets that are classified as held-for-sale in accordance with IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. These are recognized and measured at fair value, less costs to sell, income taxes which are measured in accordance with IAS 12, Income Taxes and share-based payments which are measured in accordance with IFRS 2, Share-based Payment. The non-controlling interest in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

To the extent that the aggregate of the fair value of consideration paid, the amount of any non-controlling interest and the fair value of any previously held interest in the acquiree exceeds the fair value of the net identifiable tangible and intangible assets, goodwill is recognized. To the extent that this excess is negative, the excess is recognized as a gain in income.

When a business combination is achieved in stages, previously held interests in the acquired entity are re-measured to fair value at the acquisition date, which is the date control is obtained, and the resulting gain or loss, if any, is recognized in income. Amounts arising from interests in the acquired business prior to the acquisition date that have previously been recognized in OCI are reclassified to income. Upon disposal or loss of control of a subsidiary, the carrying amount of the net assets of the subsidiary (including any OCI relating to the subsidiary) are derecognized with the difference between any proceeds received and the carrying amount of the net assets recognized as a gain or loss in income.

(m) Other items

(i)    Capitalized costs

Capitalized costs related to CWIP include all eligible expenditures incurred in connection with the development and construction of the power generating asset. The expenditures consist of cost of materials, direct labor and any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Interest and borrowings costs are capitalized when activities that are necessary to prepare the asset for its intended use or sale are in progress, expenditures for the asset have been incurred and funds have been used or borrowed to fund the construction or development. Capitalization of costs ceases when the asset is ready for its intended use.

 

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(ii)    Pension and employee future benefits

Pension and employee future benefits are recognized in the consolidated financial statements in respect of employees of the operating entities within Brookfield Renewable. The costs of retirement benefits for defined benefit plans and post-employment benefits are recognized as the benefits are earned by employees. The accrued benefit pro-rated method, using the length of service and management’s best estimate assumptions, is used to value its pension and other retirement benefits. Assets are valued at fair value for purposes of calculating the expected return on plan assets. For defined contribution plans, amounts are expensed based on employee entitlement. The ‘corridor’ method is used to recognize actuarial gains and losses. The ‘corridor’ method is based on recognizing actuarial gains and losses that fall outside the plus or minus 10% ‘corridor.’

(iii)    Decommissioning, restoration and environmental liabilities

Legal and constructive obligations associated with the retirement of property, plant and equipment are recorded as liabilities when those obligations are incurred and are measured at the present value of the expected costs to settle the liability, discounted at a current credit-adjusted pre-tax rate specific to the liability. The liability is accreted up to the date the liability will be incurred with a corresponding charge to operating expenses. The carrying amount of decommissioning, restoration and environmental liabilities is reviewed annually with changes in the estimates of timing or amount of cash flows added to or deducted from the cost of the related asset.

(iv)    Interest and borrowing costs

Interest and borrowing costs are capitalized when such costs are directly attributable to the acquisition, construction or production of a qualifying asset. A qualifying asset is an asset that takes a substantial period of time to prepare for its intended use.

(v)    Provisions

A provision is a liability of uncertain timing or amount. A provision is recognized if Brookfield Renewable has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are not recognized for future operating losses. The provision is measured at the present value of the best estimate of the expenditures expected to be required to settle the obligation using a discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. Provisions are re-measured at each balance sheet date using the current discount rate. The increase in the provision due to the passage of time is recognized as interest expense.

(vi)    Interest income

Interest income is earned with the passage of time and is recorded on an accrual basis.

(vii)    Government grants

Brookfield Renewable becomes eligible for government grants by constructing or purchasing renewable energy facilities, and by bringing those facilities to commercial operation, coupled with a successful application to the applicable program or agency. The assessment of whether or not a project has complied with the conditions and that there is reasonable assurance the grants will be received will be undertaken on a case by case basis. Brookfield Renewable reduces the cost of the asset by the amount of the grant. The grant amounts are recognized in income on a systematic basis as a reduction of depreciation over the periods, and in the proportions, in which depreciation on those assets is charged.

With respect to grants related to income, the government assistance (in the form of the difference between market price and guaranteed fixed price) typically becomes payable once the renewable energy is produced and delivered to the relevant grid. It is at this point that the receipt of the grant becomes reasonably assured, and therefore the grant is recognized as revenue in the month that delivery of the energy occurs.

 

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(n) Critical estimates

Brookfield Renewable makes estimates and assumptions that affect the carrying value of assets and liabilities, disclosure of contingent assets and liabilities and the reported amount of income and OCI for the year. Actual results could differ from these estimates. The estimates and assumptions that are critical to the determination of the amounts reported in the consolidated financial statements relate to the following:

(i)    Property, plant and equipment

The fair value of Brookfield Renewable’s property, plant and equipment is calculated using estimates and assumptions about future electricity prices from renewable sources, anticipated long-term average generation, estimated operating and capital expenditures, future inflation rates and discount rates, as described in “Note 10—Property, Plant and Equipment”. Judgment is involved in determining the appropriate estimates and assumptions in the valuation of Brookfield Renewable’s property, plant and equipment. See “Note 2 (o)—Critical judgments in applying accounting policies” for further details.

Estimates of useful lives and residual values are used in determining depreciation and amortization. To ensure the accuracy of useful lives and residual values, these estimates are reviewed on an annual basis.

(ii)    Financial instruments

Brookfield Renewable makes estimates and assumptions that affect the carrying value of its financial instruments, including estimates and assumptions about future electricity prices, long-term average generation, capacity prices, discount rates and the timing of energy delivery. Non-financial instruments are valued using estimates of future electricity prices which are estimated by considering broker quotes for the years in which there is a liquid market and for the subsequent years Brookfield Renewable’s best estimate of electricity prices that would allow new entrants into the market. See “Note 7 – Risk Management and Financial Instruments” for more details.

(iii)    Deferred income taxes

The consolidated financial statements include estimates and assumptions for determining the future tax rates applicable to subsidiaries and identifying the temporary differences that relate to each subsidiary. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply during the year when the assets are realized or the liabilities settled, using the tax rates and laws enacted or substantively enacted at the consolidated balance sheet dates. Operating plans and forecasts are used to estimate when the temporary difference will reverse.

(o) Critical judgements in applying accounting policies

The following are the critical judgments that have been made in applying the accounting policies used in the consolidated financial statements and that have the most significant effect on the amounts in the consolidated financial statements:

(i)    Preparation of consolidated financial statements

These consolidated financial statements present the financial position, results of operations and cash flows of Brookfield Renewable. Judgment is required in determining what assets, liabilities and transactions are recognized in the consolidated financial statements as pertaining to Brookfield Renewable’s operations.

 

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(ii)    Common control transactions

Common control business combinations specifically fall outside of scope of IFRS 3R and as such management has used its judgment to determine an appropriate policy to account for these transactions, considering other relevant accounting guidance that is within the framework of principles in IFRS and that reflects the economic reality of the transactions, in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors. As a result, the consolidated financial statements account for assets and liabilities acquired at the previous carrying value on the predecessor’s financial statements. Differences between the consideration given and the assets and liabilities received are recorded directly to equity.

(iii)    Property, plant and equipment

The accounting policy relating to Brookfield Renewable’s property, plant and equipment is described in Note 2 (e). In applying this policy, judgment is used in determining whether certain costs are additions to the carrying amount of the property, plant and equipment as opposed to repairs and maintenance. If an asset has been developed, judgment is required to identify the point at which the asset is capable of being used as intended and to identify the directly attributable costs to be included in the carrying value of the development asset. The useful lives of property, plant and equipment are determined by independent engineers periodically with an annual review by management.

Annually, Brookfield Renewable determines the fair value of its property, plant and equipment using a methodology that it has judged to be reasonable. The methodology is a 20 year discounted cash flow model. Twenty years is the period considered reasonable as Brookfield Renewable has 20 year capital plans and it believes a reasonable third party would be indifferent between extending the cash flows further in the model versus using a discounted terminal value.

The valuation model incorporates future cash flows from the 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. With respect to estimated future generation that does not incorporate power purchase agreement pricing, the cash flow model uses estimates of future electricity prices, considering broker quotes for the years in which there is a liquid market and for the subsequent years, its best estimate of electricity prices from renewable sources that would allow new entrants into the market.

Discount rates are determined each year by considering the current interest rates, average market cost of capital as well as the price risk and the geographical location of the operational facilities as judged by management. Inflation rates are also determined by considering the current inflation rates and the expectations of future rates by economists. Operating costs are based on long-term budgets escalated thereafter for inflation. Each operational facility has a 20 year capital plan that it follows to ensure the maximum life of its assets is achieved. Foreign exchange rates are forecasted by using the spot rates and the available forward rates, extrapolated beyond the period available. The inputs described above to the discounted cash flow model require management to consider facts, trends and plans in making its judgments as to what derives a reasonable fair value of its property, plant and equipment.

(iv)    Consolidation of Brookfield Renewable Power Fund

Brookfield Renewable held a 34% investment in the Fund, on a fully-exchanged basis prior to November 28, 2011. As a result, Brookfield Renewable assessed whether it continued to control the Fund, given its reduced ownership level. In making this assessment, Brookfield Renewable considered the definition of control and guidance as set out in IAS 27, Consolidated and Separate Financial Statements (“IAS 27”). Brookfield Renewable concluded that control did exist as it had the power to govern the financial and operating policies of the Fund under specific agreements. Effective November 28, 2011, public unitholders of the Fund received one LP Unit of Brookfield Renewable for each trust unit of the Fund held, and the Fund was wound up.

 

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(v)    Financial instruments

The accounting policy relating to Brookfield Renewable’s financial instruments is described in Note 2 (i). In applying the policy, judgments are made in applying the criteria set out in IAS 39, Financial Instruments: Recognition and Measurement (“IAS 39”), to record financial instruments at fair value through profit and loss, and the assessments of the effectiveness of hedging relationships.

(vi)    Deferred income taxes

The accounting policy relating to Brookfield Renewable’s income taxes is described in Note 2 (k). In applying this policy, judgments are made in determining the probability of whether deductions, tax credits and tax losses can be utilized.

(p) Recently adopted accounting policies

(i)    Income Taxes

On January 1, 2012, Brookfield Renewable adopted amendments to IAS 12, Income Taxes . Under these amendments, an entity is required to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. Implementation of amendments to IAS 12 did not have any material impact on Brookfield Renewable’s annual consolidated financial statements.

(q) 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, 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, 2015. Management is currently evaluating the impact of IFRS 9 on the consolidated financial statements.

(ii)    Consolidation

IFRS 10, Consolidation (“IFRS 10”) was issued by the IASB on May 12, 2011, and replaces SIC-12, Consolidation – Special Purpose Entities and parts of IAS 27. IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Under IAS 27, consolidation is required when an entity has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 is effective for annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact of IFRS 10 on the consolidated financial statements.

(iii)    Joint arrangements

IFRS 11, Joint Arrangements (“IFRS 11”) was issued by the IASB on May 12, 2011, and replaces IAS 31, Interests in Joint Ventures (“IAS 31”), and SIC-13, Jointly Controlled Entities – Non-monetary

 

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Contributions by Venturers. IFRS 11 requires a venturer to classify its interest in a joint arrangement as a joint venture or joint operation. Joint ventures will be accounted for using the equity method of accounting whereas for a joint operation the venturer will recognize its share of the assets, liabilities, and revenue and expenses of the joint operation. Under IAS 31, entities have the choice to proportionately consolidate or equity account for interests in joint ventures. IFRS 11 is effective for annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact of IFRS 11 on the consolidated financial statements.

(iv)    Disclosure of interests in other entities

IFRS 12, Disclosure of Interests in Other Entities (“IFRS 12”) was issued by the IASB on May 12, 2011. IFRS 12 establishes disclosure requirements for interests in other entities, such as joint arrangements, associates, special purpose vehicles and off-balance sheet vehicles. The standard carries forward existing disclosures and also introduces significant additional disclosure requirements that address the nature of, and risks associated with, an entity’s interests in other entities. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact of IFRS 12 on the consolidated financial statements.

(v)    Fair value measurement

IFRS 13, Fair Value Measurement (“IFRS 13”) a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards, was issued by the IASB on May 12, 2011. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It supersedes the fair value guidance that currently exists in IAS 16 concerning the use of the revaluation method. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. Management is currently evaluating the impact of IFRS 13 on the consolidated financial statements.

(vi)    Accounting for employee benefits and minimum funding requirements

In June 2011, the IASB issued significant amendments to IAS 19, Employee Benefits (“IAS 19”). These changes affect the recognition of actuarial gains and losses by removing the option to use the corridor approach and requiring immediate recognition in OCI. These OCI amounts cannot be recycled to the income statement. There are also changes to the recognition, measurement and presentation of past service costs, cost of benefits and finance expense or income relating to employee benefits. Further, termination benefits are recognized as a liability only when the entity can no longer withdraw the offer of the termination benefit or recognizes any related restructuring costs. There are additional disclosure requirements. The amendment is effective for periods beginning on or after January 1, 2013. Management is currently evaluating the impact of these amendments on the consolidated financial statements.

(vii)    Presentation of items of OCI

In June 2011, IASB issued amendments to IAS 1, Presentation of Financial Statements. These amendments include a requirement for entities to group items presented in OCI on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments), and emphasize the importance of presenting profit or loss and OCI together and with equal prominence. The amendment is effective for annual periods starting on or after July 1, 2012. Management is currently evaluating the impact of these amendments on the consolidated financial statements.

 

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(viii)    Consolidation and Separate Financial Statements

In May 2011, IASB amended and reissued IAS 27. The amended standard is to be applied in accounting for investments in subsidiaries, joint ventures, and associates when an entity elects, or is required by local regulations, to present separate (non-consolidated) financial statements. The amendment is effective for annual periods starting on or after January 1, 2013. Management is currently evaluating the impact of these amendments on the consolidated financial statements.

(ix)    Investment in Associates

In May 2011, IASB amended and reissued IAS 28, Investment in Associates and Joint Ventures. The amended standard prescribes the accounting treatment for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amendment is effective for annual periods starting on or after January 1, 2013. Management is currently evaluating the impact of these amendments on the consolidated financial statements.

3. PRINCIPAL SUBSIDIARIES

The following table lists the subsidiaries of Brookfield Renewable which, in the opinion of management, significantly affects its financial position and results of operations as at December 31, 2012:

 

      

Country of

incorporation,

registration or

operations

    

Proportionate interest held

by Brookfield Renewable

 
                Ownership
(%)
     Voting power
(%)
 

Brookfield Renewable Energy L.P. (1)

         Bermuda         50        100  

BRP Bermuda Holdings I Limited

     Bermuda         100        100  

Brookfield Renewable Power Preferred Equity Inc.

     Canada         100        100  

Brookfield Renewable Energy Partners ULC (2)

     Canada         100        100  

Brookfield BRP Canada Corp.

     Canada         100        100  

Great Lakes Power Limited

     Canada         100        100  

Mississagi Power Trust

     Canada         100        100  

Lievre Power L.P.

     Canada         100        100  

BAIF U.S. Renewable Power Holdings LLC (3)

     U.S.         22        22  

Catalyst Old River Hydroelectric L.P. (4)

     U.S.         75        75  

Erie Boulevard Hydropower L.P.

     U.S.         100        100  

Brookfield Energia Renovavel S.A.

     Brazil         100        100  

Itiquira Energetica S.A.

     Brazil         100        100  

 

(1)  

Brookfield Asset Management holds Redeemable/Exchangeable Partnership Units and a general partnership interest of 49% and 1%, respectively. BRELP is controlled by Brookfield Renewable through a voting agreement with Brookfield Asset Management.

(2)  

Formerly BRP Finance ULC.

(3)  

Effective December 2011, Brookfield Renewable entered into Voting Arrangements with various affiliates of Brookfield Asset Management, whereby Brookfield Renewable gained control (as discussed in Note 4—Business Combinations).

(4)  

Non-voting economic interest held through preferred shares and secured notes.

 

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4. BUSINESS COMBINATIONS

Completed During 2012

California Wind Generation Assets

In March 2012, the following investments were made by Brookfield Renewable and certain institutional partners through BAIF U.S. Renewable Power Holdings LLC (“BAIF U.S. Holdings”), in which Brookfield Renewable holds a 22% controlling interest. The investments were accounted for using the acquisition method, and the results of operations have been included in the audited consolidated financial statements since the respective dates of acquisition.

BAIF U.S. Holdings acquired 100% interests in two wind generation facilities in California. BAIF U.S. Holdings also acquired the remaining 50% interest in a wind generation facility, bringing Brookfield Renewable’s total investment to 100% (the “Step Acquisition”). Total consideration paid of $206 million for these interests included $180 million in cash and the settlement of certain liabilities.

The Step Acquisition required Brookfield Renewable to re-measure its previously held 50% interest to fair value of $63 million and to reverse any amounts previously recorded in OCI related to the initial 50% interest. Net income for year ended December 31, 2012 reflects an expense of $11 million related to the reclassification from OCI on financial instruments designated as cash flow hedges prior to the Step Acquisition. In addition, $5 million related to revaluation surplus on the initial 50% interest was reclassified within equity.

Acquisition costs of $2 million related to the above acquisitions were expensed as incurred.

These wind generating facilities are now all in commercial operation.

Brazil Hydroelectric Generation Asset

In July 2012, a Brookfield Americas Infrastructure Fund (“BAIF”) entity, in which Brookfield Renewable holds a 25% controlling interest (“BAIF Brazil”), acquired a 100% interest in a hydroelectric generation facility in Brazil for cash consideration of $14 million. A bargain purchase gain of $12 million was recognized, from the excess fair value of the assets acquired over the consideration paid. The bargain purchase gain was recorded in Other, and acquisition costs were expensed at the acquisition date.

Southern United States Hydroelectric Generation Assets

In November 2012, BAIF U.S. Holdings acquired a 100% interest in a portfolio of hydroelectric generation facilities, located in Tennessee and North Carolina in the southern region of the United States, for cash consideration of $597 million. The acquisition costs of $7 million were expensed as incurred. If the acquisition had taken place at the beginning of the year, assuming long-term average generation, revenue would have increased by $56 million (unaudited) for the year ended December 31, 2012.

Purchase price allocations, at fair values, with respect to the acquisitions in 2012 were as follows:

 

(MILLIONS)    California     Brazil    

Southern

United
States

    Total  

Current assets (1)

   $ 50     $ -      $ 4     $ 54  

Property, plant and equipment

     748       32       594       1,374  

Other long-term assets

     9       -        -        9  

Current liabilities

     (102     -        (1     (103

Long-term debt

     (436     (6     -        (442

Net assets acquired

   $ 269     $ 26     $ 597     $ 892  

 

(1 )  

Includes $49 million of cash and cash equivalents.

 

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The estimated fair values of the assets acquired and liabilities assumed are expected to be finalized within the next twelve months.

Completed During 2011

BAIF

In February 2011, BAIF U.S. Holdings acquired a 75% controlling interest in a 99 MW wind development project located in Northeastern United States, with a further 15% acquired in July 2011. Cash consideration paid in the first quarter of 2011 was $25 million, with a further $5 million paid in the third quarter of 2011, for a total cash consideration of $30 million.

In July 2011, BAIF Brazil acquired a 100% interest in a 30 MW hydroelectric facility located in Brazil for consideration of $190 million. The acquisition cost was partially funded from the issuance of debt in the amount of $77 million.

Other

In January 2011, a 50.25% controlling interest in an early stage wind development project located in Western Canada was acquired. Cash consideration paid in the first quarter of 2011 was $7 million.

Purchase price allocations, at fair values, with respect to the acquisitions in 2011 were as follows:

 

(MILLIONS)    United
States
    Canada     Brazil     Total  

Cash and cash equivalents

   $ 4     $ -      $ -      $ 4  

Trade receivables and other current assets

     -        -        5       5  

Property, plant and equipment

     30       14       190       234  

Total assets

     34       14       195       243  

Accounts payable and accrued liabilities

     (1     -        (5     (6

Non-controlling interests

     (3     (7     -        (10

Total liabilities acquired

     (4     (7     (5     (16

Net assets acquired

   $ 30     $ 7     $ 190     $ 227  

During the year ended December 31, 2012, the purchase price allocations for the acquisitions in 2011 were finalized. No changes to the provisional purchase price allocations disclosed in the audited consolidated financial statements for 2011 had to be considered for acquisitions made in 2011.

5. CASH AND CASH EQUIVALENTS

Brookfield Renewable’s cash and cash equivalents as at December 31 are as follows:

 

(MILLIONS)    2012      2011  

Cash

   $ 91      $ 106  

Short-term deposits

     46        119  

Restricted cash

     157        42  
     $     294      $     267  

At December 31, 2012, $103 million of restricted cash (2011: $nil) was held to meet short-term obligations relating to a hydroelectric facility under construction in British Columbia.

 

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6. TRADE RECEIVABLES AND OTHER CURRENT ASSETS

Brookfield Renewable’s trade receivables and other current assets as at December 31 are as follows:

 

(MILLIONS)    2012      2011  

Trade receivables

   $ 106      $ 84  

Prepaids and other

     88        74  
     $     194      $     158  

As at December 31, 2012, 99% (2011: 100%) of trade receivables were current. Trade receivables are generally on 30-day terms and credit limits are assigned and monitored for all counterparties. In determining the recoverability of trade receivables, management performs a risk analysis considering the type and age of the outstanding receivables and the credit worthiness of the counterparties. Management also reviews trade receivable balances on an ongoing basis. Bad debt expense related to trade receivables is recognized at the time an account is deemed uncollectible. Accordingly, as at December 31, 2012 and 2011 an allowance for doubtful accounts was not deemed necessary.

7. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

RISK MANAGEMENT

Brookfield Renewable’s activities expose it to a variety of financial risks, including market risk (i.e., commodity price risk, interest rate risk, and foreign currency risk), credit risk and liquidity risk. Brookfield Renewable uses financial instruments primarily to manage these risks.

 

(a)

Market risk

Market risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by Brookfield Renewable will fluctuate because of changes in market prices.

Brookfield Renewable faces market risk from foreign currency assets and liabilities, the impact of changes in interest rates, and floating rate liabilities. Market risk is managed by funding assets with financial liabilities in the same currency and with similar interest rate characteristics and holding financial contracts, such as interest rate swaps and foreign exchange contracts, to minimize residual exposures. Financial instruments held by Brookfield Renewable that are subject to market risk include borrowings and financial instruments, such as interest rate, currency and commodity contracts. The categories of financial instruments that can give rise to significant variability are described below:

 

(i)

Commodity price risk

Commodity price risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by Brookfield Renewable will fluctuate because of changes in commodity prices. Commodity price risk arises from the sale of Brookfield Renewable’s uncontracted generation, stabilization of the gas purchases, as well as impacts on the carrying values of Brookfield Renewable’s non-financial derivative contracts.

Brookfield Renewable sells electricity under long-term contracts to secure stable prices and mitigate its exposure to wholesale markets. As at December 31, 2012, virtually all (98%) of Brookfield Renewable’s generation was sold pursuant to purchase price agreements, either to third parties or through entities of Brookfield. During 2011, certain of the long-term contracts were considered financial instruments, and were recorded at fair value in the consolidated financial statements. The change in fair value of long-term contracts was recorded in either income as “unrealized financial instrument loss” or OCI, as applicable.

 

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The table below summarizes the impact of changes in the market price of electricity and gas as at December 31. The impact is expressed in terms of the effect on net income and OCI. The sensitivities are based on the assumption that the market price changes by five percent with all other variables held constant.

Impact of a 5% change in the market price of gas and electricity for the year ended December 31:

 

       Effect on net income      Effect on OCI  
(MILLIONS)    2012      2011      2010      2012      2011      2010  

5% increase

   $         1      $         2      $ 125       $ -       $ -       $ -   

5% decrease

   $ (1)       $ (2)       $ (139)       $ -       $ -       $ -   

 

(ii)

Interest rate risk

Interest rate risk is defined for these purposes as the risk that the fair value or future cash flows of a financial instrument held by Brookfield Renewable will fluctuate, because of changes in interest rates.

Brookfield Renewable’s assets largely consist of long duration physical assets. Brookfield Renewable’s financial liabilities consist primarily of long-term fixed rate debt or floating-rate debt that has been swapped to fixed rates with interest rate financial instruments. All non-derivative financial liabilities are recorded at their amortized cost. Brookfield Renewable also holds interest rate contracts to lock-in fixed rates on certain anticipated future debt issuances.

Fluctuations in interest rates could impact Brookfield Renewable’s cash flows, primarily with respect to the interest payable against Brookfield Renewable’s variable rate debt, which is limited to certain subsidiary borrowings with a total principal value of $1,592 million (2011: $1,382 million). Of this amount, $1,102 million (2011: $730 million) has been hedged through the use of interest rate swaps. Brookfield Renewable’s subsidiaries will enter into agreements designed to minimize the exposure to interest rate fluctuations on these debts. The fair values of the recognized liability for these agreements were calculated using a valuation model with observable interest rates.

The table below summarizes the impact of changes in the interest rate as at December 31. The impact is expressed in terms of the effect on income and OCI. The sensitivities are based on the assumption that the interest rate changes by one percent with all other variables held constant.

