Transalta Corporation · TSX:TA
Transalta — Investor Day (April 2003)
70 slides from Transalta's investor day presentation, Apr 5, 2003
Slide 1: Presenter Name, Location, April 5, 2003
Presenter Name Location April 5, 2003
Slide 2: Optimize our assets, cash is king, take a long-term view
Optimize our assets Cash Presenter Name is king Location Take a long-term April 5, 2003 view
Slide 3: Forward looking statements
Forward looking statements This presentation may contain forward-looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation. These statements are subject to a number of risks and uncertainties that may cause actual results to differ
Slide 4: Agenda
Agenda • Steve Snyder Welcome, strategy overview, and introductions • Tom Rainwater Markets, development and trading • Rob Soeldner Plant operations • Linda Chambers Life cycle management • Fred Gallagher Wind generation • Ian Bourne Financial strategy • Steve Snyder Closing comments 4l
Slide 5: Corporate strategy
Corporate strategy Steve Snyder President & CEO • Inflexion points • Industry basics • Overview of industry dynamics • What this means for TransAlta • Strategy focal points 5l
Slide 6: Industry at an important inflexion point
Industry at an important inflexion point Irrational exuberance Steady Recovery Eddie Tough ride 1970 1995 2000 2005 2010 Deregulation Value creation Survival strategies strategies techniques 6l
Slide 7: Can't lose sight of industry basics
Can’t lose sight of industry basics • Industry growth is 2% - 4% – Developing 4% - 6% (Mexico) • Realistic ROE’s are 10% ± • Investment grade critical • Rewards don’t justify high risk strategies • Operational excellence important • Can generate excellent cash 7l
Slide 8: Overview of North American industry dynamics
Overview of North American industry dynamics 2004 - 2005 2006 - 2009 • Spark spread pressures • Price recovery • Over supply • Some regions back into supply / demand balance • High natural gas prices • LNG starts to impact ($6 - $7 Cdn) • Credit agencies have industry • Credit agencies sort out good
Slide 9: Overview of North American industry dynamics (cont'd)
Overview of North American industry dynamics (cont’d) 2004 - 2005 2006 - 2009 • Little development or • Debt refinancings lead to consolidation consolidation / asset purchase opportunities • Hybrid markets create • Rules and regulations reduce confusion / inertia uncertainty • Renewable opportunitie
Slide 10: What does this mean for TransAlta?
What does this mean for TransAlta? 2004 – 2005 2006 – 2009 “Ride it out” “Lots of potential” • Pay down debt • Maintain investment grade • Focus on productivity • Continue cost focus • Capacity growth limited to • Potential growth renewable opportunities • Implement new maintenance • Strong cash flo
Slide 11: What does this mean for TransAlta?
What does this mean for TransAlta? Down cycle Up cycle EPS $ 0.75 – 1.00 $ 1.25 – 1.75 potential per share per share Cash flow $ 500 – 600 $ 700 – 800 potential million million Credit rating BBB- BBB+ 11l
Slide 12: We know where we are…
We know where we are… • Detailed asset condition assessments DONE • Detailed asset by asset multi-year business plans DONE • The core is strong IN PLACE – Good fuel / geography mix – 80% contracted; average contract 14 years – PPAs provide interest rate protection – Cash flow above $500 million even
Slide 13: … and where we must always focus
… and where we must always focus • Sweat our assets Driven by • Drive productivity Dedicated, • Maintain strong smart balance sheet people • Grow intelligently 13l
Slide 14: Agenda
Agenda • Tom Rainwater Markets, development and trading • Rob Soeldner Plant operations • Linda Chambers Life cycle management • Fred Gallagher Wind generation • Ian Bourne Financial strategy 14l
Slide 15: Corporate Development & Marketing
Corporate Development & Marketing Tom Rainwater EVP, Corporate Development & Marketing • Portfolio snapshot • Current markets view • Trading overview • Re-contracting Centralia • Mechanics of Alberta PPAs • Development approach • Common principles 15l
Slide 16: A diversified portfolio
A diversified portfolio 1999 Integrated Canadian Regulated Utility Geographic Fuel type Age Contract diversification diversification diversification cover 9 13 15 9 23 2004 25 45 30 57 8 66 47 40 13 Canada Coal 0-5 '6-15 AB PPA U.S. Gas 16-30 31-40 Contracted Mexico & Australia Hydro & renewables >
Slide 17: Thermal PPA - basic mechanics
Thermal PPA - basic mechanics Power Pool W h yM Ene n erg rgy R ev E enu e TransAlta Capacity Payment Generating Station Energy Payment PPA Passthrough $ Buyer Incentive/penalty $ Excess Energy $ FM and FM, law changes credit risk eliminating value Balancing Pool 17l
