Transalta Corporation · TSX:TA
Transalta — Investor Day (November 2009)
56 slides from Transalta's investor day presentation, Nov 6, 2009
Slide 1: Our plan for lower carbon sustainable value creation
Our plan for lower carbon sustainable value creation 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: Presenters and agenda
Presenters and agenda Steve Snyder Dawn Farrell Brian Burden President & Chief Chief Operating Chief Financial Executive Officer Officer Officer Strategic Markets & Financial Overview Contracting Outlook Strategic Financial Operations Outlook Strength Growth 3
Slide 4: Key Messages
Key Messages 9 Financial strength, fuel diversity and clear strategic focus all paid off in 2009 9 Majority of operations performing above industry benchmarks 9 Strategies in place to address challenges at AB coal and drive base operating performance 9 Advanced key strategies to reposition coal and
Slide 5: TransAlta value proposition
TransAlta value proposition Sustainable and consistent shareholder value creation Yield plus steady and disciplined growth ] Strong dividend and payout ratio targeting 60 - 70% of EPS ] Earnings per share and cash flow growth Low to moderate risk profile ] Diversified contracting strategy with diver
Slide 6: TransAlta strategy
TransAlta strategy Value proposition driven by a sound strategy ] Wholesale generator & marketer in Western Canada and U.S.; renewable focus CANADA across Canada ] Low cost, predictable UNITED STATES operations *Generation Facilities: Coal-fired plants 4,914 MW ] Diversity of fuels and long-term Gas
Slide 7: 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
Slide 8: Macro issues impacting our industry
Macro issues impacting our industry Demand destruction & Power price Financial crisis surplus natural gas deterioration Liquidity starting to return Real economic growth Reverses as demand returns; returning in 2011 natural gas stability in 2011 Near-term value creation driven by productivity, cost
Slide 9: Strategic imperatives
Strategic imperatives Near Term Long Term 2010 - 2014 2014 - 2020 ] Increased productivity ] Information technology & Operational stability strategic suppliers drive DRIVE ] productivity THE BASE ] Portfolio optimization ] Maintain operations stability ] Plan transition from PPAs ] Unit specific mai
Slide 10: Executing on our strategy: Driving the base
Executing on our strategy Driving the base ] New 16.5 year contract with the Ontario Power Authority (OPA) ] New contract covers the full expected output of Sarnia ] Enhances shareholder returns Renegotiation of Sarnia ] Boiler modifications and testing on both units now complete Finalized Centralia
Slide 11: Executing on our strategy: Repositioning coal
Executing on our strategy Repositioning coal ] Revising our Alberta coal plants major maintenance schedule on a unit by unit basis to provide added lifecycle flexibility as it relates to environmental uncertainties AB coal maintenance ] Partnering with the Canadian Federal and Alberta Provincial gov
Slide 12: Executing on our strategy: Greening our portfolio
Executing on our strategy Greening our portfolio ] Completed the 66 MW Blue Trail wind farm earlier than initially planned and on budget. The 66 MW wind farm offsets approximately 127,000 tonnes of carbon dioxide Commercial operations of Blue Trail annually ] Additional 135 MW of wind energy under d
Slide 13: Portfolio at a glance
Portfolio at a glance 2009 2013 TA: 7,963 MW TA & KHD: 8,723 MW 8,920 MW Renewables Fuel Type 15% Renewables Renewables 22% 24% Coal Coal Gas Coal 62% Gas 57% Gas 55% 23% 21% 21% Avg. ~28 years Avg. ~26 years Avg. ~28 years >40 >40 0-10 0-10 >40 0-10 Fleet Age 11-20 30-40 30-40 11-20 11-20 30-40 21-
Slide 14: Acquisition of Canadian Hydro positions us as leading renewable provider
Executing on our strategy Acquisition of Canadian Hydro positions us as the leading publicly traded provider of renewable energy in Canada Total Generation (MW) 8,723 Renewable Capacity Renewables (MW) 1,966 In Canada (MW)1 Renewables (%) 22% 2000 Renewables under 153 1800 construction (MW) 1600 Non
