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 forwardlooking 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 cost of fuels to produce electricity, legislative or regulatory developments, competition, global capital markets activity, changes in prevailing interest rates, currency exchange rates, inflation levels, unanticipated accounting or audit issues with respect to our financial statements or our internal control over financial reporting, 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 2009 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 Steve Snyder President & CEO 3

4 Has TransAlta s strategy created value? 4

5 Yes. TransAlta s strategy has created significant shareholder value through increased returns and a strong dividend yield TSR 1 300% 250% 200% 150% 100% 50% 0% Shareholder Return and Yield 166% cumulative TSR 9% CAGR YTD Cumulative TSR Dividend Yield Yield 2 20% 15% 10% 5% 0% 1 Based on a $100 investment made at Dec. 31, 1999 and assumes the reinvestment of dividends 2 Based on the closing share price on the first day of each year 5

6 Strategy: The last 10 years Diversified growth & optimization have driven a 55% increase in gross margins Acquired Centralia Acquired Vision Quest Acquired CE Gen Constructed Genesee 3 Transitioned to PRB coal Divested Mexico Renegotiated Sarnia Acquired Canadian Hydro Retired Wabamun Constructed Keephills Generation gross margin per MWh produced $32.69 $ % 15% 73% 24% 21% 54% e 6,870 MW 8,563 MW Renewables Gas Coal 6

7 Strategy: The last 10 years Significantly increased renewable portfolio MW 2,500 Renewable Portfolio Capacity 2,000 1,500 1, e Hydro Wind Geothermal Biomass 7

8 What do the next 10 years look like? 8

9 Next 10 years Near Term Long Term Drive the Base Continue to drive productivity and lower costs Sustain improved operational performance Information technology & strategic suppliers drive productivity Prepare transition from PPAs Reposition Coal Unit specific maintenance plans for pending 45 year proposal Maintain options around coal sites Implement capital stock transition Green Coal Finalize Centralia transition plan Participate in CCS technology development 9

10 Next 10 years Green and Diversify Our Portfolio Deliver on 427 MW of announced growth while we continue to build multiple options for our future MW 123 MW MW Leader in CCS Deep organic growth pipeline Gas & hydro baseload Secure natural gas supply Leader in CCS Strong acquisition potential Continue to target MW growth each year 10

11 Significant upside potential End of PPAs will provide significant EBITDA upside as production reverts back to TransAlta Est. EBIT $MM $1,750 Estimated Incremental EBITDA in 2021 $750 - $1,250 M 2 $1,500 $1,250 $1,000 $750 $500 $250 $- $60 $70 $80 $90 $100 $110 $120 1 Alberta Power Prices 2021 ($/MWh) 1 Minimum power prices required for new NGCC facility 2 Includes Sundance units 3 6, Keephills, Sheerness, and Alberta Hydro facilities 11

12 What does the future hold for TransAlta in a carbon constrained world? 12

13 Opportunity Canada s 45 year plan provides significant future investment opportunities in Alberta alone MW 7,000 Investment Opportunities (TransAlta Fleet Only) 6,000 5,000 4,000 3,000 2,000 1,000 TransAlta Coal TransAlta AB Portfolio Growth Replacement Opportunity* 5,400 MW at Market Prices $10 - $15 B Investment Opportunity TransAlta coal Replacement opportunity TA AB Portfolio growth 1 Based on 45 year coal-life and $1,800 - $2,800 per KW 13

14 Opportunity U.S. Western Electricity Coordinating Council region also provides significant growth opportunities Installed MW 95,000 U.S. WECC Generating Capacity 90,000 85,000 80,000 75,000 70,000 65,000 Over 45,000 MW of growth expected in low carbon generation 60,000 55, Gas Renewables Source: NERC 14

15 What about CCS? 15

16 We believe it will work CCS is growing world-wide in the oil, gas and power sectors as one of the few large-scale solutions to global greenhouse gas containment $26 billion world-wide 44 projects planned Source: Global CCS Institute 16

17 We have significant opportunity with CCS CCS supports the future of coal and provides the opportunity to exploit TransAlta s vast economic coal reserves CCS provides: A mechanism for retrofitting and extending economic life of existing coal units Opportunities for new clean coal facilities Opportunity to utilize massive economic coal reserves in Alberta; 1,000 years of coal reserves A means for technology and regulatory development Potential to be cost competitive at 2020 target: Preliminary Estimates of Full Cycle CO2 Costs: $80 - $90 / tonne Strong competitive advantages TransAlta s 2020 Target: $40 - $50 / tonne 17