 

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Impact of a 1% change in interest rates for the year ended December 31:

 

       Effect on net income      Effect on OCI  
(MILLIONS)    2012      2011      2010      2012      2011      2010  

1% increase

   $ (7)       $ (7)       $ (7)       $         51      $         48      $ 1   

1% decrease

   $         7      $         7      $         7      $ (51)       $ (48)       $ (1)   

 

(b)

Credit risk

Credit risk is the risk of loss due to the failure of a borrower or counterparty to fulfill its contractual obligations. Brookfield Renewable’s exposure to credit risk in respect of financial instruments relates primarily to counterparty obligations regarding energy contracts, interest rate swaps, forward foreign exchange contracts and physical electricity and gas transactions.

Brookfield Renewable minimizes credit risk with counterparties through the selection, monitoring and diversification of counterparties, and the use of standard trading contracts, and other credit risk mitigation techniques. In addition, Brookfield Renewable’s purchase price agreements are reviewed regularly and are almost exclusively with customers having long standing credit histories or investment grade ratings, which limit the risk of non-collection. As at December 31, 2012, 99% (2011: 100%) of Brookfield Renewable’s trade receivables of $106 million were current. See Note 6—Trade receivables and other current assets, for additional details regarding Brookfield Renewable’s trade receivables balance.

The maximum credit exposure at December 31 was as follows:

 

(MILLIONS)    2012      2011  

Cash and cash equivalents

   $ 294      $ 267  

Trade receivables and other current assets

     194        158  

Other long-term assets

     

Restricted cash

     80        139  

Other

     2        -  

Due from related parties (1)

     56        285  
     $       626      $       849  

 

(1)  

Includes both the current and long-term amounts.

 

(c)

Liquidity risk

Liquidity risk is the risk that Brookfield Renewable cannot meet a demand for cash or fund an obligation when due. Liquidity risk is mitigated by Brookfield Renewable’s cash and cash equivalent balances and its access to undrawn credit and hydrology reserve facilities. Details of the undrawn credit facilities are included in Note 14 – Long-term debt and credit facilities. Brookfield Renewable also ensures that it has access to public debt markets by maintaining a strong credit rating of BBB (high).

Brookfield Renewable is also subject to the risk associated with debt financing. This risk is mitigated by the long-term duration of debt instruments and the diversification in maturity dates over an extended period of time.

The sensitivity analysis discussed above reflects only the risks associated with instruments that we consider are market sensitive and the potential loss resulting from one or more selected hypothetical changes. Therefore, the discussion above is not intended to reflect fully Brookfield Renewable’s market risk exposure.

 

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The table below classifies the cash obligations related to Brookfield Renewable’s liabilities into relevant maturity groupings based on the remaining period from the balance sheet dates to the contractual maturity date. As the amounts are the contractual undiscounted cash flows (gross of unamortized financing fees and accumulated amortization, where applicable), they may not agree with the amounts disclosed in the consolidated balance sheets. Refer to Note 18 – Non-controlling interests for additional details regarding how liquidity risk is mitigated for the Redeemable/Exchangeable partnership units.

 

AS AT DECEMBER 31, 2012

(MILLIONS)

   < 1 year      2-5 years      > 5 years      Total  

Accounts payable and accrued liabilities

   $ 207      $ -       $ -       $ 207  

Financial instrument liabilities (1)(2)

     113        30        2        145  

Due to related parties (2)

     107        2        -         109  

Other long-term liabilities - concession payments

     8        22        104        134  

Long-term debt and credit facilities (2)

     532        1,902        3,739        6,173  

Interest payable on long-term debt (3)

     284        931        1,331        2,546  

Total

   $         1,251      $         2,887      $         5,176      $         9,314  

 

AS AT DECEMBER 31, 2011

(MILLIONS)

   < 1 year      2-5 years      > 5 years      Total  

Accounts payable and accrued liabilities

   $ 190      $ -       $ -       $ 190  

Financial instrument liabilities (1)(2)

     99        15        -         114  

Due to related parties (2)

     139        8        -         147  

Other long-term liabilities - concession payments

     4        24        120        148  

Long-term debt and credit facilities (2)

     650        1,806        3,118        5,574  

Interest payable on long-term debt (3)

     298        827        1,082        2,207  

Total

   $         1,380      $         2,680      $         4,320      $         8,380  

 

(1)  

Financial instruments liabilities exclude amounts determined to be non-financial derivatives.

(2)  

Includes both the current and long-term amounts.

(3)  

Represents aggregate interest payable expected to be paid over the entire term of the obligations, if held to maturity. Variable rate interest payments have been calculated based on current rates.

 

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FINANCIAL INSTRUMENT DISCLOSURES

Brookfield Renewable classifies its assets and liabilities as outlined below:

 

 

Financial assets and liabilities

 

AS AT DECEMBER 31, 2012

(MILLIONS)

   Cash, loans
and
receivables
     Assets (1)
liabilities
     Derivatives
used for
hedging
     Other
financial
liabilities
     Non-financial
assets and
liabilities
     Total  

Cash and cash equivalents

   $ 294      $ -       $ -       $ -       $ -       $ 294  

Trade receivables and other current assets (2)

     194        -         -         -         -         194  

Due from related parties (2)(3)

     56        -         -         -         -         56  

Equity-accounted investments

     -         -         -         -         344        344  

Property, plant and equipment, at fair value

     -         -         -         -         15,658        15,658  

Intangible assets

     -         -         -         -         44        44  

Deferred income tax assets

     -         -         -         -         81        81  

Other long-term assets

     100        26        -         -         128        254  

Total assets

   $ 644      $ 26      $ -       $ -       $ 16,255      $ 16,925  

Accounts payable and accrued liabilities (2)

   $ -       $ -       $ -       $ 207      $ -       $ 207  

Financial instrument liabilities (3)

     -         80        65        -         -         145  

Due to related parties (2)

     -         -         -         109        -         109  

Long-term debt and credit facilities (2)(3)

     -         -         -         6,119        -         6,119  

Deferred income tax liabilities

     -         -         -         -         2,358        2,358  

Other long-term liabilities

     -         -         -         157        -         157  

Total liabilities

   $ -       $ 80      $ 65      $ 6,592      $ 2,358      $ 9,095  

 

(1)  

Measured at fair value with all gains and losses recorded in the consolidated statement of (loss) income.

(2)  

Measured at fair value at inception and subsequently recorded at amortized cost using the effective interest rate method.

(3)  

Includes both the current and long-term amounts.

 

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Financial assets and liabilities

 

AS AT DECEMBER 31, 2011 (MILLIONS)    Cash, loans
and
receivables
     Assets (1)
liabilities
     Derivatives
used for
hedging
     Other
financial
liabilities
     Non-financial
assets and
liabilities
     Total  

Cash and cash equivalents

   $ 267      $ -       $ -       $ -       $ -       $ 267  

Trade receivables and other current assets (2)

     122        -         -         -         36        158  

Due from related parties (2)(3)

     285        -         -         -         -         285  

Equity-accounted investments

     -         -         -         -         405        405  

Property, plant and equipment, at fair value

     -         -         -         -         13,945        13,945  

Intangible assets

     -         -         -         -         57        57  

Deferred income tax assets

     -         -         -         -         306        306  

Other long-term assets

     156        -         -         -         129        285  

Total assets

   $ 830      $ -       $ -       $ -       $ 14,878      $ 15,708  

Accounts payable and accrued liabilities (2)

   $ -       $ -       $ -       $ 190      $ -       $ 190  

Financial instrument liabilities (3)

     -         26        88        -         -         114  

Due to related parties (2)

     -         -         -         147        -         147  

Long-term debt and credit facilities (2)(3)

     -         -         -         5,519        -         5,519  

Deferred income tax liabilities

     -         -         -         -         2,374        2,374  

Other long-term liabilities

     -         -         -         164        -         164  

Total liabilities

   $ -       $ 26      $ 88      $ 6,020      $ 2,374      $ 8,508  

 

(1)  

Measured at fair value with all gains and losses recorded in the consolidated statement of (loss) income.

(2)  

Measured at fair value at inception and subsequently recorded at amortized cost using the effective interest rate method.

(3)  

Includes both the current and long-term amount.

The fair value of financial instruments is the amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act.

Fair values determined using valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discount rates. In determining those assumptions, management looks primarily to external readily observable market inputs such as interest rate yield curves, currency rates, and price, as applicable. The fair value of interest rate swap contracts, which form part of financing arrangements, is calculated by way of discounted cash flows, using market interest rates and applicable credit spreads.

Financial instruments measured at fair value are categorized into one of three hierarchy levels, described below. Each level is based on the transparency of the inputs used to measure the fair values of assets and liabilities.

Level 1 – inputs are based on unadjusted quoted prices in active markets for identical assets and liabilities;

Level 2 – inputs, other than quoted prices in Level 1, that are observable for the asset or liability, either directly or indirectly; and

Level 3 – inputs for the asset or liability that are not based on observable market data.

The following table presents Brookfield Renewable’s financial assets and financial liabilities measured at fair value classified by the fair value hierarchy as at December 31:

 

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(MILLIONS)    Level 1      Level 2      Level 3      2012      2011  

Cash and cash equivalents

   $ 294      $ -       $ -       $ 294      $ 267  
 

Available-for-sale investments (1)

     26        -         -         26        -   
 

Energy derivative contracts

     (1)         (12)         -         (13)         (26)   
 

Interest rate swaps

     -         (132)         -         (132)         (88)   
 

Total

   $ 319      $ (144)       $ -       $ 175      $ 153  

 

(1)

Available-for-sale investments represent an investment in securities of Western Wind Energy Corp. (“Western Wind”) and have been included in Other long-term assets.

There were no transfers between levels during the year.

The aggregate amount of Brookfield Renewable’s net financial instrument positions are as follows as at December 31:

 

                2012      2011  
(MILLIONS)    Notes      Asset      Liabilities      Net      Net  

Energy derivative contracts

     (a)       $ -       $ 13      $ 13      $ 26  

Interest rate swaps

     (b)         -         132        132        88  

Total

        -         145        145        114  

Less: current portion

              -         113        113        99  

Long-term portion

            $ -       $ 32      $ 32      $ 15  

 

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The following table presents the change in Brookfield Renewable’s total net financial instrument position as at and for the year ended December 31:

 

(MILLIONS)    Note      2012      2011      2010  

Balance, beginning of year

      $ 114      $ 246      $ 808   

(Decreases) increases in the net financial position:

           

Unrealized (gain) loss through income on energy derivative contracts

     (a)         (16)         19        (584)   

Unrealized accounting loss through OCI on energy derivative contracts

     (a)         4        708        -   

Unrealized loss through income on interest rate swaps

     (b)         12        1        -   

Unrealized (gain) loss through OCI on interest rate swaps

     (b)         (4)         66        (1)   

Unrealized loss through OCI on foreign exchange contracts

     (b)         -         -         1   

Reversal of energy derivative contracts designated as cash-flow hedges through accumulated OCI and non-controlling interests

        -         (704)         -   

Reversal of energy derivative contracts designated as cash-flow hedges through equity

        -         (222)         -   

Acquisitions and other

              35        -         22   

Balance, end of year

            $ 145      $ 114        246   

Derivative liabilities not designated as hedging instruments:

           

Energy derivative contracts

     (a)       $ 13      $ 26      $ 220   

Interest rate swaps

     (b)         67        -         -   

Net position

            $ 80      $ 26        220   

Derivative liabilities designated as hedging instruments:

           

Interest rate swaps

     (b)       $ 65      $ 88      $ 23   

Foreign exchange contracts

     (c)         -         -         3   

Net positions

            $ 65      $ 88      $ 26   

(a) Energy derivative contracts

Brookfield Renewable has entered into long-term energy derivative contracts primarily to stabilize the price of gas purchases or eliminate the price risk on the sale of certain future power generation. Certain energy contracts are recorded in Brookfield Renewable’s audited consolidated financial statements at an amount equal to fair value, using quoted market prices or, in their absence, a valuation model using both internal and third-party evidence and forecasts.

In the next 12 months, it is expected that a $4 million loss (2011: $4 million loss; 2010: $4 million loss) will be settled or reclassified into income.

On April 1, 2011, Brookfield Renewable designated its two significant long-term energy contracts with related parties as cash-flow hedges. As a result of new agreements and changes in existing agreements with Brookfield Asset Management and its subsidiaries arising from the Combination, these contracts are no longer accounted for as derivatives by Brookfield Renewable effective November 28, 2011. For the period from April 1, 2011 to November 28, 2011, Brookfield Renewable recorded accounting losses of $708 million related to these contracts that were recorded in OCI. On formation of Brookfield Renewable, $704 million of unrealized accounting losses were reversed.

Since these amendments arose from the common control reorganization with Brookfield Asset Management the amounts were adjusted directly into equity.

 

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(b) Interest rate swaps

Brookfield Renewable has entered into interest rate swap contracts primarily to minimize exposure to interest rate fluctuations on its variable rate debt or to lock in interest rates on future debt refinancing. All interest rate swap contracts are recorded in the consolidated financial statements at an amount equal to fair value.

At December 31, 2012, agreements with a total notional value of $1,698 million were outstanding (2011: $1,226 million) including $562 million (2011: $nil) that are not formally designated as hedging instruments. The fixed interest rates resulting from these agreements range from 0.42% to 5.30% (2011: 2.03% to 4.50%).

During the year ended December 31, 2012, losses of $16 million relating to cash flow hedges were realized and reclassified from OCI to net loss, respectively (2011: loss of $14 million).

(c) Foreign exchange contracts

Brookfield Renewable Group has entered into foreign exchange contracts primarily to minimize exposure to fluctuations in foreign currencies in which it and its subsidiaries operate. All foreign exchange contracts are recorded in Brookfield Renewable’s consolidated financial statements in OCI at an amount equal to fair value.

The notional amount at December 31, 2011 of the foreign exchange contracts was $nil

8. RELATED PARTY TRANSACTIONS

Brookfield Renewable’s related party transactions are recorded at the exchange amount. Brookfield Renewable’s related party transactions are primarily with Brookfield Asset Management and its subsidiaries.

Agreements relating to the Combination

In connection with the completion of the Combination, Brookfield Renewable and its subsidiaries entered into a number of agreements with Brookfield Asset Management, including the following agreements:

Principal Agreements

Combination Agreement

The Combination was effected pursuant to a Combination Agreement which contains covenants, representations and warranties of and from each of BRPI, the Fund, Brookfield Renewable Power Trust (“BRPT”) and Brookfield Renewable pursuant to which Brookfield Renewable agreed to acquire all of the assets of the Fund and all of the other renewable power assets of BRPI pursuant to a court-approved Plan of Arrangement under Ontario corporate law.

Limited Partnership Agreements

Each of the amended and restated limited partnership agreements of Brookfield Renewable and BRELP outline the key terms of the partnerships, including provisions relating to management, protections for limited partners, capital contributions, distributions and allocation of income and losses. Pursuant to BRELP’s amended and restated limited partnership agreement, BRELP’s general partner is entitled to receive incentive distributions from BRELP as a result of its ownership of the general partnership interest in BRELP. The incentive distributions are to be calculated in increments based on the amount by which quarterly distributions on the limited partnership units of BRELP exceed specified target levels as set forth in the amended and restated partnership agreement.

Relationship Agreement

Brookfield Asset Management and certain of its subsidiaries entered into an agreement with Brookfield Renewable pursuant to which Brookfield Asset Management agreed that Brookfield Renewable will serve as its primary vehicle through which it will acquire renewable power assets on a global basis.

 

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Master Services Agreement

Brookfield Renewable entered into an exclusive agreement with Brookfield Asset Management pursuant to which Brookfield Asset Management has agreed to provide oversight of the business and provide the services of senior officers to Brookfield Renewable for a management service fee. The fee is paid on a quarterly basis and has a fixed quarterly component of $5 million and a variable component calculated as a percentage of the increase in the total capitalization value of Brookfield Renewable over an initial reference value (subject to an annual escalation by a specified inflation factor beginning on January 1, 2013). The Master Services Agreement continues in perpetuity, until terminated in accordance with its terms.

BRELP Voting Agreement

Pursuant to a voting agreement dated November 28, 2011 (the “Voting Agreement”), between Brookfield Renewable and Brookfield Asset Management, Brookfield Renewable, through its managing general partner, has a number of voting rights, including the right to direct all eligible votes in the election of the directors of BRELP’s general partner.

Revenue Agreements

Contract Amendments

Two long-term power purchase agreements on generating assets in Ontario were amended to increase the price from C$68 per MWh to an average of C$88 per MWh on a portfolio basis. The agreements described below are with respect to generating assets held by the Mississagi Power Trust (“MPT”), and Great Lakes Power Limited (“GLPL”). In addition, the term of the Mississagi power purchase agreement has been extended to December 1, 2029 and MPT has been granted the unilateral option to terminate the agreement, on 120 days written notice, at certain times between 2017 and 2024.

As amended, the GLPL power purchase agreement requires a subsidiary of Brookfield Asset Management to support the price that GLPL receives for energy generated by certain facilities in Canada at a price of C$82 per MWh subject to an annual adjustment equal to 40% of the Consumer Price Index (“CPI”) in the previous year. The GLPL agreement has an initial term to 2029, and the contract automatically renews for successive 20-year periods with certain termination provisions. If the contract is not terminated prior to 2029, the price under this agreement reverts back to the original C$68 per MWh subject to an annual adjustment equal to 40% of the CPI for each year.

As amended, the MPT power purchase agreement requires a subsidiary of Brookfield Asset Management to purchase the energy generated at a price of C$103 per MWh subject to an annual adjustment equal to 20% of the CPI in the previous year. The MPT contract terminates on December 1, 2029, subject to the early termination options described above.

Energy Revenue Agreement

The Energy Revenue Agreement was entered into between a subsidiary of Brookfield Asset Management and Brookfield Power U.S. Holdings America Co. (“BPUSHA”) that indirectly owns substantially all of the U.S. facilities of Brookfield Renewable. The subsidiary of Brookfield Asset Management will support the price that BPUSHA receives for energy generated by certain facilities in the United States at a price $75 per MWh. This price is to be increased annually on January 1 by an amount equal to 40% of the increase in the CPI during the previous calendar year, but not exceeding an increase of 3% in any calendar year. The Energy Revenue Agreement will have an initial term of 20 years, with automatic renewals for successive 20-year periods with certain termination provisions.

 

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Power Services Agreements

Power Agency Agreements

In conjunction with the Energy Revenue agreement, certain Brookfield Renewable subsidiaries entered into Power Agency Agreements appointing a subsidiary of Brookfield Asset Management as the exclusive agent of the owner in respect of the sales of electricity, including the procurement of transmission and other additional services. In addition, this subsidiary will schedule, dispatch and arrange for transmission of the power produced and the power supplied to third-parties in accordance with prudent industry practice. Pursuant to each Agreement, the subsidiary will be entitled to be reimbursed for any third-party costs incurred, and, except in a few cases, receives no additional fee for its services in connection with the sale of power and for providing the other services.

Energy Marketing Agreement

A subsidiary of Brookfield Asset Management has agreed to provide energy marketing services to Brookfield Renewable’s North American businesses. Under this Agreement, Brookfield Renewable pays an annual energy marketing fee of $18 million per year (subject to increase by a specified inflation factor beginning on January 1, 2013).

Development Projects Agreement

As part of the Combination, Brookfield Renewable indirectly acquired a number of development projects in the United States, Canada and Brazil from a subsidiary of Brookfield Asset Management. This subsidiary received no upfront proceeds on closing for the transfer of these projects, but is entitled to receive on commercial operation or sale of the projects, in each case if developed or sold in the 25 years following closing, up to 100% of the development costs that it contributed to each project and 50% of the fair market value of the projects in excess of a priority return on each party’s invested capital. These amounts will only be payable on projects upon substantial completion or sale of the project. With respect to the projects located in the United States and Canada, the Development Projects Agreement provides for the reimbursement of expenses to a subsidiary of Brookfield Asset Management for such projects, and a separate royalty agreement exists to provide royalties on each project. With respect to projects located in Brazil, a subsidiary of Brookfield Asset Management subscribed for special shares which contain a redemption feature that provides for the reimbursement of expenses as well as the sharing of the fair market value on projects.

Voting Agreements

In December 2011, Brookfield Renewable entered into voting agreements with subsidiaries of Brookfield Asset Management whereby these subsidiaries, as managing members of entities related to Brookfield Americas Infrastructure Fund (the “BAIF Entities”) in which Brookfield Renewable holds investments with institutional investors, agreed to assign to Brookfield Renewable their voting rights to appoint the directors subsidiaries of the BAIF Entities. Brookfield Renewable’s economic interests in the BAIF Entities in the United States and Brazil are 22% and 25%, respectively.

Other Agreements

In addition, the following related party agreements were in place with either the Fund or BRPI and continue to be in effect, and were thus transferred to Brookfield Renewable on the effective date of the Combination.

Revenue Agreements

Pursuant to a 20-year power purchase agreement, a subsidiary of Brookfield Asset Management purchases all energy from several power facilities in Maine and New Hampshire held by Great Lakes Holding America (“GLHA”) at $37 per MWh. The energy rates are subject to an annual adjustment equal to 20% of the increase in the CPI during the previous year.

 

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Pursuant to a 20-year power purchase agreement, a subsidiary of Brookfield Asset Management purchases all energy from Lievre Power in Quebec at C$68 per MWh. The energy rates are subject to an annual adjustment equal to the lesser of 40% of the increase in the CPI during the previous calendar year or 3%.

Pursuant to a power guarantee agreement, a subsidiary of Brookfield Asset Management will purchase all energy from the two facilities of Hydro Pontiac Inc. at a price of C$68 per MWh, to be increased annually each calendar year beginning in 2010 by an amount equal to 40% of the increase in the CPI during the previous calendar year. This power guarantee agreement is scheduled to commence in 2019 for one facility and in 2020 for the other, upon the expiration of existing power agreements. This agreement has an initial term to 2029 and automatically renews for successive 20-year period with certain termination provisions.

Pursuant to a 10-year Wind Levelization agreement expiring in 2019, a subsidiary of Brookfield Asset Management mitigates any potential wind variation from the expected annual generation of 506 GWh with regards to the Prince Wind assets in Ontario. Any excess generation compared to the expected generation results in a payment from Brookfield Renewable to the subsidiary of Brookfield Asset Management, while a shortfall would result in a payment from a subsidiary of Brookfield Asset Management to Brookfield Renewable.

Payment obligations relating to power purchase agreements

Pursuant to a 20-year power purchase agreement guarantee, expiring in 2021, a subsidiary of Brookfield Asset Management guarantees to Powell River Energy the payment of obligations of an industrial power purchaser for an annual fee of C$0.5 million.

Purchase of natural gas

A subsidiary of Brookfield Asset Management acting as an agent on behalf of Brookfield Renewable secures the price of natural gas with respect to a gas plant in Ontario until the end of 2013 for a weighted average price of $6 per MMbtu.

Insurance services

In the normal course of operations, an insurance broker affiliated with Brookfield Asset Management, entered into transactions with Brookfield Renewable to provide insurance services. These transactions are measured at fair value.

 

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The following table reflects the related party agreements and transactions on the consolidated statements of income (loss) for the year ended December 31:

 

(MILLIONS)    2012     2011     2010  

Revenues

      

Purchase and revenue support agreements

   $ 376     $ 254     $ 205   

Wind levelization agreement

     2       7       5   
     $ 378     $ 261     $ 210   

Direct operating costs

      

Energy purchases

   $ (40   $ (41   $ (42

Energy marketing fee

     (18     (11     (17

Insurance services

     (18     (18     (15
     $ (76   $ (70     (74

Interest expense

   $ -     $ (19     (40

Management service costs

   $ (36   $ (1   $ -   

Current assets

Amounts due from Brookfield Asset Management are non-interest bearing, unsecured and due on demand.

Amounts due from related parties

Amounts due from Brookfield Asset Management are non-interest bearing, unsecured and due on demand. The note receivable from an equity-accounted investment is unsecured, due on demand and interest bearing with the annual interest rate between 10% and 18%. The rate for 2012 was 18% (2011: 13%). The note is due December 2020.

Amounts and the note receivable are not considered impaired based on the credit worthiness of the related-party counterparties. Accordingly, as at December 31, 2012 and 2011, an allowance for doubtful accounts was not deemed necessary.

Current liabilities

Amounts due to Brookfield Asset Management are unsecured, payable on demand and relate to recurring transactions. Brookfield Asset Management has provided a hydrology reserve facility to Brookfield Renewable to be used to maintain cash distributions due to changes in hydrology from year to year.

Amounts due to related parties

The note payable to Brookfield Asset Management was settled during the year and the interest for 2011 was 10%.

