45th annual eei financial conference - transalta nov 2010.pdfq4 2010 $135 mm 69 mw wind ardenville...
TRANSCRIPT
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45th Annual EEI Financial Conference
November 2, 2010
Brett GellnerChief Financial Officer
2
This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation. All forward-looking statements are based on our beliefs and assumptions based on information available at the time the assumption was made. These statements are not guarantees of our future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward-looking statements. Some of the factors that could cause such differences include cost of fuels to produce electricity, legislative or regulatory developments, competition, global capital markets activity, changes in prevailing interest rates, currency exchange rates, inflation levels, unanticipated accounting or audit issues with respect to our financial statements or our internal control over financial reporting, plant availability, and general economic conditions in geographic areas where TransAlta Corporation operates. Given these uncertainties, the reader should not place undue reliance on this forward-looking information, which is given as of this date. The material assumptions in making these forward-looking statements are disclosed in our 2009 Annual Report to shareholders and other disclosure documents filed with securities regulators.
Unless otherwise specified, all dollar amounts are expressed in Canadian dollars.
Forward looking statements
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OutlineAbout UsValue Proposition & StrategyMarkets, Contracting, and GrowthFinancial Strength & Capital AllocationSummary
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AUSTRALIA
UNITED STATES
CANADA
18 MWHydro under development286 MW
Generation Facilities:
Coal-fired under construction
Coal-fired plants
Gas-fired plants
Hydro plants
Wind-powered plants
Wind under construction
Geothermal
4,688 MW
1,843 MW
893 MW
950 MW
123 MW
164 MW
Biomass 25 MW
Net generation in operation 8,563 MW
Our assets and portfolio
54%
Coal48%
Renewables29%>50% EBITDA from low
carbon generation and growing; should lead to multiple expansion Gas
23%
2010eEBITDA
Diverse portfolio; strategically focused in Western Canada and U.S.; renewable focus across Canada
5
TransAlta value proposition & strategy
Canada’s largest publically traded wholesale power
generator & marketer
Value
Maintaining a strong dividend
Investing in 10% after-tax IRR projects
Maximizing value of sustaining capital
Strategy
Maintaining investment grade credit ratios
Generating significant cash flow
Diversity of regions, fuels, contracts and age of assets
Environmental leadership
Developing and acquiring low carbon growth
opportunitiesOptimizing operations
Low to moderate risk profile
Yield, upside potential, and steady disciplined growth
Financial strength
Disciplined investment decisions
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Drive the baseEnhancing unit margins by improving plant performance on a sustained basis, driving productivity to lower costs, and optimizing contracts
Green our portfolioMaintaining a strong portfolio of low carbon greenfield opportunities but shifting focus to acquisitions
Reposition coalPursuing technologies that reduce the carbon intensity of coal
Executing on our strategic priorities will drive near and long-term value
Focused and disciplined strategic priorities
7
Portfolio optimization
Asset by asset focus for enhancing returns; renegotiated contract at Sarnia with the Ontario Power Authority (OPA)
Operational stability
Coal life-cycle optimized on a unit by unit basis to deliver operational stability and avoid potential of stranded capital
Targeting 89 - 90% fleet availabilityYTD availability of 88.1% vs. 84.4%
Productivity investments used to offset inflationary pressures and improve performance
OM&A $44 million lower in YTD vs. 2009
Organization, maintenance plans and spend aligned to low pricing environment
Increased productivity &cost reductions
Drive the base
Enhancing returns and delivering shareholder value