18 What if CCS doesn t work? 18

19 We have many other options We are not dependent on a single fuel source or a single region 100 years experience in hydro, 20+ years in natural-gas fired generation Permitted generation sites with access to water & transmission Strong competitive advantages in multiple fuels and technologies 19

20 Dawn Farrell Chief Operating Officer 20

21 What is TransAlta s view on its core markets? 21

22 Alberta market Forward prices remain soft due to low natural gas prices and capacity additions, long-term fundamentals remain strong, driven by oil sands recovery Positives Alberta Economics: GDP growth to range from 2.1% - 5.5% annually for Oil sands recovery driving load growth 2.5% demand growth per year for the next three years; 2.8% demand growth expected for 2010 Challenges Over 500 MW of new supply in 2011 Weak natural gas prices expected to continue throughout 2011 $/MWh $100 $90 $80 $70 $60 $50 $40 $30 Alberta Power Prices Actuals Current Market +$1 / GJ = ~$8 - $10 / MWh Source: Stats Canada, AESO 1 Figures as of October 14,

23 PacNW market Improvements in demand; forward price recovery driven by natural gas Positives Demand destruction slowing down; -1.7% YTD versus -3.2% last year 1.5% demand growth per year for the next three years due to expectations of a modest economic recovery Challenges US$/MWh $70 $60 $50 $40 $30 PacNW Power Prices 1 Economic recovery losing momentum in recent months Weak natural gas prices expected to continue throughout 2011 Continued growth in renewables expected over the next few years $20 $10 $ Actuals Current Market +$1 / MMBtu = ~$7 - $9 / MWh Source: Bureau of Labour Statistics 1 Figures as of October 14,

24 What is TransAlta doing to minimize the impact of soft prices? 24

25 Targeted cost savings and productivity Reducing costs remains imperative and a cornerstone to TransAlta s strategy $/MWh $16 $14 $12 $10 $8 $6 $4 $2 $- OM&A OM&A / MWh is trending back to 2007 levels (e) $MM $700 OM&A lower in 2010 despite adding Canadian Hydro assets OM&A is lower due to less major maintenance, productivity and economies of scale $600 OM&A OM&A/MWh 25

26 Disciplined hedging strategy Disciplined hedging strategy helps mitigate the impact of adverse market conditions Hedging strategy remains disciplined but allows flexibility in contracted amounts each year Commercial and Industrial business creates direct customer relationships and future opportunity when PPAs roll off Centralia MoU would create a longterm contract and solution for a coal to gas transition over the 2020 to 2025 period Merchant MWs 3,500 3,000 2,500 2,000 1,500 1, Merchant Portfolio Contractedness Contracted To be contracted Open Alberta 1 : $60 - $65 $65 - $70 $65 - $70 $60 - $65 PacNW 1 : $50 - $55 $55 - $60 $55 - $60 $45 - $50 Capacity adjustments 90% target 1 Average contract price as of October

27 Should we permanently lower our expectations for Energy Trading? 27

28 No. Energy Trading will continue to provide significant value Energy Trading is integral to our portfolio Strong and experienced team Expect to continue generating $50 - $70 million in gross margin Sophisticated information processes provide market intelligence Asset Optimization and Customer Business Merchant Portfolio enhanced by trading Gross Margin Trading provides incremental value Rigorous risk systems ensure control and discipline Knowledge from optimizing merchant assets enhances trading results Contracted Assets 28

29 What is TransAlta doing to drive long-term sustained operational excellence? 29

30 Driving 3 lines of defense Operations Engineering Technology Unit pair structure On-site Engineering Chief Engineers Office Engineering Services Division Operations Diagnostic Centre Distributed Control Systems People Training Life Cycle Analysis Quality Assurance Supplier Relationships 30

31 Optimizing our plans Aligning plans and capital spend for coal units based on emerging 45 year proposal Coal facilities Tailoring capital spend to suit 45 year plan; near-term focus on Sundance units 1 and 2 Optimizing generator repairs and planned major maintenance outage on the Sundance unit 3 with a new 15 MW efficiency uprate New distributed control systems at Keephills plus uprates will enhance performance until 2030 timeframe Continue with Project Pioneer 31

