Slide 1: Investor Presentation August 2008
Investor Presentation August 2008 We’re ready for a changing world ▀1
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 t
Slide 3: Sustainable shareholder returns in a long-cycle, capital intensive, commodity power industry
Sustainable shareholder returns in a long-cycle, capital intensive, commodity power industry VALUE PROPOSITION Consistent Returns CANADA Yield & Growth Dividend + earnings growth UNITED STATES GENERATION CAPACITY FACILITIES OWNED Exposure to Growing Coal-fired Power Markets plants 4,942 MW Coal-fire
Slide 4: Unique in the power industry
Unique in the power industry TransAlta Low to moderate risk, investment grade, wholesale power generator and marketer Risk TA Full Commodity Player •High Risk/High Return Merchant IPP •Volatile •BBB - A ratings •Med-High Risk/Med Return Regulated Utility •Volatile •B - BB ratings •Low Risk/Low Retur
Slide 5: Diversified, highly contracted portfolio
Diversified, highly contracted portfolio Our diversification supports stable, steady income and cash flow FUEL TYPE FLEET AGE CONTRACT DIVERSIFICATION COVER (MW) Coal 0-5 6-15 AB PPA Gas 16-30 31-40 Contracted Hydro & Renewables >40 Spot Sales 1. Calculation based on MW ownership at Dec. 31, 2007. N
Slide 6: Competitive advantages
Competitive advantages Unique Model + Resource Combination + Proven Strengths Commodity Market Brownfield Operational Intelligence via sites excellence Trading Wind options Technical expertise + Coal reserves Market intelligence Merchant Asset Water storage Trading and hedging Contra
Slide 7: Increasing economic value
Increasing economic value COMPARABLE RETURN ON CAPITAL EMPLOYED 11% >10% 9% 7% 5% 3% 1% 2004 2005 2006 2007 2008-2010 -1% ▀7
Slide 8: EPS and cash flow growth
EPS and cash flow growth 2008 – 2010 Expect low double digit EPS growth and strong cash flow from operations COMPARABLE EPS CASH FLOW FROM $2.20 Comparable EPS OPERATIONS Cash Flow from Operations $2.00 MM $2.00 $1.80 $1,000 $950 $1.60 $900 $1.40 $800 $777 $850 $1.31 $1.44 $1.20 $1.16 $700 $675 $620
Slide 9: TransAlta outlook: Positive fundamentals
TransAlta outlook: Positive fundamentals Diversified, Low-cost Business Model + Operating Excellence + Financial Strength = Short and Long-term Success POSITIVES CHALLENGES Rising prices in western markets Re-regulation momentum; Supply shortages even Alberta Replacement costs higher Canad
Slide 10: Western market fundamentals support financial expectations
Western market fundamentals support financial expectations RESERVE MARGIN1&2 AVERAGE FORWARD WESTERN MARKET TRADING PRICES1&3 EXPOSURE 7,000 30% 6,000 $90 25% $80 5,000 $70 20% 4,000 $60 15% 3,000 $50 10% 2,000 $40 5% 1,000 $30 0% $20 0 2007 2008 2009 2010 2011 2012 2007 2008 2009 2010 AB PPA & LTC
Slide 11: Balanced capital allocation plan creates consistent value over time
Balanced capital allocation plan creates consistent value over time Increasing capital efficiency is the focus of management and the Board ALTERNATIVES DIRECTION ACTION Portfolio Divest or improve under- Mexico - PSA signed for USD $303.5 MM performing assets Sarnia - pursuing improved long-term con
Slide 12: Leveraging resources and strengths to create a super regional western wholesale power company
Leveraging resources and strengths to create a super regional western wholesale power company FOCUS Long- term EPS growth Short-term: 2008 - 2010 driven by western Plant uprates portfolio expansion Greenfield priorities CANADA Renewable Wind Geothermal Co-generation Clean Coal (AB) UNI
Slide 13: Investment will be in low variable cost assets
Investment will be in low variable cost assets 2015 ALBERTA SUPPLY STACK 300 Gas Peakers AECO ($C/Gj): $9.00 250 Average 200 Lowest variable costs Off-Peak On-Peak ($CAN / MWh) 150 Cogen & Gas 100 50 Coal Wind & Hydro 0 - 2,000 4,000 6,000 8,000 10,000 12,000 Demand (MW) ▀ 13
Slide 14: 5-yr development plan leverages expertise and focuses on renewables and co-generation
5-yr development plan leverages expertise and focuses on renewables and co-generation WIND CO-GEN HYDRO GEOTHL THERMAL Wind Cogen Hydro Geother mal TOTAL @ 07 / 08 AB 850 MW 300 MW Storage rights 120 MW 1,270 MW optimization NB 260 MW 260 MW SASK 150 MW 150 MW CA 80 MW 80 MW Total 1,260 300 MW 80 MW
Slide 15: Our development track record
Our development track record Project Genesee III Sun 4 Uprate Kent Hills Blue Trail Keephills III Alberta Alberta NB Alberta Alberta Type Supercritical Efficiency Uprate Wind Wind Supercritical Coal Coal Size 225 MW(1) 53 MW 96 MW 66 MW 225 MW(1) Total Project Cost $357 MM $58 MM $170 MM $115 MM $81