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0500
1,0001,5002,0002,500
2000 2005 2010 2011eHydro Wind Geothermal Biomass
Hydro
Wind
134 MW
399 MW
Geothermal 87 MW
Net Capacity 620 MW
11 Facilities Under Advanced Development:
Total Capital Spend: $2.0B – $2.4B
6 Facilities Under Construction:
Wind
Hydro
Coal
Net Capacity
123 MW
18 MW
286 MW
427 MW
Total Capital Spend: $1.4B
Strategy focus:
WindGeothermalHydro upgrades: Run of riverNatural gas combined-cycleGreen coal – Project Pioneer
Green our portfolio: Growth strategy
Maintain investment focus on low carbon growth opportunities andfocus on multiple options for long-term sustainability
Renewable portfolio growthMW
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TransAlta’s growth investments deliver long-term sustainable cash flow and earnings growth
Tracking
Merchant
Unit 1 - Q4 2011
Unit 2 - Q4 2012
15%+
$68 MM
46 MW
(23 MW each)
Efficiency Uprates
Alberta
Keephills 1 and 2
Uprates
Tracking
Merchant
Q4 2012
15%+
$27 MM
15 MW
Efficiency Uprate
Alberta
Sundance 3 Uprate
10%+10%+10%+10%+Unlevered after tax IRR
AlbertaBritish Columbia
AlbertaNew BrunswickLocation
Tracking
Merchant
Q2 2011(3)
$988 MM (3)
225 MW (1)
Supercritical Coal
Keephills 3
Tracking
LTC
Q1 2011
$48 MM (2)
18 MW
Hydro
Bone Creek
Ahead of schedule
LTC/Merchant
Q4 2010
$135 MM
69 MW
Wind
Ardenville
Tracking
LTC
Q4 2010
$100 MM
54 MW
Wind
Kent Hills 2
On time / On budget
Contract Status
Commercial Operations Date
Total Project Cost
Size
Type
Projects
(1) 450 MW gross size(2) Bone Creek’s capital spend prior to the acquisition was $23 MM which does not form part of our total project cost(3) Keephills 3 capital spend increased from $888 MM to $988 MM and its COD was revised from Q1 2011 to Q2 2011
Executing on our growth
10
Repositioning coal - Alberta
Federal government mandating the phased end of coal-fired electricity generation in CanadaCoal-fired facilities to close at the latter of 45 years of age or PPA expiryOpportunities to replace coal with a mix of natural gas and clean coal technology
Strong competitive advantages in Alberta to navigate federal governments mandate to phase-out coal
Competitive advantages:
AB coal sites are ideal for development of large scale natural gas-fired generation and future clean coal
• Existing infrastructure; gas lines and quality water supply• Access to transmission capacity• Centrally located
20+ experience in building natural-gas facilitiesProject Pioneer - leading the world in carbon capture and storage (CCS)CCS supported by federal and provincial governments
Alberta coalfacilities
Alberta
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Over 50% of installed base in Alberta is coal; vast economic coal reservesCoal to play a longer-term role in Alberta with application of new technologySequestration capability provides potential to apply CCS on existing coal facilities
Advancing Canada’s first large-scale project to retrofit a power plant to capture and store 1M tonnes of CO2 by 2015
Repositioning coal - Alberta
Project PioneerLargest scale pilot in North AmericaAwarded over $770M of government fundingPotential to remove 90% of CO2 from emission streamPartners include: Governments of Canada and Alberta; Alstom, Capital Power, and EnbridgeFEED study to be completed by the end of 2010
Carbon Capture and Storage
12
Demonstrating environmental leadership
Repositioning coal - Washington
Memorandum of Understanding signed with the state of Washington to negotiate an agreement on a transition plan for Centralia with the primary objective to reduce Centralia’s GHG emissions
Committed to maintaining power generation grid stability and protecting local jobs and investments in Washington state
Agreement to be cost of service with fixed and secure returns
Transition expected to commence in 2012; replacement capacity to include natural gas-fired generation and renewables
April 2010 2012 2025
MoU signed with state of Washington
Start transition based on defined schedule
Centralia fully transitioned to cleaner fuel sources
Transition planning underway Transition underway
Transition Timeline
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Markets & Contracting
