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BMO 2016 Fixed Income Infrastructure &
Utilities Conference
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Forward Looking Statements
This presentation may include forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities
legislation. All forward-looking statements are based on our beliefs as well as assumptions based on information available at the time the assumptions were made and on management’s
experience and perception of historical trends, current conditions, and expected future developments, as well as other factors deemed appropriate in the circumstances. Forward-looking
statements are not facts, but only predictions and generally can be identified by the use of statements that include phrases such as “may”, “will”, “believe”, “expect”, “anticipate”, “intend”,
“plan”, “project”, “foresee”, “potential”, “enable”, “continue”, or other comparable terminology. These statements are not guarantees of our future performance and are subject to risks,
uncertainties, and other important factors that could cause our actual performance to be materially different from that projected. In particular, this presentation contains forward-looking
statements pertaining to our business and anticipated future financial and share price performance; our success in executing on our growth projects, including increasing customer
contracts by 2021; anticipated gross margin from proprietary trading; capitalizing on opportunities in gas-fired and renewable generation; repositioning our capital structure and proactively
planning for debt maturities; funding strategy, including pro forma year end 2015 liquidity, raising project-level debt through the use of our contracted asset base and leveraging TransAlta
Renewables Inc. (“TransAlta Renewables”); the timing and the completion and commissioning of projects under development, including major projects such as the South Hedland Power
Project and Sundance 7, and their attendant costs; expectations regarding TransAlta Corporation’s (“TransAlta”) offer control in the Alberta market following the expiry of the power
purchase arrangements; expectations related to future earnings and cash flow from operating and contracting activities (including estimates of comparable earnings before interest, taxes,
depreciation, and amortization (“EBITDA”), comparable funds from operations (“FFO”), and comparable free cash flow; expectations for demand for electricity in both the short term and
long term, and the resulting impact on electricity prices; the impact of load growth, increased capacity, and natural gas costs on power prices; expectations in respect of generation
availability, capacity, and production; expectations regarding the role different energy sources will play in meeting future energy needs; expected financing of our capital expenditures;
expected governmental regulatory regimes and legislation and their expected impact on us and the timing of the implementation of such regimes and regulations, as well as the cost of
complying with resulting regulations and laws; our trading strategies and the risk involved in these strategies; estimates of future tax rates, future tax expense, and the adequacy of tax
provisions; accounting estimates; anticipated growth rates in our markets; the estimated contribution of Energy Marketing activities to gross margin; and expectations relating to the
performance of TransAlta Renewables’ assets and plans for the sale of contracted assets to TransAlta Renewables.
Factors that may adversely impact our forward-looking statements include risks relating to: fluctuations in market prices and the availability of fuel supplies required to generate electricity;
our ability to contract our generation for prices that will provide expected returns; the regulatory and political environments in the jurisdictions in which we operate; environmental
requirements and changes in, or liabilities under, these requirements; changes in general economic conditions including interest rates; operational risks involving our facilities, including
unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather; disruptions in the source of fuels, water, or wind required to
operate our facilities; natural or man-made disasters; the threat of domestic terrorism and cyberattacks; equipment failure and our ability to carry out or have completed the repairs in a
cost-effective manner or timely manner; commodity risk management; industry risk and competition; fluctuations in the value of foreign currencies and foreign political risks; the need for
additional financing; structural subordination of securities; counterparty credit risk; insurance coverage; our provision for income taxes; legal, regulatory, and contractual proceedings
involving the Corporation; outcomes of investigations and disputes; reliance on key personnel; labour relations matters; development projects and acquisitions, including delays in the
construction of the South Hedland Power Project; failure to proceed with plans for raising project-level debt; failure to proceed with plans for the sale of contracted assets to TransAlta
Renewables as a result of failure to agree to commercial terms with the independent directors of TransAlta Renewables, adverse market conditions or failure to obtain any required
regulatory, shareholder or other third party approvals; and the satisfactory receipt of applicable regulatory approvals for existing and proposed operations and growth initiatives. The
foregoing risk factors, among others, are described in further detail in the Risk Management section of this MD&A and under the heading “Risk Factors” in our Annual Information Form.
Readers are urged to consider these factors carefully in evaluating the forward-looking statements and are cautioned not to place undue reliance on these forward-looking statements.
