Forward looking statements

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2 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 the time the assumption was made. These statements are not guarantees of our 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. Some of the factors that could cause such differences include expectations related to the demand for electricity in both the short-term and long term, timing and completion of projects under development including uprates and upgrades, ability to acquire assets which are accretive, ability to source materials and parts in a timely manner, cost of fuels to produce electricity, legislative or regulatory developments, competition, global capital markets activity, changes in currency exchange and interest rates, inflation levels, unanticipated accounting issues with respect to our financial statements, plant availability, and general economic conditions in geographic areas where TransAlta Corporation operates. Given these uncertainties, the reader should not place undue reliance on this forward looking information, which is given as of this date. The material assumptions in making these forward looking statements are disclosed in our 2010 Annual Report to shareholders and other disclosure documents filed with securities regulators. Unless otherwise specified, all dollar amounts are expressed in Canadian dollars. 2

3 TransAlta at a glance TransAlta today Canada s largest publicly traded wholesale power generator & marketer with over 100 years of operating experience Coal: 4,386 MW Over 8,000 MW strategically positioned in Canada, Western U.S. and Australia 2,100 MW of renewable energy Gas: 1,788 MW 1,600 MW added since 2005 Revenues of ~$3 billion generated from an asset base of over $9 billion Hydro: 912 MW Enterprise value of ~ $10 billion with a market cap of ~$5 billion Wind: 1,127 MW Investment grade credit ratings Listed on Toronto and New York stock exchanges Geothermal: 164 MW 3

4 Why TransAlta Why TransAlta Diversified generation portfolio located in growing markets Over 75 facilities spanning multiple fuels and geographies Well positioned in markets with strong market fundamentals Attractive yield supported by significant cash flow 5.4% dividend yield $400 million per year in free cash starting in 2013 Highly contracted with upside potential to rising power prices Significant incremental EBITDA post 2020 Proven track record for growth with significant upside potential 1,600 MW added since 2005 Significant growth pipeline Financial strength to deliver Investment grade ratings $2 billion of committed credit facilities Significant cash flow and favourable access to capital Delivering shareholder value through yield and growth 4

5 e Proven track record of improvements Solid gross margin improvements while diversifying fuel mix Generation gross margin per MWh produced $32.42 $ % 19% 67% 26% 22% 52% 7,387 MW Coal Gas Renewables 8,250 MW 5

6 Low-to-moderate risk profile Diversification Advantages Fuel Number of assets Geographic Contracting Asset Age Broad platform for growth Downside protection, upside potential Reduces risk and cash flow volatility Supports investment grade ratings 6

7 e Proven track record of improvements Solid gross margin and a diversified fleet has delivered steadily increasing cash flow $M $1,000 $750 $500 $250 $- Funds From Operations (FFO) FFO trend line 7

8 Strong financial performance year-over-year Solid operations and growth driving enhanced results for investors Comparable EBITDA $804M Funds from Operations $620 M $660 M $571M Q YTD Q YTD Q YTD Q YTD 8

9 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, e 2012e Coal Renewables 9

10 Strategically well positioned for growth Alberta $250 billion investment in oil sands in the next 25 years is driving significant load growth Growing at 3% - 4% per year Tight reserve margins driving higher power prices TransAlta is the incumbent generator with over 30% of the provinces generation Significant growth opportunities in multiple fuels Western U.S. Well positioned with more than 1,500 MW of coal and geothermal High quality geothermal resource supporting significant development opportunities Opportunities to grow renewable and gas-fired generation through development and acquisitions Recent Washington State bill allows for long-term contracting Long-term investment opportunities of $20 billion Rest of Canada Renewable and gas-fired assets located in B.C., Ontario, Quebec and New Brunswick Well positioned for additional development and acquisitions Australia Highly reliable supplier of electricity to the mining industry Significant growth potential as mining industry and general economy expands 10

11 Alberta: Market Overview Alberta: Oil sands growth Oil sands growth is driving significant demand for new power generation GWh 25,000 Forecasted Energy Demand from Oil Sands 1 20,000 $253 billion to be invested in the oil sands between 2010 and ,000 Further demand growth driven by related industries 10,000 1 Source: AESO Draft 2011 Long-term Transmission Plan 2 Canadian Energy Research Institute, Economic Impacts of New Oils Sands Projects in Alberta ( ), May