Slide 18: Thermal PPA – basic mechanics
Thermal PPA – basic mechanics •Meeting Availability is key performance indicator Incentives & Excess Revenue Range Annual revenue (millions) 5 0 pool price $ ol p rice o $60 p Capacity Payment Incentive/penalty adjustment Energy Payment fixed $/MWh 75% 80% 85% 90% 95% 100% Availability 18l
Slide 19: Low risk portfolio – quality contracts
Low risk portfolio – quality contracts Maintain high level of contracts with credit worthy counterparties MW's Contracted 9000 Total Capability 8000 85% 85% 85% 85% Credit Quality by Capacity 7000 85% 82% as at Dec 31, 2003 6% 2% 6000 9% MW Capability 5000 A 4000 AA/Aa 3000 BBB/Baa 2000 27% 1000 55%
Slide 20: Centralia re-contracting
Centralia re-contracting PacNW 2003 Installed Capability $120 Peaking Capacity $7/m m Btu Gas & Fuel Oil $110 Note: Capacity is adjusted for forced outages, maintenance, and hydro capability. $100 Cost (Fuel, Tx & Var. O&M) - $ US/MWh $90 $5/m m Btu $80 $70 $60 CCGT Gas $50 $3/m m Btu $40 $30 $20 Co
Slide 21: Trading – at a glance
Trading – at a glance Proprietary • Activity focus: manage our asset positions • Manage our small merchant position in the portfolio Asset backed 21l
Slide 22: Trading – at a glance
Trading – at a glance • Majority of proprietary trades in markets with assets Alberta, 4% Ontario, 16% California, 23% PNW, 31% Adjacent Region, 18% New York, 8% • Majority of trades short-term duration (90% ≤ 30 days) • Majority of transactions are lower risk type • Strengthened Operations in past
Slide 23: Trading – at a glance: Energy Marketing normalized EBIT
Trading – at a glance Energy Marketing Normalized Quarterly EBIT 50.0 40.0 30.0 Millions $Cdn 20.0 10.0 - Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 (10.0) (20.0) 2000 2001 2002 2003 2004 Year 23l
Slide 24: Current markets view
Current markets view Investment Canada USA International Criteria Alberta Ontario PacNW CAL NY Mexico Australia Peak Demand (MW) 9,000 25,000 17,000 50,000 28,000 36,000 3,000 Reserve Margin Projected Electricity 3.0% 1.3% 1.8% 2.6% 1.1% 6.0% 3.1% Demand Growth Dominant 50% duel 33% 75% 50% NG; 66%
Slide 25: Development approach – next cycle
Development approach – next cycle • Rigorous market and customer selection • Fuel choice will be market dependent • Coal may reappear as viable fuel source • Mix of acquisitions & development Buy Build • Right age mix of plants in portfolio • Scenario planning part of development • Leverage strategi
Slide 26: Common principles
Common principles • Discipline: a hallmark of success • Deeper market insights drive decisions • Strategic flexibility embedded in planning • Leverage key relationships for smart growth • Strong linkage with operations & finance differentiates 26l
Slide 27: Operations
Operations Rob Soeldner EVP, Operations • Regions at-a-glance • Our coal story • Power of technology • Asset team – optimizing our assets 27l
Slide 28: Asset Team…Optimizing the Assets
Asset Team…Optimizing the Assets Finance Finance Rob Soeldner Tom Rainwater Operations Commercial Linda Chambers Technology Finance 28l
Slide 29: A TransAlta Day
“A TransAlta Day” CENTRALIA 10 am Ops 10 am Commercial 11 am Ops/Comm 9Asset Teams Discuss: decisions Æ trades • Current market conditions SARNIA • Real-time; Day 6:30 am Ops 6:30 am Commercial ahead 9:30 am Ops/Comm • 7-day forward decisions Æ trades 9Maintenance issues ALBERTA 9Execute the day 8 a
Slide 30: Regions at-a-glance
Regions at-a-glance • Eastern Canada • Western Canada • United States • Mexico • Australia • Coal supply
Slide 31: Key operational drivers
Key operational drivers Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 31l
Slide 32: Eastern Canada: at-a-glance
Eastern Canada: at-a-glance Current Future Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 32l
Slide 33: Western Canada: at-a-glance
Western Canada: at-a-glance Current Future Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 33l
Slide 34: United States: at-a-glance
United States: at-a-glance Current Future Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 34l
Slide 35: Mexico: at-a-glance
Mexico: at-a-glance Current Future Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 35l
Slide 36: Australia: at-a-glance
Australia: at-a-glance Current Future Availability Heat Rate Production Customer Reputation Safety Workforce Asset Team Integration 36l
Slide 37: TransAlta Coal
TransAlta Coal • 4th largest consumer of coal in North America. • 12th largest producer of coal in North America.
