Slide 1: 2014 Investor Day: Positioned for Growth
2014 Investor Day Positioned for Growth November 2014 1
Slide 2: Forward Looking Statements
Forward Looking Statements This presentation contains certain “forward looking statements” and “forward looking information” within the meaning of applicable securities laws, including statements regarding the business and anticipated financial performance of TransAlta Corporation in 2014, 2015 and
Slide 3: Overview
Dawn Farrell President & CEO Overview 3
Slide 4: Our Platform
Our Platform • Coal • Canada’s largest publicly traded power 4,930 MW generator & marketer with over 100 years of operating experience • Gas • Diversified asset base with 64 facilities 1,695 MW strategically positioned in Canada, Western U.S. and Western Australia • Wind 1,271 MW 1 • Total fleet cap
Slide 5: Short-term Plan
Short-term Plan • Continued focus on operational excellence • Deliver committed growth of $650 million • Funding plan in place to improve balance sheet and finance South Hedland • Positioning TransAlta for roll-off of Sundance A PPA • Pursue options for extending life of the Alberta coal fleet and i
Slide 6: Medium-term Plan
Medium-term Plan • Leverage our competitive strengths for serving large commercial, industrial and utility scale customers • Deliver reliable, low cost, environmentally-sensitive products to our customers • Provide generation directly to customers from a very competitive fleet and services offerings
Slide 7: Presenters
Presenters Wayne Collins Advancing our strategy to position our Executive VP Coal and Mining Operations fleet for a post-PPA world Rob Schaefer Optimizing the value of our assets and Executive VP Trading expanding our customer business to position and Marketing for a post-PPA world Brett Gellner Gro
Slide 8: Investment Proposition
Investment Proposition • Diversified and highly contracted portfolio • Significant near and long-term EBITDA growth • Well positioned for growth in markets with strong fundamentals • Access to low cost capital for funding growth • Sustainable dividend yield Deliver shareholder value through both div
Slide 9: Alberta Coal Operations
Wayne Collins EVP – Coal and Mining Operations Alberta Coal Operations 9
Slide 10: Driving Performance at Alberta Coal
Driving Performance at Alberta Coal • Stabilised mining and coal fired power plant operations • Aging plant risks understood and being pro-actively managed • Improved Availability • Improved competitiveness – reduction of costs 10
Slide 11: Alberta Operations – Fundamental Assessment
Alberta Operations – Fundamental Assessment People • Strong capability • Risks understood Systems and Processes • Mature systems underpin consistent, predictable performance Competitiveness • Opportunities to improve turnaround performance & operating costs • Stable fuel costs 11
Slide 12: Predictable Performance
Predictable Performance • Historical investment supports future Alberta Coal Availability performance (Operated Units) • Operations Diagnostic Centre 90% • Real time identification of departures from expected performance 88% 86% • Reliability team • 1,900 GWhs of historical losses formally 84% inves
Slide 13: Aging Plant Risk – Understood and Being Managed
Aging Plant Risk – Understood and Being Managed Generators • K1 / K2 rewinds completed • Condition monitoring in place • Sun 3-6 spare rotor available (early 2015) • Sun 3 Stator replacement (early 2015) Boiler – Corrosion Fatigue • Sun 1 and 2 – waterwall replacement completed • Improved diagnostic
Slide 14: New 3-Year Major Maintenance Contract with Alstom
New 3-Year Major Maintenance Contract with Alstom • Substantial improvements in cost and duration starting in 2015 • Average 15% cost reduction / turnaround • Average 5 days duration reduction / year • Total cost reduction over 3 years $34 M • Turnkey approach • Alstom scope covers 90% of work • Imp
Slide 15: Disciplined Operating Cost Management
Disciplined Operating Cost Management Operating Costs excluding Fuel & Environmental costs • Operational cost reduction $M initiatives $160 • Critical review of work $140 $30M EBITDA • Rationalize procurement across $120 mine and power $100 plants $80 $60 • Target: Achieve 1st quartile plant managea
Slide 16: Sunhills Mining – Fuel Costs Stabilized