Slide 16: Environmental leadership
Environmental leadership TransAlta is competitively positioned to mitigate emissions costs through early engagement, a portfolio of initiatives and pass through contracts Cost pass through under change-in-law provisions Continuous improvement at existing facilities Emissions Management Active acquis
Slide 17: Fleet costs from environmental regulation
Fleet costs from environmental regulation In the next decade, over 75% of emissions compliance costs are transferred by pass through mechanisms; shareowners are protected ENVIRONMENTAL OPERATING COST FORECAST MM#039;s/yr $600 Env. costs for all units before pass through $500 Costs only Price effects no
Slide 18: Carbon capture and storage
Carbon capture and storage TransAlta signs agreement with technology partner Alstom Canada to develop a large scale CO2 capture and storage facility Phase 1 – Improving our Understanding • Start in 2008 • Detailed engineering • Stakeholder relations • Regulatory work • Partnership with Institute for
Slide 19: Alberta has significant sequestration capacity
Alberta has significant sequestration capacity TransAlta’s plants are located above geology that is capable of storing CO2 Alberta CO2 Sequestration Capacity: TransAlta’s • EOR – 1,000 Mt Thermal • Depleted reservoirs – 3,000 Mt Fleet • Coalbed methane resources – 5,000 Mt • Deep saline aquifers – 1
Slide 20: Financial strategy supports consistent shareholder value creation
Financial strategy supports consistent shareholder value creation Financial strength provides shareowners an advantage in a long-cycle, capital intensive, cyclical industry Maintain balanced capital allocation plan Focus on operating and free cash flow growth Allocate capital to strategies del
Slide 21: Financial ratios indicative of financial strength
Financial ratios indicative of financial strength Given strong market conditions, we will shift capital structure to higher end of our leverage limits CASH FLOW TO CASH FLOW TO DEBT TO DEBT (%) INTEREST (X) CAPITAL (%) Min. of 25% Min. of 4X Max. of 55% 7 60% 35% 6 30% 50% 5 25% 40% 4 20% 30% 3 15%
Slide 22: Maintaining access to Canadian debt capital markets adds flexibility
Maintaining access to Canadian debt capital markets adds flexibility There is no high yield debt market in Canada In 2008(1), approx. 92% of Canadian debt issuances were from “A” or better credits Canadian companies below investment grade would have little to no access to Canadian debt markets
Slide 23: We maintain a competitive weighted average cost of capital
We maintain a competitive weighted average cost of capital Increasing Debt Spreads(1) for Lower Weighted Average Cost of Capital(2) Non-Investment Grade Credits For Investment Grade Companies Corporate Spreads to Spread to 5.6% Fortis Treasuries (bps) BBB (bps) Emera 5.9% Date BBB BB B BB B Canadian
Slide 24: Capital allocation program funded through mix of cash, debt and potentially, equity
Capital allocation program funded through mix of cash, debt and potentially, equity SOURCES OF CASH FLOW USES OF CASH FLOW 2008 - 2010 2008 - 2010 $3.8 Billion $3.8 Billion $4,000 $4,000 $300 Mexico Divestiture $3,500 $3,500 Incremental Capital $680 Capacity Balance Sheet Capacity $3,000 $850 (Incre
Slide 25: 2008 – 2010 performance goals
2008 – 2010 performance goals OBJECTIVES MEASURES 2008-2010 TARGETS Achieve top decile operations Availability 90 - 92% 3-yr Avg. Sustaining Make sustaining capex predictable $290 - $325 million Capex Improve safety Injury Frequency Rate Reduce 10%/yr Enhance productivity OM&A/installed MWh Offset i
Slide 26: TransAlta highlights
TransAlta highlights Our unique strategy, resource combination, and proven strengths create shareholder value through commodity and credit cycles Base business expected to deliver low double digit EPS and strong cash flow Super regional growth western power Maintaining financial strength and com
Slide 27: Appendix
Appendix ▀ 27
Slide 28: Q2 2008 - Highlights
Q2 2008 - Highlights YTD YTD Results Q2’08 Q2’07 Q2’08 Q2’07 Revenue (MM) $708 $612 $1,511 $1,281 Gross margin (MM) $376 $356 $809 $734 Operating Income (MM) $93 $91 $282 $229 Comparable Earnings (MM) $49 $42 $148 $98 Comparable earnings per share $0.25 $0.20 $0.74 $0.48 Net Earnings (MM) $47 $57 $8
Slide 29: Q2 2008 – Strong comparable earnings
