TransAlta Corporation

Good morning. My name is Cherie, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation third quarter 2024 results conference call. All lines have been placed on a mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 1 on your telephone keypad. If you would like to withdraw your question, press star one one followed by that. Thank you. Ms. Valentini, you may begin your conference.

Thank you, Sheree. Good morning, everyone, and welcome to our third quarter 2024 conference call. With me today are John Kouzinouris, President and Chief Executive Officer, Joel Hunter, Chief Financial Officer, and Blaine VanMell, EVP Commercial and Customer Relations. Today's call is being webcast, and I invite those listening on the phone lines to view the supporting slides that are also posted on our 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 this conference call is subject to the forward-looking statement qualifications set out here on slide two, detailed further in our MD&A, and incorporated in full for the purposes of today's call. All amounts referenced during our call today are in Canadian dollars, unless otherwise noted. And the non-IFRS terminology used, including adjusted EBITDA and free cash flow, are also reconciled in the MD&A for your reference. On today's call, John and Joel will provide an overview of TransAlta's quarterly results. After these remarks, we will open the call for questions. And with that, let me turn the call over to John.

Thank you, Kiara. Good morning, everyone, and thank you for joining our third quarter 2024 conference call. As part of our commitment towards reconciliation, I want to begin by acknowledging that Trans-Alta's head office, where we are today, is located in the traditional territories of the peoples of Treaty 7, which include the Blackfoot Confederacy, comprising the Siksika, the Pekani, and the Kainai First Nations, the Susina First Nation, and the Stony Nakoda, including the Chiniki, Bearspaw, and Good Stony First Nations. The City of Calgary is also home to Métis Nation of Alberta, Districts 5 and 6. TransAlta delivered another quarter of excellent financial and operating results. We had strong performance across our generating fleet, as well as from our energy marketing segment. Our third quarter results illustrate the value of our proactive hedging strategy and the active management of our Alberta merchant portfolio. During the quarter, we delivered a Justity EBITDA of $325 million, free cash flow of $140 million, or $0.47 per share, and average fleet availability of 94.5%, demonstrating our strong operational capabilities. And our strong balance sheet continues to provide us with flexibility. With over $1.8 billion in available liquidity, including approximately $400 million in cash, we are well positioned to execute on our capital allocation priorities, which includes completing our enhanced share repurchase program for 2024 and funding the closing of the Heartland Generation Acquisition. I would now like to update you on a number of our strategic initiatives this quarter. First, with respect to the Heartland Generation Acquisition, we remain actively and constructively engaged with the Competition Bureau in our effort to obtain Competition Act approval. We have made good progress on this front and now have greater optimism regarding a pathway to completing the transaction. We have also constructively engaged with the seller to ensure that the transaction continues to meet our value expectations. I'm hopeful that we will be able to update everyone on the status of the transaction shortly. Next, we continue to advance the significant contracting and development opportunities we see at our legacy thermal sites in both Washington State and Alberta. And finally, given the weakness in expected market conditions we see for the next year or so, we've decided to temporarily mothball Sundance Unit 6, effective April 1, 2025, which enables us to preserve the unit and site for future opportunities. Moving to our legacy energy campuses, and as we noted during our last call, the Centralia site has multiple opportunities that we're currently assessing, and we are in active discussions with several potential counterparties to determine how to best meet their energy needs from the site. This could include both the repurposing of existing assets and the potential for new facilities, which would serve to enhance the reliability of the grid in Washington State and support the energy transition in meaningful ways. If successful, we will have the ability to extend the operating life of the Centralia site, as well as build out other opportunities, including potentially wind, solar, batteries, pump storage, and next generation technologies. Critically important infrastructure including steel in the ground transmission is available at site with significantly reduced redevelopment costs and timelines for permitting and would provide us with an advantage in speed to delivering power supply. We expect to be able to share our more detailed development plans for Centralia during the first half of 2025. We're also progressing multiple opportunities at our legacy thermal sites in Alberta. We're actively marketing these sites and believe that they hold significant value and provide unique advantages to customers. Our legacy sites around Wabham and Lake in Alberta have close to 1.3 gigawatts of operating capacity at Sundance Unit 6 and Key Pills Units 2 and 3. The Sundance and Key Pills sites are within 20 kilometers of each other and only 80 kilometers from Edmonton. We have a further 1.6 gigawatts of vital infrastructure at Sundance and Key Pills and over 40,000 acres of land available to meet customer needs. The sites have water rights, fiber optic cable access close by, and grid interconnection on location. Retired units and spare site capacity at both sites provide us with the potential for significant expansion, including repowering, in the future. Our merchant renewables portfolio in the province also enables us to bundle RECs to lower customer carbon intensity, and our marketing, optimization, and regulatory experience differentiates us from other options. We often hear that Alberta's geographic location makes it less desirable for data centers from a latency perspective. We don't believe this to be the case. As you can see from the map on the slide, our analysis shows that Alberta is well located for both AI trading and AI inferencing applications when you consider that most would require latency of 75 milliseconds or better. Latency would not therefore be an issue for many customers if they were to be located on one of our sites and we're in discussions with multiple hyperscalers who are potentially interested in our Alberta energy campuses. We're also progressing several initiatives to ensure our sites are turnkey ready for data centers. We believe we're uniquely positioned to respond to the growing need of data center customers for timely, affordable, reliable, and clean power. However, while we see great potential in our Alberta thermal sites, given the more immediate fundamentals of the market in 2025, we've taken the prudent financial decision to temporarily mothball Sundance 6 while reserving it for future economic opportunities. With current oversupply conditions, the decision defers significant sustaining capital expenditures and enables us to consolidate our cost structure and operations. We will maintain the flexibility to return Sundance 6 to service when market fundamentals improve and support the addition of the unit's generation. We will continue to operate the unit through to the end of the first quarter of 2025 and the mothball period will commence April 1, 2025. Our Alberta portfolio is fully capable of managing our hedging strategy while Sundance 6 is mothballed and, in the meantime, will continue to evaluate the Sundance site for data centers and reliability contracts, actively assessing opportunities while the site is not in operation. Switching to our 2024 outlook, our financial performance in the year to date makes us confident that we will deliver the year towards the upper end of our adjusted EBITDA and free cash flow ranges, notwithstanding the larger planned outages that we have in the fourth quarter that will impact our free cash flow.