Slide 1: Our plan for lower carbon sustainable value creation
Our plan for lower carbon sustainable value creation Investor Presentation August 2010 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: Outline
Outline ] TransAlta Value Proposition & Strategy ] Markets and Contracting ] 2010 Outlook 3
Slide 4: TransAlta value proposition & strategy
TransAlta value proposition & strategy Value Strategy Canada’s largest publically traded wholesale power Yield, upside potential, and Deep pipeline of low steady disciplined growth carbon growth generator & marketer opportunities Diversity of regions, fuels, Low to moderate risk profile & contracts
Slide 5: Strategically focused in Western Canada and U.S.; renewable focus across Canada
Sustainable & consistent shareholder value creation Strategically focused in Western Canada and U.S.; renewable focus across Canada ] Incumbent Alberta ] Strong competitive Generator advantages for new lower carbon generation: ] Strategically positioned • Sites and resources already secured in the P
Slide 6: Our assets and portfolio
Our assets and portfolio Diverse portfolio of assets; growing contribution from renewables Generation Facilities: Coal-fired plants 4,688 MW Gas-fired plants 1,843 MW CANADA Hydro plants 893 MW Portfolio Fuel Type Wind-powered plants 950 MW Geothermal 164 MW 54% Biomass 25 MW UNITED STATES Gas 22% N
Slide 7: Executing on our strategy
Executing on our strategy 92% contracted for 2010, leverage to power price recovery in key markets $800 - $900 million >50% EBITDA from low Earnings growth Cash flow from operations carbon generation Return to double and growing; should digit earnings and $300 - $400 million lead to multiple EBITDA
Slide 8: Capital plan and funding
Capital plan and funding We remain disciplined in how we manage our balance sheet and allocate capital Capital Allocation Plan Sources & Uses of Capital 2010 – 2012 Cash flow from operations: Dividend Growth Investment ~$3B Provide shareholders Projects must deliver sustainable dividend unlevered, f
Slide 9: Focused and disciplined strategic priorities
Focused and disciplined strategic priorities Executing on our strategic priorities will drive near and long-term value ] Drive the base Enhancing unit margins by improving plant performance on a sustained basis, driving productivity to lower costs, and optimizing contracts ] Green our portfolio Acce
Slide 10: Drive the base: Enhancing returns and delivering shareholder value
Drive the base Enhancing returns and delivering shareholder value ] Coal life-cycle optimized on a unit by unit basis to deliver operational stability and avoid potential of stranded capital Operational stability ] Targeting 89 - 90% fleet availability ] Productivity investments used to offset infla
Slide 11: Green our portfolio: Growth strategy
Green our portfolio: Growth strategy Accelerate near-term investments in renewables and focus on multiple options for long-term sustainability Strategy focus: 6 Facilities Under Construction: Wind 123 MW ] Wind Hydro 18 MW Coal 271 MW Net Capacity 412 MW ] Geothermal Total Capital Spend: $1.3B 12 Fa
Slide 12: Executing on our growth
Executing on our growth TransAlta’s growth investments deliver long-term sustainable cash flow and earnings growth Kent Hills 2 Ardenville Bone Creek Keephills 3 Keephills 1 and 2 Projects Uprates Location New Brunswick Alberta British Columbia Alberta Alberta Type Wind Wind Hydro Supercritical Coal
Slide 13: Repositioning coal - Alberta
Repositioning coal - Alberta Strong competitive advantages in Alberta to navigate federal governments mandate to phase-out coal ] Federal government mandating the phased end of coal-fired electricity generation in Canada ] Coal-fired facilities to close at the latter of 45 years of age or PPA expiry
Slide 14: Project Pioneer carbon capture and storage
Repositioning coal - Alberta Advancing Canada’s first large-scale project to retrofit a power plant to capture and store 1M tonnes of CO2 by 2015 ] Over 50% of installed base in Alberta is coal; vast economic coal reserves ] Coal to play a longer-term role in Alberta with application of new technolo
Slide 15: Repositioning coal - Washington
Repositioning coal - Washington Transition Timeline MoU signed with Start transition based Centralia fully transitioned state of Washington on defined schedule to cleaner fuel sources Transition planning underway Transition underway April 2010 2012 2025 Demonstrating environmental leadership ] Memor
Slide 16: Markets & Contracting
5 Na Markets & Contracting TransAlta
Slide 17: Market outlook: Alberta
Market outlook: Alberta Forward prices are soft but longer-term fundamentals of the Alberta market remain strong; oil sands recovery is driving load growth Reserve margins Power prices Reserve MWs Margin (CAD$/MWh) 14,000 16% 12,000 14% $100 10,000 12% $90 8,000 10% $80 6,000 8% $70 4,000 6% 2,000 4
Slide 18: Market outlook: PacNW
Market outlook: PacNW Reserve margins to increase in the short-term due to demand destruction; forward pricing continues to track natural gas prices Reserve margins Reserve Power prices MWs (USD$/MWh) Margin 29,000 70% $80 65% 27,000 60% $70 25,000 55% 23,000 50% $60 45% 21,000 40% $50 19,000 35% 30
