2014 Investor Day Positioned for Growth

Transcription

1 2014 Investor Day Positioned for Growth November

2 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 subsequent years. All forward looking statements are based on TransAlta s beliefs and assumptions based on information available at the time the assumptions were made, management s experience and perception of historical trends, current conditions and expected future developments, and other factors deemed appropriate in the circumstances. These statements are not guarantees of TransAlta s future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. In particular, this presentation contains forward looking statements pertaining to, among other things: expectations of improved availability and reduced operating costs and major maintenance outage durations at TransAlta s coal-fired power plants; estimates as to the future demand for, and supply of, electricity in the Province of Alberta; estimates as to the long-term investment in new electricity generation capacity in the Province of Alberta; estimates as to the contractedness and growth in contractedness of TransAlta s electricity generation portfolio; growth opportunities available to TransAlta and expectations of growth in EBITDA from future growth projects; expansion opportunities at TransAlta s Fortescue River Gas Pipeline and South Hedland Generating Station; potential investment opportunities for gas-fired generation, hydro-electric generation, and carbon capture and storage and gas conversions for coal-fired generation; plans for the financing of future growth projects and the reduction of indebtedness, including potential sources of funding such as preferred share offerings and the sale of assets to TransAlta Renewables Inc.; the potential inventory of assets available for dropdowns to TransAlta Renewables Inc.; expectations for increased cash flows upon the expiry of government mandated power purchase arrangements; the timing of the completion and commissioning of projects under development and their attendant costs; estimated spending on growth and sustaining capital and productivity projects; expectations in respect of future electricity prices and the impact of natural gas prices on electricity prices. Factors that may adversely impact these forward looking statements include risks relating to, among other things: fluctuations in electricity prices and the availability of fuel supplies required to generate electricity; the regulatory and political environments in the jurisdictions in which TransAlta operates; environmental requirements and changes in, or liabilities under, these requirements; changes in general economic conditions including interest and exchange rates; operational risks involving our facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; the effects of weather; disruptions in the source of fuels, water, or wind required to operate our facilities; natural disasters; the threat of domestic terrorism and cyber-attacks; equipment failure; energy trading risks; industry risk and competition; the need for, and availability of, additional financing; the state of capital markets; counterparty credit risk; limitations in insurance coverage; reliance on key personnel; labour relations matters; and risks associated with acquisitions and the permitting and construction of development projects. The foregoing risk factors, among others, are described in further detail in the Risk Management section of TransAlta s 2013 annual Management s Discussion and Analysis ( MD&A ) and under the heading Risk Factors in our 2014 Annual Information Form. Readers are urged to consider these factors carefully in evaluating the forward looking statements and are cautioned not to place undue reliance on these forward looking statements. Except to the extent required by law, TransAlta assumes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. All forward looking statements in this presentation are expressly qualified in their entirety by these cautionary statements. For information on our risks please refer to our 2014 Annual Information Form which has been filed on SEDAR and can be accessed at This presentation may contain references to comparable earnings, comparable earnings per share, comparable EBITDA, funds from operations, and funds from operations per share which are not defined under International Financial Reporting Standards ( IFRS ). Refer to the Non-IFRS financial measures section of TransAlta s MD&A for an explanation and, where applicable, reconciliations to net earnings attributable to common shareholders and cash flow from operating activities. The presentation may also contain references to gross margin and operating income, which are Additional IFRS measures. Please refer to the Funds from Operations and Free Cash Flow, and Earnings and Other Measures on a Comparable Basis, sections of the MD&A Unless otherwise specified, all dollar amounts are expressed in Canadian dollars. 2

3 Dawn Farrell President & CEO Overview 3

4 Our Platform Canada s largest publicly traded power generator & marketer with over 100 years of operating experience Diversified asset base with 64 facilities strategically positioned in Canada, Western U.S. and Western Australia Total fleet capacity of ~9,000 MWs Sponsor and majority owner of TransAlta Renewables Listed on Toronto and New York stock exchanges Investment grade credit ratings Coal 4,930 MW Gas 1,695 MW Wind 1,271 MW 1 Hydro 914 MW 1 Gas Pipeline 270 km Energy Marketing Customer Business 700 MW 1 Includes 100% of TransAlta Renewables assets. 4