32 Optimizing our plans Enhancing plans at existing facilities Upgrading hydro facilities Spending $350 million over 10 years to repower hydro fleet in Alberta for the next 50 years Cost competitive in gas Working with suppliers and original equipment manufacturers to lower the costs of gas parts over 10 years Enhancing wind operations Building The TransAlta Way wind operational model 32

33 What s next for growth? Why can TransAlta capitalize on the opportunity better than its competitors? 33

34 Development pipeline Over 1,405 MW of renewable energy in advanced development MW Development Pipeline 1 1, Total MW: 1,405 Total investment opportunity: $3.3 - $4.3 B BC Alberta Saskatchewan Ontario Quebec California 1 Based on TransAlta s share Hydro Gas Fired Wind Geothermal 34

35 Acquisition opportunities And 2,700 MW of near-term acquisition opportunities MW 1,800 Near-term Acquisition Opportunities 1,440 1, Nearly 2,700 MW up for sale in target markets BC Alberta Saskatchewan Ontario Quebec Western U.S. TransAlta's Development Pipeline Potential Acquisition Opportunities 35

36 Competitive advantages Because TransAlta has built significant competitive advantages and a broad platform needed for successful growth Diversification & Experience 100 years Hydro; 50 years Coal; 20 years Gas; 10 years renewables Multiple geographies and an incumbent position in Alberta Economies of scale Broader Growth Platform Operational Excellence Strong availability and low cost competitive advantage Strong cash flows throughout commodity cycle Strong Resource Position Coal resources, hydro storage, geothermal reserves Excellent wind sites left to develop Minimize impacts and risks of legislation Reduced risk through multiple counterparties Offsets risks related to production from any one site Financial Strength Solid balance sheet and investment grade ratios Ability to pursue opportunities through all cycles Ability to execute large scale projects 36

37 Brett Gellner Chief Financial Officer 37

38 Has TransAlta s financial strategy changed? 38

39 No. TransAlta s strategy remains the same Capital discipline Financial strength Balance capital allocation between debt, dividends, and capital investments Total portfolio optimization approach to investments Maintain balance sheet strength and flexibility Maintain stable BBB credit ratings Solid returns Maintain low-to-moderate risk profile Drive sustainable cash flow growth Unlevered after-tax IRR targets in the range of % higher than our cost of capital 39

40 Does TransAlta s investment strategy in diversified assets generate value? 40

41 Yes. Diversification and contracting drives growth Funds from operations have grown despite lower market prices $MM Funds From Operations vs. Weighted Average Price / Merchant MWh Produced $/MWh 41

42 Diversification reduces risk of any one fuel 2011 Expected production by fuel type Production Monthly Variability (Std Dev/Avg) Base and Intermediate Load Production (Coal, Gas, Geo) Wind Hydro Base/Intermediate GWh Total Risk (Std Dev) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Wind Production Hydro Production GWh GWh Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 42

43 Value proposition and strategy Diversified fuel sources and portfolio optimization has led to enhanced returns and lower risk Enhancing Returns High margin assets additions TransAlta s portfolio Future Efficient Frontier Wind Hedging and contracting strategy Productivity improvements Higher returns post Alberta PPAs Return Today Historic Baseload coal, gas, geo Hydro Generation Gross Margin by fuel type Renewables 17% Coal 52% Renewables 23% Coal 49% Low-to-moderate risk Risk Gas 31% Gas 28% 2009 YTD YTD 1 1 As of Sept

44 How should TransAlta be valued? 44

45 Cash flow / funds from operations Cash flow accounts for tax pool benefits, adds back non-cash accounting charges, and captures future value of PPA expiry Captures the benefit of our significant tax pools and attractive tax treatment of renewables Adds back non-cash accounting charges (e.g. dep`n) which can vary between companies Long-term cash flow analysis captures the significant value from PPA expiry and reinvestment opportunities $MM $900 $800 $700 $600 $500 $400 $300 $200 $100 $- FFO Significantly Higher Than Earnings Net Earnings FFO e* 1 1 Based on analyst consensus estimate for net earnings 2 Source: Capital IQ TransAlta Undervalued on a Price to CF Basis 2011 P/CF 2 TransAlta U.S. Utilities U.S. Merchants Cdn Corps Income Funds Times (X) 45

46 What is TransAlta s cash flow potential? 46

47 Strong near-term cash flows Expecting $800 - $900 M in funds from operations for 2011 $MM $1,000 $900 $800 $700 $600 $500 $400 $300 Funds from Operations $800 - $900 M FFO range Dividend Coverage x $200 $100 $ e e Sustaining capex Free cash flow Dividends 47

