Investor Presentation January 2015 1 1 Forward Looking Statements - - PowerPoint PPT Presentation

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Investor Presentation

January 2015

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Forward Looking Statements

This presentation may contain forward looking statements, including statements regarding the business and anticipated financial performance of TransAlta Corporation in 2014, 2015 and subsequent years. All forward looking statements are based on our beliefs and assumptions based on information available at the time the assumptions were made and on management’s experience and perception of historical trends, current conditions and expected future developments, and other factors deemed appropriate in the circumstances. These statements are not guarantees of our future performance and are subject to a number of risks and uncertainties that may cause actual results to differ materially from those contemplated by the forward looking statements. In particular, this presentation contains forward looking statements pertaining to, among other things: expectations relating to the timing of the completion and commissioning of projects under development and their attendant costs; our estimated spend on growth and sustaining capital and productivity projects; expectations in terms of the cost of operations, capital spend and maintenance; expectations in respect of future electricity prices and the impact of natural gas prices on electricity prices; the impact of certain hedges on future reported earnings and cash flows; expectations related to future earnings, cash flow, gross margin and funds from operations; expectations for demand for electricity in both the short-term and the long-term and the resulting impact on electricity prices; expected impacts of load growth on electricity supply and the development of additional generation; expectations in respect of generation availability, capacity and production; expected financing of our capital expenditures; expected governmental regulatory regimes and legislation and their anticipated impact on us; our trading strategy and the expected results from our trading activities; expectations in respect of the contractedness of our portfolio; and expectations in respect to the global economic environment. Factors that may adversely impact our forward looking statements include risks relating to, among other things: fluctuations in market prices and availability of fuel supplies required to generate electricity and in the price of electricity; the regulatory and political environments in the jurisdictions in which we operate; environmental requirements and changes in, or liabilities under, these requirements; changes in general economic conditions including interest rates; operational risks involving our facilities, including unplanned outages at such facilities; disruptions in the transmission and distribution of electricity; effects of weather; disruptions in the source of fuels, water, or wind required to operate our facilities; natural disasters; the threat of domestic terrorism and cyber-attacks; equipment failure; energy trading risks; industry risk and competition; fluctuations in the value of foreign currencies and foreign political risks; the need for additional financing and fluctuations in interest rates; counterparty credit risk; insurance coverage; reliance on key personnel; labour relations matters; and risks associated with development projects (including TransAlta’s South Hedland project, natural gas pipeline project in Western Australia, and Sundance 7) and acquisitions. The foregoing risk factors, among others, are described in further detail in the Risk Management section of our 2013 annual MD&A and under the heading “Risk Factors” in our 2014 Annual Information Form. Except to the extent required by law, we assume no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. All forward looking statements in this presentation are expressly qualified in their entirety by these cautionary

• statements. For information on our risks please refer to our 2014 Annual Information Form which has been filed on SEDAR and can be accessed at

www.sedar.com. Unless otherwise specified, all dollar amounts are expressed in Canadian dollars. This presentation may contain references to comparable earnings, comparable earnings per share, comparable EBITDA, funds from operations, and funds from operations per share which are not defined under IFRS. Refer to the Non-IFRS financial measures section of TransAlta’s 2013 annual MD&A for an explanation and, where applicable, reconciliations to net earnings attributable to common shareholders and cash flow from operating activities. The presentation may also contain references to gross margin and operating income, which are Additional IFRS measures. Please refer to the Funds from Operations and Free Cash Flow, and Earnings and Other Measures on a Comparable Basis, sections of the MD&A.

