EPCOR INVESTOR PRESENTATION Tony Scozzafava Senior Vice President - - PowerPoint PPT Presentation

Tony Scozzafava

Senior Vice President & Chief Financial Officer

Matt Lemay

Senior Manager, Treasury

EPCOR

INVESTOR PRESENTATION

EPCOR.COM

CONSTRUCTION COMPANY PRESENTATION

FORWARD-LOOKING INFORMATION

Certain information in this presentation is forward looking within the meaning of Canadian securities laws as it relates to anticipated financial performance, events or strategies. When used in this context, words such as “will”, “anticipate”, “believe”, “plan”, “intend”, “target”, “could” and “expect” or similar words suggest future outcomes. Forward looking information in this presentation includes, or is related to, but is not limited to: (i) capital investment forecast and timing; (ii) developing new

• perating hubs; (iii) the solar farm at E.L. Smith Water Treatment Plant; (iv) the renewable natural gas opportunities at Gold

Bar Wastewater Treatment Plant; (v) the Riverview Substation facility capital cost and in service date; (vi) commencing

• perations of the Vista Ridge water supply pipeline; completion of the Southern Bruce (Kincardine) greenfield natural gas

distribution system; undertaking work on electrical assets related to TransMountain; (vii) the procurement of energy under the new EPSP; (viii) the commitment to maintaining credit ratings; (ix) EPCOR’s disciplined approach to growth; (x) expectations of financing capital growth; (xi) expectations of earnings from rate regulated businesses; and (xii) expectations of accessing debt capital markets; (xiii) expectations to improve safety, modernize assets and use of renewable energy; (xiv) expectations regarding lead mitigation and SIRP; and (xv) expectations regarding growth of ENCOR. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks which could cause actual results to vary and in some instances to differ materially from those anticipated by EPCOR. Forward- looking information is based on the estimates and opinions of management at the time the information is presented. Actual results could differ materially from conclusions, forecasts or projections in the forward-looking information, and certain material factors or assumptions were applied in drawing conclusions or making forecasts or projections as reflected in the forward- looking information. Additional information about the material factors and risks that could cause actual results to differ materially from the conclusions, forecasts or projections in the forward-looking information and the material factors or assumptions that were applied in drawing a conclusion or making a forecast or projection as reflected in the forward-looking information is contained in the most recent interim and annual Management Discussion and Analysis filed on SEDAR (www.sedar.com) and EPCOR’s website (www.epcor.com). The purpose of forward looking information is to provide readers with management’s assessment of future plans and possible

• utcomes and may not be appropriate for other purposes. Readers are cautioned not to place undue reliance on forward-

looking statements as actual results could differ materially from the plans, expectations, estimates or intentions expressed in the forward-looking statements. Except as required by law, EPCOR assumes no obligation to update any forward-looking information, should circumstances or management’s estimates or opinions change, or any other reason. All forward looking information in this presentation is expressly qualified by this cautionary statement.

EPCOR INVESTOR PRESENTATION

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EPCOR INVESTOR PRESENTATION

Power, water | wastewater | drainage, natural gas services 2 million customers in North America Largest regulated private water utility in U.S. Southwest Headquartered in Edmonton, Alberta 3,500 employees, including 300 located in the U.S.

CANADA | U.S. UTILITY OPERATIONS

Infrastructure builder and provider of life essentials – power, water and natural gas.

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NATIONALLY RECOGNIZED CORPORATE GOVERNANCE

Founded in 1891, Edmonton’s power and water utilities were united in 1996 into EPCOR, a municipally-owned utility with a mandate to grow beyond Edmonton Strong stand alone credit rating (S&P: A-) and disciplined approach to capital placement

Governed by an Independent Board of Directors composed

• f business and community

leaders. As owner and shareholder, the City is not involved in decision-making except for material dispositions.

EPCOR INVESTOR PRESENTATION

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Distribution & transmission; transportation electrical infrastructure, i.e. street lighting, traffic signals, light rail transit

ELECTRICITY

Treatment, transmission, distribution and sale of water; collection and conveyance of wastewater and stormwater; drainage and wastewater treatment

WATER , WASTEWATER & DRAINAGE

Natural gas delivery to more than 30 communities in Canada and U.S.; constructing gas pipeline in rural Ontario

NATURAL GAS

In Alberta, rate regulated electricity service to residential and small commercial customers; competitive electricity and natural gas through Encor brand; billing, collection and contact centre services

ENERGY SERVICES Predominately rate regulated business with limited commercial exposure carried out under long-term contracts with investment grade counterparties. Long-life, high quality infrastructure assets in North America – Western Canada, Ontario, U.S. Southwest. Assets: $11.3 billion, Revenues: $1.9 billion (2019 Q3 LTM)

OPERATIONS SNAPSHOT

We’ve kept up on our commitment to safe and reliable operations for more than 125 years.