 

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The following table reflects the impact of the related party agreements and transactions on the consolidated balance sheets as at December 31:

 

(MILLIONS)    Related party    2012      2011  

Current assets

     

Due from related parties

        

Amounts due from

   Brookfield Asset Management    $ 20      $ 227  
     Equity accounted and other      14        26  
          $ 34      $ 253  

Due from related parties

        

Amounts due from

   Brookfield Asset Management, Brascan Energetica    $ 3      $ 13  

Note receivable

   Powell River Energy Inc.      19        19  
          $ 22      $ 32  

Current liabilities

        

Due to related parties

        

Amount due to and current portion of note payable

   Brookfield Asset Management    $ 45      $ 74  

Accrued distributions payable on LP Units and Redeemable/Exchangeable partnership units

   Brookfield Asset Management      61        65  

Amount due to

   Equity accounted      1        -  
          $ 107      $ 139  

Due to related parties

        

Note payable

   Brookfield Asset Management    $ -      $ 8  

Amount due to

   Equity accounted      2        -  
          $ 2      $ 8  

 

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9. EQUITY-ACCOUNTED INVESTMENTS

The following are Brookfield Renewable’s equity-accounted investments as at December 31:

 

       Ownership interest      Carrying Value  
(MILLIONS, EXCEPT AS NOTED)    %      2012      2011  

Bear Swamp Power Co L.L.C.

     50      $ 155      $ 130  

Galera Centrais Eletricas S.A.

     50        67        86  

Pingston Power Inc.

     50        59        49  

Brookfield Americas Infrastructure Fund Investees (1)

     50        41        119  

Powell River Energy Inc.

     50        22        21  
              $ 344      $ 405  

 

(1)  

In 2011, there were ownership interests in two separate entities. In 2012, Brookfield Americas Infrastructure Fund acquired the remaining 50% interest in one of these entities, bringing the total investment to 100%, and its results were fully consolidated.

The following table outlines the changes in Brookfield Renewable’s equity-accounted investments for the year ended December 31:

 

(MILLIONS)    2012     2011     2010  

Balance, beginning of year

   $ 405     $ 269     $ 283   

Acquisitions

     (63     -       -   

Revaluation recognized through OCI

     16       136       -   

Share of OCI

     -       (7     -   

Share of net income

     (5     10       15   

Other

     (9     (3     (29

Balance, end of year

   $ 344     $ 405     $ 269   

The following tables summarize certain financial information of equity-accounted investments:

 

(MILLIONS)    2012     2011     2010  

As at December 31:

      

Current assets

   $ 66     $ 76    

Property, plant and equipment, at fair value

     1,018       1,081    

Other assets

     241       451    

Current liabilities

     46       183    

Long-term debt

     320       328    

Other liabilities

     272       282          

For the year ended December 31:

      

Revenue

   $ 106     $ 117     $ 111   

Net income

     (12     19       30   

Share of net income

      

Cash earnings

     13       23       22   

Non-cash loss

     (18     (13     (7

 

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10. PROPERTY, PLANT AND EQUIPMENT, AT FAIR VALUE

The composition of the net book value of Brookfield Renewable’s property, plant and equipment, is presented in the following table:

 

(MILLIONS)    Hydroelectric     Wind energy     Other (1)     Total  

As at January 1, 2010

   $ 11,882      $ 360      $ 634      $ 12,876   

Foreign exchange

     244        19        31        294   

Additions/transfers

     126        185        37        348   

Revaluation recognized through OCI

     (974     13        2        (959

Disposals

     (3     -        (2     (5

Revaluation through income

     60        -        (3     57   

Depreciation (3)

     (378     (22     (38     (438

As at December 31, 2010

   $ 10,957     $ 555     $ 661     $ 12,173  

Foreign exchange

     (293     (12     (89     (394

Additions/transfers (2)

     514       396       119       1,029  

Revaluation recognized through OCI

     1,094       489       55       1,638  

Disposals

     (2     -       (29     (31

Revaluations recognized through net income

     (13     -       -       (13

Depreciation (3)

     (381     (33     (43     (457

As at December 31, 2011

   $ 11,876     $ 1,395     $ 674     $ 13,945  

Foreign exchange

     (44     40       (29     (33

Additions/transfers (2)

     780       854       (152     1,482  

Revaluation recognized through OCI

     699       63       6       768  

Disposals

     (3     -       (15     (18

Revaluations recognized through net income

     (20     (4     11       (13

Depreciation (3)

     (311     (113     (49     (473

As at December 31, 2012

   $ 12,977     $ 2,235     $ 446     $ 15,658  

 

(1)  

Included in “Other” is land, buildings, roads, decommissioning assets and leasehold improvements, gas-fired generating (“co-gen”) units and CWIP.

(2)  

Includes acquisitions of $1,374 (2011: $234 million) (Note 4).

(3)  

Assets not subject to depreciation include CWIP and land.

Certain of Brookfield Renewable’s property, plant and equipment, comprised of hydroelectric, wind, and gas-fired generating units are carried at fair market value as opposed to historical cost. These items of property, plant and equipment were revalued by using a discounted cash flow model that incorporates management’s expectations about future cash inflows from power purchase agreements that are in place with certain of Brookfield Renewable’s customers and Brookfield Asset Management, future electricity prices in geographic areas in which it operates for generation that is estimated using power purchase agreement pricing, anticipated long-term average generation, estimated capital expenditures and future major maintenance expenditures for each of Brookfield Renewable’s respective plants over a 20-year period, and assumptions about future inflation rates and discount rates.

The additions/transfers to the property, plant and equipment also reflect the deduction of $209 million of investment tax credits pursuant to government incentives to build new renewable power assets (2011 and 2010: $nil).

The key valuation metrics of the discounted cash flow valuation model as at December 31, the dates of the last revaluations are set out in the following table:

 

       United States      Canada      Brazil  
           2012              2011              2012              2011              2012              2011      

Discount rate

     5.7%             5.6%             5.2%             5.4%             9.4%             9.9%       

Terminal capitalization rate

     7.0%             7.2%             6.5%             6.8%             N/A             N/A       

Exit date

     2032            2031            2032            2031            2029            2029      

 

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The valuation metrics above are based on weighted-average, post-tax discount and terminal capitalization rates. The valuations are impacted primarily by the discount rate and anticipated long-term electricity prices.

The following table summarizes the impact of a 50 bps change in discount rates on the fair value of property, plant and equipment:

 

       Effect on fair value of property, plant and equipment  
(BILLIONS)    2012     2011  

50 bps increase in discount rates

   $ (1.2   $ (1.0

50 bps decrease in discount rates

   $ 1.4     $ 1.0  

A revaluation increase of $768 million was recorded through OCI on December 31, 2012 (2011: $1,638 million increase; 2010: $959 million decrease). Certain contract amendments and agreements related to the Combination resulted in changes in the fair value of certain power generating facilities. The impact of these changes is included in OCI for the year ended December 31, 2011. For the year ended December 31, 2012, Brookfield Renewable recognized a net revaluation impairment of $13 million included in “Other” in the consolidated statements of income (loss) (2011: $13 million impairment loss; 2010: $57 million recovery) due to changes in discount rates and long-term electricity prices in the valuation model.

For the year ended December 31, 2012, $8 million of interest was capitalized (2011: $11 million) and the average borrowing rate for the year was 6.99% (2011: 5.16%).

Had Brookfield Renewable’s revalued property, plant and equipment been measured on a historical cost basis, the carrying amounts, net of accumulated depreciation would have been as follows at December 31:

 

(MILLIONS)    2012      2011  

Hydroelectric

   $ 4,629      $ 4,137  

Wind

     1,619        824  

Other (1)

     503        654  
     $ 6,751      $ 5,615  

 

(1)  

Included within the “Other” category are land, roads, decommissioning assets, leasehold improvements, gas-fired generating units and CWIP.

In the normal course of operations, Brookfield Renewable has committed as at December 31, 2012, to spend approximately $11 million (2011: $3 million) on sustaining capital expenditures over the next year. Sustaining capital expenditures relate to maintaining currently owned power generating assets, whereas development and construction expenditures include project costs for new facilities.

 

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11. INTANGIBLE ASSETS

The composition of Brookfield Renewable’s intangible assets as at December 31 is presented in the following table:

 

       Cost     

Accumulated

Amortization

    Net Book Value      Net book value  
(MILLIONS)    2012      2011  

Service concession arrangements

   $ 68      $ (24   $ 44      $ 55  

FERC Licences

     -        -       -        2  
     $ 68      $ (24   $ 44      $ 57  

The following table describes the changes in the carrying value of intangible assets for the year ended December 31:

 

(MILLIONS)    2012     2011     2010  

Balance, beginning of year

   $ 57     $ 87     $ 93   

Foreign exchange and other

     (3     (19     2   

Amortization

     (10     (11     (8

Balance, end of year

   $ 44     $ 57     $ 87   

 

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12. OTHER LONG-TERM ASSETS

The composition of Brookfield Renewable’s other long-term assets as at December 31 is presented in the following table:

 

       Cost     

Accumulated

Amortization

    Net
Book
Value
     Net
book
value
 
(MILLIONS)    2012      2011  

Water rights

   $ 115      $ (31   $ 84      $ 89  

Restricted cash

     80        -        80        139  

Available-for-sale investments

     26        -        26        -   

Unamortized financing fees

     36        (25     11        10  

Other

     57        (4     53        47  
     $ 314      $ (60   $ 254      $ 285  

Brookfield Renewable is required to pay the Brazilian Federal Government for the usage of public assets (“Water rights”) over the concession terms associated with two of its Brazilian facilities. Water rights are monetarily adjusted by the Brazilian General Market Price Index. As at December 31, 2012, an asset of $84 million (2011: $89 million) was included in other long-term assets and corresponding liability of $101 million was recorded within other long-term liabilities (Note 16) (2011: $107 million).

At December 31, 2012, $80 million of long-term restricted cash (2011: $139 million) was held to satisfy lease payments and meet debt service obligations.

At December 31, 2012, investment in securities owned by Brookfield Renewable classified as available-for-sale totaled $26 million (2011: $nil) related to Western Wind (Note 27). No gains (losses) have been recorded in OCI.

The unamortized fees primarily relate to the sale and leaseback of a hydroelectric facility. Unamortized fees are amortized on a straight-line basis over the term of the arrangement to interest expense. In 2012, Brookfield Renewable capitalized financing fees of $3 million (2011: $nil).

13. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The composition of accounts payable and accrued liabilities as at December 31 are as follows:

 

(MILLIONS)    2012     2011  

Operating accrued liabilities

   $ 97     $ 87  

Interest payable on corporate and subsidiary borrowings

     41       36  

Accounts payable

     23       16  

LP Unitholders’ distribution and preferred dividends payable

     34       26  

Sales taxes (recoverable) payable

     (4     14  

Other

     16       11  
     $ 207     $ 190  

 

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14. LONG-TERM DEBT AND CREDIT FACILITIES

The composition of debt obligations as at December 31 is presented in the following table:

 

       2012     2011  
       Weighted-average              Weighted-average           
(MILLIONS EXCEPT AS NOTED)   

Interest

rate (%)

    

Term

(years)

            

Interest

rate (%)

    

Term

(years)

          

Corporate borrowings

                

Series 3 (CDN$200)

     5.3        5.8      $ 202       5.3        6.8      $ 196  

Series 4 (CDN$150)

     5.8        23.9        151       5.8        24.9        147  

Series 6 (CDN$300)

     6.1        3.9        302       6.1        4.9        294  

Series 7 (CDN$450)

     5.1        7.8        454       5.1        8.8        440  

Series 8 (CDN$400)

     4.8        9.1        403       -         -         -   
       5.3        8.7      $ 1,512       5.5        9.6      $ 1,077  

Subsidiary borrowings

                

United States

     6.4        11.4      $ 2,264       7.0        12.6      $ 2,021  

Canada

     5.9        12.7        1,781       6.2        8.3        1,572  

Brazil

     8.5        9.7        348       12.1        6.2        653  
       6.4        11.8      $ 4,393       7.5        10.0      $ 4,246  

Credit facilities (1)

     2.0        3.8      $ 268       2.8        2.3      $ 251  

Total debt

         $ 6,173           $ 5,574  

Less: Unamortized financing fees (2)

           (54           (55

Less: Current portion

                       (532                       (650
                       $ 5,587                       $ 4,869  

 

(1)  

Amounts are unsecured and revolving. Interest rate is at the London Interbank Offered Rate (“LIBOR”) plus 1.75% for 2012 (2011: Canadian Dealer Offered Rate (“CDOR”) plus 1.75%).

(2)  

Unamortized financing fees are amortized to interest expense over the terms of the borrowing.

Future maturities of Brookfield Renewable’s debt obligations, for each of the next five years and thereafter are as follows:

 

(MILLIONS)    2013      2014      2015      2016      2017      Thereafter      Total  

Corporate borrowings

   $ -       $ -       $ -       $ 302      $ -       $ 1,210      $ 1,512  

Subsidiary borrowings

                    

United States

     69        434        63        88        460        1,150        2,264  

Canada

     435        29        30        28        26        1,233        1,781  

Brazil

     28        89        31        28        26        146        348  
     532        552        124        144        512        2,529        4,393  

Credit facilities

     -         -         -         268        -         -         268  
     $ 532      $ 552      $ 124      $ 714      $ 512      $ 3,739      $ 6,173  

 

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Future maturities of borrowings for subsidiaries accounted for on an equity-accounted basis for each of the next five years and thereafter are as follows:

 

(MILLIONS)    2013      2014      2015      2016      2017      Thereafter      Total  

United States

   $ 1      $ 1      $ 1      $ 1      $ 126      $ 6      $ 136  

Canada

     -        -        35        96        -        21        152  
     $ 1      $ 1      $ 36      $ 97      $ 126      $ 27      $ 288  

The unamortized financing fees of each debt obligation as at December 31 are as follows:

 

(MILLIONS)    2012     2011     2010  

Corporate borrowings

      

Unamortized financing fees, beginning of year

   $ 6     $ 6     $ 6   

Additional financing fees

     3       -        3   

Amortization of financing fees

     (1     -        (3

Unamortized financing fees, end of year

   $ 8     $ 6     $ 6   

Subsidiary borrowings

      

Unamortized financing fees, beginning of year

   $ 49     $ 44     $ 43   

Additional financing fees

     15       15       9   

Amortization of financing fees

     (18     (10     (8

Unamortized financing fees, end of year

   $ 46     $ 49     $ 44   

Total

   $ 54     $ 55     $ 50   

Long-term debt and credit facilities are recorded at amortized cost.

The following table provides information about management’s best estimate of the fair value of long-term debt and credit facilities as at December 31:

 

       2012      2011  
(MILLIONS)    Carrying value (1)      Fair value      Carrying value (1)      Fair value  

Corporate borrowings

   $ 1,504      $ 1,700      $ 1,071      $ 1,203  

Subsidiary borrowings

           

United States

   $ 2,244      $ 2,440      $ 2,002      $ 2,187  

Canada

     1,755        2,004        1,550        1,763  

Brazil

     348        348        645        653  
     4,347        4,792        4,197        4,603  

Credit facilities

     268        268        251        251  
     $ 6,119      $ 6,760      $ 5,519      $ 6,057  

 

(1)  

Net of unamortized financing fees.

Corporate borrowings

Corporate borrowings are obligations of a finance subsidiary of Brookfield Renewable (Note 23:—Subsidiary Public Issuers). The finance subsidiary may redeem some or all of the borrowings from time to time, pursuant to the terms of the indenture. The balance is payable upon maturity. Interest on corporate

 

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borrowings is paid semi-annually. For periods prior to November 28, 2011, interest on corporate borrowings of $77 million (2010; $100 million) was paid by BRPI on behalf of Brookfield Renewable.

In February 2012, Brookfield Renewable issued C$400 million of 10-year term corporate notes bearing interest at a rate of 4.79% per annum. Proceeds of the offering were used to reduce borrowings, extend the term on the overall maturity profile and reduce overall cost of capital.

Subsidiary borrowings

Subsidiary borrowings are generally asset-specific, long-term, non-recourse borrowings denominated in the domestic currency of the subsidiary. Subsidiary borrowings in the United States and Canada consist of both fixed and floating interest rate debt. Brookfield Renewable uses interest rate swap agreements to minimize its exposure to floating interest rates. Subsidiary borrowings in Brazil consist of floating interest rates of TJLP, the Brazil National Bank for Economic Development’s long-term interest rate, or Interbank Deposit Certificate rate, plus a margin.

As part of the acquisition of wind development and hydroelectric generation assets in California and Brazil, Brookfield Renewable acquired $442 million of subsidiary borrowings.

In May 2012, Brookfield Renewable refinanced indebtedness associated with the hydroelectric pumped storage facility in New England, of which it owns 50%, through a $125 million loan for a term of five years at a rate of LIBOR + 2.25%.

In November 2012, Brookfield Renewable secured financing for a 45 MW British Columbia hydroelectric development project through a C$175 million bond with a term of 41 years at an interest rate of 4.45%.

In November 2012, Brookfield Renewable refinanced indebtedness associated with a 189 MW Ontario wind facility through a C$232 million loan for a term of 15 years at a rate of CDOR + 2.25% to 3.25%.

Credit facilities

In November 2011, Brookfield Renewable negotiated a $600 million committed unsecured revolving credit facility used for general working capital purposes, expiring in October 2014. The credit facility is available by way of advances in either Canadian or U.S. dollars of (i) prime rate loans (ii) bankers’ acceptance (“BA”) loans and (iii) letters of credit. Refer to Note 25 – Commitments, Contingencies and Guarantees for further details. The credit facility bears interest at the applicable BA rate or LIBOR plus an applicable margin. The applicable margin is tiered on the basis of Brookfield Renewable’s unsecured long-term debt rating. At December 31, 2012, the margin was 1.75% (2011: 1.75%). Standby fees are charged on the undrawn balance.

Brookfield Renewable expanded its revolving credit facilities from $600 million to $900 million in March 2012. In May 2012, Brookfield Renewable entered into an additional credit agreement for $90 million on similar terms and conditions as the other lenders. All facilities have an expiry of October 31, 2016, subject to additional one-year extensions.

Refer to Note 17 - Capital Management for a discussion regarding the various covenants in place with lenders.

 

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Brookfield Renewable and its subsidiaries issue letters of credit from its credit facilities for general corporate purposes, which include, but are not limited to, security deposits, performance bonds and guarantees for debt service reserve accounts.

 

(MILLIONS)    2012     2011  

Available revolving credit facilities

   $ 990     $ 601  

Drawings

     (268     (251

Issued letters of credit

     (182     (160

Unutilized revolving credit facilities

   $ 540     $ 190  

 

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15. INCOME TAXES

The major components of income tax recovery (expense) for the year ended December 31 are as follows:

 

(MILLIONS)    2012      2011      2010  

Income tax recovery (expense) applicable to:

        

Current taxes

        

Attributed to the current period

   $ (14)       $ (8)         (32)   

Deferred Taxes

        

Income taxes-origination and reversal of temporary differences

   $ 82      $ 75        3   

Relating to change in tax rates / imposition of new tax laws

     (5)         (3)         -   

Relating to unrecognized temporary differences and tax losses

     (23)         (22)         -   
     $ 54      $ 50        3   

Total income tax recovery

   $ 40      $ 42        (29)   

The major components of deferred income tax recovery (expense) for the year ended December 31 recorded directly to OCI are as follows:

 

(MILLIONS)    2012     2011     2010  

Deferred income taxes attributed to:

      

Financial instruments designated as cash flow hedges

   $ (1   $ 194       -   

Revaluation surplus

      

Origination and reversal of temporary differences

     (220     (270     383   

Relating to changes in tax rates / imposition of new tax laws

     (6     315       61   
     $ (227)      $ 239       444   

Brookfield Renewable’s effective income tax recovery for the year ended December 31 is different from its recovery at its statutory income tax rate due to the differences below:

 

(MILLIONS)    2012      2011      2010  

Statutory income tax recovery (expense) (1)

   $ 47      $ 173      $ (98

(Reduction) increase resulting from:

        

Increase in tax assets not recognized

     (23)         (21)         -   

Deemed profit method differences in Brazil

     7        11        (8

Differences between statutory rate and future tax rate

     25        15        102   

Losses recorded not taxable to Brookfield Renewable

     (24)         6        7   

Other

     8        (33)         17   

Effective income tax recovery, before change in Fund unit liability

   $ 40      $ 151      $ 20   

Change in Fund unit liability

     -        (109)         (49

Effective income tax recovery

   $ 40      $ 42      $ (29

 

(1)  

Statutory income tax recovery (expense) is calculated at the domestic rates applicable to the profits in the country concerned.

As Brookfield Renewable is not subject to tax, the above reconciliation has been prepared by aggregating the separate reconciliations for its subsidiaries using the domestic rate in each tax jurisdiction.

 

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The following table details the expiry date, if applicable, of the unrecognized deferred tax assets as at December 31:

 

(MILLIONS)    2012      2011  

2013 to 2017

   $ 1      $ 1  

2018 and thereafter

     71        44  
     $         72      $         45  

The deferred tax assets and liabilities of the following temporary differences have been recognized in the financial statements for the year ended December 31:

 

(MILLIONS)   

Balance

Jan 1, 2012

   

Recognized

in Net

income

(loss)

   

Recognized

in Equity

   

Business

Combinations

   

Foreign

Exchange

   

Balance

2012

 

Non-capital losses

   $ 168     $ 97     $ -     $ -     $ 5     $ 270  

Amount available for future

deductions

     138       (14     -       -       7       131  

Difference between tax and carrying value

     (2,374     (29     (227     (2     (46     (2,678

Net deferred tax assets / (liabilities)

   $ (2,068   $ 54     $ (227   $ (2   $ (34   $ (2,277

 

(MILLIONS)    Balance
Jan 1, 2011
    Recognized
in Net
income
(loss)
    Recognized
in Equity
     Business
Combinations
     Foreign
Exchange
    Balance
2011
 

Non-capital losses

   $ 124     $ 44     $ -      $ -       $ -     $ 168  

Capital losses

     5       (5     -        -        -       -   

Amount available for future deductions

     147       (9     -        -        -       138  

Difference between tax and carrying value

     (2,429     20       239        -        (204     (2,374

Net deferred tax assets / (liabilities)

   $ (2,153   $ 50     $ 239      $ -       $ (204   $ (2,068

The deferred income tax liabilities includes $2,395 million (2011: $2,174 million) of liabilities which relate to property, plant and equipment revaluations included in equity.

The taxable temporary differences attributable to the Brookfield Renewable’s interest in its subsidiaries, branches, associates, and joint ventures is $857 million (2011: $885 million).

 

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16. OTHER LONG-TERM LIABILITIES

Brookfield Renewable’s other long-term liabilities as at December 31 are comprised of the following:

 

(MILLIONS)    2012      2011  

Concession payment liability

   $ 101      $ 107  

Decommissioning retirement obligations

     27        24  

Pension obligations (Note 20)

     16        17  

Other

     13        16  
     $   157      $   164  

At December 31, 2012, Brookfield Renewable recorded a liability associated with a future obligation relating to Concession payments of $101 million (2011: $107 million). The future obligation is being settled through monthly payments made over the concession term. In 2012, $1 million of concessions payments were made to the Brazilian Federal Government. See Note 12 – Other long-term assets for additional details regarding water rights.

Brookfield Renewable has recorded decommissioning retirement obligations associated with certain power generating assets. The estimated cost of decommissioning activities is based on a third party assessment. The decommissioning retirement obligation of $27 million at December 31, 2012 (2011: $24 million), has been established for wind operation sites in Canada and United States and are expected to be restored between the years 2031 to 2064.

 

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17. CAPITAL MANAGEMENT

Brookfield Renewable’s primary capital management objectives are to ensure the sustainability of its capital to support continuing operations, meet its financial obligations, allow for growth opportunities and provide stable distributions to its unitholders. Brookfield Renewable’s capital is monitored through total debt to total debt plus equity which is defined as the total long-term debt and credit facilities divided by total long-term debt and credit facilities plus equity.

Brookfield Renewable has provided covenants to certain of its lenders for its corporate borrowings and credit facilities. The covenants require Brookfield Renewable to meet minimum debt to capitalization ratios. Subsidiaries of Brookfield Renewable have provided covenants to certain of their lenders for their property-specific borrowings. These covenants vary from one agreement to another and include ratios that address debt service coverage. Certain lenders have also put in place requirements that oblige Brookfield Renewable and its subsidiaries to maintain debt and capital expenditure reserve accounts. The consequences to the subsidiaries as a result of failure to comply with their covenants could include a limitation of distributions from the subsidiaries to Brookfield Renewable, as well as repayment of outstanding debt. Brookfield Renewable is dependent on the distributions made by its subsidiaries to service its debt.

Financial covenants associated with Brookfield Renewable’s various banking and debt arrangements are reviewed regularly and controls are in place to maintain compliance with these covenants. Brookfield Renewable complied with all financial covenants for the years ended December 31, 2012 and 2011.

Brookfield Renewable’s strategy during 2012, which was unchanged from 2011, was to maintain the measure set out in the following schedule as at December 31:

 

(MILLIONS)    2012      2011  

Total debt

     

Current portion of long-term debt

   $ 532      $ 650  

Long-term debt and credit facilities

     5,587        4,869  
   $ 6,119      $ 5,519  

Deferred income tax liability, net (1)

     2,277        2,068  

Preferred equity

     500        241  

Participating non-controlling interests-in operating subsidiaries

     1,028        629  

General partnership interest in a holding subsidiary held by Brookfield

     63        64  

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

     3,081        3,097  

Limited partners’ equity

     3,158        3,169  

Total capitalization (2)

   $ 16,226      $ 14,787  

Debt to total capitalization

     38%         37%   

 

(1)  

Deferred income tax liability minus deferred income tax asset.

