march 2016 - transalta...investor presentation march 2016 . 2 forward looking statements this...
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Investor Presentation
March 2016
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Forward Looking Statements
This presentation may include forward-looking statements or information (collectively referred to herein as “forward-looking statements”) within the meaning of applicable securities
legislation. All forward-looking statements are based on our beliefs as well as assumptions based on information available at the time the assumptions were made and on management’s
experience and perception of historical trends, current conditions, and expected future developments, as well as other factors deemed appropriate in the circumstances. Forward-looking
statements are not facts, but only predictions and generally can be identified by the use of statements that include phrases such as “may”, “will”, “believe”, “expect”, “anticipate”, “intend”,
“plan”, “project”, “foresee”, “potential”, “enable”, “continue”, or other comparable terminology. These statements are not guarantees of our future performance and are subject to risks,
uncertainties, and other important factors that could cause our actual performance to be materially different from that projected. In particular, this presentation contains forward-looking
statements pertaining to our business and anticipated future financial and share price performance; our success in executing on our growth projects, including increasing customer
contracts by 2021; anticipated gross margin from proprietary trading; capitalizing on opportunities in gas-fired and renewable generation; repositioning our capital structure and proactively
planning for debt maturities; funding strategy, including pro forma year end 2015 liquidity, raising project-level debt through the use of our contracted asset base and leveraging TransAlta
Renewables Inc. (“TransAlta Renewables”); the timing and the completion and commissioning of projects under development, including major projects such as the South Hedland Power
Project and Sundance 7, and their attendant costs; expectations regarding TransAlta Corporation’s (“TransAlta”) offer control in the Alberta market following the expiry of the power
purchase arrangements; expectations related to future earnings and cash flow from operating and contracting activities (including estimates of comparable earnings before interest, taxes,
depreciation, and amortization (“EBITDA”), comparable funds from operations (“FFO”), and comparable free cash flow; expectations for demand for electricity in both the short term and
long term, and the resulting impact on electricity prices; the impact of load growth, increased capacity, and natural gas costs on power prices; expectations in respect of generation
availability, capacity, and production; expectations regarding the role different energy sources will play in meeting future energy needs; expected financing of our capital expenditures;
expected governmental regulatory regimes and legislation and their expected impact on us and the timing of the implementation of such regimes and regulations, as well as the cost of
complying with resulting regulations and laws; our trading strategies and the risk involved in these strategies; estimates of future tax rates, future tax expense, and the adequacy of tax
provisions; accounting estimates; anticipated growth rates in our markets; the estimated contribution of Energy Marketing activities to gross margin; and expectations relating to the
performance of TransAlta Renewables’ assets and plans for the sale of contracted assets to TransAlta Renewables.
Factors that may adversely impact our forward-looking statements include risks relating to: fluctuations in market prices and the availability of fuel supplies required to generate electricity;
our ability to contract our generation for prices that will provide expected returns; the regulatory and political environments in the jurisdictions in which we operate; environmental
requirements and changes in, or liabilities under, these requirements; changes in general economic conditions including interest 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 or man-made disasters; the threat of domestic terrorism and cyberattacks; equipment failure and our ability to carry out or have completed the repairs in a
cost-effective manner or timely manner; commodity risk management; industry risk and competition; fluctuations in the value of foreign currencies and foreign political risks; the need for
additional financing; structural subordination of securities; counterparty credit risk; insurance coverage; our provision for income taxes; legal, regulatory, and contractual proceedings
involving the Corporation; outcomes of investigations and disputes; reliance on key personnel; labour relations matters; development projects and acquisitions, including delays in the
construction of the South Hedland Power Project; failure to proceed with plans for raising project-level debt; failure to proceed with plans for the sale of contracted assets to TransAlta
Renewables as a result of failure to agree to commercial terms with the independent directors of TransAlta Renewables, adverse market conditions or failure to obtain any required
regulatory, shareholder or other third party approvals; and the satisfactory receipt of applicable regulatory approvals for existing and proposed operations and growth initiatives. The
foregoing risk factors, among others, are described in further detail in the Risk Management section of this MD&A and under the heading “Risk Factors” in our 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.