Sunhills Mining – Fuel Costs Stabilized Alberta Coal Costs $/tonne • Coal cost / tonne improved in $27 2014 and forecast to be sustained $26 • Costs managed despite increases in mining input costs $25 • Future cost outcomes leveraged off improvements in: $24 • Equipment availability • Productivity •
Slide 17: Alberta Market
Rob Schaefer EVP Trading and Marketing Alberta Market 17
Slide 18: Well Positioned in the Best Market in North America
Well Positioned in the Best Market in North America • Insulated from near-term low prices with strong hedging program • Growing customer business with flexibility to respond to changing customer needs • Developed and maintained a broad mix of fuel sources and assets for maximum optionality • Strong
Slide 19: Short-term Alberta Market Conditions
Short-term Alberta Market Conditions Supply has outpaced load growth… …putting pressure on prices 2014 vs. 2013 Alberta Power Prices MW $/MWh 1,400 $140 1,200 $120 1,000 $100 800 $80 600 $60 400 $40 200 $20 - $- Q1 Q2 Q3 Q1 Q2 Q3 Load growth Supply change 2014 2013 Short-term price weakness expected
Slide 20: Hedges Mitigating Impact of Weaker Power Prices
Hedges Mitigating Impact of Weaker Power Prices Total portfolio contractedness Alberta MW 7,000 • Well hedged through 2015 90% 87% 81% 77% 6,000 • Hedge levels assume normal wind and hydro volatility 5,000 • Positioned for upside from 4,000 mid-term price recovery 3,000 2,000 Pacific-Northwest 1,000
Slide 21: Alberta is One of the Strongest Markets in North America
Alberta is One of the Strongest Markets in North America Market pays for investment Strong load growth drives supply $/MWh Historical Prices Alberta Reserve Margin $100 $80 30% 25% $60 Implied capacity 20% payment 15% $40 10% 3% Load Growth AESO Forecast $20 5% 2% Load Growth 0% $- -5% -10% Alberta
Slide 22: Alberta Requires Significant New Investment Longer-term
Alberta Requires Significant New Investment Longer-term Projected load growth and capacity replacement • Oil and gas sector remains a MW major economic driver even 10,000 with weaker world oil prices 9,000 • 3% average historical 8,000 Coal retirements/ Coal reinvestment load growth 7,000 6,000 • ~
Slide 23: Marketing Platform Positioned for PPA Roll-off
Marketing Platform Positioned for PPA Roll-off TransAlta customer growth • Low-cost asset base MW enables competitive 3,000 product offerings 2,500 • Marketing platform balances our supply Large Industrial portfolio with customer 2,000 product demands C&I 1,500 Co-gen • Significant customer growth 1
Slide 24: Low Cost Generation Optionality Serves Customers
Low Cost Generation Optionality Serves Customers $/MWh Marginal Costs Customer Representation $60 $50 $40 TransAlta’s Average $30 Marginal Cost $20 Providing our $10 customers with a competitive and $- reliable offering Hydro Wind Coal Cogen/CC Gas TransAlta’s Peakers Market 96% 29% 57% 7% 0% Share:
Slide 25: Growth
Brett Gellner Chief Investment Officer Growth 25
Slide 26: Positioned for Growth
Positioned for Growth Strong track record of growth $4.7 Billion invested last ten years Significant growth underway $650 Million being invested generating an additional ~$90 Million of EBITDA by 2017 Significant growth opportunities $10 Billion of opportunities are being evaluated Well positioned t
Slide 27: Proven Track Record of Growth
Proven Track Record of Growth Growth through a combination of greenfield and acquisitions1 $M $2,000 $1,800 $1,600 $650M in $1,400 committed $1,200 capital $1,000 ~$90M in $800 incremental $600 EBITDA $400 $200 $- Greenfield Acquisitions $4.7 billion of growth during last ten years $650 million of g
Slide 28: Initiatives Offsetting Lower Power Prices
Initiatives Offsetting Lower Power Prices Growth and other proactive initiatives have offset declines in PacNW power prices $M EBITDA ($M): 2011 to 2014 Est $1,200 $1,000 - Growth & Other initiatives¹ $800 - Impact of lower power prices at Centralia $600 $400 $200 $- 2011 2012 2013 2014E Base Exclud
Slide 29: Significant Near to Medium-term EBITDA Growth
Significant Near to Medium-term EBITDA Growth ~$190 million incremental EBITDA by 2018 $M $1,250 $1,200 $1,150 $1,100 $1,050 $1,000 $950 $900 2014E 2017E 2018E Existing Business Australia Sundance A Committed growth & Sundance A investment generates significant EBITDA over next four years 29
Slide 30: Solomon Power Station