(2)  

Total debt plus deferred income tax liability, net, and equity.

 

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18. NON-CONTROLLING INTERESTS

Brookfield Renewable’s non-controlling interests as at December 31 are comprised of the following:

 

       2012      2011  

Preferred equity

   $ 500      $ 241  

Participating non-controlling interests - in operating subsidiaries

     1,028        629  

General partnership interest in a holding subsidiary held by Brookfield

     63        64  

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

     3,081        3,097  

Total

   $ 4,672      $ 4,031  

Preferred equity

In March 2010, Brookfield Renewable Power Preferred Equity Inc. (“BRP Equity”) issued 10 million Series 1 preferred shares at a price of C$25 per share. The holders of the Series 1 preferred shares are entitled to receive fixed cumulative dividends at an annual rate of C$1.3125 per share, a yield of 5.25% for the initial five-year period ending April 30, 2015. The dividend rate will reset on April 30, 2015 and every five years thereafter at a rate equal to the then five-year Government of Canada Bond yield plus 2.62%. Brookfield Renewable, BRELP and certain key holding company subsidiaries fully and unconditionally guarantee the payment of dividends on the preferred shares, the amounts due on redemption, and the amounts due on the liquidation, dissolution or winding-up of BRP Equity. For the year ended, December 31, 2012, dividends declared on the Series 1 preferred shares were $13 million (2011: $13 million; 2010: $10 million).

In October 2012, BRP Equity issued 10 million Series 3 preferred shares at a price of C$25 per share. The holders of the preferred shares are entitled to receive fixed cumulative dividends at an annual rate of C$1.10 per share, a yield of 4.4% for the initial period ending July 31, 2019. The dividend will reset on July 31, 2019 and every five years thereafter at a rate equal to the then five-year Government of Canada Bond yield plus 2.94%. Brookfield Renewable, BRELP and certain key holding company subsidiaries fully and unconditionally guarantee the payment of dividends on the preferred shares, the amount due on redemption, and the amounts due on the liquidation, dissolution or winding-up of BRP Equity. For the year ended December 31, 2012, dividends declared on the Series 3 preferred shares were $3 million.

As at December 31, 2012, none of the Series 1 or Series 3 preferred shares have been redeemed.

 

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Participating non-controlling interests – in operating subsidiaries

The net change in participating non-controlling interests – in operating entities is as follows:

 

(MILLIONS)   

Brookfield

Americas

Infrastructure

Fund

      

The Catalyst

Group

      

Brascan

Energetica

       Other (1)        Total  

Balance, December 31, 2009

   $ -         $ 140         $ 57         $ -         $ 197   

Net income

   $ -         $ 23         $ 2         $ -         $ 25   

OCI

     -           7           3           -           10   

Other

     -           (3        -           -           (3

Distributions

     -           (24        1           -           (23

As at December 31, 2010

   $ -         $ 143        $ 63        $ -         $ 206  

Net income

     1          5          5          -           11  

OCI

     173          16          11          -           200  

Acquisitions

     209          -           -           14          223  

Distributions

     -           (14)           (5)           (6)           (25)   

Other

     (3)           17          -           -           14  

As at December 31, 2011

   $ 380        $ 167        $ 74        $ 8        $ 629  

Net income (loss)

     (44)           2          2          -           (40)   

OCI

     24          (28)           (7)           25          14  

Acquisitions and contributions

     447          -           (9)           8          446  

Distributions

     -           (18)           (6)           -           (24)   

Other

     (1)           -           4          -           3  

As at December 31, 2012

   $ 806        $ 123        $ 58        $ 41        $ 1,028  

Interests held by third parties

     75-80%           25%           20-30%           24-50%              

 

(1)  

Includes the acquisition of a controlling interest in wind development project in Western Canada in 2011 and contributions to a hydroelectric development project in British Columbia in 2012.

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. During 2012, BRELP paid $4 million in distributions on general partnership units (2011: $1 million; 2010: $nil ) and no incentive distributions have been paid since the Combination.

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

Consolidated equity includes Redeemable/Exchangeable Partnership Units issued by BRELP. The Redeemable/Exchangeable Partnership Units are held 100% by Brookfield Asset Management, which at its discretion has the right to redeem these units for cash consideration after a mandatory holding period expiring on November 28, 2013. Since this redemption right is subject to Brookfield Renewable’s right, at its sole discretion, to satisfy the redemption request with LP Units of Brookfield Renewable, the Redeemable/Exchangeable Partnership Units are classified as equity in accordance with IAS 32, Financial Instruments: Presentation . Both the LP Units issued by Brookfield Renewable and the Redeemable/Exchangeable Partnership Units issued by its subsidiary BRELP have the same economic attributes in all respects, except for the redemption right described above. The Redeemable/Exchangeable Partnership Units participate in earnings and distributions on a per unit basis equivalent to the per unit participation of the LP Units of Brookfield Renewable.

 

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As at December 31, 2012, Redeemable/Exchangeable Partnership Units outstanding were 129,658,623 (December 31, 2011: 129,658,623).

Consistent with the basis of presentation for the Combination (Note 2(b) (ii)), income (loss) attributable to Redeemable/Exchangeable Partnership Units held by Brookfield Asset Management has been calculated as if the Redeemable/Exchangeable Partnership Units had always been issued and outstanding.

For the year ended December 31, 2012, BRELP declared distributions on Redeemable/Exchangeable Partnership Unit to Brookfield Asset Management of $179 million (2011: $43 million; 2010: $nil).

19. LIMITED PARTNERS’ EQUITY

Limited partners’ equity

Brookfield Renewable’s equity is comprised of general partnership interests and LP Units.

As at December 31, 2012, LP Units outstanding were 132,901,916 (December 31, 2011: 132,827,124) including 48,091,986 held by Brookfield Asset Management and general partnership interests represent 0.01% of Brookfield Renewable.

Consistent with the basis of presentation for the Combination (Note 2(b) (ii)), net loss per LP Unit has been calculated as if the LP Units had always been issued and outstanding.

During 2012, a distribution re-investment plan was implemented, allowing holders of LP Units who are resident in Canada to acquire additional LP Units by reinvesting all or a portion of their cash distributions without paying commissions. During the year ended December 31, 2012, 74,792 LP Units were issued.

Distributions

Distributions may be made by the general partner of Brookfield Renewable with the exception of instances that there is insufficient cash available, payment rends Brookfield Renewable unable to pay its debt or payment of which might leave Brookfield Renewable unable to meet any future contingent obligations.

Prior to the Combination, the Fund made distributions of $103 million consisting of $33 million paid to Brookfield and $70 million paid to the external unitholders of the Fund. In December 2011, Brookfield Renewable declared distributions on it LP Units of $45 million ($0.3375 per LP Unit) payable on January 31, 2012, consisting of $21 million payable to Brookfield Asset Management and $24 million payable to external unitholders of Brookfield Renewable.

For the year ended December 31, 2012, Brookfield Renewable declared distributions on its LP Units of $183 million ($1.38 per LP Unit), consisting of $66 million payable to Brookfield Asset Management and $117 million payable to external unitholders of Brookfield Renewable.

In March 2012, unitholder distributions were increased to $1.38 per unit from $1.35 per unit, on an annualized basis.

Transactions related to the Combination

This note should be read in conjunction with Note 2 (b)—Basis of presentation. Brookfield Renewable’s consolidated balance sheet was adjusted for the effects of the following transactions that took place on the effective date of the Combination:

Settlement of the Fund unit liability

At December 31, 2010, Brookfield Renewable recorded a $1,355 million liability relating to the Fund unit liability. In 2010, Brookfield reduced its ownership in the Fund from 50.01% to 34%, on a fully-exchanged

 

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basis. Through various management, administration, agency and PPAs with the Fund, along with BRPI’s 34% ownership interest, BRPI continued to control the Fund, and therefore, consolidated its results. As at the date of the Combination, the Fund units, not previously owned by Brookfield, were transferred to Brookfield Renewable. The transfer was completed at fair value and satisfied by the issuance of LP Units of Brookfield Renewable. The result of this transaction is to reflect the settlement of the Fund unit liability at the date of the Combination of $1,568 million and the LP Units issued to satisfy the transfer are treated as equity of Brookfield Renewable. As a result of the Combination, $767 million of equity was allocated to the Redeemable/Exchangeable Partnership Units to reflect the relative interests of Brookfield Renewable and Brookfield Asset Management in BRELP. For the year ended December 31, 2011, and prior to the Combination, Brookfield Renewable recorded a mark-to-market loss of $306 million (2010: $82 million) and expensed $70 million (2010: $77 million) of distributions to external unitholders of the Fund.

Settlement of related party balances

Brookfield Renewable settled certain intercompany loans and transactions with Brookfield. The consolidated balance sheets include the reduction in amounts due from and amounts due to related parties, as they were exchanged for LP Units in lieu of a cash settlement.

Derivative balance

Amendments were made to certain energy revenue agreements with the related parties which resulted in those agreements no longer meeting the derivatives definition under the IFRS. Since this change arose from the common control reorganization with Brookfield Asset Management the amounts were adjusted directly into equity.

 

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20. PENSION AND EMPLOYEE FUTURE BENEFITS

Brookfield Renewable offers a number of pension plans to its employees, as well as certain health care, dental care, life insurance and other benefits to certain retired employees pursuant to Brookfield Renewable’s policy. The plans are funded by contributions from Brookfield Renewable and from plan members. Pension benefits are based on length of service and final average earnings and some plans are indexed for inflation after retirement. The pension plans relating to employees of Brookfield Renewable have been included in the consolidated financial statements.

Actuarial valuations for Brookfield Renewable’s pension plans are required as per governing provincial regulations or state. For Québec registered plans, actuarial valuations are required annually. For Ontario registered plans, actuarial valuations are required on a triennial basis if the funding level of the plan is above a certain threshold. Currently, all Ontario registered plans are on a triennial schedule. The dates of the most recent actuarial valuations for Brookfield Renewable’s pension and non-pension benefit plans range from December 31, 2010 to April 1, 2012. Brookfield Renewable measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year.

Brookfield Renewable has elected under IFRS 1, First Time Adoption of International Financial Reporting Standards to not disclose the five year history of the defined benefits obligations and plan assets, and of experience adjustments. The benefit liabilities represent the amount of pension and other employee future benefits that Brookfield Renewable’s employees and retirees have earned at year-end. The benefit obligation under these plans is determined through periodic actuarial reports which were based on the assumptions indicated in the following table.

Actuarial assumptions as at December 31:

 

      

Defined benefit

pension plans

    

Non-pension

benefit plans

    

Defined benefit

pension plans

    

Non-pension

benefit plans

    

Defined benefit

pension plans

    

Non-pension

benefit plans

 
      

2012

(%)

    

2011

(%)

    

2010

(%)

 

Discount rate

                 
   

Benefit obligation

                 3.5 - 4.5               4.1 - 4.5                     4.2 - 5.3               4.5 - 5.3                     5.1 - 5.8               5.4 - 5.8   
   

Benefit expense

     4.2 - 5.3         4.3 - 5.3         5.1 - 5.8         5.4 - 5.8         5.7 - 6.7         5.9 - 6.7   
   

Long-term rate of return on plan assets

     5.9 - 7.5         N/A         6.2 - 7.5         N/A         7.5         N/A   
   

Rate of compensation increases

     3.0 - 4.0         3.0 - 4.0         3.5 - 4.0         3.5 - 4.0         3.5 - 4.0         3.5 - 4.0   

Plan obligations and the annual pension expense are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the long-term rate of return on plan assets, discount rates, rate of compensation increases and other assumptions. The discount rate, assumed long-term rate of return on plan assets and compensation increases are the assumptions that generally have the most significant impact on the pension cost and obligation.

The discount rate for benefit obligation and benefit expense purposes is the rate at which the pension obligation could be effectively settled. The long-term rate of return on assets for pension cost purposes is the weighted average of expected long-term asset rate of return assumptions for the various categories of plan assets held. The assessment of the expected return is based on historical return trends and analysts’ predictions of the market for the assets in the next twelve months. Rate of compensation increases reflect the best estimate of merit increases to be provided, consistent with assumed inflation rates.

 

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The assumed health care cost trend had a minimal effect on the amounts reported. A one percentage point change in the assumed health care cost trend rate at December 31, 2012 would have had no significant effect on the post-retirement obligation and would have had no significant effect on the benefit expense for 2012.

Expense recognized in the Statement of income (loss) for the year ended December 31:

 

     

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

 
(MILLIONS)   2012     2011     2010  

Current service costs

          $     2             $     1             $     2             $     1             $     1             $     1  
   

Interest on accrued benefits

    3       1       3       1       3        1   
   

Expected return on plan assets

    (3)        -        (3)        -        (3)        -   
   

Amortization of net loss

    1       -        -        -        -        -   
   

Recognition of past service cost

    1       1       -        -        -        -   
   

Settlement/curtailment gain

    (1)        -        -        -        -        2   
            $     3             $     3             $     2             $     2             $     1              $     4   

Plan obligations as at December 31:

 

     

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

 
(MILLIONS)   2012     2011  

Deficit for funded plans

                  $       14                     $         -                      $       14                     $         -   
 

Present value of wholly unfunded obligations

    1       28       1       23  
 

Unrecognized net actuarial loss

    (19)        (6)        (15)        (5)   
 

Unrecognized past service cost

    -        (2)        -        (1)   
                    $ (4)                      $ 20                     $ -                      $ 17  

 

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Defined benefit obligations

The movement in the defined benefit obligation for the year ended December 31 is as follows:

 

     

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

 
(MILLIONS)   2012     2011     2010  

Balance, beginning of year

          $         61             $ 23             $ 59             $ 23             $ 48              $ 15   
   

Current service cost

    2       1       1       1       1        1   
   

Interest cost

    3       1       3       1       3        1   
   

Benefits paid

    (2)        (1)        (2)        (1)        (3)        (1)   
   

Actuarial loss (gain)

    5       2       3       (1)        8        3   
   

Plan settlements and amendments

    (1)        2       (2)        -        -        3   
   

Foreign exchange rate changes

    1       -        (1)        -        2        1   
   

Balance, end of year

          $ 69             $     28             $         61             $     23             $     59              $     23   

Expected contributions to the defined pension plans for the year ended December 31, 2013 are $6 million.

Fair value of plan assets

The movement in the fair value of plan assets for the year ended December 31 is as follows:

 

     

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

   

Defined benefit

pension plans

   

Non-pension

benefits plans

 
(MILLIONS)   2012     2011     2010  

Balance, beginning of year

          $ 47             $ -              $ 47             $ -              $ 40              $ -   
   

Expected return on plan assets

    3       -        3       -        3        -   
   

Actuarial (loss) gain

    1       -        (3)        -        1        -   
   

Employer contributions

    6       1       5       1       5        1   
   

Benefits paid

    (3)        (1)        (2)        (1)        (4)        (1)   
   

Plan settlements

    (2)        -        (2)        -        -        -   
   

Foreign exchange rate changes

    1       -        (1)        -        2        -   
   

Balance, end of year

          $         53             $     -              $         47             $     -              $     47              $     -   

 

AS AT DECEMBER 31   

2012

(%)

   

2011

(%)

 

Asset category:

    

Equity securities

     66       62  

Debt securities

     34       38  
       100                                    100  

 

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21. DIRECT OPERATING COSTS

Brookfield Renewable’s direct operating costs for the year ended December 31 are comprised of the following:

 

(MILLIONS)    2012      2011      2010  

Operations, maintenance and administration

   $ 292      $ 254      $ 201   

Water royalties, property taxes and other

     112        97        90   

Fuel and power purchases (Note 7)

     64        44        37   

Energy marketing fees (Note 8)

     18        12        -   

Total direct operating costs

   $ 486      $ 407      $ 328   

The remuneration of key management personnel of Brookfield Renewable for the years ended December 31, was as follows:

 

(MILLIONS)    2012      2011      2010  

Share-based benefits

   $ 7      $ 6      $ 5   

Salaries and benefits

     3        3        4   
     $ 10      $ 9      $ 9   

Key management personnel include those individuals having authority and responsibility for planning, directing and controlling the activities of Brookfield Renewable, directly or indirectly. Key management personnel include the Chairman, Chief Executive Officer, Chief Financial Officers and Chief Operating Officer. Share-based benefits relate to costs allocated from Brookfield Asset Management.

22. SUPPLEMENTAL INFORMATION

The net change in non-cash working capital for the year ended December 31 shown in the consolidated statements of cash flows is comprised of the following:

 

(MILLIONS)    2012     2011  

Trade receivables and other current assets

   $ (36   $ (12

Accounts payable and accrued liabilities

     17       -   

Other assets and liabilities

     (3     -   
     $ (22   $ (12

 

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23. SUBSIDIARY PUBLIC ISSUERS

As a result of the Combination, Brookfield Renewable created Brookfield Renewable Energy Partners ULC (formerly BRP Finance ULC) (“BREP Finance”) to contractually assume BRPI’s term notes with maturities ranging from 2016 and 2036 with a principal value of C$1.1 billion. BREP Finance assumed these term notes, including accrued interest, in exchange for an interest-bearing demand promissory note issued by another wholly-owned subsidiary of Brookfield Renewable. The term notes payable by BREP Finance are unconditionally guaranteed by Brookfield Renewable, BRELP and certain other subsidiaries.

See Note 14 – Long-term debt and credit facilities for additional details regarding issuances of mid-term corporate notes.

See Note 18 – Non-controlling interests and Note 27 – Subsequent events for additional details regarding the issuances of Class A Preference Shares.

The following tables provide consolidated summary financial information for Brookfield Renewable, BRP Equity, and BREP Finance:

 

(MILLIONS)   

Brookfield

Renewable

    

BRP

Equity

    

BREP

Finance

    

Other

Subsidiaries (1)

    

Consolidating

adjustments (2)

   

Brookfield

Renewable

consolidated

 

As at December 31, 2012:

                  

Current assets

   $ 46      $ -       $ 1,528      $ 530      $ (1,582   $ 522  

Long-term assets

     3,164        495        -         16,398        (3,654     16,403  

Current liabilities

     52        7        16        2,466        (1,582     959  

Long-term liabilities

     -         -         1,506        7,122        (492     8,136  

Preferred equity

     -         500        -         -         -        500  

Participating non-controlling interests - in operating subsidiaries

     -         -         -         1,028        -        1,028  

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

     -         -         -         3,081        -        3,081  
 

As at December 31, 2011:

                  

Current assets

   $ 45      $ -       $ 1,087      $ 678      $ (1,132   $ 678  

Long-term assets

     3,169        244        -         15,024        (3,407     15,030  

Current liabilities

     45        8        9        2,148        (1,132     1,078  

Long-term liabilities

     -         -         1,071        6,597        (238     7,430  

Preferred equity

     -         241        -         -         -        241  

Participating non-controlling interests - in operating subsidiaries

     -         -         -         629        -        629  

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

     -         -         -         3,097        -        3,097  

 

(1)  

Includes subsidiaries of Brookfield Renewable, other than BRP Equity and BREP Finance.

(2)  

Includes elimination of intercompany transactions and balances necessary to present Brookfield Renewable on a consolidated basis.

 

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(MILLIONS)   

Brookfield

Renewable

    BRP Equity     

BREP

Finance

   

Other

Subsidiaries (1)

   

Consolidating

adjustments (2)

   

Brookfield

Renewable

consolidated

 

For the year ended December 31, 2012

               

Revenues

   $ -      $ -       $ -      $ 1,309     $ -      $ 1,309  

Net income (loss)

     (35     -         (2     (93     35       (95

For the year ended December 31, 2011

               

Revenues

   $ -      $ -       $ -      $ 1,169     $ -      $ 1,169  

Net loss

     (238     -         2       (453     238       (451

For the year ended December 31, 2010

               

Revenues

   $ -      $ -       $ -      $ 1,045      $ -      $ 1,045   

Net income

     129        1         -        293        (129     294   

 

(1)  

Includes subsidiaries of Brookfield Renewable, other than BRP Equity and BREP Finance, general partnership interest in a holding subsidiary held by Brookfield and participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield.

(2)  

Includes elimination of intercompany transactions and balances necessary to present Brookfield Renewable on a consolidated basis.

 

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24. SEGMENTED INFORMATION

Brookfield Renewable operates mostly renewable power assets, which include conventional hydroelectric generating assets located in the United States, Canada and Brazil, a pumped storage hydroelectric facility located in the United States and wind farms located in Canada and the United States. Brookfield Renewable also operates two co-gen facilities, one in Canada and one in the United States. Management evaluates the business based on the type of power generation (Hydroelectric, Wind and Other). Hydroelectric and wind are further evaluated by major region (United States, Canada and Brazil). “Equity-accounted investments” includes Brookfield Renewable’s interest in hydroelectric facilities. The “Other” segment includes co-gen facilities, CWIP and corporate costs.

In accordance with IFRS 8, Operating Segments, Brookfield Renewable discloses information about its reportable segments based upon the measures used by management in assessing performance. The accounting policies of the reportable segments are the same as those described in Note 2 of these consolidated financial statements. Brookfield Renewable analyzes the performance of its operating segments based on revenues, earnings before interest, tax, depreciation and amortization (“Adjusted EBITDA”), and funds from operations. Adjusted EBITDA means revenues less direct costs (including energy marketing costs), plus Brookfield Renewable’s share of cash earnings from equity-accounted investments and other income, before interest, current income taxes, depreciation, amortization and management service costs and the cash portion of non-controlling interests. Funds from operations is defined as Adjusted EBITDA less interest, current income taxes and management service cost, which is then adjusted for the cash portion of non-controlling interests included in funds from operations. Transactions between the reportable segments occur at fair value.

 

       Hydroelectric     Wind energy     Other     Total  
(MILLIONS)    U.S.     Canada     Brazil     U.S.     Canada                  

For the year ended Dec 31, 2012:

              

Revenues

   $ 438     $ 272     $ 340     $ 58     $ 131     $ 70     $ 1,309  

Adjusted EBITDA

     294       213       236       31       113       (35     852  

Interest expense - borrowings

     (137     (65     (58     (23     (44     (84     (411

Funds from operations prior to non-controlling interests

     159       148       162       8       69       (155     391  

Cash portion of non-controlling interests

     (11     -        (11     (6     -        (16     (44

Funds from operations

     148       148       151       2       69       (171     347  

Depreciation and amortization

     (116     (81     (152     (38     (75     (21     (483

For the year ended Dec 31, 2011:

              

Revenues

   $ 467     $ 237     $ 335     $ -      $ 70     $ 60     $ 1,169  

Adjusted EBITDA

     336       179       269       -        58       (38     804  

Interest expense - borrowings

     (149     (68     (94     -        (25     (75     (411

Funds from operations prior to

non-controlling interests

     189       116       160       -        33       (114     384  

Cash portion on non-controlling interests

     (26     -        (13     -        -        (13     (52

Funds from operations

     163       116       147       -        33       (127     332  

Depreciation and amortization

     (130     (151     (138     -        (35     (14     (468

For the year ended December 31, 2010:

              

Revenues

   $ 459      $ 205      $ 271      $ -      $ 52      $ 58      $ 1,045   

Adjusted EBITDA

     332        160        201        -        45        13        751   

Interest expense - borrowings

     (152     (64     (95     -        (17     (76     (404

FFO prior to non-controlling interests

     164        96        90        -        28        (63     315   

Cash portion of non-controlling interests

     (31     -        (4     -        -        (11     (46

Funds from operations

     133        96        86        -        28        (74     269   

Depreciation and amortization

   $ (144   $ (153   $ (118     -      $ (24   $ (7   $ (446

 

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The following table reconciles Adjusted EBITDA and funds from operations, presented in the above tables, to net loss as presented in the consolidated statements of income (loss) for the year ended December 31:

 

(MILLIONS)    Notes      2012     2011     2010  

Revenues

     8      $ 1,309     $ 1,169     $ 1,045   

Other income

        16       19       12   

Share of cash earnings from equity-accounted investments

     9        13       23       22   

Direct operating costs

              (486     (407     (328

Adjusted EBITDA

        852       804     $ 751   

Interest expense - borrowings

     14        (411     (411     (404

Management service costs

     8        (36     (1     -   

Current income tax expense

     15        (14     (8     (32

Funds from operations prior to non-controlling interests

        391       384       315   

Less: cash portion of non-controlling interests

              (44     (52     (46

Funds from operations

        347       332       269   

Add: cash portion of non-controlling interests

        44       52       (446

Depreciation and amortization

     10        (483     (468     584   

Unrealized financial instruments loss

     7        (23     (20     (159

Loss on Fund unit liability

     18        -        (376     (7

Share of non-cash loss from equity-accounted investments

     9        (18     (13     3   

Deferred income tax recovery

     15        54       50       4   

Other

              (16     (8     46   

Net income (loss)

            $ (95   $ (451   $ 294   

 

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The following table presents information about Brookfield Renewable’s certain balance sheet items on a segmented basis:

 

       Hydroelectric      Wind energy     

Equity-

accounted

     Other      Total  
(MILLIONS)    U.S.      Canada      Brazil      U.S.      Canada      investments                    

As at December 31, 2012

                       

Property, plant and equipment

   $ 5,244      $ 5,191      $ 2,526      $ 834      $ 1,410      $ -       $ 453      $ 15,658  

Additions to property, plant and equipment

     621        85        147        610        14        -         5        1,482  

Total assets

     5,418        5,386        2,805        910        1,452        344        610        16,925  

Total borrowings

     1,784        1,126        348        460        629        -         1,772        6,119  

Total liabilities

     2,993        2,144        556        531        957        -         1,914        9,095  

As at December 31, 2011:

                       

Property, plant and equipment

   $ 4,547      $ 4,908      $ 2,626      $ 57      $ 1,343      $ -       $ 464      $ 13,945  

Additions to property, plant and equipment

     136        46        210        397        2        -         238        1,029  

Total assets

     5,064        5,139        2,963        97        1,218        405        822        15,708  

Total borrowings

     1,838        928        645        164        621        -         1,323        5,519  

Total liabilities

     3,008        2,098        869        176        894        -         1,463        8,508  

The following information is about Brookfield Renewable’s equity accounted investments:

 

     Hydroelectric      Wind energy      Other      Total  
(MILLIONS)    U.S.      Canada      Brazil      U.S.      Canada                    

As at December 31, 2012

   $ 196      $ 81      $ 67      $ -      $ -       $ -       $ 344  

As at December 31, 2011

   $ 169      $ 70      $ 86      $ 80      $ -       $ -       $ 405  

 

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25. COMMITMENTS, CONTINGENCIES AND GUARANTEES

Commitments

In the course of its operations, Brookfield Renewable and its subsidiaries has entered into agreements for the use of water, land and dams. Payment under those agreements varies with the amount of power generated. The various agreements are renewable and extend up to 2054.