The forward-looking statements included in this document are made only as of the date hereof and we do not undertake to publicly update these forward-looking statements to reflect new
information, future events or otherwise, except as required by applicable laws. In light of these risks, uncertainties, and assumptions, the forward-looking events might occur to a different
extent or at a different time than we have described, or might not occur. We cannot assure that projected results or events will be achieved.
Certain financial information contained in this presentation may not be standard measures defined under International Financial Reporting Standards (“IFRS”) and may not be comparable
to similar measures presented by other entities. These measures may not be comparable to similar measures presented by other issuers and should not be considered in isolation or as a
substitute for measures prepared in accordance with IFRS. For further information on non-IFRS financial measures we use, see the section entitled “Non-IFRS Measures” contained in
our Management Discussion and Analysis, filed with Canadian securities regulators on www.sedar.com.
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Coal: 4,931 MW ~6 facilities in Alberta and the Pacific
Northwest
Gas: 1,337 MW
12 facilities in Canada and Australia;
also 270km pipeline
RNW owns all Australian gas assets (425
MW) and 506 MW gas facility in Ontario
Wind & Solar:
1,400 MW
27 facilities in Canada and the U.S
RNW owns ~90% of wind facilities
Hydro: 926 MW 27 facilities in Canada and the U.S.
TA owns all of the Alberta hydro facilities
TransAlta’s Diversified Portfolio
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Our Highly Diversified Portfolio
1 Free EBITDA = EBITDA less Sustaining Capital, and excluding Energy Marketing and Corporate.
2 Excludes the $59 million adjustment to provisions
• Generated $755 million of free EBITDA in 2015
• Canadian Coal contributed just over 25% of total free EBITDA
• Gas and renewables accounted for more than 65% of total free EBITDA
2015 Free EBITDA ($M)
Canadian Coal(2)
$203
U.S. Coal $52
Gas $299
Wind and Solar $163
Hydro $38
Total $755
2015 Free EBITDA (1)
27%
7%
40%
21%
5%
Canadian Coal U.S. Coal
Gas Wind & Solar
Hydro
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Energy Marketing Capability - A Competitive Advantage
Energy
Marketing
and
Asset
Optimization
• Transacting in multiple markets
provides us with a competitive
advantage
• Targeting $40 to $60 million in
gross margin annually from
Proprietary Trading
• Preparing for roll off of Alberta
PPAs
• Increase customer contracts from
700 MW today to 3,000 MW by
2021
• Service behind the fence large
industrial customers in Canada,
U.S. and Australia
• Centralia
• Hydro peaking capability
• Ontario Gas supply and
dispatching
Asset Optimization
(30%)
External Customer
Business (50%)
Proprietary Trading
(20%)
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Strategic Objectives
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A Prudent and Proactive Plan
1) Deliver Operational Excellence
2) Increase Financial Flexibility
3) Strategically Grow our Portfolio of Contracted
Gas-Fired and Renewable Generation
Strategic Objectives
8 8
Executing our Strategic Objectives
2015 2016
Operational
Excellence
• Reduced costs by ~$50 million
with productivity and efficiency
initiatives at Canadian Coal and
Corporate
• Best ever safety (IFR = 0.75)
• Continue to focus on Alberta coal
mining operations
Increase
Financial
Flexibility
• Raised approximately $1 billion
of capital through the use of
TransAlta Renewables
• Met 2015 guidance for
comparable EBITDA(1) and FFO;
exceeded FCF guidance
• Reposition our capital structure by
pursuing project-level debt
• Proactive planning for debt
maturities in 2017 and 2018
• Similar guidance ranges to 2015
despite continued challenging
market conditions expected in
2016 in Alberta and PacNW
Strategic
Growth
• Acquired 71 MWs of wind and
solar assets in the U.S.
