Transalta Corporation · TSX:TA
Transalta — Investor Day (2011)
80 slides from Transalta's investor day presentation, 2011
Slide 1: Investor Day 2011
Investor Day 2011. Driving Sustainable Growth ~~
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: Steve Snyder, President & CEO
== Trans{lta Steve Snyder President & CEO Driving Sustainable Growth —_/
Slide 4: Providing solid value
Providing solid value 120% 2011 YTD TSR TSX vs. TA 110% 100% TSR1 90% Yield2 250% 80% 10% CAGR3 20% J F M A M J J A S O 185% TSR 200% TSX TA 15% 150% 10% 100% 149% TSR 5% 50% 0% 0% 4 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dividend Yield Cumulative TA TSR Cumulative TSX TSR 1 Tot
Slide 5: Proven track record of improvements
Proven track record of improvements Solid gross margin improvements while diversifying fuel mix Generation gross margin per MWh produced $32.42 $21.55 26% 14% 19% 22% 67% 2006 52% 2002 2003 2004 2005 2007 2008 2009 2010 2011e 7,387 MW 8,250 MW Coal Gas Renewables 5
Slide 6: Proven track record of improvements
Proven track record of improvements Solid gross margin and a diversified fleet has delivered steadily increasing cash flow $M $1,000 $750 $500 $250 $- 2011e 2002 2003 2004 2005 2006 2007 2008 2009 2010 Funds From Operations (FFO) FFO trend line 6
Slide 7: Delivering shareholder value
Delivering shareholder value Steady cash flow per share growth has delivered shareholder value FFO Per share vs. Share Price $4.50 $35.00 $30.00 Cash Flow (FFO) per share $4.00 $25.00 Share Price $3.50 $20.00 $15.00 $3.00 $10.00 $2.50 $5.00 $2.00 $- 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e
Slide 8: Delivering significant growth
Executing on our strategy Delivering significant growth $4 Billion invested in 1,600 MW of growth since 2005 MW 1,600 1,400 1,200 1,000 800 600 400 200 0 2005 2008 2009 2010 2011e 2012e Coal Renewables 8
Slide 9: Delivering significant growth: incremental EBITDA
Executing on our strategy Delivering significant growth Growth and optimization has driven significant incremental EBITDA $M 500 400 Incremental EBITDA 300 200 100 0 2005 - 2008 2009 – 20101 2011 – 20131 1 1 Cumulative 9
Slide 10: Providing solid value
Providing solid value 120% 2011 YTD TSR TSX vs. TA 110% 100% TSR1 90% Yield2 250% 80% 10% CAGR 20% J F M A M J J A S O 185% TSR 200% TSX TA 15% 150% 10% 100% 149% TSR 5% 50% 0% 0% 3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Dividend Yield Cumulative TA TSR Cumulative TSX TSR 1 Base
Slide 11: Dawn Farrell, Chief Operating Officer
Dawn Farrell Chief Operating Officer
Slide 12: Executive team
Executive team Dawn Farrell COO & Incoming CEO Rob Schaefer Will Bridge Paul Taylor Hugo Shaw Brett Gellner EVP, Corporate EVP, Business President, US EVP, Operations Chief Financial Development Development Operations Officer Dawn de Lima Ken Stickland Cynthia Johnston Robert (Bob) Emmott Chief HR O
Slide 13: The TransAlta advantage
The TransAlta advantage WTR 17 7 LITT T UT rr Rieti fe | TransAl ta Diversification Experience Sustainability Competitive strengths Strong resource position Financial strength Policy development Operational excellence Driving Sustainable Growth 13
Slide 14: Growing for today and for the future
Growing for today and for the future 5 Fuels 3 Key markets Significant growth 14
Slide 15: Growth targets
Targets Growth targets No. 1 generator & energy marketer in Alberta 30% market position Top 5 player in PACNW by 2015 Add 1,500 MW Grow Western U.S. Business Canada’s largest publicly traded provider of renewable Add 100 – 200 MW per year energy Leading behind-the-fence generator in W. Australia Dou
Slide 16: Operational targets
Targets Operational targets Consistent availability 89 – 90 % Stable generation OM&A Offset inflation Lower major maintenance costs for coal $30 million per outage Safety IFR1 less than 1.0 1 Injury frequency rate 16
Slide 17: Financial targets
Targets Financial targets Consistent cash flow growth 4 – 5% CFPS1 growth Consistent TSR growth 8 – 10% TSR annually Strong balance sheet Maintain investment grade 1 Cash flow per share 17
Slide 18: Rob Schaefer, EVP Corporate Development
Rob Schaefer EVP, Corporate Development
