TransAlta Corporation

Ladies and gentlemen, thank you for standing by and welcome to TransAlta Corporation's second quarter 2020 results conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and then one on your telephone. Please be advised today's conference is being recorded and if you require any further assistance, please press star zero. I would now like to hand the conference over to Chiara Valentini. Thank you. Please go ahead.

Thank you, Chris. Good morning, everyone, and welcome to Time Delta's second quarter 2020 conference call. With me today are Don Farrell, President and Chief Executive Officer, Todd Stack, Chief Financial Officer, John Kousinioris, Chief Operating Officer, and Kerry O'Reilly Wilkes, Chief Legal, Regulatory, and External Affairs Officer. Today's call is webcast and I invite those listening on the phone to view the supporting slides that are posted on the website. A replay of the call will be available later today and the transcript will be posted to our website shortly thereafter. All the information provided during the conference call is subject to the forward-looking statement qualifications set out here on slide two, further 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 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 provide an overview of the course results along with expectations for the balance of year. After these prepared remarks, we will open the call for questions. And with that, let me turn the call over to Don.

Thanks Kira and welcome everyone to the call today. We are presenting our results today from our offices here in Calgary. So as of last Monday all our employees are now either back in their offices here or at the plants across our locations in Canada, United States and Australia. I cannot tell you how great it is to be here today presenting a strong second quarter along with all our people safely back at our sites and doing what they do best which is working to deliver low cost reliable and clean power to our customers and communities. Our TransAlta employees are all leaders here at work and in their communities and families as they have quickly learned how to practice COVID safety protocols which are keeping us safe and allowing us to see each other in person of course while maintaining a two meter distance. We're very excited to report results for the quarter that are solid. Our quarter is only slightly below what we expected to be able to do in a pre-COVID world. And this is actually exceptional when one steps back to reflect on how much different the world is under the cloud of the pandemic. It is a true testament to the diversity and stability of our portfolio and the resilience and tenacity of the employees who work at this company. When we left the offices in early March, we were facing into a significant drop in power demand In almost every jurisdiction, we either operated in or traded in. We immediately set up systems to measure our liquidity because we needed to be able to assess the ability of our customers to pay their bills. We also saw reduced volatility in electricity pricing in every jurisdiction, which could have impacted the ability of our training business to deliver their results. And of course, we were worried about the safety of our employees, many of whom had to continue to go to the plants and many had to stay in their homes where they did their work in makeshift offices while taking care of their families. I'm very pleased today to tell you that many of our concerns simply did not take hold. We are reporting a second quarter that is strong with excellent safety and operational results and stronger than expected revenue in our Alberta business due to some great hedging by our asset optimizers. We had outstanding performance in our trading business which delivered one of the strongest Q2s in recent history. Our trading operations ran smoothly, albeit from their homes, and our plants achieved strong availability, all while dealing with the uncertainty of a pandemic and the challenges of having kids out of school. As we look at the cash that we generated in the first half of the year and what's to come as we look ahead, we continue to close in on our goal of reducing senior recourse debt to $1.2 billion by November. You all know that we've been after this objective for several years now and cannot wait until our fourth quarter call to tell you that it's finally been done and dusted. We're also confident that we can complete our investments under our strategy without the need for additional funding. So our highlights of the second quarter include delivering $217 million of EBITDA and $91 million of free cash flow, or 33 cents per share, results that were ahead of 2019 by 94% on a per share basis. We achieved strong availability and safety performance. The entire fleet had an average availability of 90.7% for the quarter, up from 83.8 last year. And year to date, we've achieved a safety result of 1.4 on our total injury frequency rate, which is great performance. We delivered strong operational performance. Well, all our plant staff showed up every day and worked together under COVID-19 protocols that were approved by our local health authorities in each region. We are deeply grateful to the men and women in our health authorities across our sites who worked side by side with us to develop safety protocols that kept our workforce in the field and head office safe. We needed to provide electricity for the economy and our customers, and they built our confidence around what people