Q2 2008 – Strong comparable earnings Q2’08 Q2’07 YTD YTD Q2‘08 Q2’07 Earnings on a comparable basis $49 $42 $ 148 $98 Sale of assets at Centralia, net of tax - 8 4 8 Change in life of Centralia parts, net of tax (2) - (7) - Recovery from resolution of uncertain tax positions - - - - Investment write
Slide 30: Q2 2008 – excellent performance from Energy Trading offset by lower Generation results
Q2 2008 – excellent performance from Energy Trading offset by lower Generation results Net Earnings 3 mo. Ended June 30 6 mo. Ended June 30 Net Earnings, 2007 $57 $ 113 (Decrease) / Increase in Generation gross (16) 21 margins Mark-to-market movements - generation 7 21 Increase in COD gross margins
Slide 31: Sustaining capex – total estimate remains the same
Sustaining capex – total estimate remains the same Sustaining capex peaks in 2008 due to Centralia transition and Alberta mine investments $MM 2007 2008e 2009e 2010e Sustaining 1 $371 $425 – 460 $265 – 300 $185 - 215 Routine capital $131 $145 – 155 $85 - 95 $90 - 100 Mine capital $71 $100 – 110 $30
Slide 32: Growth capex spend increased with new projects
Growth capex spend increased with new projects In Q2, TransAlta announced Sun 5 uprate & Summerview wind farm expansion $MM 2007 2008e 2009e 2010e 2011e Growth $228 $510 – 550 $400 – 440 $130 – 155 $15 – 20 Keephills 3 $160 $320 – 330 $190 – 210 $115 – 135 $15 – 20 Kent Hills $29 $135 – 145 Blue Tra
Slide 33: Outstanding long-term debt
Outstanding long-term debt Principal Amount ($000's) Rate Issued Date Maturity Date TAC CAD Series A Unsecured MTN 225,000 6.90% 2001/05/01 2011/06/01 Series A Unsecured MTN 205,000 6.60% 1999/10/13 2009/10/13 Series A Unsecured MTN 110,000 7.30% 1999/10/22 2029/10/22 Series A Unsecured MTN 141,100
Slide 34: 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 35: Genesee III – Case Study
Genesee III – Case Study The Right Market & The Right Investment Alberta Market (2003) Genesee III Need for Supply as it starts to 225 MW(2) Supercritical Coal lag behind Demand Brownfield Expansion 50:50 JV agreement with EPCOR Genesee 3 - 2005 Capital Investment: $357M(1) Reserve margins forecaste
Slide 36: Keephills III – Case Study
Keephills III – Case Study The Right Market & The Right Investment Alberta Market (2007) Keephills III Supply continues struggle to 225 MW(2) Supercritical Coal keep pace with demand. Peak 50:50 JV agreement with demand growth 3.2%; supply EPCOR growth 3.1% Keephills 3 - 2011 Reserve margins continu
Slide 37: Key decision points in the life-cycle of a thermal asset
Key decision points in the life-cycle of a thermal asset OEMs recommend specific maintenance and equipment replacement around the 40-year mark to run reliably for an additional 10 - 15 years • Boilers Risk • Plant infrastructure • High energy piping • Electrical • Headers components • Rotors • Elect
Slide 38: TransAlta life-cycle planning – 40 year maintenance interval planning has begun
TransAlta life-cycle planning – 40 year maintenance interval planning has begun Work performed as part of regular maintenance outages Moving from feasibility to advanced engineering in 2008 Based on OEM recommendations, initial estimate of incremental spend of $200 - $300 MM per unit; depends
Slide 39: Alberta - First GHG compliance successfully completed
Alberta - First GHG compliance successfully completed 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 inte
Slide 40: Federal framework is tougher and requires more expensive compliance options than Alberta
Federal framework is tougher and requires more expensive compliance options than Alberta Near-term compliance through purchase and trading of offsets and credits. Investment in new technologies key for long-term Proposed Greenhouse Gas Regulation • Existing plants: 18% intensity reduction starting i
Slide 41: Regional impacts – merchant cost forecasts, next 10 years
Regional impacts – merchant cost forecasts, next 10 years Compliance costs net of pass through are built into cost models GHG NOx/SO2 Mercury/PM ~ $2M/yr $2M/yr in 2008 Est $1-$2M/yr in 2010, Canadian growing to after 2015 ~$3M/yr after assets $26M/yr in 2017 2015 Potential to mitigate costs Control
Slide 42: Regional impacts – merchant cost forecasts next 10 years
Regional impacts – merchant cost forecasts next 10 years Compliance costs net of pass through are built into cost models GHG NOx/SO2 Mercury/PM $1M/yr NOx Regulatory Regulatory regime Beginning in 2013 regime fluid, but uncertain, but estimating estimating $15M- ~$25M/yr in 2012 Optimizing SO2 $30M/