Slide 19: Alberta market: Key takeaways
Alberta market Key takeaways Alberta is the best market in North America Demand has grown on average 3% per year over the last 11 years Ongoing oil sands development will continue to increase demand TransAlta is leveraged to benefit from rising power prices while still being protected from d
Slide 20: Alberta: Load growth and GDP
Alberta: Market Overview Alberta: Load growth and GDP Load has increased on average 3% per year over the last 11 years MW Alberta load growth and GDP $M 9,000 350,000 8,000 250,000 7,000 150,000 6,000 5,000 50,000 2009 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 Average Alberta Demand AB
Slide 21: Alberta: Pricing
Alberta: Pricing Market fundamentals are driving price strength and providing signals for growth Alberta Power Prices1 Alberta Reserve Margins1 2 +$1 / GJ = ~$8 - $10 / MWh $/MWh $80 Actual Forecast Cost of new generation $70 1% load growth $60 2% load growth $50 3% load growth $40 2009 2010 2011 20
Slide 22: Alberta: Merchant position
Alberta: Merchant position Well positioned to recognize the upside price from both generation and trading MW 2012 – 2015 Energy Trading 5,000 Annual Average Gross Margin Trading provides 637 MW Asset Optimization incremental value 4,000 and Customer Business 400 MW 431 MW 3,000 Merchant Portfolio en
Slide 23: Alberta: Oil sands growth
Alberta: Market Overview Alberta: Oil sands growth Oil sands growth is driving significant demand for new power generation GWh Forecasted Energy Demand 25,000 from Oil Sands1 $253 billion to be 20,000 invested in the oil sands between 2010 and 20352 Further demand 15,000 growth driven by related
Slide 24: Alberta: Demand forecast
Alberta: Demand forecast Peak demand in Alberta is expected to grow significantly by 2029 AB Peak Demand Growth by 20291 MW Average Alberta 20,000 Peak Demand1 147% 99% Northwest 18,000 Northeast 16,000 Edmonton & North Central 14,000 Calgary & South Central 75% 12,000 South 89% 10,000 8,000 60% 201
Slide 25: Alberta: Opportunities for growth
Alberta: Opportunities for growth Oil sands $20 Billion1 in investment opportunities MW MW 20,000 Related 18,000 Industries 16,000 10,000 MW 14,000 of new supply 12,000 needed 10,000 8,000 6,000 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Retirement
Slide 26: Alberta: The TransAlta advantage
Alberta: The TransAlta advantage 26
Slide 27: Will Bridge, EVP Business Development
Will Bridge EVP, Business Development
Slide 28: Growth: Canada & Australia Key takeaways
Growth: Canada & Australia Key takeaways Strong growth opportunities across Alberta in multiple fuels Strategically well positioned with the best sites and resources for growth Size and expertise in renewables enables us to continue to grow and maintain our leadership position Unique positio
Slide 29: Western Canada: Growth opportunities
Western Canada: Growth opportunities Western Canada has significant growth opportunities in natural gas-fired generation Combined cycle gas-fired generation 29
Slide 30: Sundance 7: Executing on growth
Sundance 7: Executing on growth Equipment purchase underway for 700 MW combined cycle gas-fired unit Progress Update Technology and configuration: Complete Vendor selection: Q4 2011 Sun 7 Location Alberta Construction start date: ~Q1 2014 Fuel type Gas fired generation Commissioning and comm
Slide 31: Sundance 8 & 9: Building our future
Sundance 8 & 9: Building our future TransAlta will bring an additional 1,400 MW into its fleet with the addition of Sundance 8 and Sundance 9 Progress Update Sites have been selected after consultation with the Alberta Electric System Operator (AESO) Sundance 8: 700 MW ~ 2018/2019 Sundance 9:
Slide 32: Western Canada: Growth opportunities
Western Canada: Growth opportunities There is more than enough opportunity in Alberta for us to meet our goal of a 30% market share Combined cycle gas-fired generation Cogeneration Wind and hydro Coal with CCS 32
Slide 33: Opportunity with Carbon Capture & Storage
We have significant opportunity with CCS Carbon Capture & Storage Provides A mechanism for retrofitting older coal units so they can continue to operate Opportunities for new clean coal facilities Opportunity to utilize significant economic coal reserves in Alberta Project Pioneer Update Usi