Note:

• All amounts in Canadian dollars unless specified otherwise.
• Last twelve months (“LTM”)

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Over 80% of capital investment is in regulated businesses. Between $750 M and $950 M spent in 2019. RATE REGULATED INFRASTRUCTURE Continued development of

• perating hubs in Ontario & Texas.

NEW HUBS IN ONTARIO & TEXAS M&A opportunities assessed based on strategic fit and investment criteria. MERGERS & ACQUISTIONS

OUR STRATEGY

A disciplined approach to placing capital in markets where we have an advantage.

Conservative Growth Profile.

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Continue to drive down safety incidents through a mix of leading and lagging indicators. . ZERO INJURY CULTURE

Modernizing our water, drainage and electricity networks to reduce outages.

SERVICE RELIABILITY Target industry-leading environmental performance and use renewable energy to reduce our carbon footprint. ENVIRONMENTAL RESPONSIBILITY

OUR STRATEGY

Continue to build on our reputation as a trusted developer and operator of utility assets.

Market Reputation. Attract and retain the best employees. PEOPLE & TALENT

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FINANCIAL PROFILE

Our proactive, methodical approach to risk positions us well for continued growth and competition. STRONG FINANCIAL RISK PROFILE Strong balance sheet, solid operating cash flow and liquidity metrics, competitive access to capital markets, disciplined growth strategy. EXCELLENT BUSINESS RISK PROFILE Over 95% of EBITDA from rate regulated businesses, sector and geographic diversity, strong competitive position.

98% 2%

Regulated

Non-Rate Regulated/Contracted

EARNINGS MIX

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2019 Q3 LTM OVERVIEW OF FINANCIAL RESULTS

($ millions) 2016 2017 2018 Q3 2019 (LTM) Net Income 309 256 295 279 Operating Income 379 356 384 405 Funds From Operations 412 478 573 640 Total Debt 1,920 2,866 2,700 3,081 Gross Assets 6,161 10,344 10,656 11,291 Debt to Capitalization 42% 45% 42% 45% FFO/Debt 22% 17% 21% 21%

• 2016 net income higher primarily due to gains from the sale of Capital Power shares and dividend income from Capital Power.
• Drop in 2017 FFO/Debt caused by full debt burden of the drainage transfer but only four months of drainage FFO.

EPCOR INVESTOR PRESENTATION

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36% 33% 20% 11%

WATER SERVICES DISTRIBUTION AND TRANSMISSION U.S. OPERATIONS ENERGY SERVICES

2019 Q3 LTM SEGMENT OVERVIEW

All amounts in millions of CAD dollars, as of the quarter ending September 30, 2019

Consolidated Operating Income

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NET ASSET GROWTH

Note: assets net of contributions

2011 2019 Q3

30% 45% 24% 30% 6% 3% 31% 15% 9% 7% WATER SERVICES DISTRIBUTION & TRANSMISSION ENERGY SERVICES U.S. OPERATIONS CAPITAL POWER OTHER

$4.4 B $7.6 B

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FINANCIAL STRENGTH

Maintaining strong “A” credit rating with significant financial flexibility Strengthening cash flow and earnings driven by strong business unit performance

46% 42% 45% 42% 45% 20% 25% 30% 35% 40% 45% 50%

2015 2016 2017 2018 2019 Q3 LTM

FFO to Debt Debt to Capitalization

21% 22% 17% 21% 21% $435 $412 $478 $573 $640 0% 5% 10% 15% 20% 25% 30% 35% 40%

2015 2016 2017 2018 2019 Q3 LTM

$0 $100 $200 $300 $400 $500 $600 $700

 FFO ($M)

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FINANCING & LIQUIDITY

• Committed syndicated credit facility of $600M

maturing Nov. 2024

• Five $40 million bilateral demand facilities
• Capital growth will be financed with a

combination of cash flow and debt issuances

• Will continue to fund US growth with USD debt
• $350 million, 30-year MTN, issued in July 2019

with coupon rate of 3.106%

• $100 million, 3-year MTN, issued in July 2019

with coupon rate of 1.949%

DEBT ISSUANCE GOOD ACCESS TO CAPITAL AND SHORT-TERM LIQUIDITY

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DEBT MATURITIES

Debt maturities are well laddered without any notable pressure points. USD private placement (PP) agreement covenants and term sheets established, enabling efficient access to PP market. Prefer long-dated tenors to align with long-lived asset base.