• Received final approval to
construct and operate
Sundance 7
• Secure a coal transition agreement
• Prepare to capitalize on
opportunities in gas-fired and
renewable generation
• Longer-term focus given Alberta
dynamics (1) Excluding adjustment to provisions relating mostly to prior years.
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2016 Outlook
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2016 Outlook & Assumptions
2016 Outlook Ranges ($M)
Comparable EBITDA $990 $1,100
Comparable Funds from Operations (FFO) $755 $835
Sustaining Capital $(330) $(350)
Pfd Share/Other Distributions $(175) $(185)
Comparable Free Cash Flow (FCF) $250 $300
Comparable FCF Per Share $0.86 $1.03
Annual Dividend $0.16 $0.16
Dividend Payout Ratio 19% 15%
Range of Key Assumptions
Power Prices
Alberta Spot ($/MWH) $ 29 - $ 33
Alberta Contracted ($/Mwh) $ 44 - $ 49
Mid-C Spot (US$/MwH) $ 22 - $ 26
Mid-C Contracted (US$/MWh) $ 40 - $ 45
Other
Canadian Coal Availability 87% - 89%
Hydro / Wind Resource - P50 -
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$20
$25
$30
$35
$40
$45
$50
$55
$60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2015 2016 2017
Managing Low Merchant Prices in Alberta
Opportunities
• The Alberta PPA’s were designed for low price periods
• TransAlta’s Alberta fleet has the lowest cost structure among Alberta generators
• Disciplined investment until prices recover
Risk
• If low prices persist to 2018, there is potential for the upside from the post-PPA value
of Sundance 1 & 2 to be reduced
Alberta Forward Curve
Oversupply in the Alberta power market and low gas prices
are driving historic lows for Alberta power prices
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0
1,000
2,000
3,000
4,000
5,000
6,000
2016 2017 2018 2019
Open Merchant Short term contract / Hedges
Long-term contract PPAs
Contracted Portfolio Supports Stable EBITDA
Contract and hedging strategy underpin stable cashflows ¹ As of January 2016
Alberta • Well hedged through 2016
• Market shocks allow opportunity to further
hedge at prices higher than the current
market
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
Merchant exposure in Alberta and the
Pacific NW
2016 Hedge prices
AB ~$45 - $50/MWh
PacNW ~$40/MWh
2017 Hedge prices
AB ~$45 - $50/MWh
PacNW ~$45 - $50/MWh
Total portfolio contractedness1
MW 87% 84% 72% 70%
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Financial Strategy
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Strengthening our Financial Position
As at Dec. 31 ($M) 2015 2014 2013
Recourse debt - CAD debentures 1,044 1,043 1,269
Recourse debt - U.S. senior notes 2,221 2,444 1,797
Net credit facilities and other 328 72 838
FV of Hedging Instruments (190) (96) (16)
Total recourse Debt 3,403 3,463 3,888
Non-recourse debt 766 380 376
Finance lease obligations 82 74 25
Total Net Debt (as of December 31, 2015) 4,251 3,917 4,289
Proceeds following close of transaction on Jan. 6, 2016 173 - -
Total Net Debt (as of January 6, 2016) 4,079 3,917 4,289
• Reduced our debt by ~$200 million since 2013
• Acquisition of renewable projects in the US in 2015 added ~$200 million of debt
• Construction of South Hedland since 2014 required ~$250 million
• The US dollar appreciation added an incremental ~$300 million over the last two
years, net of hedging instruments. All of our US debt is hedged with FX
contracts or net investment in US operations
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Increasing our Financial Flexibility
Reposition TransAlta’s capital structure
• As of January 2016, ~$1.4 billion in available liquidity
• Over the next three years, we plan to repay $1.2 billion of recourse debt with
project-level debt and cash
• Deliver on FFO and debt reduction targets and achieve FFO to Debt target
of 20% by 2018
1 Raise $400 to $600 million of project-level debt to repay U.S.$400 million
corporate maturity in 2017 and $200 million of CHD bonds
2 Execute a similar strategy in 2017 to refinance $U.S. $520 million
3 Reduced the dividend from ~$200 million to less than $50 million freeing up
~$150 million annually which can be allocated to debt reduction over the
2016 - 2018 period
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Utilizing our Contracted Asset Base
• Assets support target of $400 - $600 million in financing in the near-term
• Long-term contracted assets with credit worthy counterparties
• Strong operating history and well planned maintenance programs
• Size and ability to package certain assets together to manage transaction costs
Wind • ~300 MW in Eastern Canada and the U.S.