14
$30
$40
$50
$60
$70
$80
$90
$100
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Market outlook: Alberta
(CAD$/MWh)
Figures as of Oct. 14, 2010
Reserve margins
Expect demand to grow at ~2.5% per year for the next three years
Power prices
Forward market driven off of soft natural gas pricesNatural gas prices likely to remain low out to 2011+ $1/GJ = ~ $8 - 10 / MWh
Actuals Current Market
0%
5%
10%
15%
20%
25%
2007 2008 2009 2010 2011 2012 2013 2014
Actual Forecast
1% load growth
2% load growth
3% load growth
Forward prices are soft due to low natural gas prices and capacity additions; long-term fundamentals remain strong, driven by oil sands recovery
15
$0
$10
$20
$30
$40
$50
$60
$70
2006 2007 2008 2009 2010 2011 2012 2013 2014
Market outlook: PacNW
Improvements in demand; forward pricing continues to track natural gas prices
(USD$/MWh)
Forward prices track natural gas movements+ $1 / MMBtu = ~ $7 - 9 / MWh
Reserve margins Power prices
Expect demand to grow at ~1.5% per year for the next three years
Actuals Current Market
Figures as of Oct. 14, 2010
20%
30%
40%
50%
60%
2007 2008 2009 2010 2011 2012 2013 2014
Reserve Margins*
Actual Forecast
1% load growth
3% load growth2% load growth
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Alberta PPAs and long-term contracts provide solid base for stable earnings and support TransAlta’s low to moderate risk business strategy
Approx. target contracting level of 90%
Merchant contracting strategy targets 25% / yr
PPAs, long and medium-term contracts:
~70% of generation in 2010
Average contract life ~12 years
PPAs, long & medium-term contracts
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2010 2011 2012 2013
Contracted Open
Total MWs
94% contracted for 2010, leverage to power price recovery in key markets
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2011 2012 2013
Contracted To be contracted Open
\
Merchant MWs
Approx. levels only
Merchant MWs
Merchant hedging strategy designed to minimize impacts of adverse market conditions while allowing for upside potential
Approximate target level - 90%
AB: $65 - $70PACNW: $55 - $60
~81%2012
AB: $65- $70PACNW: $55 - $60
~88%2011
AB: $60 - $65PACNW: $50 - $55
~94%2010
Merchant Portfolio Contracted Price (As of Oct. 2010)
Total Portfolio % ContractedYear
Capacity adjustments
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Capital Allocation Plan
Dividend
Provide shareholders sustainable dividend
growth
Share Buyback
Provide shareholders incremental return of
capital in absence of value-creating investment
opportunities
Growth Investment
Projects must deliver unlevered, free cash, after
tax IRR >10%
Portfolio Optimization
Divest or improve non-core and underperforming
assets
We remain disciplined in how we manage our balance sheet and allocate capital
Capital plan and funding
Sources & Uses of Capital 2010 – 2012
NCI$200M
Dividends$750M
Announced growth capex
$500M
Sustaining capex$1B
Available$550M
Cash flow from operations:~$3B
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$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
Credit Lines Utilized Credit Lines Available
35%
40%
45%
50%
55%
60%
2006 2007 2008 2009 Q32010
0%5%
10%15%20%25%30%35%
2006 2007 2008 2009 Q32010
012345678
2006 2007 2008 2009 Q32010
Execute our plan while maintaining long-term financial strength and stability
Range:4 - 5x
Cash flow to interest
Maintain financial strength
Range:55 - 60%
Debt to capital
Range:20 - 25%
Cash flow to debt
Committed credit lines
Sept. 30, 2009 Sept. 30, 2010
$B
20
Disciplined and consistent value proposition and strategy
Strong yield supported by significant free cash flow both near-term and long-term
Well positioned to capitalize on market recovery through operational excellence; stronger availability, lower costs, and disciplined contracting
Diversified fuels and geographies provide strong competitive advantages and a broader platform for future growth
Deep pipeline of organic growth opportunities maintained while shifting focus to acquisitions
Financial strength and flexibility
Summary
Well positioned to deliver strong results throughout market cycles