100 150 200 200 200 300 400 200 350 138 152

2019 2020 2021 2022 2013 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049

$MILLIONS

AXIS TITLE EUI $CAD EUI $USD

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INVESTMENT HIGHLIGHTS

A strong balance sheet, supportive regulatory environment and disciplined capital placement approach provide an attractive investment

• pportunity.

ENHANCED REGULATED BUSINESSES

Leveraging Drainage transfer, rate regulated businesses account for >95% of earnings. Across business units, no business exposure from former Capital Power

• wnership.

IMPROVED INDUSTRY / GEOGRAPHIC DIVERSITY

Entry into natural gas sector in Texas and Ontario.

STRONG FINANCIAL PERFORMANCE

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CAPITAL INVESTMENTS

Anticipated capital program provides a balanced growth profile and continues to enhance EPCOR’s geographic footprint.

United States Edmonton Rest of Canada Water Cycle Electricity Natural Gas

Geographic Diversification Balanced Growth

Future growth investments in North American markets are calibrated to maintain our target credit rating and manage risk. EPCOR balances investment in the water cycle, energy, and natural gas business lines throughout Edmonton, the rest of Canada and the U.S. Southwest. Since 1996 EPCOR’s growth has delivered a strong, stable dividend, returning $2.7 billion in dividends to our Shareholder.

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EPCOR INVESTOR PRESENTATION

• Drainage Services rate increases held at 3% per year until March 31, 2022, under

City bylaw. Continue to pursue opportunities for synergies and process improvements since Drainage transferred in 2017 from City of Edmonton.

• 12 MW solar farm proposed at E.L. Smith Water Treatment Plant.
• Pursuing renewable natural gas opportunities at Gold Bar Wastewater Treatment

Plant.

• Lead mitigation strategy being implemented to meet new Health Canada Guidelines.
• The Stormwater Integrated Resource Plan (SIRP) initiative continues to move ahead

and has received grant funding approval from both the Disaster Mitigation Assistance Fund (DMAF) and the Alberta Community Resiliency Program (ACRP).

WATER SERVICES HIGHLIGHTS

Focus on Drainage Services integration, greening our operations.

2019 Q3 LTM results reflect lower water consumption in the third quarter due to higher precipitation and lower temperatures.

20 40 60 80 100 120 140 160 2015 2016 2017 2018 2019 Q3 LTM 123 129 120 158 148 $ Million

Operating Income

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EPCOR INVESTOR PRESENTATION

• AUC Generic Cost of Capital 2018-2022 decision maintained ROE
• f 8.5%, based on capital structure of 37% and 63% debt.
• Distribution 2018-2022 Next Generation PBR – capital funding

approximately $150 million per year.

• 2018-2019 Transmission Facility Owner Application decision

Approved Revenue Requirement in-line with expectation.

• $79 million Riverview Substation and Feeder project with an

expected in-service date of Q1 2020.

DISTRIBUTION & TRANSMISSION HIGHLIGHTS

Powering Edmonton and keeping pace with one of Canada’s fastest growing cities.

Operating income increased primarily due to higher electricity distribution and transmission rates and higher transmission system net collections, partially offset by lower ETECH revenues.

20 40 60 80 100 120 140 2015 2016 2017 2018 2019 Q3 LTM 111 122 116 120 135 $ Million

Operating Income

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EPCOR INVESTOR PRESENTATION

• Energy Price Setting Plan, 2018-2021 approved March 2018. Procurement
• f energy under new plan began in Dec 2018 with rates effective April 1
• 2019. This has resulted in an improvement in margins and operating income.
• Non-Energy filing decision approved Revenue Requirement in line with
• expectations. Customer Information System replacement project approved

by AUC.

• Competitive Retail (Encor) now comprises 12% of total Edmonton sites and

continues to deliver strong growth.

ENERGY SERVICES HIGHLIGHTS

With over 1 million utility sites billed, our focus is modernizing how we provide customer care.

