TransAlta Corporation

Good morning, my name is Chantal and I will be your conference operator today. At this time, I would like to welcome everyone to the TransAlta Corporation first quarter 2019 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. Sally Taylor, Manager, Investor Relations. You may begin your conference.

Thank you, Chantal. Good morning, everyone, and welcome to TransAlta's first quarter 2019 conference call. With me today are John Farrell, President and Chief Executive Officer, Christophe Duhout, Chief Financial Officer, John Kousinioris, Chief Growth Officer, and Brett Gallner, Chief Strategy and Investment Officer. Today's call is webcast, and I invite those listening on the phone lines to view the supporting slides, which are available on our website. A replay of the call will be available later today and a transcript will be posted to our website shortly thereafter. As usual, all information provided during this conference call is subject to the forward-looking statement qualifications set out on slide 2, detailed in our MD&A, and incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency unless otherwise stated. The non-IFRS terminology used, including growth margin, comparable EBITDA, funds from operation, and free cash flow, are reconciled in the MD&A for your reference. On today's call, Dawn and Christoph will review the quarterly results and expectations for the remainder of the year. After these prepared remarks, we will open the call for questions. With that, let me turn the call over to Dawn.

Thanks, Sally, and welcome everyone. Today, as Sally said, I'll start with some color on how I saw the quarter. and I'll also talk about our growth portfolio and what we're seeing on the horizon. After Christophe takes you through the financials, I will have just a few brief comments on the execution of our strategy. On the slide that's on the screen now, you can see that we delivered strong results in line with or better than last year. After adjusting for the one-time positive cash flow in 2018, our year-over-year funds from operations increased by 5%, and our free cash flow increased by 17%. Now, for those of you that follow us, you recall that last year during the first quarter, we received $150 million in cash for the early termination of the Sundance PPAs, which has been excluded from these numbers so that you can get a good comparison of how we're operating. These improved financial results year over year are primarily due to strong performance from our energy marketing and hydro segments, which more than offset a one-time event in US coal, and the expected lower EBITDA from our Canadian gas segment. During February and early March, we had extreme cold temperatures here in Alberta, which strengthened power prices for the quarter and benefited our portfolio in the province. Our hydro segment, which is predominantly in Alberta, generated $27 million in EBITDA this quarter. an increase of 59% compared to the first quarter of last year, but still less than half of what our hydro segment would have made without the PPA in place. Christophe will go through this in more detail in his section. Our U.S. coal team experienced what we call a tail event, which resulted in EBITDA being down 35 million compared to the first quarter of 2019, when extreme market conditions caused us to change our hedging strategy during a forced boiler outage. The good news is that our energy marketing team also experienced a positive tail event and were able to offset most of this loss through trades around their transmission positions that benefited from the same extreme conditions. A combination of high demand due to cold weather and very high gas prices due to pipeline constraints created extreme power pricing in the day ahead market. Hedges in the Pacific Northwest market are settled against the pricing in the day ahead market. So even though the unit was able to return to service in record time, production from the plant could not be used to fulfill those hedges. Unfortunately, once the plant was up and running, the extreme conditions passed and we could only collect revenue in the spot market which was much lower than the day ahead market. We've frankly never seen such a mismatch between the day ahead and real-time markets in the Pacific Northwest and we don't expect this kind of event to persist on an ongoing basis. The Canadian call segment once again had improved availability of 91.3% during the quarter compared to 90.5% in the quarter of last year. Cost reductions as a result of moth-falling Sundance units 3 and 5, as well as the benefit of co-firing with natural gas, resulted in the EBITDA from Canadian coal remaining consistent with the first quarter of last year when all four Sundance units were running under their PPAs. This is quite a remarkable achievement and shows that the market in Alberta will compensate for capacity when the market is tight. It also shows that the team up at Alberta Coal has done a tremendous job when it comes to cost and availability. In summary, we're ending the quarter with strong results from our existing operation and we are well positioned across the fleet to deliver free cash flow at the high end of our previous guidance of $270 million to $330 million. Turning to slide five, today we announced the Skookumchuck project which is a construction-ready wind facility near our Centralia plant. In April, we signed an agreement to acquire a 49% interest in the 136.8 megawatt project at COD, which is expected in December of this year. Our investment will be approximately 155 million Canadian. Guconchac and Windrise are currently being funded by TransAlta. Both projects are underpinned by 20-year PPAs with strong counterparties and therefore are excellent future candidates for TransAlta Renewables. As I discussed during our fourth quarter call, by investing moderate development dollars in Greenfield and Brownfield projects in TransAlta and then taking advantage of the lower cost of capital in TransAlta Renewables, we can finance growth in TransAlta Renewables to the benefit of both sets of shareholders. The top two projects on this slide, Big Level and Antrium, were great wins for TransAlta Renewables last year, and both projects will be funded directly by TransAlta Renewables. Construction is advancing well, and we expect both win projects to reach commercial operation later in 2019. Turning to slide six, on a consolidated basis, you can see how this growth will lift our future EBITDA. As you can see from this chart, we expect to see the benefits of Big Level and Antrium later this year, and next year we will start to see the benefit from some of the recently announced growth projects, including the Pioneer Pipeline, which will also drive growth in EBITDA in the near term. By 2022, we expect to have more than $60 million of EBITDA added to our run rate. This year, we are investing over $400 million in growing the business through new development projects. Over the next three years, we will commission these five projects which have a total capital investment of approximately $850 million. Excluding the gas pipeline investment of approximately $100 million, we will invest $750 million in our four wind projects with high single-digit returns to investors. Approximately half of the investment will be funded with tax equity and project debt. As I said earlier, These kinds of projects fit well in the TransAlta renewables portfolio when investors want long-term stable contracted cash flows to support a high dividend payout ratio. With that, let me turn the call over to Christophe to provide more details on the financial results for the quarter.