Brookfield Renewable has recorded decommissioning retirement obligations associated with its power generating assets. Refer to Note 16 – Other long-term liabilities for details.

In December 2012, Brookfield Renewable entered into an agreement to acquire a portfolio of 19 hydroelectric generating stations in Maine (United States) from a subsidiary of NextEra Energy Inc. for a total enterprise value of $760 million. The transaction is expected to close in the first quarter of 2013. Brookfield Renewable expects its institutional partners to co-invest alongside it for up to a 50% interest through a private fund sponsored by Brookfield Asset Management. These assets will have an installed capacity of 360 MW and annual generation of 1.6 million MWh.

Project costs on the 45 MW hydroelectric project in British Columbia are expected to total $200 million.

At the balance sheet date, Brookfield Renewable had commitments for future minimum lease payments under non-cancellable leases which fall due as follows:

 

(MILLIONS)    2013      2014      2015      2016      2017      Thereafter      Total  

Operating leases

   $ 8      $ 6      $ 6      $ 6      $ 6      $ 53      $ 85  

Capital leases

     -         -         -         1        1        51        53  

Total

   $ 8      $ 6      $ 6      $ 7      $ 7      $ 104      $ 138  

Contingencies

Brookfield Renewable and its subsidiaries are subject to various legal proceedings, arbitrations and actions arising in the normal course of business. While the final outcome of such legal proceedings and actions cannot be predicted with certainty, it is the opinion of management that the resolution of such proceedings and actions will not have a material impact on Brookfield Renewable’s consolidated financial position or results of operations.

Guarantees

Brookfield Renewable, on behalf of Brookfield Renewable’s subsidiaries, and subsidiaries of Brookfield Renewable provided letters of credit, which include, but are not limited to, guarantees for debt service reserves, capital reserves, construction completion and performance. The activity on the issued letters of credit by Brookfield Renewable can be found in Note 14: Long-term debt and credit facilities. As at December 31, 2012, letters of credit issued by subsidiaries of Brookfield Renewable amounted to $92 million.

In the normal course of operations, Brookfield Renewable and its subsidiaries execute agreements that provide for indemnification and guarantees to third parties of transactions such as business dispositions, capital project purchases, business acquisitions, and sales and purchases of assets and services. Brookfield Renewable has also agreed to indemnify its directors and certain of its officers and employees. The nature of substantially all of the indemnification undertakings prevents Brookfield Renewable from making a reasonable estimate of the maximum potential amount that Brookfield Renewable could be required to pay third parties as the agreements do not always 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, neither Brookfield Renewable nor its subsidiaries have made significant payments under such indemnification agreements.

 

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26. RESTATEMENT

Brookfield Renewable reflects the Redeemable/Exchangeable Partnership Units issued to Brookfield Asset Management by BRELP as consolidated equity in accordance with IAS 32, Financial Instruments: Presentation since Brookfield Renewable can, at its sole discretion, elect to satisfy a redemption request by Brookfield Asset Management of the Redeemable/Exchangeable Partnership Units by issuing an equal number of LP Units (see note 18). Brookfield Renewable elected to change its accounting policy for the Redeemable/Exchangeable Partnership Units that were previously presented as limited partners’ equity to be presented as Participating non-controlling interests – in a holding subsidiary – Redeemable/Exchangeable units held by Brookfield since the Redeemable/Exchangeable Partnership Units provide Brookfield Asset Management the direct economic benefits and exposures to the underlying performance of BRELP. These revisions were made in order to better conform with the substance of the ownership interests since on an unexchanged basis the Redeemable/Exchangeable Partnership Units are not held by Brookfield Renewable and provide Brookfield Asset Management with a direct non-controlling interest in BRELP.

This restatement has no impact on the Brookfield Renewable’s reported consolidated income (loss), income (loss) per LP Unit, comprehensive income (loss) or total equity. Consistent with the basis of presentation for the Combination (Note 2(b) (ii)), amounts attributed to the Redeemable/Exchangeable Partnership Units prior to the Combination have been calculated as if the Redeemable/Exchangeable Partnership Units and LP Units issued upon the completion of the Combination had always been issued and outstanding. The equity investment directly held by Brookfield Asset Management prior to the Combination did not contain any similar redeemable or exchangeable features. The impact of this restatement on the consolidated balance sheet, statements of income (loss), comprehensive income (loss) and changes in equity as at December 31, 2011, 2010, and 2009 and for the years ended December 31, 2011, and 2010 is shown in the following table. Accumulated other comprehensive income has also been revised to reflect the allocation of amounts to the Redeemable/Exchangeable Partnership Units as at December 31, 2011 of $3,103 million. This restatement has no impact on the consolidated statements of cash flows.

Brookfield Renewable also reclassified the general partnership interest in BRELP held by Brookfield Asset Management to non-controlling interests.

 

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(MILLIONS)    Previously
presented
    Restated  

As at December 31, 2009:

    

Consolidated Balance Sheet

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 41  

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

     -        2,009  

Limited partners’ equity

     4,108       2,058  

As at December 31, 2010:

    

Consolidated Balance Sheet

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 34  

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

     -        1,650  

Limited partners’ equity

     3,372       1,688  

As at December 31, 2011:

    

Consolidated Balance Sheet

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 64  

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

     -        3,097  

Limited partners’ equity

     6,330       3,169  

For the year ended December 31, 2011:

    

Consolidated Statements of Income (Loss)

    

Net loss attributable to:

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ (5

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

     -        (232

Limited partners’ equity

     (475     (238

Consolidated Statements of Comprehensive Income (Loss)

    

Comprehensive income attributable to:

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 4  

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

     -        196  

Limited partners’ equity

     401       201  

Consolidated Statements of Changes in Equity

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 64  

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

     -        3,097  

Limited partners’ equity

     6,330       3,169  

For the year ended December 31, 2010:

    

Consolidated Statements of Income (Loss)

    

Net loss attributable to:

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -        3   

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

     -        127   

Limited partners’ equity

     259        129   

Consolidated Statements of Comprehensive Income (Loss)

    

Comprehensive income attributable to:

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -        (1

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

     -        (51

Limited partners’ equity

     (104     (52

Consolidated Statements of Changes in Equity

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -        34   

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

     -        1,650   

Limited partners’ equity

     3,372        1,688   

For the year ended December 31, 2009:

    

Consolidated Statements of Changes in Equity

    

General partnership interest in a holding subsidiary held by Brookfield

   $ -      $ 41  

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

     -        2,009  

Limited partners’ equity

     4,108       2,058  

 

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27. SUBSEQUENT EVENTS

On January 18, 2013, Brookfield Renewable announced an increase in unitholder distributions to $1.45 per unit on an annualized basis, an increase of seven cents per unit per year, to take effect during the first quarter distribution payable in April 2013.

On January 22, 2013, Brookfield Renewable issued C$175 million of Class A Preference Shares with fixed, annual cumulative dividends yielding 5%. The net proceeds were used to repay outstanding indebtedness and for general corporate purposes.

On November 26, 2012, Brookfield Renewable launched an offer to purchase, through an indirect wholly-owned subsidiary, all of the issued and outstanding common shares of Western Wind Energy Corp. (“Western Wind”) (excluding those Brookfield Renewable already owns) for C$2.50 in cash per common share. This offer was subsequently increased to $2.60 per common share. Western Wind is publicly traded and has 165 MW of wind and solar assets operating in California and Arizona. On February 21, 2013, Brookfield Renewable announced that it was successful in its bid for Western Wind and following the take up of the tendered shares, will own 66.1% of the issued and outstanding common shares. Brookfield Renewable has taken up 35,443,025 common shares of Western Wind, bringing the total ownership to 46,767,375 common shares. The offer has been extended to March 7, 2013 and additional shares may be acquired.

On February 22, 2013, an affiliate of Brookfield Renewable announced that 87% of the $575 million of borrowings outstanding, with respect to the intended acquisition of hydroelectric generating stations in Maine, were tendered pursuant to a previously announced cash offer. The settlement date is expected to be on or about March 6, 2013.

On February 22, 2013, Brookfield Renewable refinanced indebtness associated with a wind facility in Ontario through a C$450 million bond for a term of 18 years at a rate of 5.13%.

On February 13, 2013, Brookfield Renewable announced the intention to acquire the remaining 50% interest held by its partner in Powell River Energy Inc. for C$33 million plus the assumption of related debt.

 

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Unaudited Pro Forma Condensed Combined Statements of (Loss)

Income for the Year Ended December 31, 2011

BROOKFIELD RENEWABLE ENERGY PARTNERS L.P.

 

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     PAGE  

Unaudited Pro Forma Condensed Combined Statements of (Loss) Income -
For the year ended December 31, 2011

     F-96   

Notes to the Unaudited Pro Forma Condensed Combined Statements of (Loss) Income

     F-97-F-99   

 

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The unaudited pro forma condensed combined statements of (loss) income of Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”) adjusts the audited consolidated statements of (loss) income of Brookfield Renewable for the year ended December 31, 2011 to give effect to the following transactions that occurred on November 28, 2011 as if each occurred as of January 1, 2011:

 

   

the transfer of the Brookfield Renewable Power Division (the “Division”) and related transactions including the assumption of the term notes of Brookfield Renewable Power Inc. (“BRPI”) and the preferred shares of Brookfield Renewable Power Preferred Equity Inc. and the issuance by a holding entity of preferred shares to BRPI;

   

the transfer to Brookfield Renewable of the 66% ownership interest in Brookfield Renewable Power Fund (the “Fund”) not previously owned by the Division at fair value satisfied by the issuance of limited partnership units of Brookfield Renewable (the “LP Units”) and the subsequent dissolution of the Fund into an indirect, wholly-owned subsidiary of Brookfield Renewable. The result of this transaction is to reflect the settlement of the Fund unit liability and the issuance of LP Units as equity and to reflect a reduction in deferred tax balances of certain subsidiaries due to the dissolution of the Fund;

   

the amendment of the Power Purchase Agreement between BRPI and Brookfield Renewable Power Trust (“BRPT”) to increase the price paid for energy generated from the facilities owned by Great Lakes Power Limited (“GLPL”), a subsidiary of BRPT, from C$68 per megawatt hour (“MWh”) to C$82 per MWh. As a result of this amendment, energy revenues generated by facilities owned by GLPL will be increased;

   

the amendment of the Master Power Purchase and Sale Agreement between Brookfield Energy Marketing LP (“BEM LP”) and Mississagi Power Trust (“MPT”) to increase the price paid for energy from the facilities from C$68 per MWh to C$103 per MWh. As a result of this amendment, energy revenues generated by facilities owned by MPT will be increased;

   

the execution of an Energy Revenue Agreement between BEM LP and Brookfield Power US Holding America Co. (“BPUSHA”) to support the price for energy delivered by certain facilities in the United States at $75 per MWh. The contract price effectively replaces the market prices realized by BPUSHA for generation at these facilities;

   

changes in the fair value of certain facilities arising from the contract amendments and new agreement referred to above and changes in the accounting for certain power purchase agreements between the Division and BRPI;

   

the entry into a Master Services Agreement with Brookfield Asset Management Inc. (“Brookfield”) and an Energy Marketing Agreement with BEM LP; and

   

The settlement of certain intercompany balances with BRPI and its subsidiaries.

The unaudited pro forma condensed combined statements of (loss) income have been prepared based upon currently available information and assumptions deemed appropriate by management. The unaudited pro forma condensed combined statements of (loss) income are provided for information purposes only and may not be indicative of the results that would have occurred if the above transactions had been effected on January 1, 2011.

All financial data in these unaudited pro forma condensed combined statements of (loss) income is presented in U.S. dollars and has been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

 

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Unaudited Pro Forma Condensed Combined Statement of (Loss) Income

For the Year Ended December 31, 2011

$US Millions

 

 

 
   

Brookfield

Renewable

Consolidated

   

Transfer
of BRPF
Units

4(ii)

    Power
Purchase
Agreements
4(iii)
   

Financial

Instruments

4(iv)

   

Change in
depreciation
expense

4(v)

   

Management
service
agreements

4(vi)

   

Intercompany
settlements

4(vii)

   

Income
taxes

4(viii)

    Pro Forma  

 

 

Revenues

    $1,169        $     -        $140        $   -        $  -        $     -        $   -        $   -        $1,309   

Other income

    19                      19   

Direct operating costs

    (407)                (18)            (425)   

Management service costs

    (1)                (21)            (22)   

Interest expense-borrowings

    (411)                      (411)   

Share of earnings from equity-accounted investments

    10                      10   

Unrealized financial instruments (loss) gain

    (20)            20                -   

Loss on Fund unit liability

    (376)        376                    -   

Depreciation and amortization

    (468)              4              (464)   

Other

    (8)                  19          11   

 

 

Income (loss) before income taxes

    $  (493)        $376        $140        $20        $4        $(39)        $19        $   -        $     27   

(Provision for) recovery of income taxes

                 

Current income taxes

    (8)                      (8)   

Deferred income taxes

    50                    10        60   

 

 

Net (loss) income

    $ (451)        $376        $140        $20        $4        $(39)        $19        $10        $     79   

Net (loss) income attributable to:

                 

Non-controlling interests

                 

Preferred equity

    13                      13   

Participating non-controlling interests - in operating subsidiaries

    11                      11   

General partnership interest in a holding subsidiary held by Brookfield

    (5)        4        1        —          —          —          —          —          —     

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

    (232)        184        68        10        2        (19)        9        5        27   

Limited partners’ equity

    (238)        188        71        10        2        (20)        10        5        28   

 

 

Net (loss) income

    $    (451)        $376        $140        $20        $ 4        $(39)        $19        $10        $     79   

 

 

Basic and diluted earnings (loss) per LP Unit

    $(1.79)                      $  0.21   

 

 

 

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Table of Contents

NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED

STATEMENTS OF (LOSS) INCOME

1. NATURE AND DESCRIPTION OF BROOKFIELD RENEWABLE

Brookfield Renewable Energy Partners L.P. (“Brookfield Renewable”) was created to facilitate a corporate reorganization (the “Combination”) of the renewable power operations of Brookfield Renewable Power Inc. (“BRPI”). BRPI is a wholly-owned subsidiary of Brookfield Asset Management Inc. (“Brookfield Asset Management”). The Combination has resulted in Brookfield Renewable’s acquisition of BRPI’s renewable power operations (including the assumption of BRPI’s term notes with maturities ranging from 2016 to 2036 (the “BRPI Bonds”) and the preferred shares of Brookfield Renewable Power Preferred Equity Inc. (“BRP Equity”), the acquisition of the outstanding fund units of Brookfield Renewable Power Fund (the “Fund”) not previously owned by BRPI, the dissolution of the Fund and the execution or amendment of certain agreements described in Note 4. As a result of the Combination, Brookfield Asset Management held, directly or indirectly, approximately a 73% limited partnership interest on a fully exchanged basis and a 0.01% general partnership interest in Brookfield Renewable.

Brookfield Renewable was formed as a limited partnership established under the laws of Bermuda, pursuant to a limited partnership agreement dated June 27, 2011. In connection with the Combination, an amended and restated limited partnership agreement (the “Partnership Agreement”) dated November 20, 2011 has replaced the initial limited partnership agreement in its entirety. Brookfield Renewable and its subsidiaries are collectively referred to as “Brookfield Renewable Group”.

The registered office of Brookfield Renewable is Canon’s Court, 22 Victoria Street, Hamilton HM12, Bermuda.

2. BASIS OF PRESENTATION

Brookfield Renewable’s unaudited pro forma condensed combined statements of income (loss) for the year ended December 31, 2011 have been prepared assuming the transactions described above had each occurred as of January 1, 2011. The pro forma adjustments are described in Note 4 and are based upon currently available information and certain assumptions made.

Brookfield Renewable’s unaudited pro forma condensed combined statements of (loss) income have been prepared using the audited consolidated financial statements of Brookfield Renewable for the year ended December 31, 2011.

The unaudited pro forma condensed combined statements of (loss) income have been prepared for informational purposes only and should be read in conjunction with the audited consolidated financial statements of Brookfield Renewable for the year ended December 31, 2011 described above and the related disclosures used to prepare these statements. The preparation of these unaudited pro forma condensed combined statements of (loss) income requires management to make estimates and assumptions deemed appropriate. The unaudited pro forma condensed combined statements of (loss) income are not intended to present or be indicative of the results of operations that would have occurred if the transactions described above had been effected on the dates indicated.

3. SIGNIFICANT ACCOUNTING POLICIES

Brookfield Renewable presents its financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). The accounting policies used in the preparation of Brookfield Renewable’s unaudited pro forma condensed combined statements of (loss) income are those that are set out in Brookfield Renewable’s audited financial statements for the year ended December 31, 2011.

4. PRO FORMA ADJUSTMENTS

To give effect to the transactions below resulting from the Combination as if they had occurred on January 1, 2011, the unaudited pro forma condensed combined financial statements of (loss) income of Brookfield Renewable for the year ended December 31, 2011 were adjusted accordingly. The unaudited pro forma condensed combined statements of (loss) income for the year ended December 31, 2011 adjust the consolidated statements of (loss) income of Brookfield Renewable for the year ended December 31, 2011 to give effect to the following transactions discussed in these notes.

 

   

Transfer of the Brookfield Renewable Power Division (the “Division”)

   

Transfer of Fund units

   

Amendment and execution of power purchase agreements

   

Changes in fair value of property, plant and equipment

   

Settlement of intercompany transactions

   

Execution of management service agreements

 

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Table of Contents

The unaudited pro forma condensed combined statements of (loss) income reflect the deferred tax adjustments arising from the above transactions and the computation of income per unit based on the units issued in connection with the transactions described in (i) and (ii) below and the terms of the Partnership Agreement.

The unaudited pro forma condensed combined statements of income (loss) do not reflect the impact of potential cost savings and other synergies.

 

(i)

Transfer of the Division

Through a series of transactions, BRPI has transferred the Division to Brookfield Renewable Energy L.P. (“BRELP”), in return for the issuance of limited partnership units of Brookfield Renewable (the “LP Units”) and redeemable partnership units of BRELP (the “Redeemable/Exchangeable partnership units”). The transfer of the Division includes all of BRPI’s renewable power operations and the assumption of the BRPI Bonds and the preferred shares of BRP Equity.

BRPI owns the general partner of BRELP (the “BRELP General Partner”). Brookfield Renewable has entered into a voting agreement with BRPI to provide Brookfield Renewable with control of the BRELP General Partner and BRELP. Accordingly, Brookfield Renewable consolidates the accounts of BRELP and its subsidiaries.

BRPI has provided $5 million of working capital funding through a subscription for preferred shares of a subsidiary of BRELP (“Bermuda Holdco”). The impact of the preferred share dividends on the unaudited pro forma condensed combined statements of (loss) income is not material.

 

(ii)

Transfer of Brookfield Renewable Power Fund Units

The transfer of the 66% of the Fund units not previously owned by Brookfield Asset Management and its subsidiaries (collectively, “Brookfield”) was completed at fair value satisfied by the issuance of LP Units. The result of this transaction is to reflect the settlement of the Fund unit liability and the issuance of LP Units to satisfy the transfer as equity of Brookfield Renewable. As a result of this transaction, the loss on Fund unit liability of $376 million related to the change in fair value of the units and the distributions made on such Fund units was eliminated. Subsequent to the transfer of the Fund units, the Fund was dissolved into a subsidiary of BRELP.

 

(iii)

Power Purchase Agreements

Pro forma income reflects an amendment to the power purchase agreement between Brookfield and an indirect wholly-owned subsidiary of Brookfield Renewable (the “GLPL PPA”). Under the amendment, Brookfield has agreed to guarantee the price of electricity generated by facilities owned by Great Lakes Power Limited, a subsidiary of Brookfield Renewable, at C$82 per MWh. This price is to be increased annually on January 1 by an amount equal to forty percent (40%) of the increase in the consumer price index during the previous calendar year.

In a separate transaction, Brookfield Energy Marketing LP (“BEM LP”) and Mississagi Power Trust (“MPT”), an indirect wholly-owned subsidiary of Brookfield Renewable, agreed to an amendment to the existing Master Power Purchase and Sale Agreement (the “Mississagi PPA”) to adjust the price of electricity purchased to C$103 per MWh. This price is to be increased annually by an amount equal to twenty percent (20%) of the increase in the consumer price index during the previous calendar year.

Additionally, BEM LP and Brookfield Power U.S. Holding America Co. (“BPUSHA”), an indirect wholly-owned subsidiary of Brookfield Renewable, agreed to an Energy Revenue Agreement under which BEM LP will guarantee the price for energy delivered by certain facilities in the United States at $75 per MWh. This price is to be increased annually on January 1 by an amount equal to forty percent (40%) of the increase in the consumer price index during the previous calendar year, but not exceeding an increase of three percent (3%) in any calendar year. In conjunction with the Energy Revenue Agreement, BEM LP and each of the owners of the facilities entered into power agency agreements (the “Power Agency Agreements”) under which BEM LP will provide certain services. BEM LP will be entitled to be reimbursed for any third party costs incurred and, except in a few cases, receives no additional fee for its services under the Power Agency Agreements.

 

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Table of Contents

The impacts of these contract price amendments and agreements are summarized as follows:

 

 

 

For the year ended, December 31, 2011

(MILLIONS, EXCEPT AS NOTED)

   Actual
generation
(GWh)
     Incremental
Revenue
 

 

 

GLPL PPA

     964       $ 13   

Mississagi PPA

     473         17   

Energy Revenue Agreements

     3,512         110   

 

 
     4,949       $ 140   

 

 

 

(iv)

Changes in Fair Value of Property, Plant and Equipment

Prior to November 28, 2011 certain power guarantee agreements between Brookfield Renewable and Brookfield were accounted for as financial instruments with an unrealized loss of $20 million.

As a result of new agreements and changes in existing agreements with Brookfield and its subsidiaries arising from the Combination, the contracts are not accounted for as financial instruments by Brookfield Renewable. Thus the unrealized financial instrument gains have been eliminated.

The amendments and agreements discussed in (iii) above and the change in accounting for the contracts discussed above resulted in changes in the fair value of the related power generating assets using the revaluation method since the fair value of such assets are determined using a discounted cash flow model.

 

(v)

Change in Depreciation Expense

The reduction in fair value of the power generating assets discussed in (iv) above results in a decrease in pro forma depreciation expense of $4 million for the year ended December 31, 2011.

 

(vi)

Management Service Agreements

The unaudited pro forma condensed combined statements of (loss) income reflect an exclusive agreement with Brookfield to provide operating, management and consulting services to Brookfield Renewable Group (the “Master Services Agreement”) for a management service fee. The fee will be paid on a quarterly basis and will continue in perpetuity. The fee has a fixed quarterly component of $5 million and a variable component calculated as a percentage of the increase in the total capitalization value of Brookfield Renewable, as defined. Brookfield Renewable Group is also required to reimburse Brookfield for out-of-pocket costs incurred to provide required services to Brookfield Renewable Group. For the year ended December 31, 2011 pro forma results reflect an expense of $22 million related to the Master Services Agreement.

In addition to the Management Service Agreement, the unaudited pro forma condensed combined statements of (loss) income reflect an agreement with BEM LP to provide energy marketing services (the “Energy Marketing Agreement”). Brookfield Renewable Group will pay an annual marketing service fee of $18 million to BEM LP. The fee will be increased annually on January 1 by an amount equal to the increase in the U.S. consumer price index during the previous calendar year. Pro forma results for the year ended December 31, 2011 reflect an expense of $18 million related to the Energy Marketing Agreement.

 

(vii)

Intercompany Settlements

Brookfield Renewable Group and its subsidiaries settled certain intercompany loans and transactions with Brookfield upon completion of the Combination. During the year ended December 31, 2011, $19 million of interest expense was recorded in the pro forma statements of (loss) income to reflect these transactions.