5 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 investing in the Alberta power market Utilize TransAlta Renewables to access lower cost equity Maintain strong balance sheet and investment grade credit rating 5

6 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 6

7 Presenters Wayne Collins Executive VP Coal and Mining Operations Advancing our strategy to position our fleet for a post-ppa world Rob Schaefer Executive VP Trading and Marketing Optimizing the value of our assets and expanding our customer business to position for a post-ppa world Brett Gellner Chief Investment Officer Growing the company Donald Tremblay Chief Financial Officer Funding our growth 7

8 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 dividend yield and investing in growth 8

9 Wayne Collins EVP Coal and Mining Operations Alberta Coal Operations 9

10 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

11 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

12 Predictable Performance Historical investment supports future performance Operations Diagnostic Centre Real time identification of departures from expected performance Reliability team 1,900 GWhs of historical losses formally investigated Corrective actions identified >50% implemented to date 90% 88% 86% 84% 82% 80% Alberta Coal Availability (Operated Units) Reduce turnaround durations New approach - 5 days average reduction in 2015 Operational integrity program Early warning of key control breakdowns 78% 76% 74% 72% E 2015E 2016E Predictable performance underpins stable future cash flows 12

13 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 and crack assessment tools in use Practical personnel risk management in use Generator Transformers Spare transformer on site Online and offline condition monitoring in place Steam Turbines Spare parts Online and offline condition monitoring in place Foundation for sustainable future availability performance 13

14 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 Improved efficiency of execution and integration of work Shared risk / reward model Drivers to better align TransAlta / Alstom business objectives Schedule, cost, plant availability, safety 3 year initial term with options to extend performance based Improvement of our long term availability and competitive position 14

15 Disciplined Operating Cost Management $M Operating Costs excluding Fuel & Environmental costs Operational cost reduction initiatives $160 $140 $120 $100 $30M EBITDA Critical review of work Rationalize procurement across mine and power plants $80 $60 $40 $20 Target: Achieve 1st quartile plant manageable costs by 2017 $ E 2015E 2016E Improvement of our competitive position - resilience to power price variation 15

16 Sunhills Mining Fuel Costs Stabilized Coal cost / tonne improved in 2014 and forecast to be sustained Costs managed despite increases in mining input costs Future cost outcomes leveraged off improvements in: Equipment availability Productivity Procurement rationalization $/tonne $27 $26 $25 $24 $23 Alberta Coal Costs $ E 2015E 2016E Standard Cost of Coal / tonne Future fuel cost certainty and improvement of our competitive position 16

17 Rob Schaefer EVP Trading and Marketing Alberta Market 17

18 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 trading platform to take advantage of both asset optionality and market volatility Gives TransAlta a unique competitive advantage in this market 18

19 Short-term Alberta Market Conditions Supply has outpaced load growth putting pressure on prices MW 1,400 1,200 1, vs Alberta Power Prices $/MWh $140 $120 $100 $80 $60 $40 $20 - Q1 Q2 Q3 $- Q1 Q2 Q3 Load growth Supply change Short-term price weakness expected to continue in

20 Hedges Mitigating Impact of Weaker Power Prices MW 7,000 6,000 5,000 4,000 3,000 Total portfolio contractedness 90% 87% 81% 77% Alberta Well hedged through 2015 Hedge levels assume normal wind and hydro volatility Positioned for upside from mid-term price recovery 2,000 1, Open Merchant Short term contract / Hedges Long-term contract PPAs 2014 Contracted prices AB ~$55/MWh PacNW ~$40/MWh 2015 Contracted prices AB ~$50 - $55/MWh PacNW ~$40 - $45/MWh Pacific-Northwest Puget Sound Energy and other long-term contracts provide base of between ~280MW and 380MW Additional shorter-term hedges managed dynamically to capture market volatility Contract and hedging strategy underpin stable cashflows 20