Solomon Power Station 128 MW dual fuel located in Western Australia Acquired in 2012 under PPA for 21 years EBITDA USD$40 million Cost: USD$315 million Project Description • Output is fully contracted for 21 years with Fortescue Metals Group • Flow through of fuel, O&M and maintenance capital costs
Slide 31: Fortescue River Gas Pipeline (FRGP)
Fortescue River Gas Pipeline (FRGP) 270km – 16-inch diameter pipeline located in Western Australia Under Construction - COD Q1, 2015 under long-term contract for 21 years EBITDA1 AUD$12 million Capital Cost¹: AUD$80 million Expansion Opportunities Project Description • Joint venture with DBP Develop
Slide 32: South Hedland Generating Station
South Hedland Generating Station 150 MW gas fired located in Western Australia Under Construction - COD Q1, 2017 under long-term contract for 25 years EBITDA1 AUD$80 million Capital Cost: AUD$570 million Expansion Opportunities Project Description • The station will supply Horizon Power’s customers
Slide 33: Potential Investment Opportunities
Potential Investment Opportunities Gas-fired • Gas-fired well positioned to meet 3,000 MW + of additional generation required in Alberta by 2020 • Sundance 7, low cost option in our portfolio • Saskatchewan and B.C. require additional generation to meet growing loads • Expansion & acquisition opport
Slide 34: Competitive Strengths
Competitive Strengths • Significant experience operating power generation assets for industrial/utility customers • Ability to take on development and construction risk • Positioned to manage merchant risk and add incremental value to the assets through energy services • Willingness to partner • Abi
Slide 35: Funding Plan
Donald Tremblay Chief Financial Officer Funding Plan 35
Slide 36: Strategic Initiatives and Priorities
Strategic Initiatives and Priorities • Continue to strengthen our balance sheet • Prepare our balance sheet for post Alberta PPA period • Fund construction of South Hedland • Use TransAlta Renewables as a competitive source of capital 36
Slide 37: Recent Accomplishments
Recent Accomplishments • $500 million reduction in net $M Debt Maturity Schedule debt since YE 2013 $800 • Rating agencies have all re- affirmed our investment grade in 2014 $600 • As at Sept 30th, 2014, ~$1.6 billion in liquidity including over $200 million in cash $400 520 500 Agency Rating Outloo
Slide 38: Strengthening the Balance Sheet
Strengthening the Balance Sheet • Deliver FFO / Debt target in 2015 • Financing options / flexibility using TransAlta Renewables and out sources of funding • Ability to meet all obligations including sustaining dividend and investment grade ratings in a low price environment FFO / Debt1 $M Senior De
Slide 39: Significant Financial Capacity
Significant Financial Capacity TransAlta will use RNW as an efficient way to fund South Hedland and other growth opportunities at TransAlta Committed Funding Requirements (2015 - 2017) $ millions Low High Debt Reductions $ (300) - $ (500) Committed Growth Capital - South Hedland $ (570) - $ (570) To
Slide 40: Strategic Flexibility – Leveraging TransAlta Renewables
Strategic Flexibility – Leveraging TransAlta Renewables • Sponsored vehicle to own long-term contracted assets TransAlta Public • Access lower cost funding and enhance returns for contracted assets • Release capital to TransAlta as required 70% • >$3 billion potential drop down 30% inventory • Stron
Slide 41: Significant Inventory of Drop-Down Opportunities
Significant Inventory of Drop-Down Opportunities Alberta Hydro • 13 units, representing 90% of Alberta’s hydro • ~$60 - $120 mm EBITDA • Six power stations with long-term contracts Australia Business • 270 km gas pipeline • ~$100 mm EBITDA growing to ~$200 mm Canadian Gas Fired • ~1,000 MW in Albert
Slide 42: Long-term Upside Potential
Long-term Upside Potential Potential incremental annual • Significant potential upside EBITDA from Alberta PPAfacilities¹ once the Alberta legislated 1,000 PPAs expire • Incremental EBITDA $M Alberta prices have 800 averaged ~$65/MWh since deregulation 600 • AESO estimates that ~$80/MWh is required
Slide 43: 2015 Outlook
2015 Outlook • 2015 cashflow and capital guidance to be provided in February on Q4 call • Forward prices for 2015 in Alberta are in range of $50/MWh, PacNW $35/MWh • Sustaining capital expenditures in line with 2014 • Fleet availability in range of 88 – 90% • Additional cashflow from pipeline in Aus