Slide 1: Building powerful and sustainable earnings
Building powerful and sustainable earnings Investor meetings September 2007 Strong business model. Diversified generating assets. Technical and commercial expertise. Environmental leadership. Financial discipline.
Slide 2: 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. All forward- looking statements are based on our beliefs and assumptions based on information available at
Slide 3: Outline
Outline • TransAlta Overview • Our Sustainable Business Model • Industry Positives and Challenges • Capital Allocation Plans and Long-term Direction • Value Proposition 3
Slide 4: Canada's leading wholesale power generator and marketer
Canada’s leading wholesale power generator and marketer QUICK FACTS Listed: TSX:TA / NYSE: TAC Enterprise Value: $8.6 B Market Cap: $6 B Crediting Rating: BBB stable Installed Capacity: 8,500 MW Generation Facilities Owned Operating regions: four Coal-fired plants 4,889 MW Employees: 2,100 Coal-fire
Slide 5: Positioned to deliver double digit EPS and cash flow growth 2007-09
Positioned to deliver double digit EPS and cash flow growth 2007- 09 Expectations of higher prices in Alberta and PNW, and increased production at Centralia drive growth in EPS and cash flow estimates 1 Consensus Comparable EPS Cash flow from operations estimated at growth estimated at 10 – 20%/yr $
Slide 6: Business model designed to succeed in long-cycle, capital intensive, commodity business
Business model designed to succeed in long- cycle, capital intensive, commodity business Diversified Operational & Portfolio Environmental Financial Assets Technical Management Leadership Strength Excellence • Fuels • Top quartile • Contracting • Policy • Conservative availability & & optimization d
Slide 7: Unique, diversified, highly contracted portfolio
Unique, diversified, highly contracted portfolio Fuel Type Geographic Fleet Age2 Contract 1 1 3 Diversification Diversification Cover Coal W. Canada 0-5 6 -15 AB PPA Gas E. Canada 16-30 31-40 U.S. Contracted Hydro & renewables Mexico & Australia > 40 yrs Spot Sales 1. Calculation based on MW ownersh
Slide 8: Operational excellence a key priority
Operational excellence a key priority Availability and OM&A Reliability – Major Maintenance Spend (Per installed MWh) Unplanned Outages & Derates MM MM 10% 100% $200 $10.00 80% $160 8% $8.00 60% $120 $6.00 6% 40% $80 $4.00 4% 20% $40 $2.00 2% 0% $0 $0.00 0% 2004 2005 2006 2007E 2004 2005 2006 2007E
Slide 9: Ownership and control of long-term and low-cost coal
Ownership and control of long-term and low- cost coal Alberta Coal Mines • Prairie mines - estimated 80 years of coal supply Highvale mine - serves Sundance and Keephills plants Whitewood mine - serves Wabamun plant • Fuels 100% of requirements or ~15 MM tons/yr • No processing required • Btu conten
Slide 10: Centralia expected to be among top performing assets by 2010
Centralia expected to be among top performing assets by 2010 2007- 2009 Centralia coal-fired plant transition plan • Restores annual production to 10,500 GWh and provides long-term fuel flexibility • $45 - $50 MM investment in rail & coal unloading facilities • Plan accelerated for completion early
Slide 11: Contracting and optimization has enhanced financial stability and increased gross margin
Contracting and optimization has enhanced financial stability and increased gross margin MM Gross Margin Contracting Levels $ 1 ,6 0 0 100% $ 1 ,4 0 0 $ 1 ,2 0 0 80% $ 1 ,0 0 0 60% $800 $600 40% $400 $200 20% $0 0% 2004 2005 2006 2007 YT D 2007 2008 2009 2010 AB PPA’s • Increased gross margin driven
Slide 12: Recognized environmental leader
Recognized environmental leader Multi-pronged approach delivers meaningful emissions reductions over time Tactic Action Policy Work Active at the provincial, state and federal levels Pro-active issues management Procurement of Offsets Early acquirer of international and domestic instruments Importan
Slide 13: Alberta Bill 3 effective July 2007
Alberta Bill 3 effective July 2007 The majority of environmental costs are flowed through to PPA holders under change of law provisions. Alberta consumers’ electricity price will reflect higher cost of compliance. Alberta Climate Change Regulation Impact on TransAlta Emissions intensity reduction by
Slide 14: Federal proposal requires more expensive compliance options than Alberta plan