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Appendix
22
Performance goals
Annual Metrics
4.6X
21.2%
56.7%
Annual Metric
$230 MM
$0.17
$7.51/MWh
Annual Metric
91.0%
Q3 2010
Annual Metrics
5.8X
23.6%
50.1%
Annual Metric
$194 MM
$0.34
$7.78/MWh
Annual Metric
83.9%
Q3 2009
Decreased due to low pricing in core markets, lower Energy Trading gross margins, slightly higher OM&A costs in the quarter
>10%/yrComparable EPS Grow Earnings and Cash Flow
TBD$295 - $340Sustaining CapexMake Sustaining Capex Predictable
Maintained strong balance sheet, financial ratios and ample liquidity
4 - 5X
20 - 25%
55 - 60%
Cash Flow to InterestCash Flow to DebtDebt to Invested Capital
Maintain InvestmentGrade Ratings
TBD
>10%/yr>10%/yr>10%/yr
Comparable ROCETSRIRR
Deliver Long-termShareowner Value
Higher operating cash flow due to favorable changes in working capital
Decreased year-over-year due to less major maintenance activities in 2010 and increased capacity
TBD
Increased availability due to lower planned and unplanned outages at our Sundance plant, lower planned outages at our Mississauga and Windsor facilities, and lower unplanned outages at Centralia
2010 Goals
$850 – 950* MMOperating Cash Flow
90%AvailabilityAchieve top decile operations
1.0 by 2015Injury Frequency RateImprove Safety
Offset InflationOM&A/installed MWhEnhanceProductivity
Measures ReviewFinancial ratios
*Estimate revised to $800 - $900 million
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$(196)$74$12$107Free cash flow (deficiency)
$1.69$2.28$0.98$1.05Cash flow from operating activities per share
$595$664$241$233EBITDA
$463$558$178$184Funds from operations
12,742
91.0
$0.29
$230
$0.17
$0.17
$38
$38
$98
$380
$700
Q3 2010
11,610
83.9
$0.29
$194
$0.34
$0.34
$66
$66
$120
$380
$666
Q3 2009
33,439
84.4
$0.87
$334
$0.52
$0.49
$102
$97
$219
$1,107
$2,007
YTD2009
35,857
88.1
$0.87
$502
$0.71
$0.57
$156
$126
$287
$1,137
$2,008
YTD2010
Availability (%)
Comparable earnings per share
Basic and diluted earnings per share
Comparable earnings
Operating income
Production (GWh)
Cash dividends declared per share
Cash flow from operating activities
Net earnings
Gross margin
Revenue
Results ($M)
Q3 2010 - Highlights
24
(6)---Settlement of commercial issue, net of tax
$0.34
198
$66
-
-
$66
Q3 2009
$0.17
220
$38
-
-
$38
Q3 2010
1-Change in life of Centralia parts, net of tax
$0.49
198
$97
-
$102
YTD2009
220Weighted average common shares outstanding in the period
$0.57
$126
(30)
$156
YTD2010
Earnings on a comparable basis
Earnings on a comparable basis per share
Income tax recovery related to the resolution of certain outstanding tax matters
Net earnings
Results ($M)
Comparable earnings
Q3 2010
25
Net earnings
$38
(2)
12
(5)
(13)
(15)
(5)
(4)
4
$66Q3 2010
$156Net earnings, 2010
(12)Other
15Decrease in income tax expense / increase in income tax recovery
7(Increase) decrease in non-controlling interest
(28)
(2)
44
(20)
50
$102YTD 2010
Decrease in Energy Trading gross margins
(Increase) decrease in OM&A costs
Increase in depreciation expense
Increase in net interest expense
Increase in Generation gross margins
Net earnings, 2009
Q3 2010
26
$12
-
(1)
(7)
(58)
(116)
$194
Q32009
$74
-
(13)
(44)
(169)
(202)
$502
YTD2010
$(196)
(8)
(19)
(40)
(169)
(294)
$334
YTD2009
$107Free cash flow (deficiency)
-Other income
-Non-recourse debt repayments
(15)Distribution to subsidiaries’ non-controlling interests
(49)Cash dividends paid on common shares
(59)Sustaining capital expenditures
Add (Deduct):
$230Cash flow from operating activities
Q32010
($M)
Free cash flow
27
$0
$200
$400
$600
$800
$1,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter
CDN MTN US Notes
1
Minimal debt refinancing over the short-term provides ample financial flexibility
(CDN $M)
Based on June 30, 2010 FX rate of $1.0529 CAD/US
Debt profile supports balance sheet
1 1
11
28
TBD
2011e*
$125 - 140Major Maintenance
$20 - 25Mine
$10 - 15Productivity capital
TBD
2012e*
$120 - 140
$275 - 320
2010e
Routine capital
Sustaining
($M)
Sustaining capex slightly reduced due to changes in natural gas plant major maintenance schedule
2010 Sustaining capital
*Estimates will be provided at TransAlta’s 2010 Investor Day.
