Transalta Corporation · TSX:TA
Transalta — Investor Day (2010)
67 slides from Transalta's investor day presentation, 2010
Slide 1: Investor Day 2010 – Inside TransAlta
Investor Day 2010. Trans{lta ~ Inside TransAlta Questions? Answers. Multiple Fuel Sources ‘Singular Value
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: Steve Snyder, President & CEO
Steve Snyder President & CEO 3
Slide 4: Has TransAlta's strategy created value?
Has TransAlta’s strategy created value? 4
Slide 5: Strategy has created significant shareholder value through returns and dividend yield
Yes. TransAlta’s strategy has created significant shareholder value through increased returns and a strong dividend yield Shareholder Return and Yield TSR1 Yield2 300% 166% cumulative TSR 20% 250% 9% CAGR 15% 200% 150% 10% 100% 5% 50% 0% 0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 YTD
Slide 6: Strategy: The last 10 years
Strategy: The last 10 years Diversified growth & optimization have driven a 55% increase in gross margins Acquired Acquired Acquired Acquired Constructed Transitioned Divested Renegotiated Canadian Retired Constructed Centralia Vision Quest CE Gen Genesee 3 to PRB coal Mexico Sarnia Hydro Wabamun Ke
Slide 7: Significantly increased renewable portfolio
Strategy: The last 10 years Significantly increased renewable portfolio MW Renewable Portfolio Capacity 2,500 2,000 1,500 1,000 500 0 2000 2005 2010 2011e Hydro Wind Geothermal Biomass 7
Slide 8: What do the next 10 years look like?
What do the next 10 years look like? 8
Slide 9: Next 10 years
Next 10 years Near Term Long Term 2011 - 2014 2014 - 2020 ] Continue to drive ] Information technology & Drive Drive the the productivity and lower costs strategic suppliers drive Base Base ] Sustain improved productivity operational performance ] Prepare transition from PPAs ] Unit specific mainten
Slide 10: Next 10 years: target 200-300 MW growth each year
Next 10 years Green Green and and Diversify Diversify Our Our Portfolio Portfolio Deliver on 427 MW of …while we continue to build announced growth… multiple options for our future Gas Gas & & hydro hydro baseload baseload 2012 Leader Leader in in CCS CCS 2011 Secure Secure natural natural gas gas s
Slide 11: End of PPAs will provide significant EBITDA upside
Significant upside potential End of PPAs will provide significant EBITDA upside as production reverts back to TransAlta Est. Estimated Incremental EBITDA in 2021 EBIT $MM $750 - $1,250 M 2 $1,750 $1,500 $1,250 $1,250 $1,000 $1,000 $750 $500 $250 $- 1 $60 $70 $80 $90 $100 $110 $120 Alberta Power Pric
Slide 12: What does the future hold in a carbon constrained world?
What does the future hold for TransAlta in a carbon constrained world? 12
Slide 13: Canada's 45 year plan provides investment opportunities in Alberta
Opportunity Canada’s 45 year plan provides significant future investment opportunities in Alberta alone Investment Opportunities MW (TransAlta Fleet Only) 7,000 6,000 5,000 TransAlta AB Portfolio Growth 5,400 MW at 4,000 Market Prices 3,000 Replacement Opportunity* 2,000 $10 - $15 B Investment Oppor
Slide 14: U.S. WECC region also provides growth opportunities
Opportunity U.S. Western Electricity Coordinating Council region also provides significant growth opportunities Installed U.S. WECC Generating Capacity MW 95,000 90,000 85,000 80,000 75,000 70,000 Over 45,000 MW of growth expected in low carbon generation 65,000 60,000 55,000 2010 2011 2012 2013 201
Slide 15: What about CCS?
Sy =a >” = ] — = a mead a ba ransAlta What about CCS? Multiple Fuel Sources , Singular Value 15
Slide 16: We believe CCS will work
We believe it will work CCS is growing world-wide in the oil, gas and power sectors as one of the few large-scale solutions to global greenhouse gas containment ] $26 billion world-wide ] 44 projects planned Source: Global CCS Institute 16
Slide 17: We have significant opportunity with CCS
We have significant opportunity with CCS CCS supports the future of coal and provides the opportunity to exploit TransAlta’s vast economic coal reserves CCS provides: ] A mechanism for retrofitting and extending economic life of existing coal units ] Opportunities for new clean coal facilities ] Opp
Slide 18: What if CCS doesn't work?
aa TransAlta What if CCS doesn’t work? Multiple Fuel Sources , Singular Value 18
Slide 19: We have many other options
We have many other options We are not dependent on a single fuel source or a single region 100 years experience in hydro, Permitted generation 20+ years in natural-gas fired sites with access to generation water & transmission Strong competitive advantages in multiple fuels and technologies 19
Slide 20: Dawn Farrell, Chief Operating Officer
Dawn Farrell Chief Operating Officer 20
Slide 21: What is TransAlta's view on its core markets?