Slide 34: Renewable growth opportunities
Renewable growth opportunities Great opportunities for further renewables development across Canada 700 MW of high quality sites across Canada Saskatchewan 180 MW wind RFP submitted Significant acquisition opportunities 34
Slide 35: Australia: Growth opportunities
Australia: Growth opportunities TransAlta has developed significant competitive advantages to grow its gas operations in Western Australia Competitive Market Leading Advantages Fundamentals behind-the-fence generator 15 years experience in Demand growing Australia ~9% per year Operated through
Slide 36: Meeting our targets
Meeting our targets No. 1 generator & energy marketer in Alberta Canada’s largest publicly traded provider of renewable energy Leading behind-the-fence generator in W. Australia 36
Slide 37: Paul Taylor, President, U.S. Operations
Paul Taylor President, U.S. Operations
Slide 38: U.S. Operations Key takeaways
U.S. Operations Key takeaways Centralia is well positioned for favourable contracts under new legislation Targeting 1,500 MW growth in Western U.S. Strong footprint and knowledge of the markets Top 5 investor owned generator in the PACNW Market conditions provide potential opportunity for
Slide 39: Centralia advantage
Centralia advantage TransAlta Energy Bill supports Centralia over new greenfield generation 2014 – 2020 Average Cost Competitive Advantages $/MWh 160 Centralia has a much lower cost 140 base than any new build 120 Located in large load pocket near 100 Seattle 80 Designation of Centralia output
Slide 40: Centralia contracting
Centralia contracting Current water levels are depressing forward prices – waiting for more normalized water levels will provide best value for shareholders % of Historical Water Levels normal Centralia is still highly 150 135% contracted for 2012 125 Near-term forward prices forecasted to stren
Slide 41: Western US: The TransAlta advantage
Western US: The TransAlta advantage Our position in the Western U.S. provides us with strong opportunities to build scale and improve cash flow stability 41
Slide 42: PACNW: Growth opportunities
PACNW: Growth opportunities Positioning TransAlta in top 5 investor owned generators / utilities MW 16,000 Total installed capacity 50,020 MW 14,000 Diverse group of 12,000 investor owned & public 10,000 utilities 8,000 6,000 4,000 2,000 0 Chelan of Reclamation Target USACE Avista County PSE County
Slide 43: California: Growth opportunities
California California market remains an attractive market for further investment Opportunities High potential for acquisition of contracted assets – Wind, Gas and Geothermal Optimization and extension of current geothermal contracts Continue to pursue expansion of geothermal with Blackrock 43
Slide 44: Meeting our targets
Meeting our targets Top 5 player in PACNW by 2015 Grow Western U.S. Business 44
Slide 45: Break
Driving Sustainable Growth = Trans{lta SS
Slide 46: Hugo Shaw, EVP Operations
Hugo Shaw EVP Operations Driving Sustainable Growth —_/
Slide 47: Operations Key takeaways
Operations Key takeaways Coal plants have been returned to deliver performance above industry standards Our gas and renewable plants continue to be industry leaders Significant capital investments will be made in the coal fleet in 2012 to ensure all units meet expected performance targets to e
Slide 48: Alberta coal unit performance
Alberta coal1 unit performance Plant Availability Plant Unplanned Losses 95% 14% 90% 12% 10% 85% NERC Average (Coal) 8% 80% 6% 75% 4% 70% 2% 65% 0% 2012e 2011e 2002 2003 2004 2005 2006 2007 2008 2009 2010 2007 2008 2009 2010 2011 2012 Total Unplanned Losses Plant Routine Costs2 Solomon Associates 20
Slide 49: Planned coal investment
Planned coal investment Significant capital investment in 2012 in our coal units will set them up to meet production and availability targets to end-of-life Boiler reset Units set-up Major maintenance $225 million DCS upgrades to achieve performance Generator overhauls targets to end-of-life Balance
Slide 50: Coal major maintenance