21 Alberta is One of the Strongest Markets in North America $/MWh $100 Market pays for investment Historical Prices Strong load growth drives supply Alberta Reserve Margin $80 $60 $40 $20 $- Implied capacity payment 30% 25% 20% 15% 10% 5% 0% -5% 3% Load Growth AESO Forecast 2% Load Growth Alberta -10% Average (Ontario, PJM (uppder deck) & ERCOT) Alberta prices have covered variable and capital costs over time Market forecast to require additional supply in period 21

22 Alberta Requires Significant New Investment Longer-term MW 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Projected load growth and capacity replacement Coal retirements/ Coal reinvestment Peak load growth Coal retirements/ Coal reinvestment Peak load growth Oil and gas sector remains a major economic driver even with weaker world oil prices 3% average historical load growth ~ 1M barrels/d of oilsands capacity committed through 2017 Alberta oil prices are higher today than one year ago Load growth, coal retirements and extensions mean investment opportunity 22

23 Marketing Platform Positioned for PPA Roll-off Low-cost asset base enables competitive product offerings Marketing platform balances our supply portfolio with customer product demands Significant customer growth Marketing captures asset optionality and market volatility MW 3,000 2,500 2,000 1,500 1, TransAlta customer growth Large Industrial C&I Co-gen Medium target Post-PPA target Allows TransAlta to achieve stable cash flow while capturing upside 23

24 Low Cost Generation Optionality Serves Customers $/MWh $60 $50 $40 $30 TransAlta s Average Marginal Cost Marginal Costs Customer Representation $20 $10 $- TransAlta s Market Share: Hydro Wind Coal Cogen/CC Gas Peakers 96% 29% 57% 7% 0% Providing our customers with a competitive and reliable offering TransAlta has the largest and most diverse fleet in the market Low-cost structure allows us to be very competitive while still earning strong margins Diverse assets combined with marketing platform allows us to serve customers in short and long-term Diversity and optionality positions TransAlta for success in Alberta 24

25 Brett Gellner Chief Investment Officer Growth 25

26 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 to compete Since 2012, successful in four competitive process, resulting in over $1.0 Billion in contracted investments Growth Target: $40 - $60 million EBITDA per year Accretive to cash flow per share Maintain Investment Grade Ratings 26

27 Proven Track Record of Growth Growth through a combination of greenfield and acquisitions 1 $M $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $- $650M in committed capital ~$90M in incremental EBITDA Greenfield Acquisitions $4.7 billion of growth during last ten years $650 million of growth underway ¹ Capital spend in any given year reflects the year in which the project was acquired or reached COD and does not reflect the actual timing of the spend 27

28 Initiatives Offsetting Lower Power Prices Growth and other proactive initiatives have offset declines in PacNW power prices $M $1,200 EBITDA ($M): 2011 to 2014 Est $1,000 $800 $600 - Growth & Other initiatives¹ - Impact of lower power prices at Centralia $400 $200 $ E Base Excluding Centralia Centralia Proactive Initiatives¹ With the cashflow shortfall addressed focus is now on future growth ¹ Includes K3, Solomon, New Richmond and Wyoming wind farms, and corporate cost reductions 28

29 Significant Near to Medium-term EBITDA Growth $M $1,250 $1,200 $1,150 $1,100 $1,050 $1,000 $950 ~$190 million incremental EBITDA by 2018 $ E 2017E 2018E Existing Business Australia Sundance A Committed growth & Sundance A investment generates significant EBITDA over next four years 29

30 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 Escalating tariff 30

31 Fortescue River Gas Pipeline (FRGP) Project Description 270km 16-inch diameter pipeline located in Western Australia Under Construction - COD Q1, 2015 under long-term contract for 21 years EBITDA 1 AUD$12 million Capital Cost¹: AUD$80 million Expansion Opportunities Joint venture with DBP Development Group a wholly owned subsidiary of DUET Group (TransAlta has a 43% interest) Natural gas pipeline to TransAlta s 125 MW dual-fuel power station at Solomon Power Station Output is fully contracted for 21 years with Fortescue Metals Group ¹ Represents TransAlta s share 31