Slide 19: PPAs, long & medium-term contracts
PPAs, long & medium-term contracts Alberta PPAs and long-term contracts provide solid base for stable earnings and support TransAlta’s low to moderate risk business strategy 92% contracted for 2010, leverage to power price recovery in key markets Total MWs 9,000 Approx. target contracting level of 9
Slide 20: Merchant hedging strategy
Merchant MWs Merchant hedging strategy designed to minimize impacts of adverse market conditions while allowing for upside potential Merchant MWs 3,500 3,000 Merchant Total Portfolio % Merchant Portfolio 2,500 Portfolio % Contracted on Contracted Price Year Adjusted Contracted (As of July 2010) 2,00
Slide 21: Leverage to enhanced price environment: 2009 - 2012
Leverage to enhanced price environment: 2009 - 2012 Earnings growth expected due to operational improvements and sustainable cost savings; outlook more positive with return of demand and higher natural gas prices Low case Medium Case High Case ($5 NYMEX) ($7 NYMEX) ($9 NYMEX) AB Prices: $45 - $55 $5
Slide 22: 2010 Outlook
2010 Outlook On track to deliver on our strategic priorities; well positioned for a strong second half of 2010 ] Drive the base: • Targeting double digit comparable EPS and EBITDA growth • Approximately 92% contracted for 2010 providing a high degree of earnings protection • 89 - 90% fleet availabil
Slide 23: Appendix
Appendix TransAlta’
Slide 24: Performance goals
Performance goals Financial 2010 Measures Q2 2010 Q2 2009 Review ratios Goals Decreased due to higher planned Achieve top decile and unplanned outages at Availability 90% 81.9% 82.8% operations Centralia Thermal and the outage at Sundance Unit 3 Improve Safety Injury Frequency Rate 1.0 by 2015 Annua
Slide 25: Maintain financial strength
Maintain financial strength Execute our plan while maintaining long-term financial strength and stability Cash flow to debt Cash flow to interest 35% 8 30% 7 6 25% Range: 5 Range: 20% 20 - 25% 4 4 - 5x 15% 3 10% 2 5% 1 0% 0 2006 2007 2008 2009 Q2 2006 2007 2008 2009 Q2 2010 2010 Debt to capital $B C
Slide 26: Q2 2010 - Highlights
Q2 2010 - Highlights Results ($M) Q2 Q2 YTD YTD 2010 2009 2010 2009 Revenue $582 $585 $1,308 $1,341 Gross margin $353 $346 $757 $727 Operating income $55 $14 $189 $99 Comparable earnings (loss) $21 $(6) $88 $31 Net earnings (loss) $51 $(6) $118 $36 Comparable earnings (loss) per share $0.10 $(0.03)
Slide 27: Comparable earnings
Q2 2010 Comparable earnings Results ($M) Q2 Q2 YTD YTD 2010 2009 2010 2009 Net earnings (loss) $51 $(6) $118 $36 Income tax recovery related to the resolution (30) - (30) - of certain outstanding tax matters Settlement of commercial issue, net of tax - - - (6) Change in life of Centralia parts, net
Slide 28: Net earnings
Q2 2010 Net earnings Q2 2010 YTD 2010 Net (loss) earnings, 2009 $(6) $36 Increase in Generation gross margins 22 46 Decrease in Energy Trading gross margins (15) (16) Decrease in OM&A costs 35 49 Decrease in depreciation expense - 13 Increase in net interest expense - (15) Decrease in non-controllin
Slide 29: Free cash flow
Free cash flow ($M) Q2‘10 Q2‘09 YTD‘10 YTD‘09 Cash flow from operating activities $98 $57 $272 $140 Add (Deduct): Sustaining capital expenditures (98) (109) (143) (178) Dividends paid on common shares (64) (57) (123) (111) Distribution to subsidiaries’ non-controlling interests (15) (17) (29) (33) N
Slide 30: Debt profile supports balance sheet
Debt profile supports balance sheet Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) 1 $1,000 $800 1 1 $600 $400 1 1 $200 $0 2010 2011 2012 2013 2014 2015 2016 2017 2018 Thereafter CDN MTN US Notes Based on June 30, 2010 FX rate of $1.0529 CAD/US 30
Slide 31: 2010 Sustaining capital
2010 Sustaining capital Sustaining capex slightly reduced due to changes in natural gas plant major maintenance schedule ($M) 2010e 2011e* 2012e* Sustaining $275 - 320 $310 - 355 $310 - 360 Routine capital $120 - 140 $115 - 130 $115 - 130 Productivity capital $10 - 15 $5 - 10 $5 - 10 Mine $20 - 25 $
Slide 32: 2010 Major maintenance plan
Major maintenance 2010 Major maintenance plan Natural Gas and ($M) Coal Renewables Total Capitalized $70 - 75 $55 - 65 $125 - 140 Expensed $65 - 70 $0 - 5* $65 - 75 Total $135 - 145 $55 - 70 $190 - 215 GWh lost 2,465 – 2,475 160 – 170* 2,625 - 2,645 * Natural gas fleet only 32
Slide 33: Growth capital
Growth capital All projects tracking on time and on budget Completed MW 2009 2010e 2011e 2012e Total Blue Trail 66 $87 - - - $1131 Sun 5 uprate 53 $60 - - - $ 772 Summerview 2 66 $81 $15 - 25 $1233 Total 185 $228 $313 In Progress MW 2009 2010e 2011e 2012e Total Kent Hills 2 54 $18 $80 - 85 $100 Bone
Slide 34: Advanced development projects
Advanced development Over 600 MW of renewable energy in advanced development for TransAlta’s 2010 - 2013 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 SECU
Slide 35: Macro issues impacting our industry
Macro issues impacting our industry Having flexibility and options will create value given environmental, regulatory and technological uncertainties Canada U.S. Timing ] Wait for U.S. system to be determined ] Likely protracted process into 2010-11 ] Absolute-based cap & trade with ] Potential for E