12 Alberta: Demand forecast Peak demand in Alberta is expected to grow significantly by 2029 AB Peak Demand Growth by % MW 20,000 Average Alberta Peak Demand 1 99% 75% 89% Northwest Northeast Edmonton & North Central Calgary & South Central South 18,000 16,000 14,000 12,000 10,000 60% 8, Source: AESO Draft 2011 Long-term Transmission Plan 12

13 Alberta: Opportunities for growth Oil sands $20 Billion 1 in investment opportunities Related Industries MW 20,000 18,000 16,000 14,000 12,000 10,000 8,000 10,000 MW of new supply needed 6,000 Retirements AB Peak Demand Installed capacity 2 Investment opportunity 1 Based on 10,000MW at $2M / MW 2 Assumes 45 year life for coal assets based on new regulations 13

14 Alberta: Pricing Market fundamentals are driving price strength and providing signals for growth $/MWh $80 Cost of new generation Alberta Power Prices 1 +$1 / GJ = ~$8 - $10 / MWh Alberta Reserve Margins 1 2 Actual Forecast $70 $60 1% load growth 2% load growth $50 $ % load growth Actuals Current Market 2010 Investor Day 1 Figures as of Oct.12, Includes transmission; does not include assumptions around announced facilities, only facilities under construction 14

15 Alberta: Merchant position Well positioned to recognize the upside price from both generation and trading MW 5, Annual Average Energy Trading Gross Margin 4, MW 400 MW Asset Optimization and Customer Business Trading provides incremental value 431 MW 3,000 3,178 MW Merchant Portfolio enhanced by trading 2,000 1,000 Contracted Assets 0 Merchant 1 ST contracts (< 5years) Expect $65 - $85 million in AB PPAs LT contracts (5 years +) gross margin for

16 Sundance 7: Executing on growth Equipment purchase underway for 700 MW combined cycle gas-fired unit Progress Update Technology and configuration: Complete Location Fuel type Size Total project cost Sun 7 Alberta Gas fired generation 700 MW $1.2 - $1.4 B Vendor selection: Q Construction start date: ~Q Commissioning and commercial operations: ~ Q Customer contracting program underway Unlevered after tax IRR 10%+ Exploring fuel supply security Commercial operations date Q

17 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: 700 MW ~ 2021/

18 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 18

19 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 19

20 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 20

21 Australia: Growth opportunities TransAlta has developed significant competitive advantages to grow its gas operations in Western Australia Competitive Advantages 15 years experience in Australia Market Fundamentals Demand growing ~9% per year Leading behind-the-fence generator Operated throughout business cycles Strong customer relationships Options for growth: MW increments Proven track record of reliability Valued partner Strong stakeholder relations 21

22 Financial strategy Objectives Targets Actions Drive Shareholder Value TSR = 8 10% / yr Consistent growth Optimize capital allocation Maintain Financial Strength & Flexibility Investment Grade Strong liquidity Access to capital Continuous improvements Diversify risk 22

23 Excess cash flow We will remain disciplined in how we manage our balance sheet and grow the company Funds from operations Sustaining capex Net dividends Total 2012e ($B) $ 0.9 $ (0.5) $ (0.2) $ e Average / year ($B) $ 1.0 $ (0.4) $ (0.2) $ 0.4 Balance Sheet Growth Dividend 23

24 Medium-term EBITDA growth Continued investments in growth over the medium-term will drive TSR target $M Incremental EBITDA from growth and optimization Historical growth of $40 - $60M in EBITDA / YR EBITDA growth & dividend yield delivering TSR of 8 10% * Growth based on utilizing only free cash flow of $400M per year 24

25 Long-term upside potential End of PPAs will provide significant EBITDA upside $M $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $- Estimated Incremental EBITDA in 2021 $750 - $1,250 M 2 3 $60 $70 $80 $90 $100 $110 $120 Alberta Power Prices 2021 ($/MWh) Cumulative Potential Upside 1 ( ) $2 8 Billion 1 Based on range of power prices between $60-$120/MWh and assumes facilities retire at the end of their 45 year life 2 Includes Sundance Units 3 6, Keephills, Sheerness, and Alberta Hydro facilities 3 Minimum power prices required for new NGCC facility 25