 

(viii)

Deferred Income Taxes

The unaudited pro forma condensed combined statements of (loss) income reflect an increase in deferred income tax recovery of $10 million for the year ended December 31, 2011.

 

(ix)

Earnings (loss) per LP Unit

Pro forma earnings (loss) per LP Unit have been calculated based on the average LP Units outstanding of 132.8 million.

 

F-99

Exhibit 4.18

THIS GUARANTEE INDENTURE dated as of May 1, 2013;

AMONG:

BROOKFIELD RENEWABLE ENERGY PARTNERS L.P. , an exempted limited partnership formed under the laws of Bermuda,

(hereinafter referred to as “ BREP ”),

- and -

BROOKFIELD RENEWABLE ENERGY L.P. , an exempted limited partnership formed under the laws of Bermuda,

(hereinafter referred to as “ BRELP ”),

- and -

BROOKFIELD BRP HOLDINGS (CANADA) INC. , a corporation incorporated under the laws of the Province of Ontario,

(hereinafter referred to as “ CanHoldco ”),

- and -

BRP BERMUDA HOLDINGS I LIMITED , a corporation formed under the laws of Bermuda,

(hereinafter referred to as “ Bermuda Holdco ” and collectively with BREP, BRELP and CanHoldco, the “ Guarantors ”),

- and -

BROOKFIELD RENEWABLE POWER PREFERRED EQUITY INC. , a corporation incorporated under the federal laws of Canada,

(hereinafter referred to as the “ Corporation ”),

- and -

COMPUTERSHARE TRUST COMPANY OF CANADA , a trust company organized and existing under the laws of Canada,

(hereinafter referred to as the “ Security Trustee ”).


WHEREAS pursuant to the terms of this guarantee indenture (the “ Guarantee ”) the Guarantors have agreed to guarantee in favour of the Holders (as defined below) the payment of the Series 6 Share Obligations (as defined below), pursuant to the terms of the Series 6 Shares (as defined below);

AND WHEREAS as at the date hereof, the Corporation has authorized for issuance up to 7,000,000 Series 6 Shares;

AND WHEREAS all necessary acts and proceedings have been done and taken and all necessary resolutions have been passed to authorize the execution and delivery of this Guarantee and to make the same legal, valid and binding upon the Guarantors;

AND WHEREAS the foregoing recitals are made as representations and statements of fact by the Guarantors and not by the Security Trustee;

NOW THEREFORE THIS GUARANTEE WITNESSES that for good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged by each of the parties), the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

 

1.1 Definitions

For all purposes of this Guarantee, except as otherwise expressly provided or unless the context otherwise requires:

 

  (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;

 

  (b) the words “ herein ”, “ hereof ” and “ hereunder ” and other words of similar import refer to this Guarantee as a whole and not to any particular Article, Section or other subdivision; and

 

  (c) all references to “ the Guarantee ” or “ this Guarantee ” are to this Guarantee as modified, supplemented or amended from time to time.

The following terms shall have the following meanings:

Affiliate ” means, with respect to a Person, any other Person that, directly or indirectly, through one or more intermediaries, Controls or is Controlled by such Person, or is under common Control of a third Person;

Authorized Investments ” has the meaning given to such term in Section 5.7;

Bermuda Holdco ” means BRP Bermuda Holdings I Limited;

 

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Board Resolution ” means, with respect to a Guarantor, a copy of a resolution duly passed by the board of directors (or the equivalent) of the Governing Body of such Guarantor, to be in full force and effect on the applicable date, and delivered to the Security Trustee;

BRELP ” means Brookfield Renewable Energy L.P.;

BREP ” means Brookfield Renewable Energy Partners L.P.;

Business Day ” means a day other than a Saturday, a Sunday or any other day that is a statutory or civic holiday in the place where the Corporation has its head office;

CanHoldco ” means Brookfield BRP Holdings (Canada) Inc.;

CBCA ” means the Canada Business Corporations Act ;

Class A Preference Shares ” means class A preference shares, of which the Corporation is authorized to issue an unlimited number pursuant to its articles of incorporation;

Control ” means the control by one Person of another Person in accordance with the following: a Person (“ A ”) controls another Person (“ B ”) where A has the power to determine the management and policies of B by contract or status (for example the status of A being the general partner of B) or by virtue of beneficial ownership of or control over a majority of the voting interests in B; and, for certainty and without limitation, if A owns or has control over shares to which are attached more than 50% of the votes permitted to be cast in the election of directors to the board of directors (or the equivalent) of the Governing Body of B or A is the general partner of B, a limited partnership, then in each case A Controls B for this purpose, and the term “ Controlled ” has the corresponding meaning;

Corporate Trust Office ” means the office of the Security Trustee, at which at any particular time its corporate trust business shall be principally administered, which office on the date of execution of this Guarantee is located at 100 University Ave, 8th Floor, Toronto ON M5J 2Y1;

Corporation ” means Brookfield Renewable Power Preferred Equity Inc. and its successors and assigns;

Event of Default ” has the meaning given to such term in Section 4.2;

Governing Body ” means (i) with respect to a corporation or limited company, such corporation or limited company, (ii) with respect to a limited liability company, a manager or managing partner of such limited liability company, (iii) with respect to a limited partnership, a general partner of such limited partnership (or if any such general partner is itself a partnership, such general partner’s general partner), (iv) with respect to a general partnership, the managing partner (or if there is no managing partner, each partner) and (v) with respect to any other Person, the Person that has the power to determine the management and policies of such Person by status, and in the case of each of (i) through (v) includes any Person to whom such Person has delegated any power or authority;

Guaranteed Obligations ” has the meaning given to such term in Section 3.4;

 

- 3 -


Guarantors ” means, collectively, BREP, BRELP, CanHoldco and Bermuda Holdco and their respective successors and assigns; and “ Guarantor ” means any of them;

Guarantor Order ” or “ Guarantor Request ” means, with respect to a Guarantor, a written request or order signed in the name of such Guarantor by any officer or director (or the equivalent) of the Governing Body of such Guarantor and delivered to the Security Trustee;

Holders ” means the registered holders of the Series 6 Shares from time to time, provided that, in determining whether the Holders of the requisite percentage of the aggregate Liquidation Amount of outstanding Series 6 Shares have given any request, notice, consent or waiver hereunder, “Holders” shall not include the Guarantors or any Affiliate of the Guarantors;

Liquidation Amount ” means an amount equal to $25.00 per Series 6 Share plus an amount equal to all declared and unpaid dividends up to, but excluding, the date fixed for payment or distribution;

Officer’s Certificate ” means, with respect to a Guarantor, a certificate signed by any officer or director (or the equivalent) of the Governing Body of such Guarantor and delivered to the Security Trustee;

Opinion of Counsel ” means a written opinion of counsel, who may be counsel for a Guarantor, including an employee of a Guarantor, a Governing Body of a Guarantor or the Corporation, and who shall be acceptable to the Security Trustee;

Person ” means an individual, a corporation, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof;

Responsible Officer ”, when used with respect to the Security Trustee, means any President, Senior Vice President, General Manager, Manager – Client Services, Manager – Corporate Trust, Manager – Mortgage-Backed Securities, Manager – Stock Transfer & Client Services, Associate Trust Officer, Corporate Trust Officer, Professional – Mortgage-Backed Securities of the Security Trustee and any other officer of the Security Trustee customarily performing functions similar to those performed by any of the above-designated officers, and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject;

Security Trustee ” means Computershare Trust Company of Canada;

Senior Indebtedness ” shall mean, in respect of any Guarantor, the principal of and the interest and premium (or any other amounts payable thereunder), if any, on:

 

  (i) all indebtedness (including any indebtedness to trade creditors), liabilities and obligations of such Guarantor (other than the Series 6 Share Obligations and the Guaranteed Obligations), whether outstanding on the date of this Guarantee or thereafter created, incurred, assumed or guaranteed; and

 

- 4 -


  (ii) all renewals, extensions, restructurings, refinancings and refundings of any such indebtedness, liabilities or obligations;

except only for any such indebtedness, liabilities or obligations that are, pursuant to the terms of the instrument creating or evidencing such indebtedness, liabilities or obligations, expressly pari passu with or subordinate in right of payment to the Series 6 Share Obligations;

Series 6 Share Obligations ” means all financial liabilities and obligations of the Corporation to the Holders in respect of the Series 6 Shares including or in respect of (i) any declared and unpaid dividends on the Series 6 Shares, (ii) the applicable redemption price and all declared and unpaid dividends up to, but excluding, the date fixed for redemption with respect to Series 6 Shares called for redemption, and (iii) the Liquidation Amount payable on the Series 6 Shares upon a voluntary or involuntary dissolution, liquidation or winding up of the Corporation, without regard to the amount of assets of the Corporation available for distribution;

Series 6 Shares ” means the Class A Preference Shares, Series 6 of the Corporation;

 

1.2 Compliance Certificates and Opinions

Upon any application or request by a Guarantor to the Security Trustee to take any action under any provision of this Guarantee, such Guarantor shall furnish to the Security Trustee an Officer’s Certificate stating that all conditions precedent, if any, provided for in this Guarantee (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Guarantee relating to such particular application or request, no additional certificate or opinion need be furnished.

In addition to the foregoing, every certificate or opinion with respect to compliance with a covenant or condition provided for in this Guarantee (other than as otherwise specified herein) shall include:

 

  (a) a statement that each individual signing such certificate or opinion has read and understood such covenant or condition and the definitions herein relating thereto;

 

  (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

 

  (c) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and

 

  (d) a statement as to whether, in the opinion of each such individual, such covenant or condition has been complied with.

 

- 5 -


1.3 Form of Documents Delivered to Security Trustee

In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Governing Body of a Guarantor may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his or her certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Governing Body of a Guarantor stating that the information with respect to such factual matters is in the possession of such Guarantor, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.

Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Guarantee, they may, but need not, be consolidated and form one instrument.

 

1.4 Acts of Holders

 

  (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Guarantee to be given or taken by one or more Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed by them in writing. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Security Trustee and, where it is hereby expressly required, to the Guarantors and/or the Corporation. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the “ Act ” of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Series 6 Share, shall be sufficient for any purpose of this Guarantee and conclusive in favour of the Security Trustee, the Guarantors and the Corporation, if made in the manner provided in this Section.

 

  (b)

The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is

 

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  by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Security Trustee deems sufficient.

 

  (c) If a Guarantor shall solicit from the Holders of Series 6 Shares any request, demand, authorization, direction, notice, consent, waiver or other Act, such Guarantor may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but such Guarantor shall have no obligation to do so. Such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite percentage of outstanding Series 6 Shares have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Series 6 Shares shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Guarantee not later than eleven months after the record date.

 

1.5 Notices, Etc. to Security Trustee and Guarantors

Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other documents provided or permitted by this Guarantee to be made upon, given or furnished to, or filed with,

 

  (a)

the Security Trustee by any Holder, any Guarantor or the Corporation shall be sufficient for every purpose hereunder if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to the Security Trustee at 100 University Ave, 8 th Floor, Toronto ON M5J 2Y1 Attention: Manager, Corporate Trust, Facsimile No. 416-981-9777; or

 

  (b) BREP by any Holder, the Security Trustee, any other Guarantor or the Corporation shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to BREP addressed to it at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda or at any other address previously furnished in writing to the Security Trustee by BREP, Attention: Corporate Secretary, Facsimile No. 441-294-3304; or

 

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  (c) BRELP by any Holder, the Security Trustee, any other Guarantor or the Corporation shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to BRELP addressed to it at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda or at any other address previously furnished in writing to the Security Trustee by BRELP, Attention: Corporate Secretary, Facsimile No. 441-294-3304; or

 

  (d) CanHoldco by any Holder, the Security Trustee, any other Guarantor or the Corporation shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to CanHoldco addressed to it at Suite 1700 - 180 Kent St., Ottawa ON K1P 0B6, or at any other address previously furnished in writing to the Security Trustee by CanHoldco, Attention: Corporate Secretary, Facsimile No. 819-561-7188; or

 

  (e) Bermuda Holdco by any Holder, the Security Trustee, any other Guarantor or the Corporation shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to Bermuda Holdco addressed to it at 73 Front Street, 5th Floor, Hamilton HM 12, Bermuda or at any other address previously furnished in writing to the Security Trustee by Bermuda Holdco, Attention: Corporate Secretary, Facsimile No. 441-294-3304; or

 

  (f) the Corporation by any Holder, the Security Trustee or any Guarantor shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and delivered, mailed (first-class postage prepaid) or sent by facsimile to the Corporation addressed to it at P.O. Box 762, Suite 300, Brookfield Place, 181 Bay Street, Toronto, Ontario M5J 2T3, or at any other address previously furnished in writing to the Security Trustee by the Corporation, Attention: Corporate Secretary, Facsimile No. (819) 561-7188.

Any delivery made or facsimile sent on a day other than a Business Day, or after 3:00 p.m. (Toronto time) on a Business Day, shall be deemed to be received on the next following Business Day. Anything mailed shall not be deemed to have been given until it is actually received. A Guarantor or the Corporation may from time to time notify the Security Trustee of a change in address or facsimile number which thereafter, until changed by like notice, shall be the address or facsimile number of the Guarantor or the Corporation for all purposes of this Guarantee.

 

1.6 Notice to Holders; Waiver

Where this Guarantee provides for notice of any event to the Holders of Series 6 Shares by the Guarantors or the Security Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each such Holder affected by such event, at the Holder’s address as it appears in the list of Holders as provided by the Corporation, not later than the latest date, and not earlier than the earliest date,

 

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prescribed for the giving of such notice or in any other manner from time to time permitted by applicable laws, including, without limitation, internet-based or other electronic communications. In any case where notice to the Holders of Series 6 Shares is given by mail, neither the accidental failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders of Series 6 Shares, but upon such failure to mail or such defect in any notice so mailed being discovered, the notice (as corrected to address any defects) shall be mailed forthwith to such Holder. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice.

Any request, demand, authorization, direction, notice, consent or waiver required or permitted under this Guarantee shall be in the English language.

Where this Guarantee provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Security Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.

 

1.7 Effect of Headings and Table of Contents

The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.

 

1.8 Successors and Assigns

All covenants and agreements in this Guarantee by the Guarantors shall bind their respective successors and assigns, whether so expressed or not.

 

1.9 Severability Clause

In case any provision in this Guarantee shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.

 

1.10 Governing Law

This Guarantee shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein.

 

1.11 No Recourse Against Certain Persons

A director (or the equivalent for a Guarantor that is not a corporation), officer, employee or securityholder, as such, of a Guarantor or the Governing Body of a Guarantor shall not have any liability for any obligations of such Guarantor under this Guarantee or for any claim based on, in respect of or by reason of such obligations or its creation. Each of the parties hereto acknowledges that BREP and BRELP are limited partnerships and that there is no recourse to the limited partners of BREP or BRELP.

 

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1.12 Multiple Originals

The parties may sign any number of copies of this Guarantee. Each signed copy shall be an original, but all of them together represent the same agreement. One signed copy is enough to prove this Guarantee.

 

1.13 Language

Les parties aux présentes ont exigé que la présente convention ainsi que tous les documents et avis qui s’y rattachent et/ou qui en decouleront soient rediges et exécutés en langue anglaise. The parties hereto have required that this Guarantee and all documents and notices related thereto be drafted and executed in English.

 

1.14 Force Majeure

The Security Trustee shall not be liable to any party to this Guarantee, or held in breach of this Guarantee by any party to this Guarantee, if prevented, hindered, or delayed in the performance or observance of any provision contained herein by reason of acts of God, riots, terrorism, acts of war, epidemics, governmental action or judicial order, earthquakes, or any other similar causes (including, but not limited to, mechanical, electronic or communication interruptions, disruptions or failures). Performance times applicable to the Security Trustee’s obligations under this Guarantee shall be extended for a period of time equivalent to the time lost because of any delay that is excusable under this Section.

ARTICLE 2

GUARANTEE

 

2.1 Guarantee

The Guarantors irrevocably and unconditionally, jointly and severally, guarantee in favour of the Holders the due and punctual payment of the Series 6 Share Obligations, regardless of any defense (except for the defense of payment by the Corporation), right of set-off or counterclaim which a Guarantor may have or assert. Each Guarantor’s obligation to pay Series 6 Share Obligations may be satisfied by (i) direct payment to the Holders or (ii) payment to the Holders through the facilities of the Security Trustee. A Guarantor shall give prompt written notice to the Security Trustee in the event it makes a direct payment to the Holders hereunder.

 

2.2 Waiver of Notice

Each Guarantor hereby waives notice of acceptance of this Guarantee.

 

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2.3 Guarantee Absolute

Each Guarantor guarantees that the Series 6 Share Obligations will be paid strictly in accordance with the terms of the Series 6 Shares and this Guarantee within the time required by Section 2.1, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any such terms or the rights of the Holders with respect thereto. The liability of each Guarantor under this Guarantee shall be absolute and unconditional irrespective of:

 

  (a) any sale, transfer or assignment by any Holder of any Series 6 Shares or any right, title, benefit or interest of such Holder therein or thereto;

 

  (b) any amendment or change in or to, or any waiver of, any of the terms of the Series 6 Shares;

 

  (c) any change in the name, objects, constitution, capacity, capital or the constating documents of a Guarantor;

 

  (d) any change in the name, objects, constitution, capacity, capital or the constating documents of the Corporation;

 

  (e) any partial payment by the Corporation, or any release or waiver, by operation of law or otherwise, of the performance or observance by the Corporation of any express or implied agreement, covenant, term or condition relating to the Series 6 Shares to be performed or observed by the Corporation;

 

  (f) the extension of time for the payment by the Corporation of all or any portion of the Series 6 Share Obligations or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Series 6 Shares;

 

  (g) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Series 6 Shares, or any action on the part of the Corporation granting indulgence or extension of any kind;

 

  (h) subject to Section 4.1(b), the recovery of any judgment against the Corporation, any voluntary or involuntary liquidation, dissolution, sale of any collateral, winding up, merger or amalgamation of the Corporation or a Guarantor, any sale or other disposition of all or substantially all of the assets of the Corporation, or any judicial or extrajudicial receivership, insolvency, bankruptcy, assignment for the benefit of, or proposal to, creditors, reorganization, moratorium, arrangement, composition with creditors, or readjustment of debt of, or other proceedings affecting the Corporation, a Guarantor or any of the assets of the Corporation or a Guarantor;

 

  (i) any circumstance, act or omission that would prevent subrogation operating in favour of a Guarantor;

 

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  (j) any invalidity of, or defect or deficiency in, the Series 6 Shares or this Guarantee;

 

  (k) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or

 

  (l) any other circumstance, act or omission that might otherwise constitute a defence available to, or a discharge of, the Corporation in respect of any of the Series 6 Share Obligations, or a Guarantor in respect of any of the Series 6 Share Obligations (other than, and to the extent of, the payment or satisfaction thereof);

it being the intent of the Guarantors that their obligations in respect of the Series 6 Share Obligations shall be absolute and unconditional under all circumstances and shall not be discharged except by payment in full of the Series 6 Share Obligations. The Holders shall not be bound or obliged to exhaust their recourse against the Corporation or any other Persons or to take any other action before being entitled to demand payment from the Guarantors hereunder.

There shall be no obligation of the Holders to give notice to, or obtain the consent of, any or all of the Guarantors with respect to the happening of any of the foregoing.

 

2.4 Continuing Guarantee

This Guarantee shall apply to and secure any ultimate balance due or remaining due to the Holders in respect of the Series 6 Share Obligations and shall be binding as an absolute and continuing obligation of each Guarantor. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment of any of the Series 6 Share Obligations must or may be rescinded, is declared or may become voidable, or must or may otherwise be returned by the Holders for any reason, including the insolvency, bankruptcy, dissolution or reorganization of the Corporation or upon or as a result of the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to the Corporation or any substantial part of its property, all as though such payment had not been made. If at any time the Corporation is precluded from making payment when due in respect of any Series 6 Share Obligations by reason of the provisions of the CBCA or otherwise, such amounts shall nonetheless be deemed to be due and payable by the Corporation to the Holders for all purposes of this Guarantee and the Series 6 Share Obligations shall be immediately due and payable to the Holders. This is a guarantee of payment, and not merely a deficiency or collection guarantee.

 

2.5 Rights of Holders

Each Guarantor expressly acknowledges that: (i) this Guarantee will be deposited with the Security Trustee to be held for the benefit of the Holders; and (ii) the Security Trustee has the right to enforce this Guarantee on behalf of the Holders.

 

2.6 Guarantee of Payment

If the Corporation shall fail to pay any of the Series 6 Share Obligations when due, the Guarantors shall, jointly and severally, pay to the Holders the Series 6 Share Obligations immediately after demand made in writing by one or more Holders or the Security Trustee, but in any event within 15 days of any failure by the Corporation to pay the Series 6 Share

 

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Obligations when due, without any evidence that the Holders or the Security Trustee have demanded that the Corporation or the Guarantors pay any of the Series 6 Share Obligations or that the Corporation has failed to do so.

 

2.7 Subrogation

The Guarantors shall have no right of subrogation in respect of any payment made to the Holders hereunder until such time as the Series 6 Share Obligations have been fully satisfied. In the case of the liquidation, dissolution, winding-up or bankruptcy of the Corporation (whether voluntary or involuntary), or if the Corporation makes an arrangement or compromise or proposal with its creditors, the Holders shall have the right to rank for their full claim and to receive all dividends or other payments in respect thereof until their claims have been paid in full, and the Guarantors shall continue to be liable, jointly and severally, to the Holders for any balance which may be owing to the Holders by the Corporation. The Series 6 Share Obligations shall not, however, be released, discharged, limited or affected by the failure or omission of the Holders to prove the whole or part of any claim against the Corporation. If any amount is paid to a Guarantor on account of any subrogation arising hereunder at any time when the Series 6 Share Obligations have not been fully satisfied, such amount shall be held in trust by such Guarantor for the benefit of the Holders and shall forthwith be paid to the Holders to be credited and applied against the Series 6 Share Obligations.

 

2.8 Independent Obligations

Each Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Corporation with respect to the Series 6 Shares and that such Guarantor shall be liable to make payment of the Series 6 Share Obligations pursuant to the terms of this Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (l), inclusive, of Section 2.3 and regardless of whether the Holders make a demand upon such Guarantor. Each Guarantor will pay the Series 6 Share Obligations without regard to any equities between it and the Corporation or any defence or right of set-off, compensation, abatement, combination of accounts or cross-claim that it or the Corporation or the other Guarantors may have.

 

2.9 Guarantors to Investigate Financial Condition of the Corporation

Each Guarantor acknowledges that it has fully informed itself about the financial condition of the Corporation. Each Guarantor assumes full responsibility for keeping fully informed of the financial condition of the Corporation and all other circumstances affecting the Corporation’s ability to pay the Series 6 Share Obligations.

ARTICLE 3

SUBORDINATION OF OBLIGATIONS TO SENIOR INDEBTEDNESS

 

3.1 Applicability of Article

The obligations of each Guarantor hereunder shall be subordinate and subject in right of payment, to the extent and in the manner hereinafter set forth in the following sections of this Article 3, to the prior payment in full of all Senior Indebtedness of such Guarantor, and the Security Trustee and each Holder of Series 6 Shares as a condition to and by acceptance of the benefits conferred hereby agrees to and shall be bound by the provisions of this Article 3.

 

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3.2 Order of Payment

Upon any distribution of the assets of a Guarantor on any dissolution, winding up, liquidation or reorganization of such Guarantor (whether in bankruptcy, insolvency or receivership proceedings, or upon an “assignment for the benefit of creditors” or any other marshalling of the assets and liabilities of such Guarantor, or otherwise):

 

  (a) all Senior Indebtedness of such Guarantor shall first be paid in full, or provision made for such payment, before any payment is made on account of the Series 6 Share Obligations; and

 

  (b) any payment or distribution of assets of such Guarantor, whether in cash, property or securities, to which the Holders of the Series 6 Shares or the Security Trustee on behalf of such Holders would be entitled except for the provisions of this Article 3, shall be paid or delivered by the trustee in bankruptcy, receiver, assignee for the benefit of creditors, or other liquidating agent making such payment or distribution, directly to the holders of Senior Indebtedness of such Guarantor or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing any of such Senior Indebtedness may have been issued, to the extent necessary to pay all Senior Indebtedness of such Guarantor in full after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness.

 

3.3 Subrogation to Rights of Holders of Senior Indebtedness

Subject to the payment in full of all Senior Indebtedness of a Guarantor, the Holders of the Series 6 Shares shall be subrogated to the rights of the holders of Senior Indebtedness of such Guarantor to receive payments or distributions of assets of such Guarantor (to the extent of the application thereto of such payments or other assets which would have been received by the Holders of the Series 6 Shares but for the provisions hereof) until the Series 6 Share Obligations shall be paid in full, and no such payments or distributions to the Holders of the Series 6 Shares of cash, property or securities, which otherwise would be payable or distributable to the holders of such Senior Indebtedness, shall, as between such Guarantor, its creditors (other than the holders of Senior Indebtedness), and the Holders of Series 6 Shares, be deemed to be a payment by such Guarantor to the holders of such Senior Indebtedness or on account of such Senior Indebtedness, it being understood that the provisions of this Article 3 are and are intended solely for the purpose of defining the relative rights of the Holders of the Series 6 Shares, on the one hand, and the holders of Senior Indebtedness of such Guarantor, on the other hand.