Coal major maintenance $M 250 $38M 40 $35M $32M 35 200 6 major $29M maintenance 30 outages 150 25 5 major maintenance 5 major outages 20 4 major maintenance maintenance outages 100 outages 15 10 50 5 0 - 2012 2013 2014 2015 Major Maintenance Cost per outage 50
Slide 51: Major maintenance
Major maintenance Actions to ensure success with our major maintenance plans Enhanced inspection and condition monitoring driving outage scope Increased capability of plant engineering and outage planning and execution teams Stronger scheduling and quality assurance program Advanced contract
Slide 52: Gas unit performance
Gas unit performance Industry leading availability and reliability on both our 11N2s and LM6000s Gas Fleet Availability by Technology Gas Major Maintenance $M Expenditures 80 100% 60 95% 90% 40 NERC Average (Gas) 85% 20 80% 0 2007 2008 2009 2010 2011e 2012e 2012 2013 2014 2015 11N2 Availability LM60
Slide 53: Planned hydro investment
Planned hydro investment Significant capital investments in our hydro fleet over the next 10 years will extend their useful life for another 50 years 475 MW $350 million program to refurbish 760 MWs of hydro generation will lock-in value of these assets for the long-term 53
Slide 54: Wind unit performance
Wind unit performance A leader with over 1,000 MW in operation with strong availability and low construction and maintenance costs Availability Construction Cost 2.5 $M/MW 100% 2.0 95% 1.5 90% 1.0 0.5 85% 2011e 0.0 2012e 2002 2003 2004 2005 2006 2007 2008 2009 2010 TA GWh/year Technology $K In-Sourc
Slide 55: Sustaining capital
Sustaining capital Setting up for sustained long-term operational excellence ($M) 2012e 2013e 2014e Sustaining $430 - 475 $305 - 350 $365 - 410 Routine Capital $100 - 115 $85 - 100 $80 - 95 Major Maintenance $290 - 310 $180 - 200 $245 - 265 Mine Capital $40 - 50 $40 - 50 $40 - 50 Other1 $70 - 90 $30
Slide 56: Meeting our targets
Meeting our targets Consistent availability Stable generation OM&A Lower major maintenance costs for coal Safety 56
Slide 57: Brett Gellner, Chief Financial Officer
Brett Gellner Chief Financial Officer
Slide 58: Finance Key takeaways
Finance Key takeaways Well positioned to grow Disciplined in the returns we expect and on maintaining investment grade credit ratings Upside potential in the near, medium and long-term Diversification strategy supports our low-to-moderate risk profile, creates value for shareholders and redu
Slide 59: Financial strategy
Financial strategy Objectives Targets Actions Drive Consistent growth Shareholder TSR = 8 – 10% / yr Value Optimize capital allocation Maintain Investment Grade Continuous Financial improvements Strong liquidity Strength & Flexibility Access to capital Diversify risk 59
Slide 60: Low-to-moderate risk profile
Low-to-moderate risk profile Diversification Advantages Fuel Broad platform for growth Number of assets Downside protection, upside potential Geographic Reduces risk and cash flow volatility Contracting Supports investment grade ratings Asset Age 60
Slide 61: Cash flow growth
Cash flow growth Steady cash flow growth despite price volatility Funds from Operations (FFO) vs. Alberta spot price $M $/MWh $1,000 $120 $100 $750 $80 $500 $60 $250 $40 $- $20 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e FFO FFO trend line Alberta spot price 61
Slide 62: Shareholder value
Shareholder value Steady cash flow per share growth has delivered shareholder value FFO Per share vs. Share Price $4.50 $35.00 $30.00 Cash Flow (FFO) per share $4.00 $25.00 Share Price $3.50 $20.00 $3.00 Target 4-5% $15.00 per year $10.00 $2.50 $5.00 $2.00 $- 2002 2003 2004 2005 2006 2007 2008 2009
Slide 63: Strong financial performance year-over-year
Strong financial performance year-over-year Solid operations and growth driving enhanced results for investors Comparable Funds from EBITDA Operations $804 M $620 M $660 M $571 M Q3 2010 YTD Q3 2011 YTD Q3 2010 YTD Q3 2011 YTD 63
Slide 64: Strong dividend coverage
Strong dividend coverage 100% Dividend Payout as a Percentage of Free Cash Flow 1 80% 60% 40% 20% 0% 2006 2007 2008 2009 2010 2011e 1 Free cash flow is defined as FFO less sustaining capital expenditures 64
Slide 65: Near-term upside