29
160 – 170*
$55 - 70
$0 - 5*
$55 - 65
Natural Gas and
Renewables
2,465 – 2,475
$135 - 145
$65 - 70
$70 - 75
Coal
2,625 - 2,645GWh lost
$190 - 215Total$65 - 75Expensed
$125 - 140
Total
Capitalized
($M)
2010 Major maintenance plan
* Natural gas fleet only
Major maintenance
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All projects tracking on time and on budget
$1183$10 - 15$8166Summerview 2
$ 772---$6053Sun 5 uprate
185
66
MW
$308$10 - 15$228 Total
$1131---$87Blue Trail
2012e Total2010e 2011e2009Completed
$68$20 - 30$25 - 35$5 - 15$246KI & K2 uprates
$27$10 - 20$10 - 15$0 - 5-15Sun 3 uprate
427
69
225
18
54
MW
$100$80 - 85$18Kent Hills 2
$484$50 - 55$4Bone Creek
$9885$20 - 30$225 - 245$231Keephills 3
$135 $105 - 115$27Ardenville
$30 - 50
2012e
$1.4B
Total
$465 - 520
2010e
$55 - 80
2011e
$282
2009
Total
In Progress
Growth capital
1. Blue Trail capital spend prior to 2009 was $26M2. Sun 5 uprate capital spend prior to 2009 was $17M3. Summerview II capital spend prior to 2008 was $25M4. Bone Creek capital spend prior to the acquisition was $23M which does not form part of our total project cost; total project cost includes
associated recoveries5. Keephills 3 capital spend prior to 2009 was $476M
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Advanced development
Over 600 MW of renewable energy in advanced development for TransAlta’s 2010 - 2013 pipeline
* TransAlta’s ownership** Based on initial estimates of Canadian Hydro
LOCATION PROJECT CAPACITY FUEL TYPE RESOURCE & TURBINE CAPEX RANGE PPA / MW SITE CONTROL Applied Secured SECURED $ MM LTC
Saskatchewan ANEDC 175 Wind TBD $420 - $470 PPA/LTCNew Brunswick NB - 1 54 Wind $100 - $155 PPA/LTCNew Brunswick NB - 2 54 Wind $100 - $155 PPA/LTCCalifornia Black Rock 1-3 87* Geothermal In Progress $450 - $500 PPA/LTCAlberta Dunvegan** 100 Hydro $500-$600 MerchantBritish Columbia Clemina Creek** 11 Hydro $30-$40 PPA/LTCBritish Columbia Serpentine Creek** 10 Hydro $30-$40 PPA/LTCBritish Columbia English Creek** 5 Hydro $10-$20 PPA/LTCOntario Yellow Falls** 8* Hydro $30-$40 PPA/LTCQuebec New Richmond** 66 Wind $180-$200 PPA/LTCQuebec St. Valentin** 50 Wind $150-$170 PPA/LTC
TOTAL MW : 620 TOTAL COST: $2.0 B - $2.4 B
2012
TBD
TBD
TBD
TBD
2010/11
2012
Projects in Advanced DevelopmentTARGET
COMMERCIALOPERATION DATE
2012
ENVIRONMENTAL AND PERMITS
2013/14
20122010/11