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Strategic & Financial Objectives

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Leading Diversified Power Generation Company Proven Track Record Sound Financial and Business Profile Disciplined Growth

• Over 8,500 MW spanning multiple fuels

and markets

• 64 facilities
• ~2,200 MW of renewable energy
• 100 years of operating history
• Disciplined approach to capital allocation
• Highly contracted asset base
• Investment grade credit ratings
• Robust access to capital
• Significant cash flow upside post-PPA
• ~1,800 MWs added over past 5 years
• Located in markets with strong

fundamentals

• TransAlta Renewables and strategic

partnerships to fund growth

TransAlta – Key Messages

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• Canada’s largest publicly traded power

generator & marketer with over 100 years of

• perating experience
• Diversified asset base with 64 facilities

strategically positioned in Canada, Western U.S. and Western Australia

• Total fleet capacity of over 8,500 MWs
• Sponsor and 70% owner of TransAlta

Renewables

• Listed on Toronto and New York stock

exchanges

• Investment grade credit ratings

Our Platform

1Includes 100% of TransAlta Renewables’ assets.

• Coal

4,930 MW

• Gas

1,447 MW

• Wind

1,271 MW1

• Hydro

914 MW1

• Gas Pipeline

270 km

• Energy Marketing

Customer Business

700 MW

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Objectives for driving long-term value for shareholders

Deliver Sustainable Dividend and Maintain Financial Strength

• Attractive and sustainable dividend
• Competitive payout ratio with excess cash flow for growth
• Strong balance sheet and investment grade credit ratings
• Access to multiple sources of capital

Optimize base business

• Re-contract to stabilize cash flows

and extend asset life

• Continuously manage operating and

fuel costs

• Maintain strong availability across the

fleet

• Prudently and rigorously manage

sustaining capital expenditures

• Position the Canadian coal fleet to

capture significant upside post PPA

Invest in profitable growth

• Growth through acquisitions and

greenfield

• Disciplined returns and leverage
• Target markets with strong

fundamentals and growth opportunities

• Focus on gas and renewable

generation – targeting primarily contracted opportunities

Integrated Approach

Positioned For Growth & Value Creation

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• Created TransAlta Renewables Inc. as a competitive growth vehicle
• Acquired 144 MW Wind project in Wyoming
• Sale of CEGen for US$193.5 million, enhancing the balance sheet for growth
• Aligned dividend to the Company’s growth and financial objectives
• Reduced debt by ~$500 million since year end 2013
• Expanding in Western Australia
• Construction of a natural gas pipeline with expected COD date of December 31st

2014

• Reached agreement to build, own and operate a 150 MW combined gas power

station in South Hedland.

Recent Strategic Initiatives

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Disciplined growth with a focus on contracted assets

¹Indicative illustration based on annualized EBITDA contributions. 2013 includes recent acquisition of 144 MW Wyoming Wind assuming full year pro-forma. Does not include natural gas pipeline in Western Australia which will contribute EBITDA beginning in 2015. EBITDA does not include Port Hedland which will commission in early 2017.

2008 2009 2010 2011 2013 2012 2013

694 MW Canadian Hydro 80 MW Kent Hills 123 MW Ardenville / Kent Hills 2 19 MW Bone Creek 225 MW Keephills 3 125 MW Solomon 68 MW New Richmond

2011

132 MW Summerview 2 / Blue Trail

2010

144 MW Wyoming Wind

~ 1,800 MW added in our core markets over 5 years1

150 MW Western Australia Gas Plant and Pipeline

2014

TransAlta’s 5-Year Growth Track Record

$0 $400 2008 2009 2010 2011 2012 2013 Incremental EBITDA $ millions(1)

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TransAlta Renewables

29

megawatts installed generating capacity

1,255

billion total market capitalization

$ 1.3

billion assets

$2.0

renewable power generation facilities

One of the Largest Publicly-Traded Renewable Companies in Canada

29

megawatts installed generating capacity

1,255

billion total market capitalization

$ 1.3

billion assets

$2.0

renewable power generation facilities

29

megawatts installed generating capacity

1,255

billion total market capitalization

$ 1.3

billion assets

$2.0

renewable power generation facilities

Pingston, BC New Richmond, QC Summerview 2, AB Blue Trail, AB Bone Creek, BC Kent Hills, NB Wolfe Island, ON Upper Mamquam, BC