48 Significant upside to price plus growth in the medium-term $MM $250 Avg. Incremental EBITDA From Higher Prices ( ) 1 $200 $150 $100 At a 10% ROCE, 200 MW growth can add another $40 - $80 million in additional EBITDA 2 $50 $0 Alberta PacNW $55 1 $60 2 $65 3 $704 $755 $40 $45 $50 $55 $60 1 Relative to a base of $50/MWh in Alberta and $35/MWh in the PacNW 2 Based on a 10% ROCE, $1,500 $3,000 per KW and a 30 year depreciation 48

49 Excellent long-term potential from PPA facilities $MM $2,500 Potential EBITDA Cumulative Potential Upside from PPA Expiry ( ) 1,2 Post PPA Value TA Base 1 Value Price ($/MWh) $60 $120 Upside $2.1 B $8.5 B $ Excludes upside from incremental growth, replacement opportunities and higher prices between 2010 and Based on 45 year coal-life; and includes Sundance units 2 6, Keephills, Sheerness, and Alberta Hydro 49

50 Cash allocation where will it go? 50

51 Capital allocation plan We remain disciplined in how we manage our balance sheet and allocate capital Funds from operations Sustaining capex Dividends DRASP NCI Total ($B) $ 2.8 $ (1.3) $ (0.8) $ 0.2 $ (0.2) $ 0.7 Balance sheet enhancement Growth 51

52 Steve Snyder President & CEO 52

53 Why own TransAlta today and tomorrow? 53

54 Today Diversity and options create value Strong yield and growth supported by significant free cash flow, both in near and long-term Diversified fuel and geographic growth opportunities Operational excellence and cost control Disciplined and consistent strategy 54

55 Tomorrow Strong potential upside With market recovery Through the expiry of PPAs From renewable growth From gas-fired generation Through new technologies like CCS 55

56 Appendix 56

57 Alberta market outlook Forward prices remain soft due to low natural gas prices and capacity additions; long-term fundamentals remain strong, driven by oil sands recovery Outlook Power prices expected to improve as oilsands growth continues and reserve margins tighten Strong load growth is dependant on oil sands recovery ~2.5% demand growth per year for the next three years +$1 / GJ = ~$8 - $10 / MWh CAD$/MWh $100 $90 $80 AB Power Prices 25% 20% Reserve Margins 1 Actual Forecast 1% load growth $70 $60 15% 2% load growth $50 10% 3% load growth $40 $ Actuals Current Market Figures as of October 14, Includes transmission; does not include assumptions around announced facilities, only facilities under construction 5%

58 PacNW market outlook Improvements in demand; forward price recovery driven by natural gas Outlook Forward prices highly correlated to natural gas US$/MMbtu $10.00 $8.00 Henry Hub Gas Prices Actual Forecast High range ~1.5% demand growth per year for the next three years $6.00 $4.00 Low range Reserve margins to decrease as demand improves $2.00 +$1 / MMBtu = ~$7 - $9 / MWh $ US$/MWh $70 PacNW Power Prices Reserve Margins 1 $60 $50 $40 $30 $20 $10 60% 50% 40% 30% Actual Forecast 1% load growth 2% load growth 3% load growth $0 20% Actuals Current Market Figures as of October 14, Does not include assumptions around announced facilities, only facilities under construction 58

59 Disciplined hedging strategy TransAlta remains disciplined in its contracting strategy and continues to look for opportunities against near-term low pricing environment; leverage to power price recovery MWs 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Total Portfolio Contractedness Contracted Average contract life = 11 years Open Target: 90% contractedness / year PPAs, long & medium term contracts account for 70% of generation 94% 88% 81% 74% % contracted / year 59

60 Availability and production 90% 89% 88% 87% 86% 85% 84% 83% 82% 81% 80% Availability e 2011 GWh 55,000 50,000 45,000 40,000 35,000 30,000 Production e 60