 

3.4 Pari Passu Ranking

Notwithstanding anything herein contained to the contrary, the obligations of each Guarantor hereunder rank on a pro rata and pari passu basis with any other obligations of such

 

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Guarantor in respect of similar guarantees that may be provided by such Guarantor in respect of other series of Class A Preference Shares of the Corporation (collectively, the “ Guaranteed Obligations ”).

 

3.5 Obligation to Pay Not Impaired

Nothing contained in this Article 3 or elsewhere in this Guarantee or in the Series 6 Shares is intended to or shall impair, as between a Guarantor, its creditors (other than the holders of Senior Indebtedness), and the Holders of the Series 6 Shares, the obligation of such Guarantor, which is absolute and unconditional, to pay to the Holders of the Series 6 Shares the Series 6 Share Obligations in accordance herewith, as and when the same shall become due and payable in accordance with this Guarantee, or affect the relative rights of the Holders of the Series 6 Shares and creditors of such Guarantor other than the holders of the Senior Indebtedness; nor shall anything herein or therein prevent the Security Trustee or the Holder of any Series 6 Share from exercising all remedies otherwise permitted by applicable law upon default under this Guarantee, subject to the rights, if any, under this Article 3 of the holders of Senior Indebtedness in respect of cash, property or securities of such Guarantor that are received upon the exercise of any such remedy.

 

3.6 No Payment if Senior Indebtedness in Default

Upon the maturity of any Senior Indebtedness of a Guarantor by lapse of time, acceleration, demand or otherwise, then, except as provided in Section 3.7, all principal of and interest on all such matured Senior Indebtedness shall first be paid in full, or shall first have been duly provided for, before any payment by such Guarantor is made on account of the Series 6 Share Obligations.

In case of default with respect to any Senior Indebtedness of a Guarantor permitting the holders thereof to accelerate the maturity thereof, unless and until such default shall have been cured or waived or shall have ceased to exist, no payment (by purchase of the Series 6 Shares or otherwise) shall be made by such Guarantor with respect to the Series 6 Share Obligations, and neither the Security Trustee nor the Holders of Series 6 Shares shall be entitled to demand, institute proceedings for the collection of, or receive any payment or benefit from such Guarantor (including without limitation by set-off, combination of accounts or otherwise in any manner whatsoever) on account of the Series 6 Share Obligations after the happening of such a default (except as provided in Section 3.8), and unless and until such default shall have been cured or waived or shall have ceased to exist, such payments received from such Guarantor shall be held in trust for the benefit of, and, if and when the Senior Indebtedness of such Guarantor shall have become due and payable, shall be paid over to, the holders of such Senior Indebtedness or their representative or representatives or to the trustee or trustees under any indenture under which any instruments evidencing an amount of such Senior Indebtedness remaining unpaid, until all such Senior Indebtedness shall have been paid in full, after giving effect to any concurrent payment or distribution to the holders of such Senior Indebtedness.

The fact that any payment hereunder is prohibited by this Section 3.6 shall not prevent the failure to make such payment from being an Event of Default hereunder.

 

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3.7 Payment on Series 6 Shares Permitted

Nothing contained in this Article 3 or elsewhere in this Guarantee, or in any of the Series 6 Shares, shall affect the obligation of a Guarantor to make, or prevent such Guarantor from making, at any time except during the pendency of any dissolution, winding up or liquidation of such Guarantor or reorganization proceedings specified in Section 3.2 affecting the affairs of such Guarantor, any payment on account of the Series 6 Share Obligations, except that such Guarantor shall not make any such payment other than as contemplated by this Article 3, if it is in default in payment of any of its Senior Indebtedness. The fact that any such payment is prohibited by this Section 3.7 shall not prevent the failure to make such payment from being an Event of Default hereunder. Nothing contained in this Article 3 or elsewhere in this Guarantee, or in any of the Series 6 Shares, shall prevent the application by the Security Trustee of any moneys deposited with the Security Trustee hereunder for the purpose so deposited, to the payment of or on account of the Series 6 Share Obligations unless and until the Security Trustee shall have received written notice from a Guarantor or from the holder of Senior Indebtedness or from the representative of any such holder of default with respect to any Senior Indebtedness permitting the holders thereof to accelerate the maturity thereof.

 

3.8 Confirmation of Subordination

As a condition to the benefits conferred hereby on each Holder of Series 6 Shares, each such Holder by acceptance thereof authorizes and directs the Security Trustee, on the Holder’s behalf, to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 3, and appoints the Security Trustee as the Holder’s attorney-in-fact for any and all such purposes. Upon request of a Guarantor, and upon being furnished with an Officer’s Certificate stating that one or more named persons are holders of Senior Indebtedness of such Guarantor, or the representative or representatives of such holders, or the trustee or trustees under which any instrument evidencing such Senior Indebtedness may have been issued, and specifying the amount and nature of such Senior Indebtedness, the Security Trustee shall enter into a written agreement or agreements with such Guarantor and the person or persons named in such Officer’s Certificate providing that such person or persons are entitled to all the rights and benefits of this Article 3 as the holder or holders, representative or representatives, or trustee or trustees of such Senior Indebtedness specified in such Officer’s Certificate and in such agreement. Such agreement shall be conclusive evidence that the indebtedness specified therein is Senior Indebtedness, however, nothing herein shall impair the rights of any holder of Senior Indebtedness who has not entered into such an agreement.

 

3.9 Security Trustee May Hold Senior Indebtedness

The Security Trustee is entitled to all the rights set forth in this Article 3 with respect to any Senior Indebtedness at the time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Guarantee deprives the Security Trustee of any of its rights as such holder.

 

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3.10 Rights of Holders of Senior Indebtedness Not Impaired

No right of any present or future holder of any Senior Indebtedness to enforce the subordination herein will at any time or in any way be prejudiced or impaired by any act or failure to act on the part of a Guarantor or by any non-compliance by a Guarantor with the terms, provisions and covenants of this Guarantee, regardless of any knowledge thereof which any such holder may have or be otherwise charged with.

 

3.11 Altering Senior Indebtedness

A holder of Senior Indebtedness has the right to extend, renew, modify or amend the terms of such Senior Indebtedness or any security therefor and to release, sell or exchange such security and otherwise to deal freely with a Guarantor or any other Person, all without notice to or consent of the Holders of the Series 6 Shares or the Security Trustee and without affecting the subordination herein, the liabilities and obligations of the parties to this Guarantee or the Holders of the Series 6 Shares or the Security Trustee.

 

3.12 Additional Indebtedness

This Guarantee does not restrict any of the Guarantors from incurring any indebtedness for borrowed money or otherwise or mortgaging, pledging or charging its properties to secure any indebtedness.

ARTICLE 4

TERMINATION AND REMEDIES

 

4.1 Termination of Guarantee

 

  (a) This Guarantee shall terminate upon the occurrence of the following events:

 

  (i) either

 

  (A) all of the outstanding Series 6 Shares shall have been purchased and cancelled; or

 

  (B) all of the Series 6 Shares shall have been redeemed,

and, in each case, all amounts payable on the Series 6 Shares, including all accrued and unpaid dividends, shall have been paid in full by the Corporation and/or the Guarantors, as the case may be; and

 

  (ii) all other sums payable by the Corporation in respect of the Series 6 Share Obligations have been paid; and

the Guarantors shall confirm to the Security Trustee in writing the occurrence of either event under Section 4.1(a)(i).

 

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  (b) All of the rights, obligations and liabilities of a Guarantor pursuant to this Guarantee shall terminate upon the conveyance, distribution, transfer or lease (including pursuant to a reorganization, consolidation, liquidation, dissolution, sale of any collateral, winding up, merger, amalgamation, arrangement or otherwise) of all or substantially all of such Guarantor’s properties, securities and assets to a Person that is a Guarantor immediately prior to such conveyance, distribution, transfer or lease.

 

  (c) Upon termination (including any partial termination with respect to a Guarantor) of this Guarantee the Security Trustee shall, upon request of a Guarantor, provide to such Guarantor written documentation acknowledging the termination (or partial termination with respect to a Guarantor) of this Guarantee. Notwithstanding the termination (including any partial termination with respect to a Guarantor) of this Guarantee, the obligations of each Guarantor to the Security Trustee under Section 5.3 shall survive.

 

4.2 Suits for Enforcement by the Security Trustee

In the event that the Guarantors fail to pay the Series 6 Share Obligations as required (an “ Event of Default ”) pursuant to the terms of this Guarantee, the Holders may institute judicial proceedings for the collection of the moneys so due and unpaid, may prosecute such proceedings to judgment or final decree and may enforce the same against the Corporation and/or the Guarantors and may collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Guarantors.

If an Event of Default occurs and is continuing, the Security Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders, upon being indemnified and funded to its satisfaction by the Holders, by such appropriate judicial proceedings as the Security Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Guarantee or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.

 

4.3 Security Trustee May File Proofs of Claim

In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to a Guarantor or the property of a Guarantor, the Security Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise,

 

  (a) to file and prove a claim for any Series 6 Share Obligation then due and payable and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Security Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Security Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding; and

 

  (b) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same;

 

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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Security Trustee.

Nothing herein contained shall be deemed to authorize the Security Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Series 6 Shares or the rights of any Holder thereof or to authorize the Security Trustee to vote in respect of the claim of any Holder in any such proceeding.

 

4.4 Security Trustee May Enforce Claims Without Possession of Series 6 Shares

All rights of action and claims under this Guarantee may be prosecuted and enforced by the Security Trustee without the possession of any of the Series 6 Shares in any proceeding relating thereto, and any such proceeding instituted by the Security Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Security Trustee, its agents and counsel, be for the rateable benefit of the Holders of the Series 6 Shares in respect of which such judgment has been recovered.

 

4.5 Application of Money Collected

Any money collected by the Security Trustee pursuant to this Article shall be applied in the following order:

FIRST , To the payment of all amounts due to the Security Trustee including, without limitation, the reasonable compensation, expenses, disbursements and advances of the Security Trustee in or about the execution of its trust, or otherwise in relation hereto, with interest thereon as herein provided;

SECOND , To the payment of all amounts due to the Holders of the Series 6 Shares in respect of the costs, charges, expenses and advances incurred in connection with enforcing their rights hereunder;

THIRD , To the payment of any Series 6 Share Obligation then due and unpaid on a pro rata basis; and

FOURTH , The balance, if any, to the Person or Persons entitled thereto.

 

4.6 Limitation on Suits

No Holder of any outstanding Series 6 Shares shall have any right to institute any proceeding, judicial or otherwise, with respect to this Guarantee, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:

 

  (a) such Holder has previously given written notice to the Security Trustee of a continuing Event of Default with respect to this Guarantee;

 

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  (b) the Holders representing not less than 25% of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares affected by such Event of Default (determined as one class), shall have made written request to the Security Trustee to institute proceedings in respect of such Event of Default in its own name as Security Trustee hereunder;

 

  (c) such Holder or Holders have provided to the Security Trustee reasonable funding, if requested by the Security Trustee, and reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;

 

  (d) the Security Trustee for 15 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and

 

  (e) no direction inconsistent with such written request has been given to the Security Trustee during such 15-day period by the Holders representing a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares affected by such Event of Default (determined as one class);

it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Guarantee to affect, disturb or prejudice the rights of any other Holders of the outstanding Series 6 Shares, or to obtain or to seek to obtain priority or preference over any other of such Holders or to enforce any right under this Guarantee, except in the manner herein provided and for the equal and rateable benefit of all Holders of the outstanding Series 6 Shares.

 

4.7 Restoration of Rights and Remedies

If the Security Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Guarantee and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Security Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Guarantors, the Security Trustee and the Holders of Series 6 Shares shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Security Trustee and the Holders shall continue as though no such proceeding had been instituted.

 

4.8 Rights and Remedies Cumulative

No right or remedy herein conferred upon or reserved to the Security Trustee or to the Holders of Series 6 Shares is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.

 

4.9 Delay or Omission Not Waiver

No delay or omission of the Security Trustee or of any Holder of any Series 6 Shares to exercise any right or remedy accruing upon an Event of Default shall impair any such

 

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right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Security Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Security Trustee or by the Holders, as the case may be.

 

4.10 Control by Holders

The Holders representing not less than a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares affected by an Event of Default (determined as one class) shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Security Trustee, or exercising any trust or power conferred on the Security Trustee, with respect to this Guarantee, provided that in each case:

 

  (a) such direction shall not be in conflict with any rule of law or with this Guarantee;

 

  (b) the Security Trustee may take any other action deemed proper by the Security Trustee which is not inconsistent with such direction; and

 

  (c) the Security Trustee need not take any action which might involve it in personal liability or be unjustly prejudicial to the Holders of outstanding Series 6 Shares not consenting to any such direction.

 

4.11 Waiver of Stay or Extension Laws

Each Guarantor covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Guarantee; and each Guarantor (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Security Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.

 

4.12 Undertaking for Costs

All parties to this Guarantee agree, and each Holder of any Series 6 Shares by acceptance thereof and by acceptance of the benefits hereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Guarantee, or in any suit against the Security Trustee for any action taken, suffered or omitted by it as Security Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit and that such court may in its discretion assess reasonable costs, including reasonable lawyers’ fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to (i) any suit instituted by a Guarantor, (ii) any suit instituted by the Security Trustee, (iii) any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 25% of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares, or (iv) any suit instituted by any Holder for the enforcement of the payment of the Series 6 Share Obligations.

 

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ARTICLE 5

THE SECURITY TRUSTEE

 

5.1 Certain Duties and Responsibilities

 

  (a) The Security Trustee undertakes to perform such duties and only such duties as are specifically set forth in this Guarantee, and no implied covenants or obligations shall be read into this Guarantee against the Security Trustee.

 

  (b) The Security Trustee, in exercising its powers and discharging its duties prescribed or conferred by this Guarantee, shall

 

  (i) act honestly and in good faith with a view to the best interests of the Holders of the Series 6 Shares, and

 

  (ii) exercise that degree of care, diligence and skill a reasonably prudent trustee, appointed in respect of a guarantee indenture would exercise in comparable circumstances.

 

  (c) In the absence of bad faith on its part, the Security Trustee, in the exercise of its rights and duties hereunder, may conclusively act and rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates, opinions or other evidence furnished to the Security Trustee and conforming to the requirements of this Guarantee. The Security Trustee shall not be liable for or by reason of any statements of fact or recitals in this Guarantee or be required to verify the same, but all such statements or recitals are and shall be deemed to be made by the Guarantors (or by their agents). The Security Trustee shall not in any way be responsible for the consequence of any breach on the part of a Guarantor (or by its agents) of any of the Guarantor’s covenants herein.

 

  (d) No provision of this Guarantee shall be construed to relieve the Security Trustee from the duties imposed on it in Section 5.1(b) or from liability for its own gross negligence or its own wilful misconduct, except that:

 

  (i) this Section 5.1(d) shall not be construed to limit the effect of Section 5.1(a) and (b);

 

  (ii) the Security Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it shall be proved that the Security Trustee was grossly negligent in ascertaining the pertinent facts;

 

  (iii) the Security Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with an appropriate direction of the Holders pursuant to Section 4.10 relating to the time, method and place of conducting any proceeding for any remedy available to the Security Trustee, or exercising any trust or power conferred upon the Security Trustee, under this Guarantee; and

 

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  (iv) no provision of this Guarantee shall require the Security Trustee to expend or risk its own funds or otherwise incur any personal financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers except as herein expressly provided.

 

  (e) Whether or not herein expressly so provided, every provision of this Guarantee relating to the conduct or affecting the liability of or affording protection to the Security Trustee shall be subject to the provisions of this Section.

 

5.2 Certain Rights of Security Trustee

Subject to the provisions of Section 5.1:

 

  (a) the Security Trustee may rely absolutely and shall be protected in acting or refraining from acting upon any resolution, Officer’s Certificate or other certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties, not only as to its due execution and the validity and effectiveness of its provisions, but also as to the truth or accuracy of any information therein contained;

 

  (b) any order, request or direction of a Guarantor mentioned herein shall be sufficiently evidenced by a Guarantor Request or Guarantor Order and any resolution shall be sufficiently evidenced by a Board Resolution;

 

  (c) whenever in the administration of this Guarantee the Security Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Security Trustee (unless other evidence be herein specifically prescribed) may act and rely upon an Officer’s Certificate (i) as evidence of the truth of any statements of fact, and (ii) to the effect that any particular dealing or transaction or step or thing is, in the opinion of the officers so certifying, expedient, as evidence that it is expedient; provided that the Security Trustee may in its sole discretion, acting reasonably, require from any Guarantor or otherwise further evidence or information before acting or relying on such certificate;

 

  (d) the Security Trustee may employ or retain such agents, counsel and other assistants as it may reasonably require for the proper determination and discharge of its duties hereunder and shall be entitled to receive reasonable remuneration for all services performed by it and compensation for all disbursements, costs and expenses made or incurred by it in the discharge of its duties hereunder and shall not be responsible for any misconduct on the part of any of them, any such costs and expenses which shall immediately become and form part of the Security Trustee’s fees hereunder;

 

  (e) the Security Trustee may, in relation to this Guarantee, act and rely on the opinion or advice of or on information obtained from any counsel, notary, valuer, surveyor, engineer, broker, auctioneer, accountant or other expert, whether retained by the Security Trustee or by any Guarantor or otherwise;

 

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  (f) the Security Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in reliance thereon;

 

  (g) the Security Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee at the request or direction of any of the Holders pursuant to this Guarantee, unless such Holders shall have furnished to the Security Trustee reasonable funding and a reasonable indemnity, satisfactory to the Security Trustee, to protect and hold harmless the Security Trustee against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction and/or damage it may suffer by reason thereof as a condition to the commencement or continuation of such act, action or proceeding. The Security Trustee may, before commencing or at any time during the continuance of any such act, action or proceeding require the Holders at whose instance it is acting, to deposit with the Security Trustee the share certificates held by them respecting the Series 6 Shares for which such share certificates the Security Trustee shall issue receipts;

 

  (h) the Security Trustee shall not be required to take notice of any default under this Guarantee, other than payment of any moneys required by any provision of this Guarantee to be paid to it, unless and until notified in writing of such default, which notice shall clearly set out the nature of the default desired to be brought to the attention of the Security Trustee;

 

  (i) prior to the occurrence of an Event of Default under this Guarantee and after the curing of any such Event of Default which may have occurred, the Security Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, or other paper or document or any investigation of the books and records of any Guarantor (but the Security Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Security Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of a Guarantor, personally or by agent or attorney), unless requested to do so by the Act of the Holders representing a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares; provided, however, that the Security Trustee may require reasonable indemnity against the costs, expenses or liabilities likely to be incurred by it in the making of such investigation; and

 

  (j)

the Security Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Security Trustee shall not be responsible for any misconduct or

 

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  negligence on the part of any agent or attorney appointed with due care by it hereunder. Any solicitors employed or consulted by the Security Trustee as counsel may, but need not be solicitors for a Guarantor.

 

5.3 Protection of Security Trustee

By way of supplement to the provisions of any law for the time being relating to trustees, it is expressly declared and agreed as follows:

 

  (a) the recitals contained herein, shall be taken as the statements of the Guarantors, and the Security Trustee shall not be liable for or assume any responsibility for their correctness;

 

  (b) the Security Trustee makes no representations as to, and shall not be liable for, the validity or sufficiency of this Guarantee;

 

  (c) nothing herein contained shall impose any obligation on the Security Trustee to see or to require evidence of registration or filing (or renewals thereof) of this Guarantee or any instrument ancillary or supplemental hereto;

 

  (d) the Security Trustee shall not be bound to give any notice of the execution hereof;

 

  (e) the Security Trustee shall not incur any liability or responsibility whatever or be in any way responsible for the consequence of any breach on the part of a Guarantor of any of the covenants herein contained or of any act of the agents or servants of a Guarantor; and

 

  (f) the Guarantors shall indemnify the Security Trustee (including its directors, officers, employees, representatives and agents) for, and hold it harmless against, any claim, demand, suit, loss, liability or expense (including any and all reasonable legal and adviser fees and disbursements) incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. This indemnity will survive the termination (including any partial termination with respect to a Guarantor) or discharge of this Guarantee and the resignation or removal of the Security Trustee.

 

5.4 Security Trustee Not Required to Give Security

The Security Trustee shall not be required to give security for the execution of the trusts or its conduct or administration hereunder.

 

5.5 No Person Dealing with Security Trustee Need Enquire

No person dealing with the Security Trustee shall be concerned to enquire whether the powers that the Security Trustee is purporting to exercise have become exercisable, or whether any money remains due upon the Series 6 Shares or to see to the application of any money paid to the Security Trustee.

 

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5.6  May Hold Series 6 Shares

Subject to applicable law, the Security Trustee or any other agent of a Guarantor, in its individual or in any other capacity, may become the owner or pledgee of the Series 6 Shares and, subject to Section 5.8, may otherwise deal with the Guarantors with the same rights it would have if it were not the Security Trustee, and without being liable to account for any profit made thereby.

 

5.7 Moneys Held in Trust

Upon receipt of a direction from the Guarantors (acting jointly), the Security Trustee shall invest funds held by the Security Trustee in Authorized Investments in its name in accordance with such direction. Any direction from the Guarantors to the Security Trustee shall be in writing and shall be provided to the Security Trustee no later than 9:00 a.m. on the day on which the investment is to be made. Any such direction received by the Security Trustee after 9:00 a.m. ET or received on a non-Business Day, shall be deemed to have been given prior to 9:00 a.m. ET the next Business Day. Any direction from the Guarantors (acting jointly) for the release of the funds must be received prior to 11:00 a.m. ET on the day on which the release of funds is to be made. Any such direction for the release of funds received after 11:00 a.m. ET or on a non-Business Day, will be handled on a commercially reasonable efforts basis and may result in funds being released on the next Business Day. For the purposes of this section, “Authorized Investments” means short term interest bearing or discount debt obligations issued or guaranteed by the Government of Canada or a Province or a Canadian chartered bank (which may include an Affiliate or related party of the Security Trustee) provided that such obligation is rated at least R1 (middle) by DBRS Limited or an equivalent rating service.

In the event that the Security Trustee does not receive a direction or only a partial direction, the Security Trustee may hold cash balances constituting part or all of the funds and may, but need not, invest same in its deposit department, the deposit department of one of its Affiliates, or the deposit department of a Canadian chartered bank; but the Security Trustee, its Affiliates or a Canadian chartered bank shall not be liable to account for any profit to any parties to this Guarantee or to any other person or entity other than at a rate, if any, established from time to time by the Security Trustee, its Affiliates or a Canadian chartered bank. For the purpose of this Section, “Affiliate” means affiliated companies within the meaning of the CBCA, and includes Computershare Investor Services Inc. and each of their affiliates within the meaning of the Business Corporations Act (Ontario).

 

5.8 Conflict of Interest

 

  (a) The Security Trustee represents to the Guarantors that at the time of the execution and delivery hereof no material conflict of interest exists in respect of the Security Trustee’s role as a fiduciary hereunder and agrees that in the event of a material conflict of interest arising hereafter it will, within 90 days after becoming aware that a material conflict of interest exists, either eliminate the same or resign its trust hereunder.

 

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  (b) If, notwithstanding Section 5.8(a), the Security Trustee has a material conflict of interest, the validity and enforceability of this Guarantee shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest.

 

  (c) If the Security Trustee contravenes Section 5.8(a), the Holders representing not less than 25% of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares affected thereby may apply to the Ontario Superior Court of Justice for an order that the Security Trustee be replaced, and such court may make an order on such terms as it thinks fit.

 

5.9 Corporate Trustee Required; Eligibility

There shall at all times be a trustee hereunder which shall be a corporation resident or authorized to carry on the business of a trust company in Canada. None of the Guarantors nor any Affiliate of a Guarantor shall serve as trustee. If at any time the Security Trustee shall cease to be eligible in accordance with the provisions of this Section, the Security Trustee shall resign immediately in the manner and with the effect hereinafter specified in this Article.

 

5.10 Resignation and Removal; Appointment of Successor

 

  (a) Notwithstanding any other provisions hereof, no resignation or removal of the Security Trustee and no appointment of a successor trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor trustee in accordance with the applicable requirements of Section 5.11.

 

  (b) The Security Trustee may resign its trust and be discharged from all further duties and liabilities hereunder at any time with respect to the Guarantee by giving to the Guarantors 60 days’ notice in writing or such shorter notice as the Guarantors may accept as sufficient. If the instrument of acceptance by a successor trustee required by Section 5.11 shall not have been delivered to the Security Trustee within 60 days after the giving of such notice of resignation, the resigning trustee may apply to the Ontario Superior Court of Justice for an order for the appointment of a successor trustee with respect to the Guarantee.

 

  (c) The Security Trustee may be removed at any time by the Guarantors, except during an Event of Default.