Slide 38: Current coal geographies
Current coal geographies Canadian Operations – Highvale Mine, Alberta – Whitewood Mine, Alberta U.S. Operations – Centralia Mine, Washington 38l
Slide 39: Coal - Western Canada
Coal - Western Canada TransAlta owns or controls all coal reserves for projected lives of the plants under the PPA contracts. - i.e. coal costs are lower than allowed in PPA; incentive contract at Alberta Mines resulted in higher productivities / lower costs. • TransAlta has sufficient reserves for
Slide 40: Coal – United States
Coal – United States • Centralia is a mine mouth power plant, with some imports (10-15% of requirements) for blending. • Sufficient coal reserves in Centralia for Centralia Mine existing power plant’s life. • December 2003, signed a 5-year contract to deliver the blending coal from Spring Creek Mine
Slide 41: The Power of Technology
The Power of Technology • Diagnostics • Wireless • TransAlta Optimization Project
Slide 42: Wireless in power production
Wireless in power production Operations Maintenance 42l
Slide 43: Wireless in coal mining
Wireless in coal mining MasterLink™ Mine Base Station Office LAN aS A “Ruggedized MasterLink™ \ ay secusimn “et Access Point \ : Access piss ‘oli \ ; » Production 345 Statistics » Access to LAN for Pit Foreman = » Maintenance 7 Statistics » Production » Access to LAN Reports for Parts Information »
Slide 44: TransAlta Optimization Project (TOP)
TransAlta Optimization Project (TOP) • “Sweat the assets” - - Operate equipment at design conditions - - Optimize short & long-term maintenance costs - - Increase production, improve heat rate • Modernize & standardize plant control systems - - provides real time operating, engineering & commercial
Slide 45: TransAlta Optimization Project (TOP)
TransAlta Optimization Project (TOP) Minimize operational variances enabling the units to “push” the constraints Specification or Limit Average Average Current Variations Move Average Operation Reduced with Closer to Advanced Control Specification or Limit 45l
Slide 46: Major Maintenance and Engineering
Major Maintenance and Engineering Linda Chambers EVP, Technology • Coal baseline • Gas baseline • Key challenge • Key opportunity 46l
Slide 47: Major maintenance – coal spend curve
Major maintenance – coal spend curve Forecasted Maintenance Spending (Generic coal plant capex and opex) 35 30 Millions $Cdn 25 20 15 10 5 0 1 5 10 15 20 25 30 35 40 45 50 Age (years) *assumes 2 x 400 MW plant with original capital cost of $1.5 billion. 47l
Slide 48: Major maintenance – gas spend curve
Major maintenance – gas spend curve Generic Gas Maintenance Profile 50 Millions $Cdn 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Age (years) *assumes 2 x 110 MW plant 48l
Slide 49: The key challenge
The key challenge Balancing Act Driving Long Term Costs Asset Down Management 49l
Slide 50: Key opportunity
Key opportunity Create a long term (10 year rolling) comprehensive maintenance plan. Condition Asset by Asset Performance Assessments Maintenance Plans Objective Drives a competitive advantage. 50l
Slide 51: Vision Quest
Vision Quest Fred Gallagher EVP, Vision Quest • The wind market • Wind economics • Value of wind generation 51l
Slide 52: Fastest growing source of electrical power
Fastest growing source of electrical power Worldwide Growth in Total Installed Jan 2004 Windenergy 45,000 40,000 Sustained Growth 35,000 ~30%/yr over 5 yrs – World-wide 39,434 MW 30,000 – Germany 14,609 MW 25,000 – USA 6,352 MW MW 20,000 – Spain 6,202 MW 15,000 10,000 – Denmark 3,115 MW 5,000 – Indi
Slide 53: Creating the opportunity
Creating the opportunity Market Wind Resource Quality (>Capacity $ Factor) Access and Interconnection 53l
Slide 54: Vision Quest's major focus
Vision Quest’s major focus Alberta (2004->) • Excellent resource and large scale properties • Early growth possible in active & liquid market Atlantic (2005->) • Good resource and large scale properties Ontario (2005->) • Mandated green • Canada’s largest market market • Mandated green market Legend