Slide 15: Operations
Operations ] Markets and contracting ] Driving the base and repositioning coal ] Greening our portfolio 15
Slide 16: Operations overview
Operations overview Operations Technology Engineering Commercial Operations & Coal & Mining Operations Portfolio Optimization Natural gas & Renewable Trading Operations Operations Customer & Business Engineering & Construction Development Procurement & Materials Management 16
Slide 17: Fleet at a glance
Fleet at a glance Biomass: 25 MW Coal: 4,914 MW Geothermal 164 MW Gas: 1,843 MW Wind: 883 MW Hydro: 894 MW *Includes Canadian Hydro 17
Slide 18: Strategic imperatives: Key messages
Strategic imperatives Key messages ] Our costs must align to low pricing environment ] The majority of units across TransAlta perform at or above industry median DRIVE benchmark levels THE BASE ] Road to 92% fleet availability is too costly based on the technical capabilities of AB coal and our fina
Slide 19: Markets and contracting
Markets and contracting ] Market overview ] Alberta reserve margins and pricing ] PacNW reserve margins and pricing ] Contracting strategy 19
Slide 20: Market overview
Market overview Economic downturn has impacted TransAlta’s core markets ] Demand has flattened due to slow down in oil sands activity, which is Alberta expected to ramp up in 2010 ] Weakness in natural gas 2008 2009 ytd $90 / MWh $48 / MWh Pacific ] Demand destruction – loss of approximately 3 - 4%
Slide 21: Market outlook: Alberta
Market outlook: Alberta Forward prices remain soft, but longer-term fundamentals of the Alberta market remain strong; oil sands recovery will drive load growth Reserve margins Power prices Reserve (CAD$/MWh) MWs Margin $100 14,000 20% $90 12,000 10,000 15% $80 8,000 10% $70 6,000 4,000 5% $60 2,000
Slide 22: Market outlook: PacNW
Market outlook: PacNW Reserve margins to increase in the short-term due to demand Alberta reserve margins destruction; expanding natural as load remains gas recovery flat;driver for forward pricing is key economic and oil sands recovery needed to drive load growth Reserve margins Power prices Reserv
Slide 23: Recessions and rebounds
Recessions and rebounds % Change US GDP U.S. GDPand andRetail retail Electricity electricity Sales: Change year sales: change year over over year year 20 15 Percent change 10 5 - 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 19 19 19 19 19 19 19 19 19 19 1
Slide 24: Natural gas prices
Natural gas prices 2010 Henry Hub forward traded price Natural Gas ($USD/MMBtu) $8.00 $7.50 $7.00 $6.50 $6.00 $5.50 $5.00 Apr-09 Jun-09 Aug-09 Oct-09 Jan-09 Feb-09 Jul-09 Sep-09 Mar-09 May-09 24
Slide 25: PPAs & LTC
PPAs & LTC Alberta PPAs and long-term contracts provide solid base for stable earnings and support TransAlta’s low to moderate risk business strategy ] Protecting the value of TransAlta’s generation Total and investment grade balance sheet MWs* 9,000 8,000 Merchant contracting 7,000 strategy targets
Slide 26: Merchant MWs
Merchant MWs Merchant hedging strategy designed to minimize impacts of adverse market conditions while allowing for upside potential Merchant MWs* 3,500 Year ~% Avg. Current Forward 3,000 Contracted Contract Price Price (Oct. 27) 2,500 2009 95 AB: $60 - 65 AB: $45 - 50 PACNW: $50 - 55 PACNW: $30 - 3
Slide 27: Driving the base and repositioning coal
Driving the base and repositioning coal ] Operations overview ] Alberta coal plants ] Benchmarking ] Major maintenance cycle and spend ] Lifecycle management 27
Slide 28: Availability
Availability % Fleet % Gas & renewables 90 98 89 88 96 87 94 86 NERC gas (max) 92 85 84 90 2007 2008 2009e 2007 2008 2009e We have consistently achieved solid performance from our natural Our diversified fleet allows for stable and reliable availability gas and renewables fleet % 88 Alberta coal % C
Slide 29: Alberta coal operations plan
Alberta coal operations plan Optimizing our coal outage cycles on a unit by unit basis to deliver operational stability Revised cycle Major maintenance outage cycles (Mths) Centralia 1 24 Centralia 2 24 Sundance 1 24 Sundance 2 24 Sundance 3 24 Sundance 4 24 Sundance 5 24 - 30 Sundance 6 24 - 30 Kee