 

  (d) If any time:

 

  (i) the Security Trustee shall fail to comply with Section 5.8(a); or

 

  (ii) the Security Trustee shall cease to be eligible under Section 5.9 and shall fail to resign after written request to do so by the Guarantors; or

 

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  (iii) the Security Trustee shall be dissolved, shall become incapable of acting or shall become or be adjudged a bankrupt or insolvent or a receiver of the Security Trustee or of its property shall be appointed or any public officer shall take charge or control of the Security Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation,

then, in any such case the Guarantors by Board Resolutions may remove the Security Trustee.

 

  (e) If the Security Trustee shall resign, be removed or become incapable of acting or if a vacancy shall occur in the office of the Security Trustee for any other reason, the Guarantors, by Board Resolutions, shall promptly appoint a successor trustee or trustees and shall comply with the applicable requirements of Section 5.11. If, within one year after such resignation, removal or incapability or the occurrence of such vacancy, a successor trustee has not been successfully appointed in accordance with the terms hereof, a successor trustee shall be appointed by Act of the Holders representing a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares and the successor Trustee so appointed by the Holders shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 5.11, become the successor trustee. If no successor trustee shall have been so appointed by the Guarantors or the Holders and such appointment accepted in the manner required by Section 5.11, the Security Trustee (at the Guarantors’ expense) or any Holder who is a bona fide Holder of the Series 6 Shares may, on behalf of such Holder and all other Holders, apply to the Ontario Superior Court of Justice for any order for the appointment of a successor trustee.

 

  (f) The Guarantors shall give notice of each resignation and each removal of the Security Trustee and each appointment of a successor trustee to the Holders by mailing such notice to such Holders at their addresses as they shall appear on the list of Holders as provided by the Corporation to the Guarantors. If the Guarantors shall fail to give such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be given at the expense of the Guarantors. Each notice shall include the name of the successor trustee and the address of its Corporate Trust Office.

 

5.11 Acceptance of Appointment by Successor Trustee

 

  (a)

In case of the appointment hereunder of a successor trustee, each successor trustee so appointed shall execute, acknowledge and deliver to the Guarantors and to the retiring trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring trustee shall become effective and such successor trustee, without any further act, deed or conveyance (but subject to Section 5.11(b)), shall become vested with all the rights, powers, trusts and duties of the retiring trustee; but, on the request of the Guarantors or the successor trustee, such retiring trustee shall, upon payment of its fees and expenses then unpaid, execute, acknowledge and deliver an instrument transferring to such

 

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  successor trustee all such rights, powers and trusts of the retiring trustee and shall duly assign, transfer and deliver to such successor trustee all property and money, if any, held by such retiring trustee hereunder.

 

  (b) In case of the appointment hereunder of a successor trustee, the Guarantors, the retiring trustee and such successor trustee shall execute, acknowledge and deliver an indenture supplemental hereto in which each successor trustee shall accept such appointment and which shall (i) contain such provisions as shall be deemed necessary or desirable to transfer and confirm to, and to vest in, such successor trustee all the rights, powers, trusts and duties of the retiring trustee to which the appointment of such successor trustee relates, (ii) add to or change any of the provisions of this Guarantee to the extent necessary to provide for or facilitate the administration of the trusts hereunder by more than one trustee, it being understood that nothing herein or in such supplemental indenture (except as specifically provided for therein) shall constitute such trustees co-trustees of the same trust and that each such trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such trustee; and upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring trustee shall become effective to the extent provided therein, and each such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring trustee with respect to the Guarantee to which the appointment of such successor trustee relates, and such retiring Trustee shall duly assign, transfer and deliver to each successor trustee all property and money held, if any, by such retiring trustee hereunder which the appointment of such successor trustee relates.

 

  (c) Upon request of any such successor trustee, the Guarantors shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all rights, power and trusts referred to in subsection (a) or (b) of this Section, as the case may be.

 

  (d) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article.

 

5.12 Merger, Consolidation, Amalgamation or Succession to Business

Any corporation into which the Security Trustee may be merged or with which it may be consolidated or amalgamated, or any corporation resulting from any merger, consolidation or amalgamation to which the Security Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Security Trustee, shall be the successor of the Security Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or instrument or any further act on the part of any of the parties hereto.

 

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5.13 Not Bound to Act

The Security Trustee shall retain the right not to act and shall not be liable for refusing to act if, due to a lack of information or for any other reason whatsoever, the Security Trustee, in its sole judgment, determines that such act might cause it to be in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline. Further, should the Security Trustee, in its sole judgment, determine at any time that its acting under this Guarantee has resulted in its being in non-compliance with any applicable anti-money laundering or anti-terrorist legislation, regulation or guideline, then it shall have the right to resign on 10 days written notice to the Guarantors, provided that (i) the Security Trustee’s written notice shall describe the circumstances of such non-compliance; and (ii) if such circumstances are rectified to the Security Trustee’s satisfaction, acting reasonably, within such 10 day period, then such resignation shall not be effective.

 

5.14 Security Trustee’s Privacy Clause

The parties acknowledge that federal and/or provincial legislation that addresses the protection of individuals’ personal information (collectively, “ Privacy Laws ”) applies to obligations and activities under this Guarantee. Despite any other provision of this Guarantee, no party shall take or direct any action that would contravene, or cause the other to contravene, applicable Privacy Laws. The Guarantors shall, prior to transferring or causing to be transferred personal information to the Security Trustee, obtain and retain required consents of the relevant individuals to the collection, use and disclosure of their personal information, or shall have determined that such consents either have previously been given upon which the parties can rely or are not required under the Privacy Laws. The Security Trustee shall use commercially reasonable efforts to ensure that its services hereunder comply with Privacy Laws. Specifically, the Security Trustee agrees: (i) to have a designated chief privacy officer; (ii) to maintain policies and procedures to protect personal information and to receive and respond to any privacy complaint or inquiry; (iii) to use personal information solely for the purposes of providing its services under or ancillary to this Guarantee and not to use it for any other purpose except with the consent of or direction from the Guarantors or the individual involved; (iv) not to sell or otherwise improperly disclose personal information to any third party; and (v) to employ administrative, physical and technological safeguards to reasonably secure and protect personal information against loss, theft, or unauthorized access, use or modification.

 

5.15 Compensation and Reimbursement

The Guarantors agree:

 

  (a) to pay to the Security Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); and

 

  (b)

except as otherwise expressly provided herein, to reimburse the Security Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Security Trustee in accordance with any provision of this

 

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  Guarantee (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith.

The Security Trustee’s remuneration, shall be payable out of any funds coming into the possession of the Security Trustee in priority to any payment of the Series 6 Share Obligations. The said remuneration shall continue to be payable whether or not this Guarantee shall be in the course of administration by or under the direction of a court of competent jurisdiction. Any amount due under this Section and unpaid within 30 days after demand for such payment by the Security Trustee, shall bear interest at the then current rate of interest charged by the Security Trustee to its corporate customers. This Section 5.15 shall survive the removal or termination of the Security Trustee and the termination (including any partial termination with respect to a Guarantor) of this Guarantee.

 

5.16 Third Party Interests

Each party to this Agreement (“ Representing Party ”) hereby represents to the Security Trustee that any account to be opened by, or interest to be held by, Security Trustee in connection with this Agreement, for or to the credit of such Representing Party, either (i) is not intended to be used by or on behalf of any third party; or (ii) is intended to be used by or on behalf of a third party, in which case such Representing Party hereby agrees to complete, execute and deliver forthwith to Security Trustee a declaration, in Security Trustee’s prescribed form or in such other form as may be satisfactory to it, as to the particulars of such third party.

ARTICLE 6

HOLDERS’ LISTS AND REPORTS BY TRUSTEE AND GUARANTORS

 

6.1 List of Holders

The Corporation shall furnish or cause to be furnished to the Security Trustee at such times as the Security Trustee may request in writing, within five Business Days after the receipt by the Corporation of any such request, a list, in such form as the Security Trustee may reasonably require, of the names and addresses of the Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Corporation and is not identical to a previously supplied list of Holders or has not otherwise been received by the Security Trustee in its capacity as such. The Security Trustee may destroy any list of Holders previously given to it on receipt of a new list of Holders.

 

6.2 Access to list of Holders

A Holder may, upon payment to the Security Trustee of a reasonable fee, require the Security Trustee to furnish within 10 days after receiving the affidavit or statutory declaration referred to below, a list setting out (i) the name and address of every Holder of Series 6 Shares, (ii) the aggregate number of Series 6 Shares owned by each such Holder, and (iii) the aggregate number of the Series 6 Shares then outstanding, each as shown on the records of the Security Trustee on the day that the affidavit or statutory declaration is delivered to the Security Trustee. The affidavit or statutory declaration, as the case may be, shall contain (i) the name and address

 

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of the Holder, (ii) where the applicant is a corporation, its name and address for service, (iii) a statement that the list will not be used except in connection with an effort to influence the voting of the Holders of Series 6 Shares, or any other matter relating to the Guarantee, and (iv) such other undertaking as may be required by applicable law. Where the Holder is a corporation, the affidavit or statutory declaration shall be made by a director or officer of the corporation.

 

6.3 Communications to Holders

The rights of Holders to communicate with other Holders with respect to their rights under this Guarantee and the corresponding rights and privileges of the Security Trustee, shall be governed by applicable law.

Every Holder of Series 6 Shares, by receiving and holding the same, agrees with the Guarantors and the Security Trustee that none of the Guarantors nor the Security Trustee nor any agent of any of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to the terms hereof or applicable law.

ARTICLE 7

CONVEYANCE, TRANSFER OR LEASE

 

7.1 Conveyance, Transfer or Lease; Only on Certain Terms

A Guarantor shall not convey, distribute, transfer or lease all or substantially all of its properties, securities and assets to any Person or Persons (other than to a Person that is a Guarantor immediately prior to such conveyance, distribution, transfer or lease), unless:

 

  (a) the Person or Persons which acquire by conveyance, distribution or transfer, or which leases, all or substantially all of the properties, securities and assets of such Guarantor shall, unless such assumption shall occur by operation of law, expressly assume, by an indenture supplemental hereto, executed and delivered to the Security Trustee, in form satisfactory to the Security Trustee, acting reasonably, such Guarantor’s obligations hereunder for the Series 6 Share Obligations and the performance and observance of every covenant of this Guarantee on the part of such Guarantor to be performed or observed; and

 

  (b) such Guarantor or such Person shall have delivered to the Security Trustee an Officer’s Certificate and an Opinion of Counsel, each stating that such conveyance, distribution, transfer or lease and such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.

This Section shall only apply to conveyances, distributions, leases and transfers by a Guarantor as transferor or lessor.

 

7.2 Successor Person Substituted

Upon any conveyance, distribution, transfer or lease of all or substantially all of the properties, securities and assets of a Guarantor to any Person in accordance with Section 7.1,

 

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the successor Person to which such conveyance, distribution, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the applicable Guarantor under this Guarantee with the same effect as if such successor Person had been named as such Guarantor herein, and in the event of any such conveyance, distribution or transfer, the applicable Guarantor, except in the case of a lease, shall be discharged of all obligations and covenants under this Guarantee.

ARTICLE 8

SUPPLEMENTAL INDENTURES

 

8.1 Supplemental Indentures Without Consent of Holders

Without the consent of any Holders, the Guarantors, when authorized by or pursuant to a Board Resolution, and the Security Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Security Trustee, for any of the following purposes:

 

  (a) to evidence the succession of another Person to a Guarantor and the assumption by any such successor of the covenants of the applicable Guarantor contained herein; or

 

  (b) to add to the covenants of the Guarantors or to surrender any right or power herein conferred upon the Guarantors, both of which in the opinion of the Security Trustee, relying upon an Opinion of Counsel, is for the benefit of the Holders of all of the Series 6 Shares and is not prejudicial to the rights of the Holders; or

 

  (c) to add any additional Events of Default; or

 

  (d) to secure or further secure the Series 6 Share Obligations; or

 

  (e) to evidence and provide for the acceptance of appointment hereunder by a successor trustee with respect to this Guarantee and to add to or change any of the provisions of this Guarantee as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 5.11; or

 

  (f) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Guarantee, which in the opinion of the Security Trustee, relying upon an Opinion of Counsel, shall not adversely affect the interests of the Holders of Series 6 Shares in any material respect; or

 

  (g) to supplement any of the provisions of this Guarantee to such extent as shall be necessary to permit or facilitate the termination (including any partial termination with respect to a Guarantor) pursuant to Section 4.1; provided that in the opinion of the Security Trustee, relying upon an Opinion of Counsel, any such action shall not adversely affect the interests of the Holders of Series 6 Shares in any material respect.

 

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8.2 Supplemental Indentures with Consent of Holders

With the consent of either (i) the Holders representing not less than a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares, by Act of such Holders delivered to the Guarantors and the Security Trustee, or (ii) if a meeting of the Holders is called for obtaining such consent, Holders representing not less than a majority of the aggregate Liquidation Amount of all Series 6 Shares represented at such meeting and voting in respect of such consent, the Guarantors, when authorized by or pursuant to Board Resolutions, and the Security Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Guarantee or of modifying in any manner the rights of the Holders under this Guarantee; provided, however, that no such supplemental indenture shall, without the consent of the Holders representing not less than 66  2 / 3 % of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares or, if a meeting of the Holders is called for obtaining such consent, Holders representing not less than 66  2 / 3 % of the aggregate Liquidation Amount of all Series 6 Shares represented at such meeting and voting in respect of such consent, as the case may be,

 

  (a) reduce the percentage of the aggregate Liquidation Amount of the outstanding Series 6 Shares required for any such supplemental indenture, for any waiver of compliance with certain provisions of this Guarantee or certain defaults applicable hereunder and their consequences provided for in this Guarantee, or reduce the requirements of Section 11.4 for quorum or voting with respect to the Guarantee, or

 

  (b) modify any of the provisions of this Section, except to increase any such percentage or to provide that certain other provisions of this Guarantee cannot be modified or waived without the consent of the Holder of each outstanding Series 6 Share.

 

8.3 Execution of Supplemental Indentures

In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Guarantee, the Security Trustee shall be entitled to receive, and shall be fully protected in acting and relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Guarantee. The Security Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Security Trustee’s own rights, duties or immunities under this Guarantee or otherwise.

 

8.4 Effect of Supplemental Indentures

Upon the execution of any supplemental indenture under this Article, this Guarantee shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Guarantee for all purposes.

 

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8.5 Notice of Supplemental Guarantees

Promptly after the execution by the Guarantors and the Security Trustee of any supplemental indenture pursuant to the provisions of Section 8.2, the Guarantors shall give notice thereof to the Holders of each of the outstanding Series 6 Shares affected, in the manner provided for in Section 1.6, setting forth in general terms the substance of such supplemental indenture.

ARTICLE 9

COVENANTS

 

9.1 Existence

Subject to Article 7, each Guarantor will do or cause to be done all things necessary to preserve and keep in full force and effect its existence and its rights and franchises and the rights and franchises of its subsidiaries; provided, however, that a Guarantor shall not be required to preserve any such right or franchise if the Guarantor shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Guarantor.

 

9.2 Security Trustee Not Required to Verify Liquidation Amount

The Guarantors will not require the Security Trustee to calculate or verify the Liquidation Amount. When requested by the Security Trustee, a Guarantor shall deliver to the Security Trustee an Officer’s Certificate specifying the Liquidation Amount.

 

9.3 Restriction on Distributions

Each Guarantor hereby covenants and agrees that if and for so long as either the board of directors of the Corporation has failed to declare, or the Corporation has failed to pay, dividends on the Series 6 Shares, in each case, in accordance with the share conditions attaching thereto, then such Guarantor shall not declare, pay or make any distributions or return of capital on its equity securities.

ARTICLE 10

PURCHASE OF SERIES 6 SHARES

 

10.1 Purchase of Series 6 Shares

Subject to applicable law, at any time when a Guarantor is not in default hereunder, such Guarantor may purchase Series 6 Shares at any price in the market (including purchases from or through an investment dealer or a firm holding membership on a recognized stock exchange) or by tender available to all Holders of Series 6 Shares or by private contract, in each case in accordance with the terms of the Series 6 Shares.

 

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ARTICLE 11

MEETINGS OF HOLDERS OF SERIES 6 SHARES

 

11.1 Purposes for Which Meetings May Be Called

A meeting of the Holders of the Series 6 Shares may be called at any time and from time to time pursuant to the provisions of this Article for one or more of the following purposes:

 

  (a) to give any notice to the Guarantors or to the Security Trustee, to give any directions to the Security Trustee, or to take any other action authorized to be taken by the Holders of the Series 6 Shares pursuant to any of Sections 4.3 to 4.12;

 

  (b) to remove the Security Trustee and appoint a successor Trustee with respect to the Guarantee pursuant to the provisions of Article 5;

 

  (c) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 8.2; or

 

  (d) to take any other action required or permitted to be taken by or on behalf of the Holders of any specified percentage of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares under any other provision of this Guarantee or under applicable law.

 

11.2 Call, Notice and Place of Meetings

 

  (a) The Security Trustee may at any time request that the Corporation call, and upon receipt of such request the Corporation shall call or cause its transfer agent to call, a meeting of Holders of Series 6 Shares for any purpose specified in Section 11.1, to be held at such time and at such place in Toronto, Ontario, or in such other place as the Security Trustee shall determine. Notice of every meeting of Holders of Series 6 Shares, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided for in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. In all cases, it is the Corporation who is to bear all costs associated with calling, giving notice of, and holding the meeting.

 

  (b)

In case at any time the Guarantors, pursuant to Board Resolutions, or the Holders representing at least 10% of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares shall have requested the Security Trustee to request that the Corporation call a meeting of the Holders of Series 6 Shares for any purpose specified in Section 11.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Security Trustee shall not have so requested or the Corporation shall not have mailed or caused to be mailed notice of such meeting within 21 days after receipt of such request and any required indemnification or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Guarantors or the Holders of Series 6

 

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  Shares representing the aggregate Liquidation Amount in the amount above specified, as the case may be, may determine the time and the place in Toronto, Ontario, or in such other place as the Security Trustee may approve for such meeting and may call such meeting for such purposes by giving notice thereof as provided in paragraph (a) of this Section.

 

11.3 Persons Entitled to Vote at Meetings

To be entitled to vote at any meeting of Holders of Series 6 Shares, a Person shall be (1) a Holder of one or more outstanding Series 6 Shares, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more outstanding Series 6 Shares by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Series 6 Shares shall be the Persons entitled to vote at such meeting and their respective counsel, employees or any representatives of the Security Trustee and its counsel, and any representatives of the Guarantors and their counsel.

 

11.4 Quorum; Action

The Holders representing not less than 25% of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares shall constitute a quorum for a meeting of Holders of Series 6 Shares; provided, however, that, if any action is to be taken at such meeting with respect to a consent or waiver which this Guarantee expressly provides may be given by the Holders of not less than a specified percentage of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares, the Persons entitled to vote such specified percentage in aggregate amount of the outstanding Series 6 Shares shall constitute a quorum. In the absence of a quorum within 30 minutes of the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Series 6 Shares, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any such adjourned meeting, such adjourned meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such adjourned meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 11.2(a), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened.

Subject to the foregoing, at the reconvening of any meeting adjourned for lack of a quorum, the Holders of Series 6 Shares entitled to vote at such meeting present in person or by proxy shall constitute a quorum for the taking of any action set forth in the notice of the original meeting.

Except as limited by the proviso to Section 8.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted by the affirmative vote of the Holders representing not less than a majority of the aggregate Liquidation Amount of Series 6 Shares represented at such meeting in person or by proxy; provided, however, that, except as limited by the proviso to Section 8.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other action which this Guarantee expressly provides may be made, given or taken by the Holders of a

 

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specified percentage, which is less than a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares, may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of not less than such specified percentage of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares.

Any resolution passed or decision taken at any meeting of Holders of Series 6 Shares duly held in accordance with this Section shall be binding on all the Holders of Series 6 Shares, whether or not present or represented at the meeting.

Notwithstanding the foregoing provisions of this Section 11.4, if any action is to be taken at a meeting of Holders of Series 6 Shares with respect to any request, demand, authorization, direction, notice, consent, waiver or other action that this Guarantee expressly provides may be made, given or taken by the Holders of a specified percentage of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares affected thereby:

 

  (i) there shall be no minimum quorum requirement for such meeting; and

 

  (ii) the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares that vote in favour of such request, demand, authorization, direction, notice, consent, waiver or other action shall be taken into account in determining whether such request, demand, authorization, direction, notice, consent, waiver or other action has been made, given or taken under this Guarantee.

 

11.5 Determination of Voting Rights; Conduct and Adjournment of Meetings

 

  (a) Notwithstanding any provisions of this Guarantee, the Security Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Series 6 Shares in regard to proof of the holding of Series 6 Shares and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as its shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Series 6 Shares shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4. Such regulations may provide that written instruments appointing proxies may be presumed valid and genuine without the proof specified in Section 1.4 or other proof.

 

  (b) The Security Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Guarantors or by Holders of Series 6 Shares as provided in Section 11.2(b), in which case the Guarantors or the Holders of Series 6 Shares calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote representing a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares represented and voted at the meeting.

 

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  (c) Any meeting of Holders of Series 6 Shares duly called pursuant to Section 11.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote representing a majority of the aggregate Liquidation Amount of all of the then outstanding Series 6 Shares represented and voted at the meeting; and the meeting may be held as so adjourned without further notice.

 

11.6 Counting Votes and Recording Action of Meetings

The vote upon any resolution submitted to any meeting of Holders of Series 6 Shares shall be by written ballot(s) on which shall be subscribed the signatures of the Holders of Series 6 Shares or of their representatives by proxy and the number of outstanding Series 6 Shares held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the permanent secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record, at least in duplicate, of the proceedings of each meeting of Holders of Series 6 Shares shall be prepared by the permanent secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 11.2 and, if applicable, Section 11.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and permanent secretary of the meeting and one such copy shall be delivered to the Guarantors, and another to the Security Trustee to be preserved by the Security Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated.

[Remainder of Page Intentionally Left Blank]

 

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This Guarantee may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Guarantee.

IN WITNESS WHEREOF the parties hereto have duly executed and delivered this Guarantee as of the date first written above.

 

BROOKFIELD RENEWABLE ENERGY PARTNERS L.P. by its general partner,

Brookfield Renewable Partners Limited

By:  

   /s/ Jane Sheere

    Name:   Title:  

Jane Sheere

Secretary

 

BROOKFIELD RENEWABLE ENERGY L.P. by its general partner, BREP Holding L.P. by its general partner, BRP Bermuda GP Limited
By:  

   /s/ Jane Sheere

    Name:   Title:  

Jane Sheere

Secretary

 

BROOKFIELD BRP HOLDINGS (CANADA) INC.
By:  

   /s/ Patricia Bood

    Name:   Title:  

Patricia Bood

Secretary, Senior Vice President of Legal Services and General Counsel

 

BRP BERMUDA HOLDINGS I LIMITED
By:  

   /s/ Jane Sheere

    Name:   Title:  

Jane Sheere

Secretary

[GUARANTEE INDENTURE FOR SERIES 6 SHARES]

 

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BROOKFIELD RENEWABLE POWER PREFERRED EQUITY INC.
By:  

  /s/ Patricia Bood

    Name:   Title:  

Patricia Bood

Secretary, Senior Vice President of Legal Services and General Counsel

 

COMPUTERSHARE TRUST COMPANY OF CANADA
By:  

  /s/ Daniel Marz

    Name:   Title:  

Daniel Marz

Corporate Trust Officer

By:  

  /s/ Soheil Kafai

    Name:   Title:  

Soheil Kafai

Corporate Trust Officer

[GUARANTEE INDENTURE FOR SERIES 6 SHARES]

 

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Exhibit 15.1

CONSENT OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS

We consent to the use in this Registration Statement of Brookfield Renewable Energy Partners L.P. on Amendment No. 6 to the Form 20-F of our report dated February 27, 2013 relating to the consolidated financial statements of Brookfield Renewable Energy Partners L.P., which comprise the consolidated statement of income (loss), consolidated statement of comprehensive income (loss), consolidated statement of changes in equity and consolidated statement of cash flows for the year ended December 31, 2010, appearing in this Registration Statement.

We also consent to the reference to us under the heading “Statement By Experts” in this Registration Statement.

/s/ Deloitte LLP

Independent Registered Chartered Accountants

Licensed Public Accountants

Toronto, Canada

May 16, 2013

Exhibit 15.2

Consent of Independent Registered Public Accounting Firm

We consent to the reference to our firm under the caption “Statement by Experts” and to the use of our report dated February 27, 2013, in the Registration Statement Amendment No. 6 (Form 20-F) of Brookfield Renewable Energy Partners L.P. dated May 16, 2013.

/s/ Ernst & Young LLP

Toronto, Canada

May 16, 2013

Exhibit 16.1

May 16, 2013

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C.

20549-7561 USA

Dear Sirs/Madams:

We have read Item 16F of Brookfield Renewable Energy Partners L.P.’s Amendment No. 6 to the Form 20-F dated May 16, 2013, and have the following comments:

 

1. We agree with the statements made in paragraphs one, two and four in the section “Change in Registrant’s Certifying Accountant”.

 

2. We have no basis on which to agree or disagree with other statements of the registrant contained therein.

Yours very truly,

/s/ Deloitte LLP

Independent Registered Chartered Accountants

Licensed Public Accountants