The forward-looking statements included in this document are made only as of the date hereof and we do not undertake to publicly update these forward-looking statements to reflect new
information, future events or otherwise, except as required by applicable laws. In light of these risks, uncertainties, and assumptions, the forward-looking events might occur to a different
extent or at a different time than we have described, or might not occur. We cannot assure that projected results or events will be achieved.
Certain financial information contained in this presentation may not be standard measures defined under International Financial Reporting Standards (“IFRS”) and may not be comparable
to similar measures presented by other entities. These measures may not be comparable to similar measures presented by other issuers and should not be considered in isolation or as a
substitute for measures prepared in accordance with IFRS. For further information on non-IFRS financial measures we use, see the section entitled “Non-IFRS Measures” contained in
our Management Discussion and Analysis, filed with Canadian securities regulators on www.sedar.com.
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Coal: 4,931 MW ~6 facilities in Alberta and the Pacific
Northwest
Gas: 1,315 MW
12 facilities in Canada and Australia;
also 270km pipeline
RNW owns all Australian gas assets (425
MW) and 506 MW gas facility in Ontario
Wind & Solar:
1,402 MW
28 facilities in Canada and the U.S
RNW owns ~90% of wind facilities
Hydro: 914 MW 27 facilities in Canada and the U.S.
TA owns all of the Alberta hydro facilities
TransAlta’s Diversified Portfolio
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Proven Track Record
EBITDA and Cash Metrics (1)
• One of Canada’s largest publicly traded power generators & marketers with
over 100 years of operating experience
• Diversified and highly contracted asset base with over 70 facilities strategically
positioned in Canada, the United States and Western Australia
• Approximately 25% of Free EBITDA generated by Canadian Coal assets
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$0
$200
$400
$600
$800
$1,000
$1,200
2012 2013 2014 2015E 2016E
EBITDA ($M) FFO/Share FCF/Share
2014 Free EBITDA (2)
25%
7%
35%
24%
9%
Canadian Coal U.S. Coal Gas Wind Hydro
(1) Guidance ranges are subject to potential regular year-end adjustments relating to force majeure provisions that will be reviewed as part of the financial close process
(1) FFO/Share and FCF/Share reflect the average of the guidance ranges provided for 2015 and 2016
(2) Free EBITDA = EBITDA – Sustaining Capital
5 5
0
1,000
2,000
3,000
4,000
5,000
6,000
2016 2017 2018 2019
Open Merchant Short term contract / Hedges
Long-term contract PPAs
Contracted Portfolio Supports Stable EBITDA
Contract and hedging strategy underpin stable cashflows ¹ As of January 2016
Alberta • Well hedged through 2016
• Market shocks allow opportunity to further
hedge at prices higher than the current
market
Pacific Northwest • Puget Sound Energy and other long-term
contracts provide base of between
~280MW and 380MW
• Additional shorter-term hedges managed
dynamically to capture market volatility
Merchant exposure in Alberta and the
Pacific NW
2016 Hedge prices
AB ~$45 - $50/MWh
PacNW ~$40/MWh
2017 Hedge prices
AB ~$45 - $50/MWh
PacNW ~$45 - $50/MWh
Total portfolio contractedness1
MW 87% 84% 72% 70%
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Recent Accomplishments
• Raised ~$600 million in equity through TransAlta Renewables through
Australian and Canadian asset drop-downs and AIMco strategic investment
• Raised ~$500 million in senior secured amortizing debt through Melancthon
Wolfe Wind LP and our Pingston joint venture
• Reduced the annual dividend from $0.72 / share to $0.16 per share freeing
up ~$150 million annually, discontinued DRIP
• Reduce U.S. Debt from $2.1 billion to $1.6 billion, however, the reduction
was largely offset by U.S. dollar strengthening
• Current liquidity at ~$1.4 billion
• Significant cost reduction initiatives at our operations and corporate levels
• Extended contract at Poplar Creek to 2030 and acquired 135 MW’s of
renewables assets
• Completed the Australian pipeline construction in early 2015 and advanced
the construction of South Hedland gas project on time and on budget
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A Prudent and Proactive Plan
1) Deliver Operational Excellence
2) Maximize Financial Flexibility
3) Strategically Grow our Portfolio of Gas-Fired and
Renewable Generation
Strategic Objectives
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Executing our Strategic Objectives
2015 2016
Operational
Excellence
• Reduced costs by ~$50 million
with productivity and efficiency
initiatives at Canadian Coal and
Corporate
• Continue to focus on Alberta coal
mining operations
Maximize
Financial
Flexibility
• Raised approximately $1 billion
of capital through the use of
TransAlta Renewables
• On-track to meet our guidance
• FFO expected to be at the low
end of guidance range despite
low power prices
• Reposition our capital structure by
pursuing project-level debt
• Proactive planning for debt
maturities in 2017
• Similar guidance ranges to 2015
despite continued challenging
market conditions expected in
2016
Strategic
Growth
• Acquired 71 MWs of wind and
solar assets in the U.S.