10 20 30 40 50 2015 2016 2017 2018 2019 Q3 LTM 47 45 34 20 43

Increase in operating income primarily due to higher EPSP margins, higher commercial services revenues and Encor customer growth.

$ Million

Operating Income

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EPCOR INVESTOR PRESENTATION

U.S. OPERATIONS HIGHLIGHTS

One of the largest private utilities in the U.S. Southwest, delivering clean water and safe natural gas.

• EPCOR USA provides water, wastewater and natural gas service to

approximately 665,000 people in 44 communities and 15 counties in Arizona, New Mexico and Texas.

• Completed acquisition of Rio Verde Utilities Inc.’s 2,220 water and 1,876

wastewater service connections and irrigation water service for five golf

• courses. (Mar 2019)
• Received interim rates following tie-vote / no decision on EPCOR’s water

consolidation application to ACC. Required to file new rate case in May 2020.

• Agreed to acquire the assets and operations of Brooke Water, LLC including

2,100 water service connections. (May 2019)

Operating income decreased as a result of lower water revenues due to reduced water sales volumes and a tax reform adjustment

• n customer bills (~USD$4M in Q3/19).

20 40 60 80 100 2015 2016 2017 2018 2019 Q3 LTM 62 72 78 85 81 $ Million

Operating Income

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• EPCOR first entered the Texas market in 2016 when it acquired

the 130 Pipeline, a 53-mile wholesale water supply pipeline that delivers groundwater to the Austin metropolitan area.

• Expanded platform in 2017 acquiring a 100% interest in Hughes

Gas Resources Inc., providing natural gas utility service to 4,300 connections and wholesale natural gas transmission to local distribution utilities in the Houston area.

• In 2018 EPCOR was selected to operate the Vista Ridge

project, a 143-mile wholesale water supply pipeline, delivering 44.6 million gallons of daily water to San Antonio. Scheduled to begin operations in April 2020.

TEXAS HUB DEVELOPMENT

EPCOR USA provides service in three of the four largest metropolitan areas in Texas.

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• NRG natural gas regulated utility acquisition completed in

November 2017, serving ~ 9,370 natural gas customers. $22 million cash consideration. (Aylmer)

• 100% interest in Collus PowerStream electric distribution

company, serving 17,870 customers, closed in October 2018. $28 million cash consideration and assumption of $16 million in third-party debt. (Collingwood)

• Construction of a natural gas distribution system in Southern

Bruce region began in summer 2019 with expected completion in 2021. (Kincardine / Arran-Elderslie / Huron-Kinloss)

ONTARIO HUB DEVELOPMENT

More growth, bringing natural gas to rural communities for the first time.

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REGULATORY ORGANIZATIONAL STRUCTURE

• 1. Return based on fixed margin of $2.51/MWh (after-tax) with estimated energy purchases of approximately five million MWh/year
• 2. ROE determined on the basis of a weighted average according to equity levels in each water and wastewater district.

LINE OF BUSINESS REGULATORY AUTHORITY APPROVED ROE - 2018

Electricity Distribution AUC 8.5% Electricity Transmission AUC 8.5% EPCOR Energy Alberta AUC N/A1 Edmonton Water City of Edmonton 10.175% Edmonton Wastewater City of Edmonton 10.175% French Creek Water Comptroller (BC) 9.75% Arizona ACC 9.7%2 New Mexico NMPRC 9.6%2 Texas TRC 10.6%

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EDMONTON FLOOD MITIGATION TRANS MOUNTAIN PIPELINE VISTA RIDGE TEXAS WATER PIPELINE SOUTHERN BRUCE NATURAL GAS

PROJECT HIGHLIGHTS

FLOOD MITIGATION

A 20-year program to protect Edmonton homes, businesses and infrastructure from flooding

TRANS MOUNTAIN

Proposed work on transmission lines, substations and switchyards to support the 1,150 km pipeline expansion project

VISTA RIDGE

EPCOR will operate the largest water P3 in the United States, delivering 30% of San Antonio’s water through a 143-mile pipeline

SOUTHERN BRUCE

Extending natural gas service to rural Ontario through a new pipeline and gas distribution utility

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CONTACT

www.epcor.com

WEBSITE

Tony Scozzafava tscozzafava@epcor.com Matt Lemay 1-877-969-8280 glemay@epcor.com

PHONE

2000 – 10423 101 Street NW Edmonton AB T5H 0E8 Canada

ADDRESS