Federal proposal requires more expensive compliance options than Alberta plan Near-term compliance through purchase and trading of offsets and credits. Investment in new technologies key for long-term. Costs increase in 2012 – 2017 period as other pollutant reductions are required. Compliance Option
Slide 15: Financial flexibility critical to sustainability through market and credit cycles
Financial flexibility critical to sustainability through market and credit cycles Investment Sub-Investment Sub-Investment Investment Grade w / Div. + Grade w / Div. Grade w / o Div. Grade w/ Div. Leverage Criteria BBB BBB- BB+ BB Cost of debt T+ X BBB + 15 bps BBB + 50 bps BBB + 65 bps Collateral M
Slide 16: Strong credit ratios indicative of commitment to remaining investment grade
Strong credit ratios indicative of commitment to remaining investment grade Financial ratios1 Q2’07 2006 2005 2004 Cash flow to interest (x) 5.4 5.5 4.6 4.1 Cash flow to total debt (%) 28.1 26.1 23.0 18.5 Debt to total capital (%) 44.0 40.9 43.3 47.4 1. Financial ratios presented are annualized 16
Slide 17: Liquidity sufficient to manage through credit and commodity cycles
Liquidity sufficient to manage through credit and commodity cycles Short-Term Liquidity Usage MM $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Q3-04 Q4-04 Q1-05 Q2-05 Q3-05 Q4-05 Q1-06 Q2-06 Q3-06 Q4-06 Q1-07 Q2-07 Available Liquidity Actual Usage • Available liquidity and demand
Slide 18: Industry outlook: Fundamentals indicate time to build but uncertainty exists
Industry outlook: Fundamentals indicate time to build but uncertainty exists Positives Challenges • Real rising prices – 1st in 10-yrs • Strengthening regulatory oversight – Supply shortages – Hybrid markets continue – Transmission constraints – Rising replacement costs • Environmental uncertainty –
Slide 19: Alberta and PNW fundamentals support financial expectations
Alberta and PNW fundamentals support financial expectations Reserve Margin1&2 Average Forward Market Prices1&3 Western Market Exposure MW 7,000 30% $90 $80 6,000 25% $70 5,000 20% $60 4,000 15% $50 3,000 10% $40 2,000 5% $30 1,000 0% $20 0 2007 2008 2009 2007 2008 2009 AB PPA & LTC AB Merchant Alber
Slide 20: Capital allocation plan balances near- and long-term shareholder value creation
Capital allocation plan balances near- and long- term shareholder value creation Growth plans and share buyback guided by commitment to maintain investment grade credit metrics Alternatives Direction Action Debt repayment Sustain financial flexibility and solid investment • BBB ratings grade ratios
Slide 21: Long-term direction focuses on western expansion
Long-term direction focuses on western expansion Continue mix of contracts • Merchant, long-term contracts, and regulated returns provides best long-term mix Maintain geographic and • Diversify north/south; leverage western fuel diversification strength • Invest in new coal technologies and add wind
Slide 22: Sustainable shareholder returns in a long-cycle, capital intensive, commodity power industry
Sustainable shareholder returns in a long-cycle, capital intensive, commodity power industry ROCE Shareholder Value 16% Proposition 12% Exposure to Growing Power Markets Good assets in growing markets 8% Low to Moderate Risk Business Model WACC Diversified fleet 4% Mix of contracts Operational excel
Slide 23: Appendix
TransAlta 23
Slide 24: Financial objectives and measures
Financial objectives and measures Objectives Measures 2007 Goals YTD ‘07 YTD ‘06 Deliver long-term TSR 10% 2.3% (7.3)% shareholder return ROCE1 ~10% n/a n/a Increase comparable Revised to Comparable EPS $0.48 $0.53 earnings per share double digit Increase operating cash Revised to Operating cash flo
Slide 25: Operating objectives and measures
Operating objectives and measures Objectives Measures 2007 Goals YTD 2007 YTD 2006 Maintain targeted Fleet availability 90% 85.9% 91.0% availability Contracted output Contract plant output >75% 94% 1 94% > one year Increase gross margin Margin Increase $734 MM $733 MM Make sustaining capex Sustainin
Slide 26: Regional Portfolio as of Sept. 1, 2007
Regional Portfolio as of Sept. 1, 2007 Fuel Diversification Contract Cover Market Portfolio Alberta: Western •Small deregulated market, limited transmission access •Market Size of Supply = 11,600 MW Canada •Projected demand growth = 2.8% •Reserve margin = 9.8 % incl. imports & hydro 4, 937 MW Coal P
Slide 27: Earnings segmentation – Q2 2007 YTD
Earnings segmentation – Q2 2007 YTD Revenue Gross Margin MW $1, 375 million $734 million 8, 528 Western Canada Western Canada Western Canada Eastern Canada Eastern Canada Eastern Canada US US International US International International • Western Canada and the U.S. generate approximately 75% of rev