10 10 1,000 2,000 3,000 4,000 5,000 6,000 2015 2016 2017 2018

PPAs Long-term contract Short term contract / Hedges Open Merchant

Total portfolio contractedness

2015 Hedge prices AB ~$50 - $55/MWh PacNW ~$40 - $45/MWh 2016 Hedge prices AB ~$50 - $55/MWh PacNW ~$45 - $50/MWh

MW

Hedges Mitigating Impact of Weaker Power Prices

88% 81% 77% 68%

Contract and hedging strategy underpin stable cashflows Alberta

• Well hedged through 2015
• Hedge levels assume normal

wind and hydro volatility

• Positioned for upside from

mid-term price recovery

Pacific-Northwest

• Puget Sound Energy and other

long-term contracts provide base of between ~280MW and 380MW

• Additional shorter-term hedges

managed dynamically to capture market volatility

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Financial Review & Outlook

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Performance Highlights

3 months ended Sept. 30 2014 9 months ended Sept. 30 2014 (in $CAD millions) 2014 2013 Change 2014 2013 Change Comparable EBITDA $212 $266 $(54) $735 $781 $(46) Funds from Operations $145 $174 $(29) $537 $551 $(14) Free Cash Flow $33 $64 $(31) $191 $235 $(44) Sustaining Capital $84 $93 $(9) $255 $245 $10 Adjusted Availability(1) 92.0% 85.9% 6.3% 89.6% 86.4% 3.2%

Q3 2014 commentary

• Comparable EBITDA decreased over last year primarily due to lower power prices in Alberta

which impacted revenues from our assets in the province

• FFO decreased compared last year primarily due to the decrease in Comparable EBITDA
• Strong availability in the quarter is a result of higher availability at Canadian Coal

(1) Adjusted for economic dispatching at Centralia Thermal

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Strong availability supported by lower unplanned outages

1Adjusted for economic dispatching at Centralia

Fleet Availability

Availability Unplanned Outage Rate Q3 2014 Q3 2013 Q3 2014 Q3 2013

Sundance / Keephills PPA

86.7% 70.2% 11.3% 29.8%

Centralia(1)

96.9% 97.6% 3.1% 2.4%

Other Coal

95.2% 88.4% 3.9% 2.1%

Gas

93.7% 93.1% 4.0% 5.5%

Wind

94.6% 92.9% 3.5% 5.7%

CE Generation

0.00% 91.5% 0.0% 8.2% Fleet 92.0% 85.9% 6.4% 12.5%

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2014 Objectives

Target Status

Financial

• EBITDA: $1,015 - $1,065 million

$735 million year to date Target revised to $1,005 - $1,025 million

• FFO: $743 - $793 million

$537 million year to date Target revised to $735 - $755 million

• Free Cash Flow: $293 - $343 million

$191 million year-to-date Target revised to $270 - $290 million

• Refinance maturities and fund growth

~$1.6 billion in liquidity including cash at end of Q3

• Committed to investment grade credit rating

Recently confirmed by S&P & DBRS Operations & Marketing

• Improve performance of Canadian Coal

Achieved a near ten percentage point increase in year- to-date availability

• Sustaining Capital target range of $335-$365

$255 million spent year to date

• Trading gross margin: $10-$15 million per quarter

On track to deliver $80 - $90 million

• Contracting

Focused on re-contracting: Parkeston, WA and Windsor, ON for 2016 Mississauga, ON for 2018 Growth

• Deliver $40-$60 million in EBITDA

$90 million achieved year-to-date (to be realized over the next three years)

• Achieve 600 MW in Australia

Achieved, including pipeline contribution

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Markets and Growth

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¹Per AESO

Western U.S. Alberta Other Western Australia

• GDP growth of 3 – 4% per year
• 6,000 MW of new generation by

20221

• MWs grow faster than GDP due to

changes in generation mix

• Cogeneration, combined cycle,

hydro, wind, coal to gas conversions

• ~1.4% annual load growth over next

ten years

• California: 15,000 MW by 2020
• WECC: 25,000-30,000 MW by 2020
• Opportunity for gas-fired generation

and renewables (wind/solar)

• GDP growth of 3 – 4% per year
• Mining industry is largest driver of

new opportunities

• Behind the fence operations
• Modest growth opportunities in Eastern

Canada

• ~2% load growth to 2020 in B.C.
• ~2.2% load growth over the next

decade in Sask.