Slide 55: Wind is equivalent to other new facilities
Wind is equivalent to other new facilities Generalized wind energy EBITDA (100 MW) Millions $ Cdn Initial capital costs $ 160 Net revenue $ 23 (assuming $70 at 35% capacity factor net of losses) Expenses $ 5 ($18 per MWh) EBITDA $ 18 Cash on cash returns 11% ROC 8% (Depreciation over 30 years) 55l
Slide 56: Impact of new technology and scale
Impact of new technology and scale Historical & Projected Facility Size vs Wind Energy Costs Installed Cost 30 5,000 Cost($(US)/Installed kW Cost/kWh (cents US) 25 4,000 20 3,000 15 Industry 2,000 10 Costs 5 1,000 0 0 1980 1990 2000 2010 0.01 0.1 1 10 100 Year Capacity (MW) 56l
Slide 57: Short construction cycle
Short construction cycle Timing of Investment vs Revenue Legend $ of Revenue or Expenditure Combustion Project Capital Expenditure Combustion Annual Project Revenue Wind Project Capital Expenditure Wind Annual Project Revenue Compressed investment cycle Lower development costs for wind -6 -5 -4 -3 -
Slide 58: Production profile – demand match
Production profile – demand match Alberta Wind Energy Production Profile Winter Season (Nov. - Feb.) Shoulder (Sep. Oct. Mar. Apr.) 17% 0% Super Peak 40% 47% Off Peak Off Peak Peak Peak 60% 36% Summer Season (May - Aug.) 31% 29% Off Peak Super Peak Power Demand Peak Super Peak 4PM to 8PM Peak 8AM to
Slide 59: Value of wind generation to TransAlta
Value of wind generation to TransAlta Reasons why wind makes good sense – Good investment – Growth segment – Right thing to do 59l
Slide 60: Finance
Finance Ian Bourne EVP & CFO • Financial strategy • Earnings and cash flow • Balance sheet • Looking forward 60l
Slide 61: Financial strategy
Financial strategy Our financial strategy has not changed Strong Credit Strong Share Rating Price Dividend 61l
Slide 62: Transformation
Transformation Integrated Regulated Utility Generation & Marketing Company 1999 2000 2001 2002 2003 ¾ Earnings to common shareholders averaged > $210M ¾ Earnings per share averaged > $1.25/share Cash flow net of dividends $ 1.6 B and distributions Capital Proceeds from divested Investments $ 6.8 B $
Slide 63: Sensitivities
Sensitivities … with sensitivities for various elements Pre Tax After Tax Operating Change EPS Income ($Cdn) (Millions $Cdn) Availability / Production 1% $20.0 $0.08 Spot electricity prices $1.00/MWh $10.0 $0.03 Financing costs 1% $11 - $18 $0.04 - $0.06 Long bond rates 100 bps $16 - $13 $0.04 - $0.
Slide 64: Balance sheet
Balance sheet … with a strong liquidity position Demand C$ 330M Bilaterals C$ 1,180M Available Capacity Committed C$ 600M 1+1 revolver C$ 150M Average STD Committed C$ 900M 3yr revolver C$ 500M Letters of Credit 64l
Slide 65: Balance sheet: debt maturity schedule
Balance sheet … and the ability to meet our debt maturity schedule Debt Maturity Schedule 500 450 Repayment (C$ Millions 400 175 350 300 250 250 50 125 200 83 399 399 100 150 205 225 100 150 175 125 115 110 50 100 100 50 0 1 04 05 06 07 08 09 10 11 12 13 23 29 33 48 20 20 20 20 20 20 20 20 20 20 20
Slide 66: Financial ratios
Financial ratios Debt to Capital BBB- 50% BBB+ 45% 40% 35% 30% 2004 2005 2006 2007 2008 2009 Recourse Debt Non - Recourse Debt 66l
Slide 67: Financial ratios
Financial ratios Cashflow to Interest 6 .0 5 .0 4 .0 BBB+ BBB- 3 .0 2 .0 1 .0 0 .0 2004 2005 2006 2007 2008 2009 Cashflow to Debt 3 5% 30% BBB+ 2 5% BBB- 20% 15 % 10 % 5% 0% 2004 2005 2006 2007 2008 2009 67l
Slide 68: Looking forward
Looking forward • Strong cash flow from operating activities • Achieving balance sheet targets • Strong liquidity 68l
Slide 69: Q & A
Steve Snyder Q&A 69l
Slide 70: Appendix
Appendix Debt Maturity Schedule Legend Color Date Amount Color Date Amount Due Aug 2033 (TAU) $ 50 Due Oct 2029 (TAC) $ 110 Due July 2023 (TAU) $ 100 Due July 2012 (TAC US) $ 399 Due 2048 (TAC Preferreds) $ 175 Due 2048 (TAC Preferreds) $ 125 Due 2050 (TAC Preferreds) $ 175 Due June 2011 (TAC) $ 225