Slide 28: Continued strength of Alberta and improvements at Centralia increase comparable earnings per share
Continued strength of Alberta and improvements at Centralia increase comparable earnings per share Results Q2’07 Q2’06 YTD ‘07 YTD ‘06 Comparable earnings (MM) $41.91 $31.1 $98.11 $106.5 Net earnings (MM) $57.2 $86.4 $113.4 $155.6 Per share Comparable earnings $0.211 $0.16 $0.481 $0.53 Net earnings
Slide 29: Generation gross margin increase drives results
Generation gross margin increase drives results Net Earnings 3 mo. Ended June 30 6 mo. Ended June 30 Net Earnings, 20061 $86.4 $155.6 Increase in Generation gross margin (before mark-to-market loss) 52.0 48.5 Decrease in Generation mark-to-market loss (26.2) (40.0) (Decrease)/Increase in CD&M margin
Slide 30: Comparable earnings
Comparable earnings 3 mo. Ended 3 mo. Ended 6 mo. Ended 6 mo. Ended June 30, 2007 June 30, 2006 June 30, 2007 June 30, 2006 Earnings on a comparable basis $ 41.9 $31.1 $98.1 $106.5 Sale of assets at Centralia 7.6 - 7.6 - Tax rate change 7.7 55.3 7.7 55.3 Turbine impairment, net of tax - - - (6.2) Ne
Slide 31: Free cash flow supports growth initiatives
Free cash flow supports growth initiatives Q2 ‘07 Q2 ‘06 YTD ‘07 YTD ‘06 Cash flow from operating activities $227.6 $66.8 $558.4 $267.1 Add/(Deduct): Sustaining capital expenditures (79.8) (65.6) (121.2) (91.2) Dividends on common shares (50.5) (33.1) (104.7) (66.0) Distribution to subsidiaries’ non
Slide 32: 2007 major maintenance plan
2007 major maintenance plan Given scope of work on coal plants, opex will be higher in 2007 $ millions Coal Gas and Hydro Total Capital $65 - $70 $15 - $20 $80 - $85 expenditures Operating $60 - $65 $0 - $5 $60 - $70 expenditures Total $125 - $135 $15 - $25 $140 - $155 Lost GWhs 2,000 – 2,050 150 -
Slide 33: 2007 sustaining capex includes revised Centralia transition plan spend
2007 sustaining capex includes revised Centralia transition plan spend Centralia plan calls for accelerated construction of coal and rail unloading facilities and advances on materials in 2007. $MM 2007E 2006 Sustaining $350 - $370 $214 Routine capital $95 - $100 $100 Mine capital $75 - $80 $27 Cent
Slide 34: Projects announced
Projects announced Kent Hills Wind Facility, New Brunswick • Greenfield development • Announced Jan. 19, 2007, amended July 17 • Awarded 25-year PPA to provide 96 MW of wind power to New Brunswick Power • TA will construct, own and operate new facility • Est. $170 MM capital investment • Constructio
Slide 35: Projects announced
Projects announced Keephills 3, Alberta • 450 MW Brownfield expansion on TA site • Supercritical facility utilizing the same technology currently in operation at the Genesee 3 facility – only second plant in Canada • 50:50 JV with EPCOR • TransAlta and EPCOR will independently Advantages of Keephill
Slide 36: Investment grade spreads remain stable throughout commodity and credit cycles
Investment grade spreads remain stable throughput commodity and credit cycles 10 Year US Bond Spreads bps 800 700 600 500 400 300 200 100 0 01 01 01 01 01 01 01 01 01 01 01 01 7/ 1/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ 1/ 7/ /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 /0 02 02 03 03 04 05 05 06 06 07 07 04 A BBB BB B Sourc
Slide 37: Long-term financing is matched to long-cycle, capital intensive generation investment
Long-term financing is matched to long-cycle, capital intensive generation investment Fleet Age1 Debt Maturity Schedule2 MW $MM 5000 350 4500 300 4000 3500 250 3000 200 2500 2000 150 15 0 0 100 10 0 0 50 500 0 0 0 0 -5 6 - 15 16 -3 0 3 1- 4 0 >4 0 2014- 2007 2008 2009 2010 2011 2012 2013 2029 2030 2
Slide 38: Emissions intensity reductions achieved
Emissions intensity reductions achieved • Policy engagement with government to SO2 & NOx EMISSION INTENSITY (kgs/MWh) encourage rational regulations. • SO2 <42% primarily from Centralia scrubbers • Capital planning for the use of technology • NOx <21% due to WAB retirement and G3 3.50 to meet emissi
Slide 39: Federal Clean Air Act impact by emission
Federal Clean Air Act impact by emission Annual compliance costs increase rapidly after 2012 when more stringent GHG and air pollutant reductions start. Regulations on air pollutant reductions still to be defined. Federal Emissions Regulations - Merchant Assets Federal Emissions Regulations - Total