Hydro • ~50 MW in Ontario and B.C.
Gas • ~525 MW in Ontario
• Longer-term, additional ~$1.2 billion by using our Hydro and Wind in Alberta
and Australian portfolio
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TransAlta Renewables
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TransAlta Corporation and TransAlta Renewables are strategically aligned
Leveraging TransAlta Renewables
TransAlta Renewables
TransAlta
Public
~60-80% ~20-40%
• TransAlta is the largest shareholder
of TransAlta Renewables and will
maintain ~60-80% ownership
• Unlocks the value of long-life contracted
assets on attractive terms
• Provides access to lower cost funding
• Funds growth and debt reduction
• Strong currency to support accretive
acquisition of third party assets
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TransAlta Renewables (TSX:RNW)
• Created in August 2013 to provide stable, consistent returns for investors through the
ownership of highly contracted power generation and other infrastructure assets.
$3.0 billion Market Cap
$2.4 million in 2014
adjusted EBITDA
$176 annual dividend per share
$0.84 billion Enterprise Value
Enterprise Value¹ $3.3 Billion
Market Cap. $2.5 Billion
2016E EBITDA $365 - $390 Million
2016E CAFD $210 - $235 Million
Dividend Yield 7.8%
Generating Capacity (including South Hedland) 2,470 MW
TransAlta Corporation’s Ownership 64%
¹ Does not include capital required to complete South Hedland Project
* Enterprise Value and Market Cap. based on closing price as of February 22 2016
Wind
Hydro
Gas Fired
Gas Pipeline
Transmission
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Significant Drop-Down Inventory
Potential Drop-Down Candidates from TransAlta Corporation
Gas Fired
Generation
• ~400 MW in Alberta & Ontario including:
• 244 MW Poplar Creek facility in AB
• ~150 MW from 4 facilities through TA Cogen
• ~$140M EBITDA
Alberta Hydro
• ~800 MW from 13 units in Alberta, representing
90% of Alberta’s hydro
• ~$60 - $120M EBITDA
Other
Renewables
• 20 MW wind facility in ON
• 45 MW wind facility in AB
• 50 MW wind facility in Minnesota
• 21 MW solar facilities in
Massachusetts
Recently
acquired from
Rockland Capital
Recently
acquired from
Suncor
21 21
Growth Strategy
22 22
Recent Growth Accomplishments
• Advanced construction of our 150 MW South Hedland gas-fired facility in Australia with expected commissioning in mid-2017
• Re-structured contracts at our Poplar Creek facility, extending the contract duration by 7 years and reducing our merchant exposure in Alberta
• Acquired three wind facilities in Alberta, Ontario and Minnesota adding 115 MW of net wind capacity to our portfolio
• Added our first solar assets with the acquisition of 21 MW of fully-contracted solar projects in Massachusetts
Strategically reinvesting in our business for the long-term
23 23
Long-Term Investment Opportunities
Gas-Fired and Renewables
• Alberta’s Climate Leadership Plan – requirement for
gas-fired and renewable generation (~6,000 MW of
coal will need to be replaced by 2030)
• Sundance 7, low cost gas-fired option in our portfolio
• Expansion & acquisition opportunities in the United
States & Australia
• Evaluating hydro pumped storage at TransAlta’s
existing hydro sites
Coal Optionality
• Evaluating coal to gas conversions
• Flexibility under the Federal GHG legislation allows
optimization of cash flows across Alberta coal units
24 24
Coal Transition in Alberta
25 25
Coal Transition in Alberta – The Facts