Near-term upside Increased GWh Production 1,500 in 20131 Full contribution of growth projects 1,250 New Richmond New Richmond Keephills Units 1 & 2 uprates 1,000 Uprate Sundance Unit 3 uprate production More normal outage profile 750 Lower sustaining capex 500 Fewer coal outages More o
Slide 66: Excess cash flow
Excess cash flow We will remain disciplined in how we manage our balance sheet and grow the company 2012 - 2015 2012e 2013-2015e ($B) Average / year ($B) Funds from operations $ 0.9 $ 1.0 Sustaining capex $ (0.5) $ (0.4) Net dividends $ (0.2) $ (0.2) Total $ 0.2 $ 0.4 Balance Sheet Growth Dividend 6
Slide 67: Medium-term EBITDA growth
Medium-term EBITDA growth Continued investments in growth over the medium-term will drive TSR target $M Incremental EBITDA from growth and optimization EBITDA growth & dividend Historical growth yield of $40 - $60M in delivering EBITDA / YR TSR of 8 – 10% 2005 - 2008 2009 – 2010 2011 – 2013 2014 – 2
Slide 68: Long-term upside potential
Long-term upside potential End of PPAs will provide significant EBITDA upside Cumulative Potential Upside1 (2021 - 2029) Estimated Incremental EBITDA in 2021 $750 - $1,250 M 2 $2 – 8 Billion $M $1,750 $1,500 $1,250 $1,000 $750 $750 $500 $250 $- 3 $60 $70 $80 $90 $100 $110 $120 Alberta Power Prices 2
Slide 69: Financial strength & flexibility
Financial strength & flexibility TransAlta is committed to maintaining its investment grade credit ratings Cash Flow to Debt Cash Flow to Interest 30% Cash flow to Debt 6.0 Cash flow to Interest 25% 5.0 Target: Target: 20 - 25% 4 - 5x 20% 4.0 15% 3.0 10% 2.0 2010 Q3 2011 Proforma w/ 2010 Q3 2011 Pro
Slide 70: Meeting our targets
Meeting our targets Consistent cash flow growth Consistent TSR growth Strong balance sheet 70
Slide 71: Dawn Farrell, Chief Operating Officer
Dawn Farrell Chief Operating Officer
Slide 72: Key takeaways: Growth
Targets Key takeaways: Growth No. 1 generator & energy Best sites and resources to capture the marketer in Alberta growth opportunities across Alberta Legislation in Centralia provides Grow Western US significant advantages for new contracts Top 5 player in PACNW by 2015 Strong footprint, mark
Slide 73: Key takeaways: Operations
Targets Key takeaways: Operations Ongoing focus on operational Consistent availability excellence and integrity Fleet availability is strong; performing above industry Stable generation OM&A standards Remain focused and disciplined on our cost structure Lower major maintenance costs for coal
Slide 74: Key takeaways: Shareholder Value
Targets Key takeaways: Shareholder Value Proven track record of delivering on our value proposition of Consistent cash flow growth + yield growth Strong cash flow and access to capital markets will enable us to execute on our growth plans Consistent TSR growth Cash flow per share growth is set
Slide 75: Additional information
Additional information es ed ee
Slide 76: Growth capital outlook
Growth capital outlook All projects tracking on time and on budget Completed MW 2011e 2012e Total ($M) Bone Creek 19 $(5) - 0 $521 Keephills 3 225 $70 - 90 $1,010 – 1,0202 Total 244 $65 - 90 $1,062 – 1,072 In Progress MW 2011e 2012e Total ($M) Keephills 1 uprate 23 $5 - 15 $15 - 25 $343 Keephills 2
Slide 77: Major maintenance
Major maintenance 2012 Major maintenance plan Gas and ($M) Coal Renewables Total Capitalized $215 - 230 $75 - 80 $290 - 310 GWh lost 2,880 - 2,890 420 - 430 3,300 - 3,320 77
Slide 78: Highly contracted with upside potential
Highly contracted with upside potential Contracting strategy provides solid downside protection while maintaining leverage to power price recovery Total Portfolio Contractedness MW 9,000 77% 70% 65% 95% 86% 8,000 7,000 6,000 2012 Contracted Prices 5,000 AB $60 - $65 / MWh 4,000 PACNW $50 - $55 / MWh
Slide 79: Debt profile supports balance sheet
Debt profile supports balance sheet Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $800 $600 $400 $200 $0 2012 2013 2014 2015 2016 2017 2018 2019 Thereafter Perpetual Prefs CAD MTN USD Notes 1 1 Based on Sept. 30, 2011 FX rate of $1.03 CAD/US 79
Slide 80: 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 Saskatchewan Mistahay Utin 175 Wind In progress TBD $3