What is TransAlta’s view on its core markets? 21
Slide 22: Alberta market
Alberta market Forward prices remain soft due to low natural gas prices and capacity additions, long-term fundamentals remain strong, driven by oil sands recovery Positives $/MWh Alberta Power Prices1 ] Alberta Economics: GDP growth to range from $100 2.1% - 5.5% annually for 2010 – 2020 $90 ] Oil s
Slide 23: PacNW market
PacNW market Improvements in demand; forward price recovery driven by natural gas Positives ] Demand destruction slowing down; -1.7% YTD US$/MWh PacNW Power Prices1 versus -3.2% last year $70 ] 1.5% demand growth per year for the next $60 three years due to expectations of a modest $50 economic reco
Slide 24: What is TransAlta doing to minimize the impact of soft prices?
What is TransAlta doing to minimize the impact of soft prices? 24
Slide 25: Targeted cost savings and productivity
Targeted cost savings and productivity Reducing costs remains imperative and a cornerstone to TransAlta’s strategy $/MWh OM&A $MM $16 $700 $14 $12 OM&A lower in 2010 despite adding Canadian $10 OM&A / MWh is trending back Hydro assets $8 to 2007 levels $6 OM&A is lower due to less major maintenance,
Slide 26: Disciplined hedging strategy
Disciplined hedging strategy Disciplined hedging strategy helps mitigate the impact of adverse market conditions ] Hedging strategy remains disciplined Merchant Merchant Portfolio Contractedness MWs but allows flexibility in contracted 3,500 amounts each year 3,000 2,500 Capacity ] Commercial and In
Slide 27: Should we permanently lower expectations for Energy Trading?
Should we permanently lower our expectations for Energy Trading? 27
Slide 28: Energy Trading is integral to our portfolio
No. Energy Trading will continue to provide significant value Energy Trading is integral to our portfolio Gross Margin ] Strong and experienced team Trading provides Asset Optimization incremental value and Customer Business ] Expect to continue generating $50 - $70 million in gross margin Merchant
Slide 29: Driving long-term sustained operational excellence
What is TransAlta doing to drive long-term sustained operational excellence? 29
Slide 30: Driving 3 lines of defense
Driving 3 lines of defense Operations Engineering Technology Unit pair structure Chief Engineers Office Operations Diagnostic Centre On-site Engineering Engineering Services Division Distributed Control Systems 9 People 9 Training 9 Life Cycle Analysis 9 Quality Assurance 9 Supplier Relationships 30
Slide 31: Optimizing our plans: coal units
Optimizing our plans Aligning plans and capital spend for coal units based on emerging 45 year proposal Coal facilities ] Tailoring capital spend to suit 45 year plan; near-term focus on Sundance units 1 and 2 ] Optimizing generator repairs and planned major maintenance outage on the Sundance unit 3
Slide 32: Enhancing plans at existing facilities
Optimizing our plans Enhancing plans at existing facilities Upgrading hydro facilities ] Spending $350 million over 10 years to repower hydro fleet in Alberta for the next 50 years Cost competitive in gas ] Working with suppliers and original equipment manufacturers to lower the costs of gas parts o
Slide 33: What's next for growth?
What’s next for growth? Why can TransAlta capitalize on the opportunity better than its competitors? 33
Slide 34: Development pipeline
Development pipeline Over 1,405 MW of renewable energy in advanced development MW Development Pipeline1 1,200 900 Total MW: 1,405 Total investment opportunity: 600 $3.3 - $4.3 B 300 0 Saskatchewan Ontario California Quebec BC Alberta 1 Based on TransAlta’s share Hydro Gas Fired Wind Geothermal 34
Slide 35: Acquisition opportunities
Acquisition opportunities And 2,700 MW of near-term acquisition opportunities MW 1,800 Near-term Acquisition Opportunities 1,440 1,080 Nearly 2,700 MW up for sale in target 720 markets 360 0 Alberta BC Saskatchewan Ontario Quebec Western U.S. TransAlta's Development Pipeline Potential Acquisition Op
Slide 36: Competitive advantages
Competitive advantages Because TransAlta has built significant competitive advantages and a broad platform needed for successful growth Diversification & Experience Broader Growth ] 100 years Hydro; 50 years Coal; 20 years Gas; 10 years renewables Platform ] Multiple geographies and an incumbent pos
Slide 37: Brett Gellner, Chief Financial Officer
Brett Gellner Chief Financial Officer 37
Slide 38: Has TransAlta's financial strategy changed?
