TransAlta Corporation

Good morning. My name is Shannon, and I will be your conference operator today. At this time, I would like to welcome everyone to TransAlta Corporation first quarter 2026 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 11 on your telephone keypad. If you would like to withdraw your question, please press the star followed by 11 again. Thank you. Ms. Parrish, you may begin your conference.

Thank you, Shannon. Good morning, everyone. My name is Stephanie Parrish, and I am the Vice President of Investor Relations and Corporate Strategy of TransAlta. Welcome to TransAlta's first quarter 2026 conference call. With me today are Joel Hunter, President and Chief Executive Officer, Mike Politesky, EVP Finance and Chief Financial Officer, Chris Freilich, EVP Generation, and Nancy Brennan, EVP Legal and External Affairs. Today's call is being webcast and I invite those listening on the phone lines to view the supporting slides that are posted on our website. A replay of the call will be made available later today and the transcript will be posted to our website shortly thereafter. All information provided during this conference call is subject to the forward-looking statement qualification 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 are in Canadian dollars unless noted otherwise. The non-IFRS terminology used, including adjusted EBITDA and free cash flow, are reconciled in the MD&A for your reference. On today's call, Joel will provide an overview of TransAlta's quarterly results. After these remarks, we will open the call for questions. With that, I will turn the call over to Joel.

Thanks, Stephanie. Good morning, everyone, and thank you for joining our first quarter conference call. TransAlta delivered solid operational performance during the first quarter of 2026. During the quarter, we delivered adjusted EBITDA of $204 million, free cash flow of $102 million, or $0.34 per share, and average fleet availability of 93.8%. While our Alberta merchant portfolio was impacted by softer than expected prices, our hedging strategy and active asset optimization generated realized prices that were well above spot prices during the quarter. We remain confident in achieving our 2026 guidance range. In the quarter, we advanced our data center strategy in Alberta and coal-to-gas conversion at Centralia, hosted our investor day, providing an overview of our strategy and context on the current and future operating environment, and we closed the acquisition of Far North Power Corporation, adding contracted generation in our core market of Ontario. In connection with our fourth quarter and year-end 2025 results, we announced an MOU with CPP Investments in Brookfield for data center development in Alberta, with TransAlta as the exclusive power and site provider. We continue to be actively engaged with our counterparties. We're making progress towards definitive agreements. Last month, the ASO released an updated draft process for phase 2a of their large load integration. It is important to note that this is draft, which does not represent final outcomes and will continue to evolve as discussions progress. TransAlta continues to participate in the ASO's Large Load Integration Working Group, and we look forward to hearing additional details as they finalize their process in the coming months. In March, the U.S. Department of Energy issued another temporary order requiring Centrally Unit 2 to remain available for operation if needed for a 90-day period ending on June 14. TransAlta is adhering to the order and recently submitted its request for reimbursement to the FERC for costs related to the initial order. Progress continues with the conversion, and I'm pleased to report that our timeline for a final investment decision in the first quarter of 2027 remains on schedule. In the quarter, we achieved adjusted EBITDA of $204 million, a decrease of $66 million compared to the first quarter of 2025. This was primarily due to the reduction of generation at Centralia, lower Alberta power and hedge prices, as well as reduced market volatility, which affected energy marketing performance. Hydro segment adjusted EBITDA was $35 million, down $12 million compared to the first quarter of 2025, due to lower Alberta spot and hedge power prices, lower ancillary prices, reduced merchant volumes, and fewer emissions credit sales to third parties. The wind and solar segment reported adjusted EBITDA of $95 million, a 7% decrease compared to the first quarter of 2025, mainly due to lower wind resource and availability in eastern Canada. Within the gas segment, adjusted EBITDA was $93 million, $11 million lower than the first quarter of 2025, primarily due to lower Alberta spot and hedge power prices and the retirement of the Ada cogeneration facility. These impacts were partially mitigated by higher realized prices on Ontario and the acquisition of Far North Power. The energy transition segment experienced a year-over-year decrease in adjusted EBITDA of $36 million. Adjusted EBITDA is anticipated to remain neutral or slightly negative within the segment primarily due to ongoing expenses associated with retired units in both Alberta and Washington State. These costs are partially mitigated through revenues from byproduct sales. Energy marketing adjusted EBITDA decreased by $4 million to $17 million, primarily due to higher incentive costs and associated with higher unrealized mark-to-market gains. And corporate costs of $37 million were 10% lower when compared to the first quarter of 2025. In the first quarter, Free cash flow totaled $102 million driven by reduced net interest expense and increased realized foreign exchange gains from operating activities. Overall, despite low Alberta spot power prices, we are pleased with our first quarter operational performance across all of our business segments and remain confident in our ability to meet our 2026 guidance range. Turning to the Alberta portfolio, spot prices averaged $32 per megawatt hour in the first quarter, which was notably lower than the average price of $40 per megawatt hour in the first quarter of 2025. The decline year over year was primarily due to a mild winter in addition of new gas generation in the market. The gas fleet exceeded merchant market pricing by realizing an average price of $48 per megawatt hour, a 50% premium to the average spot price of $32 per megawatt hour. The hydro fleet also continued to capture merchant upside, delivering an average realized price of $46 per megawatt hour, a 44% premium to the average spot price. The merchant wind fleet realized an average price of $20 per megawatt hour, which was impacted by increased intermittent wind and solar generation in the overall Alberta merchant power market. Although weather conditions during the quarter were generally mild, contributing to lower average power prices, we enhanced our margins by meeting portions of our higher price hedge commitments through power purchases when market prices were below our variable production costs. We benefited from approximately 2,400 gigawatt hours of hedges, an average price of $66 per megawatt hour, $34 per megawatt hour higher than the average spot price. During the quarter, we delivered approximately 1,000 gigawatt hours of ancillary service volumes at a modest 9% discount to the average spot price. Through effective fleet optimization and meeting hedge obligations with purchase power, we consistently addressed the ASOS demand for reliability products. Looking at the balance of the year, we have approximately 6,900 gigawatt hours of Alberta generation hedged at an average price of $64 per megawatt hour, well above the current forward curve of $41 per megawatt hour. Going forward, we'll continue to optimize our fleet and reduce production in low price, high supply hours by fulfilling our financial hedges and customer requirements with open market purchases. For 2027, we currently have approximately 5,500 gigawatt hours hedged and an average price of $65 per megawatt hour. well above current forward pricing levels. As discussed at Investor Day on March 23rd, we continue to expect the anticipated increase in load will rebalance the current oversupply of Generation Alberta later this decade and drive opportunities for growth in the long term. Last month, we announced the addition of two new executives to our leadership team. I'm pleased to welcome Mike Politesky to TransAlta as he takes on the role of Executive Vice President and Chief Financial Officer. Mike brings over 25 years of experience in the energy sector. Over the course of his career, he has played a significant role in large-scale transactions and business transformation and brings deep experience in investor relations, governance, and capital allocation. His established reputation as a strong, collaborative leader will be important as we pursue our strategic objectives. I'm also pleased to welcome Grant Arnold as our Executive Vice President, Growth, and Chief Commercial Officer. Grant brings over 30 years of leadership, commercial, and technical experience in the power generation and energy sector. He has contributed and led prior companies through significant growth, expanding their operating and development portfolios across North America. I'm confident Mike and Grant will strengthen TransAlta's high-caliber leadership team, where together we will execute our strategy focused on discipline growth and operational excellence. I'll now turn the call over to Mike to offer a few words as he steps into the role.