32 South Hedland Generating Station Project Description The station will supply Horizon Power s customers (77%) and as well as Fortescue s Port operations (33%) Most efficient gas plant at the Port 150 MW gas fired located in Western Australia Under Construction - COD Q1, 2017 under long-term contract for 25 years EBITDA 1 AUD$80 million Capital Cost: AUD$570 million Expansion Opportunities Future opportunity to add an additional unit (~45 MW) and customer ¹ Based on first full year. Fuel costs are flow through 32

33 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 opportunities in United States & Australia Transitioning Coal Carbon Capture & Storage has significant potential Evaluating coal to gas conversions Flexibility under Federal GHG legislation allows optimization of cash flows across the Alberta coal units Renewables/Transmission Evaluating hydro pumped storage at TransAlta s existing hydro sites Privatization of Australia s electricity assets Significant acquisition opportunities 33

34 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 Ability to create operational and corporate synergies Significant tax attributes for U.S. opportunities Creation of RNW provides source of low cost equity Significant cash flow available for reinvesting post PPA period starting in

35 Donald Tremblay Chief Financial Officer Funding Plan 35

36 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

37 Recent Accomplishments $500 million reduction in net debt since YE 2013 Rating agencies have all reaffirmed our investment grade in 2014 As at Sept 30 th, 2014, ~$1.6 billion in liquidity including over $200 million in cash Agency Rating Outlook S&P BBB- Stable Moody s BBB- Negative DBRS BBB Stable $M $800 $600 $400 $200 $ Debt Maturity Schedule CAD MTN USD Notes Debt maturity profile is manageable over both the short and long-term 37

38 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 / Debt 1 $M Senior Debt 20% 4,400 18% 16% 4,200 4,000 3,800 14% 12% 3,600 3,400 3,200 10% E 2015E 3, E 2015E ¹ Assumes 50/50 treatment of Preferred shares Targeting $300 - $500 million reduction in net debt in

39 Significant Financial Capacity TransAlta will use RNW as an efficient way to fund South Hedland and other growth opportunities at TransAlta Committed Funding Requirements ( ) $ millions Low High Debt Reductions $ (300) - $ (500) Committed Growth Capital - South Hedland $ (570) - $ (570) Total Uses $ (870) - $(1,070) Potential Sources ( ) $ millions Low High Excess Cash Flow¹ $ $ 300 Pfd Shares $ $ 500 RNW Drop Downs $ $ 1,000 DRIP $ - - $ 200 Total Sources 2 $ 1,300 - $ 2,000 ¹ Cash Flow after deducting sustaining capital, dividends and partner distributions 2 Does not include potential partnerships Significant funding available finance growth opportunities 39

40 Strategic Flexibility Leveraging TransAlta Renewables TransAlta Public Sponsored vehicle to own long-term contracted assets Access lower cost funding and enhance returns for contracted assets Release capital to TransAlta as required 70% 30% >$3 billion potential drop down inventory Strong currency to support accretive acquisition of third party assets TransAlta Renewables TransAlta Corporation and TransAlta Renewables are strategically aligned 40

41 Significant Inventory of Drop-Down Opportunities Alberta Hydro 13 units, representing 90% of Alberta s hydro ~$60 - $120 mm EBITDA Australia Business Six power stations with long-term contracts 270 km gas pipeline ~$100 mm EBITDA growing to ~$200 mm Canadian Gas Fired Generation ~1,000 MW in Alberta and Ontario ~$220 mm EBITDA Additional Renewables 99 MW contracted wind farm in Quebec 7 MW contracted hydro facility in Ontario 41

42 Incremental EBITDA $M Long-term Upside Potential Significant potential upside once the Alberta legislated PPAs expire Alberta prices have averaged ~$65/MWh since deregulation AESO estimates that ~$80/MWh is required to attracted new gas-fired generation 1,000 Potential incremental annual EBITDA from Alberta PPAfacilities¹ $55 $65 $75 Alberta power prices $/MWh Significant increase in cashflows once Alberta legislated PPAs expire in 2018 and 2021 ¹ Represents potential annual incremental EBITDA per year starting in The term of the incremental upside is governed by the retirement dates of each of the generating units under the Federal greenhouse legislation but could go longer if some or all of the units have carbon capture and storage installed, or are converted to gas fired. 42

43 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 Australia in early