TransAlta Corporation

Corporation, Third Quarter 2019 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentations, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Chiara Valentin, Manager, Investor Relations. Thank you. Please go ahead.

Thank you Chantal. Good morning everyone and welcome to TransAlta's third quarter 2019 conference call. With me today are Don Farrell, President and Chief Executive Officer, Todd Stack, Chief Financial Officer, John Kousinioris, Chief Operating Officer, and Brett Gellner, Chief Development Officer. Today's call is webcast and I invite those listening on the phone lines to view the supporting slides that are currently available on our website. A replay of the call will be available later today. and the transcript will be posted to our website shortly thereafter. As usual, all of the information provided during this conference call is subject to the forward-looking statement qualifications set out here on slide 2, detailed in our MD&A and also incorporated in full for the purposes of today's call. All amounts referenced during the call are in Canadian currency, unless otherwise noted, The non-IFRS terminology used, including comparable EBITDA, funds from operations, and free cash flow, are also reconciled in the MD&A for your reference. On today's call, Don and Todd will review the quarterly and year-to-date results and expectations for the remainder of the year. In addition, we'll provide commentary on our recent announcements and how these advance our clean energy investment plan and growth strategy that we outlined at our Investor Day back in September. After these prepared remarks, we will open the call for questions. And with that, let me turn the call over to Dawn.

Okay, thanks, Kira, and welcome everyone to the call today. We're pretty excited to be here announcing our third quarter results. We did have a strong third quarter, and we're pleased with the results across all of our businesses. And, of course, strength in the third quarter has given us a strong performance year to date, and it's increased our expectations for annual performance. Now, overall, our operational and financial performance is tracking to deliver a strong year. Our clean energy investment plan and growth strategy is on track. And through the quarter, we hit key milestones, which I think has been very impressive in terms of what the team has done. And finally, we successfully concluded the final leg of our CPA arbitration and collected an additional one-time payment of $56 million from the balancing pool, has added to our cash flow for the year. So I'm going to just start with a couple of overall comments on our financial performance, and of course, Todd will get into more of the detail. We earned a total of $305 million of comparable EBITDA in the quarter due to strong performance at our Canadian and U.S. coal businesses, our energy marketing segment, from the efforts and the work that's been done across the company to reduce our OM&A costs, and of course because of the one-time PPA payment. Now if you take out the one-time PPA payment, our EBITDA was flat for the quarter relative to last year. Now what's important here is that the Mississauga and Poplar Creek contract changes that occurred at the end of 2018 were expected to reduce our EBITDA in the quarter by approximately $30 million. So to be able to deliver flat year-over-year EBITDA with these changes, shows that we've been able to increase performance in our remaining key business segments. We see this increased performance as sustainable for a number of reasons, and we'll talk with you about that through the call. In total, we've now received $213 million from the balancing pool related to the termination of the Sundance PPAs. I'm especially proud of our team. They held a strong view that the mining assets were part of the PPA and I believe that the final payout was a very principled decision. Overall, our free cash flow results for the quarter are also trending ahead of 2018 and the results for the quarter were in the following areas. Now, first of all, we saw strong availability across the fleet with some of the strongest availability results that we've seen. The entire fleet had availability of 95.2% for the quarter compared to a pretty high availability last year in 2018 of 93.7. This was due to fewer unplanned outage hours and fewer D rates at both the Centralia and the Sundance units. Now, although the Alberta market saw weaker prices in Q3 relative to 2018, we continue to maintain high realized prices for our Alberta coal fleet with an over 40% premium to the pull price. Our fuel and carbon costs per megawatt hour were lower due to the ability of the Alberta coal units to co-fire with the Pioneer pipeline gas, which did come online four months ahead of plan, which was just excellent results by the team. Overall, comparable growth margins at Canadian coal have improved primarily due to the benefits of co-firing. We expect to realize further co-firing benefits as we reach firm throughput of approximately 130 mmcf per day of natural gas commencing this month. Centralia delivered a strong quarter despite lower pricing in the Pac Northwest due to their higher availability from fewer planned outages and strong performance in Q3 enabled us to partially recover some of the loss that they experienced in the first quarter. And of course, we continue to deliver OM&A reductions as we transition the fleet. Year-to-date, we're tracking to 7% reduced OM&A compared to last year. As we look forward at the balance of 2019, we continue to expect strong performance from our businesses. Year-to-date results combined with our forecast provide us with the confidence to both revise and tighten the free cash flow range to $300 to $340 million for the full year. So let me turn now to talk about our strategy. Just before I talk more about the milestones we achieved, I do want to briefly comment on the tier program that the government of Alberta announced last week. In short and simply put, it was exactly what we expected. The carbon levy will remain at $30 a ton with a performance standard for our business, which is at 0.37, which is best gas. This standard will be reviewed every five years. We finally have clarity on the credits that we'll receive across our extensive renewable fleet in Alberta. All of our Alberta wind and hydro assets will receive green credits for their generation based off the previously mentioned performance standard. We expect these credits to be worth approximately 30 million annually at the current carbon prices. The clarity on this policy and renewable credits are yet another step in the right direction that support the strategy that we've laid out for you here in Alberta. So let me now turn to our strategy. We are very pleased with the progress we made through the quarter on our clean energy investment plan. Last week, we moved forward with the acquisition of two 230-megawatt Siemens F-Class gas turbines and related equipment by buying the KinetiCorps business. TransAlta will redeploy these assets to its Sundance site as part of its strategy to repower Sundance Unit 5 to a highly efficient combined cycle unit by integrating these gas turbines into the existing steam turbines. The acquisition also results in the company assuming a long-term, non-unit contingent power arrangement starting in 2023 with Shell, a strong investment-grade company that is also committed to providing more and cleaner energy for Albertans. This advances our coal-to-gas conversion project by three to six months. Our initial plans discussed in Investor Day included possible repairing options at both Sundance Unit 5 and Keep Health Unit 1 for a combined cost of about a billion dollars and total megawatts of 1,180. Changing the plan slightly and installing the two F-cross turbines together at Sun 5 will provide 730 megawatts of capacity