26 Financial strength & flexibility TransAlta is committed to maintaining its investment grade credit ratings 30% Cash Flow to Debt Cash flow to Debt 6.0 Cash Flow to Interest Cash flow to Interest 25% 20% Target: 20-25% Target: 4-5x 15% % 2010 Q Proforma w/ Keephills Q Proforma w/ Keephills 3 $B Committed Credit Lines $2.5 $2.0 $1.5 Credit Lines Available $1.0 $0.5 Credit Lines Utilized $0.0 Sept. 30,

27 Strong dividend coverage 100% Dividend Payout as a Percentage of Free Cash Flow 1 80% 60% 40% 20% 0% e 1 Free cash flow is defined as FFO less sustaining capital expenditures 27

28 Summary 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 reduces risk Strong internally generated cash flow and access to capital markets 28

29 Additional information

30 Sustaining capital Setting up for sustained long-term operational excellence ($M) 2012e 2013e 2014e Sustaining $ $ $ Routine Capital $ $ $80-95 Major Maintenance $ $ $ Mine Capital $40-50 $40-50 $40-50 Other 1 $70-90 $30-50 $ Includes repowering/life extension and productivity 30

31 Major maintenance 2012 Major maintenance plan ($M) Coal Gas and Renewables Total Capitalized $ $75-80 $ GWh lost 2,880-2, ,300-3,320 31

32 Growth capital outlook All projects tracking on time and on budget Completed MW 2011e 2012e Total ($M) Bone Creek 19 $(5) - 0 $52 1 Keephills $70-90 $1,010 1,020 2 Total 244 $65-90 $1,062 1,072 In Progress MW 2011e 2012e Total ($M) Keephills 1 uprate 23 $5-15 $15-25 $34 3 Keephills 2 uprate 23 $10-20 $10-20 $34 4 Sun 3 uprate 15 $5-10 $15-20 $27 5 New Richmond 68 $20-40 $ $205 Total 129 $40-85 $ $300 1 Bone Creek capital spend prior to the acquisition was $23M, which does not form part of our total project cost. Spend prior to 2010 was $4M 2 Keephills 3 capital spend prior to 2011 was $929M 3 Keephills 1 uprate spend prior to 2011 was $4M 4 Keephills 2 uprate spend prior to 2011 was $6M 5 Sundance 3 uprate spend prior to 2011 was $3M 32

33 Highly contracted with upside potential Contracting strategy provides solid downside protection while maintaining leverage to power price recovery MW 9,000 Total Portfolio Contractedness 95% 86% 77% 70% 65% 8,000 7,000 6,000 5,000 4,000 3, Contracted Prices AB $60 - $65 / MWh PACNW $50 - $55 / MWh 2,000 1, AB PPA LT Contract Adjusted Capacity ST Merchant Contracted Open Merchant Upside potential 33

34 Debt profile supports balance sheet Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $800 $600 $400 $200 $ Thereafter Perpetual Prefs CAD MTN USD Notes 1 1 Based on Sept. 30, 2011 FX rate of $1.03 CAD/US 34

35 Advanced development pipeline Projects in Advanced Development ENVIRONMENTAL LOCATION PROJECT CAPACITY FUEL TYPE RESOURCE & AND PERMITS TURBINE CAPEX RANGE PPA / MW SITE CONTROL Applied Secured SECURED $ MM LTC Saskatchewan Mistahay Utin 175 Wind In progress TBD $300 - $350 PPA/LTC California Black Rock * Geothermal In Progress $500 - $600 PPA/LTC Alberta Sundance Bridge 1 (Sun 7) 700 Gas-fired TBD $1,200 - $1,400 Merchant California Black Rock * Geothermal TBD $500 - $600 PPA/LTC Alberta Sundance Bridge 2 (Sun 8) 700* Gas-fired TBD $1,200 - $1,400 Merchant Alberta Sundance Bridge 3 (Sun 9) 700* Gas-fired TBD $1,200 - $1,400 Merchant Alberta Dunvegan 100 Hydro TBD $500 - $600 Merchant TOTAL MW : 2,609 TOTAL COST: $5.4 B - $6.4 B TARGET COMMERCIAL OPERATION DATE TBD * TransAlta s ownership 35