can do together if they're willing to follow a few very simple rules. They also helped us continue with all our construction projects and we are moving ahead on every project with very few delays. Now, unfortunately COVID had a negative impact on the stock price of almost every Alberta company as it had such a tremendous impact on oil demand, oil pricing and oil production here in Alberta. As such, we use that as an opportunity to use our NCIB to return an additional $12 million of capital to our shareholders with our share buyback program. And year to date, we've returned approximately $21 million to shareholders at an average price of $7.51 per share. Our finance team did an outstanding job of managing cash, and our long-term contracts with our customers were excellent. Any worries that we had about the depth of this crisis were set aside through the quarter as all our customers continued to pay their bills. We ended the quarter with continued strong liquidity at $1.6 billion, which includes approximately $250 million of cash. And we're poised to repay our 2020 bond maturity later this year without further funding requirements from the market. So just a few words on our strategic priorities. We continue to track on all our priorities with very little delay or very little change in timing. Our strategy continues to focus on delivering our pipeline of investments regarding our coal-to-gas here in Alberta, our wind and our cogeneration projects. On our coal-to-gas strategy, we are set now to kick off the Sundance 6th conversion in September of this year, and both people's conversions are on time and getting ready to go in the 2021 period. We also continue to advance our gas supply strategy here in Alberta. and based on that progress, we now do not see a need to complete a dual fuel conversion on our K3 unit and that unit will be fully converted to gas only in Q3 of next year. This slightly reduces our capital requirement for that project. We're progressing the repowering of Sundance Unit 5 and have advanced the competition for the EPC contract and expect to receive bid proposals here in the fall. We gave notice to retire our currently mothballed Sundance Unit 3 coal-fired unit out of the market by July 31, 2020, today. This decision was largely based on the condition and age of the unit and our flexibility and options around repowering our units and our existing generation portfolio. This is another milestone in our transition plan to get to 100% clean energy by 2025 and closing the chapter on our coal-fired generation. On the cogeneration front, during the quarter, we finalized the acquisition of our first cogeneration facility in the United States. We welcomed the Ada facility located in Michigan, along with the new customers, Consumers Energy and Amway. This marks our first toehold in the U.S. in this segment as we progress on our on-site generation goals. On our KBOB project with SEMCAMS, we are on track to start construction in early fall. Factory tests of the gas turbines have been completed and we have major equipment delivery set for later this year. On the renewables front, we have construction underway on both Windrise and Windcharger. We expect to reach COD on Windcharger in a few weeks. Bulk of the equipment is now on site and installed and we're progressing with the factory testing on the transformers. On Windrise, site construction commenced as planned in April and is tracking well with turbine deliveries expected later this year. Our diligence and compliance to COVID-19 protocols remain solid to date, which enables that project to continue. Skookumchuck now has 18 turbines up with eight mechanical completion certificates issued. The first circuit of six turbines have been energized and the rest are expected to commission in the next quarter. And we'll make our decision on our option to buy 49% of the project sometime during the quarter. As we look towards the balance of year, we continue to have confidence in our 2020 free cash flow guidance. Todd will talk you through our views of the second half recovery in power demand here in Alberta as everyone returns to their offices and schools. And if all goes expected, we also expect to hit the lower end of our EBITDA guidance. I do have one last comment before I turn it over to Todd. We did see particularly weak Alberta spot market prices in June. due to short-term disruptions in supply and demand. Lots of supply due to both high winds and lots of hydro coming in through the Pacific Northwest that flowed into Alberta, of course, through our tri-line. Demand fell by almost 1,000 megawatts in March. It has recovered somewhat since then, but June was a month with lots of supply and an unheard of level of demand destruction. Spot prices in the Alberta market in June are not an indicator of the future, which we will talk you through today. What you'll see from Todd today is that our diversified fleet, our level of contractedness, and our approach to asset optimization mostly offset these shorter-term headwinds in the Alberta market. Transelt has diversified EBITDA, our free cash flow, our liquidity, and the fact that we have our strategy fully funded allows us to be one of the few companies globally that can deliver on our investment plans with very minor changes in timing and on the path that we set prior to the full impacts of this pandemic. Pretty remarkable, in my view. So with that, I'm going to turn it over to Todd for more comments on the financials, and then we'll all come back with questions for the team.