• There is currently 6,277 MW of coal-fired installed capacity in Alberta, representing
approximately 39% of the overall supply
• Federal regulations amended in 2012 designate useful life of coal plants as 50 years
• Eight of TransAlta’s coal units, totaling 2,931MW, will be retired by the end of 2029 under
the federal rule, resulting in GHG reductions of 88% from current levels
• Four other coal units in Alberta will be decommissioned in 2030, representing
approximately 650 MW due to Alberta’s Climate Leadership Plan
Plant MW (Net) Annual GWh1
Retirement Under
Federal GHG
Regulations
Retirement Under AB
Climate Leadership
Plan
Sundance 1 & 2 560 4,170 2019 2019
Sundance 3 368 2,740 2026 2026
Sundance 4 406 3,023 2027 2027
Sundance 5 406 3,023 2028 2028
Sundance 6 401 2,986 2029 2029
Keephills 1 & 2 790 6,046 2029 2029
Sheerness 1 98 708 2036 2030
Sheerness 2 98 707 2040 2030
Genesee 3 233 1,675 2055 2030
Keephills 3 232 1,675 2061 2030
¹ Based on 85% availability
Note: Sheerness 1 and 2 capacity based on 25% ownership interest
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The Alberta Climate Leadership Plan
With respect to the power generation sector, the Climate Leadership Plan targets:
• the phase-out of emissions from coal-fired generation in AB by 2030;
• replacement of two-thirds of the retiring coal-fired generation with
renewables and one-third with gas;
• phase-in of the Carbon Competitiveness Regulation (CCR) in 2018, an
economy-wide price on carbon of $30 per tonne benchmarked against
highly efficient gas-fired generation, to replace the existing Specified Gas
Emitters Regulation (SGER)
TransAlta has significant opportunities for replacing coal retirements including:
• ~700 MW of Hydro expansion at Brazeau and BigHorn
• ~200 MW of other AB hydro expansions
• Coal to gas conversions
• Solar in the Wabamum area
• Wind expansion/repowering
• Brownfield & greenfield cogeneration
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Coal Transition in Alberta – Policy Discussions
• The Government of Alberta is appointing a negotiator to work with coal-fired
generators
• TransAlta will work with the negotiator to ensure it has the certainty and
capacity needed to invest in clean power
• Energy only market structure expected to be preserved
• We will be better able to assess the impact of legislation on the Alberta market
after these negotiations are finalized
TransAlta has numerous opportunities available for investment in
renewable and gas-fired generation
It is critical that the coal transition:
Keeps power prices stable
Maintains system reliability
Does not unnecessarily strand capital
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Appendix
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Financial Performance by Business Segment
Business Segment 2011 2012 2013 2014 2015(1)
EBITDA ($M)
Canadian Coal $273 $373 $311 $389 $393
U.S. Coal $211 $148 $67 $65 $67
Gas $275 $312 $332 $312 $330
Wind $163 $151 $181 $179 $176
Hydro $105 $127 $148 $87 $73
Energy Marketing $101 ($13) $58 $75 $37
Corporate ($84) ($83) ($74) ($71) ($72)
Comparable EBITDA ($M) $1,044 $1,016 $1,023 $1,036 $1,004
Comparable FFO ($M) $812 $788 $729 $762 $740
(1) Canadian Coal is normalized for provision adjustment included in 2015 EBITDA of $59 million relating to prior years
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$27
$204
$400 $400 $400
$520
$0
$200
$400
$600
$800
2016 2017 2018 2019 2020
CAD
USD
Upcoming Debt Maturities