Has TransAlta’s financial strategy changed? 38
Slide 39: TransAlta's strategy remains the same
No. TransAlta’s strategy remains the same Capital discipline Financial strength ] Balance capital allocation between debt, ] Maintain balance sheet strength and dividends, and capital investments flexibility ] Total portfolio optimization ] Maintain stable BBB credit ratings approach to investments
Slide 40: Does investment in diversified assets generate value?
Does TransAlta’s investment strategy in diversified assets generate value? 40
Slide 41: Funds from operations have grown despite lower prices
Yes. Diversification and contracting drives growth Funds from operations have grown despite lower market prices Funds From Operations vs. Weighted Average Price / Merchant MWh Produced $MM $/MWh 41
Slide 42: Diversification reduces risk of any one fuel
Diversification reduces risk of any one fuel 2011 Expected production by fuel type Production Monthly Variability Base and Intermediate Load Production (Std Dev/Avg) (Coal, Gas, Geo) Wind Hydro GWh Base/Intermediate Total Risk (Std Dev) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Wind Production
Slide 43: Value proposition and strategy
Value proposition and strategy Diversified fuel sources and portfolio optimization has led to enhanced returns and lower risk Enhancing Returns ] High margin assets additions ] TransAlta’s Hedging and contracting strategy portfolio Efficient Frontier ] Productivity improvements ] Wind Higher returns
Slide 44: How should TransAlta be valued?
How should TransAlta be valued? 44
Slide 45: Cash flow / funds from operations
Cash flow / funds from operations Cash flow accounts for tax pool benefits, adds back non-cash accounting charges, and captures future value of PPA expiry ] Captures the benefit of our significant tax pools and attractive tax treatment of renewables ] Adds back non-cash accounting charges (e.g. dep`
Slide 46: What is TransAlta's cash flow potential?
What is TransAlta’s cash flow potential? 46
Slide 47: Strong near-term cash flows
Strong near-term cash flows Expecting $800 - $900 M in funds from operations for 2011 Funds from Operations Dividend Coverage $MM 2.0 – 2.5x $1,000 3.0 $900 $800 - $900 M 2.5 $800 FFO range $700 2.0 $600 $500 1.5 $400 $300 1.0 $200 0.5 $100 $0 0.0 2006 2007 2008 2009 2010e 2006 2007 2008 2009 2010e
Slide 48: Significant upside to price plus growth
Significant upside to price plus growth in the medium-term $MM Avg. Incremental EBITDA From Higher Prices $250 (2011 – 2014)1 $200 At a 10% ROCE, 200 MW growth can add another $150 $40 - $80 million in additional EBITDA2 $100 $50 $0 Alberta $55 1 $60 2 $65 3 $70 4 $755 PacNW $40 $45 $50 $55 $60 1 Re
Slide 49: Excellent long-term potential from PPA facilities
Excellent long-term potential from PPA facilities $MM Potential EBITDA Cumulative Potential Upside $2,500 from PPA Expiry (2018 – 2029)1,2 Price Upside Post PPA Value ($/MWh) $60 $2.1 B TA Base1 $120 $8.5 B Value $- 2010 2010 2021 2021 1 Excludes upside from incremental growth, replacement opportuni
Slide 50: Cash allocation – where will it go?
Cash allocation – where will it go? 50
Slide 51: Capital allocation plan
Capital allocation plan We remain disciplined in how we manage our balance sheet and allocate capital 2011 - 2013 ($B) Funds from operations $ 2.8 Sustaining capex $ (1.3) Dividends $ (0.8) DRASP $ 0.2 NCI $ (0.2) Total $ 0.7 Balance sheet enhancement Growth 51
Slide 52: Steve Snyder, President & CEO
Steve Snyder President & CEO 52
Slide 53: Why own TransAlta today and tomorrow?