• Received approval to construct
and operate Sundance 7
• Secure a coal transition agreement
• Prepare to capitalize on
opportunities in gas-fired and
renewable generation
• Longer-term focus given Alberta
dynamics
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Debt Funding Overview
Raised over $1 billion of capital in 2015 to strengthen our financial position
Agency Rating Outlook S&P BBB- Stable
DBRS BBB Stable
Fitch BBB- Stable
Moody’s Ba1 Stable
Credit Ratings:
$0
$200
$400
$600
$800
$1,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 20302031-20392040
RNW Amortizing Debt CHD Debentures TAC USD Notes TAC CAD MTN
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$27 $204
$400 $400 $400
$520
$0
$200
$400
$600
$800
2016 2017 2018 2019 2020
CAD
USD
Upcoming Debt Maturities
Proactively Preparing for Debt Maturities
Funding initiatives in 2016 can be used to pre-fund 2017 / 2018 maturities
• As at Sept 30th 2015, ~$0.9 billion in available liquidity
• TransAlta recently raised:
• ~$440 million in non-recourse financing associated with two wind facilities
• $200 million through the sale of RNW common shares to AIMCo
• ~$170 million through the recent drop-down transaction with RNW
• Pro forma year-end 2015, ~$1.4 billion in available liquidity
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Maximizing Financial Flexibility
Reposition TransAlta’s capital structure
• Accelerate the use of project-level debt to fund upcoming corporate debt
maturities
• Deliver on FFO and debt reduction targets and achieve FFO to Debt target of
20% by 2018
2016 • Raise $400 to $600 million of project-level debt
• Refinance U.S.$400 million corporate maturity in 2017
2017
• Execute a similar strategy in 2017
• Refinance 2018 debt maturities of CAD$177 million and
U.S.$520 million
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Utilizing our Contracted Asset Base
• Assets support target of $400 - $600 million in financing in the near-term
• Long-term contracted assets with credit worthy counterparties
• Strong operating history and well planned maintenance programs
• Size and ability to package certain assets together to manage transaction costs
Wind • ~500 MW in Ontario and the U.S.
Hydro • ~50 MW in Ontario and B.C.
Gas • ~525 MW in Ontario
• Longer-term, additional ~$1.3 billion (Hydro and Wind in Alberta and
Australian portfolio)
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Melancthon Wolfe Wind LP Project Financing
• First large scale senior secured amortizing financing employed by TransAlta
in 2015
• BBB (stable) credit rating from DBRS
• $442 million, 13.3 year term, 6.9 year average life, 3.834% coupon
We expect to raise additional project finance against existing renewable and
gas assets to re-finance corporate maturities as they come due
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TransAlta Corporation and TransAlta Renewables are strategically aligned
Leveraging TransAlta Renewables
TransAlta Renewables
TransAlta
Public
~60-80% ~20-40%
• TransAlta is the largest shareholder
of TransAlta Renewables and will
maintain ~60-80% ownership
• Unlocks the value of long-life contracted
assets on attractive terms
• Provides access to lower cost funding
• Funds growth and debt reduction
• Strong currency to support accretive
acquisition of third party assets
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TransAlta Renewables (TSX:RNW)
• Created in August 2013 to provide stable, consistent returns for investors through the
ownership of highly contracted power generation and other infrastructure assets.