Slide 30: Alberta coal unplanned outages
Alberta coal unplanned outages Enhanced planned maintenance practices will drive significant value out of reduced unplanned outage losses Alberta Coal (Excl. Wab) 4.5% reduction in unplanned losses % generates $60M in EBITDA $M 12 $70 11.5% 10 $60 OM&A NERC $50 Savings 8 NERC TransAlta Target $40 6
Slide 31: Major maintenance
Major maintenance Changes to maintenance plans and resulting operations stability will lower per unit major maintenance costs in-line with benchmark $M $300 DELIVER TARGET TARGET $38M / Coal Unit $38M / Coal Unit $34M / Coal Unit $30M / Coal Unit $260M $245 - $265M $235 - $245M $230 - $250M $250 Pro
Slide 32: Road to 90% fleet availability
Road to 90% fleet availability Organization, maintenance plans and spend now aligned to deliver consistent 90% fleet availability Availability mix % 98% 98 96% 96 94% 94 92% NERC (gas) Max 92 90% 90 Fleet Target Availability 88% 88 86 86% NERC Average 84 84% 82 82% Sun 1/2 Sun 3/4 Sun 5/6 Keephills
Slide 33: Repositioning coal
Repositioning coal Shorter outage cycles provide greater flexibility to adjust capital spend and avoid potential for stranded capital as a result of environmental uncertainties 2010 2014 2016 2018 2020 2022 2024 2026 2028 ] Unit by unit condition and spend assessment to determine economic value of l
Slide 34: Project Pioneer
Project Pioneer Advancing Canada’s first large-scale project to retrofit a power plant to capture and store 1M tonnes of CO2 by 2015 Project Pioneer ] Largest scale pilot in North America ] First project in the world to have an integrated underground storage system ] Potential to remove 90% of CO2 f
Slide 35: Greening our portfolio
Greening our portfolio ] Growth strategy ] Delivering on growth ] Short-term focus ] Medium to long-term options 35
Slide 36: Growth strategy
Growth strategy Growth strategy has shifted to accelerate near-term investments in renewables and focus on multiple options for long-term sustainability 2008 2009 2009 - 2013 ] Renewable growth in the west ] Canadian Hydro accelerated growth of • Wind renewables • Geothermal Short-term ] Co-generati
Slide 37: Advanced development
Advanced development Almost 700 MW of renewable energy in advanced development for TransAlta’s 2010 - 2013 pipeline CANADA *Facilities in advanced *Under Construction development: 13 6 Facilities Wind 471 MW Wind 135 MW UNITED STATES Hydro 134 MW Hydro 18 MW Advanced Development Projects Geothermal
Slide 38: Near-term focus: Target markets 2010 - 2013
Near-term focus Target markets 2010 - 2013 Location Market Design Resource Opportunity / Demand New Brunswick ] NB Power RFPs ] Wind 9 RFP underway to acquire 100 MW; Commitment to competitive tenders under Quebec Hydro Southern California ] RFPs/PPAs with ] Wind, Geothermal, 9 Most demanding RPS in
Slide 39: TransAlta's geothermal vision
Medium to long-term options TransAlta’s geothermal vision Growing one of the best geothermal sites in the world Shasta Near Term Long Term Today 2015 - 2020 Lake Phase 1: Imperial Valley Phase 2: Continued Growth Sonoma ] Develop and build up to 500 MW ] Enhance facilities through of new geothermal
Slide 40: TransAlta's hydro vision
Medium-term options TransAlta’s hydro vision Enabling sustainable growth in Alberta Hydro Development Vision* Portfolio: Today Phase 1: Southern Alberta Alberta ] Refurbish Bow system Dunvegan (100 MW) Grande Prairie 2013 - 2016 Phase 2: Northern Alberta ] Enhance existing storage and explore new ge
Slide 41: TransAlta's natural gas vision
Long-term options TransAlta’s natural gas vision Enabling sustainable growth in Alberta ] Combined-cycle natural gas generation remains the most reliable and cost effective low carbon baseload option ] AB coal sites are ideal for development of large scale natural gas fired generation • Shared infra
Slide 42: Appendix
Appendix TransAlta’ aw
Slide 43: 2010 Major maintenance plan