Why own TransAlta today… and tomorrow? 53
Slide 54: Today: Diversity and options create value
Today Diversity and options create value ] Strong yield and growth supported by significant free cash flow, both in near and long-term ] Diversified fuel and geographic growth opportunities ] Operational excellence and cost control ] Disciplined and consistent strategy 54
Slide 55: Tomorrow: Strong potential upside
Tomorrow Strong potential upside ] With market recovery ] Through the expiry of PPAs ] From renewable growth ] From gas-fired generation ] Through new technologies like CCS 55
Slide 56: Appendix
Tra nsAl ta ~ Appendix Multiple Fuel Sources wy, Singular Value ‘5%
Slide 57: Alberta market outlook
Alberta market outlook Forward prices remain soft due to low natural gas prices and capacity additions; long-term fundamentals remain strong, driven by oil sands recovery Outlook ] Power prices expected to improve as oilsands growth continues and reserve margins tighten ] Strong load growth is depen
Slide 58: PacNW market outlook
PacNW market outlook Improvements in demand; forward price recovery driven by natural gas Henry Hub Gas Prices US$/MMbtu Outlook $10.00 Actual Forecast ] Forward prices highly correlated to natural gas $8.00 High range $6.00 ] ~1.5% demand growth per year for the next three years Low range $4.00 ] R
Slide 59: Disciplined hedging strategy
Disciplined hedging strategy TransAlta remains disciplined in its contracting strategy and continues to look for opportunities against near-term low pricing environment; leverage to power price recovery MWs Total Portfolio Contractedness 9,000 8,000 Target: 90% contractedness / year 7,000 6,000 5,00
Slide 60: Availability and production
Availability and production Availability Production GWh 90% 55,000 89% 88% 50,000 87% 86% 45,000 85% 84% 40,000 83% 82% 35,000 81% 80% 30,000 2006 2007 2008 2009 2010 e 2011 2006 2007 2008 2009 2010e 2011 60
Slide 61: Executing on our growth strategy
Executing on our growth strategy TransAlta’s growth investments deliver long-term sustainable cash flow and earnings growth Projects Kent Hills 2 Ardenville Bone Creek Keephills 3 Keephills 1 Sundance 3 and 2 Uprates Uprate Location New Brunswick Alberta British Alberta Alberta Alberta Columbia Type
Slide 62: Advanced development pipeline
Advanced development pipeline Projects in Advanced Development ENVIRONMENTAL TARGET LOCATION PROJECT CAPACITY FUEL TYPE RESOURCE & AND PERMITS TURBINE CAPEX RANGE PPA / COMMERCIAL MW SITE CONTROL Applied Secured SECURED $ MM LTC OPERATION DATE Quebec New Richmond** 66 Wind 9 9 9 $180 - $210 PPA/LTC
Slide 63: 2011-2013 Sustaining capital plan
Sustaining capital 2011 - 2013 Sustaining capital plan1 ($M) 2011e 2012e 2013e Sustaining $355 - 395 $435 - 480 $340 - 385 Routine Capital $120 - 135 $115 - 130 $115 - 130 Major Maintenance $210 - 230 $280 - 300 $190 - 210 Mine Capital $25 - 30 $40 - 50 $35 -45 Other Repowering / Life Extension $55
Slide 64: 2011 Major maintenance plan
Major maintenance 2011 Major maintenance plan1 Natural Gas and ($M) Coal Renewables Total Capitalized $135 - 150 $75 - 80 $210 - 230 GWh lost 1,850 – 1,860 630 - 640 2,480 – 2,500 1 Based on IFRS 64
Slide 65: Growth capital outlook
Growth capital outlook 2011 - 2012 All projects tracking on time and on budget Completed MW 2010e 2011e 2012e Total Summerview 2 66 $10 - 15 $1181 In Progress MW 2010e 2011e 2012e Total Kent Hills 2 54 $80 - 85 $1002 Bone Creek 18 $50 - 55 $483 Keephills 3 225 $225 - 245 $20 - 30 $9884 Ardenville 69
Slide 66: Debt profile supports balance sheet
Debt profile supports balance sheet Debt profile Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $1,000 $800 $600 $400 $200 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter 1 CDN MTN's US MTN's 1 Based on Sept. 30, 2010 FX rate of $1.03 CAD/US 66
Slide 67: Maintain financial strength
Maintain financial strength Maintaining investment grade ratios Execute our plan while maintaining long-term financial strength and stability Cash flow to debt Cash flow to interest 35% 8 30% 7 25% Range: 6 5 Range: 20% 20 - 25% 4 4 - 5x 15% 3 10% 2 5% 1 0% 0 2006 2007 2008 2009 Q3 2006 2007 2008 20