$3.0 billion Market Cap
$2.4 million in 2014
adjusted EBITDA
$176 annual dividend per share
$0.84 billion Enterprise Value
Enterprise Value¹ $2.8 Billion
Market Cap. $2.0 Billion
2015E EBITDA² $245 Million
Dividend Yield 9.6%
Generating Capacity (including South Hedland) 2,470 MW
TransAlta Corporation’s Ownership ~64%
¹ Does not include capital required to complete South Hedland Project
² Average estimate of research analysts covering TransAlta Renewables
* Enterprise Value and Market Cap. based on closing price as of January 15 2016
Wind
Hydro
Gas Fired
Gas Pipeline
Transmission
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Coal Transition in Alberta – The Facts
• There is currently 6,277 MW of coal-fired installed capacity in Alberta, representing
approximately 39% of the overall supply
• Federal regulations amended in 2012 designate useful life of coal plants as 50 years
• Eight of TransAlta’s coal units, totaling 2,931MW, will be retired by the end of 2029 under
the federal rule, resulting in GHG reductions of 88% from current levels
• Three other coal units in Alberta will be decommissioned by 2030, representing
approximately 450MW as a result of recently announced climate leadership plan –
compensation expected
Plant MW (Net) Annual GWh1 Retirement Under
Federal GHG Regulations
Sundance 1 & 2 560 4,170 2019
Sundance 3 368 2,740 2026
Sundance 4 406 3,023 2027
Sundance 5 406 3,023 2028
Sundance 6 401 2,986 2029
Keephills 1 & 2 790 6,046 2029
Sheerness 1 98 1,415 2036
Sheerness 2 98 1,415 2040
Genesee 3 233 1,675 2055
Keephills 3 232 1,675 2061
¹ Based on 85% availability
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Long-Term Investment Opportunities
Gas-fired
• Alberta’s Climate Leadership Plan– requirement for gas generation
• Sundance 7, low cost option in our portfolio
• Expansion & acquisition opportunities in United States & Australia
Coal Optionality
• Evaluating coal to gas conversions
• Flexibility under Federal GHG legislation allows optimization of cash flows across the Alberta coal units
Renewables/Transmission
• Climate Leadership Plan provides significant potential for new capacity
• Evaluating hydro pumped storage at TransAlta’s existing hydro sites
• Privatization of Australia’s electricity assets
• Significant acquisition opportunities
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Appendix
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Results (in millions $CAD, except where noted)
9 MOS
Q3 2015
9 MOS
Q3 2014 2014
2013
2012
Revenues 1,672 1,905 2,623 2,292 2,210
Comparable EBITDA1 677 735 1,036 1,023 1,015
Comparable Funds from
Operations1
497 537 762 729 788
Available Liquidity1 (billions) 0.9 1.6 1.6 0.9 0.8
Ratios1
Cash Flow to Interest (times) 2,3 3.7 3.7 3.8 3.7 3.3
Cash Flow to Debt (%) 2,3 14.8 15.8 16.9 15.2 16.7
Debt to Invested Capital (%) 55.4 57.8 56.3 60.7 61.0
Continued Strong Financial Performance
¹ These items are not defined under IFRS.
Presenting earnings on a comparable basis provides management and investors with supplemental information to evaluate earnings trends in comparison with results from prior periods. Funds from operations (cash
flow from operations before working capital) is not defined under IFRS and is presented as one measure used to assess operating results.
Refer to the Non-IFRS Measures section of the applicable MD&A for further discussion of these items, including, where applicable, reconciliations to net earnings attributable to common shareholders and cash flow
from operating activities. The MD&A for the periods presented above have been incorporated by reference into the Preliminary Prospectus Supplement for this offering. 2 Last 12 months 3 These ratios have been adjusted for the impact of the Sundance Units 1 and 2 arbitration which occurred in Q2 2012 and for the impact associated with the California claim which occurred in Q4 of 2013
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Financial performance by Business Segment
Business Segment 2011 2012 2013 2014
EBITDA ($M)
Canadian Coal $273 $373 $309 $386
U.S. Coal $211 $148 $66 $62
Gas $275 $312 $327 $309
Wind $163 $151 $180 $177
Hydro $105 $127 $147 $85
Energy Marketing $101 ($13) $61 $76
Corporate Segment ($84) ($83) ($67) $(59)
Comparable EBITDA ($M) $1,044 $1,016 $1,024 $1,036
Comparable FFO ($M) $812 $788 $729 $762
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Sustaining Capex by Business Segment
Sustaining Capital $M
Business Segment 2011 2012 2013 2014
Generation Segment
Canadian Coal $121 $316 $237 $211
U.S. Coal $63 $32 $16 $12
Gas $69 $49 $58 $63
Wind $7 $4 $9 $12
Hydro $32 $14 $14 $21
Corporate $27 $24 $22 $23
Sustaining Capital $319 $439 $341 $342