Major maintenance 2010 Major maintenance plan Natural Gas and ($M) Coal Renewables Total Capitalized $65 - 70 $65 - 70 $130 - 140 Expensed $60 - 65 $0 - 5 $60 - 70 Total $125 - 135 $65 - 75 $190 - 210 GWh lost 1,775 - 1,850 325 - 350* 2,100 - 2,200 * Natural gas fleet only 43
Slide 44: Advanced development
Advanced development1 Almost 700 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 S
Slide 45: Financial performance
Financial performance ] Financial strategy ] Earnings and cash flow outlook ] Capital allocation ] Financial strength 45
Slide 46: Financial strategy creates near and long-term shareholder value
Financial strategy creates near and long-term shareholder value ] IRR and ROCE targets of 10% ] Driving sustainable earnings growth Solid returns ] Dividend payout ratio of 60 - 70% ] Low risk, lower carbon profile supports higher multiple ] Balanced capital allocation Capital discipline ] Portfolio
Slide 47: Near-term earnings outlook
Near-term earnings outlook Earnings growth expected due to operational improvements and sustainable cost savings; outlook more positive with return of demand and higher natural gas prices EPS AB Prices PNW Prices Estimates $/MWh $/MWh 2009 2012 Low Case $45 - $55 $35 - $45 $1.00 $1.25 Medium $55 - $
Slide 48: Earnings profile
Earnings profile Increasing contribution from natural gas & renewables should lead to multiple expansion EBITDA 22% TransAlta & Canadian Hydro contractedness by fuel type 2009E 53% MW 7,000 6,000 25% 5,000 4,000 Renewables 3,000 Gas 2,000 28% 1,000 Coal 0 2012E* Long-Term & Medium-Term Contracts 52%
Slide 49: Cash flow profile
Cash flow profile Medium and long-term contracts underpin earnings and cash flow expectations Cash flow from operations $M $1,400 $1,200 $9/mmbtu TransAlta Contracts* $1,000 $922 $7/mmbtu $800 $778 $675 $650 $620 $5/mmbtu $600 $550 $400 $200 $0 2005 2006 2007 2008 2009e 2010- 2012e Cash flow $M $1,0
Slide 50: Capital plan and funding 2010 - 2012
Capital plan and funding 2010 - 2012 Capital Allocation Plan Sources and Uses of Capital Sources: ~$3.0 billion Dividend Growth Investment Provide shareholders Projects must deliver $3,000 Cash flow from sustainable dividend unlevered, free cash, after operations growth tax IRR >10% Uses: ~$3.0 bill
Slide 51: Financing development
Financing development Near-term, further growth will be financed through a balance of debt and equity appropriate for investment grade ratings Growth CANADA Debt Equity UNITED STATES Advanced Development Projects Total Costs: $2.1B - $2.6B *Facilities in advanced development: Wind 471 MW Hydro 134 M
Slide 52: Sustaining capital
Sustaining capital Sustaining capex spend declines in 2010 due to lower major maintenance and levels out in 2011 and beyond ($M) 2009e 2010e 2011e 2012e Sustaining $340 - 390 $275 - 315 $310 - 355 $310 - 360 Routine $130 - 150 $100 - 115 $115 - 130 $115 - 130 Productivity $40 - 45 $5 - 10 $5 -10 $5
Slide 53: Growth capital
Growth capital Delivering on growth and creating long-term shareholder value Completed 2009e 2010e 2011e 2012e Total Blue Trail $85 - 90 - - - $115 1 Total $85 - 90 $115 In Progress 2009e 2010e 2011e 2012e Total Sun 5 uprate $55 - 65 - - - $80 2 Bone Creek* $25 - 30 $20 - 25 $57 3 Summerview II $80
Slide 54: Financial strength
Financial strength Execute our plan while maintaining long-term financial strength and stability 35% Cash flow to debt Cash flow to interest 30% 8 7 25% Range: 6 20% 20 - 25% 5 Range: 15% 4 4 - 5x 10% 3 2 5% 1 0% 0 2006 2007 2008 2009e 2006 2007 2008 2009e Debt to capital $B Committed credit lines 6
Slide 55: Debt profile supports balance sheet
Debt profile supports balance sheet Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $1,200 1, 2 $1,000 $800 $600 $400 1 1 $200 2 2 $0 2009 2010 2011 2012 2013 2014 2015 2016 2017 Thereafter 2018 CDN MTN's US MTN's 1) Based on Q2 2009 CDN/US foreign exchange
Slide 56: Financial summary
Financial summary ] Financial strategy and balance sheet strength continue to support low risk business model ] Outlook for earnings and cash flow growth improving despite uncertainty given low commodity prices in core markets ] Higher portion of earnings coming from highly contracted renewable and