61 Executing on our growth strategy TransAlta s growth investments deliver long-term sustainable cash flow and earnings growth Projects Kent Hills 2 Ardenville Bone Creek Keephills 3 Keephills 1 and 2 Uprates Sundance 3 Uprate Location New Brunswick Alberta British Columbia Alberta Alberta Alberta Type Wind Wind Hydro Supercritical Coal Efficiency Uprates Efficiency Uprate Size 54 MW 69 MW 18 MW 225 MW 1 46 MW 15 MW (23 MW each) Total Project Cost $100 MM $135 MM $48 MM 2 $988 MM 3 $68 MM $27 MM Unlevered after tax IRR 10%+ 10%+ 10%+ 10%+ 15%+ 15%+ Commercial Operations Date Q Q Q Q Q Q Contract Status LTC LTC/Merchant LTC Merchant Merchant Merchant On time / On budget Tracking Tracking Tracking Tracking MW gross size 2 Bone Creek s capital spend prior to the acquisition was $23 MM which does not form part of our total project cost 3 Keephills 3 capital spend increased from $888 MM to $988 MM and its COD was revised from Q to Q Keephills unit 1 uprate has been moved to 2012 Tracking Tracking 61

62 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 Quebec New Richmond** 66 Wind $180 - $210 PPA/LTC Quebec St. Valentin** 50 Wind $150 - $180 PPA/LTC Saskatchewan Mistahay Utin 175 Wind TBD $450 - $500 PPA/LTC Saskatchewan Willow Bunch** 175 Wind TBD $450 - $500 PPA/LTC California Black Rock * Geothermal In Progress $400 - $500 PPA/LTC Alberta Sundance Gas-fired TBD TBD $1,000 - $1,500 Merchant Alberta Dunvegan** 100 Hydro $500 - $700 Merchant British Columbia Clemina Creek** 11 Hydro $30 - $40 PPA/LTC British Columbia Serpentine Creek** 10 Hydro $30 - $40 PPA/LTC British Columbia English Creek** 5 Hydro $12 - $20 PPA/LTC Ontario Royal Road** 18 Wind $35 - $45 PPA/LTC Ontario Yellow Falls** 8* Hydro $30 - $45 PPA/LTC TOTAL MW : 1,405 TOTAL COST: $3.3 B - $4.3 B TARGET COMMERCIAL OPERATION DATE / TBD TBD TBD TBD TBD TBD * TransAlta s ownership ** Based on initial estimates of Canadian Hydro 62

63 Sustaining capital Sustaining capital plan 1 ($M) 2011e 2012e 2013e Sustaining $ $ $ Routine Capital $ $ $ Major Maintenance $ $ $ Mine Capital $25-30 $40-50 $35-45 Other Repowering / Life Extension $55-80 $30-50 Productivity $10-20 $5-10 $ Based on IFRS 63

64 Major maintenance 2011 Major maintenance plan 1 ($M) Coal Natural Gas and Renewables Total Capitalized $ $75-80 $ GWh lost 1,850 1, ,480 2,500 1 Based on IFRS 64

65 Growth capital outlook All projects tracking on time and on budget Completed MW 2010e 2011e 2012e Total Summerview 2 66 $10-15 $118 1 In Progress MW 2010e 2011e 2012e Total Kent Hills 2 54 $80-85 $100 2 Bone Creek 18 $50-55 $48 3 Keephills $ $20-30 $988 4 Ardenville 69 $ $135 5 KI & K2 uprates 46 $5-15 $25-35 $20-30 $68 6 Sun 3 uprate 15 $0-5 $10-15 $10-20 $27 Total 427 $ $55-80 $30-50 $1.4B 1 Sunmmerview 2 capital spend prior to 2010 was $106 M 2 Kent Hills 2 capital spend prior to 2010 was $18 M 3 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 $4 M. 4 Keephills 3 capital spend prior to 2010 was $707M 5 Ardenville capital spend prior to 2010 was $27 M 6 K1 & K2 uprates spend prior to 2010 was $2 M 65

66 Debt profile supports balance sheet Debt profile Minimal debt refinancing over the short-term provides ample financial flexibility (CDN $M) $1,000 $800 $600 $400 $200 $ Thereafter CDN MTN's US MTN's 1 1 Based on Sept. 30, 2010 FX rate of $1.03 CAD/US 66

67 Maintain financial strength Maintaining investment grade ratios Execute our plan while maintaining long-term financial strength and stability 35% 30% 25% 20% 15% 10% 5% 0% 60% 55% Cash flow to debt Q Debt to capital Range: 20-25% Range: 55-60% Q $B $2.5 Committed credit lines $2.0 Cash flow to interest Range: 4-5x 50% $1.5 45% $1.0 40% $0.5 35% $ Q Sept. 30, 2009 Sept. 30, 2010 Credit Lines Utilized Credit Lines Available 67