• Acquisition opportunities in other parts
• f Australia and U.S.

Markets where TransAlta is positioned to grow

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Australian Growth Update

South Hedland

• EPC contract in place with IHI Engineering

Australia to construct plant with Jacob’s Engineering providing support as the owner’s engineer

• Relevant work and environmental permits

expected to be received in Q4 of this year

• Teams preparing for site mobilization
• Expected commissioning in the first half of 2017

Australia Natural Gas Pipeline

• Project on schedule and within budget
• Construction underway and proceeding at an

average of 3 km per day

• Completion of the project expected by the end of

Q1 2015

$650 million of committed capital in two projects

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Alberta Interconnected Electric System (AIES) Reserve Margin, 2000 - 20191

1AESO Long Term Adequacy Metrics August 2014

• Alberta continues to see

considerable demand growth due to industrial and mining activities, and their indirect impacts

• Also, significant

retirements in capacity in next 10 years:

• 800 MW of coal

retiring in 2019

• 1,200 to 3,200 MW of

new capacity (above that currently being built) required by 2020

Alberta – Strong Fundamentals

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

Forecast With Generation Projects Under Construction (With Intertie)

Historic Forecast

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Since deregulation, AB Pool prices have averaged $65 / MWh

Historical Power Prices in Alberta

Source: AESO

$71.29 $43.93 $62.99 $54.59 $70.36 $80.79 $66.95 $89.95 $47.81 $50.88 $76.22 $64.32 $80.19 $49.42

$40 $50 $60 $70 $80 $90 $/MWh

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AB forward market is a poor predictor of future spot market settles Forward prices tend to reflect spot fundamentals not future fundamentals

$/MWh

Average annual Alberta power prices compared to historical forward Alberta power prices

Alberta Forward Market

Data: NGX, Alberta Electric System Operator

40 50 60 70 80 90

SMP 2003 fwds 2004 fwds 2005 fwds 2006 fwds 2007 fwds 2008 fwds 2009 fwds 2010 fwds 2011 fwds 2012 fwds 2013 fwds 2014 fwds

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Environmental strategy

• Canadian federal regulations amended in 2012 designate useful life of coal plants as 50 years
• Weighted average life of TransAlta’s Alberta coal fleet is ~17 years
• Flexibility provisions enabling unit substitution and ability to apply years from one closed unit to

another to extend operating life

• Overlapping air emission regulation on SOx and NOx; Alberta government developing an

equivalency agreement with Federal gov’t to deal with air emissions

• As an outcome of forced coal unit retirements, the federal GHG regulations will equal and

eventually exceed the effects of CASA

Plant MW Annual GWh1 Final GHG Regulations Sundance 1 & 2 560 4,170 2019 Sundance 3 368 2,740 2026 Sundance 4 406 3,023 2027 Sundance 5 406 3,023 2028 Sundance 6 401 2,986 2029 Keephills 1 & 2 790 6,046 2029 Sheerness 1 98 1,415 2036 Sheerness 2 98 1,415 2040 Genesee 3 233 1,675 2055 Keephills 3 232 1,675 2061

¹ Based on 85% availability

• 10,000

20,000 30,000 40,000 50,000 60,000 tonnes

NOx Emissions under final GHG Gazette Regs vs. CASA

GHG Legislation NOx emissions NOx under CASA

Timing is the only issue

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Significant increase in cash flows once Alberta legislated PPAs expire

¹Illustrative representation of estimated average EBITDA over period. Actual EBITDA could vary from those shown due to a number of factors

Long-term Upside Potential

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Focused on Creating Value

• Integrated approach to driving long-term shareholder value
• Diversified and highly contracted portfolio
• Attractive and sustainable dividend
• Strong balance sheet and free cash flow
• Well positioned for growth in markets with strong fundamentals
• Significant upside post-PPA